Iceland’s newfound status as the Nigeria of the north is not without merit.

But instead of letters to unsuspecting people asking for help in transferring inheritances and such, some Icelanders used the complex global financial system to raid local and foreign savings, transfer them into their own pockets, leaving the taxpayers to pay the bill.

As Sigurjon Arnason, former head of Landsbanki would say, “It is absoulutely genius” (His famous words about IceSave).

A select group of people were given the banks by David Oddson’s Independent Party and Halldor Asgrimsson’s Progressive Party. Bjorgolfur Gudmundsson’s Samson had the lower bid for Landsbankinn and the S-Group forged their credentials when aqcuiring Bundadarbankinn (Later Kaupthing) but both were deemed the most suitable. Glitnir was controlled by the government’s enemy number one, Jon Asgeir Johannesson and his merry band of business-raiders, whose aqcuisition did not go down well with the establishment.

These groups ran their banks the way the mob would. They would purchase other companies in other industries with loans from their own banks and then these other companies could borrow incredible amounts of money from the same banks. These people invested heavily in each others businesses and therefore would lend each other through very modern and sophisticated financial methods(meaning too complex for most people to understand).

So these select few owned and controlled everything. They owned the banks, the insurance companies, the telecom industry, the largest property companies and most of retail in the whole country. They could finance each others deals because they owned everything and therefore everyone, as so many were on their payroll. They could ruin local businesses by refusing loans as a bank or as a purchaser cutting you off.

Then foreign creditors started getting wise to their ways in 2005-2006 and it got harder and more expensive for Icelandic banks to finance themselves. It was the global market’s message to the banks to sort out the cross-ownership mess they had created so that a domino-effect would not ruin the whole country.

But Landsbankinn came up with an ingenious plan, to launch an internet savings account in the UK, using the brand IceSave, offering higher interests than high-street branches. Billions poured into the account as British savers were told that their deposits were guaranteed by the Icelandic state.

The problem was that Iceland is a very small country. Landsbankinn should have created a subsidiary in the UK, relieving the burden of responsibility of the Icelandic system. They were told to but they didn’t, instead they opened up IceSave in other Northern European countries like the Netherlands. Glitnir and Kaupthing followed suit although they used their subsidiaries and therefore did not place the burden of guaranteeing the deposits on the Icelandic state.

Those two banks and Landsbankinn were too big and too vulnerable in their composition to withstand any financial storms so Kaupthing first asked to be allowed to do their books in Euro’s. When the Central Bank refused, the bank threatened to move its headquarters abroad, and with it about 1.400 high-paying jobs plus enormous tax-revenues. It didn’t follow through and one of its largest owners later said it had been the biggest mistake of his life.

This autumn the dominoes came crashing down. Those most involved blame the global financial crisis but in reality their scam had failed. The cross-ownership and consequent absolute power held by the owners of the banks who were basically in bed with the adoring politicians of this time should be a warning for any country trying to build a sustainable economy.

The banks had found quick and easy ways to get rich. The government and its branches should have stopped them. Instead they praised them, defended them and could not shout hurras’ loud enough at champagne parties across the globe. The explanation is straight-forward, it was the politicians that gave the banks away and benefitted greatly on economic indicators that implied the economic-governance was strong. It kept them in power, and close to the champagne. Their next of kin were at least guaranteed great jobs and opportunities within the banking system that ordinary folks could never dream of.

When everything came tumbling down, the government and Central Bank told the foreign savers that they would not guarantee their deposits, but would fully guarantee deposits of Icelanders. This turned Iceland into the North-Korea of erm…the north. Now the government was a fully-involved player in this scam. The owners of the banks had scammed a lot of money out of foreign investors and now were being protected by the state.

What happened to all the money? Some of it is in the assets of the banks and companies owned by the bankers. But many of those companies are in debt way over their heads. The owners themselves have been handsomely paid through bonuses and earnings, which the government has taxed considerably lower than the wages of ordinary citizens. A lot of the worth they proclaimed to have probably never existed. What money they could get for themselves is probably laying on a beach in the Caribbean.

And there it is waiting to be invested in the businesses that the Icelandic government will transfer massive debts from onto the taxpayers and then sell on the cheap back to the people who got us into the whole mess to begin with.

Criminal? At least it makes the Nigerian fraudsters look downright unsophisticated.


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