Bankers, politicians, regulators, top officials of the government and the central bank, were all inter-connected, therefore grossly undermining independence and adequate regulation of the banking and financial system. People in positions of power were typically chosen based on their political background and “connections” rather than their economic or financial expertise. Most notable of course was David Oddsson, Iceland’s longest-serving prime minister, who later became governor of the Central Bank. With no economic or financial qualifications, Mr Oddsson was clearly ill-equipped to manage the Central Bank, let alone deal with an economic crisis.

And what did all this mean? There were a bunch of incompetent, corrupt people running the nation, whose primary motivation was to line their own pockets rather than serve the nation.

David Oddsson and the Central Bank pursued a monetary policy targeting inflation, thereby raising interest rates if inflation was above the target and lowering them if inflation was below the target. Whilst such a policy has a sound foundation in economic theory and is often appropriate for large countries, in the case of Iceland, it was disastrous.

From Iris Goeman’s blog & article in Sidney Daily Telegraph

Related posts:

1. A vicious circle
2. Telegraph: David Oddsson, Iceland’s former prime minister and central banker, turns editor
3. Former Iceland bank governor David Oddsson defends role in meltdown
4. The Icelandic Discourse in A Nutshell
5. Iceland names new interim central bank governor