But here we go again…

On the ratings agencies:

To listen to European and US figureheads pour scorn over the credit ratings agencies is quite surreal. The ratings agencies´position in global finance is no coincidence. They are in fact perfectly rational entities enabled by dominant ideology and policy on both sides of the Atlantic, especially in the nations now most vulnerable (US, UK, Italy, Greece, Ireland, Spain, Iceland, Portugal, EU as a whole…etc.).

If you hand over regulatory responsibility to the free market itself then of course you are going to be at the mercy of S&P, Moody´s, Fitch et al.

On politics:

Complaining about a loss of sovereignty is an easy foxhole for populist politicians like Berlusconi and the Tea Party nut-jobs to run into at this moment. The crisis is a result of policies pursued for decades by politicians and policy-influencers since Reagan, Thatcher, Friedman and others bent on dismantling the post WWII Keynesian system. The outcome of the crisis probably depends on whether Western nations pool together on further fiscal and regulatory co-ordination across borders or each go their own way.

On democracy:

The voting public plays a key role in deciding the course and might be completely overwhelmed. Susceptible to populism, extremism, nationalism and isolationism at the best of times, why are voters going with parties which clearly oppose their general interests, such as the Tea Party, Independence Party and the People of Freedom?

The role of new media makes this one hard to predict. How will the public´s perception be shaped? Surveying the major Icelandic media and internet sites you´d be forgiven for thinking that the main issues of our times were a overly hyped outdoor festival in Vestmann Islands, the beginning of the new English Premier League season or whether Icelandic cross-fit athletes should pay taxes.

The public is still living in a bubble. Will it burst?

Monday certainly looks interesting.

Related posts:

1. Fitch, Seriously? Moody’s, No Really?
2. The Worst News Ever
3. Who Was Rating Iceland, How and Why and When?

Beset with accusations of sexual harrasment and fighting to maintain its position within kindergartens and schools, the church suddenly had to justify its existence like probably never before.

I don’t think it is a coincidence after an economic and what many want to call a social crisis.

A lot of the debate has concentrated on economic issues, like the fact that the church draws 6 billion ISK annually from the state coffers, a huge amount by any measure considering that IceSave might eventually cost 50 billion and that the University of Iceland gets somewhere in the region of 10 billion.

Yet, with churches occupying valuable real estate in almost every neigborhood and every town in Iceland, they are mostly empty except for Christmas and Easter.

The economic issue is just a part of a much more important role the church has held onto, of power and influence.

Icelanders are a Christian nation because the King of Norway wanted us to be in the year 1.000. Before then we were heathen and worshipped Odin and Thor. A single Icelander decided that the nation would follow the cultural development in Europe, a reasonable choice given that it would enhance it’s security.  When Northern Europe became protestant, so Iceland followed suit. In one of Europe’s poorest nations, the church and its employers were amongst the most powerful and collected invaluable land and goods in the name of God through donations from its citizens.

In the last few decades, Icelanders have begun waking up from the spell of religion. Better education and social equality has those effects. It has become marginalized, yet held onto what it has by active political participation and propaganda. After more Icelanders begun criticizing the church in the media last year, the spin begun for real. Icelandic priests have now become unusually active bloggers.

The church’s leaders were outraged at the eggs pelted towards the members of Althingi and the priest Halldora J. Thorvardardottir this year. But that is what you have to deal with when you position yourself alongside the power. Something the church everywhere has always done before positioning itself with the people.

I want to claim that organized religion in Iceland plays a big part in the economic and social crisis.

It promotes lack of critical thought from an early age.

It promotes hierarchies and devotion to leaders.

It promotes rewards for blind obedience.

It promotes and maintains fear of power.

It divides people into us and them and seeks to exclude or bully those who don’t conform.

It detracts from science and therefore truth-seeking.

All elements clearly recognizable from the political culture since Iceland became a sovereign nation in 1944.

And elsewhere for that matter.

The attacks on organized religion in Iceland in 2010 were not only understandable.

They were absolutely necessary and long may they continue.

Hopefully without wasting perfectly good eggs.

Related posts:

1. Of Belief and Non-Belief
2. Religilous
3. Organized Crime Takes Root In Iceland

My father has always spoken wistfully of Vilmundur Gylfason, the charismatic young politician who ruffled a thousand feathers in the seventies and early eighties with eloquent criticism of a corrupt elite and society of co-dependency and fear.

A social democrat who criticised the way the political parties traded tit for tat, the lack of checks and balances in the government and rampant corruption in the bureaucracy, Vilmundur was marginalized in the Social Democratic party and founded his own which scored four MP’s in the 1983 election. Shortly thereafter he committed suicide.

So my “why” question to my father who always says he knows everything was “Why did we have to wait thirty years for a second Vilmundur?”

In the meantime, the Independence Party and Progressive Party, who had been on the receiving end of the bulk of Vilmundur’s ire fastened their grip on society. Libertarianism conquered ideas of social democratism and instead of becoming more like Sweden and Finland, Iceland became a haven for robber barons and oligarchs, with a political scene dominated by charismatic leaders. A diet-Russia in many ways.

My father paused for an answer. “Those who were Vilmundur’s biggest rivals happened to be Olafur Ragnar Grimsson, Jon Baldvin Hannibalsson and Steingrimur Hermannsson”. Vilmundur with his reform and democracy oratory did not appeal to the Independence Party voters anyways but those were the men who could maybe have formed an alliance with him, or fought for the same ideals. Instead they followed the populist routes, guaranteed to garner votes, but also to maintain the system where they held whatever reins the Independence Party would allow them.

The power of fear in such a small, nepotist, elitist society is massive. You either play along or are relegated to the fringes. Vilmundur’s brother, noted economist Thorvaldur Gylfason has felt that on his own skin. As one of the few critical public voices in the last ten years, Thorvaldur has had to endure an outrageous smear campaign orchestrated by Hannes Holmsteinn Gissurarson, Bjorn Bjarnason and their fellow members of David Oddson’s group of friends. So too has another professor, Stefan Olafsson whose statistics have not always agreed with the powers that be, showing the concentration of wealth and lowering of taxes in the upper echelons. As he could not be dismantled like the National Economic Institute, Stefan’s name, like Thorvaldur’s has constantly been linked to sinister urges, such as being linked to Baugur somehow.

During a course on the economic collapse held by the University of Iceland this summer, several respected professors balked at the suggestion that they make their power point slides and notes public. When pressed, one explained that the professors had been so burned by forces in society and within the university attacking them with smear campaigns that they feared persecution and lawsuits.

Imagine that. The bulk of what is supposed to be the nation’s best minds covering like little children in the presence of a school-yard bully.

This is relevant when considering that it is now very likely that their fellow professor, Hannes Holmsteinn Gissurarson appears to be spewing venom in the direction of all who dare criticize the Independence Party and David Oddson, as an anonymous opinion editor at AMX.is and having borrowed the identity of a a friend, Skafti Hardarson, constantly blogging on eyjan.is against Thorvaldur Gylfason, Egill Helgason and others who want reform. This website thinks it has uncovered enough similarities in prose to validate what most people already suspect (ironically enough cowardly hiding behind a pseudonym). That a very political pseudo-academic is undermining the University of Iceland’s reputation for political gain.

My uncle told me earlier this year that nothing good would come from raising questions like I have been doing on this blog. He literally warned me that “they would be out to get me and they would get me somehow.” It might be a job interview many years from now, or a loan that I needed, or a business deal, or made up smear or enhancing of vague connections. Imagine the sad life the generations of our parents have had to endure. The boomer generation in Iceland might have had it all as far as wealth goes but at the price of shutting up and turning the blind eyes.

That is why nobody followed Vilmundur in speaking out until finally the dam burst in 2008.

It took a new generation to grow up to do it but for many it is hard to let go. Currently the Church has risen on its hind legs and its disciples are now in the same mode as Hannes Holmsteinn, David Oddson and Bjorn Bjarnason. They find it easy to play victims of evil forces set to destroy them. The Church’s world-view corresponds well with the Independence Party’s. Domination, mission, wealth and hierarchy. A priest complains about not being able to reject the media which has had plenty to criticize the national church for lately.

Fortunately there are now many people speaking out and openly criticizing their society. Thorvaldur Gylfason, Egill Helgason, Lara Hanna Einarsdottir, Gunnar Sigurdsson, Dr. Gunni, AK-72, Jonas Kristjansson, Teitur Atlason, Iris Erlingsdottir, Baldur McQueen, Andri Geir Arinbjarnarson, Finnbogi Vikar, Valgardur Gudjonsson, Sigurbjorg Sigurgeirsdottir, Jon Gnarr, Birgitta Jonsdottir, Benedikt Erlingsson to name a few. They are up against a formidable time machine which would like nothing more than to turn back time. Maybe if Hannes Holmsteinn’s influence over the University of Iceland would be relieved we would see a new wave of academics entering the fray to move the national discourse away from the partisan fox holes.

And the stage could finally be set for the values Vilmundur spoke of thirty years ago.

I myself have written critically now for almost two years. Meanwhile I have learned a lot more about the economic and political forces at play in Iceland. 1.144 posts and you can see the development of this Icelandic psyche from confusion, fear, hope, apathy, despair, anger and finally resignment.

This is where I need to let go for a while. As a mortgage holder and a wage earning member of the public I am now in the position where I have to devote myself to keep my head above water in order not to drown financially or much worse, morally.

I seriously thought in May 2009 when the new left government was voted in that one of their main agendas would be to create financial breathing room for the public.

But now it is clear that the economic disaster has been accompanied with an almighty and maybe a much more serious political disaster. The four old parties got their weapons back way too early. And all guns are pointed at the newcomers like Jon Gnarr and the Movement. IceSave is not resolved, EU membership is held hostage by the fishing elite and eighteenth century nationalists, the fishing reform promised was swept under the carpet and the banks are now turning major profit again while the public is choking on the highest interest rates in the Western hemisphere. Oh, and Young Independence Party members want to privatize Reykjavik Energy. The corpse of the “Icelandic economic miracle” is not even cold and they are already picking the pockets.

I woke up this morning with Ras 2′s morning show on the radio as usual. The whole program was saturated with the anger and resentment gripping Iceland. It might not be all sunshine and roses elsewhere in the world but a dark cloud is hanging over Iceland and there is no consensus amongst the people on how to blow it away.

At the university where I am studying, students doing their masters degrees proudly announce that they just don’t want to read the news anymore. In the media, journalists have no qualms about serving the agendas of Jon Asgeir Johannesson on one side and David Oddson on the other, as long as they get paid enough to pay enough to the banks they’ve already paid enough to keep alive.

People are still waiting in fear for a better society.

One of Iceland’s best critics is Teitur Atlason who last week posted that he was giving up on following the events in order not to lose his sanity. I don’t know him but sent him an email to stop whining and keep on going. We need him. Now I am in his position. Whining about it all. So what am I going to do?

A whole lot to get away from this mess. Because I don’t want to live in a society where people like Vilmundur die away and people like Hannes Holmsteinn get to run the place.

ECONOMICDISASTERAREA.COM WILL RETURN ON JANUARY  3, 2011

Related posts:

1. Who’s Still Listening?
2. How Did Baldur The Bureaucrat Become A Multi-Millionaire?
3. On the society we could have had

Four or five years ago a delegation from Uganda came by Iceland to learn the secrets behind the Icelandic economic miracle, including visits to the banks.

Good luck guys!

Related posts:

1. Ouch, it hurts to watch!
2. All in the family
3. Telegraph: Iceland: what ugly secrets are waiting to be exposed in the meltdown?

These dimensions are:

-          Traditional Military

-          Economic vulnerability and  instability

-          Breakdown of order, no “rule of law”.

-          Social vulnerability and instability, disorder, alienation,

-          Uncontrolled migration, refugeeism, IDPs

These five dimensions are all especially relevant to Icelanders in the wake of the economic disaster of 2008. It can be argued that effects of the crash were especially potent because Iceland had pursued a reckless economic strategy, without having secured proper safeguards by way of international co-operation. The result is a social vulnerability unprecedented in modern times.

Shelter stability

Although there is a broader view to be taken of Iceland’s security concerns, together these dimensions can form a chain of consequences which need to be adressed in Iceland’s current state. Together they can be examined and “packaged” as Shelter Stability concerns. Traditional military and economic security are pillars which need to be protected and upheld in order not to become the causes which consenquate a breakdown of the other three dimensions of order, social instability and migration/internal displacement.

Although a tradtitional domino effect might see the first one in line push the other ones in a straigth line towards a collapse it might be more useful to couple the military and economic concerns together as the possible catalysts for the other three. Military and economic stability enhances the strenght within the others. But if one or both of the former crumble then the others are in danger too. A small nation like Iceland, with a miniscule economy, a tiny currency and militarily dependent upon others is especially vulnerable to shifting winds of change in world politics and the global economy.

Traditional Military

From the early days of the republic, Iceland had been provided with the necessary military support it needed by the United States of America. The US felt its presence was necessary to first counter Nazi and then Cold War threats to its mainland from the North Atlantic. Iceland benefitted handsomely from the arrangement through the presence of the world’s strongest military power as well as the financial assistance provided through the Marshall plan which helped Iceland take a giant step from a third world agricultural society to a modern state in the twentieth century. After the collapse of the Berlin wall in 1989 and the accompanying fall of communism in Eastern Europe and the Soviet States, global security concerns moved away from the North Atlantic to different parts of the world. That point at the end of history as proposed by Francis Fukuyama seemed to signal the beginning of the end of US military presence in Iceland and so it became that in 2006 the last fighter jets departed from Iceland.

Iceland was a founding member of NATO in 1949 and the organization assumed the responsibility of providing the country with the required military security. Iceland now runs the Icelandic Air Defence System (IADS) which is a part of the NATO Integrated Air Defence System (NATINADS). Apart from air policing from NATO, Iceland does not have a direct military presence anymore. What the US had provided though was not only military or economic security but also support on the international stage, as was evident by the Cod Wars between Iceland and the United Kingdom. In turn Iceland would more often than not support the US’s global endeavours, most notoriously as a member of the Coalition of the Willing which supported the US decisison to invade Iraq in 2003. The special relationship between the two nations epitomised tit for tat politics on the international level. When Iceland was no longer militarily important for the US, the extended support on which it could count on evaporated as well.

Although armed conflict is currently constricted to different parts of the world, there is no reason for the country to take the status quo for granted.  The Risk Assessment Report from 2008 does not consider Iceland’s participation in the Coaltion of the Willing to have upped the risk for terrorism, and downplays the possibilities of such acts being carried out on Icelandic soil. Iceland similarly does not have anything but basic contingency plans for WMD attacks within its borders or in the vicinity, and concentrates on suppording the Interntional Atomic Energy Agency (IAEA). But it does touch on the changing nature of global interests, such as possible show of ambition from Russia and in Iceland’s case, especially in the High North. As shipping routes could possibly open due to global warming, the rush to secure interests by larger nations could affect Iceland directly. A possible NATO expansion towards Russian borders could also provoke a harsh response from Moscow.

Economic vulnerability and  instability

In October 2008 an economic crash in Iceland wiped out three of the countries largest banks. The asset depreaciation in Iceland amounted to 280 percent of nominal GDP, being nearly five times larger than the second biggest depreaciation of all times which happened in Indonesia in 1998. Scheduled for an earlier release, the Risk Assessment Report ended up having to be re-written with a massive increase in the emphasis on economic security. The vulnerability of a small state with an open economy is clear throughout the report. “The free transfer of capital and the permission obtained by Icelandic banks to operate branches in other countries within the EEA, enabled them to borrow from other banks and accept savings in foreign currencies and therefore experience a rapid growth. But all supervision was in the hands of domestic entities.”

In 1993 Iceland had joined the European Economic Area  (EEA) to gain access to the markets of Europe. But while opportunites beckoned for Icelandic businesses, economic policy and management proved hard to control. “The Central Bank here was small and weak and so was the state treasury. The state’s finances were admittedly just about free of any foreign debt but interests remained high and caused foreign capital (Glacier Bonds for example) to flow into the country and push the currency up. It lead to a purchasing power which had no base in reality”.

The Icelandic economy would have imploded without the global economic crisis which started with homeowners defaulting on their mortgages in the United States in 2007. As money markets shut their doors and there was no more borrowed money available to support the ill-fated bubble, Iceland’s crisis hit home hard. What then followed caught many Icelanders by surprise. All of a sudden the country appeared to have few friends in the world who were willing and ready to help. The Central Bank sought assistance from Washington but was rejected, and the Nordic countries were surprisingly slow to come to the rescue. Of course everyone was busy dealing with the crisis in their own backyard but Iceland seemed to have no safe haven to turn to, which it had hitherto counted on the US to provide. With its tail behind its legs, Iceland turned towards the International Monetary Fund (IMF), as had been suggested to the Central Bank by the European Central Bank earlier in 2008 and described by US Treasury Secretary Timothy Geithner  as the “kiss of death”.

Then there was the matter of the IceSave accounts which stripped thousands of individuals, charities and municipalities in the UK and the Netherlands of their savings. Landsbankinn’s online savings account had proven popular for offering the highest rates of return but the money was lended out at the other end, usually against collateral of little or no value. The Icelandic government had guaranteed all savings in Icelandic banks but not in their foreign branches on the eve of the economic crash. This and the subsequent failure to conclude an agreement with the Dutch and the British governments has appeared to block Iceland’s assistance from the IMF. Dominique Strauss-Kahn, the managing director of the IMF said on March 30, 2010 that the board needed a majority of votes to approve futher assistance, and he was not sure if it was guaranteed. “I have always said Icesave is not a condition for the IMF, but we need to have a majority in the board. If the Icesave question is solved, I’m sure there will be a majority. If the Icesave question is not totally solved, I don’t know if there’ll be a majority on the board.”

So it is that in the spring of 2010, Iceland finds itself in an economic and military limbo. A small state swimming alone in the sea of international turmoil for the time being. While Iceland is still in the aftershock of the events of 2008, it is interesting to examine the possible effects.

Social unrest

Breakdown of order, no “rule of law”.

Interestingly the Risk Assessment Report does not mention breakdown of order, or the possibility of internal civil unrest. But in January 2009, an angry crowd protested (mostly peacefully) outside Althingi and other official buildings until the government was forced to resign, an unimaginable scenario in Iceland just a few months earlier. Although payment systems withstood the pressure of an economic crash and daily operations of the society were not interrupted, the public faced with great uncertainty showed unexpected volatility and willingess to display hostility towards officials and the government.

It appears as if the business-blocks which controlled the banks were milking them by lending to themselves with little or nothing of worth backing those loans up. This happened with political parties on the watch which had actively sought funding from these very business blocks. One and a half year later, no individuals from the business side or the political side have been charged with wrongdoings or inappropriate behavior. The “broken windows” theory of urban decline states that minor forms of pulic disorder can lead to serious crime and a downward spiral of decay. In matters of urban decay the visual cues are graffiti, public disorder, trash and ill-kept properties which indicate that residents are indifferent to their neighborhood. Applying this to society as a whole, citizens who get the feeling that crime and injustice goes unpunished may become indifferent towards the social order.

Social vulnerability and instability, disorder, alienation,

At a seminar at Bifröst University in February 2010, political science professor Ólafur Þ. Harðarson from the University of Iceland disclosed his findings that 20% of voters polled had participated in demonstrations in the last few years, a very high number in his opinion. His findings also indicate that the public has become slightly more interested in politics, but more disillusioned with the political parties. This indicates an alienation from the democratic process and the political elite. Trust in the parties is at an all time low according to Ólafur and it emphasises the need for reform in the political arena. With increased alienation, social vulnerability rises.

Uncontrolled migration, refugeeism, IDPs

According to Statistics Iceland, the population of the country decreased for the first time since 1889 in the twelwe month period between January 1, 2009 and January 1, 2010, from 319,368 to 317,630 (Statistics Iceland, 2010). For a country which has enjoyed a long streak of increase in its population and an annual average growth of 1,6% in the past five years, this is something of an anomaly and prescriped by most as due to the effects of the economic crisis.

Icelanders are seeking opportunities abroad, in Canada and Norway for example. The benefits of collecting wages in a foreign currency are obvious if your debts are in Icelandic Krona’s which has plummeted more than one hundred percent since 2007. Another benefit is escaping the decrease in social welfare which comes with the large national debt. If scores of able citizens leave the country at a dire moment then the recovery is going to be harder and take longer time. If young people and skilled workers sense that their opportunities are better abroad then the long term social consequences of the economic crash might end up being costlier than anyone dare calculate.

Challenges and solutions

Comparing Iceland’s general approach to security with that of other Nordic countries, professor Alyson Bailes and Þröstur Freyr Gylfason observe what stands out for most observers is the relative detachment of the general population and the dislike for preparedness and planning.

This description perhaps strikes to the heart of the matter on what Icelanders can generally improve to tackle these five dimensions of security? Bailes and Gylfason remarked that Iceland presented an “intriguing arena to “test drive” and further probe the qualities of, the social security concept.” Pointing out the need for reassessment and new approaches to security in the wake of the US military leaving, the authors are concerned with the lackadaisical approach to forward planning in Iceland.

Certainly, Iceland is hardly alone amongst small states in the way that it needs to face its security dilemma in a pro-active way. According to professor Baldur Þórhallson, Iceland was the only small state within Europe that had not secured for itself a political or economic shelter was also first state to fall victim to the economic crisis of 2008. “A small state like Iceland, needs a strong economic shelter provided by powerful neighbors or international organizations to withstand international economic turmoil and protect its interests in the international community.”

Small states like Iceland need a cohesive strategy in its security planning, more even than most others according to Bailes in another paper. So to wrap up the discussion on the five security dimensions are suggestions on five areas where Iceland could begin work to improve its shelter stability outlook.

1) Strengthen the seperation of powers

By neglecting constitutional reform since the beginning of the republic, Icelandic politicians have stood idly by while the executive powers of the government have grown disproportionally against the legislative and judicial branches. The executive branch is traditionally formed by the majority in the legislative branch, and until 2009 it was almost unheard of that all ministers did not occupy a place in both. The executive branch also appoints judges to power positions in the judicial branch and therefore it can be argued that it holds an advantage over both, whereas it can exert pressure on or reward those who owe their postions to towing a party line.

A constitutional assembly scheduled for late 2010 is a step in the right direction and hopefully it will strengthen the seperation, perhaps by making it impossible for individuals to occupy seats in two branches at the same time, and/or holding seperate elections for each branch.

2) Pro-actively seek further international co-operation

“Whereas most other nations have modified their implicit concept of sovereignty to include as an important component the right to participate in international organizations and sit at the table where regional and global decisions are being made, a majority of Icelanders have stuck to an older notion of sovereignty as freedom from outside infl uence—freedom to remain “special” in the ranks of nations.” – Robert Wade, professor at London School of Economics.

So what options are there on the table for Iceland? Firstly a dedicated approach towards European Union membership talks with the goal of full participation. Membership of the EU and participation in the common currency would provide Iceland with a economic shelter  likely to help it withstand storms in global financial markets. According the Thorvald Stoltenberg’s report to the Nordic foreign ministers, Nordic Cooperation on Foreign and Security Policy from 2009 there is a widespread desire within all Nordic countries to strenghten their cooperation on military security, as well as larger cooperation with NATO and the EU. Finland, Sweden and Denmark are all members of the EU, while Norway’s oil fund and NATO membership enables it the financial  and military security to stand outside the union, but with participation the EEA. Iceland’s military security position would be greatly enhanced as a fully fledged participant in a Nordic’s security initiative and as a member of NATO.

Membership in the EU would enhance that dimension further, as well as the economic security dimension. Scholars like Eirikur Bergmann have argued for the enhancement of Iceland’s sovereignty by taking a pro-active approach.

3) Build, support and listen to entities which can produce a full range analysis and outside the box thinking

In the computer industry, hacking contests are a big deal when it comes to developing computer security. Instead of chasing down hackers, they are invited to attack the systems which are being tested, with rewards on offer for those who can find faults which can be exposed. In 2002, the government of David Oddson dismantled the National Economic Institute which had been entrusted with the task of monitoring the national economic climate and performance and performing econimic research with the aim of advising the government and Alþingi in economic affairs. While many of the institute’s tasks were transferred to Statistics Iceland, many bemoaned the absence of a seperate, critical entity when the economic collapse was impending. A resurrection of such an institute would be a good move, as well as the conception of a National Security Institute, focusing on monitoring the security dimensions relevant and irrevelant to Iceland at any given time, thinking outside the box to challenge pre-fixed ideas of security and possible risks.

4) Engage in active and open discussion and debate with non-state actors

Non-government organizations play an important role in providing checks and balances towards government policies, action and inaction. When Richard Thomas, an analyst for Merril Lynch criticized the state of the Icelandic banks and the government’s policy towards them in June 2008, then minister of education, Þorgerður Katrín Gunnarsdóttir questioned his motives in the media and suggested he needed re-educating. This was similar to the response from Icelandic officials and financial institutes when Danish newspapers and analytical institutions criticized the business model of the Icelandic banks. The Icelandic government,and for that matter the Icelandic media needs to be more welcoming towards critical debate and discussion with non-state actors such as foreign and domestic media, financial analysts, academics, charities and organizations. Those actors often operate with a focus and knowledge on certain issues, which can be useful for state actors concerned with a larger picture. A country which takes such discussions seriously can do wonders for its reputation if people get the feeling that the governing body listens to concerns just as well as praise.

5) Emphasis on critical thought and forward planning

Lastly, it is important for a country in need of reform to  enhance the freedom Immanuel Kant emphasised, which is to use reason publicly in all matters. Perhaps the most ambitious but necessary step is to enhance the role of critical thought in Icelandic society. Through the education system, students should be purposefully taught to apply critical thought to matters small and large. It would be more likely to deliver more alert citizens into society and into private and public workplaces. An Icelandic society built upon values which emphasise critical thought would be more likely to learn from its mistakes and prepare for the future.

Related posts:

1. A “Special” Iceland
2. The EU: A soft power with strong capabilities
3. Icelandic Businesses Need A Future Plan

This article by Luigi Zingales explains  very clearly why the financial sector is preventing the government from debt forgiveness (I removed some of the US connotations so that the Icelandic situation could be more easily understood) :

If debt forgiveness benefits both equity and debt holders, why do debt holders not voluntarily agree to it?

·     First of all, there is a coordination problem.

Even if each individual debtholder benefits from a reduction in the face value of debt, she will benefit even more if everybody else cuts the face value of their debt and she does not. Hence, everybody waits for the other to move first, creating obvious delay.

·     Second, from a debt holder point of view, a government bail-out is better.

Thus, any talk of a government bail-out reduces the debt-holders’ incentives to act, making the government bail-out more necessary.

As during the Great Depression and in many debt restructurings, it makes sense in the current contingency to mandate a partial debt forgiveness or a debt-for-equity swap in the financial sector. It has the benefit of being a well-tested strategy in the private sector and it leaves the taxpayers out of the picture.

But if it is so simple, why has no expert mentioned it?

Taxing the many to benefits the few

The major players in the financial sector do not like it. It is much more appealing for the financial industry to be bailed out at taxpayers’ expense than to bear their share of pain. Forcing a debt-for-equity swap or a debt-forgiveness would be no greater a violation of private property rights than a massive bailout, but it faces much stronger political opposition.  But, as financial experts, this silence is also our responsibility. Just as it is difficult to find a doctor willing to testify against another doctor in a malpractice suit, no matter how egregious the case, finance experts in both political parties are too friendly to the industry they study and work in.

Profits are private but losses are socialised?

The decisions that will be made matter not just to the prospects of the economy in the year to come. They will shape the type of capitalism we will live in for the next fifty years. Do we want to live in a system where profits are private, but losses are socialised? Where taxpayer money is used to prop up failed firms? Or do we want to live in a system where people are held responsible for their decisions, where imprudent behavior is penalised and prudent behavior rewarded?

Related posts:

1. The Zingales Plan’s Advantage
2. The Zingales Plan
3. Niall Ferguson on debt cancellation

- Charles P. Kindleberger, The World in Depression 1929-1939

So how about getting out of the foxholes and send a bi-partisan congressional committee to Holland and the UK and actually talk with the leaders of those countries towards an agreeable solution for all.

Just like I would like to be able to go to my bank and find an agreeable solution for us both.

Related posts:

1. The Drunk In The Pond
2. CB Interest Rates: No Change
3. A Disappointing Decision On Interest Rates

I’d be more sanguine about all of this if there were any indications that private, final demand is taking off — consumers, business investment, whatever. But I haven’t seen anything suggesting that sort of thing.

The chances of a relapse into recession seem to be rising.

Paul Krugman in NY Times

Related posts:

1. Jon Danielsson: Krugman Deserves An F
2. Paul Krugman: Saved by big government
3. Paul Krugman: How Did Economists Get It So Wrong?

The Independent

Related posts:

1. A Puzzling Column In The Guardian: Dubai The New Iceland?
2. The Currency Loans Were Legal – The Dark Side Of The Government’s Inept Solutions
3. FT: Willem Buiter On Dubai

From the Guardian

Note: Will the legacy of the political and business elite which ruled Iceland in the past two decades be that the word Iceland becomes synonymous with economic disaster?

Note II: Eirikur Bergmann thinks that life is returning to normal. If normalcy is  a dead housing market, price indexation, higher food prices, higher taxes, less government service, currency depletion, unemployment, corrupt banks, inept government and an almighty rift in society then he is right.

His column though seems to prove the lack of understanding within Icelandic academia on what was really going on in the financial sector before the economic collapse and a lack of understanding in economics in particular. To send the message abroad that everything is returning to normal is insulting to the people of Iceland.

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3. Here We Go Again? – Dubai Shake Round 2 Of World Wide Crisis?