The Icelandic financial crisis
I got a great reply to a post that I think I’ll use as an entry point into discussing something I’ve been avoiding. The Icelandic financial crisis is just a small and fairly insignificant part of the global financial meltdown if counted in pure dollars and cents, but yet for me being here and witnessing it first hand it’s extremely hard to keep an objective view of things. For the last couple of weeks I have been working on a fairly substantial essay which covers my opinions on the theoretical and practical aspects of the world financial situation as a corollary to its central theme, which is the way in which our society as a whole is improperly structured. Because my efforts are being poured into that essay and keeping up with what’s going on over here, this discussion will be much less theory and lots more practice, pertaining to Iceland specifically rather than the failures of the world economy or global power structures.
So on with James’ comments:
I’ve been regularly checking for updates on your blog particularly since the financial crisis hit Iceland seemingly more mercilessly than anywhere else. I’ve been eager to hear your particular perspective on events that are unfolding in your country. I knew that Iceland would be exposed to the downturn in the markets because of its dependence on world trade to meet its most basic needs, but had never expected to witness the severity of the current crisis.
Let’s start at the beginning. No, let’s not. Let’s start at a point in history. Let’s say 1783.
In 1783 one of the largest geological events in recorded history occurred when Lakagígar errupted in what is known as Skaftáreldar. The volcanic plume rose up to the stratosphere which plunged the ash-covered country into darkness, killing crops and livestock and inducing a famine. The dark cloud spread far and wide, and some historians have even attempted to draw a causal relationship between Skaftáreldar and the beginnings of the French Revolution (1786-1799), although direct evidence for this is slim; however, it is a fact that Europe that year and in years following experienced unusually cold winters, leading to an interesting variety of drawings of people ice-skating on the Thames.
In 1783 it became clear that Iceland’s dependence on foreign imports was not indeed as great as was supposed. That year and in following years of course there was a strong need for imported goods, but prior to that the level of self-sufficiency had been largely ignored.
Fast-forward to 1808. After the destruction of Copenhagen by the British in 1807 and the following blockade on all Danish ships that lasted until 1809, there was very little in the way of ship traffic to Iceland. The entire year 1808 not a single ship arrived in Iceland from abroad, and resultingly no supplies arrived. In 1809 three ships made it to Iceland early on in the year, and famine was averted, but the level of dependency on imported goods, especially foodstuffs had increased significantly in the previous two decades.
In following decades the Icelandic Independence movement started to come to be, with a long lineage of patriotic poets in Copenhagen writing at length about the beauty of the homeland. By the 1880’s there was a substantial movement in Iceland for independence, similar in momentum to the current Faeroese and Greenish struggles, and in an act of placation Iceland was granted a constitution in 1874, which was renewed in 1918 at the end of World War I when Iceland got home rule. In 1944 after Denmark had been under German control for several years Iceland declared independence.
Here is where something strange happened. Iceland had been fighting for independence for upwards of a century, and when finally it became a reality, what happened? Did we have a social uprising like the French? No. Did we write a new constitution like the Americans? No. In fact, the issue passed without much debate and the constitution handed to Iceland by the Danes in 1818 was only changed slightly, in the exaggeratory words of one: “Striking out King and writing President in its place.”
The constitution was accepted temporarily for the term of one year. In 1945 it was accepted agai and it’s been left mostly untouched until this day.
In short: Iceland has become increasingly dependent on other countries through the years and decreasingly capable of making hard political choices. So what has the Icelandic government been doing since we gained independence?
After WWII Iceland received a lot of money through the Marshall Plan, which was smartly deposited and stored for a while. In the 1980’s the money was used to buy trawlers for the Icelandic fishing fleet, which greatly increased the value of the economy, pushing Iceland into inflation of around 80% in the mid-1980’s. The ’80’s were marked in Iceland by several things - the Reagan-Gorbachev meeting, quotas on currency trading that limited individuals quite severely and companies much less so, a housing loan system where the loans were eaten up by the inflation leaving home-owners happy but the banking sector distraught.
When I was newly born, in the middle of this turmoil that was the ’80’s, there was a general workers strike that had the government rationing out perishables such as milk to families. During this strike, I’ve heard, my father impersonated U.S. Air Force personnel to enter the air force base at Keflavík and smuggle powdered milk out for me. This is what I’ve heard.
You can imagine this kind of situation, it was fairly easy to enact positive change. So in the following years lots and lots of laws were passed, slowly pushing this fledging nation from an unstable nanny-state into a ultramodern capitalist economy. Regulations were relaxed, rules were dropped, and starting around the mid-1990’s under Davíð Oddsson’s governments, slowly every single government agency worth its salt started to be privatized, starting with the banks and the telephone company.
The banks were largely bought up by wealthy businessmen on the one hand and the families of those who sat in government on the other. More or less 80% of the wealth produced in the 90’s can be loosely traced to ten families that were very active in the original independence movement around the early 1800’s. That’s the way it is here. Small communities are very frequently controlled by minuscule cliques that have consolidated their power for centuries. No use crying over it really, there’s not much that can break that kind of spell. (I’m not saying this to be conspiratorial - that would not be useful. I’m saying this to point out the queerness of, say, the current minister of Justice being the son of the former prime minister, who happens to be the son of a former prime minister… point at another democratic nation where that’s happened.)
As you can imagine, it is hard to point at any one moment where everything started to build up to what’s playing out now. There’s no entry point, there’s nowhere where everything started slipping. Rather, the economy continued to boom as more and more was privatized and put into the hands of the same few hundred people, and the nation sat placated and enjoyed itself. Now free of import restrictions, everybody had two jeeps - not SUV’s, but proper four wheel drive six seater guzzlers on 36 inch tires. Everybody had a second home, and went on frequent trips to the Canary Islands. Everybody had loans atop of loans atop of loans. And with the exception of the last of those, by ‘everybody’ I don’t mean everybody. Most just barely get by.
So what caused the Icelandic financial crisis? Greed, corruption, all that jazz. But more importantly, it was the Little Country that Could, a kind of morbid Nietzcheesque miricle, and as is always the case with small economies that go to far too fast, over-leveraging was the ultimate downfall.
Was it any fault of Iceland’s, per se? Well yes, of course. It was the fault of the government for not taking preventive measures, it was the fault of the central bank, who’s chairman just happens to be the guy who made Iceland the way it is today, it was the fault of the vulture capitalists and the bastards who own everything. But much to the contrary of what can be heard from the various speakers at the protests that have been going on for eight weeks running, this is also the fault of everybody who stood idly by and didn’t question what was going on. For some, for the minimally educated people living in tiny villages working dead-end jobs and drinking their wits away every weekend - not be cause they can’t do better, because the culture they live in expects exactly that and naught else from them - I will grant them the benefit of the doubt. It doesn’t take a lot of economic theory to see why the CC-PP game sucks ass, but you actually do have to think about it. The rest… the people at the universities who think for a living, the number crunchers at the banks who had everything they needed to see this a decade away, they’re all just as guilty as the government. The government they elected.
There’s been a lot of pointing fingers and placing guilt during this entire thing; but that just isn’t the point. What we need is to figure out what we did wrong and how we can do it differently, and if you read the literature of the time when all this shit was beginning, you might find the answer. It’s there. It’s astoundingly blatantly obvious. Just look.
I find it interesting that the coverage of Iceland’s woes always fail to show that in April, Iceland’s markets, banks, and currency were faced by speculative attacks by foreign hedge funds after the unwinding of the subprime market in the U.S.
http://tinyurl.com/5ngv6m
The speculative attacks were quite grim indeed. There was talk as early as May, as far as I remember, of British vulture capitalists and stock breakers doing all sorts of dodgy short-selling and asset shifting that might not even have been strictly legal. The joke of tomorrow: Q: How do you bankrupt a country? A: Ask an Englishman.
The U.S. Subprime market was also a bit of a fuckup. It was an example of what happens when value dithers into infinitesimal degrees, to the point where nothing of the original value is actually encapsulated within the traded good. The fact that the U.S. Subprime market started this chain reactions will hopefully live in the minds of whichever group of dimwits gets the job of figuring out how the post-Bretton Woods system is going to work.
I personally think this economic crisis was engineered for a threefold purpose. a) to use it as a justification to push through trade negotiations via the WTO. b)to force relactriant BRIC nations to pull down their remaining “trade” barriers to the Western Nations so that as during the 1980s US and European multinationals will be able to buy the and resources of vulnerable nations at pennies on the pound , and c) to regulate the world’s banking system in the interests of a more consolidated industry and a cartel of nations rather than just the United States and Great Britain.
Quite. Remember, it’s not paranoid to think they’re out to get you. It’s only paranoid to think that they’re working together. And to think that they actually know what they’re doing is very naïve indeed. The fact is that the smartest people in the financial sector are just that: the smartest people in the financial sector. That’s not really saying a lot. They honestly don’t have much of a clue what’s going on, they’re just very adept at surfing the waves without getting wet.
I have my own thoughts on this. One is that certain elements within the Icelandic goverment and possibly the EU would like nothing more than for Iceland to become an EU member, because a country with the natural resources of Iceland signing them off to an aged troll of a continent like Europe with no real reciprocal advantage is the Bruxelleite’s wet dream. Weeks ago I sighed deeply when at the protests I saw people waving the EU flag as if it was a good idea. I sidled up to them and asked them if they suffered from a severe form of retardation. They claimed they didn’t. To my mind though it is criminally stupid to think that anybody’s interests are better served by moving more power to fewer people who are farther away and share less common interests.
So you can imagine my elation when today at the protests I saw a guy with a EU flag with a big cross over it, and nobody else with EU flags. I’m not sure if it was just too cold out for the EU people or whether there’s been some change of sentiment, but I’m hoping it’s both.
If your keeping abreast of international news you would know all of these things are being negotiated in various political and economic forums.
I get very little news of real global events I’m afraid, and our government is very good at keeping us in the dark. I’d appreciate any feeds you can provide me with to keep informed of the real issues.
I believe it to be engineered as the current crisis mirrors the last last economic crisis in the 1970-1980s almost perfectly save its unfolded so much faster.
The Council on Foreign Relations wrote a detailed economic and political analysis during the mid 1970s as part of their “1980s project” that aired the notion of introducing a global credit/currency system based on relations hyperregional currencies a la the US Dollar and a European currency and advocated the abolishment of national currencies through undermining national sovereignty through “controlled disintegration” of the world economy. Heres a telling excerpt here.
“In a tiered system the tasks for American statecraft will be great. What is being requested is that a form of collective leadership be developed in the management of the interanational economy to replace the individualistic leadership of the United States that has prevailed since World War II.”
-Edward L. Morse“The obvious danger in such a regime resides in its potential instability. Some limited loosening is by no means unequivocally undesirable. It can be seen as a rational response to the earlier tendency, which was most manifest in the 1960s, for economic integration to run far ahead of both actual and desired political integration, thereby forcing countries into suboptimal policy choices. A degree of controlled disintegration in the world economy is a legitimate objective for the 1980s and may be the most realistic one for a moderate international economic order. A central normative problem for the international economic order in the years ahead is how to ensure that the dis-integration indeed occurs in a controlled way and does not rather spiral into damaging restrictionism.”
-Fred Hirsch and Michael Doyle
Yeah. The worrying thing about all of this is that there might be somebody somewhere with a very well plotted out plan. But I think it’s just a bunch of greedy beggars in smoky rooms trying to figure out how the fuck to keep people from figuring out that they’re just as lost as the rest of us. More on conspiracy theories later. Right now I’m going to get back to trying to find a way out of this mess.
