For the past two days I have been struggling to understand how it is that our Central Bank governors are still in office. The fact that they have not been unceremoniously kicked out on their sorry asses [because clearly they are too morally corrupt to make that move themselves] is something I find completely unfathomable and which makes me see RED.
Let us consider a few facts. Earlier this year, two professors from the London School of Economics were commissioned by Landsbanki to prepare a report on the state of the Icelandic banking sector. Their verdict: it was headed for imminent disaster. They came to Iceland and introduced their findings at a symposium, and also spoke to the Icelandic authorities. Those authorities included the Central Bank governors who requested that the information be kept under wraps because it was too “delicate”. The report subsequently went into a drawer, not to be seen again.
Today in Fréttablaðið there is a column written by Þorvaldur Gylfason, a professor of economics at the University of Iceland. The man does not mince his words and has been one of the few voices of reason in Icelandic society since the whole house of cards started to collapse. In today’s column he recounts a meeting at the Central Bank a few years ago, in which he warned that there was a very real danger that the same thing would happen in Iceland as in Thailand in the late 1990s [when their banking system collapsed] – he himself had been in Thailand just before the crash and observed the same trends. To which one of the governors responded haughtily: “Iceland is not Thailand.”
The main lesson to be learned from Thailand, Gylfason writes, is that a Central Bank’s foreign currency reserves must be sufficient to cover the country’s banks’ short-term foreign debts. A reserve must be built up and regulations set to curb the banks’ debt accumulation. Neither was done here in Iceland. The Central Bank ignored repeated warnings over many years that their reserves were insufficient and meanwhile the bankers, blinded by greed and avarice, continued to accumulate debts.
The government, the Central Bank and the Financial Supervisory Authority [FSA] had a responsibility to halt the growth of the Icelandic banks through strict monitoring and regulation – but failed miserably. The Central Bank should have imposed a strong reserve requirement [by which banks are required to keep the same amount in reserve as the total sum of deposits] but the banks asked for an exemption from the requirement which the Central Bank granted. [!!!] The Central Bank’s supervision of the bank’s liquid assets failed completely.
Obviously we are dealing with incompetence of the highest order. And sadly it is not limited to the Central Bank. The government stuck their people into the banks, the most glaring example of which is Kjartan Gunnarsson, one of the pillars of the ruling Independence Party, which represents the old power structures in this country. Gunnarsson sat as deputy chaiman of the Landsbanki board for a full 25 years, until being deposed last week. It was partly through his instigation that Landsbanki – which had been a state bank for over a century and enjoyed solid goodwill and trust both in Iceland and abroad – was sold to Björgólfur Guðmundsson [whom the Brits in the crowd may recognize as the owner of West Ham football club] a few years ago, despite the fact that Guðmundsson had been involved in the bankruptcy of the Hafskip shipping company years before and had been sentenced and incarcerated for his part in that affair.
In Gylfason’s view, an investigation should have been launched last week as soon as the state nationalized Landsbanki, of whether its owners had violated the law and whether their [numerous] assets should be frozen. Landsbanki was repeatedly instructed to open subsidiaries – as opposed to branches – in the UK and The Netherlands, to manage its operations there, including the now-infamous Icesave accounts. Those subsidiaries would have operated under their respective country’s law, like the subsidiaries of Glitnir and Kaupthing did in those countries, and depositors in those banks would therefore have been covered by their country’s compensation scheme. However, Landsbanki shirked those responsibilities, and by so doing made the Icelandic people responsible for paying their massive debts, something I will undoubtedly be doing until I die and which will be passed on to my daughter’s generation.
And where are the former owners of Landsbanki now? Björgólfur Guðmundsson and his son Björgólfur Thór Björgólfsson, the only Icelander to make the Forbes list of the world’s wealthiest people? [ha!] They’ve vanished off the face of the island. Have not been seen since the bank went down. Apparently they’ve been approached to be interviewed but have refused. [The only one of our "tycoons" who has been man enough to be interviewed in front of the nation is Baugur boss and former majority shareholder in Glitnir Jón Ásgeir Jóhannesson, who appeared in Silfur Egils last weekend and kept his cool the entire time, while the talk show host went into conniptions - but that's another story.] Those men who pranced around here like kings with their chests thrust out and chins held high have now scuttled under the nearest rock. Nice to finally meet you, gentlemen.
And in part because of the colossal f*ckups of all those agents, our country is currently blacklisted by banks and creditors, resulting in job losses, imminent food shortages, inability of our people abroad to get money out of the country and other insurmountable difficulties for us the little people. Last week, one of the members of the Central Bank’s board – a woman – resigned, because her conscience would not allow her to carry on. She urged others to follow her example. But the Central Bank governors don’t appear to be going anywhere [except to Russia, to negotiate a loan and sell off our future] and the government is seemingly too impotent to force them to step down.
Is it any wonder so many of us feel overwhelmed by a feeling of helpless rage? As I’ve said before: if we could sack our Central Bank management, we would. BELIEVE IT. In the meantime, we’re forced to watch as corruption eats away at one of our key institutions and our credibility as a nation sinks into the sea.
THE WEATHER TODAY
Gray and miserable. What else? Right now, just past midnight, it’s 6°C [43F]. The sun will come up at 8:22 am and set at 6:03 pm.
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{ 36 comments… read them below or add one }
I have mentioned this before but the following article seems appropriate for the above story:
“‘The devils are enjoying their last days in Hell’ – the billionaire, his blonde wife and friends who helped bring Iceland to the brink”
http://www.dailymail.co.uk/news/article-1076699/The-devils-enjoying-days-Hell–billionaire-blonde-wife-friends-helped-bring-Iceland-brink.html?ITO=1490
Do you think the Icelanders will get revenge in some way on the people who caused all this?
I hope that those bastards get their comeuppance. There must be something that can be done about getting rid of them. I hope someone figures it out and gets everyone else to unite to help make it happen. There must be strength in numbers.
Is theft and fraud a crime in Iceland? Can’t these criminals be incarcerated and their wealth taken from them? A young man in a nearby city just received a 25 year prison sentence for stealing $3000 from a bank saying that he had a knife. The thieves on Wall Street have stolen billions and now our government is giving them more to ease the pain of their investment losses. It has to stop. Those who have profited so greatly need to cover the losses they have caused. If they won’t do it because it is right then they will need help being stripped of their wealth.
As usual, it’s the innocents who get hurt the most. I can only hope that the pain passes quickly. On a positive note, you are a very gifted writer! That will not depreciate.
Alda,
I was wondering about that offer from Russia to provide a $5 billion loan. Is that still going through for sure? There was also talk about approaching the IMF for lending help. I read they have secured some currency swap agreements with Denmark and Norway.
Iceland is awarding offshore drilling licenses for oil exploration off their northeast coast starting in 3 months. Could be a silver lining if it really pans out. Then again, with plunging oil prices and a looming recession, one wonders if some foreign drilling companies could be rethinking their exploration plans.
Hard to believe that Russia itself was an absolute economic basket case 10 years ago because of the spillover of the Asian currency crisis. Now because of the rising oil prices since 1998, their gov’t is currently sitting on over a half trillion dollars worth of foreign currency reserves. One can only hope that Iceland in some way can likewise turn the tide quickly.
I watched the Silfur Egils clip just to see the body language. I think you need to borrow Jeremy Paxman and give him a crash course in Icelandic.
The latest news on the Russian loans seems to be that the IMF wants the Russian loan to be made in cooperation and conjunction with the IMF package. In other words, the IMF (the Americans on behalf of the British) want to block the Russian loan so that IMF can contol the terms of the loan, not the Russians. This crisis looks more and more like a Anglo-American gangland-style “take-down”. The Brits resented the presence of the Iceland banks in their country and so kicked them over (of course they were going to fail eventually, but not right away). The Brits probably knew all along that the majority of the banks assets were in England and there was more than enough money there to collect to pay off English depositors and creditors — if they froze the assets. If the situation had been reversed — if most of the debts were in England the assets elsewhere — I doubt they would have taken the actions that they did. First they are trying to get the Icelandic government to pay the money owed to English depositors and creditors, by strangling them with a credit crisis. If that effort fails, they will next seize more assets in England and sell them. You can pay me now, or pay me later, as they say in the mafia movies.
alda , assume that now you are informed.
this makes me happy.
Now you can have more anger,because you have the measure of incompetence or connivance.
believe are not other alternatives , incompetent or connived.
the words they say politicians should be analyzed with this new awareness.
post scriptum: Now when you hear a politician speak you can shout IDIOT
Knowledge is power … ask the damage to those who clearly has destroyed.
Your analysis lacks the secret final.
it is as simple as absurd,but I lack the time to translate.
you can have an idea about asking “who manufactures the money?” and “what are the rules in order to print money?” Who pays the money? “” how much money you can print? why? ”
I understand that may seem absurd, but broadens the mind to know a higher understanding and unmasks thieves.
good luck
The “fire-sale” continues. Another big loss on investment. Glitnir bank paid 425 million Swedish kr. for their operation there two years ago, now they have sold it for 60 million kr., one-seventh of what they paid for it. Ouch.
Glitnir í Svíþjóð seldur á útsölu
Sænski bankinn HQ hefur keypt Glitni í Svíþjóð fyrir 60 milljónir sænskra króna, jafnvirði 900 milljóna íslenskra króna. Á vef Dagens Industri segir, að um sé að ræða útsöluverð og er haft eftir forstjóra HQ að þetta sé afar gott viðskiptatækifæri. Starfsemi Glitnis Sverige hófst árið 2006 þegar bankinn keypti verðbréfafyrirtækið Fischer Partners. Þá var verðmiðinn 425 milljónir sænskra króna.
When are the next parliamentary elections in Iceland and can we expect a change in the make up of the parliament? Are Icelanders going to keep the old power elites running the country or are they going to finally choose a new direction? I’m just wondering what the political connotations of this are and if Icelanders are going to go the conservative route and sell off their nature and independence or if they’re going to be brave and oust the elites who have caused so much distress for the average Icelander and whom many Icelanders have been dissatisfied with for a long time already.
It almost seems like this entire thing was planned just so companies in the USA and Europe can have free reign on Iceland’s resources without supporting the local population, which is the standard practice of many companies in Africa, South America, Southeast Asia, etc. Now the governments of other countries are going to say “You owe the world a lot of money, so we’re going to set up shop and ruin your environment and you’re not going to get a cent, and once everything is ruined we’ll leave you to the mess we created.”
I really only want to see a solution where Iceland uses its creativity to get out of this situation without losing its independence and without increased damage to the environment. It angers me that the world has chosen to scapegoat Iceland instead of seeing Iceland as an example of what is going on all over the world… Iceland isn’t the only country where the financial system is controlled by elites. Elites control most of the financial system of the entire world, and they have a very different lifestyle and set of values than the average person. It’s that discrepancy which has caused this… the regular people trusted the elites to run things well, the elites only thought of themselves and are sheltered in their rich world anyway so if things go bad they know they will be safe.
I don’t know what the solution is, but all of the aspects need to be analyzed carefully, especially before any big decision is made, such as joining the EU (which I think would bring short-term benefits to Iceland but ultimately long-term detriment).
Is anyone here thinking about visiting Iceland since it costs less these days?
Mikey – great comment – and thanks for the supportive words. I do hope this whole mess will make the Icelanders re-think their choice of leadership … however the problem is that there isn’t a great selection. That’s the sad truth. I didn’t vote for the IP, but the coalition partner (who I did vote for) aren’t exactly stellar either. That said, I do support Birgir’s idea (from the comments in the last post) about holding elections in six months. Maybe someone will rise to the challenge and show heretofore unseen leadership skills. – the next elections aren’t scheduled for another three years or so.
trev london – who Jeremy Paxman?
Dietmar – we’re not sure about the status of the Russian loan. Apparently talks have not resulted in a decision – that’s what we’re being told.
Jon – I believe an investigation is underway to determine whether any criminal activity took place. Meanwhile Björgólfur Thor Björgólfsson was having a jolly time yesterday at an art exhibition in London where Icelanders have an installation.
Andrew – yes, I’ve seen that link – it received a fair bit of publicity here in Iceland. There are a lot of similar stories here … the “tycoons” have fallen fast and hard from their pedestal, believe me.
As I was sitting eating my slátur and hrísgrjónagraut a thought occurred to me. Even if we do manage to pin this on the “few” what sort of punishment would be effective? Then I thought… are the old viking laws still somewhere in existence and can they be enacted – can we rip these guys of there citizenship and send them offshore – never to breath Icelandic air ever again? Anger towards the CB and the Clan of Oddsson needs to be directed to those in a position to topple them (what exactly is it that Doddsson has on Haarde and co??)
Icelander, yes I am trying to plan a visit next month while Icelandair is having a fire sale. Are you? Are you already there? Where are you?
There are still some questions about how to best do it besides getting there but I’m pretty sure I’m going as long as I don’t get stung with much higher final costs because I’ll be alone. I still can’t find anyone here (Canada) that will go with me.
Alda – Jeremy Paxman is a BBC interviewer (usually to be found on Newsnight, BBC2 10:30) who’s nickname is “rottweiler” owing to his incredibly aggressive style of interrogation. Neither Thatcher nor Blair would ever go in front of him. Seeing him savage some of the more pathetic Labour ministers can be quite unnerving – they end up looking like a bowl of slatur (sorry, no Iclandic characters on my keyboard). He has an expression of withering contempt, which I love.
His most famous moment was asking ex Conservative leader Michael Howard the same question 11 times in succession, as Howard was refusing to give a full answer.
“Icelander” – yes, I’d love to come to visit – I’ve been wanting to for ages, and now I can afford it. Do you not think it a little dangerous for we Brits at the moment? I’m a wimp and not a good fighter
It seems as though the managers/directors of the Central Bank are untouchable. There’s no democracy in that.
I regret to see that events are continuing exactly as I expected, unfortunately, the worst is yet to arrive.
When I wrote that the future will be comparable to Argentina, I was optimistic!
I have no desire to humiliate Icelanders, absolutely, my observation is the reality of the next future following simple observations that are free from partisan reviews.
accept the reality, so as to see it for what it is, serves to avoid unnecessary attempts to deny to themselves.
I’m sorry to those who believe that it is preferable to write buttercups of atmospheric temperature and the sex of angels.
the pathetic attempt (though understandable) to invite tourists to visit Iceland, almost as if the only tourism could restore the “status quoante”.
it is possible that your only way out is to ask to join Europe
I do not think other realistic solutions, or want to continue to ask the tourists 4 / 5 billion?
or perhaps for the pride of autonomy is preferable to sell RUSSIA?
but it is perhaps too early for you to get off the luxury wagon that you see being hopelessly in flames.
perhaps we will need to arrive at the edge to see the way out.
but remember: the more you are close to the limit and is more difficult to believe that you are not stupid.
I remain waiting to see what goes on your crossing.
^^ I can’t understand that and I’m English!
:)
en.wikipedia.org/wiki/Seigniorage
Alda, I honestly have nothing profound to add to your post. I just want you to know that I’m reading faithfully. Your rage is justified, and shared.
There will be a protest tomorrow, demanding change at the Central Bank.
More information can be found here:
Nýir Tímar
I think it’s time for us Icelanders to do something and show our anger for once.
I also want to thank you for your blog Alda, it has been very enlightening and useful these past couple of weeks.
trev london – it’s probably been run through google translator. seit4bffeun is a familiar troll, used to go by the name of Luigi.
Cassie – I know. Thank you.
icegrl – yes I know, I heard about it today. I’ll be there.
The UN does not heart Iceland.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aaUmdliYkfY4&refer=home
The hits just keep on coming.
“The hits just keep on coming.”
And so do you. ¡carajo!
@Garpur
You could be right about the IMF. If they resort to them, I wonder what kind of “conditionalities” they will impose. Certainly the IMF wikipedia article section under ‘criticism’ is lengthy enough to give pause. If conditions become too onerous, the best and brightest may just emigrate.
http://en.wikipedia.org/wiki/International_Monetary_Fund
http://www.serendipity.li/hr/imf_and_dollar_system.htm
There was a fellow here in Norway who predicted last year that the bubble was going to burst and nobody listened to him, either.
Your frustration with the lack of (legal) action against those responsible reminds me of what we in Norway call “gutteklubben Grei” (Good Ol’ Boys Club). It is the same men who appear on the board of directors. They all know each other and they all do business with each other and so are completely incapable of monitoring each other. And members of parliament are pals with these guys, so no help there, either. We learned this after one man managed to bankrupt Norway’s oldest and largest property insurance company back in 1992 by using up its resources to buy up Sweden’s oldest and largest property insurance company. I can’t begin to tell you how delusional that is. But he forged ahead, with some unofficial governmental blessing, because nothing appeals to a Norwegian more than besting a Swede. And afterwards, after the headlines in the newspapers and the government takes over as major shareholder to keep the company afloat, it all fades away, and other headlines take its place.
Where are the “culprits” now? Still working. Still networking, if not as publicly or with as much clout. Many have pointed out that financial crimes do not get the persecution and outrage they should get, because people’s livelihoods are important. But it’s just business, y’know?
Oddly, the boat will right itself, Alda, even when it looks like it’s taking in water. When I think back on the nonsense (even my own employer managed to bankrupt itself 20 years ago and was bought by the aforementioned Swedish company), the majority learn and adjust and find a better way to do business. Most businesses want to stay in business.
Funny thing; Björgólfur Thór was at the frieze art festival yesterday, where he visited the klink og bank entry…. K og B have rebuild the interior of the old Sirkus bar there as an art object. Many famous people came to the opening where they drank champagne. Strange how in the almost 5 years that i lived in that bar, i hardly ever saw anyone drink champagne (i don’t think that they even sold it at the time) and i know for sure that Björgólfur Thór ever came to Sirkus. Here is 2 things I do know. the first is that if he showed up at Sirkus today, but in its old location on Klapparstigur, the doorperson would have left him standing in line for a few hours. the second is that, should he finally have made it inside, the young, leftwing clientele of the bar would not have treated him kindly!
I just hope these bastards don’t get away with what they have done. Whether their crimes broke the law or just the moral code of any rational person, we will see.
Things will undoubtedly get worse, but with the customary hard work, creativity and intelligence of the everyday Icelanders the country will once again recover and hold its head high. It will just take a bit of time to get to that point. Hopefully along the way Icelandic society can shed these greedy, moronic elements alongside with these corrupt arses who call themselves politicians. How anyone could take a company, or indeed a country, in to such an outrageous disaster and keep a job is utterly incomprehensible to me.
“If conditions become too onerous, the best and brightest may just emigrate.”
That’s what happened in the Faroes in the early 90s, when they had a severe financial crisis — the young and capable left. Of course, it was an easier transition since they are Danish citizens and fit in easily on the mainland.
This crisis is ten times worse, and appears to have no end in sight. I imagine lots of folks are thinking about leaving. One forum has lots of discussion about that, they are saying that Poland is a nice place. In the last few years lots of Poles came to Iceland and the people here apparently weren’t too nice to them. Now the shoes is on the other foot. How do you say “dog” in Polish?
It may not be the best and the brightest either. More like the worst and most witless. I imagine the unemployed bankers here will want to go to Scandinavia to get jobs. Good luck with resumes reading Glitnir and Kaupthing. If Norway is kind enough to take them in, they should send to Finnmark, where no one wants to live. Let them clean toilets for the Lapps, that would be funny. Also, Norway should pass a law that allows them only to intermarry among themselves so that they don’t spread the Stupidity gene.
“Gray and miserable. ” Indeed, indeed! How do you know – can you see me in a crystal ball or something?
“Obviously we are dealing with incompetence of the highest order. ”
Sure, no dobt about this. However, not to excuse the irresponsible actions of officials and bankers, but what do you expect? Imho it’s very difficult for a nation of 300000 people to find enough highly qualified professionals to man all the important positions. Hell, my home town is a mid sized European city and has more resident than all of Iceland. And still I wouldn’t trust our mayor and his staff to effectively oversight not only one, but several multi billion dollar businesses! In fact, the administration is hard pressed to keep his own finances in reasonable order.
So, your government got in this booming economy way over their head, and reached the level of incompetence ( http://en.wikipedia.org/wiki/Peter_Principle ). And the spreading virus of wishful thinking trumped all reasonable concerns voiced by the small group of clear-sighted critics. Almost nobody wanted the spoilsports to ruin the fun of travelling and shopping on credit cards, I guess.
But now the fun is over and it is high time for a change. And if the people of Iceland manage to enforce changes at the helms of the administration and the banks, this would send a very positive signal to foreign governments. The rest of the world is understandably hesitating to bolster the same leaders now who are responsible for the mess. A new leadership would reinstore confidence and clear the way for international support. And it is possible for the people of Iceland to achieve this. History is full of examples where changes have been enforced under much more difficult circumstances. Yes, you can!
No, all I have to do is read your comments.
Ooh, that hurts! Touché
Sry for ruining your day by posting the miserable truth! Damn, I still can’t accustom myself to the nice habbit of telling sweet little lies.
Well , I refuse to let all the Iceland bashing go on without throwing in my two cents.
I guess Garpur will find a Blog in the USA in a few years , if not sooner , after the next Tsunami from Wall Street collapses the Danish Banks.
The Financial Times had a great article on the global crises on the 4th of Oct. I just wanted to include that here.
I realize that this blog is about Iceland and the situation there , however, it is critical that the BIG picture be maintained since Iceland is now receiving a lot of unfair venom spewing. Sure , the Bankers went nuts and over extended themselves. However , the country was sucker punched , or , hit from behind. Let’s NOT forget that.
I am here in Arizona and I have been disgusted for the past several years over people living way beyond there means all around me. People using their homes as ATM cards and Equity Lines of Credit sucked dry. Credit Cards maxed out and every other $30, 000 millionaire driving a Hummer on 20 inch “Spinner” wheels. The party here in my neck of the woods would make Iceland look like a boring Boy Scout outing.
Things have been very disconnected from fundamentals for many years.
This wave of defaulting home loans that just went due , known as the ARM reset , or adjustable rate mortgages , is just the first Tsunami in this meltdown. We will have ALT- A , or , Liars Loans , resetting by the millions in 2010 and 2011. At that time , I would not be one bit surprised if we will be bailing out Bank of America , which is now “to big to fail” after buying Merryl Lynch and Countrywide . That will be the final bat to the knees . That is when America’s credibility will go into the sea , if it’s not their already. Obama , if elected , and I believe he will be , will have a terrible mess on his hands.
We are SCREWED. Thanks Wall Street. Iceland sank first. Many will follow. It’s just a matter of time.
An Excerpt from FT
“What makes this crisis doubly shocking – if not baffling – for most onlookers is that Iceland does not have any obvious connection to subprime woes. It lies 5,000 miles from places such as Iowa or California, and banks such as Glitnir had little direct exposure to US homeowners.”
http://tinyurl.com/blamegame