Icelandic banking crisis

Many papers discuss the causes of Iceland’s financial crisis, but none has directly compared Iceland’s financial crisis to past examples of financial liberalization that have led to a financial crisis. Iceland’s crisis of 2008 has precursors in industrialized and developing countries. Global financial markets’ failure to recognize the familiar signs of an oncoming crisis reflects either an ignorance of these antecedents, or an overriding belief that Iceland was different. This paper compares Iceland’s financial liberalization process and crisis with experiences in Turkey, Latin America, and the USA. It argues that Iceland mirrors Turkish and Latin American stories of hot money in-flows, and financial instability. The political and social apparatus that allowed Icelandic banks to hide fraudulent business in the presence of international criticism reflect financial dynamics in the USA. This work draws attention to the conventional narrative’s blind spots about relative costs and benefits of financial liberalization and finance-led growth.

The research project focuses on investment behavior and the Icelandic economic bubble and crash, emphasizing that investment behavior has to be seen within a historical and cultural environment. As such the project is related to financial history and behavioral finance. The project’s main goals can be summarized into the following key research question:

What cultural conditions shaped the appearance and formation of the financial bubble in Iceland and in what way did those conditions differ, if any, from other countries and to what extent?

The main results are that cultural conditions influenced the creation of the Icelandic banking miracle that ended so badly. Certain dimensions in the Icelandic culture were more suspect of embracing values that (temporarily) opened doors to possibly naïve beliefs. Technological and ideological changes on an international level also influenced the Icelandic culture; more than most cultural studies anticipate. Some changes in the Icelandic culture were, however, caused to a certain extent by design, even an invented cultural one, rather than default. With the use of the media some agents convinced the Icelandic country that their best interests were served blindly embracing certain values when in fact those agents were reaping the profits with speculation and risk taking that the public was eventually left to face the consequences of.

Ritgerðin fjallar um þjóðarábyrgð í Icesave-málinu. Þjóðarábyrgð er sú sameiginlega siðferðilega ábyrgð sem almenningur ber á stefnu og athöfnum stjórnvalda sinna og samfélagsgerð. Spurt er hvort þjóðir geti yfirhöfuð borið slíka ábyrgð, hvort hún eigi við í Icesave-málinu, hvort þjóðin hafi þegar axlað hana og hvers vegna sé mikilvægt að hún geri það. Ábyrgðarhugtakið er flókið og er hugmyndin um þjóðarábyrgð útlistuð í nokkrum skrefum. Fjallað er um ábyrgðarhugtakið sjálft og siðferðilega ábyrgð einstaklinga sem og hlutverkabundna ábyrgð. Þar er einkum byggt á hugmyndum Peters Strawson. Þetta er síðan tengt hugmyndum Davids Miller um þjóðarábyrgð. Atburðarás Icesave-málsins er skoðuð í ljósi þessa og færð rök fyrir því að stjórnvöld hafi brugðist því hlutverki sínu að gæta hagsmuna almennings og eigenda Icesave-reikninganna. Niðurstaðan er að Íslendingar beri þjóðarábyrgð í málinu. Ennfremur eru færð rök fyrir því að hefðu stjórnvöld haft siðferðilegar skyldur sínar að leiðarljósi, fremur en þrönga lagahyggju, hefðu þau getað komið í veg fyrir þetta hörmulega mál án þess að stefna fjárhag ríkisins í hættu. Að axla slíka siðferðilega ábyrgð felst einkum í þrennu. Í fyrsta lagi að gangast við því sem gerst hefur og læra af því, í öðru lagi að leita í einlægni sátta. Þessi skref snúa að þjóðinni sjálfri og uppgjöri hennar við þau stjórnmál og þá menningu sem leiddi til hrunsins. Í þriðja lagi felst í siðferðilegri ábyrgð að bæta fyrir mistökin eftir því sem mögulegt og sanngjarnt er. Að lokum eru rök færð fyrir því að nú þegar Icesave-deilunni er lokið og rykið sest sé mikilvægt að skoða málið á ný og læra af því svo fyrirbyggja megi að sambærilegir hlutir endurtaki sig í framtíðinni.

The 2008 Icelandic bank collapse was not because the Icelandic economy was too free or because the banks were too big. It happened because Iceland was denied the same liquidity assistance that the other Nordic countries received, both from the US Fed and European central banks. The Icelanders were forced to let the banks fail, and discovered a way out of the quandry: to give depositors priority claims to bank estates which makes government guarantees of banks superflous.

Describes the rapid transformation Icelandic financial institutions went through during the 1990s up to 2008, a period I call the Manic Millennium. While Icelandic banking became at first more efficient, soon typical signs of the ill effects of banking liberalization without proper safeguards became obvious, yet hardly anyone noticed. The end result was one of history´s biggest financial crisis.

The years between 2006 and 2008 are key in understanding the Icelandic economic crisis. One of the main questions one gets when discussing the lessons from Iceland is: Was the quick recovery due to how the country 'burned' the creditors?  Myth has it that when things got tough for the banks, the Icelandic government denied to bail them out and the country therefore escaped the difficult long-term consequence felt by, for example, Ireland. But that is a serious distortion of what happened. The Icelandic banks were on Central Bank life support from 2006 to 2008. It was only when the CBI ran out of steam that an alternative approach in crisis management was put in place. For admirers of historical contingencies, this case is of interest. Iceland did not take a calculated decision to let the banks fail, but an attempted bail-out failed. This meant that that its tackling of a banking crisis took an unexpected turn as banks were put into administration; a move only considered in the face of failure. And despite the route taken by Iceland, the total cost of the economic crisis for the State has surpassed Ireland's and is one of the costliest any sovereign has faced in the ongoing crisis. This is interesting, given the ongoing discussion about the Icelandic 'miraculous' escape from an economic crisis and that the possibilities countries face during crisis management may be many more than those that are discussed.

FIH-banki í Danmörku var í eigu Kaupþings og settur að veði fyrir láni til bankans rétt fyrir bankahrunið 2008. Heritable Bank og KSF voru breskir bankar í eigu Íslendinga. Hvað varð um verðmæti þessara eigna? Voru bresku bankarnir felldir að ósekju? Glötuðust verðmæti sökum handvammar?

En af den islandske selvstændighedskamps mest standhaftige myter har været, at det islandske samfund ikke var klassedelt i det 16., 17. og 18. århundrede. Der var ikke nogen overklasse, og alle var bønder i samme båd - kæmpende imod den danske undertrykkelse.  I denne artikel ser jeg i forlængelse af "new cultural history" på, hvordan de danske købmænd så på de islandske embedsmænd og jordejere.

Det gør jeg ved at se på teksten "Nødværge imod den i Island regierende Øvrighed", af Georg Andreas Kyhn fra 1797. Det er en tekst stilet til den danske konge. Det er et svar på den såkaldte "Islands Almindelige Ansøgning til Kongen om udvidede Handels-Friheder...". Jeg analyserer Kyhns skrift og viser, hvorledes Kyhns opfattelse af de islandske Embedsmænd understøtter Einar Hreinssons skildring af et elitenetværk på Island.

Til sidst pointerer jeg, at hvis den islandske historieskrivning begynder at anse købmændene, som en del af det islandske samfund, når det f.eks. kommer til forskning om den islandske elite, er der et ukendt antal af kilder, der kan granskes i dette nye perspektiv. Denne forskning vil forhåbentlig bidrage med at kaste lys på Kyhn repræsentativitet, men vil i hvert fald med sikkerhed resultere i spændende perspektiver på den historiske debat om en islandsk elite!


11. vefrit 2014
Udgiver: Vefnir
Redaktør: Gunnar Þór Bjarnason

This article aims to connect Iceland and the Basque Country from the democratic regeneration perspective. The time frame chosen for the case studies is the period before and after 2008 global crisis. In Iceland the crisis had an economic and political aspect affecting the self-understanding of the territory as a whole. In the Basque Country it also deals with the current peace process to settle down political violence and its causes.
In both cases there are deep underlying democratic regeneration issues. This article is part of a broader research project entitled ‘Benchmarking Future City-Regions’
(www.cityregions.org).

While neither book adds much to the analysis or understanding of the Icelandic bank collapse, both depending very much
on the narrative already offered in the 2010 SIC Report, Bergmann’s book is far more interesting and original. Both
authors, Johnsen and Bergmann, seem, however, to be somewhat parochial, treating the collapse as a unique event in Icelandic history rather than as a part of an international financial crisis.