Icelandic government held culpable for crisis


Who will be accountable when we discover, like in Iceland, that no global bogeyman was to blame for our banking collapse? asks ELAINE BYRNE

THE SPECIAL investigation commission, established by the Icelandic parliament, published its nine-volume 2,300-page report yesterday into the causes of Iceland’s banking collapse.

It found the collapse of Lehman Brothers in September 2008 was not the primary cause of Iceland’s economic meltdown. An appendix to the report concludes Icelandic banks had ignored repeated warnings that their size and rapid expansion exposed them to great risks. “It seems likely that they would have come to grief eventually, even without a worldwide financial crisis.”

Will the preliminary inquiries by Patrick Honohan and Klaus Regling produce similar findings? Their reports into the “root causes” of Ireland’s banking collapse are due in the next six weeks.

What scapegoat will the Government use to explain why our self-inflated property boom burst? What happens when we discover that it was not someone else’s fault, that the international bogey man of Lehman Brothers was not responsible for malfeasance and mismanagement of the public finances?

The Icelandic banking inquiry highlighted the failure of “managerial judgment” by the banks, regulatory authorities and government. It noted that “clear warnings” by international ratings agencies, such as Fitch, were ignored. The 2006 Bank Systemic Risk Reportby Fitch, for instance, highlighted Iceland’s “high vulnerability to potential system stress due to rapid lending growth”. The other country cited by Fitch in the report, in the same category as Iceland, was Ireland.

Iceland was more vulnerable to Lehman’s collapse than other countries because of a “reluctance to admit that problems were building up” the inquiry found. When “outsiders” queried the opaqueness of banks’ financial statements, “managers were unable or unwilling to provide more detailed information about their credit risk exposures”.

Prime minister Johanna Sigurdardottir said yesterday “mistakes were certainly made. The private banks failed, the supervisory system failed, the politics failed, the administration failed, the media failed, and the ideology of an unregulated free market utterly failed”.

The Icelandic banking inquiry also found that the sources of independent economic analysis, such as the media and academia, were negligent in their obligations to display objectivity because of close links with banking interests. Regulatory agencies were too close to financial institutions.

Banks and publicly traded companies were guilty of deliberate market manipulation. Jon A sgeir Johannesson, the boss of Baugur, is a particular target of popular outrage in Iceland. The Secret Bank of Baugur, a satirical YouTube video, is remarkable in the parallels with some of what we know about Seán FitzPatrick. Johannesson lent himself huge sums of money without collateral, interest or informing his shareholders, and without, in his case, the board’s approval in order to create an overseas financial empire.

In FitzPatrick’s case he used money he borrowed to fund a Nigerian oil project and a casino in Macau in Asia.

Páll Hreinsson, the supreme court judge who chaired the truth commission, suggested that a national holiday be declared so all Icelanders could have time to read the report. At the press conference yesterday, Hreinsson firmly pointed the finger at government for responsibility for the crisis.

Political donations by vested interests reduced the capacity of political criticism. The emergency legislation drawn up in early October 2008 had no expert input. The government was guilty of economic mismanagement because specific political decisions inflated the boom and overheated the market. Ministers failed to protect the public interest.

Is any of this starting to sound familiar?

The causal nature of political appointments was regarded as a contributing factor to the weak quality of governance in Iceland.

In Ireland, the board of the Financial Regulator has nine members, six of whom were politically appointed by the then minister for finance, Charlie McCreevy, in 2003. Despite the shortcomings of this body, all of these individuals still sit on the board of the Financial Regulator.

McCreevy’s appointments included barrister Gerard Danaher, who incidentally donated €1,500 to Eoin Ryan in 2004 and continues to serve in an overlapping role as a director on the Central Bank Financial Services Authority of Ireland.

Deirdre Purcell was also appointed by McCreevy and remains on both boards. Why was a fiction writer politically appointed to oversee the financial regulation of our banks?

The inquiry named seven individuals deemed guilty of “extreme negligence in the discharge of their duties.” These included the former prime minister, former finance minister, former minister of banking, former director of the financial services watchdog and former central bank chief.

But it seems that our banking inquiry is determined not to hold anyone personally accountable. When he addressed the Oireachtas Joint Committee on Finance and the Public Service in February, Klaus Regling said that his report on the Irish banking collapse would name institutions, but would not identify individuals, though he acknowledged that it may be possible to make “inferences” from the report’s conclusion.

In the week that the manager and creator of the Sex Pistols died, what would Malcolm McLaren make of it all?

Here we go here we go again

Here we go I just cannot pretend

Here we go we’re off again

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