Possible Criminality behind the Iceland disaster

 There's an article on VOX.eu at the moment on the report by the Icelandic Parliament‘s Special Investigation Commission on what brought down their banks. The abstract/summary thing is:

What brought down Iceland’s banks? This column examines the revelations from the latest report from the Icelandic parliament, raising the possibility that the collapse of Iceland’s three largest banks is the result of “control fraud” where shareholders stole from their own bank in the same way as those convicted of looting from the American saving and loan banks in the late 1980s.

And there's some pretty interesting and shocking things in the article. On the excesses in Iceland:

  • Two Icelandic brothers who produced TV dinners for export became bank shareholders, and went on to buy themselves a yacht that used to belong to Giorgio Armani.
  • Another bank owner bought himself a penthouse in Manhattan, but – this is actually in the SIC report – the bank “forgot” to ask for collateral.
  • At a small dinner party for favoured bank clients on the Riviera, where Tina Turner stood for the music, the main course was sprinkled with – you couldn’t possibly have guessed this one – gold flakes.
  • And then there was the dinner party in Reykjavik where singer George Michael had been scheduled to land on the glass roof in a roaring helicopter, but to the great embarrassment of the bank’s director of entertainment the plan fell through.
  • One of the bank owners, the afore-mentioned Mr. Guðmundsson, declared bankruptcy in 2009 to the tune of $750 million, of which $500 million is owed to the bank he owned and directed. Not even Texas has seen a personal bankruptcy of such proportions.

And on the possible consequences:

The SIC has referred a number of cases or issues to the Special Prosecutor’s Office where an independent assessment will be made as to whether charges will be brought against the bankers and the four civil servants. Parliament will decide whether to press charges against the ministers; if it does, it must convene Landsdómur, a special court designed to determine whether ministers have broken the law. If Landsdómur is convened, as appears likely, it will be the first time in the 66-year history of the republic. If some or all suspects are found guilty, the constitution permits the President of Iceland to pardon the bankers and the public officials, but a presidential pardon of ministers found guilty by Landsdómur would have to be affirmed by Parliament. We are not in Kansas anymore.

Honestly, I'm not sure about all of this. I'm sceptical that what was happening in Iceland was all that unusual. Rather I think that what is unusual about Iceland is that the financial collapse was so complete and that the Icelandic public wanted 'blood'. I've a feeling that if you deug down into the financial system in Ireland, Lithuania naybe even the US and UK you'd find much the same thing.

This article also reminded me to read a paper a lot of people have been referencing recently: Akerlof, George A, and Paul M Romer (1993), “Looting: The Economic Underworld of Bankruptcy for Profit“, Brookings Papers on Economic Activity 2:1-73.