Saturday morning ramble

Since the economic crash I have been fortunate to meet several foreigners who have taken an interest in the situation in Iceland. 

One such person, an economist all the way from Asia asked me yesterday what would be in the cards for Iceland for the near and far future. 

I replied that I think the next ten years are going to be characterized by ideological clashes and severe bitterness. I think a generation will be lost as job-creation when it finally will happen will be focused by the government on aluminum and fishing, which most of our college-educated people are not qualified for. The real innovation will happen within start-up companies will find it easier to set up abroad. 

There are good signs afoot. The new Central Bank governor seems suitably far removed from the traditional Icelandic marriage of business and politics. Bringing Eva Joly in speaks of good intent. And the chairman-elections in VR pension fund where the old power-base was thrown out the window are a promising landmark. 

A smiling bailout for corporate vampires

This is Ragnar Z. Gudjonsson and he is smiling. 

The reason why could be that he is the CEO of Byr Savings & Loans which lost 29 billion ISK last year. But in today’s Frettabladid he says that the year was certainly difficult for his S&L but he is confident that with the help of the government it will weather the storm. He points to the fact that in the emergency law that was passed last year, the government is allowed to grant S&L’s up to 20% of owners equity as it was at the end of the year 2007. 

So that is why Ragnar is smiling. 

What is less commonly known is that Ragnar works for corporate vampires. Confused? Lets recap from The Iceland Weather Report:

The main purpose of A Holding – aka Baugur – appears to have been to gain hold of the Hafnarfjörður Savings Bank, since plans were already underway to merge it with another savings bank – Sparisjóður Vélstjóra, or the Machinists’ Savings Bank  [originally founded by machinists who worked on ships]. That merger went through in December 2006 and increased the value of the two banks exponentially in the merged company, which was given the name Byr. Incidentally, those plans were – as yet – completely under wraps, so there was clearly some underhanded trading going on – I presume that is the basis of the aforementioned lawsuit, although based on the info I’ve seen that’s not completely clear.

A year later, or in December 2007, the owners of Byr decided to increase the bank’s initial equity by ISK 26.2 billion. Those who already owned shares in the bank –  the stofnfjáreigendur – were invited to increase their investment, and the increase was financed through loans from Glitnir bank – which in turn was largely owned by Baugur.

Four months later, the bank paid dividends to its shareholders – the stofnfjáreigendur – worth ISK 13.5 billion.

The post on the Iceland Weather Report

Meanwhile we are less proud to report that the government has still failed to produce any solutions to bail out the 30-40% of Icelandic households which are in or on the brink of bankruptcy. As Benedikt Sigurdsson, CEO of Buseti, a home co-operative said so eloquently earlier this week, the government is more concerned about saving failed financial institutions than households.