One of the reasons Iceland has recovered so well and left the Eurozone nations in its wake is because its currency was floating. Pegging it to the euro would be a very silly thing for that nation to do....Bill Mitchell – billy blog
Iceland’s prime minister, Sigmundur Davíð Gunnlaugsson, resigned on Tuesday, becoming the first leader to be forced from office over the secret financial dealings revealed by the Panama Papers leak.
The prime minister, who was elected as a reformer in 2009, promising transparency following the ruinous collapse of three Icelandic banks the year before, failed to disclose that his family secretly held bonds worth millions of dollars in the same banks, through a shell company in the British Virgin Islands.The Intercept
When Iceland’s President, Olafur Ragnar Grimmson was asked how the country managed to recover from the global financial disaster, he famously replied,US Uncut
“We were wise enough not to follow the traditional prevailing orthodoxies of the Western financial world in the last 30 years. We introduced currency controls, we let the banks fail, we provided support for the poor, and we didn’t introduce austerity measures like you’re seeing in Europe.”
In Part 1, I briefly outlined the Sovereign Money System proposal (SMS) advanced by the Icelandic government as a way forward in banking reform. I also demonstrated that the banking collapse in Iceland in 2008 could hardly be seen as being caused by the banks having the capacity to create credit.
Much more was in play including the fact that banks had stopped behaving as banks and were serving the doubtful aspirations of their owners rather than any notion of public purpose. While the Icelandic report claims that the commercial bank lending destabilised the growth cycle in Iceland the reality is that it was other factors that led to the explosion of their balance sheets. The money supply did expand faster than “was required to support economic growth” but that is because the financial system was deregulated and the banksters and fraudsters were allowed to serve their own interests and compromise the national interest. As we will see that sort of duplicity can be reigned in with appropriate structural regulation without scrapping the capacity of the private banks to create credit.
In this Part 2, I consider some of the mechanics of the SMS and argue that essentially we cannot get away from the fact that a central bank always has to fully fund a monetary system. If it tries to restrict funds yet maintain private bank lending then recession would surely follow and interest rates would rise beyond the control of the central bank. I also provide some ideas on where more fundamental monetary system reform is currently needed.Bill Mitchell – billy blog
The fact that Iceland is treating the banksters like more or less common criminals points to a cultural feature of a small Nordic country. For example, the small country of Sweden has an large complex industrial culture that encompasses automobile, truck, bus, and ship manufacture, specialty steel, telecommunication equipment, and a host of smaller enterprises that fill in the gaps. Not surprisingly in a country of only 10 million, everyone knows someone who works for a living doing tasks that are often FAR more difficult than anything they do in the financial world. Iceland has figured out how to survive a very difficult climate by tapping geothermal resources and other amazing feats with a population of only 321,000. This fact leads to the cultural question, Why should we treat the financial services business as special and privileged?
This question is fading in the Nordic countries as they slowly lose industrial activity to Asia and the teachings of neoliberalism becomes more mainstream, but there is still enough animus towards the idea that banking is inherently elite to put banksters in jail.
Can you imagine participating in a protest outside the White House and forcing the entire U.S. government to resign? Can you imagine a group of randomly chosen private citizens rewriting the U.S. constitution to include measures banning corporate fraud? It seems incomprehensible in the U.S., but Icelanders did just that. Icelanders forced their entire government to resign after a banking fraud scandal, overthrowing the ruling party and creating a citizen’s group tasked with writing a new constitution that offered a solution to prevent corporate greed from destroying the country. The constitution of Iceland was scrapped and is being rewritten by private citizens; using a crowd-sourcing technique via social media channels such as Facebook and Twitter. These events have been going on since 2008, yet there’s been no word from the U.S. mainstream media about any of them. In fact, all of the events that unfolded were recorded by international journalists, overseas news bureaus, citizen journalists and bloggers. This has created current accusations of an intentional cover up of the story by mainstream U.S. news sources.
An “iReport” on CNN, written by a private citizen in May 2012, has questioned the reasons why this revolution has not been widely covered in the U.S., suggesting that perhaps the mainstream media is controlled by large corporate interests and thus has been unwilling to report on Iceland’s activities. That report is currently making its way around social media. CNN today placed a statement on its website saying: “We’ve noticed this iReport is being shared widely on Facebook and Twitter. Please note that this article was posted in May 2012. CNN has not yet verified the claims and we’re working to track down the original writer.” It is interesting to note that CNN’s European version, CNN Europe, already covered the story of the protests and the government’s resignation, leading many to question why CNN would now need to “look into” the claims.
Besides CNN Europe’s own coverage of the scandal, the events in Iceland were widely covered by international media and are easily verified by a simple search on Google which leads to a variety of reputable international news sources that ran numerous stories on the Icelandic revolution. A whole documentary has been made on the governmental overthrow called Pots, Pans and Other Solutions, and now, the conversation is focused on whether or not the citizens’ actions actually worked to make Iceland a more equitable nation....Las Vegas Guardian Express
What are we to make of this contemptible turn of events?
The lesson for me: “Representative democracy” is too crude, centralized and corruptible a vehicle to faithfully represent people's collective interests. Elected officials will rally to protect their own self-serving interests and power even if it means conspicuously flouting the public will expressed through legitimate channels. I don't see this case as one of a few deceitful legislators. I see it as a structural problem of liberal democracy as a system of governance. Legislators see the will of voters as contrary to their own self-interests.
The Icelandic putsch validates the claim made by Occupy, the Arab Spring, the Indignados of Spain and other citizen-protesters that state power as now constituted is itself the problem. The conventional “checks and balances” on power imagined by 18th century constitution-writers are woefully inadequate today, and the system is incapable of reforming itself from within.
I think the Icelandic putsch illustrates why we need to develop different types of (distributed, democratic, commons-based) governance models. These smaller provisioning and resource-management systems – for natural resources, research, software code, etc. – could not only be more responsive and accountable than state systems. They could begin to supplant and challenge the state’s unaccountable power and its furtive, anti-democratic alliance with market players.
There is no other alternative but to free Cyprus from the bonds of the troika and the memorandum, House of Representatives President Yiannakis Omirou has said. Omirou also expressed his conviction that no Attorney General would dream of not following through with the results of an investigation led by an independent committee to apportion blame on those responsible for bringing the country’s economy and banking sector near collapse.Zero Hedge
Public frustration has been mounting over the lack of high-profile criminal prosecutions in the wake of the financial crisis here in the U.S. But the same cannot be said abroad.
Several news outlets reported that Iceland's special prosecutor, hired in 2009 to investigate suspicious activities at several major banks, indicted fifteen bankers — including two chief executives — earlier this month over illegal activity tied to the meltdown of the country's banking system in the fall of 2008. The bankers are accused of stock-price manipulation and securities fraud.American Banker
Iceland Shows the WayWashingtons Blog
For approximately three years, our governments, the banking cabal, and the Corporate Media have assured us that they knew the appropriate approach for fixing the economies that they had previously crippled with their own mismanagement. We were told that the key was to stomp on the Little People with "austerity" in order to continue making full interest payments to the Bond Parasites -- at any/all costs.
Following three years of this continuous, uninterrupted failure, Greece has already defaulted on 75% of its debts, and its economy is totally destroyed. The UK, Spain and Italy are all plummeting downward in suicide-spirals, where the more austerity these sadistic governments inflict upon their own people the worse their debt/deficit problems get. Ireland and Portugal are nearly in the same position.
Now in what may be the greatest economic "mea culpa" in history, we have the media admitting that this government/banking/propaganda-machine troika has been wrong all along. They have been forced to acknowledge that Iceland's approach to economic triage was the correct approach right from the beginning.
What was Iceland's approach? To do the exact opposite of everything the bankers running our own economies told us to do. The bankers (naturally) told us that we needed to bail out the criminal Big Banks, at taxpayer expense (they were Too Big To Fail). Iceland gave the banksters nothing.The Street | Opinion
Refusing to bow to foreign interests, that small country stated loud and clear that the people are sovereign.Read it at Truthout
That’s why it is not in the news anymore.
So thousands of Icelanders had to struggle with fundamental change in their economic situation, loss of income, even loss of property, increased burden of loans, unemployment, and the nation as a whole also had to face -- which somehow we were fortunate to realize early on -- that the collapse of the banks was not just an economic or financial crisis, but also developed into a very profound political, social, and even judicial crisis.Read the rest at Business Insider (fairly long but worthwhile)
Whereas in many other countries, until recent months, there was a tendency to read this, through 2008, 2009 into 2010, primarily as an economic and financial challenge. And I think one of the reasons Iceland has come out of this crisis earlier and more effectively than anyone could have expected, even ourselves, is that early on, we approached this not just with economic and financial challenge, but also attempted to deal with the profound profound social, political, and even judicial challenges, which the collapse of the bank brought about.
And during those final months of 2008 and the early weeks of 2009, what we saw here in Iceland was a fundamental threat to the political and social stability of the nation. Iceland is one of the most stable, open, and secure democracies you can find anywhere in the world.
How the financial system could pose a fundamental threat to the political and democratic framework of Iceland illustrates the grave political and social responsibility which the market and the financial sector carries, because if a collapse in the financial sector can bring one of the most stable and secure democracies and political structures to his knees, as happened in Iceland, what could it do in countries that have less stable democratic and political history?
So this journey in the last three years has not only been difficult for ordinary people, families, homes, many companies, but it has also been a profound learning experience for the nation, not just economically, but as I said before, politically and socially as well.
And you might also find it interesting that the collapse of the banks revealed to us a very interesting aspect of modern banking, which I think has been more or less overlooked in this discussion in Europe and in America in the last two or three years: the Icelandic banks, like all modern big banks in Europe and America and all the other parts of the world, are no longer banks in the old-fashioned way. They have become high-tech companies. High-ranked engineers, mathematicians, computer scientists, programmers and so on and so forth. And their success depends largely on how successful they are in hiring people with this education and capability, not necessarily those trained in business schools or finance, but in engineering, mathematics, computer science and so on.
And when the Icelandic banks collapsed, what we saw was that a great number of companies in these creative sectors, IT, high-tech, and all of those, who had the large growth potential in the previous years, but had not been able to realize it because they couldn’t get the people, due to the fact that the banks were buying up all the best engineers and mathematicians and computer scientists, suddenly had the pool of talent available to them. And within six months, all these people who came out of the banks with these qualifications had been hired. So since then you have seen a great growth period in the Icelandic IT sector, the high-tech sector, the manufacturing sector, because they could suddenly get the engineers, the mathematicians, the computer scientists.
So the lesson from this is: if you want your economy to excel in the 21st century, for the IT, information-based high-tech sectors, a big banking sector, even a very successful banking system, is bad news for your economy. You could even argue based on this that the bigger the banking sector is, the worse is the news for your economy, because their magnetic attraction of taking engineers and technically qualified people and computer scientists into the banking sector is due to high bonuses and higher salaries prevents these creative growth sectors from realizing their full potential.
We were not aware of this in the years leading up to the collapse of the banks, but once it happened, what we have seen since is an extraordinary interesting demonstration in what I have just described to you. And to me, it should urge people, both in Europe and in the United States to look at the prevailing orthodoxies of a big financial sector versus other parts of the 21st century economy, at least that’s my view. If you want to excel in the 21st century economy, it’s more important to give high priority to your creative sectors, and IT companies and high-tech companies, and not building up big banks, because if you need money you can always get it somewhere in the world in the globalized financial system. But if you lose the most valuable manpower in your creative sector, there is nothing you can do to repair that damage.
This was a very interesting lesson which in the last two years or so has become absolutely clear to us. And I think that within the U.S. and Europe, people should seriously examine what is the consequence of a high-tech, big, modern banking sector, because the banking sector today is a high-tech sector. Do you want to base your competitive advantage as a nation on that? Or do you want to do it on other companies that could become global in a relatively short time, as Facebook and Twitter and all these other companies, and Microsoft have proved. That is why you see all those companies in Iceland coming out with more growth, bigger profits, stronger marketing positions in the last two years than they have in the years prior to the collapse of the banking system.
| Iceland’s fear of the euro collapsing has caused one of Iceland’s political parties to openly suggest the idea of going Canadian and dropping the idea of EU membership and currency. |
REYKJAVIK — A group of 25 ordinary citizens on Friday presented to Iceland's parliamentary speaker a new constitution draft, which they compiled with the help of hundreds of others who chipped in online.The group had been working on the draft since April and posted its work on the Internet, allowing hundreds of other citizens to give their feedback on the project via the committee's website and on social networks such as Facebook."The reaction from the public was very important. And many of the members were incredibly active in responding to the comment that came through," Salvor Nordal, the head of the elected committee of citizens from all walks of life, told reporters.
