Reykjavík Grapevine - 02.07.2010, Side 54

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37
The Reykjavík Grapevine
Issue 09 — 2010
When Glitnir went into a tailspin in Sep-
tember 2008 no one could have dared
imagine—not even in their worst night-
mares—how mad things would get. A
mere one and a half years later, Iceland
is a nation beyond nervous breakdown.
This inconceivable chain-of-events
has most of us endlessly shaking our
heads, much like those bouncing-
head-dolls glued on the dashboard of
Hong Kong taxis.
Speculations that Icelandic banks,
Landsbanki in particular, were the ve-
hicle for Russian mafia money-laundry,
and that Kaupthing funds were being
used to manipulate credit derivatives,
are now under serious fraud inves-
tigation across the Western banking
world. Guardian reporter Simon Bow-
ers points out that “the German bank
[Deutsche Bank] had been offering
Kaupthing advice on how to influence
CDS [credit default swaps] price on
Kaupthing bonds from early 2008.”
As suggested by the Icelandic Truth
Commission, it becomes clearer and
clearer that the bank’s management
was entangled in desperate measures
to pay up long-term debts. It begins to
look as if outsiders with the upper hand
were quietly reaping the rewards to
the detriment of Icelandic banks—and
their guarantors: Icelandic taxpayers.
A leaked letter from Sigurður Einars-
son, Kaupthing’s chair’s desk (the one
now wanted by Interpol), stated: “…the
bank cannot buy CDSs on itself. There-
fore [we] resorted to getting clients we
trusted well and had long-standing re-
lations with, based on trust and loyalty
to engage in these transactions on be-
half of the bank…”
Of course, we all know that 90%
of the iceberg is not visible above the
water line, and such it is with what is
left of this deeply mired investigation:
former bank managers on the run from
the law, once-oligarchs, still oligarchs,
still reaping rewards on the back of the
troubled Icelandic nation. Meanwhile,
the Prime Minister of Iceland ties the
official knot minutes after the bill for
same-sex-marriage is passed. Priori-
ties, priorities. Congratulations, by the
way.
Gordon Kerr, investment banker and
specialist in sovereign debt syndicates,
delivered an enlightening address to
the European parliament in March.
The address was recently made public
online and notes the roots of Iceland’s
banking problem as threefold. The gist
of it is thus:
1. Iceland is too small a nation to be an
active participant on the international
banking scene.
2. During the boom years all the Ice-
landic banks sought extremely aggres-
sive (perhaps) unsubstantiated growth.
3. The foolhardy (sic) Icelandic banks
sought acceptance by the Western reg-
ulatory regime by any means possible
Kerr goes on to explain that Western
politicians have been (and still are)
“blissfully ignorant” of the “blips on
their radar screens.” In summary, he
explains that the Western banking
system and accounting regime has en-
couraged a system whereby the global
credit crunch was inevitable. The rea-
sons are as follows: Firstly, one “can-
not divorce the independent valuation
of assets from the quantity of debt
banks are willing to issue against as-
sets.” Secondly, the whirlwind of the
market “forces CEOs of major banks to
push fractional reserves to their limits.”
Thirdly, “an absurd accounting regime
encourages banks to transfer as much
exposure as possible into derivates.”
Fourthly, and probably most important-
ly for taxpayers: “Depositors’ money
belongs in law to the bank, not to the
depositors” themselves. This gives the
bank a free reign. And fifthly, and per-
haps most strangely, due to “the Euro-
pean Central Bank’s discount window,
banks are allowed to purchase assets
post crisis,” which motivates them to
“monetise unrealised future profits.”
Finally, Kerr says: “…if the Icelandic
people did not understand what was
going on, are the actions of [Britain
and the Netherlands] not akin to luring
the demented old lady next door into
leaving you her house in her will and
thereby disinheriting her children?”
‘Icesave’ is now bantered around like
a four-letter-word. It is a known entity.
But, I wonder when the general public
is finally made aware of the true extent
of the Icelandic banks’ debts, if there
will not be another eruption of gargan-
tuan scale.
News | Kreppa In The International Eye: June
Saga of Sagas: Bang For The Buck
MARC VINCENZ
Special | Best Of Reykjavík: Locals
Best café? Kaffitár. They have consis-
tently great coffee and food. I recom-
mend the bagel with hummus, olives,
feta and cheese.
Best place to grab a bite? Austur-
Indía Félagið. Best Indian restaurant
around. Actually, in the world. I recom-
mend the lobster appetiser with the
salmon entrée.
Best bar? Boston. The music's not too
loud, just at the right volume so you can
talk with your friends.
Favourite swimming pool? In Selt-
jarnarnes. It's the easiest place to swim
because the water is often overflowing
so it pushes you along. I like the lounge
pool also.
Best kept secret? At Grótta by the
lighthouse, there is a hole in the ground
with hot water in all year round. A great
place to soak your feet and look at the
beautiful view.
Easy Swimming
Þorvaldur Þór Þorvaldsson