The US government has so far not sent a single top executive of the big banks that caused the financial crisis to jail. They did not even threaten them with any prosecutions that might have resulted in jail time. A doctrine has grown up that these banks are ‘too big to fail’ and their executives are ‘too big to jail’, that trying to do so might result in worse outcomes than letting them get off scot-free.
Off course this is rubbish. What this immunity does is encourage even greater reckless behavior on their part and set the stage for the next major crisis.
But the government of Iceland is made of sterner stuff and they have sent 26 bankers to a combined 74 years in prison.
Eleven former bankers have been sentenced to four and a half years or more in prison. The former top bosses of Kaupþing have received the longest sentences to date. Hreiðar Már Sigurðsson, the former CEO of failed bank Kaupþing and Magnús Guðmundsson, the CEO of Kaupþing Luxembourg, top the list, having been sentenced to a combined six years in prison for extensive market manipulation, embezzlement and breach of fiduciary duties. The maximum combined sentence for financial crimes according to Icelandic law is six years.
Courts can sentence people to longer prison terms than six years in cases where the crimes are systematic and repeated, and in cases where people make a living from engaging in financial crimes. Future cases against Magnús and Hreiðar Már will determine if the courts consider the two to have engaged in financial criminality of a scale which justifies expanding on the maximum sentences.
Iceland also let its banks fail during the financial crisis rather than bail them out the way the US did. There was nothing in principle wrong with the US bailing out the big banks using taxpayer money. What was wrong was not using the massive leverage that it had at that moment to institute major reforms such as breaking up the too-big-to-fail banks, forcing out the top executives who allowed the crisis to occur, reforming the banks’ operating practices, and bringing back the Glass-Steagall Act to prevent the banks acting like casino with the depositors’ money.
Let’s see Ireland throw a Catholic bishop in jail. THEN I’d be impressed.
moarscienceplz,
The article was about Iceland, not Ireland.
The mess created by these people still isn’t resolved completely.
The capital controls are still in place.
Then there are a bunch of EU governments that still want their pound of flesh from the Icelandic government. And this one is going to be messy, really messy. Those governments thought the EU could do what the EU did later to Greece and force Iceland to socialize the losses incurred by the different banks and made promises based on that. They lost it when Iceland said they wouldn’t do that and let the banks go bankrupt. So instead they gave out promises to make people whole for savings above what Iceland guaranteed and then they completely lost (whatever they had left after Iceland let those banks go bankrupt) it when Iceland said nope that is your promise not what we are legally obliged to do.
If Argentine is in trouble thanks to several vulture funds remember that those are privately owned. Iceland has the same problems but then with governments wanting money.
A side effect of this is that this has turned most of the population into Euro skeptics.
Finally there are a bunch of hedge funds & large private investors that want their money back. Those are easier to handle, especially after Iceland has shown no problems telling other members of the European Economic Area to go screw themselves, tossing the people who shoulder the responsibility for this in jail and keeping up the capital controls as long as these funds & investors do not agree to the terms that Iceland sets (which makes their investment worth less every day they are up so they will eventually agree).
The upside is that there is a decent economic growth, low unemployment and low inflation and that if Iceland gets it’s way if the investors extract their money from the economy but that won’t cripple the it, and they will do so.
Just to clarify, Iceland is not in the EU and does not use the Euro as a currency. Yes the government pissed off a lot of EU governments, banks and hedge funds by refusing to bail out privately owned banks, but who seriously thought that a population of 330,000 was ever going to hand over billions and billions of dollars they didn’t have to make up for the reckless and criminal behaviour of private institutions. Especially since the EU (and especially UK) banks that took the brunt of the losses were themselves privately owned and neck deep in dodgy practices themselves.
In Iceland there is still significant bitterness against their (former) bankers (I was there recently) and at the harm caused. While they are by no means out of the woods I think they did the right thing by letting the bad institutions fail and then moving on as best they could. I wish them well.
@ Rob : Yes, I think Iceland got it right and the USA wrong on this one. The bankers should have been made to pay and suffer the consequences of their failures and actions -- and be regulated more tightly to prevent recurrences too.
I was very impressed with Iceland for, as you point out, their refusal to bail out the banks that had brought the world to financial ruin. The huge international financial banks were allowed to fail, and good riddance.
These actions have proved helpful in allowing a quick recovery for Iceland, making for an excellent example of what every country should have done to avert the worst and to avoid rewarding the pathological behaviour that led to the crash.
Now the IMF, among other expert organisations, is showing the evidence that we’ve got yet another crash coming soon, since we basically have done fuck-all to suppress all the same pathologies that we rewarded for the institutions that led us to the 2008 disaster. And the 2000 disaster before that, and so many more before that.
Will we demand our governments say no to the big banks this time?
To further clarify what Rob in #4 said.
There is the EU and then there is the European Economic Area which is based on the European equivalent of NAFTA. Any member nation of the EU is automatically a member of the EEA but not all signatories of EFTA are EU members. Not sure how many but I do know that Iceland only signed the EFTA and is not a member of the EU.
What I meant with most Icelanders being EU skeptics is that before this mess and the pressure from the EU to screw themselves Iceland was considering joining the EU as member state. Not going to happen now or the foreseeable future.