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Alistair Darling’s reaction … explained?

So, the two Björgólfurs finally broke their silence this weekend.

Morgunblaðið had a three-page interview with Björgólfur Sr. – who as well as being major owner Landsbanki was also Chairman of the Board – under the heading “My Most Difficult Experience.” In this interview he works overtime trying to deflect blame from himself and onto anyone else that it will stick to. It’s outrageous and in my view completely obliterates any goodwill he may have had among the Icelandic people [read: YT].

However, those three pages are comparatively tame in comparison with a snippet of highly interesting information that Björgólfur Jr. has just come out with concerning the Icesave accounts.

In an interview with the news magazine Kompás, set to be broadcast in full this evening, he gives his account of the reason the Icesave accounts were not transferred over to the British authorities.

The way he tells it, the day before the emergency legislation was passed here in Iceland, which allowed the Financial Services Authority to intervene in the operations of all the Icelandic banks, British authorities offered to take over all of Landsbanki’s Icesave accounts. Up to that point the Brits had been reluctant to cooperate with the Icelanders, but there was a complete turnaround on October 5 when they offered to move Icesave out of Icelandic jurisdiction within five days. However, this was on the condition that Landsbanki provided GBP 200 million as a guarantee.

According to Björgólfur Jr., Landsbanki was given until noon the following day to come up with the funds. The bank turned to the Central Bank of Iceland for a loan, against – as he puts it – “the best possible collateral.” In his words, Landsbanki had an adequate amount of liquid funds but they were in Icelandic kronas and the bank needed foreign currency.

However, no one at the Central Bank responded, despite repeated phone calls by the Landsbanki people that morning. At 12.30 that day, the CBI came back to them with a refusal.

This, according to Björgólfur, explains the harsh reaction by Alistair Darling two days later. Darling’s interpretation, presumably, was that since Icelandic authorities had not provided Landsbanki with the guarantee they had no intention of honouring their obligations concerning the Icesave accounts.

Fréttablaðið has sought comments on this from several high-ranking officials here in Iceland, including a CBI governor, the PM, the Minister of Finance, Minister for Foreign Affairs and others, but none have commented save for the Minister of Industry, who remarked that he didn’t recall any of the ministers receiving a request for a loan at the time. However, the Central Bank would have to answer for itself.

A lecturer in economics at Reykjavík University, however, calls this information highly interesting, particularly in view of the fact that the CBI had refused to provide a loan to Glitnir a few days earlier. What he is alluding to is not clear, but personally I wonder whether the CBI refused Landsbanki simply to save face – because they couldn’t admit that not providing Glitnir with a loan had been a mistake. If this is true, it’s yet another startling, grave error made by the Central Bank in this entire disastrous debacle.

FROSTLAND
That’s what we have today – it’s sunny and clear, but cold with a bit of wind. At the moment we have-1°C [30F], sunrise this morning was at
8:56 am and sunset is due for 5:26 pm.

PS. I can’t tell you how much I appreciate the concern so many of you have expressed in the comments or by email. It’s really touching. Thank you. Also, if you have sent me an email in the last 2-3 weeks and I haven’t responded, please accept my apologies … I’ve received so many and a handful have fallen by the wayside as I’ve struggled to keep up. If you haven’t had a response in the last 10 days or so, feel free to write again and I promise I’ll get back to you. Ta.

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  • trev london October 27, 2008, 12:26 pm

    Interesting stuff. I’m sure a lot more will come out in time, which will show it’s not as straightforward as it appears. I’m not clever enough to use html tags, but copy and paste this

    http://www.guardian.co.uk/commentisfree/2008/oct/25/iceland-creditcrunch

    No revelations, but an interestingly different slant from an Icelander.

  • Chris October 27, 2008, 12:26 pm

    This would be a real shame, if this is true. And should give another time more than enough reason, to send DOddsson to hell (and the government also). When are the next elections?

  • KK October 27, 2008, 1:15 pm

    I think the Icelandic government just dodged a bullet, nice work…

    Could it be possible that the UK gov. just wanted more money to freeze?

    What is really missing is the resoning from UK government, untill we get it everyone will just be guessing why they did what they did…

    When we get their reasons we will find out who the fools are, Icelandic gov or UK gov.

    or maybe both…

  • RH October 27, 2008, 2:15 pm

    Hi Alda

    I need a Masters degree to understand your blogs these days, although perhaps that’s where everything went wrong in the first place. If the cleaners in the worlds banks had been allowed to run them, then perhaps we all wouldn’t be in such deep sh*t!

  • trev london October 27, 2008, 2:24 pm

    Interesting stuff. As time goes on, more will out and the picture will become clearer.
    I tried a link previously which obviously make it through the filter, but google “guardian geir rafnsson” and open the first link. No relevations, but interestingly different view from an Icelander.

  • Alda October 27, 2008, 4:18 pm

    Chris, alas, they are not for another three years. Hoping they’ll be called sooner, though. I DEFINITELY think they should be.

    KK – I agree, it would be good to hear the UK gov’t’s side. Until then, all is speculation.

    RH – so sorry for the cryptic posts – I guess only those who are closely following these events are fully able to understand. However, these are such significant matters in Iceland these days that it’s hard not to blog about them. Sadly, I don’t think things will return to the way they were a few weeks ago anytime soon. 🙁

    trev – thanks for the tip. I’ll take a look when I have a bit of time.

  • KK October 27, 2008, 5:06 pm

    I don´t know this “Geir Rafnsson”

    But he is no lobger Icelandic – lol…

    I think most Icelanders are torn between anger towards the Icelandic government and the UK government.

    Icelandic for lack of foresight and bad judgment when the crisis hit us.

    UK for terrible judgment an unfairness

    I always knew that only a handfull of people really deserved to be in the Icelandic government, som actually have been great during this crisis fx. Geir Haarde and Jóhanna Sigurðardóttir, the rest have been running around in circles.

    The UK government hasn´t taken the time to check out the situation in Iceland and they never did, they just freezed the stuff to do something while attending to their own disaster, the same tsunami that hit Iceland has been getting stronger and is heading for the UK it seems these days…

    But I found this, very “strange”…

    http://www.theyworkforyou.com/lords/?id=2008-10-21a.1048.6&s=landsbanki#g1053.4

    What are they trying to do, my english isn´t good enaugh, it feels like they are trying to cover something up…

  • KK October 27, 2008, 5:37 pm

    http://www.theyworkforyou.com/debates/?id=2008-10-08b.277.0&s=kaupthing#g277.1

    “I shall now deal with the various points that Mr. Osborne raised, beginning with Iceland. This afternoon, we will publish further details about how the Financial Services Compensation Scheme intends to proceed. I have to tell the House that getting information out of Iceland is proving to be quite difficult. That country obviously has severe difficulties, and that is why I decided that I had to intervene. It would have been quite wrong to say to people covered by the Icelandic scheme, “Sorry, you’ve got to go to Reykjavik and try to get your money there.” That is especially true when it is not clear to me whether the Icelandic scheme can be funded. So we have taken steps to freeze the assets of the bank involved, and I hope that we will be able to recover some of those assets in order to offset the money that we will have to provide to help people in the meantime.”

    This is why he froze Landsbankinn!?.. What more informtion could he need, he had a conversation with our finance minister the day before…

    This guy is /&&%$%…. sorry…

  • KK October 27, 2008, 5:38 pm

    That is especially true when it is not clear to me whether the Icelandic scheme can be funded…

    His hearing is as good as GB eyesight…

  • trev london October 27, 2008, 5:46 pm

    What’s your point KK? It’s blindingly obvious the scheme could not be funded, no matter what kind words of intention were forthcoming from Iceland. And as well we know, those words were at best inconclusive. There was not, and is not that cash to support the guarantee, and it was only the liquidation of assets that could.

  • KK October 27, 2008, 5:55 pm

    Trev

    http://mbl.is/media/44/1044.pdf

    The Icelandic government said from the very beginning it would back up the fund.

    The Icelandic government didn´t owe a dime, only the commercial banks. (they were not nationalized – volanteered administration (I think it´s called)).

    p.s. read the letter the Icelandic government sent 5. oct.

    No, not regular mail but through the embassy to be delivered ASAP…

    So now we know that reading and listening are both problems in the HMT…

  • Andrea October 27, 2008, 7:29 pm

    Thank you KK for the link but it doesn’t clear anything up at all. While the statement concerning the Ice save Landsbanki accounts seems to indicate the situation is awaiting clarity from Iceland and the UK government will, in the meantime, though not obliged to, cover depositors. Where it gets really suspiciously murky to me is the statement the next paragraph down:
    “Those actions demonstrate my strong commitment to protect UK retail depositors in these exceptional times. ” Do “those actions” refer to the bank bailout in general described throughout, or to the Icelandic situation in particular (as it seems to but is not clear, being in a different paragraph). If the Icelandic situation, then retail depositors are not covered by insurance, only personal savers. This would seem he was requiring a greater guarantee than actually was in place which would wrong and holding iceland assets to ransom. If not, and this statement is just about the bailout, then he mainly seems to be saying that the UK will guarantee depositors and sort it out later themselves. To that end they have frozen that bank’s assets.
    However,it seems to me he froze also other assets other than just Landsbanki’s. I believe he froze assets of other Icelandic banks too – so this statement is rather meaningless if trying to get to the bottom of what the UK actually intended/intends.

  • Andrea October 27, 2008, 7:37 pm

    I would like to add a correction to my comment. Much further down. Darling clarifies that he means by retail depositors: “… the retail depositors—the ordinary men and women who put in their money, and might not have fully appreciated that Icesave is a branch of a foreign bank and not incorporated in the UK. I understand the position of local authorities, but they are in a slightly different situation, in that they are a more informed investor.”

  • Birgir October 27, 2008, 9:28 pm

    Sæl Alda

    A recent trip to some European capitals has left me ashamed to be Icelandic. Here’s the reality.

    One: Before travel I could only change 50.000kr into Euros. This worked out as about 335 Euros for a five night trip. I had to show my bank (yup, the same one that crashed a couple of weeks ago) my air ticket before they released the cash.

    Two: In Amsterdam I tried to pay a hotel bill with my Icelandic credit card. It was refused.

    Three: Several Dutch colleaugues (actually customers) chipped in some cash to get me to London for some more meetings.

    Four: At a Dutch restaurant I tried to use my Icelandic credit card. It was refused. Other diners overhead it was Icelandic. They weren’t rude but it was the sniggering and giggling that was unpleasant to hear — still if that’s the worst we get …

    Five: At a meeting in London I had a long conversation with a guy whose mother had money in Icesave. Still no idea when or if she’ll be paid. I was surprised how pleasant he was though he did give me a little lecture about how she’d been persuaded by the president of Iceland that it was safe to invest. I had no idea that our pres was acting as some kind of super salesman in England.

    Six: I was treated with the usual courtesy by the Brits. This despite the papers there being full of the Icelandic banks stories. They’re also laughing at us over the ‘Icelanders are terrorists’ campaign by the way. Everyone in Britain knows we’re not. It’s our banks that are criminal.

    Seven: A customer put me up at his home for two days and gave me the train fair to Heathrow to get home! The customer said he had a small sum saved in Icesave. It seems a lot of UK businesses with Icelandic connections opened Icesave accounts. Again, our president’s sales technique was mentioned.

    Eight: I’ve no idea whether my Icelandic credit card works in England. I didn’t bother trying, I was too ashamed.

    Nine: I arrive home to find we’re running out of Prins Polo.

    Birgir

  • Marc October 27, 2008, 9:49 pm

    Reading all of the above, it seems to me that the owners of Landesbanki are indeed trying to deflect blame from themselves. They are acting as if their customers would have been made whole if only the icelandic central bank would have accepted their collateral for a modest loan of 200 million GBP.

    1. It is quite outrageous to imply that a private business somehow has a right to a loan from the central bank.
    2. If the collateral was that good and the intentions were so honest, surely Landesbanki could have gotten a loan from any institution? I hear no mention of all the other possibilities they (should have) explored.
    3. If the UK government had made such an offer, there would most likely have been more strings attached than 200 million. Also, the short timeframe might reflect a last attempt of the UK government to salvage a desperate situation, but it is unlikely that this would have been their first move concerning Landesbanki.

    You have a right to know who did what when and what all the actions were taken by whom. Just fragments of the picture are just trying to manipulate you.

  • KK October 27, 2008, 10:20 pm

    I agree with Marc.

    Everybody can feel there is something thats not being told by both governments.

    As I saw things in the midst of the tsunami, eye of the storm. It looked like Icelandic government was going to merge foreign affairs of Glitnir and Landsbanki with Kaupthing to make one big bank abroad and keep th domestic part under government control, even maybe ownership for some time.

    Tht plan went out of the window the moment UK´s FSA decided decided these banks were in default, used special provicions act 2008 to move acconts from KSF to IMG, and anti- terrorism act 2001 to freeze Heritables and Icesaves assets.

    I just want to know why they said the banks had defaulted.

    Icesave probably because the website was shut down.
    Heritable ???
    KSF ???
    Kaupthing EDGE (did they close their website)???.

    I´ve read all the laws, I understand how they work. I just need the reasoning to make it click in my head…

    There is a big piece missing in this puzzle.

  • alda October 27, 2008, 10:40 pm

    Birgir – the story you relate is indeed shocking, but what bothers me the most is that you bought into the shame that seems to have been inflicted on you. We each have a choice about how we respond to various circumstances – and it seems to me that you chose to feel ashamed.

    Marc – a lot more info has just come to light this evening, after the airing of the Kompás programme I referred to in my post. In response to your list: 1. No it is not, when it is a bank and when it goes to its country’s central bank for an emergency loan. That is the role of the CB – to protect the banks, i.e. its depositors, and avert situations like the one we have seen here in Iceland. 2. they had less than 24 hours and with the takeover of Glitnir a week earlier, the authorities had effectively flushed Iceland’s credit rating down the toilet 3. yes, it was a last, desperate attempt by the UK gov’t, if you believe the interview with B.Jr. this evening. They had been setting very strict conditions, until that very last day, when everything kicked into action, on a Sunday, with the British Central Bank Governor at the helm. There would have had to be political intervention.

    KK – The pieces are all falling into place in this complex puzzle – and they
    are fascinating!

  • Andrew October 28, 2008, 3:39 am

    If the Central Bank board does not resign, who has the power to remove them? The PM? Parliament?

  • Andrew October 28, 2008, 4:12 am

    There’s an interesting article by Bjork in today’s Times:

    http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/article5026175.ece

  • sirry October 28, 2008, 7:22 am

    I watched the Kompas interview tonight. Funny enough both parties, Bjoggi and Kristinn the reporter are old classmates of mine. At separate times. Bjoggi for 6 years, and Kristinn for 2 yrs.
    And funny enough Kristinn and I went to Russia in 1989 when I believe Bjoggi was about to, or had just bought his Russian brewery. Weird to see how small this world is.

    It’s sad how Bj.Sr and Jr are pushing the blame solely onto others. I’m not surprised. They’ll continue the finger pointing like everyone else. I on the other hand, believe EVERYONE has some blame in this. I do think Bj.Jr could have handled the Icesave issue differently and he should have been smart enough to have some sort of a plan, in case of emergency, which obviously he didn’t. I guess he likes to play a high risk game all the time.
    This is the second time Bj.Sr. has brought a company to its knees. I wonder, didn’t he learn anything from Hafskip?

    I have friends coming to visit NYC, a trip that was planned and paid for a long time ago. I now see myself having to lend them much of my savings to be able to enjoy the city a bit as currency is being rationed in Iceland. That too I’m finding to be absolutely strange.
    I’ve already given my friends heads up, not to advertise our nationality, just to avoid uncomfortable discussion. I’m so tired of hearing from strangers in the US that Iceland is bankrupt.

  • Marc October 28, 2008, 10:13 am

    Alda,

    I don’t want to start an economic discussion because neither of us is an economist and I think it is besides the point of your website. Maybe you can understand my reasoning better if I explain it a little. For point 1.

    A central bank is indeed the bank of banks and one of its duties is to protect the individual savers by providing oversight. Over time Iceland’s central bank has let the banks take on more and more risk. You could say they defaulted on their oversight duty. They are not alone, it was a widely shared philosophy that the financial sector was best served by self-regulation. You can reproach them for that (and indeed you should), but this error is nothing compared to the next one. As the size of the Icelandic banks grew, any observer could see that they were too big for the central bank to save. You could compare it to you getting a car insurance with your local insurer. That works, because not all cars it insures are going to crash at the same time. If you on the other hand buy a supertanker and turn to that local insurer because he is offering low rates (read little oversight) then you know effectively that you are running an uninsured operation. And the insurer should realise this just the same. This is where it gets interesting: an insurer then would try to limit its liability by reinsuring the risk (read: request some sort of assistance of other central banks) and by limiting its liability (read: imposing risk-averse behaviour, requiring higher capital reserves, making a viking-like enterprise a non-starter). Instead when the bets went sour, your government and central bank decided to bet Icelands economy on a favourable outcome.
    On point 2.
    Rating agencies are famously ‘behind the curve’, meaning that they downgrade (or upgrade) ratings only (long) after an effective deterioration of the conditions has already taken place. That is why many are now pointing fingers at the credit rating agencies, how could you rate such & such AAA when this and that was going on? They are like a burocracy, working slowly, but eventually it always comes. What I am saying is that these changed ratings were coming a long time (rating agencies DO talk to the businesses they rate, the businesses even pay them a handsome amount for their work). Not preparing for it is … (well you can fill that one in).

  • alda October 28, 2008, 10:24 am

    Sirry – can you elaborate on how you think EVERYONE contributed to the situation?

    Fréttablaðið has a good editorial today (as it does most days, these days) which partly discusses this penchant people have of saying EVERYONE took part. However, there was a group of people who, when they earned a bit more money, took it to the bank and asked for advice on how to invest it. That includes YT. Those savings are now frozen and nobody knows when they will be released or what will be left of them when they are. I’ve already cited the examples that I live in an apartment that is effectively too small for us, and drive an old car. How do you think I, for example, contributed to the situation?

  • Marc October 28, 2008, 10:52 am

    Indications are that the first FX rate the central bank is going to set is going to be too ambitious (again). They just boosted the funds rate to 18%. Bloomberg makes a snotty cynical comment (prone to failure).

    http://www.bloomberg.com/apps/news?pid=20601087&sid=ay61s1zV3NCA&refer=home

  • Marc October 28, 2008, 11:16 am

    Trading resumed at 240 ISK to the €. Any comments?

  • trev london October 28, 2008, 12:42 pm

    Even at that rate, 101 Hotel still works out at £140 a night for one person! We’re trying to book a weekend away 21/11 but it’s full every weekend to Christmas so things can’t be that bad….

  • alda October 28, 2008, 12:49 pm

    Trev – what happened to Budapest, then? 😉

  • Andrew October 28, 2008, 1:07 pm

    18% interest rate is just terrible! That will affect ordinary people very badly.

  • KK October 28, 2008, 1:53 pm

    Trev.

    It´ all just foreign press covering “The Crisis”

    The humor these days is “Icelanders do everything best and boldest, even rescessions”.

    It is a joke about how we always ALWAYS think we are extraordinary good at evrything…

    Thats why we love when people take us as fools… …we act like fools because its more fun whn things are good and probably because we like it more when things are taugh.

    I´ not kidding, I don´ know how many times I´e heard through these past days sentences like ” ahh… now it´ back to the old days, only few packets under the tree at christmas, and the children finally get what they want, attention and time with their parents” + ” I´l probably enjoy christmas more this year, I wont have to work and the race to find the best gift would be missing the point of christmas”

    The same people last year said to me “we spent probably arround 600.000 kr. for presents, not including people within our household (closest family)” then they laughed and said, we gave each other a trip to every capital in Scandinavia, one every month until august…

    up and down, over and through, back again, the joke´s on you.

    Easy comes easy goes

    Dont worry be happy

    All appropriate fraces these days…

  • Penn October 28, 2008, 3:42 pm

    Actually, the Central Bank didn’t provide the loan because the Central Bank has no money. This is only my conjecture. But soon enough you’ll see how true it is. Your government has no money whatever. Your country is doomed unless the government is elbowed into the Pacific and the people stand up and demand a reprieve from the private debt wracked up by your oligarchy. Yes, Iceland has an oligarchy. I’m so tired of hearing about its electric cars, electronic music and liberal mindset. Iceland is oligarchical. The government is corrupt and impotent.

    That said, I noticed that PM Haarde has gotten his hair-dyed a nice shade of black. His sideburns are still a little grey, but it’s still a great look.

  • Penn October 28, 2008, 3:50 pm

    Elbowed into the Pacific? I should’ve said, “…until your government is elbowed into the Atlantic.” Though the Pacific would do.

  • KK October 28, 2008, 4:26 pm

    http://afp.google.com/article/ALeqM5jfbqBy6T5NXA8cQoEqn6cKjiVnJw

    Looks like Iceland and the Uk have the same credit rating…???

    I´m not sure it´s right but when reading this article I could easily understand it that way…

  • KK October 28, 2008, 4:41 pm

    Penn

    Price and money is … not everything..

    We have loads of stuff, we are somewhat weel prepared for a rescession.

    Technology – check
    Cheap energy – check
    Pure water- check
    Cheap heating- check
    Fish- check
    Lamb- check
    Beef- check
    Chicken- check
    Veggies- check

    This is what we have to get by… not dependent on currency issues.

    Oil/Petrol – nope
    Luxuries – nope
    Coffee – nope
    Coke – nope (the water though)
    Metals – nope (only aluminium)

    We should quit NATO at this moment.

    I cant belive no NATO nation has declared support to Iceland after what UK called us.

    The freezing order states:

    Freezing prohibitions
    4.—(1) The provisions of this article apply in relation to the following funds (“frozen funds”)—

    (a) funds owned, held or controlled by Landsbanki; and
    (b) funds relating to Landsbanki and owned, held or controlled by—
    (i) any of the Authorities; or
    (ii) the Government of Iceland.

    Looks like we are supporting terrorists…

    This just blows my mind.

    I suggest all Icelandic dictionaries should be changed.

    The word “Hryðjuverkamaður” should be used instead of “Breti” from now on… …wouldn´t that be polite?

    The word also keeps its other meaning.

    We could also use “gröftur” insted of “Breti” but that is considered rude…

  • KK October 28, 2008, 5:11 pm

    WOW…

    3. The recently introduced Anti-Terrorism, Crime and Security Act 2001 provides:

    police powers to seize terrorist cash anywhere in the UK
    and
    police powers to freeze funds at the outset of investigation
    police powers to monitor accounts which may be used to facilitate terrorism
    tougher obligations on people to report suspicions that funds are destined for terrorism

    http://www.hm-treasury.gov.uk/5077.htm

    This site explains a lot…

    I feel so much angrier…

  • Sirry October 28, 2008, 6:20 pm

    Alda I’m sorry I should have been more specific in my thoughts on who is EVERYONE.
    In my mind, I was thinking politicians, especially the ministers and DOddson is hugely responsible. I also think that the rich business men that were taking loans all over the world, such as both the Bjorgolfur and Baugsmenn. Basically all those that were making huge investments in Europe.
    I’m definitely not thinking that the ‘average’ Icelander, or the lay people are Everyone.
    Sorry I should have been more specific. Everyone with great financial power in Iceland.

  • hildigunnur October 28, 2008, 6:34 pm

    Agree with Sirry, every one of those finger-pointing b…ards is responsible, however much they try to clear themselves. The Central Bank and government most, though, as they didn’t heed the loads of warnings they were given.

  • alda October 28, 2008, 6:48 pm

    Sirry, Hildigunnur – good, we’re all in agreement, then. 🙂

  • KK October 28, 2008, 11:57 pm

    http://www.trading-safely.com/

    I had to find this out, the newspapers didn´t say what credit rating Iceland had, only “that it was downgraded the same way as the UK´s”

    This site http://www.trading-safely.com/

    Say both are “A1” so if downgraded the same way = both “A2”.

    So Iceland in midst of freefall has the same credit as the UK.

    I think it´s funny…