Mon Feb 20th, 2012 at 04:37:23 PM EST
At the beginning of the financial crisis, in 2008, many of us could see what was coming, at various speeds we many of us came to similar conclusions concerning the mess our respective economies were going to find themselves. And as we came to similar conclusions albeit at differing speeds, the lag between those speeds gave rise to some occasionally ill-tempered discourse. I recall in particular, in viewing the fallout from Lehman, seeing aggregate demand plummet nearly immediately, and globally (I direct the planning and analysis department of a medium-large multinational whose topline, statistically-speaking, tracks GDP growth nearly in real time, with a beta of a bit more than two).
Many subjects were covered, starting back then - stimulus (we were already talking about this in the fall of 2008!), the coming unemployment crisis (I think I called Spain's 20+% unemployment rate back in September 2008, it was around 10% then), banking reform, Iceland, Ireland...and later, Portugal, Greece, et c....and it is fun to watch the arguments rehashed over and again. Of late, those arguments have been spiced up by some German contributors who've dutifully repeated for us German economic conventional wisdom, but this is just the latest chapter in the saga...
But I read something today which gave me pause:
Icelanders who pelted parliament with rocks in 2009 demanding their leaders and bankers answer for the country's economic and financial collapse are reaping the benefits of their anger.
Since the end of 2008, the island's banks have forgiven loans equivalent to 13 percent of gross domestic product, easing the debt burdens of more than a quarter of the population, according to a report published this month by the Icelandic Financial Services Association.
"You could safely say that Iceland holds the world record in household debt relief," said Lars Christensen, chief emerging markets economist at Danske Bank A/S in Copenhagen. "Iceland followed the textbook example of what is required in a crisis. Any economist would agree with that."
Now, I've been seeing many commentators praising the Icelandic solution, not least of which has been Paul Krugman, in article after article, a solution which put the people first before the banks, perhaps the only place (so far) where this has been the case since the beginning of the lesser depression. But, as some readers here may recall, I have a bit of a history on the subject of Iceland, having been a bit offput by the Icelandic government's refusal to extend guarantees to Dutch and English depositors all the while ring-fencing the deposits of Icelandic depositors. I found this unfair and an abuse of trade priviledges Icelands enjoys under EFTA, thinking that yet again another Enron-style bankruptcy was in the air, with no one held to account, and losses stuck to the little guy with no accountability:
Its economic elites who managed the banks which have bankrupted the country (and make no mistake, the Icelanders are still in denial on this point, but their country is, in fact, bankrupt, playing by normal rules) were overseen by regulators put in place by the people they elected. And so, any malfeasance is ultimately on the people. Understandably no one wants to admit they put in place people who gambled their money and now they are on the hook for 4 or 6 months salary in debt....but..they are.
If they had taken steps to put some bankers in jail, or better, served them to the English for UK-style Daily Mirror-reported justice, you know, I'd think this a mitigating factor excusing Icelander's shirking of their responsibility...
I was wrong:
Iceland's special prosecutor has said it may indict as many as 90 people, while more than 200, including the former chief executives at the three biggest banks, face criminal charges.
Larus Welding, the former CEO of Glitnir Bank hf, once Iceland's second biggest, was indicted in December for granting illegal loans and is now waiting to stand trial. The former CEO of Landsbanki Islands hf, Sigurjon Arnason, has endured stints of solitary confinement as his criminal investigation continues.
Solitary confinement for bankers. Now there's some good news! Let the practise spread, heaven knows there is a jurisdiction near you which should be saving a very special cell for a high-placed banker.
Iceland, I have to admit, I didn't think you had it in you, and for that, I hope you will accept my heartfelt apologies.