Cod fishing had always been the centre of Iceland’s traditional economy and in recent times it functioned around a sophisticated system of tradable catch-quotas. What is strange is why during the months prior to Iceland’s banking collapse a kilo of cod could be traded in this system for 4,000 krona, even though any Icelander who went to a local fishmonger could buy it for 1,200 krona a kilo? It appeared that codfish swimming in the North Atlantic were worth more than those that stared with their dead eyes from Reykjavik’s fish market slabs at housewives going about their daily shopping.
Like in many other countries the shareholders of Iceland’s leading businesses had lost control of the companies they theoretically owned. In the case of its banks the shareholding had become so dispersed that the control was left entirely in the hands of top management, leaving shareholders powerless when faced with the decisions of their boards.
The dilution of shareholders power resulted in a small clique of local oligarchs usurping the control of Iceland’s major banks and businesses. A handful of men and women took the small isolated, conservative island nation out of the hands of its rightful leaders, and transformed the island’s economy into a caricature of capitalism.
Managers had confounded their own personal interests with those of their shareholders and customers which inevitably led to decisions that compromised the viability of their businesses.
The contrast with traditionally run businesses, like for the American retailer Wal-Mart, was stark. In the Walton family business policy was remained firmly in the hands of the family holding. The owners determined policy; its managers were paid salaries for running its day to day business. This guiding principle transforming Wal-Mart into one of the world’s most successful supermarket chains, with the Waltons becoming the world’s richest family with a fortune estimated at over one hundred billion dollars.
With the methods employed by the usurpers, it was not surprising that the Icelandic economic collapsed, in the process provoking the country’s worst riots in generations with more than thirty thousand people — more than ten percent of the small nation’s population — descending onto the streets of Reykjavik.
The collapse of the Landsbanki, Glitnir and Kaupthing banks had in effect bankrupted the small country. In addition to that thousands of individual Icelanders had their savings wiped out by the folly of financial speculation. The country’s political leaders in their desperation even turned to Russia for help. Fortunately Iceland was saved from chaos at the very last minute by a ten billion dollar bailout loan from the International Monetary Fund. Part of that money was destined to repay imprudent British savers who had deposited their money with Icelandic banks, lured by the appeal of unreal interest rates.
From London, Michael Fitzwilliams had eyed the events with a mixture of fear and derision. Were the tribulations of that very small country’s a harbinger of things to come?
For more than half a century growth, growth and more growth had been governments’ only solution to solve the world’s ever more complex problems. It should have seemed evident to all but the most obtuse that the planet could not indefinitely support an ever increasing population, its insatiable demand for more resources, the reserves of which, more especially those of oil and gas, could no longer assure future needs. The economic crisis would perhaps be a short lived event, but there was little doubt it was also an ominous warning of worse things to come.
‘Your friends in Iceland got it all wrong Pat. They even asked the Russians for help,’ Fitzwilliams spitefully told Kennedy. ‘and Putin was too stupid to realize his own economy was about to meltdown.’
‘They weren’t my friends Fitz,’ Kennedy replied with a hurt tone to his voice
‘It’s a bit late to say that now Judas, you were the one always pushing to do business with them.’
Kennedy looked abashed.
‘They say that Putin grinned with pleasure at the idea of helping them, luckily the tables were turned so quickly he didn’t have time to realize what was happening.’
‘Well KGB men are not known for being economists,’ Kennedy sniffed. ‘If you look for the kind of reasons why Iceland got into trouble, you don’t have to look far.’
‘What do you mean?’
‘Us.’
‘No comparison,’ snorted Fitzwilliams. ‘They’re technically bankrupt now and their krona is worth pig shit. We just have to thank our lucky star we ditched our investments there when we did.’
‘Yesh Michael,’ nodded Kennedy, knowing only too well how lucky they were.
‘Everyone knew there was a bubble but did nothing about it. Now they’re complaining they’re the victims of international politics after a huge binge party to celebrate their pretended wealth.
‘I suppose they didn’t ask too many questions about where all that money was really coming from.’
‘Of course not.’
‘Iceland is to Ireland what Ireland is to the UK, a huge balls up, but on different scales.’
‘You’re dead right there Pat, casinos! At the top end the hedge funds and at the bottom first time house buyers, all leverage way beyond their incomes.’
‘Yachts, flying around in private jets...’
Fitzwilliams threw Kennedy an evil look.
‘I didn’t mean us Fitz,’ said Kennedy spitefully.
Politicians everywhere had argued things were not as bad as they looked, had they been they lying to save the skins to get re-elected? In any case the Icelanders were taking things into their own hands, a clear indication that politicians were no longer capable of managing society. Politicians who had thrown their lot in with covetous bankers and businessmen, whose sole interest was to fill their own pockets, rather than confront the realities of a complex and changing world. Politicians whose ambitions were uniquely focused on the next election, lacking the willpower to make bold decisions or come to bipartisan compromises.
There had been much talk about Ponzi schemes, where the early birds were paid by the suckers who came later. The burning question was whether the West’s economic system was a vast Ponzi scheme or not, benefiting the USA, Europe and a few oil rich sheiks, at the expense of the planets dwindling mineral wealth and the sweated labour of billions of Africans, Indians and Chinese.
Politicians were not the kind of leaders nations deserved, they were always a beat behind, full of promises they knew they had little hope of fulfilling. The banks held them in a stranglehold in the knowledge the world could not function without their services. Politicians were helpless, the banks were accountable to no one, not even their shareholders, they had no electorate and as for taxes they paid them wherever and whenever it suited them.
Sure things had improved for a good part of the first world’s population over the previous half century. But, a large part of the wealth created in the latter decade of that period had been a chimera, built on consumer credit with little consideration given to the well being of the planet, wealth that had ensured an infinitesimal part of the world’s population could live in comfort for the rest of their lives.