I’m currently riveted to the TV watching a programme on RÚV about the investigative report that came out today.
I’ll write a bit more about it in due course, but just to give an idea of what was revealed today, here are my Tweets that I wrote on Twitter during the press conference this morning. [I realize some of you have already seen them.] Bear in mind that these were typed very quickly while the committee members were speaking.
As I mentioned last post, it’s IMPOSSIBLE to report on everything that is being revealed today. Even though we knew the broad strokes, the real shocking information is in the details.
Anyway, the Tweets. Start at the bottom and work your way up.
*~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~*
# Signing off for now!
#
Q and A session has begun …
#
Nordal describes competition between bank execs – “mine is bigger than yours”.
#
Education and experience within banks was shallow. Lack of deeper insight into banking.
#
More ppl in entertainment committees within banks than in regulatory departments. (!!)
#
“A nation-wide disregard for laws and regulations”. Amen!
#
Up now Salvör Nordal, head of Ethics Institution (Siðferðisstofnun) at U of Iceland
#
Media coverage was dictated by financial institutions. Very difficult for public to form independent opinion.
#
Academic community also failed. Too many linked interests between commercial sector and universities
#
Independent analysis by media was sorely lacking.
#
“Image became more important than reality”.
#
“Social responsibility” of banks was limited to their grants to cultural institutions etc. i.e. image-enhancement.
#
Banks paid high grants to politicians, which reduced their capacity to criticize.
#
Abolishment of National Economic Institute (by Davíd Oddsson) meant there was no independent institution to deal with economy.
#
Events show highly damaging effects of political appointments (e.g. Davíd Oddsson?)
#
Regulatory agencies were too close to financial institutions.
#
Up now is Vilhjálmur Árnason, prof. in philosophy, discussing ethics in connection with collapse.
#
Man, the list of incompetence is endless. Srsly, this is too tragic for words.
#
When questioned by committee about their responsibility, most players replied “it wasn’t my department”.
#
Iceland was virtually isolated internationally by the time the collapse came in Oct 2008. This information is new.
#
Pressure from abroad began in early 2008 to scale down the banking sector. Icelandic authorities did not comply
#
Emergency laws were composed in a couple of days in early October 2008, with NO expert input.
#
No formal action plan existed to respond to the crisis
#
Three Ministers were involved with Icesave, but there was no joint pressure on Landsbanki to move accts into subsidiary
#
The level of incompetence in Icelandic government in lead up to collapse is staggering
#
… but Minister of Banking Affairs was NOT included, nor informed of those meetings!!
#
Endless meetings between government and Central Bank in 2008 …
#
Government focused too much of the IMAGE PROBLEMS of financial institutions, rather than real issues.
#
Páll Hreinsson, head of committee, is now talking about responsibility of government.
#
Banks’ assets were overstated by ISK 7,400 BILLION before collapse.
#
All banks guilty of market manipulation, lent money to buy shares in banks themselves, to raise share prices.
#
Description of desperate actions by banks to help owners in days before collapse.
#
Central Bank issued loans despite expansion in economy and should have raised interest rates 2005 and 2006
#
Boy, Office of Special Investigator sure has his work cut out!!
#
… seems to be alluding to Icesave money having been stashed in tax havents.
#
… committee member emphasizes that “foreign agents” can also mean Icelanders with foreign ID, e.g. in Luxembourg
#
Icesave money coincided with major growth in lending at Landsbanki, mostly to foreign agents …
#
RT @finnsson Davíd Oddsson is mentioned on 256 pages of 2,383 … 10% of pages in report.
#
God, the mismanagement within the banks just BOGGLES the mind.
#
– So far nothing we didn’t already know. But good to have it summarized and encapsulated
#
Money market funds invested mainly in companies linked to bank’s owners.
#
Committee concludes that ALL banks loaned unduly to their main owners.
#
Financial Supvervisory Authority was undermanned and lacked skilled staff. Did not enforce regulations as they could have.
#
Banks grew 20-fold over seven years, mostly on foreign loans
#
committee member going over failure of banks and reasons for it. Outrageous.
#
main reason for collapse of banks was their size and supervision was lacking
#
Committee delivered its findings of suspected criminal activity to Special Investigator yesterday
#
Head of investigation committee giving overview of contents of report
#
It’s Black Report day!
{ 18 comments… read them below or add one }
”
Money market funds invested mainly in companies linked to bank’s owners.
”
Eh? Are you sure about that? If they were advertising money market funds, but mainly investing the money into their own companies, that is just basic fraud. If true, I’m staggered that the regulators didn’t spot it. The US/UK will have regulations, the debt can’t have maturity less than 3months, maximum in one issuer of 5-6% etc… (though much would be sovereign or sovereign wealth fund debt) There can’t be that many Icelandic money market funds and I’m amazed that the Icelandic regulators wouldn’t have spotted that. Either they did: i.e. regulators were complicit in the fraud. Or, they were incompetent – possible, if you had the financial skills, would you have worked for a bank or paid half as much working for a regulator? .. Very strange.
” debt can’t have maturity less than 3months, ” .. that should be ‘greater than 3 months’ … oops, perhaps a job as a regulator beckons…
Thanks for the continued flow of information. The news headlines in the USA are all about the Masters golf tournament, Conan O’Brien signing with cable channel TBS, and the success of the movie “Date Night” this past weekend. Sigh.
Alda, I realise how much you really hate this banking stuff. Therefore a big THANK YOU for covering it anyway.
The Mark Flannery appendix about the downfall of the banks talks about how the banks lent each other money and called it capital, but unless I missed it on a first reading it doesn’t mention the maneuver of including in capital stock purchases made with money loaned by the bank.
He doesn’t resolve, but does address, the question that had been nagging me about whether the banks could have survived if there hadn’t been a panic. His answer is that it’s impossible to tell, but probably not.
He has some fascinating numbers about allowances for loan losses and profitability that should have set off everyone’s alarms as being too good to be true.
Also has some history about the other banking crisis, the one in 2006. That history shows what happens if you don’t respond adequately to a warning. My country should take note.
I chugged through the English version of chapter 21 as I’m doing a dissertation on this very topic. I had always wondered who actually decided not to convert from branch to sub and thus leave Iceland on the hook for the deposit insurance. Step forward Mr. Sigurjón Þ. Árnason…
“It was decided to keep the deposit accounts in a branch, rather than establish a special subsidiary for that purpose or operate these within the subsidiary Heritable Bank. This way it would be easier to transfer funds upstream from the accounts to other parts of the group”
Hhhhhm. Upstream you say? Is this the upstreaming you told the Central Bank you weren’t doing….
“In the hearing before the SIC, Eiríkur Guðnason, Governor of the Central Bank, stated that one of the directors of Landsbanki had told him in late 2007, in the period leading up to the Central Bank amending its rules on reserve requirements regarding deposits into the accounts of the banks abroad, that Landsbanki was not transferring to Iceland the funds accrued to the deposit accounts in the branches abroad. It was not until after the middle of 2008 that it had emerged that these funds were being transferred to Iceland.”
Of course the Central Bank was to blame and not Landsbanki. Why would they believe what a bank director had told them?…
“Sigurjón Þ. Árnason said that he believed that the Governors of the Central Bank should have realised that the funds accrued to the Icesave accounts were being used in part in the bank’s activities in Iceland.”
Still, we all make mistakes. As long as we learn from them….
“It must have come as a surprise that the CEOs of Landsbanki, who had previously discussed transferring the Icesave accounts from a branch to a London subsidiary because of the aforementioned
problems which seemed insurmountable, established at the same time new deposit taking activities in Amsterdam with the same shortcomings, i.e. which were operated through a branch with the associated risk for the Depositors’ and Investors’ Guarantee Fund”
I’ve found that just looking for ‘surprise’ within the pdf seem to bring you straight to all the really silly decisions.
It’s days like this – when you provide moment-to-moment coverage of unfolding events in English – that I really, really appreciate what you do. Then I think to myself “I should send a little donation”.
@Michael
I would go for incompetent.
http://www.fme.is/lisalib/getfile.aspx?itemid=4239
At the height of the boom they decided to do an on site due diligence once every 2 years. When the banks were operating in 20+ countries they had succeeded in making 1 overseas visit.
Thanks Alda. I read the section (in English) about bank branches in England and in the Netherlands. I was impressed by how officials from Landisbanki ignored the rulings that it should move deposits from branches to subsidiaries to shore up depositors insurance guarantees provided by those nations. Right up until it was too late the bank was ‘lawyering’ to oppose moving to subsidiaries and to resist the order to stop new deposits. My intuition tells me that the bank must have known that they could not continue without new deposits because of their bad loans and unrealistic interest rates promised to depositors. We will see if my intuition proves true as more of the Report is translated!
“Banks paid high grants to politicians, which reduced their capacity to criticize.”
- Alda (tweet)
In other words, a bribe?
I noticed where universities were also silent due, uh, ‘grants.’ Or that the public was ill-informed because financial institutions dictated that appearing in the media. Hmm. It all looks like a recipe for some kind of ‘disaster.’
“Eh? Are you sure about that? If they were advertising money market funds, but mainly investing the money into their own companies, that is just basic fraud. ”
The banks were borrowing money and giving it to their owners and personal friends. To keep this scheme going they also gave massive ‘loans’ to politicians, journalists, academics and anyone else who may potentially criticise them. AKA bribes to silence the critics.
To attract further investment they offered higher than normal interest rates and boosted the share prices by buying their own share and fabricating their accounts and asset values.
The correct name for this process is a Ponzi scheme, not banking, and the politicians media and central bank were all active participants in various ways in an organised criminal activity. You have a quarter of the parliamentarians given multi million dollar loans (proportional to their position within parliament) ; that is not normal business practice, its criminal bribery.
Genius (?): is it the absence of more substantive english translations that keeps the international (media) reactions at bay ?
Disingenuous (?): did they transform “salaries” into “permanent loans” thus escaping taxes?
Genius or not, incompetence does not equal innocence, and is not exclusive to criminal intend.
M.
Thanks everyone — especially you, Elín!!
Yes, the report paints a sorry portrait – bribery was RAMPANT and the level of corruption and incompetence beggars belief. We have of course been consistently fed this information over the last 18 months but to see it brought together in one place, summarized like this, is both enlightening and depressing. But like I said on the Facebook page last night, this is a tremendously important milestone for this nation. Really, the effects of the report should not be underestimated.
Is Eirikur Bergmann well-known at all? Would you agree with his view?
http://www.guardian.co.uk/commentisfree/2010/apr/13/iceland-truth-committee-report
How Iceland lost its soul.
The truth committee report damns a testosterone-driven financial sector where caution was dismissed as old-fashioned.
Andrew — I’m a little chuffed I must admit that you should be asking me this question. Thing is, Eiríkur Bergmannn gets his Guardian articles prominently featured in the Icelandic media, whereas when I write mine, nothing happens.
Not sure if it’s because he’s (relatively) well known (by Icelandic standards — it’s not that hard) or because he’s male.
Incidentally, no doubt others would be asking something similar in the Icelandic media — i.e. “who is this Alda?” Foreigners are often surprised to hear that this blog is virtually unknown in Iceland.
As for the subject of his piece — I’m under intense time pressure and just don’t have time to look right now! Perhaps others can help.
“Mistakes were certainly made. The private banks failed, the supervisory system failed, the politics failed, the administration failed, the media failed, and the ideology of an unregulated free market utterly failed,”
Johanna Sigurdardottir
She is wrong on the last point – if we had unregulared free market – why are taxpayers bailing out failed institutions. The problem was with regulators not regulation. There was enough regulation, it simply wasn’t implemented.
Poor spin, by a poor manager.
Somewhat surprised, certainly dismayed. Perhaps you should advertise? If a valuable window into Iceland from without, much here should prove of interest to those on the ground. Like yourself, maybe they grow weary of hearing it. But I have the distinct impression that in need this one of the few sources, anywhere, they could turn to in finding out such things. Something like the Black Report doesn’t come out every day. Moreover many will best understand it by that read here.
Alda,
So grateful for all this information. Thanks a million!