
Iceland sentences bankers to prison for their part in the 2008 collapse - puppetmaster3
http://www.loansafe.org/iceland-sentences-26-corrupt-bankers-to-74-years-in-prison
======
Beltiras
I'm a native of Iceland. There are mixed feelings with respect to the
sentences. We are generally proud to have a system that does imprison bankers
but there are frustrations that the true architects of the financial crisis
not only got off scot free but also with a substantial portion of the loot
scurried away on Tortola. There has been substantial revisionist history
practiced by the guilty and their defenders and the more time passes since the
crash the fuzzier memory becomes. After all the electorate voted the parties
that were largely responsible for the system that crashed back into power.

I'll answer any questions that you would be curious about local sentiment and
coverage.

EDIT: Having finally gotten to a copy of the article I want to point out
several factual statements in the article that I find a little bit challenging
to agree with.

1\. Iceland let the banks fail.

Not really. It was a restructuring. In the restructure a holding company
handed all the assets over to a new corporate entity. All debts and
obligations were honored.

2\. Iceland avoided austerity

Many social programs were cut. Great cutdowns in the healthcare system, so
much so it is on the verge of collapse now.

3\. Geothermal is clean energy

Ask anyone from Reykjavík. Silver can no longer be kept without wrapping it in
cloths, otherwise it goes dark in a day due to the hydrogen sulfide pollution.
It's also not renewable. You can farm the area for about fifty years before
it's too cold to extract and then it takes a millennia to recover.

4\. Value of ISK/EUR

That may be the artificial value while capital controls are in effect. True
value is way below that. I might cover the "snowhenge" problem later, it's a
doozy.

5\. Quoting the President on the banks.

You would have to know how much of a fluffer for the banks the president was
for the banks and the oligarchs before the crash to know how stinky that
sounds to an Icelander.

~~~
cm2187
Would you expect startup-ers to go to prison for having caused the dotcom
crisis of 1999? People who did fraud went to prison. But it's not a crime to
make bad business decisions. In fact right now, tech companies are red hot (a
bit less since this summer). I am sure people will loose a lot of money on
current valuations. Should the management teams of Tesla, Amazon or Jet.com go
to prison for that?

~~~
Beltiras
If they artificially manipulated the stock themselves and hid their interest
in the company to the degree where holdership limits were broken, yes.

You also have to realize what sort of lending put the banks under. Using their
influence in the banks they directed the loan officers to make out unsecured
loans to their own companies. That was a big part of the banks all failing
simultaneously.

~~~
cm2187
Exactly, but that's Enron style fraud. It's not fraud that caused the
financial crisis. It is the excess of leverage, and the complacency in lending
and the way balance sheets were funded. I am not saying it wasn't moronic,
just not criminal.

~~~
Beltiras
There were rules that were supposed to prevent such overleveraging that they
skirted by hiding their interest in the bank. The holding companies were so
transparent about it that they had silly names like Drawercorp and (I shit you
not) Twisty (The Icelandic name is Vafningur, it kinda translates)

~~~
JumpCrisscross
> _There were rules that were supposed to prevent such overleveraging that
> they skirted by hiding their interest in the bank._

To clarify, executives at Bank created a Holding Company. Bank lent Holding
Company $100. Bank then sold Holding Company Bank stock for $100, thereby
manufacturing $100 in "equity". This "equity" makes Bank's debt/equity, and
other equity-based leverage ratios, look rosier than they are.

I recall a similar shit show going down around Karzai's cronies in
Afghanistan.

------
JumpCrisscross
Let's make sure we're comparing apples to apples. Most, if not all, of these
convictions were for plain-vanilla securities fraud. Executives using company
funds to buy stock for their own accounts on insider information. Or hiding
their earnings from tax authorities in Tortola. These actions are clearly
illegal and regularly prosecuted in the United States. Comparing these cases
to the lack of prosecution of, _e.g._ , Lehman Brothers's Dick Fuld is
disingenuous. No laws were clearly broken there.

~~~
chishaku
Comparing the situation in Iceland to the situation in the U.S. is certainly
not an apples to apples comparison. The scale and impact of fraud in US
financial markets is far greater.

It's hard to know what laws were clearly broken when there have been very few
prosecutions.

Bill Black, former regulator and litigator during the S&L crisis:

> The savings and loan debacle was one-seventieth the size of the current
> crisis, both in terms of losses and the amount of fraud. In that crisis, the
> savings and loan regulators made over 30,000 criminal referrals, and this
> produced over 1,000 felony convictions in cases designated as “major” by the
> Department of Justice. But even that understates the degree of
> prioritization, because we, the regulators, worked very closely with the FBI
> and the Justice Department to create a list of the top 100 — the 100 worst
> fraud schemes. They involved roughly 300 savings and loans and 600
> individuals, and virtually all of those people were prosecuted. We had a 90
> percent conviction rate, which is the greatest success against elite white-
> collar crime (in terms of prosecution) in history.

> In the current crisis, that same agency, the Office of Thrift Supervision,
> which was supposed to regulate, among others, Countrywide, Washington Mutual
> and IndyMac — which collectively made hundreds of thousands of fraudulent
> mortgage loans — made zero criminal referrals. The Office of the Comptroller
> of the Currency, which is supposed to regulate the largest national banks,
> made zero criminal referrals. The Federal Reserve appears to have made zero
> criminal referrals; it made three about discrimination. And the FDIC was
> smart enough to refuse to answer the question, but nobody thinks they made
> any material number of criminal referrals [either].

[http://billmoyers.com/2013/09/17/hundreds-of-wall-street-
exe...](http://billmoyers.com/2013/09/17/hundreds-of-wall-street-execs-went-
to-prison-during-the-last-fraud-fueled-bank-crisis/)

------
bmh_ca
If this topic interests you, I recommend you read the book by Gudrun Johnson
called "Bringing Down the Banking System: Lessons from Iceland". It is a
translation and summary of the Report of the Investigation Commission of
Althing (the Icelandic Parliament).

[https://en.wikipedia.org/wiki/The_Report_of_the_Investigatio...](https://en.wikipedia.org/wiki/The_Report_of_the_Investigation_Commission_of_Althing)

The Report of Althing is, in my opinion, the most comprehensive since the
Amulree Report of Newfoundland in 1933, and one of the very few reports to
investigate causes of the crisis.

As a matter of interest, I seem to recall that 83 million euros was given to
Icelandic bankers for their part in the crisis. The proceeds unaccounted for
numbered in the billions. Much of what the banks did was modelled on Enron-
style deception, a practice which remains quite commonplace now in the
financial marketplace.

~~~
e15ctr0n
Another great book to read is Michael Lewis' _Boomerang: Travels in the New
Third World_ (2012) which is a compilation of articles on the 2008 recession
that he wrote for _Vanity Fair_ magazine.

The one on Iceland is called "Wall Street on the Tundra - Iceland" and you can
see its preview here:
[http://www.vanityfair.com/culture/2009/04/iceland200904](http://www.vanityfair.com/culture/2009/04/iceland200904)

(The complete article is behind Vanity Fair's paywall.)

------
cbeach
Frustrated that the author neglected to elaborate on the crucial detail - the
truth behind Iceland's post-2008 "revival" is that it imposed capital controls
on its own citizens. It imprisoned their money to avoid "capital flight." This
affected everyone. Even students on school trips had to fill out copious
government paperwork before exchanging minimal amounts of -their own- money
for foreign currency.

I know I'd want to take my earnings and get the hell out, if my government
started bowing to leftwing populism and came for the bankers like a medieval
pitchfork-waving mob.

Capital controls mean that the "recovery" is completely artificial, and until
they're fully lifted we won't know just how deep Iceland's problems really go.

~~~
CuriousSkeptic
OTOH, Once they gave the money to the banks it's not really "their own" any
more. That's part of the problem. people's perception is that having money in
a bank account is like having cash in a safety deposit box, which is really
not the case, at all. A bank account is just a debt, and just like any debt,
the bank can default on it.

Interestingly enough there was a report, addressing exactly this problem, for
the Icelandic government, by means of "souverign money". An arrangemang much
more like the saftey deposit box scenario.

[https://www.forsaetisraduneyti.is/media/Skyrslur/monetary-
re...](https://www.forsaetisraduneyti.is/media/Skyrslur/monetary-reform.pdf)

------
gizmo
I consider these prosecutions a good thing, even though the selection of who
goes to prison and who gets to enjoy their spoils seems arbitrary. For
instance none of the politicians who played benefited from and played a large
role in the Icelandic financial crisis have been prosecuted. The financial
oversight institutions failed too, but somehow their failure to do their jobs
is acceptable?

From a game theory perspective persecuting bankers is correct. The incentive
for people who are already wealthy to take massive risks gets reduced when
they know they may go to prison when it all hits the fan. It has little to do
with real justice, though.

~~~
dragandj
Through the modern history, politicians always succeeded in turning the plebs
against various scapegoats that they blame for the trouble of the day. Ever
wonder how they always find someone to mark as a villain, but it is never
their, the politicians', mistake?

------
rodionos
It maybe utopian or too liberal, but I'm against imprisonment for any kind of
crime against wealth, be it shoplifting or securities/bank fraud on planetary
scale. I think prison should be used for crimes against humanity, e.g.
homicides, domestic violence, child abuse etc. Let the economic agents figure
out how to protect their wealth by themselves by increasing transparency,
improving risk controls, monitoring and security protection.

Say you don't want your car stolen, go and get some insurance, let insurance
companies figure out how to prevent theft and find stolen cars. Let them
figure out how to make stolen cars unusable. It's just an example, but I think
it's doable.

~~~
titzer
Private protection of capital sounds like a terrible idea. Making racketeering
and extortion legal (but only if pure money is involved)? No thanks. I want a
justice system that punishes someone who steals money behind a desk at least
as harshly as someone who steals bread.

~~~
icebraining
But under rodionos' suggestion, it would: stealing bread is also a crime
against wealth. Wealth is not just "money".

------
ma2rten
Since the link seems to inaccessible, this website seems to be a mirror of the
same content:

[http://americannewsx.com/crooks-crime/iceland-
sentences-26-c...](http://americannewsx.com/crooks-crime/iceland-
sentences-26-corrupt-bankers-to-74-years-in-prison/)

------
gregpilling
What would have happened if the US and Euro banks went down the same path?
Does anyone have a well thought out insight?

~~~
grecy
US congress would have passed a law making it impossible to jail bankers for
their wrongdoing.

~~~
puppetmaster3
To your point, USA citizens did not want to pay for the bankers, but here is
speech on the congress floor:

\-
[http://youtube.com/watch?v=HVOuK_KB9ew](http://youtube.com/watch?v=HVOuK_KB9ew)

------
MichaelBurge
I'm not sure I get the hate on bankers. I don't like the bailouts - those
could've been handled better - but people seem to be angry about the fact that
they offered loans that they shouldn't have. That is, non-bankers were given
money that they shouldn't have been given, and the claim is that we should be
more selective about offering capital and opportunities to non-bankers and the
underprivileged poor.

If somebody offered me a billion dollars at a 3% interest rate or whatever it
is right now, I would seriously consider accepting it knowing that I don't
have the capacity to pay them back. There are a lot of things in the world
that pay better than 3% interest and that are relatively safe.

Similarly, a bank that gave out loans whenever you asked(up to the 10 loan
limit, maybe) would be a great opportunity even for people who couldn't pay it
back out of income. You could buy an empty plot of land and put a small
apartment complex on it. You could buy a 4-plex and apply any number of forced
appreciation techniques(put in a coin-operated laundry, redo the piping to
reduce the amount spent on plumbers, plant some flowers outside to increase
the attractivity, etc.). Of course, just betting on general appreciation of
single-family homes is bad money.

Basically, I was too young to really experience the effects of the 2008 and
I'm feeling envy rather than anger about these people's ability to cheaply
obtain capital. So I don't empathize with these news reports about punishing
bankers. Can someone explain why I should feel anger instead?

~~~
newman314
Because the bailouts were not offered to everyone? Banks should not get
special treatment because they are "too big to fail".

Additionally, banks do not actually generate anything tangible of value. They
literally use money from others to enrich themselves.

The banking industry is also what was pushed the Bankruptcy Abuse Prevention
and Consumer Protection Act into play which is what makes it almost impossible
to discharge your student loans.

[https://en.wikipedia.org/wiki/Bankruptcy_Abuse_Prevention_an...](https://en.wikipedia.org/wiki/Bankruptcy_Abuse_Prevention_and_Consumer_Protection_Act)

So yeah, between what I mentioned above and LIBOR manipulation, there's plenty
to hate upon banks.

~~~
icebraining
_They literally use money from others to enrich themselves._

From what I understand, they literally create money from thin air:
[http://www.bankofengland.co.uk/publications/Documents/quarte...](http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf)

------
junto
I'm a big believer that for every up there is a down. I respect Iceland for
doing this. Rather than giving into a fear of the unknown, they faced their
demons. It is without doubt a painful ride, but if any one of us were to
negligently run a company into the ground and mismanage it, we would expect to
pay the penalty for. I find it sad that we have allowed these big banks to
grow so big, that they are "too big to fail". At what point do we have a
scenario where other types of company are also too big to fail?

------
kafkaesq
Would be curious if anyone with knowledge of the various meltdowns that
happened in Iceland can tell us if the Wikileaks disclosures from that period
contributed significantly to the unravelling, as it happened.

------
joeclark77
But have they done anything about the RMT'ers in EVE-Online?

------
kazinator
I.e., each of 26 bankers, for a period of some 2 to 3 years, cannot get a
passport.

------
SloopJon
I couldn't reach the linked article, but it's about 74 years combined since
2012, as summarized by this Reddit post:

[https://www.reddit.com/r/news/comments/418h2r/iceland_senten...](https://www.reddit.com/r/news/comments/418h2r/iceland_sentences_26_corrupt_bankers_to_74_years/cz0fbky)

Longest term was six years.

~~~
dantillberg
Yeah; clearer title would be "Iceland Sentences 26 Corrupt Bankers to Total of
74 Years in Prison" instead of the current "Iceland Sentences 26 Corrupt
Bankers to 74 Years in Prison".

~~~
kazinator
The unambiguous meaning of "N people sentenced to Y years" is that every one
of the set of N people was given a Y year sentence. There is nothing _unclear_
about it; it's simply the _wrong_ way to say that each of N people was given
Y/N years, on average, so that the total sentences add to Y.

You can't add people's years together. Two 30-year-olds are not a 60-year-old,
in combination. Moreover, different prisoners do not serve their sentences
consecutively; it won't be the case that 74 years passes before the last
banker goes free.

~~~
bobwaycott
It seems a bit akin to those "Tom, Sally, and Harry bring 50 years experience
to solving your problems" type statements that are used when certain
businesses/professionals market themselves. Of course, Tom, Sally, and Harry
are all in their 30s.

~~~
kazinator
Even then, it's wacky usage, because a lot of the experience they have
overlaps: they learned a lot of the same things in the context of the same
body of knowledge and culture.

~~~
bobwaycott
Oh, absolutely wacky.

