
Iceland put top finance executives behind bars, but fears of cronyism remain - clorenzo
http://www.bloomberg.com/news/features/2016-03-31/welcome-to-iceland-where-bad-bankers-go-to-prison
======
deepnet
Exactly, the problem has got worse.

Banks are larger and more centralised, the offenders unpunished know they can
act with impunity, legislation is unchanged.

Banking/ finance types now know that if they are losing money they must simply
lose big enough to trigger more bailouts and the taxpayer pays.

This is despotic anti-capitalism: they keep the winnings and losses are
generational debt on which they again profit.

The only ways that have ever worked to inject capital is to pay the poor and
middle class by national infrastructure projects or GWBush style $1000 cheques
- everyone benefits as money circulates.

Keynsian economics got this right.

Banks and the rich largely hoard capital where it is useless, pretending risk
aversion when it was outright fraud that caused the econopocalypse, not risky
but legitimate loans to business.

This will happen again unless investment and savings banks are again
separated, but no nation wants to do it unilaterally fearing an exodus of non-
dom capital they use to cook the government figures.

Finance is rotten to its core.

Quantative easing is bailouts by the backdoor.

Austerity stagnates an economy.

~~~
tosseraccount
"Austerity stagnates an economy".

How did overspending work out for Greece?

[ edit: I'd be glad to discuss substance. The admittedly rhetorical question
stands. What is the evidence on overspending and growth? ]

~~~
thedataslinger
Put simply: it is fraudulent when a creditor uses lies or deception. JP Morgan
deceived the Greek people by masking a massive loan to the Greek government as
a "currency swap", seemingly to avoid the financial regulators within the EU.
See here:
[http://www.nytimes.com/2010/02/14/business/global/14debt.htm...](http://www.nytimes.com/2010/02/14/business/global/14debt.html?pagewanted=all)

~~~
tosseraccount
"Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of
other banks enabled politicians to mask additional borrowing in Greece, Italy
and possibly elsewhere."

Sounds like the Greek government was culpable.

Not blaming the culture of corruption in Greece and not pointing out that the
Greek overspending was the root of the problem is disingenuous.

~~~
cmrdporcupine
There have been two different Greek governments in this period.

Smearing Syriza, a socialist formation which made the same critique as the
above poster, and would never have signed those deals -- for the corrupt
actions of New Democracy & PASOK which did is a little bit of intellectual
dishonesty.

~~~
tosseraccount
PASOK = Panhellenic Socialists

~~~
cmrdporcupine
They're a social democratic group with very extreme differences with Syriza.

------
grabcocque
Just to clarify,

They were sent to prison for "market manipulation and fraud" which are crimes
in many places, not just Iceland.

They weren't sent to prison for being "bad bankers" which isn't a crime in
Iceland or anywhere else.

~~~
bradleyjg
Yes. Just look at all those bankers that went to prison for 30+ years of
manipulating LIBOR. Well one banker anyway. And all those bankers that went to
prison for reps and warranty fraud on synthetic CDOs. Well no bankers anyway.

This is clearly a dog bites man story about something that happens all over.

~~~
forgetsusername
> _Well no bankers anyway._

Please point to the convictions. We don't throw people in jail because we
don't like their business practices.

The idea that the government wasn't absolutely salivating at the opportunity
to throw some bankers in jail is one of the funniest things I read on the
internet. People don't seem to understand that the government and banking
industry are often at odds on many things. Of course, often these are the same
people who interpret things like TARP as a "gift" to the banks.

~~~
iheartmemcache
Let's be honest, for every overworked DA who is ambitious enough to attempt to
prosecute a banker, you will immediately have ten 6th year associates out of
their top 1/3rd from UChic, Yale and Stanford willing to put in 90 hours
because junior partner at Cravath or Skadden is so close they can taste it.
TARP was absolutely necessary (we absolutely would have had a complete and
total systemic failure had relief not been provided), but the US government
could have dictated far stricter terms at which the T-notes were issued which
would have benefited the country in the long-term.

Instead of a simple bond, they could have offered an alternative instrument
that ensured less of a .. cavalier.. attitude towards trading. "These bonds
are issued contingent upon .. {loans must be underwritten by X% in fungible
assets, rather than ISDA 3rd-order derivatives (ugh bad pun); Y% of your
profits for the next Z years must be invested in a FDIC-esque safety fund as
insurance for the next crash; or hell, 'the US government will offer $foo MM
in exchange for $bar equity, the profits of which will go towards this years
deficit/national debt/...'. If you read first-party accounts at the time when
Mae/Mac/Stearns and _AIG_ when down, absolutely everyone was so panicked the
board members/CEOs would have taken those terms.

~~~
forgetsusername
> _Let 's be honest_

Yes, convicting these people would have been difficult (which speaks to the
alleged crimes, in my opinion). Yes, the bank bailouts weren't a paragon of
good sense. Hopefully lessons will be learned for the next time.

Perfectly valid arguments and far removed from "toss these chaps in prison". I
don't want to live in that world.

------
ivoras
Here's a more direct post about various Iceland-related myths:
[https://studiotendra.com/2012/12/29/what-is-actually-
going-o...](https://studiotendra.com/2012/12/29/what-is-actually-going-on-in-
iceland/)

~~~
ktRolster
Here's a quote from that article:

 _Icelandic MP’s received a lot of no-strings-attached free money from the
banks and the key players in the banking bubble and ensuing collapse are not
the same as the people who are being convicted for fraud or insider trading._

------
haberman
The whole article feels like a non-sequitur. "Iceland put bankers in prison
for helping cause the financial crisis, yet there is still crony capitalism."
How are these two facts related? Putting bankers in prison for helping the
economy crash is not intended to solve the problem of bankers being too cozy
with politicians. It's intended to solve the problem of bankers reaping
private returns from taking public/socialized risk. It's trying to ensure that
when bankers hurt everybody, they feel the hurt too.

------
KKKKkkkk1
Why should Iceland bankers have gone to prison? For taking money from British
depositors and investing it in the Spanish housing bubble? Let the British
send _their_ bankers to prison.

~~~
bmh_ca
There was outright fraud by some Iceland bankers, who indicated they had
assets and relationships that did not exist. Issues include:

\- Indicating to the ECB and others that they had relationships with strong
German banks (when the Iceland bankers showed up at the German banks, the
Germans indicated they had never heard of the Iceland banks)

\- Engaging in "next-gen Enron-style" corporate asset-liability accounting
deceit, such as counting zero-coupon bonds cross-issued with other banks as
assets but not as liabilities

\- Knowingly accepting billions in bailout funds from the ECB on said fraud

\- Failing to acknowledge, take steps to prevent or mitigate damage, at the
point when it was undeniable that Icelandic banks could never cover their
liabilities

\- Paying their executives on quarterly bonuses in spite of horrific losses

That's just a glossy sampling. If it's an interesting topic for you, I
strongly recommend the book by my friend Gudrun Johnson, "Bringing Down the
Banking System: Lessons from Iceland".

The Report of the Althingy (Icelandic parliament) is one of the most
exceptional pieces of literature of our generation
([https://en.wikipedia.org/wiki/The_Report_of_the_Investigatio...](https://en.wikipedia.org/wiki/The_Report_of_the_Investigation_Commission_of_Althing)).
It is the source on which Gudrun based her book, and arguably the best post-
mortem on an insolvency ever made, or at least since the Amulree Royal
Commission on the insolvency of the Dominion of Newfoundland.

 _EDIT_ Fixed list.

~~~
arethuza
_"...you have a dog, and I have a cat. We agree that each is worth a billion
dollars. You sell me the dog for a billion, and I sell you the cat for a
billion. Now we are no longer pet owners but Icelandic banks, with a billion
dollars in new assets."_

Michael Lewis in Boomerang.

------
willow9886
To anyone interested in this article, I would recommend reading the book
Bommerang: Travels in the New Third World by Michael Lewis:
[http://www.amazon.com/Boomerang-Travels-New-Third-
World/dp/0...](http://www.amazon.com/Boomerang-Travels-New-Third-
World/dp/0393343448)

------
vmateixeira
They're allowed to browse the Internet and go to the Gym? Sounds better than
most hotels I've been.

~~~
kybernetikos
Are you saying that life in a prison should be worse than living in a budget
hotel? Why?

~~~
Ensorceled
Americans like to punish. A lot. Instead of rehabilitation they focus on
making sure convicted felons are practically unemployable once they are out of
jail. This is changing, but slowly.

~~~
vmateixeira
I agree with rehabilitation and make people employable, but let's face it,
this is clearly not the case here. This is a white collar... with the outcome
being paid vacations.

 _Another thing to mention is that even if Lárus Welding loses his appeal and
the six months jail + three months parole sentence is upheld, that doesn’t
mean that he’ll actually be in jail for six months.The way incarceration works
in Iceland, he’s likely to be out in a halfway house with a GPS tracker on his
ankle in two months, and completely free in three, serving the remaining six
as parole.And he gets to keep all of the money he made. Which was lots.Baldur
Guðlaugsson, the other major conviction mentioned, only served six months out
of 24 in prison._ [1]

[1] [https://studiotendra.com/2012/12/29/what-is-actually-
going-o...](https://studiotendra.com/2012/12/29/what-is-actually-going-on-in-
iceland/)

And I'm sure they'll have plenty of private companies offering them a job once
they get out of 'jail'.

~~~
Ensorceled
Oh most certainly. But the original comment was basically a call to "hang'em
high" which is what I was addressing.

------
hownottowrite
Kviabryggja facilities: [http://www.visir.is/fancy-facilities--icelandic-
banker-heads...](http://www.visir.is/fancy-facilities--icelandic-banker-heads-
to-prison/article/2015150229353)

~~~
toomuchtodo
Would you prefer we flog them in public? Prison accommodations need not be
barbaric to punish.

~~~
hownottowrite
Indeed. [http://icelandreview.com/news/2015/11/10/riding-lessons-
impr...](http://icelandreview.com/news/2015/11/10/riding-lessons-imprisoned-
bankers-canceled)

~~~
toomuchtodo
I agree thats a bit over the top.

------
melling
There's a lot to read. Can someone explain the details of actual crimes for
which they were convicted? The whole "finance crimes" always seem a little
fuzzy. If you run up $70 billion in debt, for example, and need a bailout, is
that a crime?

[http://www.bloomberg.com/news/articles/2016-03-29/puerto-
ric...](http://www.bloomberg.com/news/articles/2016-03-29/puerto-rico-
creditors-said-to-unite-for-debt-counterproposal)

It almost seems like a game.

~~~
jokull
My uncle is one of the jailed, mentioned in the article. One of Iceland’s most
respected lawyers and teacher at the University of Iceland has gone on paper,
and on radio, and on TV, saying that the Al Thani trials did not make any
sense, for more than one reason. The most obvious mistake was that by the time
the case went from local courtrooms to the federal level the prosecution had
completely switched the focus of the case, going so far as to turn prosecuted
into witnesses. (The courts also gave out 99% green light on all wire taps
requested from the prosecutors to prepare the case, and let them put my uncle
and others in multi-day isolation years after the events themselves... didn’t
really get the reason for that)

The court ruling is very interesting. The foundation of the conviction is
market manipulation, which, at least in Iceland, is highly interpretive by
judges. It seems obvious when you read the ruling and the criticism that
judges were ruling in favour of public opinion. That’s my opinion and reading
of it, the public opinion is still very much against bankers, so ymmv when
asking other people in Iceland.

The article also fails to mention how Kaupthing went bankrupt. Understandably
as the article doesn’t go into any detail on anything at all really. But it
involves credit lines shutting down completely following a raid by the British
on UK offices of Kaupthing using terrorist law to seize files and shut down
the bank’s UK presence.

You could maybe google translate this for better info:
[http://www.pressan.is/pressupennar/Lesa_Brynjar/al-
thanimali...](http://www.pressan.is/pressupennar/Lesa_Brynjar/al-thanimalid-
uttekt)

~~~
feelgood
I would take this reply with a huge grain of salt, the lawyer in the article
is a personal friend/business partner and a defendant of one of the persons
accused of the same crimes.

~~~
jokull
It’s one big grain of salt in Iceland since everything and everyone is somehow
related.

------
Kristine1975
Now please continue with the rest. Deutsche Bank anyone?

------
6stringmerc
Welcome to the United States, where bad bankers create catastrophic bubbles
while leading the Federal Reserve then deny their responsibility later.

------
ageofwant
Money is a social contract. Its core intention is to formalise the exchange of
promises fundamentally based on trust. I trust you to honour your promise to
me, thats why I accept this pile of colourful paper tokens for my precious
cow.

Society, as we are used to, is dependant on this contract being honoured.

This system is currently so heavily laden with trust-sapping parasites that
the host is verging on collapse.

------
qaq
I think if enough people cared you could greatly affect how US Banks act. In
reality they are pretty much owned by you (through Vanguard, Fidelity,
Blackrock, Capital Companies Group etc.) you have 0 input on how they vote
though with your shares.

------
vette982
_Bringing white-collar criminal cases may be easier in Iceland because courts
don’t use juries. Rather, they employ neutral experts to help judges
understand the intricacies of finance._

I believe Iceland is in the minority among developed nations that don't use
juries, but I think this is a major strength in their court system.

~~~
ptaipale
I think that at least in most crimes and with a definition of "jury" similar
to that of USA or UK, most developed nations don't have jury trials. The
common law countries do (USA and UK plus some Commonwealth countries, such as
Canada, Australia, Hong Kong).

Some countries have some elements of traditional juries in some kinds of court
cases, but for example in Nordic countries, there are no jurors, just lay
judges. The lay judges don't sit in a jury box, they sit on the bench for
judges, and they sit many cases, not just one where they'd be called to jury
duty.

For example, Iceland, Norway, Sweden, Denmark, Finland, Poland, Germany, Czech
Republic, Slovakia, Hungary, Netherlands, Italy, Spain don't really have jury
trials.

Belgium, France, Switzerland and Russia have some kind of juries in some
limited cases, but not commonly.

Also many developed former Commonwealth countries have given up jury trials
(South Africa, Singapore) while some countries that did not have jury trials
have fairly recently started to experiment with them (South Korea, Japan).

However, it would be safe to say that most developed nations don't have jury
trials, or only have them for very specific circumstances.

------
onion2k
We should note that Iceland is a country with a population of 323,000 people -
that's a large town in most other countries. The scale of the Icelandic banks
compared to other countries was really not equivalent.

~~~
ptaipale
The scale of the Icelandic banks compared to the country's population/national
economy was humongous. That is probably why the banking business was so
difficult to control (once it was fed, as rumored, with some grey money from
Russia).

------
headmelted
"They spend their days doing laundry, working out in the gym and browsing the
Internet."

Hard time. Or as my wife calls it, time.

Badum tisch.

~~~
jakub_h
Well at least the biggest thing they can break now is the gym equipment.

------
lintiness
so much party / political garbage in this thread. the reality is this: if the
government could prove bankers in the us broke laws, they'd throw them in
jail. they can't.

