my nerves are bad to-night

In a time span of less than a week, more than 90% of Iceland’s banking system, on the scale of assets, went down the drain.

Most of the rest followed in the coming months but was, contrary to the folklore outside Iceland, bailed out by the Government. SpKef and Byr, two savings banks, are cases in point. There, the Icelandic bankers’ gluttony was not lesser than in the case of the big banks. Nevertheless, the government gave them some cash, casting a terrible shadow on Iceland’s image as a country which does not bail out banks. Good thing nobody noticed. SpKef was later assimilated into New Landsbanki (a state owned bank) but Byr ended up in Islandsbanki (New Glitnir).

It is very important to realise one thing: the governments, both the “conservative” one prior, during and after the October crash, and the “left wing” one, which took over after the 2009 general elections, did everything they could – absolutely everything – to try and keep the banks afloat. And of course, the banks themselves tried what they could to save their faces by buying up their own stocks and thereby maintain their price (which, in their case, was quite close to being a market abuse). The savings banks that went off the cliff after the Big Three had closed down their shops were small enough to be rescued by the government but the Big Three in October 2008 were simply too large to be saved. That did not stop the government from trying everything it could do to throw out the safety net, including practically emptying the foreign reserves of the Central Bank when it tried to keep Glitnir afloat.

It was Iceland’s “fool’s luck” not to be able to rescue the banks in October 2008. I don’t want to even consider the cost of rescuing the banks today, it would have been horrible! The 31%-of-GDP public deficit in Ireland in 2011 would have been a laughing stock compared to the gargantuan cost the Icelandic public coffers would have suffered if the banks had been saved.

The jails in Iceland are not full of “banksters”
So the first lore on Iceland – that it intentionally let the banks to bankrupt – is not according to reality. The reality is that the government tried to save them but could not. The one about all the jailed banksters is, well, not entirely true either.  read more

PHOTOGRAPH: Katrin Backes