There is much talk in the Icelandic media these days over remarks made last week by two high ranking Dutch officials during a hearing by an investigative committee. One is the head of the Dutch National Bank [their central bank], and the other an official with the Dutch Financial Supervisory Authority. During the hearing, both of them claimed that, when they had voiced their concerns over the Icesave accounts, Icelandic officials had lied to them about the status of the Icelandic banks.
Evidently few people in Iceland seem to doubt that their claims are true. However, there has been much speculation over just who lied. Initially, it was to have been the head of the Central Bank here in Iceland [presumably Davíð Oddsson], then there were reports that it had been the heads of the Icelandic Financial Supervisory Authority. No one seems to know exactly who was responsible for conveying the misleading information.
Predictably, Oddsson went on the offensive trying to convince everyone that it wasn’t him – hauling out the old chestnut about how he tried to warn everyone in government about what was imminent months before the collapse but nobody listened. Unfortunately, as pointed out in a Fréttablaðið editorial a couple of days ago, there is no documented evidence that Oddsson’s claims are true. However, there is plenty of evidence pointing to his incompetence – the Central Bank released a report about the supposed stability of the Icelandic banking system just a few months before the collapse, and Oddsson lowered the reserve requirement for Landsbanki at around the same time, to name just two. In other words, Oddsson totally saw the bank collapse coming – two weeks after it happened.
The latest is a Dutch newspaper clipping posted on Egill Helgason’s blog about Dutch National Bank director Nout Wellink’s dealings with his Icelandic compatriot. “He launched into a lengthy speech about the long-term potential of the Icelandic economy, about fresh springs, hot springs, fish and I don’t know what else. And how well the banks were doing,” said Wellink. That was on September 3, 2008. About a week later, that same Icelander told Wellink that, six months earlier, he had been sounding warning bells about the instability of the banking sector.
So, who lied?
{ 15 comments… read them below or add one }
It is laughable that the Dutch or other regulators didn’t know that Icelandic banks were a mess. I knew and I’m not employed by any Central Bank. The FT knew – they were printing stories about the dodgy state of Icelandic banks for quite some time. Many finanical media publications were printing stories on how Icelands economy was a gigantic hedge fund waiting to go pop. It is face saving exercise. Not that I doubt they were lied to, just that they should have know that they were being lied to. I suspect they knew the game was up, but realised they left it too late to take action.
@michael lewis yes perhaps the whole icesave thing was a ploy to grab some cash to stave of disaster,as they knew things were not right and the sucker was going down even before Lehman Brothers blew up.
Even if you suspect someone may be telling a lie, if its a senior government official or a bank director you assume they are not.
(In most other western democracies it would be straight to prison.)
The ‘lie’ was deliberately perpetuated by the people – starting in 2007/8 – so they could relocate assets and money, whilst screwing their compatriots. Many Icelanders were still being asked to invest days before the crash. Tragically, these lies are stilling going on today.
The word was out in the private sector, apparently. The cost of insuring against default by Iceland’s banks had been high, with occasional jumps to being very high.
I say “apparently” because I’ve heard it’s possible to manipulate those prices to make someone look riskier than they are.
I’m convinced that Davið Oddsson did not only lie to his Dutch colleague in the past but he does so to himself all the time – and is apparently one of his strongest believers.
Apart from this, being lied to by Davið Oddsson seems just as normal as snow on Vatnajökull. So, no excuse for somebody, who should have known better.
@joerg yes kind of like britscher princess tony when will the icelanders get there money back ha ha.
It’s a long, tiring and painful process to keep peeling off the layers and layers of lies, but if you stay at it, in spite of denials by the liars, eventually you will reach the final skin and underneath- wow- the truth will be laid bare. I hope that you won’t have to wait until Vatnajokull’s glaciers melt before that happens.
Deja vu too in Greece- the weekend papers reported that many rich Greek business people- guess what?- moved huge sums of money out of Greece before their economic woes hit the press. The Cayman Islands must be doing bumper business these days.
sylvia from viking wirral
I thought the head of the Dutch central bank was fairly clear in the parliamentary committee: the Icelandic regulators had lied to him, and Oddsson had told him he’d warned the government six months before. The most surreal aspect is that a warning of such importance was never written down, just mentioned verbally.
A question that also forms : Is not also the referendum on Icesave a lie?
An outlet for feelings of frustrations for the people on Iceland, giving a channel for their feelings without anything actually getting done , make a stand to the dangerous foreigners who wants to take over Iceland, not facing the responsibly for the actions of elected people (who governed Iceland) so on and so forth
Blaming the ordinary foreign people who put their deposits (and trust) into Icelandic banks?(People on Icelandic banks got their deposits back(!))
i.e a lie
Even in March 2008 there where a lot of articles questioning how safe Icelandic banks were. Such as this one:
“How safe are your savings?”
http://www.channel4.com/news/articles/business_money/how+safe+are+your+savings/1697147
According to this article: “Iceland’s central bank governor says it can afford to guarantee all deposits.”
A lie!?
How many swords are available in Iceland for certain people to fall on?
sylvia from viking wirral
“Even in March 2008 there where a lot of articles questioning how safe Icelandic banks were.”
For a more accurate view, just track the Credit Default Swap rates for Icelandic banks during 2008.
“According to this article: “Iceland’s central bank governor says it can afford to guarantee all deposits.””
He’s right in that Iceland could afford to guarantee all deposits at that time (based on bank assets, etc). That begs the question of what’s the value of a guarantee if the event that causes it to be invoked is the same as the event that revokes it. Imagine an insurance company that said it won’t pay for an insured event because the event occured.
Good article Andrew. You know that Faisal Islam knows his stuff because he accurately divines the meaning of the novation clause in the Kaupthing T&C – i.e. that, at any time, the bank reserves the right to leave the UK FSCS and join the Icelandic TIF.
Even though they removed that clause late September/early October, that was a key contributor to the run on Kaupthing (why take the risk that they might reintroduce it?). At least from what was visible on online forums.
What a coincidence….suddenly two letters from the icelandic ministry of business affairs pop up here in the Netherlands.:
http://media.rtl.nl/media/financien/rtlz/2010/021110ijsland1.pdf
http://media.rtl.nl/media/financien/rtlz/2010/021110ijsland2.pdf
Look at the date of the 2nd letter: 5 october 2008, 2 days before Icesave did go poof…
Ooops…
The links are broken Mark-Jan, but if they’re the ones that I’m thinking of (something like “The Central Bank will support blah blah unlikely event blah blah secure funding blah blah everything a responsible government would do”) they’re not proof of a lie. They’ve also been available since Nov/Dec 2008.
They actually use a lot of words to say “we’ll help, if we can”. In and of itself, not a lie or even an admission that they knew more than they were saying. All you can tell from reading them is that they’d likely considered the possibility that it might become more expensive than they’d be willing to fund, which is why they say “support” and not “guarantee”.