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Hannes Hólmsteinn Gissurarson Roger Boyes: Meltdown Iceland

Many of Thjodmal’s subscribers are asked by their foreign friends and business associated what really happened in Iceland during the bank collapse and afterwards. This is the first of a series of articles where Professor Hannes H. Gissurarson corrects some errors, misconcep- tions and omissions in English about the collapse. This article will be available online as well.

In 2009, journalist Roger Boyes published Minister in 1991-2004 and Governor of the Meltdown Iceland, the rst full-length book CBI, Central Bank of Iceland, in 2005-9. in English on the Icelandic bank collapse. Some „Dissident” Economists While the author had spent some time in Iceland writing the book, he does not speak The three Icelandic economists on whom Icelandic and does not seem to be familiar Roger Boyes mainly relies, Professors Thor- with Icelandic history or society: Although valdur Gylfason, Gyl Magnusson and Katrin readable, his book is not reliable. Often Boyes Olafsdottir, were according to him amongst quotes anonymous sources, but he acknowl- the “dissident economists” (221-222) uttering edges the help of a few Icelanders, includ- warnings against the expansion of the banks. ing Professors Thorvaldur Gylfason, Gyl This is not entirely accurate. In the years Magnusson and Katrin Olafsdottir (217). 1 It is leading up to the bank collapse, Gylfason, possible that they rather than Boyes himself Magnusson and Olafsdottir could not be are responsible for some of the factual errors, regarded as vocal critics of the leading misconceptions and crucial omissions in the businessmen in Iceland or of the owners and book and especially for the extreme hostil- managers of the banks, even if they certainly ity shown to David Oddsson, Iceland’s Prime were very critical of David Oddsson as a poli-

66 ÞJÓÐMÁL vorhefti 2017 The three Icelandic economists on whom Roger Boyes mainly relies, Professors Thorvaldur Gylfason, Gyl! Magnusson and Katrin Olafsdottir, were according to him amongst the “dissident economists”. tician and central banker, especially Gylfason distributed free of charge to almost all urban who seems to have held a long-standing households in Iceland. Johannesson was not grudge to him (perhaps dating all the way only the biggest debtor of the three main back to 1969 when Oddsson defeated Icelandic banks but also, from the spring of Gylfason in elections to the president of the 2007, in control of one of them, Glitnir. In the students’ association, inspector scholae , at summer of 2005, when Johannesson was Reykjavik Grammar School). For example, charged with ve other businesspersons shortly after Oddsson celebrated his ftieth by the authorities for book-keeping irregu- birthday in January 1998 with a reception larities and several other alleged o!ences, followed by a large and sumptuous dinner, Gylfason wrote in one of his columns: Gylfason wrote a newspaper article about It seems that now the aim is to go after corruption, complaining about secrecy: Johannesson and ve other people before This problem is gravest in the countries the courts. What is behind this? Perhaps where politicians seek the hardest to fur- just a lack of respect for the free market ther their own interests, and those of their and the division of power that goes with personal friends and of tiny special interest it, and also for the necessary separation of groups by handing over to them on a executive, legal and judiciary powers. Who silver platter valuable goods owned by the knows? 5 public (for example shing quotas), at the The case against Johannesson will be dis- same time as they refuse to reveal who are cussed later in more detail, but in his defense nancing their private consumption, for of Johannesson, Gylfason ignored the fact 2 example their anniversary celebrations. that the case against him was initiated by a The reference to Oddsson’s recent birth- disgruntled former business associate, Jon day celebrations was unmistakable. When Gerald Sullenberger, who had a strong per- Professor Gylfason was asked to whom he sonal motive to go against Johannesson and had been referring he refused to name them who was in no way connected to Oddsson or (having himself complained about secrecy). 3 to other Independence Party leaders, having But the birthday reception had been paid for lived abroad for many years. It should also by the Independence Party, and the dinner be noted that both Jon Asgeir Johannesson following it was paid for by the prot made and Jon Gerald Sullenberger were eventually from a Festschrift for Oddsson. 4 found guilty of the charges brought against In the years prior to the bank collapse, them based on Sullenberger’s report to the Professor Gylfason was a regular columnist police. for Jon Asgeir Johannesson’s The Newspaper , Whereas Professor Gylfason strongly sup-

ÞJÓÐMÁL vorhefti 2017 67 ported some of the businessmen who domi- On Sunday October 5 th 2008, as the banks nated the Icelandic economy in 2004–2008, were beginning to collapse, Professor he certainly was a harsh and relentless critic Gylfason appeared on a television show on of the CBI. He can therefore be regarded in current a!airs in Iceland. There he repeated a sense as a “dissident economist“, as Boyes his criticisms of the CBI and demanded that puts it. However, Gylfason did not foresee its governors should be dismissed and pos- or predict the bank collapse. At the end of sibly sent to prison alongside some of the a paper he published in April 2008 he said: bankers. He also suggested that Reykjavik “Will Iceland go under? No! Don’t get me airport should be relocated and the land on wrong: Iceland’s fundamentals are strong.” 6 which it was built on be sold, as a means to At the end of a paper he published three alleviate the present crisis. 8 Quoting o$cial months later, in July 2008, he wrote: reports, he said that the land was probably [T]he LSP agenda – liberalization, stabi- worth 78 billion ISK, then equivalent to $0.9 lization, privatization – of recent years billion or £0.5 billion.9 But the very sugges- was carried out in ways that allowed the tion that Professor Gylfason made showed banks and their debts to grow far out that he had no awareness of the immediate of proportion to the size of the country collapse of the banking sector taking place while the Central Bank neglected to raise and of its repercussions, one of them being, reserve requirements as needed instead of as in all such dramatic downturns, that the reducing them to accommodate the banks real estate market came to a total standstill. and neglected also to build up adequate Moreover, Ingibjorg S. Gisladottir, Minister of foreign exchange reserves. These mistakes Foreign A!airs in 2007–2009 and leader of rendered the Central Bank unprepared the Social Democrats, said in her testimony to guarantee the stability of the nancial to the SIC (Special Investigation Commission system, let alone low in#ation, as required on the bank collapse) that she had some- by law. Lax scal policy did not help. Even times sought Gylfason’s advice on economics so, thanks in part to its young people who and that he had never suggested anything keep returning home from abroad, Ice- such as an imminent bank collapse.10 As an 7 land’s medium-term prospects are bright. Icelandic poet, Thorarinn Eldjarn, quipped: This statement about Iceland’s bright “It was only after the collapse that everybody medium-term prospects was uttered only foresaw it.” three months before the bank collapse. It Nor is Professor Gyl Magnusson entirely should be noted though, that the reserve plausible in the role of a prescient or “dis- requirements were brought down in 2003 sident” economist prior to the bank collapse. (two years before David Oddsson became In 2005–2009, at the height of the banks’ CBI Governor), to the same level as in other expansion abroad and during their collapse, EEA countries, so that the Icelandic banks Professor Magnusson was Chairman of the would not be at a disadvantage in competi- Board of the Icelandic Competition Authority tion with other banks in the EEA. It should where he would have been in an excellent also be noted that in the paper earlier position to work against increased concen- mentioned, Gylfason advised the CBI to build tration, for example in the media where “up adequate foreign exchange reserves” almost all the private media was controlled which could only mean that he thought the by Jon Asgeir Johannesson and his busi- CBI should take responsibility for the rapid ness associates, and in the retail market growth of the banks and to bail them out if where between one half and two thirds of necessary, irrespective of the increasing cost the market was controlled by Johannesson of borrowing during the 2007–2008 credit and his associates. After being appointed crunch. to this position he took no initiative in that

68 ÞJÓÐMÁL vorhefti 2017 direction, as far as is publicly known. Moreo- Perhaps Magnusson was a reluc- ver, in 2005, Magnusson was a member tant cheerleader, but these were of a committee for selection of a special export award. 11 That year, the award went to certainly not the words of a “dis- Kaupthing Bank. In a news release, Magnus- sident economist”. Indeed, Profes- son and his fellow members of the commit- sor Magnusson was, like Professor tee said that the bank “was the frontrunner Gylfason, one of the economists who in a forceful expansion abroad of Icelandic criticized the CBI for not increasing its nancial rms, being noted for its dynamic currency reserves enough to make life and protable operations. The company, and easier for the banks its managers and sta!, are characterized by boldness and resilience.” 12 In a newspaper interview in 2005, Professor Despite all this, it is highly unlikely that Magnusson welcomed the expansion of the the Icelandic banks will fail, even if they Icelandic nancial sector: may have to write o! some loans and to As some smaller nancial rms have sell assets in adverse conditions and to been established while the banks have shrink their operations in many other ways expanded abroad, the Icelandic nancial in order to reduce the need for capital. market is now #ourishing and totally dif- Because of the size of the banking sector, ferent from what it was 10–15 years ago. their problems are consequently the prob- This has meant much facilitated access lems of the whole economy, for better or to credit which then has #owed into the worse. Everybody is therefore in the same whole economy, encouraging investments boat, and we have to cheer “our boys” on, and foreign expansion which was made even if we are not terribly happy with them possible by the strength of the nancial at the moment. 15 sector. This shows us the importance of the Perhaps Magnusson was a reluctant nancial market as an economic sector; it cheerleader, but these were certainly not the creates jobs, prots and tax revenue. 13 words of a “dissident economist”. When a Norwegian economist, Professor Indeed, Professor Magnusson was, like Thore Johnsen, warned in early 2005 against Professor Gylfason, one of the economists the Icelandic banks, Professor Magnusson who criticized the CBI for not increasing its publicly protested. He admitted that the currency reserves enough to make life easier trade decit and the resulting increase in for the banks. On May 21 st 2008, Magnusson foreign debts were causes for worry, but said in an interview: that there was nothing new in this: The CBI The only conclusion one can make is that and the IMF, International Monetary Fund, the CBI committed a grave and seri- had also warned against this. He said that ous error by not increasing its currency the Norwegian economist was describing a reserves in proportion to the growth of the worst-case scenario and not really making a 14 nancial sector, because the real cause of prediction. the situation we are facing is that the CBI In the spring of 2008, as the credit crunch cannot provide the banks with what they was hitting the Icelandic banks, Professor need.16 Magnusson asserted that the Icelandic banks were protable and well-nanced, pointing CBI Governor David Oddsson took issue out that they had not participated in the with this view, both at the annual meeting of US market for subprime loan, whereas he the CBI in March 2008 and at a press confer- complained about their sudden di$culty in ence in April the same year where he said: obtaining credit abroad: Also, with regard to the foreign exchange

ÞJÓÐMÁL vorhefti 2017 69 reserves and the size of the banks, it must mainly relies, Professor Katrin Olafsdottir, be borne in mind that the banks’ primary was actually a member of the committee task is to take care of themselves. When on Iceland as a nancial center, which was the banks were privatized and sold, there appointed in November 2005 by David Odd- was no Government guarantee attached. sson’s successor as Prime Minister, Halldor If there had been, they would have been Asgrimsson, leader of the Progressive Party. sold at a much higher price. So the banks’ The committee, chaired by Sigurdur Einars- primary task is to take care of themselves, son, Chairman of the Board of Kaupthing and not to expect that if they expand their bank, delivered its report in October 2006. operations on their own initiative, that the It recommended that Iceland should try to public is required to act swiftly to increase learn from the examples of countries like Central Bank’s foreign exchange reserves. Switzerland and Luxembourg, but concen- Such an undertaking is very expensive in trate more on onshore rather than o!shore itself, because of the method of invest- nancial services. 19 Olafsdottir did not reg- ing foreign reserves. It is extremely costly ister any disagreement with other members to maintain very large foreign reserves. of the committee, neither in the report nor People must not forget this and speak as publicly. On the contrary, she was one of the though the responsibility for the banks lies 20 anywhere else than on their own shoul- speakers at a conference on the report. She ders. And I think they realize that, for the was also one of the co-authors of a special most part, the banks are responsible for report on the growing importance and their own operations. It is important that benecial e!ects of the nancial sector, com- this not be misunderstood.17 missioned by the Icelandic Financial Services Association. 21 She was also one of the co- The CBI currency reserves were relatively authors of a report on the 2006 visit to China bigger than in most other countries. But in by an Icelandic trade mission, commenting: the credit crunch, the CBI governors encoun- tered the problem that they could only For nations such as Iceland, which are increase the bank’s currency reserves at high relatively remote, the need for trade is paramount. When coupled with a small interest rates, and this in turn would have population base, it should not be surpris- been a sign of weakness, alerting the already ing that an active entrepreneurial e!ort, nervous international nancial markets to involving individuals, government entities, the problems of the Icelandic banking sector. and representatives of multiple sectors of It should be added that even if Professor the economy would collaborate. Such are Magnusson criticized the CBI for not prepar- the circumstances that culminated in this ing adequately for bailing out the banks, he large trade mission to China.22 applauded the recapitalization of Glitnir at This is not recalled to imply that Profes- the end of September 2008, commenting sor Olafsdottir, by serving on a committee in a television interview 30 September 2008 advocating Iceland as a nancial centre, co- on Station Two that it was “in fact just by the authoring a report on the benecial e!ects textbook”. 18 of the growing nancial sector and applaud- The third economist, on whom Boyes ing e!orts of Icelandic rms to extend their Olafsdottir did not register any operations abroad, was misguided or wrong. disagreement with other members of Nevertheless it means that she can hardly the committee, neither in the report pose as a “dissident economist” in discus- nor publicly. On the contrary, she was sions with foreign journalists about the bank one of the speakers at a conference collapse. Perhaps Professor Olafsdottir should also on the report. have informed Roger Boyes that she was no

70 ÞJÓÐMÁL vorhefti 2017 friend of David Oddsson and could not be expected to be unbiased when discussing him. In 2002, she was working as an econo- mist at the National Institute of Economics, which was overseen by the Prime Minister’s O$ce. She had become chairman of its asso- ciation of sta! members when it was decided to implement the old idea of abolishing the institute, 23 transferring most of its tasks to the economics division of the CBI. Publicly, on behalf of the sta!, she strongly protested against this move. 24 Historical Errors Unfortunately, Boyes’ sources on Iceland were not always helpful or reliable. For exam- ple, Boyes refers several times to Icelandic history. In an ironic aside on those whom he considers to be Icelandic disciples of Milton Friedman, he says (209): “David Friedman [Milton’s son] was awarded junior-hero status after writing a paper celebrating the way that David Oddsson, former prime minister and governor of the Icelandic Central Bank Iceland had privatized the justice system in the thirteenth century.” The correct version is that the private enforcement of law, which upon, the Progressive Party formed a minor- David Friedman analyzed, was in e!ect from ity government supported by the Social 930 to 1262, during the Icelandic Common- Democrats. (In 1931, however, the Progres- wealth. It indeed ended in the 13th century sive Party gained a majority in parliament, when the Icelanders pledged allegiance to with only 35% of the votes, although not a the Norwegian king. 25 Boyes also writes (16) su$ciently large one to command majorities that the rst submarine telegraph cable to in both houses of parliament.) While these Iceland dates from 1902. This is not correct. historical errors may not be important, they While preparations on it started immediately do suggest some carelessness shown by after Iceland got home rule in 1904, it dates Boyes or his sources. from 1906. Perhaps this is the place to note yet Again, Boyes quotes Professor Thorvaldur another inaccuracy in Boyes’ book. He dis- Gylfason (37) to the e!ect that the Progres- cusses the relationship between CBI Gover- sive Party, mainly deriving its support from nor Oddsson and Prime Minister Geir Haarde rural areas, gained a parliamentary majority (in o$ce 2007 - 2009) which he believes to in 1927. This is not correct. The Progres- have been strained, even though they were sive Party did not gain a majority in the old associates (153): “Sometimes the two old parliamentary elections of 1927, even if the friends would meet for a co!ee and Oddsson electoral system greatly favored rural areas. It would stay silent for fteen minutes; it was received 30.3% of the votes and 17 parlia- an obscure punishment.” When asked about mentary seats, whereas the Conservative this by the author of this report, Oddsson Party - a forerunner to the Independence said that this was untrue and absurd, adding Party - received 44% and 13 seats. The Social that everybody who knew him also knew Democrats received 19% and 4 seats. There- that he could not stay silent for a long time.26

ÞJÓÐMÁL vorhefti 2017 71 Anyway, Boyes’ sources in Iceland would of the undertaking that the United States, not have had any opportunity to listen in on United Kingdom and their alliances took conversations between Oddsson and Haarde. there. And without that done, the situation in that area of the world would be much Bush and Oddsson in the White House more dangerous than it is now. There’s Boyes brie#y analyses the political situa- hope now. There was no hope before. tion in Iceland prior to the 2008 collapse, for PRESIDENT BUSH: Thank you, Mr Prime example the relationship between Iceland Minister. and the US. In this context, he describes (Everyone sings “Happy Birthday” to the a meeting between Prime Minister David President.) Oddsson and President George W. Bush in the White House on July 6 th 2004, which PRESIDENT BUSH: Thanks. You actually call 27 happened to fall on Bush’s birthday. The that singing? (Laughter.) It was beautiful. impression, which Boyes seems to want to Evidently, the exchange between Oddsson leave with his readers, is that Oddsson was and Bush was conducted in quite a di!er- deferential to Bush. But Boyes leaves out ent tone and spirit from what Boyes’ readers several parts of the exchange, for example would conclude from his book alone. 28 Bush’s introduction of Oddsson in the begin- The Myths about the Octopus ning: “I remember my rst NATO meeting, and the Fourteen Families I walked in and the person who greeted me and made me feel most at home was Boyes discusses the Icelandic economy in the my friend here. And I’ve never forgotten 20th Century, writing (35): “Fourteen fami- that. Iceland has been a steady friend of the lies, the families of the Octopus, controlled United States of America, and they have all movement in and out of the island.” He been an important friend.” Bush also said a adds: “The Octopus was not a formal group; few words about the meeting which Boyes it was essentially an ownership pattern. The edits out: “And the Prime Minister is a person families did not own everything, it just felt who cares deeply about the security of his that way.” country and the welfare of his people, and This is at least misleading. The “fourteen that’s why he’s been such an e!ective leader families” is a catchphrase which American for the good people of Iceland.” Then Boyes journalists invented a long time ago in El edits out the last words in the exchange. Salvador, a country historically with a much In his version, it reads and sounds like this more unequal distribution of wealth and (26–7): income than Iceland. It so happened that El PM Oddsson: Well, I just—on this, I must Salvador was divided into fourteen districts. 29 say I agree with the President about Iraq … The term was introduced into the Icelandic Pres. Bush: Thank you, Mr Prime Minister. political debate in the early 1990s by Social Democrat Jon B. Hannibalsson, Minister The reporters in the Oval O$ce start to of Foreign A!airs in the 1991–1995 Odds- sing “Happy birthday, Mr President.” David son government. 30 It was never adequately Oddsson joins in. explained by Hannibalsson or others who Pres. Bush: Thanks. You actually call that these families exactly were. But it is true that singing? [Laughter] It was beautiful. in Iceland there have been some prominent In fact, the transcript reads like this: families, in politics as well as in business, PRIME MINISTER ODDSSON: Well, I just — unsurprisingly for such a small population. on this, I must say I agree with the Presi- Political families have however hardly been dent about Iraq. The future of Iraq is — the more typical of the right than the left. Jon future of the world is much better because B. Hannibalsson himself, leader of the Social

72 ÞJÓÐMÁL vorhefti 2017 Democrats in 1984–1996, was for example the most of the 20th Century. For example, in the son of Hannibal Valdimarsson, leader of an international comparative study, in 1970 the Social Democrats in 1952–1954, and of Iceland had only the 28th freest economy of the People’s Alliance in 1956–1968. Stein- the 54 economies surveyed. 36 grimur Hermannsson, leader of the Progres- It is also to be kept in mind that the Coop- sive Party 1979–1994 and Prime Minister erative Movement, strong in the rural parts 1983–1987 and 1988–1991, was the son of of the country and closely aligned to the Hermann Jonasson, leader of the Progres- Progressive Party, controlled a large segment sive Party 1944–1962 and Prime Minister of Iceland’s economy until the early 1990s. 1934–1942 and 1956–1958. Johanna Sigur- One way of demonstrating this is by looking dardottir, leader of the reorganized Social at the biggest companies in Iceland. Of the Democrats 2009–2013, was the daughter of a ten biggest companies in 1980 (in terms of member of parliament for the Social Demo- turnover), only two were controlled by busi- crats, and her grandmother was a prominent nessmen usually associated with the “Octo- labour leader. The rst ve leaders of the pus Group”: the airline Flugleidir (Icelandair) Independence Party certainly came from and the oil import company Skeljungur. Even prominent families, two of which were also then, Icelandair was not fully controlled by independently wealthy, 31 but their succes- Jonsson’s “Octopus Group”. Two companies sors, Thorsteinn Palsson, David Oddsson and were owned by the state: Landsbanki and Geir H. Haarde, would not be characterized in the State Alcohol and Tobacco Monopoly. that way in Iceland. If some families were for Three companies belonged to the Coopera- a while dominant in Iceland, then it would tive Movement: SIS, the oil company Oliufe- have been in the period from the 1920s to lagid and KEA; and two companies were sales the 1980s.32 organizations for seafood, mainly operating In Iceland the term “Octopus” has not abroad.37 been used for exactly the same group as the Again, of the ten biggest companies in “fourteen families”. Rather, it has been used 1990, only one was controlled by business- about an informal group of businessmen men associated with the “Octopus Group”, - some, but not all, from prominent fami- the airline Flugleidir. Two companies were lies - who, from the late 1980s to the early owned by the state, the same number as in 1990s, controlled some of the larger private 1980. Two companies belonged to the Coop- companies in the Icelandic economy, with erative Movement, SIS and KEA. Two compa- its basis at the shipping company Eimskip. nies were sales organizations for seafood, the Led by Architect Halldor H. Jonsson, the same as in 1980. Two new companies were group gained full control of Icelandair only on the list, Hagkaup, owned by an individual, in 1988.33 Jonsson however passed away ve the aforementioned Palmi Jonsson, and the years later, without any obvious replacement newly privatized Islandsbanki, owned by from the ranks of Icelandic businessmen. 34 It several groups and companies, mostly in the is therefore doubtful whether the notion of sheries.38 the “Octopus” serves any useful function in The relative weakness of Icelandic capi- describing Icelandic capitalism in the latter talism and strength of the Cooperative part of the 20th century. For example, some Movement can also be seen from a less of the richest businessmen in the country in anecdotal set of gures. In 1980, the Federa- this period, such as Bjorn Olafsson, direc- tion of Icelandic Cooperative Societies had tor of Coca Cola Iceland, and retailer Palmi a turnover of 1.6 billion ISK; that same year, Jonsson, founder of Hagkaup stores, did not individual cooperative societies had a total belong to this group. 35 More importantly, turnover of 2.3 billion ISK. The Coopera- Icelandic capitalism was relatively weak for tive Movement as a whole therefore had a

ÞJÓÐMÁL vorhefti 2017 73 turnover of a little less than 4 billion ISK. 39 By plained that unfortunately he could not comparison, in 1980 the Icelandic GDP, Gross a!ord attending Friedman’s lecture the next Domestic Product, was 16.2 billion ISK. 40 In day (the fee, with lunch included, was about other words, in 1980, the total turnover of $40). This was, Olafsson said, the rst time in the Cooperative Movement was one fourth the history of the University of Iceland that of GDP. If there was an “Octopus” operating in a lecture was not free. Friedman replied that Iceland - and again it should be stressed that he objected to this use of the word “free”. Of it is doubtful whether such a term serves to course previous lectures by speakers invited inform or clarify the issues - then it was the from abroad had not been “free”; airfares had Cooperative Movement. to be paid, accommodation arranged, meet- No Free Lecture ings advertised, meeting halls rented etc. What Olafsson meant to say was that those Boyes mentions the in#uence in the 1980s who did not attend the lectures ought to pay of free market ideas on the leadership of the for those who did attend. Friedman added Independence Party. He tells the following that he thought it perfectly appropriate to anecdote (30): charge for the lecture. 41 There was no audi- In 1984, three years into Reaganomics and ence in the television room, and this incident four years into Thatcherism, their economic was actually not mentioned in Friedman’s guru, Milton Friedman, traveled to Reykavik well-attended lecture the day after nor in the to debate his policies on television with left- following discussion. 42 In fact, the core of ist skeptics and to deliver a public speech. In the true story is better than that which Boyes the audience he had a group of fans, includ- tells. Challenged by the leftwing intellectuals ing the then young mayor of Reykjavik, later about the fee charged for his lecture, Fried- to become prime minister, David Oddsson. man in e!ect answered: “There is no such Mayor Oddsson, surrounded by some of his thing as a free lecture.” young, conservative acolytes, enthusiastically Ill-Chosen Examples applauded Friedman. The American econo- mist was asked by an outraged Icelander why Boyes argues that pre-collapse Iceland was the audience had to pay an entry fee for the a society where favouritism was common. lecture: free education had always been an He gives an example (31): “Two men who essential part of Icelandic culture at the core collaborated with Oddsson on devising a of its civil society. “There is no such thing as a successful radio-show format never wanted free education,” snapped Friedman. Oddsson for work; others who helped him with his lit- laughed out loud and slapped his chair. erary endeavors (he wrote volumes of short While only an anecdote, and not really stories) had their careers nudged along or important, this is not accurate. First, David were bailed out of trouble.” Oddsson was not in Iceland during the Fried- Whatever may be said about favouritism or man visit in late August and early September political patronage in Iceland over the years, 1984; then Mayor of Reykjavik, he was on an these examples are not well-chosen. David o$cial visit abroad. In fact, Oddsson never Oddsson’s two collaborators on a popular met Friedman! radio-show in 1971–1973 did not need any Secondly, Boyes mixes up the television favours from him. One of them, Thorarinn debate in which Friedman participated in on Eldjarn - son of Kristjan Eldjarn, Iceland’s August 31 st and his lecture at the University President 1968–1980 - is generally regarded of Iceland 1 September 1st . What happened as one of Iceland’s most distinguished poets was the following: In the television debate, and writers and not in need of any support one of the three intellectuals debating from politicians. It should be noted that he Friedman, Professor Stefan Olafsson, com- never received the coveted and lucrative

74 ÞJÓÐMÁL vorhefti 2017 award “Artist of the City” while Oddsson right to harvest 5% of the TAC, total allow- was Mayor of Reykjavik: he only received it able catch, in the sh stock over the shing in 2008, three years after Oddsson had left season. The result of the system, as anyone politics. The other one, lm director and familiar with economic analysis could pre- writer Hrafn Gunnlaugsson, a member of the dict, was that the more e$cient shing rms Locomotive Group, may occasionally have bought quotas from the less e$cient rms beneted from his association with Oddsson, whose owners subsequently left the sher- but possibly it also did him harm, with the ies. Thus, excess capacity was slowly reduced Icelandic left dominating the arts and being and e!ort brought down to a protable level. hostile to Oddsson and to all and any of his Boyes comments, however, seemingly rely- friends. Indeed, in 1993, when Gunnlaugs- ing on Professor Gyl Magnusson (39): “The son had been severely criticized by leftwing problem, though, was that the government members of parliament for having received was handing over something for nothing.” special favours by public funds and institu- This is a misunderstanding of the reform tions, he asked the Icelandic National Audit when shing in Icelandic waters was con- O$ce to investigate the allegations. The ned to quota holders. It can be demonstrat- O$ce did so, after the Ministry of Education ed that under open access to a shery (like and Culture had also insisted on an investiga- other limited resources), e!ort - for example tion. The O$ce found no breach of law or measured by the number of boats harvest- any evidence of improper political pressure. 43 ing sh, or the total tonnage of the shing The passage about those “who helped” #eet - will increase to the level where there Oddsson “with his literary endeavours” is is no more prot to be had.46 This means even more ba*ing. Oddsson has published that the potential gain from the resource two collections of short stories. 44 His pub- (sometimes called the resource rent) is all, lisher was Olafur Ragnarsson, a successful or almost all, wasted in overcapacity and businessman, neither attached to the left nor excessive e!ort, as can actually be observed the right, and his copy editor was Petur Mar all around the world. Thus, the only right of Jonsson, an expert on Icelandic literature, which people who no longer could harvest whose political views are unknown. Nei- sh were deprived, was the right to harvest ther of them has ever received any political sh with no prot, and that right, by deni- favours from David Oddsson. Both books tion, was worthless. In other words, there sold quite well.45 In this matter, as in many was no transfer of goods from the Treasury to others, Boyes’ Icelandic sources had not the shing community, only the denition of served him well. rights under which the community could in The Quota System in the Fisheries mutually agreed transactions eliminate the waste consisting in excess capacity and too Boyes brie#y discusses the system of indi- much e!ort. 47 vidual transferable quotas gradually adopted It is true, however, that the ITQ system in the Icelandic sheries between the late added a lot of wealth to the Icelandic 1970s and the early 1990s. With the system, economy: a resource which had previously only holders of quotas to a particular sh been of almost zero value, because total cost stock could harvest that sh stock in Icelan- had been almost equal to total income, now dic waters. The quotas were initially allocated became quite valuable. Boyes writes (39): on the basis of catch history, which meant The quota fortunes were to become part that if one shing rm had been harvesting of the overall crisis in Iceland. Since quotas 5% of the total catch in the particular sh were now regarded as property, loans stock over the years prior to the adoption of could be taken out using them as security. the system, then it received a transferable The money, plowed into foreign adven-

ÞJÓÐMÁL vorhefti 2017 75 tures, secured by sh that had not yet been privatization committee hired the British taken out of the ocean, was lost when the bank HSBC as adviser in the sale process, and banks crashed. in late 2001, HSBC searched abroad for pos- This explanation of, or at least factor in, the sible participants in a tender for controlling bank collapse has often been mentioned by shares in the two banks. But there was no one of Boyes’ main sources, Professor Thor- interest, partly because of the recent terrorist valdur Gylfason. 48 This argument is however attack on the US, but also because the banks not plausible. There is nothing more unnatu- were too tiny to generate much interest. In ral with borrowing money against sh still particular, Prime Minister David Oddsson to be harvested than it is to borrow money was keen to invite foreign banks, with their against grain still to be harvested, or for that expertise and experience, to Iceland. 49 matter, against houses still to be sold or rent- Possibly Boyes is referring to the fact that ed out. Normally, people borrow against the three years earlier, in 1998, the Swedish future value stream of the property they o!er bank Skandinaviska Enskilda Banken had as collateral for their loans. Moreover, the ITQ expressed interest in buying a third part of system started in the herring shery already Landsbanki, but discussions with its rep- in 1975, and in the cod and other demersal resentatives did not lead anywhere. Prime sheries in 1984, becoming a comprehensive Minister Oddsson and other government system by law in 1990. In other words, it had ministers thought that it was not advisable started 33 years before the bank collapse to sell a large share in either of the two banks and had become a comprehensive system 18 without some kind of tender. The Swedish years prior to it. Of course, the quota system bank also seemed to assume that it could in the sheries expanded the basis of possi- get the third part for a low price. In 2001, ble collaterals for bank loans, but if that is the however, Skandinaviska Enskilda Banken was argument, then any move towards a more apparently not interested in participating in productive economy - and any such move a tender for Landsbanki when HSBC tried to would expand this basis - could be said to be set up such a tender.50 a factor in the bank collapse. On Bjorgolfur Gudmundsson Privatisation and Foreign Banks Boyes argues that tiny Iceland is clan-ridden Sometimes Boyes seems, for whatever and that the only way to understand Ice- reason, to ignore the existing evidence. He landic society is to unravel the many ties, writes (43): sometimes invisible, between individual Oddsson and his Friedmanite friends were players in the eld. As an example, Boyes convinced that the nancial system had mentions Bjorgolfur Gudmundsson, a major to be free to grow beyond Iceland—but at shareholder in Landsbanki in 2002-2008 the same time be bound into the political (49): “His father - Thor’s paternal grandfa- system. That meant, rst of all, exclud- ther - headed Shell Iceland. The family was ing foreign banks, even though this was thus intimately linked with the Octopus and against the spirit of belonging to the Euro- the Independence Party.” Boyes adds that pean Economic Area. Gudmundsson’s wife was from the wealthy This is not correct. Surely Boyes’ main and in#uential Thors family, descended from sources about the Icelandic economy, Profes- entrepreneur Thor Jensen. In his book, Boyes sors Gylfason, Magnusson and Olafsdottir, describes problems Gudmundsson had must have been aware of strenuous, but when the shipping line Hafskip, where he unsuccessful e!orts in 2001 to sell the two was one of the two directors, went bankrupt government banks, Landsbanki and Buna- in 1985 and how he and his son re-estab- darbanki, to foreign investors. The Icelandic lished themselves in Russia after the fall of

76 ÞJÓÐMÁL vorhefti 2017 communism, with a brewery which they then sold to Heineken. After that, the father and son bought a large share in Landsbanki over the objections of some people remembering Gudmundsson’s past. Boyes adds (55): “But David Oddsson wanted Bjorgolfur in place, and so did the Independence Party hierar- chy.” There are several errors in this account. First, Bjorgolfur Gudmundsson did not come from a privileged background. He was one of the ve children of Gudmundur Olafsson, a delivery man for a timber company. When Gudmundsson was only seven years old, his father had a stroke and was out of work for more than two years. Gudmundur Olafsson eventually recovered, but the family was far from being a*uent. 51 It was not Gudmunds- son’s father, but his father-in-law, Hallgrimur Hallgrimsson, who was director of Shell. Hall- Bjorgolfur Gudmundsson grimsson was indeed married to a woman from the prominent Thors family, the daugh- spent most of the 1990s and early 2000s ter of shing rm owner Thor Jensen. It was abroad. While Bjorgolfur Gudmundsson and therefore Gudmundsson’s wife who came Oddsson certainly were on talking terms, it from what could possibly be considered to would therefore be highly misleading to call be a traditional Icelandic elite. The Thors fam- Gudmundsson Oddsson’s “crony”. ily was for some time - between 1912 and The Hafskip Case 1948 - probably the richest family in Iceland, and one of the Thors brothers, Olafur Thors, Boyes gives a short account of Bjorgolfur the uncle of Gudmundsson’s wife, was leader Gudmundsson’s business career, especially of the Independence Party and ve times the 1985 bankruptcy of Hafskip of which he Prime Minister. 52 was one of the two directors. Boyes says that In the second place, it is true that Bjorgol- well-known Icelandic author Illugi Jokulsson fur Gudmundsson was active in the Inde- wrote a book on the Hafskip case and adds pendence Party in the 1970s and early 1980s, (50): but not as David Oddsson’s friend and ally, The situation, in other words, was not but rather as one of the strongest supporters nancially critical: it was a crude act to dis- of Oddsson’s main rival, Albert Gudmunds- pose of an Eimskip rival (which later took son, a popular former international soccer on Hafskip’s ships). More, it was an attempt player, whom Oddsson narrowly defeated by the Progressive Party to prot from in the primaries before the 1982 municipal the downfall of a man who was so clearly elections. Moreover, Albert Gudmundsson aligned with the Independence Party. left the Independence Party in 1987 and Criminal charges were pressed against established his own party, based on his great him - the prosecutor and the chief of police personal support. When Albert Gudmunds- were Progressive Party nominees - on 450 son retired from politics a few years later, separate fraud charges. He was cleared on his party went into decline and eventually all but twenty relatively minor infractions. disappeared. Bjorgolfur Gudmundsson also First, Illugi Jokulsson did not write any

ÞJÓÐMÁL vorhefti 2017 77 book on the Hafskip case. He has written an active in bringing it about. annal of the 20th Century in which the Haf- It is true that both the Chief Public Pros- skip case is of course mentioned, but not in ecutor, Hallvardur Einvardsson, and the any detail. Jokulsson has never done a study Reykjavik Police Chief, Bodvar Bragason, had of the Hafskip case. However, three books been regarded as supporters of the Progres- have been published in Icelandic on this very sive Party before they took o$ce, Einvards- controversial case, all by people sharply criti- son serving in 1986–1996 and Bragason in cal of the way in which it was handled by the 1985–2006. Neither of them were however press and the authorities. 53 known to have particularly close ties to the Secondly, in retrospect many feel that leadership of the Progressive Party. But in a Bjorgolfur Gudmundsson and his co-director sense, this is irrelevant because the Hafskip at Hafskip were treated unfairly in the legal case was taken over by a special prosecu- case which Boyes mentions, but that may be tor who conducted his own independent rather because the legal system in Iceland investigation. This was Law Professor Jonatan could hardly cope with a complicated case Thormundsson, who had left the Progres- like this than because a sinister plot had sive Party already in 1972, as a result of a been hatched against them. There is no disagreement with the party leadership. 54 evidence that the Progressive Party was He was denitely not in any way connected involved in the case; and it is indeed di$cult to the Progressive Party. Thormundsson to see what it would have gained from the abruptly resigned from the case, when in downfall of Hafskip, because the managers the summer of 1990 the Reykjavik District and biggest shareholders of Eimskip - who Court acquitted the Hafskip managers of took over most of Hafskip’s assets at low most of the charges against them, convict- prices - were also staunch supporters of the ing them of some minor infractions. 55 A year Independence Party. later, the Supreme Court upheld most of The Hafskip case started in mid-1985 the acquittals, but convicted the managers, when a disgruntled former employee of the including Bjorgolfur Gudmundsson, of a few company, Gunnar Andersen, leaked some more charges than the District Court, albeit documents about its precarious nancial also all of them minor ones. Gudmundsson status and, by the standard of the time, the received the heaviest sentence, suspended lavish expense accounts of its directors, to a prison for 12 months. One of the ve judges journalist, Halldor Halldorsson, who wrote for dissented and wanted to acquit for almost all a weekly tabloid. Following that the politi- the charges.56 cian Olafur R. Grimsson, at the time an alter- It is still being debated whether or not nate member of parliament for the leftwing Hafskip was really bankrupt when the com- People’s Alliance - and one of the three pany had to le for bankruptcy at the end of leftwing intellectuals debating with Fried- 1985.57 Probably, a conclusive answer to that man on Icelandic television in 1984 - began question does not exist. However, if any out- a very public campaign against the directors, siders were partly responsible for the Hafskip accusing them of corruption and all kinds of bankruptcy, then most would regard them misdeeds. Public opinion turned against the as having been the whistleblower, Gunnar directors and consequently bank directors Andersen, the journalist Halldor Halldorsson, became concerned, perhaps even panicked. and the publicity-seeking politician Olafur R. Credit lines were closed and Hafskip had to Grimsson. 58 le for bankruptcy in December 1985. The Facts on Corporate Donations group controlling Eimskip at the time prob- ably welcomed the downfall of a competitor, Boyes adds to his account of the sale of but this does not imply that the group was Landsbanki (71): “Landsbanki was a huge

78 ÞJÓÐMÁL vorhefti 2017 donor to the Independence Party.” Standing on its own, this statement would be mislead- ing for several reasons. Later on, however, Boyes qualies it by observing (196): “The Social Democrats had lost some of their innocence by agreeing to be a junior partner with Geir Haarde’s compromised Independ- ence Party; both parties had, for example, received a wad of party donations from the banks in 2006.” The facts of the matter are somewhat more complicated. The Independence Party, as a free market, pro-business party, had always enjoyed the main support, nancial and otherwise of Iceland’s private sector but also from many individuals. Shortly before the Jon Asgeir Johannesson, donated huge sums of money to 2009 parliamentary elections it was leaked the Social Democrats. n 2006, Johannesson’s companies to the press that the Party had received a also donated a considerable amount to the Progressive Party. huge donation from the investment com- pany FL Group, whereupon the Party itself Johannesson, donated huge sums of money disclosed that it had also received a huge to the Social Democrats. In 2006, for exam- donation from Landsbanki, apologizing for ple, the Social Democrats received the fol- this as being improper and promising to lowing donations from those companies: return both donations. On this occasion, Company Donation ISK Donation USD in the midst of the election campaign, the Stodir 500,000 6,918 Social Democrats stated that in 2006 they ISP holding company 200,000 2,7675 Baugur Group 5,000,000 69,185 had received a total of 45 million ISK, or Husasmidjan 300,000 4,151 $622,000, in corporate donations. This is Islandsbanki 5,500,000 76,104 FL-Group 8,000,000 110,696 presumably what Boyes is referring to. After Dagsbrun 5,000,000 69,185 the elections, the National Audit O$ce Vifilfell 500,000 6,918 investigated donations to all the political Teymi 1,500,000 20,755 parties in 2006 and published a report about Total 26,500,000 388,681 it in early 2010. The ndings may have come In 2006, Johannesson’s companies also as a surprise to some. It turned out that in donated a considerable amount to the 2006 the Independence Party had received Progressive Party, 10,500,000 ISK ($145,000), a total of 104 million ISK, or $1.4 million, in while his business partner, Palmi Haraldsson corporate donations. However, the Social in Fons, a shareholder in his media com- Democrats had not received 45 million, as pany, donated 8,000,000 ISK ($110,000) to they had claimed before the elections, but the party. Kaupthing bank gave 11,500,000 102 million ISK, also about $1.4 million. The ISK ($159,000) to the Social Democrats, and Social Democrats had in other words not pro- Landsbanki 8,500,000 ISK ($117,000). 59 vided accurate information about this before The Baugur Case the elections. Needless to say, they had not promised to return any donations. Boyes describes at some length the so-called In the investigation of the National Audit Baugur case which, as mentioned earlier, O$ce it was revealed that companies started in 2002 when Mr. Sullenberger, a controlled by, or connected to, the biggest former business partner of wealthy retailer debtor of the Icelandic banks, Jon Asgeir and entrepreneur Jon Asgeir Johannesson

ÞJÓÐMÁL vorhefti 2017 79 led a charge against him. Boyes says, like charge led by Sullenberger, that of issu- Johannesson did himself, that the Baugur ing a false invoice for goods, giving them a case was politically motivated, plotted by suspended prison sentence of three months. Prime Minister David Oddsson. Boyes writes: 61 Later Johannesson and two of his business “David Oddsson’s dearest wish was to rein in partners were convicted by the Supreme Jon Asgeir [Johannesson].” He adds (71): „All Court for tax evasion, Johannesson receiv- one needed was a complaisant prosecutor’s ing a suspended prison sentence of twelve O$ce, political friends at the helm of the months.62 police, a press that was in cahoots with the On Jon S. Gunnlaugsson Independence Party - and enough people who felt slighted by Jon Asgeir and his family Boyes regards it as signicant that Jon Gerald to turn publically [sic] against them.” Sullenberger’s lawyer was Jon S. Gunnlaugs- Possibly this could be regarded as serious son, “a future chief justice of Iceland” (73) and slander about the Icelandic police, but at a personal friend of Prime Minister David least it is a great simplication. The Baugur Oddsson. This would, he claims, support his case started in early 2002 when Jon Gerald theory that David Oddsson was behind the Sullenberger fell out with Jon Asgeir Johan- Baugur case. nesson, for personal reasons as well as First, Gunnlaugsson was never Icelandic because of a nancial con#ict. Sullenberger chief justice: He was a Supreme Court judge who then lived in the US travelled to Iceland in 2004–2012. In the second place, when in the summer of 2002 and led a charge Gunnlaugsson was a practising lawyer before against Johannesson at the economic crime being appointed to the bench, in court he unit of the police for having participated represented all kinds of people with di!erent with himself in issuing a false invoice for political persuasions, including Social Demo- goods. He did so, even if his lawyer warned cratic leader Jon Baldvin Hannibalsson and him that he was implicating himself by another prominent Social Democrat, Thros- the charge. It seems far-fetched that David tur Olafsson (both of whom wrote in support Oddsson was behind this personal vendetta. of his eventual appointment as Supreme Sullenberger himself strongly denied this: Court judge). 63 It would be far-fetched to He has said that in 2002 he did not know say that his personal friend David Oddsson Oddsson and that he had never met him was behind their cases. It would be equally before or during the case. 60 On the basis of far-fetched to say that Oddsson was, because Sullenberger’s charge, the headquarters of of Gunnlaugsson’s part in the Baugur case, Baugur were raided in August 2002. Some behind that case. might argue that this was an over-reaction The Battle about the Media Law by the police, just like some might argue that the Competition Authority over-reacted in its Boyes describes the erce political battle investigation of the oil-import companies a raging in Iceland about Prime Minister David year earlier where all three headquarters of Oddsson’s proposal in spring 2004 for new those companies were raided. But there was amendments to laws on broadcasting and no question either about Baugur or about competition. He quotes both supporters and the oil-import companies that the authori- opponents, writing (108): “Oddsson was, in ties had used proper legal mechanisms: This other words, trying to break the power of was in both cases conrmed by the Supreme Jon Asgeir [Johannesson] at home, at the Court. Moreover, after a long and compli- moment when he was becoming an interna- cated legal process, the Supreme Court tional presence.” found both Jon Gerald Sullenberger and Jon This is highly misleading. The facts of the Asgeir Johannesson guilty of the original matter are the following: After the August

80 ÞJÓÐMÁL vorhefti 2017 Oddsson proposed amendments to the existing laws on broadcasting and competition, according to which no company could get a broadcasting license, for radio and television, if it mainly operated in other markets or if it already owned a newspaper or if more than a 35% share in it was held by another com- pany or if more than a 5% share in it was held by a company dominant in other markets. One argument for the proposal was that the Icelandic media market was conned, by reason of language, to Iceland alone, so the self-regulation provided by an open and competitive international market was not possible.

2002 police raid on Baugur’s headquarters, her allegations.66 Jon Asgeir Johannesson apparently became It was only after the 2003 elections that convinced that Prime Minister David Odds- Johannesson admitted that he was chief son was behind it, choosing to ignore the owner of The Newspaper .67 In the autumn of charge led by Jon Gerald Sullenberger and 2003, he also bought the private radio and his personal motives for it. (Sullenberger television channels, Channel Two (Stod 2), believed, rightly or wrongly, that Johannes- and a tabloid in slow decline, DV. By then, son had made a pass at his wife. He was also he owned practically all the Icelandic media upset that Johannesson and his guests had except the Icelandic Public Broadcasting left him with a hefty unpaid bill for escort Corporation and the daily Morning Paper girls, after a visit to Florida.) 64 When the (Morgunbladid), even if Boyes says that the raid took place, Johannesson was in Lon- press “was in cahoots with the Independence don, negotiating to take over the big retail Party”. In addition, Johannesson not only company Arcadia. After hearing about the controlled one half to two thirds of the retail raid, his potential partners decided to leave trade in Iceland; he also owned shares in him out of the deal. Johannesson managed many other companies, quite big by Ice- nevertheless to sell his shares in Arcadia landic standards. He was mainly interested at a hefty prot. Returning to Iceland with in acquiring controlling shares in cash-rich £70 million in cash, he set out to increase banks and insurance companies and nally his media in#uence. Sometime in 2002, he succeeded in doing so, although initial had secretly bought a #edgling daily, The attempts were thwarted. But as a successful Newspaper (Frettabladid), which relied solely businessman he continued moreover to have on advertisement revenue, being distrib- easy access to credit in the newly privatized uted free of charge to most Icelandic urban banks - as shown by the fact that he was the households. In the 2003 election campaign, biggest single debtor in the banks at the The Newspaper supported Social Democratic time of their collapse in the autumn of 2008. leader Ingibjorg S. Gisladottir. Once, report- When Oddsson formed his fourth govern- ing on a speech by Gisladottir, it even gushed ment - the third one in coalition with the that she “had spoken without notes and mes- Progressive Party - in the spring of 2003, merized the audience”. 65 At the same time, he announced that he would step down as The Newspaper was very critical of Oddsson. Prime Minister in the autumn of 2004, to be In the election campaign, Gisladottir alleged, replaced by the leader of the Progressives. as Johannesson had done, that Oddsson was In spring 2004, shortly before leaving o$ce, behind the police investigation of Baugur. Oddsson proposed amendments to the exist- The police authorities strongly denied this, ing laws on broadcasting and competition, and the policemen’s association even sent a according to which no company could get a delegation to Gisladottir protesting against broadcasting license, for radio and television,

ÞJÓÐMÁL vorhefti 2017 81 The Icelandic banks did not expand other managers of Hafskip in 1985 - refused rapidly because of any disputes, to sign the bill. This was the rst time in the history of the Icelandic Republic that the imaginary or real, between David President, traditionally regarded as being a Oddsson and Jon Asgeir Johannesson. non-political gure and having almost only They expanded because three formal powers, had refused to sign a bill. changes coincided in 2003-2004: Sud- The widely accepted argument had been denly a lot of cheap credit became that the only bills which the President might available in the international nancial refuse to sign would be those which would markets; Iceland had good credit bring about irreversible and highly contro- ratings which made borrowing even versial changes. In this case, if a majority easier than for most other nancial of the voters had been against the amend- ments proposed by Oddsson to the exist- companies; and there was a sudden ing laws on broadcasting and competition, change of culture in the Icelandic then these amendments could easily have banks as a result of their privatization, been annulled after this next election, as with a generation of young managers they only came into e!ect after that elec- replacing an older one. tion. Johannesson’s critics claimed that the President’s decision showed how in#uential Johannesson had become. They also pointed if it mainly operated in other markets or if it out that there was a connection between already owned a newspaper or if more than a President Grimsson and Johannesson: one 35% share in it was held by another company of Grimsson’s two daughters held a mana- or if more than a 5% share in it was held gerial position at Johannesson’s company, by a company dominant in other markets. Baugur, and the director of the broadcasting One argument for the proposal was that company Channel Two, newly acquired by the Icelandic media market was conned, Johannesson, had been Grimsson’s election by reason of language, to Iceland alone, so manager. Be that as it may, Johannesson had the self-regulation provided by an open and without question won the media battle: The competitive international market was not media bill was withdrawn. possible in this eld. If written into law, those After this, there were almost no constraints amendments would doubtlessly have made on wealthy businessmen and investors like it quite di$cult for Johannesson to control Johannesson acquiring the few private the private media. Unsurprisingly, his media media in Iceland and using them in whatever outlets campaigned hard against Oddsson’s way they wanted to, for example to pun- proposal which was nevertheless passed by ish or reward people with a stake in public parliament. life, like politicians, professional writers and The amendments proposed by Oddsson commentators, and to in#uence or even and accepted by the 2004 Parliament were mould public opinion. The outcome of the only to come into e!ect after a new Parlia- media battle arguably had an impact on the ment had been elected in 2007. It was there- general atmosphere in Iceland in the years fore easy for a new Parliament to annul them 2004–2008. Concentrated wealth, slowly if it wanted to do so. This was in other words eliminating competition to it, had prevailed. not an irreversible decision. However, in sum- Jon Asgeir Johannesson was the clear “win- mer 2004, President Olafur R. Grimsson - the ner” despite his legal problems. 68 As some same man who had debated on television saw it, the market capitalism of 1991–2004 with Milton Friedman in 1984 and led a cam- had turned into “crony capitalism”, dominant paign against Bjorgolfur Gudmundsson and from 2004 to the bank collapse in 2008.

82 ÞJÓÐMÁL vorhefti 2017 Who Won the Game? mood very favourable, or at least uncritical, to the bankers and businessmen dominant in Having described the dramas surrounding Iceland between 2004 and 2008. the Hafskip and Baugur cases, Boyes sug- gests, even more dramatically, that Iceland Devolution under Oddsson went under in the ght between David The predominance of David Oddsson seems Oddsson and Jon Asgeir Johannesson He to be an integral part of the story Boyes writes: “Who won the game? Nobody. In the wants to tell, perhaps prodded on by his end, both men, in their stubbornness, their sources. He writes, for example (111): “Under pettiness, steered Iceland toward the edge of Oddsson, power shifted from the rural a cli!” (77). communities to Reykjavik; state institutions This observation does not make much became more, not less, dependent on his sense, especially if it is o!ered as some kind political whim.” of an explanation for the bank collapse. The truth of the matter is quite the oppo- The Icelandic banks did not expand rapidly site. In 1987, before Oddsson became Prime because of any disputes, imaginary or real, Minister, the electoral system had been between David Oddsson and Jon Asgeir reformed as such a way that rural districts Johannesson. They expanded because three were no longer predominant in parliament. changes coincided in 2003-2004: Suddenly While this could certainly be regarded as a lot of cheap credit became available in the a shift of power from rural communities to international nancial markets; Iceland had Reykjavik, Oddsson was not even a mem- good credit ratings which made borrowing ber of parliament at that time (he was only even easier than for most other nancial elected to parliament in 1991). There was companies; and there was a sudden change a general agreement among the political of culture in the Icelandic banks as a result parties about this reform. Even the Progres- of their privatization, with a generation of sive Party, which had fought vehemently young managers replacing an older one. against former electoral reforms, accepted And even if the banks had expanded rapidly, it. As Prime Minister, in 1993-1995 Oddsson they would not necessarily have collapsed, oversaw a large-scale transfer of responsibili- at least not all of them, if the CBI had not ties, and resources, from the state to local been refused the same currency swap deals authorities in education and social care. At by the US Federal Reserve that other Euro- the same time, the government encouraged pean central banks got. This refusal made the amalgamation of small rural communi- it impossible for the CBI to act as lender of ties so that they would become nancially last resort to the Icelandic banks. What hap- stronger and tter to perform their tasks. 69 pened was that suddenly other central banks Moreover, in the rst years of Oddsson’s decided that the Icelandic krona was not tenure, laws were passed on public admin- convertible any more. This brought about istration and transparency in government a crisis which turned into a collapse when which served to constrain central power and the UK government closed the British banks make state institutions less rather than more owned by Icelanders at the same time as it dependent on any politician’s whim. 70 Also, bailed out all other British banks, and this, in during Oddsson’s tenure, the ITQ system in turn, caused the demise of Kaupthing, the the sheries was, as already noted, devel- biggest Icelandic bank. None of this could oped and strengthened which meant that be attributed to any ght between David rural communities beneted relative to the Oddsson and Jon Asgeir Johannesson, even Reykjavik metropolitan area: The quotas if arguably the triumph of Johannesson in were mainly held by shing rms outside the the 2004 dispute on the media law created a capital city.

ÞJÓÐMÁL vorhefti 2017 83 Gordon Brown wrongly said during the !nancial crisis that Iceland was bankrupt, and in parlia- mentary debates he did not make the crucial distinction between Kaupthing’s subsidiary in the UK, KSF, which was regulated in the UK, and Landsbanki’s London branch which was regulated from Iceland.

KSF: A British Bank his strictures do not apply in his particular example. It is extraordinary that Boyes does Boyes tells a story about a British charity not make the crucial distinction between a which kept its assets in KSF, Kaupthing Singer British bank, owned by Icelanders, and the & Friedlander, going on to comment (128): London branch of an Icelandic bank. He, or “It is not di$cult, visiting a hospice that has his Icelandic sources, should have known been left in the lurch, to share the com- better. mon British view of the Icelanders as amoral plunderers.” He then speculates that perhaps The second problem is that at the same some Icelanders wanted to pass their liquid- time as the UK Labour government pre- ity problems on to British depositors, or to sented a £500 billion rescue package for relive the “Cod Wars” which were disputes British banks, October 8th 2008, it closed between Iceland and the UK in the 1950s to down only two British banks, KSF, owned 1970s about unilateral extensions of shing by Kaupthing, and Heritable Bank, owned limits by Iceland. He concludes, though, by Landsbanki. While British taxpayers may that probably the Icelanders were simply lose billions of pounds because of RBS and unrealistic. Bradford & Bingley, 71 the two British banks in There are two problems with the tale told Icelandic ownership in resolution turned out by Boyes. The rst one is that KSF was a Brit- to fully or almost fully solvent: The recovery ish bank, registered in the UK and regulated rate for non-preferential creditors of Herit- by British authorities. It was a subsidiary, able Bank is 94p in the pound and of KSF not a branch, of Kaupthing in Iceland. Pos- 86p in the pound, despite the fact that the sibly, Boyes’ strictures might apply to the estates of both companies have had to pay Icesave accounts which Landsbanki o!ered enormous amounts of money to auditors because in the UK they were operated by a and lawyers. 72 Of course, from his vantage Landsbanki branch and not a subsidiary, and point in 2009 Boyes could not have known therefore regulated by Icelandic authorities this outcome. But he should have seen that it and insured by the Icelandic Depositors’ and was really the UK Labour government which Investors’ Guarantee Fund. left in the lurch the charity which he men- The case of the Icesave accounts is dis- tions, along with many other institutions and cussed later in this article in more detail. But associations. Boyes’ speculations about the

84 ÞJÓÐMÁL vorhefti 2017 mixed motives of the Icelandic banks which communication from David Oddsson - operated in the UK are not supported by any one of the few occasions that Haarde has evidence. The fact of the matter is that the publicly distanced himself from his former Icelanders are mostly Anglophiles: They were mentor. for example discreetly relieved that it was the Here, Boyes seems to be confusing several British military that occupied Iceland in April di!erent issues and dates. In a testimony 1940 and not the Germans. 73 on December 4 th 2008 to a parliamentary Boyes is making the same error as Prime committee, David Oddsson said that he had Minister Gordon Brown who also should already in the spring or summer of 2008, have known better. In the spring of 2009, probably in June, told the government that Brown was asked in the House of Commons there was a zero per cent likelihood that the about a hospital in the north-west of Eng- banking sector would survive without help land which had kept money in KSF: “Why from abroad. When Geir Haarde was asked is the Prime Minister now the one person about this the same day at a press meeting, standing in the way of compensation?” he said that Oddsson apparently had used Brown replied: these words in a telephone conversation The fact is that we are not the regula- between the two of them but that he had no tory authority and that many, many more recollection of that conversation himself. 75 people had nances in institutions regu- In a television interview February 24 th 2009, lated by the Icelandic authorities. The rst Oddsson brie#y returned to the subject responsibility is for the Icelandic authori- and said that he had recently come upon a ties to pay up, which is why we are in nego- memorandum which he had written about tiations with the International Monetary this conversation. He also said that he had Fund and other organizations about the sent a report by an international expert on rate at which Iceland can repay the losses nancial stability to government ministers: that they are responsible for. According to the report, the banking sec- When Brown said that “we are not the tor could collapse in October 2008. 76 The regulatory authority”, he was plainly wrong. present author who was a member of the CBI Indeed, the British FSA was the regulatory Board of Overseers in 2001-2009 can con- authority of KSF, as it was a British bank. rm that Oddsson, in a private conversation Brown’s statement that the Icelanders had to with him in August 2008, used similar words: “repay the losses that they are responsible There was a 100 per cent likelihood that the for” was also highly doubtful. If anyone was banking sector would collapse without help responsible for possible losses, then it was from abroad. the British Labour government, singling out It is however a moot point whether the the Icelandic-owned British banks for close- conversation where these exact words were down while rescuing all other British banks. used took place in June 2008 or at some oth- Confusion about Warnings er time. The crucial point is that Oddsson sev- eral times in 2008 warned the government, In his account of the problems of the Icelan- and the bankers, against the expansion of dic banks in early 2008, Boyes says (144–5): the banks and their lack of credibility abroad. In the Oddsson version of events, the Some of the conversations and meetings central bank submitted a memorandum were only between Oddsson and Haarde, to Geir Haarde on the poor state of the others had more participants. 77 Indeed, three Icelandic banks on February 24, already in 2005, less than two months after 2008. Haarde, in subsequent testimony to he had become CBI Governor, Oddsson had a parliamentary committee (on December mentioned to Haarde the possibility that 7, 2008), said he could not recall any such the bank expansion might be unsustain-

ÞJÓÐMÁL vorhefti 2017 85 In November 2005, when Morgun- bladid published a news item about negative reports about Kaupthing bank by analysts in foreign banks, one of the bank directors told the editor that it was unnecessary to announce this as if Hekla, the famous Icelandic volcano, was about to erupt. Another bank director apparently cancelled his bank’s advertisement contract with Morgunbladid. able.78 One of the best-documented meet- opinion preceding the bank collapse: “And ings between Oddsson and government since the press, led by Morgunbladid, was ministers took place on February 7th 2008. In even more upbeat than the popular mood, its report, the SIC wrote: “During the meet- why should there be any doubts?” The truth ing, the Chairman of the Board of Governors about Morgunbladid is almost the opposite. painted a very bleak picture of the state and While the newspapers and radio and televi- future prospects of the Icelandic banks. The sion stations owned by retail magnate and information indicated an imminent danger media mogul Jon Asgeir Johannesson took a for the Icelandic economy.” 79 The leader favourable and uncritical view of the busi- of the Social Democrats, Foreign Minister ness community and its doings in the last Ingibjorg S. Gisla dottir, testied to the SIC years before the collapse, Morgunbladid was that she thought Oddsson was being “a little much more ambivalent, under the editor- dramatic” at the meeting and that she had ship of Styrmir Gunnarsson. Morgunbladid written in a private memorandum: certainly occasionally welcomed the new- Evidently, the Governor of the CBI (DO) found prosperity of Icelandic nancial rms, would not mind if Kaupthing Bank col- but it was also ercely criticized by bankers lapsed or left the country. He paints a and businessmen for giving prominence to very bleak picture of future prospects in criticisms of the expansion by banks and the market and wants to use that picture businesses abroad. to justify taking action against the bank. In a book about the bank collapse pub- Plainly critical of Kaupthing Bank and lished by Editor Gunnarsson the same year Glitnir but not of Landsbanki. No advice or as Boyes came out with his book, 2009, suggestions were o!ered as to what action Gunnarsson describes the pressures which should be taken by the government about bankers and businessmen tried to put on the banks.80 his newspaper to be more positive towards Boyes cannot be blamed, of course, for them.81 As early as November 2005, when not knowing the facts related by the SIC in Morgunbladid published a news item about its report, even if they more or less conrm negative reports about Kaupthing bank “the Oddsson version of events”. But Boyes by analysts in foreign banks, one of the might have been more accurate about what bank directors told the editor that it was was publicly known in the latter part of 2009 unnecessary to announce this as if Hekla, when he was nishing his book - or perhaps the famous Icelandic volcano, was about to his sources should have gone into more erupt.82 Another bank director apparently detail with him about it. cancelled his bank’s advertisement contract with Morgunbladid.83 While Boyes’ Icelan- Morgunbladid and the Other Media dic sources - including Professors Gylfason, A strange error creeps into Boyes’ book, Magnusson and Olafsdottir – could not be perhaps due to his over-reliance on his Ice- expected to know what happened behind landic sources. He writes (153) about public closed doors, they certainly should have

86 ÞJÓÐMÁL vorhefti 2017 been aware of the di!erence in coverage of Several misleading or even wrong state- the banks between Morgunbladid on the one ments are to be found here. First, as already hand and Johannesson’s newspapers and noted, Governor Oddsson was one of the radio and television stations on the other very few Icelandic o$cials consistently to hand. This is actually commented on in a warn against the expansion abroad of the special analysis of the Icelandic media con- banks, even if he could not in his position be ducted by psychologist Hulda Thorisdottir as frank about it as he was in private con- for the SIC Report. She complains that most versation. In an address to the Chamber of media tended to be passive and uncritical of Commerce on December 5 th 2005, only a few the banks rather than active and critical, with weeks after he had assumed his position, he the exception of Morgunbladid.84 said: In his discussion about the media, Editor Of course it is perfectly normal for progres- Gunnarsson also recalls the erce contro- sive and rapidly growing banks, which feel versy about the media law proposed in 2004 constrained by the small size of the Icelan- by Prime Minister David Oddsson whose dic market, to be eager for foreign capital purpose was to reduce the possibility of in their e!orts to expand and reap prots. business to control the media. Even if Boyes The nancial system infrastructure and all has a long discussion about the controversy, the criteria assessed by supervisory author- he does not seem to make the connection ities and ratings agencies are in excellent between Johannesson’s control over most of shape. All markets should therefore stand the private media and his own complaints open to Icelandic banks for the foresee- about the uncritical attitude towards the able future. However, it is not necessarily banks and big business prevailing in Iceland certain that these important preconditions before the collapse. will be the only factors at work at any given time. They do so while market conditions Iceland and Thailand are normal but markets can be volatile, especially in a climate of global economic Boyes asserts that Governor Oddsson dis- imbalances. 85 missed Professor Thorvaldur Gylfason as an alarmist when Gylfason tried to warn against At the CBI annual meeting in spring 2006, the expansion of the banking sector (114; Governor Oddsson said that he had already 154; cf. 212): had meetings with the management of the banks, urging them to slow down. He said: [Oddsson] was bored by independent economists’ harping about the Icelandic The Icelandic banking sector must address parallels with the Asian meltdown of the shortcomings that international 1997–1998. This was 2005! And Iceland was analysts repeatedly stumble over, regard- far, far away. “When I raised these issues less of whether these are exaggerated and with top central-bank managers,“ remem- overestimated. Lending growth must be bers Thorvaldur Gylfasson [sic], “I wat told reined in as promised. Certain nancial rmly, ‘Iceland is not Thailand.’” … Thor- institutions need to improve their com- valdur Gylfasson [sic], warned that foreign munications to a signicant degree, and a short-term liabilities of the banking system joint e!ort by them all could be worth con- had become fteen times larger than the sidering. Hype and empty phrases must be 86 central bank’s foreign reserves. This, he avoided. said, was gross negligence: “The govern- In the autumn of 2007, Governor Oddsson ment and central bank were warned, was even more direct. He said: publicly and unambigously, every step of For a while, cheap capital was readily avail- the way.” But the line had been that Iceland able, and some were bold enough to grab is not Thailand. Criticism was not welcome. the opportunity. But the #ip side of expan-

ÞJÓÐMÁL vorhefti 2017 87 sion, and the side that cannot be ignored, not based on accumulation of foreign debt. is that Iceland is becoming uncomfortably Thirdly, in the spring of 2008, when Gyl- beleaguered by foreign debt. At a time fason wrote the paper from which Boyes when the Icelandic government has rapidly quotes, his numbers were not correct. 90 The reduced its debt and the Central Bank’s for- foreign short-term liabilities of the banking eign and domestic assets have increased system had not become fteen times larger dramatically, other foreign commitments than the CBI’s foreign reserves. What Gylfa- have increased so much that the rst two son had done was to go to the international pale into insignicance in comparison. All investment accounts published by the CBI. can still go well, but we are surely at the There he had taken all short-term liabilities of outer limits of what we can sustain for the the country and simply divided them by the 87 long term. currency reserves at the end of each year. But Ironically, Oddsson was in a sense the vic- these were not only liabilities of the banks tim of his own reforms: The CBI was not only alone: they were all short-term liabilities of constrained by the laws on public adminis- the country. Moreover, they included depos- tration and transparency and by the strict its in foreign subsidiaries of the Icelandic interpretation of legal authority prevailing in banks - about half of all short term liabilities. Iceland, 88 but it had also had the regulatory Thirdly, they included short-term liabilities power removed from it with the establish- in Icelandic Kronas which served as the ment of the IFSA, the Icelandic Financial Icelandic counterparts to so-called “glacier Services Authority. Oddsson did not have the bonds” (bonds issued by foreigners to gain power to rein the banks in. from the high interest rate in Iceland). The In the second place, Professor Thorvaldur correct numbers were that at end of 2007 the Gylfason was perhaps not considered a reli- foreign short term liabilities of the Icelandic able commentator on Thailand and Iceland banks had become 8.5 times larger than because of his earlier pronouncements on the CBI foreign reserves. This was certainly a the two countries. In November 1996 Gylfa- problem, but a much smaller one than Gylfa- son had published in the most widely read son suggested. newspaper in Iceland a glowing account of Professor Gylfason was of course right that economic progress in Thailand under the already in 2004-2005 the banking sector name “Land of Smiles”, writing: had far outgrown the capacity of the CBI The Thais should be praised for having, in to act as a lender of last resort to them. The a short time, achieved so much by their currency reserves were small in comparison own e!ort and common sense. In the same to the foreign liabilities of the banks. There way, the Icelanders are themselves solely were two ways of responding to the prob- responsible for the fact that our living lem: to increase the CBI currency reserves or standards have recently steadily worsened to reduce the size of the banks. In fact, the in comparison with many other nations, CBI had in 2006 vastly increased its currency both distant and near us. This is a heavy reserves, more than doubled it by borrowing responsibility. 89 from abroad, as Gylfason recognized, even In the next few months after Professor Gyl- if he wrongly asserted that this loan had not fason wrote these words Thailand stumbled been included in o$cial debt gures: It was into crisis, with many other Asian countries, included in those gures. But in the credit whereas a year earlier, in 1995, Iceland had crunch starting in late 2007, both kinds of embarked on a longer period of uninter- responses became di$cult, almost impos- rupted economic growth than it had seen for sible. Loans to increase the currency reserves quite a while. In the nine years between 1995 could only be taken at unacceptable interest and 2004, at least, this economic growth was rates, revealing the weakness of the nancial

88 ÞJÓÐMÁL vorhefti 2017 sector; and bank assets could only be sold at unacceptable prices, also revealing the weak- ness of the nancial sector. You are damned if you do; you are damned if you don’t. In the paper from April 2008 which Boyes quotes, Professor Gylfason tries to explain the rapid growth of the banks: “The banks appeared to believe, as did at least one inter- national rating agency, that the state guaran- tees behind them while in public ownership were still in force, and the government did little to counter this impression.” This is not correct as Governor Oddsson pointed clearly out in the comments quoted above at a press conference: “When the banks were privatized and sold, there was no Government guaran- tee attached. If there had been, they would have been sold at a much higher price.” At the time Gylfason wanted to increase the CBI foreign reserves, whereas Oddsson was reluctant to do so because this would only be done at an almost unacceptable price and because he thought that the banks should not be encouraged to believe that they had any government guarantees. Gylfason also overlooks, or ignores, the fact that the banks could only grow by nding new customers for their goods and services, and that neither the CBI nor the IFSA, had the authority to prohibit their expansion abroad: It was a result of Iceland’s membership in the EEA, Roger Boyes takes at face value everything British politi- European Economic Area, opening access cians like Chancellor Alistair Darling say, but contemp- tuously dismisses almost everything what Icelandic by Icelandic nancial rms to the whole of politicians say. It turned out, however, that Darling was not Europe. always telling the truth about the Icelanders. In his paper, Professor Gylfason complains that the CBI did not have “su$cient cred- ibility and power of persuasion”. He is right partners, for book-keeping irregularities, Gyl- on the matter that the Icelandic banks did fason had defended him, as already pointed not heed the many and well-documented out, suggesting that the police investigation warnings about their rapid expansion of him was politically motivated. issued by the CBI governors. But partly this Boyes’ Pro-Labour Stance was because the public mood in Iceland in 2004–2008 was very favourable to the While Boyes plausibly complains about the businessmen who had bought the banks and uncritical attitude of most of the Icelandic borrowed heavily from them. Indeed, Gylfa- media towards the banks and big business son himself had contributed to this public before the 2008 collapse, he seems to adopt mood. When businessman Jon Asgeir Johan- a similar uncritical attitude towards his own nesson was in 2005 indicted, with four of his British Labour government. Taking almost

ÞJÓÐMÁL vorhefti 2017 89 support Darling’s statements to the press when he was justifying invoking the British anti-terrorist law against Iceland - not only against Landsbanki, but also the CBI and the Icelandic Treasury. But it should have been quite clear from the chain of events that Darling and British o$cials had prepared this extreme measure before Darling spoke with Mathiesen. The conversation was a pretext, not a reason. Boyes adds (176): “Darling’s reaction was understandable, especially since the failure of Northern Rock: to dene the possible removal of capital as a question of national security.” Since Boyes published his book in 2009, the evidence has shown that he should have adopted a more critical attitude towards the British Labour government. First, in his book on the international nancial crisis, Darling lets it slip that the use of the anti- terrorist law had been prepared before he Icelandic toddler with a massage to Brown and Darling had the conversation mentioned above after their government invoked the British anti-terrorist law against Iceland. with Mathiesen. Darling recalls his thoughts Boyes also uncritically accepts the position of the British in the morning before he made the call to Labour government in his account of the Icesave dispute which was about who should bear the cost of reimbursing Mathiesen: “We knew we were not being told depositors in so-called Icesave accounts, which Landsban- the whole story there and it was inevitable ki’s London branch o"ered, after the bank failed. that di$cult decisions, which might wrongly be interpreted as hostile acts by the Icelandic nothing at face value from David Oddsson, government, would have to be taken in the Boyes takes practically everything at face next day or so.” 91 In second place, extensive value from UK government ministers. In investigations have not turned up any illegal a discussion about the disputes between or abnormal money transfers from the UK Iceland and the UK during the bank collapse, to Iceland in the weeks before the collapse, culminating in the use of an anti-terrorist neither from Landsbanki nor from Kaupth- law against Iceland, Boyes reproduces the ing’s subsidiary, KSF. There was no “removal transcript of a conversation on October 7 th of capital”. Thirdly, as already noted, Darling’s 2008 between Alistair Darling, the British over-generalization about the bad state of Chancellor of the Exchequer, and Icelandic a!airs in the British banks owned by Iceland- Minister of Finance Arni Mathiesen. He then ers proved to be wrong: Their recovery rates comments (173): “The conversation prompt- show that they - unlike some other British ed Darling to freeze the assets of Landsbanki banks - were solvent when closed down by in Britain and set o! a downward spiral that the UK government. extinguished Iceland’s last hope of main- Two more documents should be men- taining its role as an international banking tioned that throw further light on the matter. nation.” Fourthly, if the real purpose of invoking the Boyes here accepts Darling’s version of the anti-terrorist law was to hinder any money story even if he admits, almost in passing transfers by Landsbanki out of Britain, then (174), that the published transcript does not this purpose would already have been

90 ÞJÓÐMÁL vorhefti 2017 attained by a Supervisory Notice issued on as a state or a nation be held responsible for October 3 rd 2008, by the British FSA to Lands- business transactions between individual banki’s branch which prohibited any trans- depositors abroad in pursuit of high interest fers from it out of the UK without the written rates and a private Icelandic bank o!ering permission of the FSA. Three days in advance; such high interest rates? There was never Barclays Bank which oversaw all transfers for any legal rule or regulation that stipulated Landsbanki was made aware of the Supervi- a government guarantee of the obligations sory Notice. 92 In other words, the “possible of the Depositors’ and Investors’ Guarantee removal of capital” was, like Darling’s con- Fund. Landsbanki’s debt to its depositors, versation with Mathiesen, a pretext, not a backed up by the Guarantee Fund, was never reason. Fifthly, since Boyes mentions what he a recognized debt of the Icelandic state. calls Iceland’s “hope of maintaining its role as This seemed to be a very serious issue an international banking nation”, it should be in 2009 when it was not certain that the pointed out that recently released minutes Landsbanki estate would cover total depos- of the Non-Executive Committee of the Bank its. As Boyes notes, Landsbanki had held of England suggest that the Bank viewed the £4.5 billion of retail deposits in its London idea of Iceland as a nancial centre with hos- branch, a small sum for the UK authorities, tility: “The number of smaller countries that but enormous in an Icelandic context and promoted themselves as centres for nancial certainly far beyond the capacity of the services ought to reduce [sic]. Iceland was a Icelandic Investors’ and Depositors’ Fund. very telling example.” 93 In the circumstances, what the UK Labour The Icesave Dispute government decided to do was to close the branch, invoke the anti-terrorist law against Boyes also uncritically accepts the position of Landsbanki - and, for a while, also the CBI the British Labour government in his account and the Finance Ministry - and reimburse the of the Icesave dispute which was about who Icesave depositors, then presenting the bill, should bear the cost of reimbursing deposi- with interest, to the Icelandic state. Lands- tors in so-called Icesave accounts, which banki, the CBI and the Finance Ministry were Landsbanki’s London branch o!ered, after even put on a list of terrorist organizations the bank failed. Boyes asserts (174): “Under which the UK Treasury published on its web- the directives agreed when Iceland joined site, alongside Al-Qaeda, the Talibans and the European Economic Area in 1994, Iceland the governments of Sudan and North Korea. was pledged to pay 20,997 euros to each (After a few days, and protests by the Ice- depositor.” landic government, the CBI and the Finance This is not accurate. In 1994, Iceland Ministry were removed from the list.) only pledged to set up a deposit insurance In Iceland, unsurprisingly, opinion was scheme. Of course, in the rst instance it was sharply divided about the Icesave claim by Landsbanki’s estate which was liable for this the UK Labour government. Some, in particu- debt. If the bank failed to meet its obliga- lar former CBI Governor David Oddsson, tions to depositors, then the Icelandic Depos- maintained that there was no legal obliga- itors’ and Investors’ Guarantee Fund, set up tion by the Icelandic state unless conrmed and nanced by the banks under EEA rules in court decisions: If the UK authorities and regulations, became liable for the depos- believed that the Icelandic state owed them its, up to 20,997 euros to each depositor, money, then they should refer the dispute as Boyes mentions. The third move, which to courts, for example the Reykjavik District Boyes makes from the Guarantee Fund to the Court, since Landsbanki was registered in Icelandic state, was unwarranted by law or Reykjavik. 94 This the UK authorities were even by common sense: How could Iceland however unwilling to do. Others believed

ÞJÓÐMÁL vorhefti 2017 91 In other words, the Bank of England his fellow-countryman Edmund Burke rather was lending money to a “terrorist than to stories told by his Icelandic cohorts: “It looks to me to be narrow and pedantic, to organisation”, as dened by the UK apply the ordinary ideas of criminal justice to 96 Treasury. Boyes shows very little this great public contest. I do not know the sympathy for the Icelandic version of method of drawing up an indictment against the Icesave dispute. But perhaps he a whole people.” 97 should have listened to the famous The Icesave deal made by the Icelandic observation by his fellow-countryman left wing government in the fall of 2009 was Edmund Burke rather than to stories overwhelmingly rejected by Icelandic voters told by his Icelandic cohorts. in March 2010: 93.2% of the voters voted against it, while 1.8% took the same position as Professors Gylfason, Magnusson and Olaf- sdottir. Another deal was negotiated in late that Iceland had to accept the Icesave claim 2010. Oddsson was one of the leaders of the by the British government. Boyes’ economic opposition to it, whereas Professors Gylfason, advisers in Iceland, Professors Gylfason, Mag- Magnusson and Olafsdottir supported it. In nusson and Olafsdottir, all belonged to the April 2011 the deal was rejected in a national latter group, although on di!erent grounds: referendum: 59.8% joined Oddsson in voting Gylfason believed the Icelanders had a moral against the deal, and 40.2% took the same obligation to compensate British depositors; position as Boyes’ cohorts. 98 In January 2013 Magnusson predicted that Iceland would the EFTA Court ruled that the Icelandic state become isolated, something of a “Cuba of was not liable for the transactions between the North” if it did not make a deal with the British depositors and the London branch UK; Olafsdottir regarded it as an obstacle to of a private bank from Iceland. That was the EU membership if Iceland did not meet the closure of the Icesave dispute. It later turned British demands. 95 out that Landsbanki’s estate covered all the The absurdity of invoking the anti-terrorist Icesave deposits. But if the Icesave deal with law against Iceland and to put it on a list with the UK had been accepted, then the Icelandic the Al-Qaeda, the Talibans and the govern- state would have had to pay enormous sums ments of Sudan and North Korea, was not by Icelandic standards in interest. only shown by the two facts that Iceland There are more inaccuracies in Boyes’ book, did not even have a military and that it had for example in his account of the Glitnir been a loyal ally of the UK in NATO since the take-over and of the relationships between beginning, having before that tacitly sup- David Oddsson, Geir H. Haarde and other port the British war e!ort in 1940-1945. It prominent Icelanders. But the examples was also demonstrated by the fact that a few above should su$ce to demonstrate that days after the Landsbanki’s branch in London Boyes’ book, even if readable and o!ering was closed down and put into resolution, some scattered insights into Icelandic soci- the Bank of England, having assured itself ety, should not be relied on for any details in that the operations of the branch were not a serious account of the 2008 Icelandic bank unsound, extended to it a loan of £100 mil- collapse. lion: In other words, the Bank of England was lending money to a “terrorist organisation”, as dened by the UK Treasury. 96 Boyes shows very little sympathy for the Icelandic version Dr. Hannes Hólmsteinn Gissurarson is a pro- of the Icesave dispute. But perhaps he should fessor of political science at the University have listened to the famous observation by of Iceland.

92 ÞJÓÐMÁL vorhefti 2017 Footnotes Loss], Morgunbladid 11 November 2006. 21. The report does not seem to be available online. An extract is however available here: http://www.mbl.is/ 1. Roger Boyes, Meltdown Iceland (London: Bloomsbury, media/03/703.pdf 2009). He misspells however the name of Gylfason as 22. Thorlakur Karlsson, Michael R. Luthy and Katrin being “Gylfasson”. Olafsdottir, Portrait of an Entrepreneurial Trade Mission: 2. Thorvaldur Gylfason, Hagur, log og sidir [Interests, Iceland Goes to China, in Developmental Entrepreneur- Laws and Morality], Morgunbladid 24 May 1998 ship: Adversity, Risk, and Isolation, eds. Craig S. Galbraith 3. Vill ekki utskyra nanar [Does Not Want to Explain], and Curt H. Stiles (Amsterdam: Elsevier, 2006), 248. Morgunbladid 3 June 1998. 23. The idea did not originate from David Oddsson, and 4. David Oddsson i myndum og mali [David Oddsson in had been discussed and prepared for many years before Words and Pictures] (Reykjavik: Samband ungra sjalfs- it was implemented. Haraldur Johannesson, Sannlei- taedismanna, 2008). kurinn um orlog Thjodhagsstofnunar [The Truth about 5. Thorvaldur Gylfason, Kannski tuttugu manns [Possibly the Abolition of the National Institute of Economics], Twenty People], Frettabladid 7 July 2005. Thjodmal , Vol. 1 (1: 2005), 74–8. 6. Thorvaldur Gylfason, Events in Iceland: Skating on thin 24. Katrin Olafsdottir, Hvers vegna Thjodhagsstofnun? ice? VoxEU.org 7 April 2008. http://voxeu.org/article/ Morgunbladid 4 April 2002. events-iceland-skating-thin-ice 25. David Friedman, Private Creation and Enforcement 7. Thorvaldur Gylfason, Iceland’s Blend of Old and New, of Law: A Historical Case, Journal of Legal Studies, Vol. 8 VoxEU.org 10 July 2008. http://voxeu.org/article/iceland- (2: 1979), 399–415. and-its-nancial-predicament-history-and-context 26. David Oddsson, interview 7 October 2013. 8. Transcript of interview with Thorvaldur Gylfason 5 27. See transcript at https://georgewbush-whitehouse. November 2008 in “Silfur Egils” on Icelandic government archives.gov/news/releases/2004/07/20040706-2.html television station, provided by Creditinfo. 28. The author of this report can conrm this, having 9. Reykjavikur#ugvollur – Uttekt a framtidarstadsetningu been present on this occasion, in the Oval O$ce of the [Reykjavik Airport – A Report on Its Future Location] White House. (Reykjavik: Samgonguraduneytid and Reykjavikurborg, 29. Je!ery M. Paige, Co"ee and Power: Revolution and April 2007). According to the report, the land on which the Rise of Democracy in Central America (Cambridge, the airport was built was worth an estimated 74 billion MA: Harvard University Press, 1997), 18. Probably the ISK in April 2007. term was constructed with the famous, or notorious, 10. SIC Report, Vol. 6, Ch. 19, 140 (in English). The Report “200 Families” of France in mind. See Malcolm Anderson, of the SIC, Special Investigation Commission on the The Myth of the 200 Families, Political Studies, Vol. 13 (2: bank collapse, is available online, with some chapters in 1965), 163–178. English: https://rna.is/eldri-nefndir/addragandi-og-orsa- 30. It was probably rst used in a newspaper article, kir-falls-islensku-bankanna-2008/skyrsla-nefndarinnar/ Reynir Antonsson, Vabodar ur Vesturheimi [Sinister 11. See his biography on the website of the Ice- Signals from the West], Dagur 6 November 1987. Cf. landic Parliament, http://www.althingi.is/altext/cv/ Fjolskyldurnar 14 [The Fourteen Families], Pressan 9 May is/?nfaerslunr=735 1991. 12. KB banki verdlaunadur [KB Bank Receives Prize], 31. Those two were Olafur Thors, party leader in 1934– Frettabladid 21 April 2005. The company soon after 61, and Geir Hallgrimsson, party leader in 1973–83. changed its name to Kaupthing Bank and it is best 32. Gudmundur Magnusson, Thorsararnir: audur — known under that label. vold — orlog [The Thors Family] (Reykjavik: Almenna 13. Blomlegri

ÞJÓÐMÁL vorhefti 2017 93 42. Lausnarordid er frelsi: Erindi Fridriks von Hayeks, James 1991. M. Buchanans og Miltons Friedmans a Islandi [Freedom 57. For the view that Hafskip was bankrupt, see e. g. is the Key Word: Lectures in Iceland by F. A. Hayek, J. M. Larus Jonsson, Sagnfraedilegur sannleikur um afdrif Buchanan and Milton Friedman], ed. and tr. Hannes H. Hafskips hf. [The Historical Truth about the Demise of Gissurarson (Reykjavik: Framtidarsyn, 1994). Hafskip], Thjodmal , Vol. 5 (4: Winter 2009), 62–69. Jons- 43. Fjarmalaleg samskipti Hrafns Gunnlaugssonar son was director of the bank which did business with vid ymsa opinbera adila [Financial dealings between Hafskip. He was indicted for recklessness, but acquitted. Hrafn Gunnlaugsson and some public funds and For the opposite view on Hafskip, see the three books institutions], http://rikisendurskodun.is/wp-content/ mentioned above on the Hafskip case, by Helgi Magnus- uploads/2016/01/hrafn.pdf son, Bjorn J. Bragason and Stefan G. Sveinsson. 44. David Oddsson, Nokkrir godir dagar an Gudnyjar [A 58. See, again, the three books mentioned above on the Few Good Days Without Gudny](Reykjavik: Vaka-Hel- Hafskip case, by Helgi Magnusson, Bjorn J. Bragason and gafell, 1997]; David Oddsson, Stolid fra hofundi stafrofsins Stefan G. Sveinsson. [A Theft from the Author of the Alphabet](Reykjavik: 59. Rikisendurskodun, Fjarmal: stjornmalastarfsemi, Vaka-Helgafell, 2002). http://www.rikisendurskodun.is/leadmin/media/ 45. This seems to be a pure fabrication. Petur Mar Olafs- skyrslur/framl0206samf.pdf Exchange rate used from 1 son, in an email to Hannes H. Gissurarson 13 May 2016, June 2006 ($1=72.27 ISK). says that he does not know even of any allegations, 60. Segist hvorki hafa hitt Kjartan ne David [Claims that public or private, that he or the late publisher Olafur He Has Neither Met Kjartan nor David], Morgunbladid 24 Ragnarsson had ever received any favours from David September 2005. Oddsson. 61. Haestarettardomar [Supreme Court Judgements], 46. H. Scott Gordon, The Economic Theory of a Com- 385/2007. mon Property Resource: The Fishery, Journal of Political 62. Haestarettardomar [Supreme Court Judgements], Economy , Vol. 62 (1954), 124–42; Anthony Scott, The 74/2012. Fishery: The Objective of Sole Ownership, Journal of 63. Jon B. Hannibalsson, Ad njota sannmaelis [Fair Political Economy, Vol. 63 (1955), 116–24. Judgements], Morgunbladid 27 September 2004; Thros- 47. Hannes H. Gissurarson, The Icelandic Fisheries: Sus- tur Olafsson, Tilgatur radi ekki for [Innuendos Should tainable and Pro!table (Reykjavik: University of Iceland Not Control Discussion], Morgunbladid 29 September Press, 2015). https://books.google.com.br/books?id=j- 2004. p8CwAAQBAJ 64. On the a!air of the wife, for and against Sullenberg- 48. Thorvaldur Gylfason, Natural Resource Endowment: er’s account: Solvi Tryggvason, Jonina Ben (Reykjavik: A Mixed Blessing? Beyond the Curse: Policies to Harness Sena 2010), 150; Armann Thorvaldsson, Frozen Assets , the Power of Natural Resources, eds. Rabah Arezki, Thor- 75. On the escort girls: Roger Boyes, Meltdown Iceland , valdur Gylfason and Amadeu Sy (Washington DC: IMF 72–73. Boyes’ account is based on documents presented 2011), 7–34. https://notendur.hi.is/gylfason/Beyond_ to the Circuit Court in Dade County Florida, case no. the_Curse_Arezki_Gylfason_Sy.pdf 02-29149 CA11, Gaumur v. Jon Gerald Sullenberger. 49. SIC Report, Vol. 1, Ch. 6, 237. Some of the documents are available on the Internet, 50. SIC Report, Vol. 1, Ch. 6, 231. It was not revealed http://www.baugsmalid.is/skjol/062603TRIALVOLV.txt which banks were invited to participate in a tender 65. Ingibjorg Solrun i Top Shop, Frettabladid 28 February process, but Skandinaviska is most likely to have been 2003. Top Shop was a building where a branch of the one of them. well-known retail chain had been located; it was rented 51. Halldor Thorsteinsson and Gyl Hallgrimsson, Gud- by Jon Asgeir Johannesson to the Social Democrats as mundur Olafsson. Minningarord [Gudmundur Olafsson, election headquarters in 2003. In Memoriam], Morgunbladid 29 July 1979; Bjorgolfur 66. Yrlysing fra Landssambandi logreglumanna Thor Bjorgolfsson, Billions to Bust — and Back (London: [Declaration by the Icelandic Association of Policemen], Prole Books, 2014), 20. Morgunbladid 26 February 2003. In a comment, printed 52. Gudmundur Magnusson, Thorsararnir: audur — besides the Declaration, Gisladottir stressed that she had vold — orlog [The Thors Family] (Reykjavik: Almenna been critical of politicians rather than policemen. bokafelagid, 2005). 67. Hagnadur af rekstri og traustur efnahagur [Protable 53. Helgi Magnusson, Hafskip: gjorningar og gaesluvard- Operations and Strong Financial Position], Frettabladid, 2 hald [Hafskip: Public Frenzy and Imprisonment](Rey- May 2003. The information provided was that the own- kjavik: Frjalst framtak, 1986); Bjorn J. Bragason, Hafskip i ers of Frettabladid and related media were Jon Asgeir skotlinu [Target: Hafskip](Reykjavik: Sogn, 2008); Stefan Johannesson, his girlfriend Ingibjorg Palmadottir, his Gunnar Sveinsson, Afdrif Hafskips i bodi hins opinbera father Johannes Jonsson, two of his business partners, [Hafskip’s Fate on O$cial Initiative](Reykjavik: JPV, 2008). Arni Hauksson of Husasmidjan and Palmi Haraldsson of 54. Jonatan Thormundsson, professor: Segir sig ur Fengur, and two of his employees or full-time advisers, Framsoknar#okknum [Professor Jonatan Thormundsson editor Gunnar Smari Egilsson and lawyer Ragnar Tomas- Quits the Progressive Party], Morgunbladid 30 Septem- son. ber 1972. 68. Bjorn Bjarnason, Rosabaugur y!r Islandi. Saga 55. Jonatan vill vera leystur fra malinu [Jonatan Wants to Baugsmalsins [The Shadow of Baugur Over Iceland. The Leave the Case], Morgunbladid 7 July 1990. Story of the Baugur Case] (Reykjavik: Ugla, 2011); Oli B. 56. Haestarettardomar [Supreme Court Judgements] Karason, Sidasta Vornin: Haestirettur a villigotum i eitrudu 1991, 936. Case 19/1991. An extract of the judgement andrumslofti [The Last Defence: The Supreme Court on was published on three pages in Morgunbladid 7 June the Wrong Track in Poisoned Atmosphere] (Reykjavik:

94 ÞJÓÐMÁL vorhefti 2017 Ugla, 2011). r060407b.pdf 69. Gretar Thor Eythorsson, Municipal Amalgamation in 87. Speech by David Oddsson, Chamber of Commerce, Iceland. Past, Present and Future, in Remote Control: Gov- 6 November 2007, http://www.bis.org/review/r071114b. ernance Lessons for and from Small, Insular, and Remote pdf Regions, eds. Godfrey Baldacchino, Larry Felt and Robert 88. This was called “logmaetisreglan” (the rule of legal M. Greenwood (St. John’s: ISER Books, 2009). authority) and emphasised by the parliamentary 70. Law no. 37/1993 (Stjornsyslulög, Law on Public ombudsman in several decisions: Government o$cials Administration); Law no. 50/1996 (Upplysingalog, Law could not act without explicit legal authority. It was very on Transparency). important, the ombudsman stressed, that particular 71. Taxpayer support for UK banks: FAQs (London: institutions conned themselves to their legally dened National Audit O$ce, 2012), https://www.nao.org.uk/ tasks and did not try to interfere with other institutions. highlights/taxpayer-support-for-uk-banks-faqs/ See, for example, Arsskyrsla umbodsmanns Althingis fyrir 72. Heritable Bank (in Administration). Seventeenth arid 2004 [Annual Report by the Parliamentary Ombuds- progress report to all known creditors (London: Ernst & man for 2004], 15. Young, 29 August 2014), pp. 7–8, http://www.heritable. 89. Thorvaldur Gylfason, Brosandi land [Land of Smiles], co.uk/Uploads/Documents/news/Heritable_Bank%20 Lesbok Morgunbladsins 23 November 1996. Plc_In_Administration_17th_Progress_report_nal.pdf 90. Thorvaldur Gylfason, Events in Iceland: Skating on Kaupthing Singer & Friedlander Limited (in Administra- thin ice? VoxEU.org 7 April 2008. The correction is taken tion) (London: Ernst & Young, 2016), p. 2, http://www. from comments posted below the paper, by Professor kaupthingsingers.co.uk/media/2103/ksf_progress_ Fridrik M. Baldursson, whom Boyes dismisses as a “Odds- report_to_7_october_2016_.pdf son cheerleader”. This is totally wrong. Professor Baldurs- 73. Thor Whitehead, The Ally Who Came In from the Cold son was never close to Oddsson and in fact disagreeing (Reykjavik: University of Iceland Press, 1998). with him on important issues, such as membership of 74. Hansard 6 May 2009, Column 172. Retrieved from the EU. After the bank collapse, he was also one of the http://www.publications.parliament.uk/pa/cm200809/ critics of the CBI. cmhansrd/cm090506/debtext/90506-0003.htm 91. Alistair Darling, Back from the Brink (London: Atlantic 75. Man ekki eftir simtalinu [Does Not Remember the Books, 2011), 152. Conversation], Morgunbladid 5 December 2008. 92. Financial Services Authority, First Supervisory Notice, 76. SIC Report, Vol. 6, Ch. 21, 139 (in English). The Landsbanki, 3 October 2008. https://www.fca.org.uk/ report was written by Andrew Gracie who had worked publication/supervisory-notices/landsbanki.pdf for the Bank of England. Serfraedingaskyrsla var send 93. Bank of England. 2008. Committee of Non-Executive til rikis [Expert ’s Report was Sent to Government], Directors (Nedco) meeting, Wednesday 15 October 2008. Morgunbladid 25 February 2009; Gagnryndi stjorn Geirs http://www.bankofengland.co.uk/archive/Documents/ harkalega [Forcefully Criticized the Haarde Govern- archivedocs/codm/20072009/codm2008b2.pdf ment], Frettabladid 25 February 2009. The interview 94. Aetla ad daema thjodina til aevarandi fataektar [Are is available on Youtube. https://www.youtube.com/ Going to Sentence the Nation to Perpetual Poverty], watch?v=EhnAAEV6oOs Morgunbladid 5 July 2009. 77. SIC Report, Vol. 6, Ch. 18, 20–21 (31 July 2008); Ch. 95. Thorvaldur Gylfason, Loglegt? Sidlegt? [Legal? 19, 102 (13 January 2008), 117–124 (7 February), 124 (8 Moral?]. Frettabladid 25 June 2009. http://www.visir. February), 136–137 (6 March), 143 (18 March), 148 (30 is/loglegt--sidlegt-/article/2009196927857. Interview March), 152 (1 April), 173 (7 May), 197 (8 July), 231 (11 with Gyl Magnusson at Station 2 26 June 2009. https:// September). These are meetings and conversations of www.youtube.com/watch?v=au_Xtkvaa1Y. Katrin which there are some records. The present author knows Olafsdottir, Hvar viljum vid vera arid 2020? Frettabladid that there were many more meetings and conversa- 30 December 2009. http://timarit.is/view_page_init. tions, and he assumes that Oddsson said the same to jsp?pageId=5065506 government ministers as he said to him, warning in no 96. Interviews with Mark Durrant-Sismey (fmr. director uncertain terms against a possible bank collapse. of Heritable Bank) 28 November 2014 and with Lilja B. 78. Styrmir Gunnarsson, Umsatrid (2009), 72. Einarsdottir (fmr. deputy director of Landsbanki’s Lon- 79. SIC Report, Vol. 1, Ch. 2, 9 (in English). don Branch) 3 March 2016. 80. SIC Report, Vol. 6, Ch. 21, 97 (in English). 97. Speech in Parliament 22 March 1775 on the Ameri- 81. Styrmir Gunnarsson, Umsatrid [The Siege] (Reykjavik: can colonies, reprinted in varios editions. http://oll. Verold, 2009), 72, 163–75, 114–15. libertyfund.org/titles/burke-select-works-of-edmund- 82. Ibid., 72. Gunnarsson is referring to a front page burke-vol-1--5 news item, Verdmaeti brefa bankanna hefur ryrnad, 98. Statice (2017). http://statice.is/statistics/population/ Morgunbladid 24 November 2005. elections/referenda/ On the Icesave dispute, Sigurdur 83. Ibid., 114. Mar Jonsson, Icesave-samningarnir: A#eikur aldarinnar? 84. SIC Report, Vol. 8, Addendum II, 277. [The Icesave Deals: The Blunder of the Century?](Reykja- 85. Speech by David Oddsson, Chamber of Com- vik: Almenna bokafelagid, 2011). merce, Reykjavik, 5 December 2005, http://www.cb.is/ publications/speeches/speech/2005/12/09/Speech- by-Dav%C3%AD%C3%B0-Oddsson--Chairman-of-the- Board-of-Governors-of-the-Central-Bank-of-Iceland/ 86. Speech by David Oddsson, Annual meeting of the CBI, 31 March 2006, http://www.bis.org/review/

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