Lessons from Iceland

New Left Review

Volumn , Issue 65, 2010, Pages 5-29

  Wade, Robert ^a   Sigurgeirsdottir, Silla ^a  

^a NONE

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EID: 78149245485     PISSN: 00286060     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (40)

1. Geir Haarde, speech to the 2008 annual meeting of the Central Bank of Iceland, quoted in the report of the Special Investigation Commission, Causes and the run up to the collapse of the Icelandic banks in 2008, vol. 1, ch. 5, sec. 3, Reykjavik 2010, p. 216;
2. henceforth, sic Report. This 9-volume, 8kg report is an invaluable source of information, though one has to read between the lines to sense the John le Carré aspects of the story. The government has declined to undertake an English translation beyond an executive summary.
3. Quoted in Andrew Haldane, 'Why banks failed the stress test', 9 February 2009, available on the Bank of England website. Haldane is the Bank's Executive Director for Financial Stability.
4. Gunnar Karlsson, Iceland's 1100 Years, London 2000.
5. Örnólfur Árnason, Á slód Kolkrabbans; Hverjir eiga Ísland? [In the Realm of the Octopus: Who Owns Iceland?], Reykjavík 1991;
6. Gudmundur Magnússon, Eimskip frá upphafi til nútíma: Saga Eimskipafélags Íslands [Eimskip from the Start to the Present: The History of Eimskipafélag Islands], Reykjavík 1998.
7. The Locomotive group functioned as a 'shadow elite' in the sense used by Janine Wedel in Shadow Elite, New York 2009
8. An unintended consequence of liberalizing Iceland's 'insider system' in the 1990s was the emergence of a third capitalist group, outside the Octopus and Locomotive cliques. This included self-made businessmen, who had exploited opportunities in post-communist Russia, and supermarket millionaires, who had managed to bypass the Octopus wholesalers. (Supermarket retailing was an excellent cash cow, because the owners received cash on sale but did not pay suppliers for 90 days.) Oddsson and the Independence Party bosses were outraged when these newcomers failed to respect 'the rules'-Jón Ásgeir, the leading figure of the insurgents, insisting that if he had to contribute money to the Independence Party he would contribute equal amounts to its rivals. Oddsson and his henchmen publicly disparaged the Ásgeirs as 'the barrow boys', referring to their non-establishment origins. Much of his time as Prime Minister was spent plotting how to bring them down. For details-and for a riveting narrative account of the whole Icelandic saga-see Roger Boyes, Meltdown Iceland, London 2009.
9. sic Report, vol. 1, ch. 4, sec. 3, pp. 97-129.
10. Stefán Ólafsson and Arnaldur S. Kristjánsson, 'Income Inequality in a Bubble Economy: The Case of Iceland 1992-2008', Luxembourg Incomes Study Conference paper, June 2010.
11. Parties in the other Nordic countries do not accept funds from corporations.
12. sic Report, vol. 2, Ch.8, sec. 11.2, p. 200, Table 23. One hundred million krónur was more than six times the average household debt at the time.
13. Oddsson had discussed this idea in an interview a few years earlier: see 'Iceland warms to offshore banking', Financial Times, 7 April 1998.
14. See Hannes Gissurarson, 'Miracle on Iceland', Wall Street Journal, 29 January 2004;
15. and Icelandic Chamber of Commerce, Vidskiptathing Íslands 2015, February 2006, p. 22.
16. Willem Buiter and Anne Sibert, 'The Icelandic banking crisis and what to do about it', Centre for Economic Policy Research, October 2008.
17. imf, Staff Report: Iceland, 13 July 2006. The internal version was more critical, but Prime Minister Haarde and the Finance Minister insisted it be toned down, and the imf complied. Thus the internal draft described Icelandic banks' balance sheets as growing 'at a staggering pace'; the published version merely 'a remarkable pace'.
18. Danske Bank, 'Iceland: Geyser Crisis', 2006.
19. Frederic Mishkin and Tryggvi Herbertsson, 'Financial Stability in Iceland', Reykjavik 2006.
20. Mishkin was paid a fee of $135,000 for this 35-page report. After September 2008 the paper appeared on Mishkin's cv as 'Financial Instability in Iceland'. Questioned about the title change by documentary film-maker Charles Ferguson, Mishkin dismissed it as a typographical error. See Ferguson's Inside Job, 2010, and 'Mishkin resigns: a look back', Wall Street Journal, 28 May 2008.
21. Richard Portes and Fridrik Baldursson, 'The Internationalization of Iceland's Financial Sector', Reykjavik 2007. Portes's fee for the 65-page report was l58,000: sic, v. 8, Annex III, p. 3.
22. The quotes, recorded in 2006 and 2007 respectively, are from Gunnar Sigurdsson's excellent 2010 film about the Icelandic crisis, Maybe I Should Have.
23. Arthur Laffer, 'Overheating is not dangerous', Morgunbladid, 17 November 2007.
24. The 2007 ip-sda coalition agreement states: 'The transformation of the Icelandic economy in recent years involves amongst other things increased emphasis on provision of various international services, such as financial services. The government aims to ensure that such services continue to grow here in Iceland and expand into new areas in other markets'. Quoted in sic Report, vol. 1, ch. 5, sec. 5.2, p. 210. Electoral data from Economic Intelligence Unit, 'Iceland: Country Profile 2008'.
25. sic Report, vol. 6, pp. 69-245.
26. Anne Sibert, 'Love letters from Iceland: accountability of the Eurosystem', Voxeu, 18 May 2010. The Central Bank of Luxembourg menacingly requested the Central Bank of Iceland to remove a link to Sibert's paper from its website.
27. From the summer of 2005 onwards, Wade gave several public talks in Iceland, warning about the build-up of financial fragility and drawing parallels with the run-up to the East Asian crisis of 1997-98; he was consistently greeted with polite dismissal. See 'Iceland pays the price for financial excess', Financial Times, 2 July 2008, and the letter in response from Richard Portes and Fridrik Baldursson, which began, 'Robert Wade gets Iceland very wrong': Financial Times, 4 July 2008.
28. SIC Report, vol. 1, pp. 223-4.
29. In a final bid to keep the show on the road, Kaupthing announced with great fanfare that a member of the Qatari royal family had bought a 5 per cent stake in the bank, signalling international confidence; it turned out subsequently that the prince had put up no money of his own-Kaupthing had lent it to him, through a third party.
30. The currency peg has been strangely neglected in the investigation of Iceland's collapse. The mix of panic, ignorance and tactics behind it is not clear. The Governor told the media that he had secured a loan from the Russian Central Bank (big enough, implicitly though not explicitly, to secure the peg); but almost immediately there came an angry Russian denial. The tactic may have involved more than just the opportunity for friends to get their money out of the króna. Senior figures may also have calculated that bringing down Kaupthing, the one bank that looked as if it might survive, would be sweet revenge on the principle of 'If my bank has gone down, yours is coming down too'. At a dinner during the 2007 imf Annual Meeting in Washington dc, it is known that Oddsson jabbed his finger at Kaupthing's Chairman and said that, if the bank started to denominate its transactions in euros, 'I will take you down'. The currency peg allowed an outflood from Kaupthing, still linked to the Centre Party and rival big men. Landsbanki, with close ties to the Central Bank Governor and the Independence Party, had collapsed just before the peg was introduced. These are murky waters.
31. Jon Danielsson and Gylfi Zoega, 'The collapse of a country', Risk Research, 12 March 2009.
32. International Monetary Fund, Iceland: Request for Stand-By Arrangement, 25 November 2008. By happy coincidence, the imf economist appointed to head the office in Reykjavik was Geir Haarde's room-mate at Brandeis in the 1970s.
33. The citizens' protest movement demanded that an experienced anti-corruption campaigner, the Norwegian-French Eva Joly, be offered a position as Advisor to the Special Prosecutor. For several months after her appointment in March 2009 Joly was not allocated an office and had to work out of her hotel room.
34. Oddsson was finally forced to resign as Central Bank Governor in February 2009, after angry demonstrations outside the Central Bank building, and the passage of legislation abolishing the current governorships and requiring future incumbents to possess experience of finance and at least a master's degree in economics.
35. A second tranche of the imf loan was released in November 2009. The release of a third tranche in April 2010 is said to have been at the insistence of Beijing, against the wishes of London and Amsterdam. On Sino-Icelandic relations see Wade, 'A warmer Arctic needs shipping rules', Financial Times, 16 January 2008.
36. New negotiations with Britain and the Netherlands began in the summer of 2010, but at the time of writing the issue remains unresolved.
37. 'Rowland family open new bank', Daily Telegraph, 13 July 2009.
38. Thorvalder Gylfason, 'From Boom to Bust: the Iceland Story', in Gylfason et al., eds, Nordics in Global Crisis, Helsinki 2010, p. 158.
39. See William Black, The Best Way to Rob a Bank is to Own One, Austin, tx 2005; the quote is from a public lecture by Black at the University of Iceland, 3 May 2010.
40. sic Report, vol. 5, p. 241, table 4. It should be noted that the eea depositguarantee scheme only covers up to the equivalent of 3m krónur.