Iceland releases Report on Financial Crisis

Only from the land of the Icelandic sagas could such a story unfold. Homer would be proud to claim this epic tale as his own. Alas, while Greece will have its day, this one belongs to the Vikings.

Yesterday morning, Iceland released its long awaited report on just what happened with its banks. It now turns out the banks’ assets were overstated by ISK 7,400 billion before the collapse (approx US $59 Billion dollars). Iceland's annual GDP is - give or take - roughly US $19 billion.

The report is widely believed to be opening the door for criminal prosecution - but current cynicism in Iceland believes the billionaires are going to get away, making the fishermen pay for the mess. Several sections of the actual report are in English including an English language summary:

Report of the Special Investigation Commission (SIC) - English Skýrsla rannsóknarnefndar Alþingis - Icelandic

Former Prime Minister (1991-2004) Davíð Oddsson, largely responsible for the privatisation of Iceland's banks and the abolishment of the National Economic Institute, fled the country just three days before the report was released. Icelanders don't think that was coincidence.

The report is not kind to former Prime Minister Oddson and holds him significantly responsible. After all, Oddson became the Director of the Central Bank after he was no longer the Prime Minister. Today, Oddson is Editor of one of the largest newspapers in Iceland - also coincidentally defending Oddson who it turns out was an irrational uneducated tyrant to deal with. Belief in his own power consumed him. Doddsson’s tyranny: a casebook study By Alda, 13, 2010

Tryggvi Þór Herbertsson was advisor to [then] Prime Minister Geir H. Haarde. At a private meeting with Davíð Oddsson, Tryggvi Þór expressed doubts about the wisdom of Doddsson’s plan [to nationalize one of the failing the banks, Glitnir]. The report quotes Tryggvi Þór:
I had just begun when he went berserk, said I was undermining his recommendations and said: “The prime minister [Haarde] is sitting out there and shaking like a leaf in the wind and can’t make a decision. He listens to you and you’re undermining this. If this does not go ahead I will personally make your life miserable here in Iceland for the rest of your days.” He also said I should not mess with Össur [Skarphéðinsson, Minister for Foreign Affairs], or he would come after me. He was rabid, to put it mildly, and I was completely taken aback. I responded by saying that we had been comrades for many years and my only thoughts were for the future of our country. At this he calmed down a bit, but I could see that he was fuming.
A few days later, Tryggvi Þór stepped down as advisor to [former prime minister] Geir H. Haarde.

What everyone in Iceland is talking about is that NO ONE is admitting they made a mistake. There's lots of finger pointing going on - even within the press who accepted loans (bribes) and failed to report on what was happening. According to Iceland Weather Report this evening, Mea Non Culpa, Valgerður Sverrisdóttir, who was Minister of Finance and Industry for the Progressive Party at the time when the banks were privatized went on television - and she couldn't say it: "oops, I made a huge mistake."

It was also hard not to cringe when Helgi asked her exactly how Davíð Oddsson had made it known that he wanted the privatization to go his way, and not the way that had originally been agreed. She squirmed in her seat, fumbled with her water glass, tried so hard to maintain her carefully crafted facade. And failed.

There's a mesmerizing summary of the 2300 page report in English at the blog, Economic Disaster Area. The Special Report – Bits & Pieces of April 12, 2010. Some of the details, including the actual naming of names in the report:

-Money market funds invested mainly in holding companies linked to bank’s owners and or their family members

-10 members of Parliament (Althingi) hold loans of over ISK 100 million each (US $1 million)

-30 people owe the banks close to ISK 1,082.1 billion (US $5.2 billion) or roughly 1/3 of the annual GDP of Iceland

-Of those 30 people, the majority are from three business blocks, each with ties to one of three families

Jon Asgeir Johannesson [Glitnir Bank], his family and their companies became too big to fail in a literal sense by owing 700 billion to the banks at the end of 2008. The same could be said of the Bjorgolfurs’ at Landsbankinn [Bank] and Olafur Olafsson at Kaupthing [Bank]. If the banks had called in on any of those then it would have had disastrous consequences.

Loans to just one man, Bjorgolfur Thor, equalled 50% of the equity of Landsbankinn [Bank] In an absolutely hilarious email exchange, the truth about bankers bonuses comes out:

Sigurdur Einarsson, Kaupthing CEO to Magnus Gudmundsson, CEO of Kaupthing Luxembourg:

Sigurdur: Hi Magnus, We did not finalize a bonus for last year. I suggest 1 million Euros. What do you think? Rgrds. Se

Magnus’ reply: Thanks, more than enough Smile.

Additional Reading

The Immediate Aftermath - Iceland Weather Report

Black Report Day - Iceland Weather Report

How Iceland lost its soul by Eirikur Bergmann, Guardian, Tuesday 13 April 2010

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This is excellent reporting. I can't believe that guy "fled the country." No coincidence, that's putting it mildly.

Thanks for the report.

"Furthest from him is best, whom reason hath equaled, force hath made supreme above his equals." Milton

and I have to wonder how those people from the few families getting the lion's share of the loans will get treated by their countrymen? I'd be worried about showing my face as much as their former Prime Minister is.

As a side note... The Volcano God must be punishing Iceland for privatizing,

Thank you!

Pretty much everyone in Iceland already know that the bulk of the problems are the result of about 20 people's actions. The report just puts it in print.

Which is also why they strenuously object to the expectation that they pay for the bad bets of billionaires.

The volcano: it's huge. I'm told last time it erupted it went on and on for two years.