Reykjavík Grapevine - 08.10.2010, Blaðsíða 29

Reykjavík Grapevine - 08.10.2010, Blaðsíða 29
On June 6, The Organization for Eco- nomic Co-operation and Development (OECD) publishes its Economic Outlook report for all 30 member countries, spe- cifically pointing out that Iceland’s banks may have grown too large to be bailed out if that becomes necessary. fRéTTABLAðIð fORGETS TO MEN- TION THE OECd’S fORECAST Fréttablaðið prints two articles on the OECD report, but fails to communicate any warnings about the banks. In fact, in the first one, “Dark forecast surprises Minister,” Fréttablaðið simply reports what certain people think about the fore- cast rather than any information con- tained in the actual forecast. The article begins by quoting Minis- ter of Business Affairs Björgvin G. Sig- urðsson, who says: “The negative forecast is unexpected. It’s possible to make vari- ous assumptions, but the current situa- tion does not warrant such a serious fore- cast...” The fact is people often scan headlines and read the beginning of articles, which is why the most important information should appear upfront. In this case, the headline and introduction are actually slightly misleading because the article goes on to quote an economist from ASÍ and the director of SA-Confederation of Employers, who are NOT surprised by the forecast. Furthermore, the article concludes with a quote from Director of Samtök Atvinnulífsins (“The Confedera- tion of Employers”) Vilhjálmur Egilsson who says, “there is a lot of uncertainty in all of these forecasts.” In other words, the message is that one shouldn’t put too much weight on the report because fore- casts aren’t reliable. Although these words all came from various experts, the story is constructed in a way that invalidates the forecast. Most importantly, however, the reader has no idea what these men are reacting to, unless they subscribe to OECD re- ports (unlikely). There is no mention of the OECD’s concerns about the enormity of the banks, the absence of a lender of last resort and its recommendation to in- crease supervision. Oops. fRéTTABLAðIð SAyS BAd NEWS dOESN’T APPLy TO ICELANd The second article Fréttablaðið prints about the OECD forecast is: “Forecasts worse than last year,” which focuses on the general outlook for OECD countries. In summing up the report, the article states, “Those countries with highly lev- eraged financial companies will be worse off, Britain is specifically mentioned, but the report states that Iceland should be stable. The United States is also men- tioned as the report states, for lowering the average OECD economic growth fig- ures.” Talk about selective reporting. Fréttablaðið makes absolutely no mention of Iceland’s banks. Instead, the article gives the reader the impression that Iceland is better off than Britain and the United States, despite the fact that Iceland had its own highly leveraged fi- nancial companies to be worried about, which the OECD specifically pointed out in their report. Thus, these two Fréttablaðið articles fail to convey the OECD’s warning of the impending events that took place four months later. Of course the OECD did not predict the crash itself in the report, but the concerning recipe of enormous banks with no possible lender of last re- sort should have at least been reported. MORGuNBLAðIð BuRIES THE NEGATIVE fORECAST On June 5, Morgunblaðið covers the OECD forecast in “Negative OECD Eco- nomic Forecast.” The article appears in the corner of the business page, occupy- ing a space smaller than a deck of cards. It relays the OECD’s recommendation: “In light of uncertainty in the world econ- omy, it would be a good idea to increase reserves of foreign currency and bank au- diting.” It also mentions Iceland’s sharp decline in economic growth, a decline in private consumption and an increase in unemployment. However, it does not elaborate on the OECD’s specific concern about Iceland’s banks, namely their gargantuan size that precludes sufficient help from Iceland’s reserves in the case of a crisis. Further- more, when examined in the context of the entire newspaper that day, the nega- tive news is dwarfed by two full-page ar- ticles carrying contradictory messages: “No crisis in auditing” and “Have faith in the Icelandic market.” NO CRISIS IN AudITING? In the first article, “No crisis in auditing,” President of Deloitte Ralph Adams, who “has closely followed Icelandic business,” defends the Icelandic economy and the banks. After having recently opened a Deloitte branch in Iceland, Adams states, “…it is important to note that there is nei- ther a financial crisis nor a crisis in audit- ing” and goes on to explain the current situation in terms of a psychological fear and a crisis in trust whose origins we will wonder about in a few years to come. In regards to the banks Ralph states: “The British media have been critical of the Icelandic economy lately. Iceland- ers have called the criticism unfair and sometimes unfounded.” In the banks’ defence, he says, “They are fishing in the same waters. When a small player does well and grows faster than a big player, the media will naturally talk about it...” In other words, he discounts the criti- cism. It’s envy. Lastly, on financial auditing, which should seemingly be the most remark- able part of the article given the headline, “No crisis in auditing,” Adams expresses the importance of transparency. But, it’s not why you’d think. He says it is a good remedy to the negative reports in the for- eign media. So, in this article, an authority fig- ure who “has closely followed Icelandic business,” addresses and explains away all of the OECD’s concerns. First, he ad- dresses the economic downswing—not a real financial crisis. Then, he addresses the concerns over the size of the banks— envy of success, and finally, he addresses the need for greater oversight—greater transparency needed to appease the for- eign media. IMPORTANT LOOkING MEN BELIEVE IN THE ICELANdIC MARkET! The second article, “Have faith in the Ice- landic market,” further makes little of the OECD warning which, remember, occu- pies a space smaller than a deck of cards some pages back. Accompanying the ar- ticle is a large attention-grabbing photo of three important professional look- ing men. The caption reads, “Iceland’s friends: Venky Vishwanathan, Jan Ols- son, and Hakan Wohlin from Deutsche Bank say Icelandic companies will come out strong from the downswing.” Without going further into the con- tent, Morgunblaðið’s decision to give this article a full page with a big attention- drawing photo is in itself a form of edito- rialising—it shouts: these are important people with important opinions and they believe in the Icelandic economy. The article begins with these “high- level” bankers discounting the opin- ions of people who have been negatively discussing the Icelandic economy and financial ventures because they “don’t understand the situation in Iceland.” The fact that critics don’t understand the Ice- landic economy is also restated in the ar- ticle three times—perhaps for emphasis. Jan Olsson is quoted saying, “Deutsche Bank has great trust in the Icelandic economy and government…The Icelandic banking system has expanded rapidly in the last years but the Icelandic economy is well run.” Jan also explains away the criticism Iceland had been facing, say- ing, in times of difficulty it’s not surpris- ing that people point fingers, and it’s not surprising that people have been talking about the banks, even if what they say is untrue. So, after reading Morgunblaðið on June 5, 2008, one is left with the impres- sion that Iceland’s economy and banks are fine, despite the small blurb about the OECD’s forecast. That’s either some seriously good PR from the banks or an especially convenient coincidence. During the majority of June and July, Morgunblaðið and Fréttablaðið ran sto- ries about the króna reaching an all time low as well as the rising inflation figures and predictions from the Central Bank that their target inflation rate would be reached. Yet, there was little discussion in either paper regarding the status of the banks and the absence of a lender of last resort if the banks were to default, until Merrill Lynch published a report on July 24. fRéTTABLAðIð SAyS THE GOVERN- MENT IS ‘SuRPRISEd’ Covering the report, Fréttablaðið prints a front-page article on July 26, “Inter- vention necessary,” which continues on page 12, “Wishful thinking and pious words aren’t enough.” The article begins by reporting that Richard Thomas from Merrill Lynch believes government inter- vention is necessary in today’s economic situation and questions whether Iceland is not in a similar situation to the US and Britain. This is of course followed by a quote from Minister of Education Þorgerður Katrín Gunnarsdóttir who says, “Such a comment speaks for itself,” and ques- tions Richard Thomas’ motives. Furthermore, Fréttablaðið reports that Minister of Business Affairs Björgvin G. Sigurðsson is astonished at Richard Thomas’ criticism, and claims the government and financial sectors work well together (note the irony here! In the Special Investigative Committee’s investigation into Minister negligence, it turns out Björgvin was actually never invited to any financial meetings before the crash. Yet, here he claims the govern- ment and financial sectors work well to- gether). The article continues on page 12, mentioning Richard Thomas’ rule of thumb: “As the CDS of a company trades north of +1,000bps, the market is stating that it expects a default. Both Kaupthing and Glitnir are currently trading in that area.” This is good and well, except Frét- tablaðið then adds, “Thomas says the actual state of the banks are fine,” rather than “It is time to consider whether or not we will see a default from these banks,” which is what actually came next in Rich- ard Thomas’ report. MORGuNBLAðIð HAS NO COM- MENT Morgunblaðið did not have much to say about this one. Despite countless warnings about the bank’s size, the Financial Supervisory Authority (FME) conducted a Stress Test on August 14 to see whether the banks were in a position to take on considerable financial shocks and the banks pass with f lying colours. MORGuNBLAðIð TAkES THEIR WORd fOR IT On August 15, Morgunblaðið reports, “State of the banks is strong and they can withstand significant shock.” The cover- age is quite basic and matches the FME’s press release very closely. In fact, the ar- ticle includes a quote from Icelandic FME director-general, Jónas Jónsson, which was simply lifted from the press release, although not sourced that way: “The re- sults from the stress tests indicate that the capital ratios of the banks are solid and can withstand considerable financial shocks.” Morgunblaðið does not delve deeper into the issue and fails to ask questions of the FME, such as how the C- ranked banks passed their stress tests despite re- ceiving negative rating after negative rat- ing from external rating agencies. They simply take their word for it. fRéTTABLAðIð ALSO TAkES THEIR WORd fOR IT Fréttablaðið reports, “Withstand FME Test.” Although Fréttablaðið provides coverage beyond the press release and points out that the tests don’t apply to the smaller banks, it does not question the conclusions of the test. The FME, despite being charged with the supervision of the banks, may have decided that it was to the benefit of the banks to boost trust and it is not difficult to imagine their motiva- tion for positive PR at the time. However, a good watchdog tracing the scent from one negative rating to another would defi- nitely have done some barking here. But, no questions were asked. WHy dIdN’T THE WATCHdOG BARk? Less than two months after Iceland’s three largest banks pass the FME stress tests, in October 2008, the banks de- faulted, the stock market crashed and people lost a lot of money (and eventu- ally cars and houses). After looking at the evidence, there’s no question that Morgunblaðið and Fréttablaðið missed some blatant warnings about the banks, their enormous size and the absence of a lender of last resort. But, why? Morgunblaðið journalist Bjarni Ólafs- son, who wrote the June 5 article, “No cri- sis in auditing,” says he can’t remember how he came to write the story, but says someone from one of Iceland’s banks likely contacted the paper to suggest it. In the SIC Report, Morgunblaðið editor Styrmir Gunnarsson says Director of Íslandsbanki bank, Birna Einarsdóttir, called Morgunblaðið up and said, “You are supposed to stand with us. You are not supposed to criticise and comment on the banks, you are supposed to stand with us.” Friðrik Þór Guðmundsson, who is among the authors of the SIC Report’s chapter on the media, says there are prob- ably multiple reasons the media didn’t re- port the warnings from external agencies like the OECD. For one, he points out that many journalists go on vacation over the summer and thus issues related to the banks and the economy are put on the backburner. However, he thinks perhaps the main reason is that people wanted to believe everything was okay. That’s no excuse. To borrow words from Davíð Oddsson, of all people, “It’s extremely important that the media ful- fils its supervisory role, both attentively and responsibly.” Woof! June July October Moody’s Annual Report The OECd says banks may be too large to be bailed out Icelandic Banks Pass fME Stress Tests CRASH! 2008 April August Richard Thomas of Merrill Lynch worries about banking defaults June – The OECd says banks may be too large to be bailed out July – Richard Thomas of Merrill Lynch worries about banking defaults August – Icelandic Banks Pass fME Stress Tests Merril Lynch, Icelandic Banks - distress and default “On the micro level, we know that the banks would all be horrified at the sug- gestions: they would point to their high levels of liquidity; the fact that they have generally planned to pay all obligations a year out; and that they have other sources for funding in addition to the Euromarkets. They have a good job to date…. How- ever, at a macro level the extraordinary high level of indebtedness remains a policy problem for the Icelandic authorities that is impossible to (continue to) ignore…” OECd Report, June 1, 2008 “The country’s three largest banks have expanded aggressively offshore in recent years, increasing their total assets from less than 100% of GDP in 2000 to nine times that in 2007. Although these banks have little direct exposure to subprime loans in the United States and have relatively high capital and liquidity rations, concerns have grown about their lack of access to a credible lender of last resort facility…” fME Stress Tests, 2008 “The four largest commercial banks all pass the regular stress test of the Icelandic Financial Supervisory Authority (FME)…The Director General of the FME, Mr. Jónas Fr. Jónsson: ‘The results from the stress-test indicates that the capital ratios of the banks are solid and can withstand considerable financial shocks. Sharehold- ers and management of the banks need to focus on maintaining strong capital and even increase it, as capital levels need constantly to be reviewed in light of different risk factors in the operations of each company.’”

x

Reykjavík Grapevine

Beinir tenglar

Ef þú vilt tengja á þennan titil, vinsamlegast notaðu þessa tengla:

Tengja á þennan titil: Reykjavík Grapevine
https://timarit.is/publication/943

Tengja á þetta tölublað:

Tengja á þessa síðu:

Tengja á þessa grein:

Vinsamlegast ekki tengja beint á myndir eða PDF skjöl á Tímarit.is þar sem slíkar slóðir geta breyst án fyrirvara. Notið slóðirnar hér fyrir ofan til að tengja á vefinn.