Iceland: what ugly secrets are waiting to be exposed in the meltdown?
The Daily Bell
16 Settembre 2009
Almost a year since the
collapse of the Icelandic banks, the rotten nature of these financial
corpses is slowly beginning to emerge. Iceland: what ugly secrets are
waiting to be exposed in the meltdown? For months rumours of
share-ramping, market manipulation, excessive loans to their owners and
unusual transfers off-shore have been circling Kaupthing, Glitnir and
Landsbanki, whose failure last October left 300,000 British customers
unable to access their money. It has now become clear that this was no
ordinary crash. Iceland's special investigation into "suspicions of
criminal activity" at the three banks is likely to stretch from
Reykjavik to London, Luxembourg and the British Virgin Islands. Eva
Joly, the French-Norwegian MEP and fraud expert hired by Iceland and
now working with the Serious Fraud Office, now believes it will be "the
largest investigation in history of an economic and banking bank
collapse". - Telegraph
Dominant social theme: A sad episode international finance.
Free Market Analysis: One has to keep in mind that
Iceland is a country of about 300,000 people. And yet the "suspicions
of criminal activity" stemming from the collapse of one of the world's
smallest central banks are likely to spread around the Western world.
Here's some more from the article about such "suspicions" ...
When the banks were put into administration last October,
experts believed that Iceland's banks had simply fallen prey to the
global credit crisis. But Dr. Jon Danielsson, an Icelander who teaches
economics at the London School of Economics, believes that while the
timing of the crash was dictated by the global banking crisis, the
scandal is unique among European financial institutions.
He believes the root of Iceland's problems that have now
decimated its economy appear to have started when the government
decided to privatize the banks in the early 1990s. "Iceland got its
regulations from the EU, which was basically sound," he says. "But the
government had no understanding of the dangers of banks or how to
supervise them. They got into the hands of people who took risks to the
highest possible degree."
Kaupthing fell into the clutches of the Gudmundsson brothers,
Ágúst and Lydur, who made their fortunes building up the Bakkavor food
manufacturing empire, which supplies hundreds of supermarkets in the
UK. Their investment vehicle, Exista, owned 23% of the bank, counting
Robert Tchenguiz, the London property entrepreneur as a board member.
Kaupthing's
loan book, which was leaked on to the internet last week, shows that
around one third, or €6bn (£5.1bn), of its €16bn corporate loan book
was going to a small elite group of men connected to the bank's owners
and management.
Several investigations into Kaupthing centre on share ramping,
where the bank would allegedly give loans with no interest or security
in order to buy shares in that same bank - boosting the share price.
Yes, much to be concerned about. But is Danielsson serious about
these accusations? He believes that privatization is at the heart of
the difficulties? We've heard exactly the opposite of course when it
comes to American and British central banks. The Federal Reserve is
said to function well (it doesn't) because it is in private hands and
immune to political influence (it's not). It's a good sound bite, of
course, to say a central bank functions well because it is private, or
is well regulated because it is public. But it likely doesn't make any
difference.
That's because the institution itself is fatally flawed. If the
American or European central bank broke down, and investigations were
held into the relationships, all holy hell would likely break loose.
How can it be otherwise? These central banks are run by small groups of
(mostly) men, who grow up with each other and go to the same clubs and
run in the same social circles and have the same interests.
In the case of the Federal Reserve, the best of Goldman Sachs tend
to matriculate to government work, and to believe that Goldman Sachs
has not benefited from its relationships at the highest levels of
Western government is likely naïve in the extreme.
According to Danielsson, the Iceland crisis is "unique among
European financial institutions." In fact, we believe it is no such
thing. If any one of these other institutions crashed, the "uniqueness"
would turn out to be commonplace. The interwoven old boys network does
not stop at the doors of central banks. Central banking IS an old boy's
network. It is the best and biggest network of all. In this one, you
actually get to print money, and if anyone asks you for an accounting,
you simply claim that if you release too much information, you will
destabilize this or that financial institution.
We think there is a reason that the Federal Reserve, for instance,
is resisting the Congressional move for a thorough audit, and it has
little to do with a professed concern for the destabilization of
banking institutions. We believe, as with Iceland, that central banking
is infested with private dealings in millions and even billions of
dollars. How could it be otherwise?
Conclusion: Central banking is a franchise of the
utmost power and authority, but the men who run it are neither priests
nor eunuchs. They are merely human beings, and, after all, while power
corrupts, infinite power corrupts infinitely. Only the market itself
can guarantee a level playing field. A market-based gold and silver
standard would do away with the suspicions that are rife when it comes
central banking. The smallest central bank in the world is central to a
financial scandal that threatens to engulf much of the West. What
secrets must the larger banks hold?
Source > The Daily Bell | sept 14