Iceland sentences bankers to prison for their part in the 2008 collapse
loansafe.org
loansafe.org
I'll answer any questions that you would be curious about local sentiment and coverage.
EDIT: Having finally gotten to a copy of the article I want to point out several factual statements in the article that I find a little bit challenging to agree with.
1. Iceland let the banks fail.
Not really. It was a restructuring. In the restructure a holding company handed all the assets over to a new corporate entity. All debts and obligations were honored.
2. Iceland avoided austerity
Many social programs were cut. Great cutdowns in the healthcare system, so much so it is on the verge of collapse now.
3. Geothermal is clean energy
Ask anyone from Reykjavík. Silver can no longer be kept without wrapping it in cloths, otherwise it goes dark in a day due to the hydrogen sulfide pollution. It's also not renewable. You can farm the area for about fifty years before it's too cold to extract and then it takes a millennia to recover.
4. Value of ISK/EUR
That may be the artificial value while capital controls are in effect. True value is way below that. I might cover the "snowhenge" problem later, it's a doozy.
5. Quoting the President on the banks.
You would have to know how much of a fluffer for the banks the president was for the banks and the oligarchs before the crash to know how stinky that sounds to an Icelander.
You also have to realize what sort of lending put the banks under. Using their influence in the banks they directed the loan officers to make out unsecured loans to their own companies. That was a big part of the banks all failing simultaneously.
To clarify, executives at Bank created a Holding Company. Bank lent Holding Company $100. Bank then sold Holding Company Bank stock for $100, thereby manufacturing $100 in "equity". This "equity" makes Bank's debt/equity, and other equity-based leverage ratios, look rosier than they are.
I recall a similar shit show going down around Karzai's cronies in Afghanistan.
Fraud wasn't the initial spark, but it was what turned the American 2008 housing market slump from a self contained bust into a global financial crisis.
The idea that fraud lead a US housing bubble to cause a real estate bubble in the UK and Spain, and a banking crisis in Iceland and Ireland is just not correct.
I'd dispute that. Often it was a smart and cynical decision by lenders to make bad loans, take the bonuses and commissions and leave the government and others to clean up the mess. If you were to pin the blame on one group I'd say it was mostly the governments fault for under regulating this stuff.
It is if that bad business decision is the decision to commit fraud.
Because putting money in the bank is exactly like investing in speculative high-risk tech stocks.
So yes, if Tesla sold a car full of explosives that was about to explode as soon as the passenger got in -- then indeed they should be prosecuted. Thankfully the technology industry typically does not act in such manner. Their "crime" is more over-enthusiasm and pushing the envelope of privacy violations.
See "Fabulous Fab": http://www.usatoday.com/story/money/business/2013/08/01/gold... See Goldman Synthetic CDOs: http://www.businessinsider.com/a-timeline-of-goldmans-abacus...
Not 1999, but during the 2006-08 iffy loans period, Alayne Fleischmann went whistle blower on some of the fraudsters at JP Morgan. None went to prison (or I think lost their bonuses). JP Morgan gave $9bn of it's shareholders money to the US Govt as settlement instead.
On a different note, nobody bailed out the dot coms.
> Not really. It was a restructuring. In the restructure a holding company handed all the assets over to a new corporate entity. All debts and obligations were honored.
Iceland refused to bail out the banks. Doing so would have mathematically impossible. The banks failed to honour their financial obligations, and Iceland did not repay the depositors of said banks when the savings accounts were closed.
From the Executive Summary of the Report of the Special Investigation Commission (at http://www.rna.is/eldri-nefndir/addragandi-og-orsakir-falls-...):
> After the collapse of Lehman Brothers, the government’s takeover of Glitnir and the lowering of Glitnir’s credit rating, it was very unlikely that these collateralised loans would be refinanced. It was absolutely impossible for the Icelandic state to meet payments on the aforementioned claims. The government was not able to secure loans in the international finance markets. In the evening of 7 October 2008, the FME decided, on the basis of Emergency Act (Act No. 125/2008), that a special resolution committee take control of Glitnir.
> Shortly after the collapse of the banks in November 2008, an appraisal was carried out of the value of their assets. The results of the asset valuation showed 40% of the booked value at the time when the banks collapsed. The difference amounts to over ISK 7,000 billion
For the depositors, one can read about the lengthy considerations and ongoing Icesave dispute at https://en.wikipedia.org/wiki/Icesave_dispute
For what it is worth, I am a lawyer and recognized expert in sovereign insolvency, being the founder and an officer of a legal experts committee whose members include the counsel for Iceland's bondholders, the external counsel for Iceland for the crisis, the general counsel of the IMF and ECB and other central banks, among other experts. I am also friends with Gudrun Johnson, author of "Bringing down the Banking System", which I strongly encourage reading.
"Iceland refused to bail out the banks."
Look at this site to get stories of what the banks are still getting away with: http://4closurefraud.org/
I am somewhat puzzled by this sentiment that it is good to imprison bankers. That is by no means an Iceland-only thing, you can see it elsewhere as well. But I find that scary. People should go to jail simply because someone hates their jobs, legal ones?
I can fully understand that bankers, like everyone else, should go to jail when they commit fraud, insider trading or similar crimes. I understand that is what was done in Iceland.
But the discourse is usually about just being a banker is enough to warrant someone being hanged or sent to jail, with the being banker itself being a serious crime. It's a silly rhetoric trick that makes me suspicious of these prosecutions.
Are there well publicized examples of US bankers who did crimes related to banking - not great harm but crimes - and were let off due to being high earners?
The example you mention above is nothing specific about bankers; it's a claim that a rich person gets off lightly because he can pay for the damages. In fact, related to this particular case, there is a claim that the banker was targeted by police because of his wealth, because other hit-and-run drivers have gotten off completely.
Said diligence manager got off. JP Morgan paid $9bn to settle and hush it up.
http://www.rollingstone.com/politics/news/the-9-billion-witn...
British depositors with banks such as Icesave were bailed out by the UK government. Apparently 85% has since been repaid from Iceland, but you maintain "All"?
http://www.telegraph.co.uk/finance/financialcrisis/11875720/...
It's hard to know what laws were clearly broken when there have been very few prosecutions.
Bill Black, former regulator and litigator during the S&L crisis:
> The savings and loan debacle was one-seventieth the size of the current crisis, both in terms of losses and the amount of fraud. In that crisis, the savings and loan regulators made over 30,000 criminal referrals, and this produced over 1,000 felony convictions in cases designated as “major” by the Department of Justice. But even that understates the degree of prioritization, because we, the regulators, worked very closely with the FBI and the Justice Department to create a list of the top 100 — the 100 worst fraud schemes. They involved roughly 300 savings and loans and 600 individuals, and virtually all of those people were prosecuted. We had a 90 percent conviction rate, which is the greatest success against elite white-collar crime (in terms of prosecution) in history.
> In the current crisis, that same agency, the Office of Thrift Supervision, which was supposed to regulate, among others, Countrywide, Washington Mutual and IndyMac — which collectively made hundreds of thousands of fraudulent mortgage loans — made zero criminal referrals. The Office of the Comptroller of the Currency, which is supposed to regulate the largest national banks, made zero criminal referrals. The Federal Reserve appears to have made zero criminal referrals; it made three about discrimination. And the FDIC was smart enough to refuse to answer the question, but nobody thinks they made any material number of criminal referrals [either].
http://billmoyers.com/2013/09/17/hundreds-of-wall-street-exe...
It's not in the slightest bit disingenuous. Repo 105 was clearly criminal.
https://en.wikipedia.org/wiki/The_Report_of_the_Investigatio...
The Report of Althing is, in my opinion, the most comprehensive since the Amulree Report of Newfoundland in 1933, and one of the very few reports to investigate causes of the crisis.
As a matter of interest, I seem to recall that 83 million euros was given to Icelandic bankers for their part in the crisis. The proceeds unaccounted for numbered in the billions. Much of what the banks did was modelled on Enron-style deception, a practice which remains quite commonplace now in the financial marketplace.
The one on Iceland is called "Wall Street on the Tundra - Iceland" and you can see its preview here: http://www.vanityfair.com/culture/2009/04/iceland200904
(The complete article is behind Vanity Fair's paywall.)
I know I'd want to take my earnings and get the hell out, if my government started bowing to leftwing populism and came for the bankers like a medieval pitchfork-waving mob.
Capital controls mean that the "recovery" is completely artificial, and until they're fully lifted we won't know just how deep Iceland's problems really go.
Interestingly enough there was a report, addressing exactly this problem, for the Icelandic government, by means of "souverign money". An arrangemang much more like the saftey deposit box scenario.
https://www.forsaetisraduneyti.is/media/Skyrslur/monetary-re...
From a game theory perspective persecuting bankers is correct. The incentive for people who are already wealthy to take massive risks gets reduced when they know they may go to prison when it all hits the fan. It has little to do with real justice, though.
Say you don't want your car stolen, go and get some insurance, let insurance companies figure out how to prevent theft and find stolen cars. Let them figure out how to make stolen cars unusable. It's just an example, but I think it's doable.
http://americannewsx.com/crooks-crime/iceland-sentences-26-c...
If somebody offered me a billion dollars at a 3% interest rate or whatever it is right now, I would seriously consider accepting it knowing that I don't have the capacity to pay them back. There are a lot of things in the world that pay better than 3% interest and that are relatively safe.
Similarly, a bank that gave out loans whenever you asked(up to the 10 loan limit, maybe) would be a great opportunity even for people who couldn't pay it back out of income. You could buy an empty plot of land and put a small apartment complex on it. You could buy a 4-plex and apply any number of forced appreciation techniques(put in a coin-operated laundry, redo the piping to reduce the amount spent on plumbers, plant some flowers outside to increase the attractivity, etc.). Of course, just betting on general appreciation of single-family homes is bad money.
Basically, I was too young to really experience the effects of the 2008 and I'm feeling envy rather than anger about these people's ability to cheaply obtain capital. So I don't empathize with these news reports about punishing bankers. Can someone explain why I should feel anger instead?
The executives would be personally liable for bad decisions that lost their shareholders money, so I could see letting the banks fail and then having people sue the executives to reclaim some portion of their money.(I'm assuming the banks are public companies)
Why the cries to have them jailed or criminally punished, though? The article mentions fraud and market manipulation, but that's pretty vague. (I'm assuming people are angry at Icelandic bankers for the same reason they were angry at US bankers)
Banks which gained exposure to the bad debt employed bankers who were either negligent in investigating the contents of the debt they were acquiring and invested their depositors money without due care and attention, or knew the risks of what they were doing and continued to gamble with their depositors money while skimming large amount off as their own. These banks had then lost their depositors money and demanded that the public bail them out, while still taking large salaries and bonuses.
There will of course be other factors in something like a global financial "collapse" but this is my understanding of the sub-prime situation and why you should be angry. Somewhere along the line the actions of some of the bankers should be criminal.
This is in a nutshell what happened. http://www.slideshare.net/roguemonk/the-subprime-crisis-prim...
Accredited investors get pitched bad investments all the time; many people here may work for startups that are one of them. Some startups get growth using scummy marketing techniques just to offload the company to investors like Google before it implodes. Some of those investors may be VCs managing, e.g., the Northwest Plumbers' Pension Fund or the Kansas School Board. None of those VCs should go to jail, even if they are mismanaging the money in some cases(I'm not making a claim that they are, overall).
The depositors at the banks should be covered by the FDIC, so they aren't really at risk. The FDIC threaten to recover some of their money from the executives and accountants, and agencies tend to follow up on this sort of thing.
What exactly is so wrong with selling bad investments to other companies that we should throw them in jail? That the investments were AAA ratings should be irrelevant: they are just rankings from private companies, so they should carry as much legal weight as asking your bartender for advice on the stock market.
(edit) My assumption that AAA ratings carry no legal weight is false. I found this, which has a good overview: http://www.sec.gov/news/studies/credratingreport0103.pdf
This is a mess: You can't use private companies to set regulations, even if it appears to work some of the time. It's just as bad as making laws that require me to only use my bartender's highest-rated stocks when investing the local college's endowment fund. They need to either scrap it from the law or set up a separate government agency that does nothing but evaluate creditworthiness of securities.
Still though - where is the actual crime? Private companies scumming each other for money is to be expected, and would only be a problem if they actually lied on a contract(rather than merely neglecting to do due diligence).
Was the suggestion to send the thousands of people who made fraudulent loan applications - after being egged on by salespeople - to jail(possibly with the salespeople)? That's plausible, but not a crime of the bankers.
It also meant that bankers could craft poisonous securities, get them rated AAA, and then massively short them. I recall one case like that, though I'm blanking on the details.
Enron was rated investment grade by the rating agencies four days before its bankruptcy. Fool me once, shame on you; fool me twice...
There's another interpretation: by "trusting" these rating agencies, institutional investors can shift the blame when the investments go wrong.
What's not to hate?
Episode 365 of This American Life, The Giant Pool of Money [7] is a good place to start for more context of the hate.
[1]: http://www.businessinsider.com/only-lying-lenders-made-liars...
[2]: http://www.nytimes.com/2015/02/13/upshot/how-mortgage-fraud-...
[3]: http://www.bergermontague.com/blog/index.php/countrywide-whi...
[4]: https://www.washingtonpost.com/business/economy/bank-of-amer...
[5]: http://www.justice.gov/opa/pr/bank-america-pay-1665-billion-...
[6]: http://www.nolo.com/legal-encyclopedia/false-affidavits-fore...
[7]: http://www.thisamericanlife.org/radio-archives/episode/355/t...
It's not clear that the appraisers are doing any criminal activity. I read this: "In the lawsuit, the couples claim prospective home buyers were presented with false or misleading data on previously sold homes in order to justify higher asking prices on new purchases."
If that's all they were doing, that's not really fraud. HUD should be encouraged to run its own appraisal process on 1% of the received appraisals in order to refine its process.
It's harder to charge the managers in charge of the officers with fraud: They could easily have taken steps to ensure that they weren't aware of any specific fraud on any specific application, even if they generally knew what was going on. I'm sure the prosecutors could find a way, though.
However, it ceases to be fraud for anyone except for the companies immediately processing the mortgage: If they sold the note to a bank, parent company, or to investors, that bank or investor should be off the hook. So I don't yet see any crimes for the people who profited the most(the banks who outsourced mortgage processing to smaller companies).
Maybe you don't believe that's criminal, but financial crimes are often cases where the victim "should have known better." Enron's deception was apparent to industry insiders long before it was raided and shut down, but that doesn't mean No crime was committed.
https://en.wikipedia.org/wiki/2010_United_States_foreclosure...
The banks literally f*cked you both ways, first, issuing bad subprime loans, then robosigning and foreclosing on your home.
Perhaps you missed this from the BofA (Merrill Lynch) settlement [1]:
As the statement of facts describes, Merrill Lynch regularly told investors the loans it was securitizing were made to borrowers who were likely and able to repay their debts. Merrill Lynch made these representations even though it knew, based on the due diligence it had performed on samples of the loans, that a significant number of those loans had material underwriting and compliance defects - including as many as 55 percent in a single pool. In addition, Merrill Lynch rarely reviewed the unsampled loans to ensure that the defects observed in the samples were not present throughout the remainder of the pools. Merrill Lynch also disregarded its own due diligence and securitized loans that the due diligence vendors had identified as defective. This practice led one Merrill Lynch consultant to “wonder why we have due diligence performed” if Merrill Lynch was going to securitize the loans “regardless of issues.”
In short, they knew the loans they were bundling were crap and they lied about it to the folks buying the bundled mortgages.
[1]: http://www.justice.gov/opa/pr/bank-america-pay-1665-billion-...
Reading between the lines, I see that the Justice Department is most annoyed that the FDIC and government-sponsored Fannie Mae and Freddie Mac took the heat from these loans.
I can see why the JD is motivated, but it does raise the question of why individuals all over are so angry. A couple reasons might be A.) There was an unpopular tax imposed to pay for the bailouts B.) People overpaid for their mortgages(I see that this settlement includes principle reduction on outstanding mortgages) or C.) Angry people are primarily investors in mortgage securities.
I feel like A would've been mentioned by now. And C is unlikely because I don't think note investing is actually that common: Banks don't usually sell their mortgages to one-off investors, so you usually have to trick a really small local bank into giving you one to get into the club; and then you need the skills to be someone's 'lienlord'.
So is the root cause of the anger B: People feel like they overpaid for their houses?
It's an age old trick. You flood with credit then you clean up.
Because they're parasites on the real economy? You effectively have to pay taxes to the banking system to engage in the real economy. Taxes which get spent on gold watches and sports cars.
>Can someone explain why I should feel anger instead?
Depends. Do you believe that fraud should be a crime? It's currently not being prosecuted as a crime on Wall Street.
You do need investment banks to e.g. IPO your company or issue corporate bonds. Let's ignore that issue, since the typical person doesn't 'have to' IPO their company or get multiple billions of dollars in bonds issued.
For the fraud, let's pick on a specific company: Goldman Sachs. Everyone hates Goldman Sachs. I hate Goldman Sachs.
Their CEO at the time was Lloyd Blankfein. What did Lloyd Blankfein do that was considered fraud and that should land him in jail? I don't believe that Goldman directly loans money for mortgages, so he should be immune to criticisms of mortgage fraud on any specific application. If you were going to prosecute him, which event would you focus on?
How much of that is the CEO's fault is a little up in the air. But, you could likely get him for a whole lot of conspiracy to commit X crimes. However, we don't know because he is not being investigated. So, the dude might be squeaky clean.
Is that press release representative of the crimes and their magnitude that people would attribute to Goldman Sachs? It says investors lost $1 billion, and GS later settled for $550 million(presumably GS didn't profit the entire $1 billion).
Additionally, banks do not actually generate anything tangible of value. They literally use money from others to enrich themselves.
The banking industry is also what was pushed the Bankruptcy Abuse Prevention and Consumer Protection Act into play which is what makes it almost impossible to discharge your student loans.
https://en.wikipedia.org/wiki/Bankruptcy_Abuse_Prevention_an...
So yeah, between what I mentioned above and LIBOR manipulation, there's plenty to hate upon banks.
Much of the modern world is impossible without financial instruments that let corporations borrow hundreds of millions of dollars. Airlines, for instance.
So I do not think bankers do nothing of value.
From what I understand, they literally create money from thin air: http://www.bankofengland.co.uk/publications/Documents/quarte...
https://www.reddit.com/r/news/comments/418h2r/iceland_senten...
Longest term was six years.
You can't add people's years together. Two 30-year-olds are not a 60-year-old, in combination. Moreover, different prisoners do not serve their sentences consecutively; it won't be the case that 74 years passes before the last banker goes free.