Icelandic Justice and Criminal Bankers

On September 15, 2008, a former Goldman Sachs chairman, US Treasury Secretary Henry Paulsen, deliberately triggered a predictable global financial meltdown when he decided to break precedent and let Lehman Bros, the fourth-largest Wall Street investment bank, go bankrupt. The reasons for his decision are for another time. The fallout from that traumatic financial crisis remains very much with the world financial system to this day, more than seven years later. One of the little-noticed casualties of that Lehman Bros. debacle was the worst banking crisis in the history of one of the world’s smallest countries, Iceland. How that country of 323,000 citizens chose to deal with the crisis is a model for the rest of the world. Instead of beatifying the criminal bankers responsible for worst world financial crisis in history, the people of Iceland did something quite different.

Iceland, a beautiful Nordic island in the far North Atlantic between Greenland and Norway, with active volcanoes, streams with some of the most delicious non-industrial and non-GMO wild salmon, self-sufficient in energy from thermal springs and hydroelectric power, got lured into the mad, greed-driven frenzy of the US sub-prime real estate crisis in a big way. In October 2008, amid the global financial Tsunami triggered by Paulsen’s Lehman act, the Iceland government nationalized the three largest private banks, Glitnir, Landsbanki and Kaupthing, following depositor panic withdrawals. The three banks, in a few short years after they were privatized had managed to amass debts ten times Iceland’s annual DGP.

When a group of sensible US economists proposed Paulsen nationalize the top Wall Street banks behind the crisis–JP Morgan Chase, Citigroup, Bank of America, Goldman Sachs– to restore order and keep credit flowing to the real economy, he replied that would be “socialism. We don’t do that in America.” Instead, Paulsen’s US Treasury used hundreds of billions of US taxpayer dollars to buy non-voting shares of the Wall Street banks, meaning the Government didn’t demand any say in the banks’ policies in return. That might be called bankers’ socialism–privatize the profits and socialize the losses.

By November 2008 the UK and Dutch investors in a now-defunct savings scheme of Landsbanki, Icesave, found their hundreds of millions of Pounds of investments were, indeed, frozen like ice—their savings were frozen ice. When the British government demanded of the Iceland government the repayment of the deposits in the UK branches of the formerly private Landsbanki bank, an international dispute, known as the Icesave dispute, erupted. The British government invoked anti-terrorism legislation against Iceland in order to freeze the UK-based assets of Kaupthing, Iceland’s biggest bank, bankrupting the bank. Iceland’s government turned to the IMF for a $5 billion bailout, the first European country since Italy in 1976 to do so...


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