Links provide access to full documents over at Wikileaks:

September 30, 2008

Under the agreement, the Government will
purchase 75 percent of Glitnir at roughly $878 million.  This is the
first significant government intervention in the Icelandic economy
during the recent crisis and comes after a week of harsh criticism
for perceived inaction -- in particular, for not managing to include
Iceland in the 24 September exchange agreement between the U.S.
Federal Reserve and the central banks of the other Nordic countries
and Australia. 

October 8, 2008

Sturla Palsson, Director for International Affairs and Markets
at the Icelandic Central Bank told EconOff that the 4 billion Euro
loan offered by the Russians is 95 percent certain to happen.
October 8, 2010
The Icelandic economic crisis continues with no end
in sight.  The possibility of a Russian loan bailout as well as
concerns voiced by some American bankers raise the question of
whether greater USG involvement in the crisis is merited.

The U.S. has strategic interests in the high north and a
sturdy security relationship with post-Keflavik Iceland that both
sides have labored to develop.  Today the Embassy urged senior reps
in the PM's office and elsewhere to at least explore what
confidence-building cooperation (other than the credit swaps the Fed
turned down) may be possible to develop.  We doubt that it would be
in the interest of the U.S. or NATO for the Icelanders to be beholden
to Russia, however "friendly" the loan terms may be. 
October 9, 2008
The Russian loan is still part of Iceland's plan.  Prime
Minister Haarde said last night that the loans from the IMF and
Russia "are not mutually exclusive" though the government had not
asked IMF for a standby loan or an economic program.  He repeated
that statement in a press conference today.  Questions about the
influence the loan might give Russia continue to be met by assertions
that finances and foreign policy can and will be kept separate. 

6. (C) Minister of Finance Arni Mathiesen travels to Washington
tonight for World Bank meetings.  Post persuaded the Minister to
agree to meet with senior Treasury officials while in the U.S.
Mathiesen will meet with Treasury A/S Clay Lowery on October 10.  We
would hope this meeting will help the Icelanders think their way
through the present crisis and move from a stopgap reactive approach
to a durable comprehensive plan.  It should also make clear to them
how the U.S. can and cannot be of assistance and point them in the
direction of other options.
October 10, 2008
Two Icelandic bankers met with Econoff today to emphasize that
the Icelandic authorities have chosen the wrong path out of this
crisis and appealed for Washington to provide guidance to the GOI.
The bankers shared a graph that showed of the 11 billion euro
Landsbanki debt, 31 percent belonged to the U.S. and Canada.  They
emphasized that Landsbanki had the smallest foreign debt of the three
banks in Iceland and that American investors will lose billions.
They outlined a plan emphasizing the importance of bringing the
creditors to the table, getting the IMF involved and finding a
resolution through a multilateral approach.  They stressed the need
for the U.S. to become involved both to encourage the Icelandic
authorities to "be rational and swallow their pride" and for the U.S.
to build consensus within the IMF to allow Iceland access to the
supplemental reserve facility such as Korea, Turkey and Russia have
used in the past.  They believe that the IMF stamp of approval will
help bring creditors to the table and what is needed the most is a
coordinated multilateral approach.
October 20, 2008
Sturla Palsson, Director of International Affairs and Markets
at the Icelandic Central Bank and leader of the recent Icelandic
delegation to Moscow to negotiate a 4 billion Euro loan from Russia,
told Econoff that the Russian loan was still very much on the table
and that both sides are keeping in telephone and email contact.
Palsson said the two sides might meet possibly this week, and thought
that the loan could be finalized by Friday.  He said before the
Icelandic delegation left for Moscow, they had been told by the
Russian Ambassador to Iceland that the Russian Prime Minister had
signed off on the loan.  The discussions in Moscow centered around
details such as whether the money would be given as a bond or loan,
and what the maturity dates would be, etc.  The loan would be coming
from the Russian Development Agency.  Palsson said that Iceland is
considering IMF assistance and that initially the Russians had been
against Iceland involving the IMF "because of the Russians' own
negative experience with the IMF in 1997." 
Comment: Icelanders are aware that a loan from the Russians
may have implications.  The fact that they are proceeding anyway is
an indication of the seriousness of the financial situation here.
October 30, 2008
SUBJECT: ICELAND'S REQUEST FOR A LOAN:  WHAT'S IN IT FOR US
1.(C) The brutally sudden collapse of the Icelandic banking system
earlier this month threatens severe economic hardship for the
citizens of this import-dependent economy.  The government has
reached a tentative agreement with the IMF for a USD 2.1 billion
loan, but must raise an additional USD 4 billion from other sources
to conclude the arrangement.  They have asked us to join what they
hope will be a consortium of lending countries by providing USD 1
billion.  Despite the obvious hurdles - Iceland's status as a
developed European economy, the extent of its need, our own limited
resources - this request deserves the most careful consideration: we
have long-term national interests in the North Atlantic that a
negative response would jeopardize.  These include: 

2.(C)Iceland's strategic importance to U.S. security.  Iceland has
hosted an important American military outpost since World War II.
During the years before we redeployed our forces in 2006, the U.S.
poured a quarter of a billion dollars annually into our base at
Keflavik.  We turned the base over to Iceland's custody in September
2006, handing over responsibility to Iceland as NATO host nation for
maintaining the airport and long-range radar installations on behalf
of the alliance.  In the subsequent two years, the Icelanders have
provided outstanding support to two large multination NATO exercises,
two U.S. naval visits, and several deployments of NATO air policing.
French, Norwegian, and U.S. fighters have shadowed Russian bombers
and fighter planes from Keflavik.  Because the Icelandic government
has maintained the facilities at top-notch operational standards, the
base is immediately usable should circumstances warrant.  A nation
crushed by economic depression cannot be the self-sufficient partner
we have spent decades and huge amounts of U.S. taxpayer dollars to
develop. 

3.(C)A well-positioned friend in the High North.  If the U.S. doesn't
help out Iceland when it is flattened by the worst financial crisis
in its history, we shouldn't expect the country to see it our way
when we ask - as we undoubtedly will -- for cooperation in furthering
our own security and economic aims in this increasingly vital region. 
 The NATO conference that Iceland is hosting to discuss High North
issues this coming January underlines the uncertain implications of
the environmental changes occurring in Iceland's North Atlantic
neighborhood.  The melting Arctic ice means new trade routes and
increased competition for gas, petroleum, and other resources.  The
Russians - who are discussing a loan with the Icelanders - have
already signaled their interest in exploring and exploiting Iceland's
potential undersea oil and gas fields.  The Chinese - whom the
Icelanders are also approaching for a loan - will be big users of the
new sea lanes. Iceland may be small but it is valuable real estate in
a region that will only become more important to our economic welfare
and our national security.  We want a firm friend and a stable ally. 

4. (C) Clean energy partner and economic investment. Iceland is a
world leader in renewable energy and stands to play a significant
role in U.S. efforts to become energy independent.  They have
know-how and enterprise and their experience in harnessing
geo-thermal energy is second to none.  American firms are
capitalizing on Iceland's abundant clean energy and technical
expertise by investing close to USD 4 billion in the aluminum sector
here.  We want Iceland to be in a position to attract foreign
investment and continue to develop its energy sector outreach.  A
bankrupt economy would set our partnership back for years just when
we need Iceland's technical skills and entrepreneurial drive most. 

5.(C) Iceland is reaching out with increasing desperation to any
available source of help as it confronts one of the most trying
crises in its history. Assistance from the U.S. at this crucial time
would be a prudent investment in our own national security and
economic well being.  The Icelanders take fierce pride in their
flawless history of paying back their debt. Whatever the financial
turmoil and uncertainty of the moment, it's a good bet that this
economy of highly-educated, imaginative, and sophisticated people
will take off again.  And when it does, and when the competition in
the High North really gets underway, it may be more important than we
can yet suppose to have the Icelanders remember us as the kind of
friend who stands by in fair weather and foul. 

November 10, 2008
1.  (C/NF) Summary:  Public support for Iceland's government has
fallen below 50 percent in the wake of the financial crisis here, and
cracks are beginning to widen between the two coalition parties as
weekly demonstrations grow in size and fervor.  PM Haarde's
Independence Party (IP) has taken the brunt of criticism for the
failed economy, while Foreign Minister Gisladottir's Social
Democratic Alliance is polling higher than its election results last
year.  In the short term, a lack of viable (i.e., pro-EU) partners
and Gisladottir's good relationship with Haarde will likely keep the
FM from breaking up the coalition in the hope of new elections.
However, Gisladottir has said publicly she is pushing within the
cabinet for Iceland to explore EU membership, and polls show a
majority of the public agree with her.  Securing a $6 billion package
of IMF and bilateral financing will buy the government some time, but
if Haarde cannot convince his party to go along with exploring EU
membership we could see early elections called for the first time
since the 1960s.  Some form of reshuffle is almost inevitable,
however -- Haarde will not be able to answer the growing pro-EU group
in his party without lots of blood on the floor and the rousting of
several old IP chieftans (including the Minister of Justice and
Central Bank Chairman David Oddsson).  End Summary. 

2.  (SBU) Following the economic disaster of October and the collapse
of the country's banking sector, the government continues to take a
beating in the polls.  Public support for the government fell to 46
percent by the end of October, down 30 points from the beginning of
the year.  While support for the Social Democratic Alliance (the
junior coalition partner) has held steady or increased slightly,
Prime Minister Haarde's Independence Party (IP) has been hammered.
The IP, after nearly two continuous decades as Iceland's largest
political party, is now third behind the SDA and the opposition
Left-Greens, pulling only 22 percent in the polls.  The opposition
parties and a growing portion of the electorate are now calling for
elections before the current term ends in 2011.  A poll at the end of
October showed 60 percent support for early elections, and the
Chairman of the Left-Greens showed up at the Embassy's Election Night
event gleefully working the room with that encouraging datum.
Demonstrations calling for -- among other things -- a new government
continue to grow, with the latest protest on November 8 drawing over
3000 participants. 

3.  (C) That the public blames the IP specifically for the economic
crisis is no coincidence -- the Prime Minister and Minister of
Finance are both from the party, and the IP's 2007 campaign was based
on the notion that only the Independence Party could be counted on to
maintain Iceland's then-world-beating prosperity and quality of life. 
 More significantly, many domestic and international observers blame
former PM and Grand Old Man of the Independence Party David Oddsson
for Iceland's stunning loss of credibility in the financial world.
Oddsson has served as the highly controversial Chairman of the
Central Bank since 2005.  He made a number of ill-considered
statements to the media early in the crisis, and many suspect it was
at least partially due to his wounded pride that Iceland did not
immediately seek IMF assistance.  Haarde's apparent inability to
"control" or remove his predecessor as IP Chair has led many to blame
the Independence Party for the continuing economic bad news. 

4.  (C/NF) Indeed, Haarde missed a key opportunity to gain political
support by not replacing Oddsson early in the crisis.  Even among IP
stalwarts, Oddsson's standing has never been lower, with the party's
younger, more business-oriented members asserting to Emboffs and
journalists that it was time for Oddsson --rabidly anti-EU membership
for Iceland -- to finally exit the stage.  Only Haarde has the
authority to replace the Central Bank Chair, and speculation around
town is that the PM has not pulled the trigger thus far out of a deep
sense of personal loyalty to his old mentor.  The result is that
demonstrators now excoriate Haarde as well as Oddsson, the initial
target of public ire.  While Oddsson remains in the picture, it will
be almost impossible for Haarde to start his party and his country
moving towards the EU. 

5.  (C) Other IP members, however, are proving much more open to EU
membership, and are finding support from those who previously stayed
out of the debate.  IP Vice Chair and Minister of Education
Thorgerdur Katrin Gunnarsdottir, though cautioning that she was not
making any sort of leadership challenge, said in a highly publicized
late October interview that the her party had always pledged to take
the most pragmatic stand on EU membership in terms of what was best
for Iceland's interests.  Given that both the global and domestic
economic situation has changed so dramatically in recent months,
Gunnarsdottir continued, it is only logical that the IP reexamine its
stand.  Bjarni Benediktsson, Chair of the Althingi Foreign Affairs
Committee, quickly echoed this argument.  PolOff has heard separately
from IP sources that Benediktsson sees the party's old guard as
standing in the way of not only serious consideration of EU
membership for Iceland, but also Benediktsson's personal ambitions of
a cabinet post. 

6.  (C/NF) Foreign Minister Gisladottir's Social Democratic Alliance
(SDA), however, has become increasingly strident in its calls for
serious exploration of EU membership as well as the dismissal of
Central Bank Chair Oddsson.  Gisladottir said in a press interview
that she is pressing Haarde for a new policy on the EU, and other SDA
ministers have been equally active on this front.  However, to our
knowledge, she has not made the leap to a push for early elections,
though her party would be likely to benefit.  There may be a
practical explanation here, as Gisladottir's recovery from brain
surgery in September has kept her away from work for much of the
tumultuous fall.  Some here also credit her personal relationship
with the Prime Minister as a brake on a move to change the coalition.
 The two party heads have developed an unexpectedly close and
collaborative working relationship and clearly both like and respect
each other. Gisladottir may view Haarde as a useful ally in the
future should she be able to convince him to reexamine the EU
question. 

7.  (C/NF) Most probable, however, is the explanation that
Gisladottir simply does not see a viable alternative to the IP as a
coalition partner at the moment.  The Progressive Party -- Iceland's
only other pro-EU party -- has seen only marginal gains over the last
month, and would in all likelihood still be too small to form a
two-party coalition with the SDA.  The Liberal Party is even smaller,
leaving only the Left-Green Movement.  Although the Left-Greens have
polled significantly higher of late, they still do not endorse EU
membership for Iceland.  Gisladottir seems unwilling to go into
coalition with yet another party that is against joining the EU.
However, as with the IP, the Left-Greens are locked in an internal
struggle over their EU policy; the party's Vice Chair told PolOff
over the summer that she was sympathetic to the growing pro-EU wing
of the party and that she expected a reevaluation of the party's EU
policy by the end of 2008.  This dynamic may be what FM Gisladottir
meant in an interview when she said early elections would be a
distraction to the government now, "but then a new year is coming,
and people will have to assess the situation then." 

COMMENT
------- 

¶8.  (C/NF) In the short term, the Icelandic Government desperately
needs to finalize the $6 billion loan package with the IMF and other
bilateral donors.  If the IMF loan fails to come through, the
government will lose what little remaining credibility it has on the
economic front and may very well find it impossible to stay on.
Despite the protests and the speculation around town, however, we
note that there is little tradition here of disgraced politicians or
governments -- even those convicted of crimes -- resigning from their
posts.  Early elections have not been invoked since the 1960s, and
then only because a three-party coalition dissolved and no
replacement could be created.  No-confidence votes are virtually
unheard of. 

9.  (C/NF) If the IMF loan comes through, a likely scenario is that
after the new year SDA Chair Gisladottir and a group led by IP Vice
Chair Gunnarsdottir present the Prime Minister with their own
ultimatums, both calling for a serious look at EU membership, and
explicitly (SDA) or implicitly (IP) calling for Oddsson's removal.
In any event, a cabinet reshuffle -- either to give the SDA more
power over economic policymaking, to sweep out the IP old guard, or
both -- seems inevitable once the fate of the IMF loan is clear.

Related posts:

1. Situation in Iceland – The Fourfold Dilemma
2. Ross Beaty’s Perilous Situation
3. The Icelandic Situation Now

Coalition government party leaders Geir Haarde and Ingibjorg Solrun Gisladottir,  minister of commerce Bjorgvin G. Sigurdsson and finance minister Arni Matthiesen were deemed to have held back information and failed to act on the impending collapse of the Icelandic banking system in 2008.

Amazingly, the four parties had tied the knots in such a way that ministers do not need to answer for any action performed more than three years ago. Which means that David Oddson, Halldor Asgrimsson, Valgerdur Sverrisdottir and Finnur Ingolfsson will not need to worry.

And the four parties did not disappoint in showing where their allegiances lie, with each other and not the nation.

Sorry that is a cliche, the nation continues to vote for these parties and these people so it is basically getting what it wants.

Althingi does not think for example that the privatization of the banks calls for further investigation. But it did leave room for some cringeworthy comments on it needing to re-examine its processes and introduce more professionalism. Atli Gislason, the head of the committee which delivered the report even called for the “restoration of Althingi’s respect”.

And then Thorgerdur Katrin Gunnarssdottir, former minister of education who thought Richard Thomas of Merrill Lynch should be re-educated in 2008 for suggesting Iceland was in trouble, who was relieved of a 900 million ISK bullet loan with her husband, a former Kaupthing executive took her seat back after a self-imposed deliberation on her position. No, the GOP does not rule Iceland’s Althingi but it just as well might.

Predictably the spin-machine got to work immediately. With Brynjar Nielsen and Hannes Holmsteinn Gissurarson out in front, all effort was placed on branding Landsdomur a 19th century relic in breach of human rights. Despite it having been reviewed by Althingi only a few years back.

Maybe those who think Landsdomur is a harsh way to bring justice to ministers who have wreaked havoc on their country  should be grateful they don’t live in Romania in 1989?

Related posts:

1. Outside Their Capabilities – Politicians Can Not Say Sorry For Incompetence
2. First Law Against David Oddson’s Type Of Governance
3. David Lynch Saves The Day

It was the government, the supervision authorities and Landsbankinn amongst others according to a big interview in Frettabladid today.

The governments of David Oddson and Geir Haarde also know who to blame.

The banks, their owners and management.

Bjorgolfur Thor has said that Jon Asgeir Johannesson is very much to blame. And in some cases the Geir Haarde government. And his own CEO’s.

Jon Asgeir Johannesson has blamed the governments of David Oddson and Geir Haarde and the supervisory authorities.

Jonas Fr. Jonsson of the Financial Authority blames the banks, their owners and management.

All of them are correct.

Related posts:

1. The Icelandic Discourse in A Nutshell
2. Top 10: Who’s To Blame For The Icelandic Crash
3. The Independence Party FL Group/Landsbanki Scandal

I translated this from the Special Investigation Committee’s report, vol. 8, pg 225-226.

Robert Alibert’s visit

Gylfi Zoega arranged the Iceland visit of Robert Aliber, professor emeritus in international economics and finance at the University of Chicago in the spring of 2008. Aliber had met Gylfi in June 2007 and predicted a collapse within a short time period. Gylfi had collected money for the visit of Aliber and received donations from the prime ministry, ministry of economic affairs and the Icelandic Financial Services Association amongst others.

He says that the reaction of bankers and some sections of the media to Aliber’s lecture made sure that his message was not delivered properly. Morgunbladid had a decent coverage of Aliber’s lecture, even if the headline had been peculiar and against Gylfi’s advice. He penned an opinion column in the paper the next day to correct different misleading emphasis in the paper’s story and used the opportunity to repeat Aliber’s main conclusions.  Frettabladid had a relatively neutral coverage of the lecture. The opinion columnist Odinn made fun of Aliber in Vidskiptabladid and the banks got the message through that Aliber was not knowledgeable about the situation in Iceland. Vidskiptabladid also mocked Morgunbladid’s coverage, “Odinn has mostly stopped reacting to business headline news on Morgunbladid’s front page, but the headline “The Beginning of a Bank Run” outdid anything he could have imagined. The lecture was based on the former professor’s assumptions, where it emerged that he “suspected” this or that and “guessed” that and the other. He did not provide any evidence for his assumptions but it did not hinder Morgunbladid from making it headline news”.

After the lecture, Gylfi received a call from Gudjon Runarsson, the CEO of the Icelandic Financial Services Association who complained about the lecture. At a meeting few days later, which Thorolfur Matthiason also attended, Gudjon told the two professors that his association would not be supporting any more lectures at the economics department at the University of Iceland. Speaking to the Special Investigation Committee, Gudjon said that this was because he had been mislead regarding the topic and content of the lecture. It had come from a totally different direction than expected. Halldor Kristjansson, the chairman of the association also published an article on its behalf. “The Icelandic Financial Services Association is making some serious reservations regarding the statements of a former economics professor, Robert Z. Aliber in his lecture at the University of Iceland this week. His statements on the Icelandic financial system showed a lack of understanding and seemed to be subjectively based, rather than based on objective research.” In his article, Halldor picks apart the Aliber’s main points of criticism and states amongst other things on his issue number three that “furthermore, the proportion of savings versus loans has been raised and the banks are now less dependant on short term financing. The Icelandic banks are therefore not run as funds but as responsible corporations with strong equity and therefore Aliber’s statement is out of line with real facts.” What Halldor is referring to there is due to the IceSave accounts his own bank Landsbankinn had begun operating. Aliber’s suggestion had been that the banks should be split into investment bank and retail bank units and that the state should only guarantee the latter.

Halldor’s last point is as follows, “My fifth point is that Aliber believes that the Icelandic banks are young and have no capabilities to evaluate risk. Here he is also in breach of the truth. The Icelandic financial system is based on old foundations and has accumulated experience in evaluating risks and business profitability. Aliber also indicates that information about the profitability of the banks’ operations are not available. The banks are listed companies and publish thorough quarterly statements according to international standards. It is important that the coverage of the Icelandic economy and the financial system is of an appropriate quality now that the eyes of the financial world are pointed towards the country. Unsubstantiated exclamations can have serious effects and therefore it is imperative to seek the advice of responsible people to such statements before they are published.”

Gylfi Zoega managed to get Aliber a meeting with Geir H. Haarde and the director of his ministry, Bolli Thor Bollason where he repeated his belief that it was important to split each of the Icelandic banks into separate domestic retail and foreign investment units. Geir showed considerable lack of interest on the subject but preferred general chit chat with Aliber on a common acquaintance from the US, but Aliber had taught at Geir’s alma mater Brandeis University as a young man and was very familiar with one of his former professors.  When asked about Aliber’s visit Geir responded, “He did not talk the whole thing down as he did in his lecture, he was just a nice, old man on a visit“.

IT SHOULD BE NOTED THAT ALTHINGI HAS STILL NEGLECTED TRANSLATING THE WHOLE REPORT IN ENGLISH AND ITS SPOKESPERSONS EVEN COMMENTED THAT THEY FOUND IT UNNECESSARY THAT IT SHOULD. OBVIOUSLY SUCH A STANCE HINDERS ACADEMICS ABROAD FROM DOING MEANINGFUL RESEARCH ON THE CAUSES AND CONSEQUENCES OF THE ECONOMIC CRASH.

Related posts:

1. Landsbankinn Assured The Dutch That Iceland Would Pay
2. Mishkin’s Iceland Fail (Video)
3. CRS: Iceland’s Financial Crisis, November 20, 2008

Why the hesitance? It is quite understandable if you look at it from the viewpoint of someone who‘s wrangled their way to the top in Icelandic politics and banking. They usually don‘t owe their position to any outstanding personal qualities. They‘ve just said yes and nodded in the right places for their party or their friends for long enough to be next in line when a position opens up.

Think about the career of Bjorgvin G. Sigurdsson for example. BA in history and philosophy from the University of Iceland, journalist at Vikubladid and editor of Studentabladid. CEO of Reykjavik Utgafa (a business so small it is hardly google-able). Then CEO of the Social Democrats and its parliamentary group. Campaign manager for the Social Democrats in South-Iceland and Arborg. Member of Parliament. Then Minister of Commerce with prime responsibility for financial markets, currency, competition issues, businesses, the Central Bank etc.!

What on earth in Bjorgvin G. Sigurdsson‘s career could have possibly prepared him for anything but becoming a tiny little deer, facing enormous bulldozer headlights during the economic crash?

He is responsible for accepting a job which was grossly incompatible with his capabilities and experience. Perhaps the only thing he was qualified for was posing during photo ops like the one where he handed an award to Landsbankinn for the best annual report of 2007. And in the final hour he was working with a finance minister who is a vetenarian by trade and two laissez-faire politician lawyers who have never been outside the protective shell of their party acting as PM and Central Bank governors. The responsibility of those who put Bjorgvin there, like Ingibjorg Solrun Gisladottir and Ossur Skarphedinsson is great. Bjorgvin should claim victim status in further investigations into his negligence, it would suit his current image of a child in his fathers clothes. When the NY traffic controller brought his kids to work recently, it was him who got the heat, not the kids. They just didn‘t know any better. Bjorgvin’s defence? He was just there “obeying orders”, playing along, participating in a game of snakes and ladders where he had not set the rules. He was just unfortunate to have rolled the dice and landed on a snake.

These examples are everywhere in Icelandic politics. Thorgerdur Katrin Gunnarsdottir had worked for one year at a law office after graduation when she was handpicked to lead a content department within the State Broadcasting (RUV). Since then her career has been one job after another working selflessly for the party. This did not stop her from suggesting that an expert from Merrill Lynch should be re-educated for his (later to be proven absolutely correct) observations as a financial analyst. This morning, Thorgerdur brushed away questions on the radio regarding her husband‘s billions borrowed from Kaupthing to buy shares in the bank itself saying this had nothing to do with her. Not realising that she personally stood to benefit from these loans, suggests that re-education might just be beyond such a hardened political trench-warmer herself. She has never been brought up by the system in which she excelled to accept responsibility, only to enjoy the gains.

To regain credibility the parties need to shake up their ladder and get rid of ministers like Katrin Juliusdottir (no college degree, purchasing manager at a small company, project manager at software developer, then MP and then MINISTER OF INDUSTRY) and Kristjan Moller (physical education degree, teacher degree, PE teacher, PE rep, shopkeeper, then MP and then MINISTER OF TRANSPORTATION). The value placed on expertice and knowledge  in the nation‘s important affairs is degrading and we should not expect anything more from the yes ministers than chaos, bad decisions and further neglicence.

Appointing Gylfi Magnusson and Ragna Arnadottir as independent ministers was a fortunate step foward for the Social Democrats. The goal should be a total separation of powers where the executive branch is elected seperately from the legislative branch. The funny thing is that despite Ragna and Gylfi are now the most popular ministers according to polls, the Social Democratic leadership has been under great pressure from the people stuck in the ladder below, to oust the two because it is somebody‘s turn next to overestimate their capabilities and underestimate the tasks that come with running a country.

Related posts:

1. Finally resignations
2. Seriously?
3. Restoring Althingi’s Reputation???

But if you happen to own or control a business which has been bankrupted in Iceland in the last couple of years, the way back to 2007 is made easy by the country’s banks, accountants and business laws. Through those channels, twisting and turning is made strikingly less hazardous.

DV reports that the owner of Leonard, one of Iceland’s most prestigious stores handling jewellery and fine watches transferred the operations onto a new social security number and signed an agreement with his wife that she would assume control of the new company. Last week he was declared bankrupt himself. But through this manoeuvre the couple has managed to get rid of the old debts but still keep the store.

This is not an exceptional case, but a blueprint for why so many of the most reckless business people of the last decade are still heading the companies they’ve run into the ground.

This is why Geir Haarde and David Oddson used to say their aim was for Iceland to become a “business friendly” country.

I for one don’t understand why business schools bother with explaining basic rules in finance and economics to their students anymore. Why are they still teaching that “those who assume the greatest risks also should reap the greatest rewards because they can also incur the greatest losses”?

Why don’t they just teach students how to create two business entities and shove debts into one and assets into the other? You keep your assets and the debts fly off to “money heaven”.

Wasn’t that also how IceSave was supposed to work for Landsbankinn’s owners and management team?

Related posts:

1. The Icelandic Discourse in A Nutshell
2. Just Some Private Business Downtown
3. The Blame Game

As Prime Minister and Finance Minister, David Oddson and Geir Haarde privatized Landbankinn into the hands of Bjorgolfur Gudmundsson, who had no experience in banking but had served a sentence for his part in the bankruptcy of Hafskip and made a mint in post-communist Russia. Half of the purchasing fee was borrowed from Bunadarbankinn (which became Kaupthing) and never repaid. Landsbankinn returned the favour for their Progressive Party counterparts.

Bjorgolfur Gudmundsson and his son, Bjorgolfur Thor wasted no time and appointed a host of Independence Party members to key positions in the bank. They also used the bank as their own personal piggy bank, borrowing billions upon billions to acquire publishing houses, newspapers, pharmaceutical companies, telephone companies to name a few businesses. Landsbankinn’s loans to connected individuals were way above anything which could have been considered as normal in banking. Or imagine Fred Godwin borrowing billions from RBS to buy Penguin, The Telegraph, Vodafone etc.

The father and son retained Kjartan Gunnarsson as the chairman of the board. Meanwhile he was also the CEO of the Independence Party.  It was a cosy relationship. A few days before the Independence Party government approved a new law limiting the amounts of grants political parties could accept,  25 million ISK found their way from the bank to the party. A big chunk but still just a part of the pie as MP Gudlaugur Thor Thordarson’s finances have revealed.

The man who approved the huge grant was former youth officer of the Independence Party and then CEO of Landsbankinn, Sigurjon Th. Arnason. A new employee at Landsbankinn in 2007 recounted how when he started working there, Sigurjon’s friend from the Independence Party and mid-level manager told him about the “real organization chart”, which showed how things really worked if you wanted to get ahead in the world of Landsbankinn’s type of international banking. 

The other CEO, Halldor J. Kristjansson had been the assistant of Progressive Party minister who turned billionaire through the privatization of Bunadarbankinn into Kaupthing. When financing the risky model that Landsbankinn like the other Icelandic banks were running, the bank came up with IceSave.

Alistair Darling is the finance minister of the UK. The UK allowed Landsbankinn to prey on the savings of the Brits when it should have been clear that the Icelandic Central Bank had no way of acting as a lender of last resort.

But neither did his Dutch counterpart and the Dutch National Bank do their homework. They allowed Landsbankinn to move in on the Dutch when one simple look at the Central Bank of Iceland’s foreign reserves should have told them not to.

They should have stopped it because this  guy wasn’t going to. Jonas Fr. Jonsson was the CEO of the Financial Authorities in Iceland and an Independence Party member. His job safety depended on not rocking any boats.

And guess who was by then calling the shots at the Central Bank of Iceland?

New chairman of the Independence Party, wasted no time in using IceSave for the political gain of his party. By screaming from the top of its lungs the party has managed to divert attention from its own role in the economic collapse of Iceland. No other issues have been able to hold the spotlight, such as the several times larger bankruptcy of the Icelandic Central Bank under the management of David Oddson, a review of the bank privatization process or the finances of the political parties.

Of course, distinguishing the Independence Party from IceSave is a hell of a task. Thorlindur Kjartansson and Erla Osk Asgeirsdottir ran for Althingi in 2008 as the young, shining stars of their party. They had just come off their jobs at Landsbankinn where they were supposed to do market research into which other countries Landsbankinn could launch IceSave. If they are next in line to succeed on the party’s behalf then surely a diversion tactic is needed to cast the blame for IceSave elsewhere.

The smoke and mirrors game also suited the old ally of the Independence Party, the Progressive Party under new leader Sigmundur David Gunnlaugsson who has cried wolf from the top of his lungs on the IceSave issue. The Progressive Party has a long history of chasing easy votes. It was not hard to convince a large part of the Icelandic nation that it might not have to honour its obligations.

So the InDefence group was formed. Behind the group which sort of promised Icelanders who signed their petition that they would not have to pay the IceSave debt is a nice little group of Progressive Party members, such as economist Magnus Arni Skulason who had to resign from the board of the Central Bank earlier this year for trying to assist wealthy parties in by-passing the currency restrictions in place in Iceland. A trustworthy and honest group if you ever saw one.

And the unloved lame-duck president bought the hype.

Finally we can only have ourselves to blame. For not being more alert to people who had grown so accustomed to running the country that they considered it a birthright. For not being more critical until after the crash. We were too busy keeping our jobs, TV’s and our cars safe that we forgot our basic rights and liberties. The Icelandic people allowed this to happen by becoming oblivious to criticism and celebrating cronyism. And for not wanting to learn from what has just happened.

Obviously the government of the Social Democrats and the Left Greens approved the IceSave agreement at the end of 2009. But it is sort of ridiculous and evil even to blame the cleaning crew for the mess left behind from the party.

Isn’t it?

Related posts:

1. Silly Debate On IceSave
2. Top 10: Who’s To Blame For The Icelandic Crash
3. Priorities Of Icelandic Politicians

The first one shows inflation from January 2001 – October 2009.

The second one shows the development of CB interest rates in the same period. Notice a trend?

Those of us who have been paying off loans in the last 8 years or so have always experienced a negative effect when the Central Bank has hiked up its rates.

The problem is a volatile currency in an open and very small economy. The outcome is going to be a lot of hot money flowing into the country and disappearing the same way if rates are lowered.  Add the factor of consumer price indexation and you have a vicious circle where the rise in monthly payments for a business means a higher price for the consumer and workers constantly needing more wage hikes. All adding up to a situation where inflation keeps biting you in the arse.

Disastrously failed economic management anyone? Unfortunately, the people now in charge might not have learned anything. Or worse, maybe they are just locked in because of the failed ISK.

Related posts:

1. Guilty concience
2. Price Indexation – The Devil’s Economics Discussed
3. Heartbreaking

Baldur is being investigated for selling his shares in Landsbankinn, after attending a meeting late in the summer of 2008 with Alistair Darling, the British Chanchellor of the Exchequer regarding the impending danger posed by the IceSave savings accounts. At the time, career bureaucrat Baldur was the secretary of the Financial Ministry.

The CEO of N1, the petrol and retail company asked last week in a column what could possibly be wrong with Baldur having sold his shares? He should have the right to protect himself and his family. But what the misguided CEO doesn’t understand is that public officials should be looking out for public interests, not simply their own…well how would he understand?

Much has been said in the media how Baldur sold his shares but what is even more interesting is how a bureaucrat, apparently without family wealth managed to amass 200 million ISK (the suggested but unconfirmed amount) in the bank he helped privatize.

It is telling of the distrust Icelanders have in their political leaders that the following scenario is being questioned:

As a young man, Baldur Gudlaugsson formed a friendship with other young men while they published a magazine called Eimreidin. That group included David Oddson, Kjartan Gunnarsson, Hannes Holmsteinn Gissurarson, Geir Haarde, Þorsteinn Palsson and Jon Steinar Gunnlaugsson.

Þorsteinn, David and Geir became Prime Ministers and leaders of the Independence Party.

Kjartan became the party’s longest serving CEO and sat on the board of Landsbankinn before and after privatization.

Jon Steinar became Supreme Court Justice in their time.

Hannes Holmsteinn has been provided with a tenure at the University of Iceland.

But Baldur Gudlaugsson became a bureaucrat. And as such he was brought into the state privatization committee as a replacement for Steingrimur Ari Arason. Steingrimur, a respected bureaucrat like Baldur resigned saying he’d never seen such questionable methods as were being used in the privatization of the state banks. Baldur then signed off on the behalf of the privatization committee that Landsbankinn could be sold to Bjorgolfur Gudmundsson and Bjorgolfur Thor, the Independence Party favourites.

Seven years later he sells shares in said bank said to be worth hundreds of millions.

There might be nothing questionable about how Baldur, noted for being a knowledgeable and affable man became a multi-millionaire through Landsbanki shares. But the lack of trust in Icelandic society right now makes it imperative that it should not just be investigated how he sold the shares, but also how he gained them in the first place.

Why this lack of trust? Well, it has been revealed that Bjorn Ingi Hrafnsson, assistant to Progressive Party leader Halldor Asgrimsson around the time of privatization managed to get a bullet loan without personal risk, unavailable to regular customers with Kaupthing afterwards to buy shares in the bank and profit handsomely. It was the Progressive Party that steered Bunadarbankinn into the hands of Kaupthing.

And Sigurjon Arnason was the CEO of Bunadarbankinn when Bjorgolfur and son borrowed billions to buy Landsbankinn, when the public thought they had brought in their own money. A short while later he was the CEO of Landsbankinn.

The web must be untangled before “New Iceland” can rise from the ashes. Who within the government, administration and political parties profited personally from the privatization of the banks?

In the middle of this whole mess, a certain editor in chief of a daily newspaper in Iceland who withheld relevant news about Baldur’s situation in the last couple of weeks. The man who says he warned everybody, but in fact was the man who lit the fire.

Related posts:

1. Who Was Warned?
2. Bah Bah Brynjolfur
3. Who’s Still Listening?

Related posts:

1. God Bless Iceland – Trailer English Subtitles (Video)
2. EDA Film Review: God Bless Iceland – Not Enough Mustard
3. The Blame Game