Gambling for resurrection in Iceland

This VOX article explains the background to the recent conviction of some bank executives in Iceland.

81 replies on “Gambling for resurrection in Iceland”

“With the financial turmoil that began in August 2007, the banks’ access to capital markets was curtailed. They then gambled on resurrection, expanding their balance sheets and refinancing the investments of their owners and other big borrowers, while they should have been deleveraging and securing their liquidity positions in foreign currency.”
Ireland is not Iceland. Oh No. Not at All.

“The demise of the three large Icelandic banks, just after the fall of Lehman Brothers, was a key event in the spread of the financial crisis. A couple of weeks before its collapse in October 2008, Kaupthing bank announced that the Qatari investor Sheikh Mohammed Bin Khalifa Bin Hamad al-Thani had bought a 5.01% stake. This briefly boosted market confidence in Kaupthing (Financial Times 2008). What market participants did not know was that Kaupthing illegally financed the deal, which was without risk to al-Thani.

Recently, four former top bankers at Kaupthing – including the CEO and the chairman of the board – were sentenced to jail for three to five-and-a-half years for fraud and for abusing and misleading markets by this trade (Financial Times 2013b). So far, these are the heaviest sentences handed out to bankers in Iceland. This was just one of many instances where Kaupthing financed purchases of its shares in private deals.”

‘spose I will force myself to go through the motions, again, of mentioning the non-recourse lending by Anglo to a group of investors to facillitate the purchase of a large overhang of shares from Irish hero Sean Quinn, that would otherwise have put significant downward pressure on the Anglo share price. Yes, I know nobody is interested.

The market term for this is A Share Support Scheme.

The “Golden Circle” investors were, apparently, A Concert Party.

This sort of activity is expected to be “unlawful” because it causes other investors to be denied the information conveyed by the market price, and they are likely to make bad decisions as a result.

Readers under the age of twelve might need to look up “Guinness bid for Distillers” or Guinness scandal” on the interweb.

It just so happens that the most significant “investor” who was misled by the Anglo Share Support Scheme was the Irish tax payer, since the sudden panic in late September 2008, that resulted in Anglo being bailed out and almost every banking liability guaranteed, might have been avoided if the information the market had been attempting to shout – about the solvency of Anglo – many months earlier had not been so suppressed.

If you recall, the Irish Regulator’s response was…(drumroll please)… to investigate the short sellers!

I know – lets investigate Trichet.

From the link posted by John Gallaher.

“We established a special commission headed by a Supreme Court judge, which issued a report in nine volumes examining not just the failure of the banks but also the failures of the business community, the government, the presidency, the media, the universities — everybody. We established a special prosecutor’s office to look for law breaking, which became the largest legal office in our country and is now conducting cases against a number of the former bankers. We changed the leadership of the central bank and of the financial regulatory authority, and we executed a number of other legal changes and regulatory changes.”

Action on the first issue in Ireland is still pending. The existing legal procedures are taking their course on the second. The main actions have been in relation to the basic cause of collapse; the absence of adequate regulation. As to who carries the main responsibility with regard to the last-mentioned, the question will remain one of controversy.

One thing, however, is clear from the language of the interviewee – the Icelandic President – with regard to the actions of Gordon Brown; if it is unwise for a small country to have an over-sized banking sector in a monetary union without adequate collective regulatory procedures, it is suicidal to get into that position on one’s own.

Looking to the future for the EU and the euro, these two contrasting links will be of general interest.

Again, from the interview with the Icelandic President.

“Somehow, Russia, the United States, Canada, and the five Nordic countries — Finland, Sweden, Norway, Denmark, Iceland — developed through the Arctic Council a way of discussing and deciding. It also helped that among the Arctic states, the majority had a strong Nordic tradition of cooperation based on the rule of law, democratic dialogue, and formal arrangements.”

It seems this is a lesson that some European leaders, and Merkel in particular, are still somewhat reluctant to accept.

“It just so happens that the most significant “investor” who was misled by the Anglo Share Support Scheme was the Irish tax payer, since the sudden panic in late September 2008, that resulted in Anglo being bailed out and almost every banking liability guaranteed, might have been avoided if the information the market had been attempting to shout – about the solvency of Anglo – many months earlier had not been so suppressed.”
My elderly parents lost Euro 100k, having the misfortune of having invested in Anglo shares in that period. First time they had ever invested in shares…..surplus on house downsizing.

So the point you make is not academic in any way!

@ grump

if the information the market had been attempting to shout – about the solvency of Anglo – many months earlier had not been so suppressed.

Except the almighty ‘market’ that many here apparently pray to – and who might the priests of this this Delphic supernatural authority be, one wonders – got it entirely wrong, in that they believed in Anglo.

And the lessons will of course be forgotten each time by the ‘market’, because it has no special wisdom or insight at all.

ewey, I have yet to meet anyone who prays to the market. It is merely a melting-pot of money-weighted opinion and much of the time there is limited collective insight.

Sometimes though, some participants realise something that others haven’t, and a significant price change occurs as they act on that analysis.

In the case of Anglo, people started to realise it was probably bust. They sold shares, they sold the shares short. More people realised this gradually, and the share price dropped – significantly.

When this happens you are being given a message by the market, a message that if you think the prior, higher price, for the shares was sensible, you might be very wrong.

Do you care that the message the smarter element in the market was sending to you was censored?

That is the €64bn question.

@ grumpy, et al.

Does anyone know what the actual law is (or was) with regard to banks giving loans (covertly or overtly) to entities to buy shares in themselves?


“if it is unwise for a small country to have an over-sized banking sector in a monetary union without adequate collective regulatory procedures, it is suicidal to get into that position on one’s own.”

Well, they are both unwise, but I don’t agree about your relative judgement. Iceland retained the ability to make various choices it is by no means obvious that it is doing worse. By most measures it has done and is doing better.

The failure of Regulator (the entity, not just the named guy) to protect the public (its job) and stand against the scheme to support the share price while the Quinn position was unwound is impossible for me to understand. All the Regulator had to do was insist Anglo and Quinn perform their duty to disclose the positions and the market would have taken care of the rest.

Quinn would have gone bust, the hedge funds and investment banks on the other side of the CFDs would have taken the hit (where it should have landed) and would now be scrambling around Russia looking for the cash!, and the Irish taxpayer would have avoided a major cost.

And as Grumpy says, the real isues at Anglo would have been apparent long before they were conflated with (or caused the conflation!) with the
issues at the other Irish banks.


“I know – lets investigate Trichet.”

If the ‘dark night’ had been advanced to July 29th instead of Sept 29th, consequent to the market laggards rumbling Anglo, would it have made one iota of a difference to the outcome chosen? [The sharp suits of course had already got or been given a heads up. A ‘heads-up’ as you know, it worth a data bank of analysis betimes.]

The Anglo loan scheme appears to look like a duck, a dead duck at that, and where the offense is ‘let the great axe fall’, but not on the very shaven and unprotected heads of the Irish public. That is now a distinct possibility.
No amount of fault faulting on the Irish side can absolve Trichet and the ECB from their culpability in forcing the continuation of a policy of paying bank bondholders, regardless of whatever doubt may exist about their role in the initial bank guarantee or the rallying call ‘to save ‘your’ banks at all costs’.
‘At all costs to you’, that is.

Lets not absolve Trichet or ‘our own’ suited officer corp.


The law is contained in the Company Law Act 1990 (Part V), S 107 -121

The law essentially prohibits insider dealing, with severe penalties. There is however out for banks (isn’t there always), whereby if the bank loans money ‘in the ordinary course of business’ to a person, the bank cannot be held accountable if that person or persons decide to buy bank shares.
I will get better section references and a summary later, if I can.

After reading JG iceland saga link,

and looking at wiki/Iceland and wiki/Demographics_of_Iceland

I would like to warn a little bit of deriving anything for other countries from this special case.

One example:
With a population of 90 000 in 1900, maybe some 3% tertiary education, about 45 years of life expectancy, they had about 60 students per year, for everything. How would you run your own university for this ?

So going abroad for studying was a plain necessity, and being very favourable for returning students too.

But read the glowing description of this.

With the abundance of cheap energy, ultra easy means to achieve current account surpluses, everything is different than in most other countries.

@ GK

By the way, I cannot for the life of me see how Munchau arrived at this conclusion.

“The policy debate has concluded. The decision not to set up a common backstop for the euro zone’s banks has closed the last window for any form of debt mutualisation as a tool of crisis resolution.”

Any reading of the agreement reached demonstrates that the deal between Germany and the other countries is one of a calendar of timed reciprocal concessions. The row with Merkel is about the Swabian housewife approach she continues to adopt, an approach up with which other countries will not put.

The other feature, and that of most German commentators, and, indeed, commentators in general, whether in Europe or the US, is the failure to grasp that the EU must be viewed as a system, with many federal elements, not a series of independent planets ricocheting occasionally off one another. One could not imagine such an attitude in Washington. Unfortunately, the current president of the Commission appears never to have grasped this essential point (which may recommend his re-appointment to certain leaders).

@ francis

Any idea how the Icelandic student diaspora, so glowingly described by their president, who also happened to have been minister for finance when the bubble inflated (“I put my trust in the rating agencies”), are funding their studies?


EU Market Abuse Directive is the most obvious but there are others.


is a decent commentary, but I think the comment that as ss13 permits the lending of money where it is the ordinary course of business, that may allow what Anglo did, is a stretch to put it mildly. That is not a reasonable interpretation of the ordinary course of banking business.

As we have to stick to 1 link per post…

…Also, have a read of the judge’s comments here.!story/Home/News/Quinn+family%3A+what+the+judge+said/id/19410615-5218-4f46-5195-15eae4430072

Here is a sample:

“Charleton, in his 15,000-word judgment, said that, since a decision of the House of Lords in 1887, “it had been clear that a company must not finance the purchase of its own shares”.

A 2003 EU Directive on insider dealing and market manipulation also said that anyone who had suffered damage through share price fixing might disclaim any debts due to the illegal market fixers….

“…But the judge said that “repugnant acts which defraud the marketplace generally of gigantic sums of money” could legitimately be recognised by the courts under the heading of public policy. This series of acts of general fraud came under that heading.

“Flagrant financial immorality as well as illegal conduct can, and should, result in the courts turning their aid away from those participating,” he said.

The test was whether it would be “an affront to public conscience” to grant relief which could encourage similar behaviour.

“Fundamentally, the question on this issue is whether the legislature – in setting up a series of norms in relation to market abuse and financing of the purchase of a company of its own shares – intended to create a self-controlled island of regulation or, instead, wished to influence the general matrix of litigation through recasting public policy,” he said.

“What is beyond doubt is that false and misleading signals were given to the marketplace as to the value of Anglo shares.”

Charleton said that “Anglo – or, at least, senior directors within that bank, together with Seán Quinn, are the only parties who can be the wrongdoers mentioned in the legislation.”

He could not accept that the 2005 Act did not direct the courts to respond to “contracts which flagrantly breach its provisions” – actions which “were not simply civil infringements of technical regulations, they were also very serious indictable crimes”.

“Whether a court will be persuaded about the lack of notice of the Quinns or the sufficiency of the connectedness of the impugned instruments and the illegal behaviour of Anglo, or whether a court can exercise a discretionary but precise severing of monies directly flowing from that illegality, is a matter for another day,” said Charleton.”

@grump,tad off topic but from this morning,supporting docs also available for those that like to go deep,duty of care and all that.
“Today, the largest financial institution in the country stands charged with two criminal offenses. Institutions, not just individuals, have an obligation to follow the law and to police themselves. They must exercise due care not only with their own money but with other people’s money also. In this case, JPMorgan connected the dots when it mattered to its own profit, but was not so diligent otherwise. Fortunately, with today’s resolution, the bank has accepted responsibility and agreed to continue reforming its anti-money laundering practices. Most importantly, the victims of Bernie Madoff’s epic fraud are $1.7 billion closer to being made whole.”

question for John Gallaher:

do you read the Newsweek sometimes?

Is this nowadays always so poorly researched, and openly anglo,
“the queens english”?

Just for reference with the milk prices, because producer prices are so close

What France needs, is a little more Aldi-sation in the retail sector : – )


I’d be careful about falling into the “Iceland is doing better” narrative. Any “improvement” graphs I’ve seen start at appallingly low bases. They’ll still all owe money for ever.

On the Anglo-share support scheme:
this is why I haven’t been too worried about our various “banking enquiry” efforts. The court case will be our enquiry and since this whole thing started I’ve been betting/banking on the defence claiming they had statutory approval – on account of how they were just trying to save their bank. Whether they’ve proof – emails or transcripts, will be the fun part. Putting the pop corn on hold til the case gets going…


the wiki certainly explains some things.

Soo, it is the last hooray for the newsweek before bankruptcy.

They have a fall of france II cockerel sequel.

Still falling somewhat short of Taibbi’s (the giant vampire squid guy) Anal Germany rant : – )

@francis its a bit like Forbes,basically ignored and irrelevant,heres that link for those who have not already.

@SC rather small sample,perhaps they simply were not that good!
bit info on janet and her various positions……….


FYI re the market abuse element, for guidance, this is from the UK FCA Code of Market Conduct sourcebook incorporating the 2005 EU Market Abuse Directive:

(See 4 & 7)

1. Insider Dealing
When an insider deals in, or attempts to deal in, a qualifying investment or a related investment on the basis of inside information. For market abuse purposes, an insider has inside information:

• as a result of his membership of the administrative, management or supervisory bodies of the issuer of the investment; or
• as a result of his holding in the capital of the issuer of the investment; or
• as a result of having access to the information through his employment, profession or duties; or
• as a result of criminal activities; or
• which he has obtained by other means and which he knows, or could reasonably be expected to know, is inside information.

2. Improper disclosure
When an insider discloses inside information to another

3. Misuse of information
When behaviour which is not covered by 1. above (insider dealing) or 2. above (improper disclosure) is based on information that is not generally available to those using the market and that a regular user would regard as relevant and a failure to observe the standard of behaviour reasonably expected.

4. Manipulating Transactions
When the behaviour consists of effecting transactions or orders to trade that are not for legitimate reasons and in conformity with accepted practices on the relevant market, and which:

• give, or are likely to give, a false or misleading impression as to the supply or demand for, or the price of, the qualifying investment; or
• secure the price of such investments at an abnormal or artificial level.

5. Manipulating Devices
Behaviour that consists of effecting transactions or orders to trade which employ fictitious devices or any other form of deception or contrivance.

6. Dissemination
When the behaviour consists of the dissemination of information by any means which gives, or is likely to give, a false or misleading impression as to a qualifying investment by a person who knew, or could reasonably be expected to have known, that the information was false or misleading.

7. Misleading Behaviour & Distortion
When behaviour which is not covered by 4. above (manipulating transactions), 5. above (manipulating devices) or 6. above (dissemination):

• is likely to give a regular user a false or misleading impression as to the supply of, demand for, or price or value of, a qualifying investment; or
• is regarded by a regular user as behaviour likely to distort the market in such investments.

@DOM (DOCM?) @grumpy

The failure of Regulator (the entity, not just the named guy) to protect the public (its job) and stand against the scheme to support the share price while the Quinn position was unwound is impossible for me to understand. All the Regulator had to do was insist Anglo and Quinn perform their duty to disclose the positions and the market would have taken care of the rest.

The ‘market’ has an awfully long history of regulatory (and legislative) capture. Part of the problem is surely the wishful thinking in confident statements about the Invisible Hand being ultra-efficient and never-failing, etc.

But it does give some entertainment value in seeing consequences of (in the passive sense) a failure of government to intervene in stopping ‘market’ chicanry being spun away as nothing to do with the private sector (which bears active responsibility for the deeds in question).

@ grumpy, Joseph, etc

Thanks for the above.

@ DOCM / Sarah Carey

I was responding to the assertion that countries who have comparable banking blowouts are definitively worse off outside a monetary union. I do not think this is the case. I could chuck in Cyprus too. I stand by the assertion that by most measures Iceland has done and is doing better.

In haste this morning and look forward to looking more closely later.


If I had a wife, I’d probably have the time to pore over charts to discuss this further 😉 I shall have to leave others to argue the case!

btw, what I’m looking forward to most is the defence of the Anglo share support scheme. I’ve always thought that they’ll argue they had the go ahead from somewhere in the regulatory system – regulator, CB or DoF..perhaps even the Minister. The question is if they’ll have proof if they go this road. We won’t need a banking enquiry if they put up a defence…

@ Gavin

Iceland and Cyprus have capital controls. Its something that is, for some bizarre reason, almost always overlooked in this comparison.

Relatedly, inflation has averaged 7.2% in Iceland since Q1 2008, meaning that consumer prices have surged almost 50% in that period (in Ireland they are more or less flat in this period). As a result, standards of living have decreased significantly. Is it any surprise that when faced with capital controls preventing money leaving the country, and ever rising prices, people have invested their money in the economy, ensuring it did not collapse? Whether this forced investment/spending, in tandem with dimishing standards of living, is a good or a bad thing, however, is an entirely different issue.

“The ‘market’ has an awfully long history of regulatory (and legislative) capture. Part of the problem is surely the wishful thinking in confident statements about the Invisible Hand being ultra-efficient and never-failing, etc.

But it does give some entertainment value in seeing consequences of (in the passive sense) a failure of government to intervene in stopping ‘market’ chicanry being spun away as nothing to do with the private sector (which bears active responsibility for the deeds in question).”

1) Yes the “market”, or more correctly individual players have a history of regulatory capture. It is the job of the Regulator (and the government) to stand up against this capture – to protect depositors, little investors, big investors, the taxpayer. It appears to me that our Regulator failed us utterly in respect of the Anglo share support/CFD wheeze.

2) It is not “entertaining” at all. When the Anglo boys rely on the defence suggested by Sarah above (and I strongly suspect they will), who do you think disenchanted investors will sue to recover their losses? I have no idea if they can sucessfully sue the State (the last remaining mark), but I am certain there will be a lot of parties thinking about it and having a go (recall 2 of the disenchanted bidders on the mobile license are currently having a crack at the State as we speak).

@ GK

That may very well be what you think, but it would be a help if you could back it up with some more data.

The diatribe from Barroso some time back was designed, first, to try and finally persuade Irish opinion that very considerable financial help has been provided – an objective which I think he has achieved – and, second, to keep his profile up in the capitals that matter by touching a sore point which they choose to consider was a catalyst for the wider crisis; the Irish bank guarantee. It is not, however, his job, as President of the Commission to criticise Member States. He also had a spat with Cameron some time ago which Cameron could readily afford to slap down. There have been numerous other examples of Commissioners failing to grasp the fact that they are in charge of identifying and defending the “general interest” of the EU which, by definition, cannot include fingering any Member State.

The Der Spiegel article identifies the open conflict between (i) those leaders who deny, or at least fail to recognise, the institutional integrity of the EU, (Merkel being by far the worst culprit as she has actually presented her own ersatz plan some time ago of the changes that need to be made) and (ii) medium-sized countries pushing back against them. The latter will IMHO carry the day.


Not me! Discussion of what or may not happen in the courts is not one that strikes me as likely to lead to any particular enlightenment (unless, of course, one has a punt on a particular outcome).

@ john gallaher

The really disgraceful aspect of the attitude of the authorities in the US and Europe is that the big banks caught in the act in criminal activity are allowed to simply buy themselves out of jail.


Lets not look at improvement graphs then lets look at actuals.

Iceland Debt to GDP – 96% going south from a peak of 101%
Ireland Debt to GDP – 120%+ and rising to a new peak

GDP per capitia – Iceland 54k USD from a peak of 58k USD. Ireland 46k USD from a peak of 50k USD.

Unemployment rate – Iceland 5% from a peak of 9%
Ireland 12.4% from a peak of 15%

Inflation – Iceland, stable at c. 4%. Ireland – on the brink of deflation (hardly what you want with 125% Debt to GDP on your back)

Budget deficit – Iceland 1.5% of GDP. Ireland 7.x%.

We are on top on 10 year government bonds – so the good news is that we should be able to trundle along for another few years paying interest on debt equivlaent to 6% of GDP at growth rates of less than half that. That will put the icelanders back in their geesers!


“Part of the problem is surely the wishful thinking in confident statements about the Invisible Hand being ultra-efficient and never-failing, etc.”

That is a ridiculous caricature. I have, literally, never heard an actual practitioner in traded markets comment that they thought markets were efficient, never mind ultra-efficient. “Efficient Market Hypothesis” is something that has, for decades, been covered in ‘training courses’ as a historically interesting curiosity.

Perhaps you are thinking of some politicians, or academics?

Most market guys dispise market rigging and corruption. The former explains part of the hostility to QE, dispite the fact that this policy has been amazingly beneficial to the wealthy.

Few subsequently become politicians, lobbyists or CEOs.


“That may very well be what you think, but it would be a help if you could back it up with some more data.”

I use the data , which I’ve linked to recently, from the Central Bank of Iceland.—EN/Economic-Indicators/EI-2013/EI_December%202013.pdf

Would you care to provide the data for:

“if it is unwise for a small country to have an over-sized banking sector in a monetary union without adequate collective regulatory procedures, it is suicidal to get into that position on one’s own.”

@ Mr Bond

Respect as ever and yes I get the capital controls thing, which, as you note applies to Cyprus as well as to Iceland. I’m more arguing here against the ‘please God, not Iceland’ meme. But life is complex and it isn’t all about the numbers – or it depends which numbers you pick and there are lots of ways at looking how things are going:

Apart from low interest rates, low inflation, falling unemployment and emerging growth what has this whole paying your debts thing ever done for us? Sometimes the commentators on this site are like Stalin in reverse: every success spurs us onto an even more glorious failure.

JTO reincarnated?

Let’s see if and how BL replies as requested on the other thread. Some green shoots for sure….but the big picture is less than rosy.

@ Grumpy

I imagine that you are smarter than the average bear
and considerably ahead of the average bull. A lot of market participants just follow the herd, apparently . BEB has been quite disappointing in this respect. Just flog the f#$$% bonds seems to be the message.

The EMH is deep down in the guts of a lot of models from what I can see

“Still, the search is on for a new theory to replace efficient markets. Perhaps most prominently, Andrew Lo, head of the Massachusetts Institute of Technology’s Financial Innovation Laboratory, has merged behavioural and efficient markets theory using Darwinian biology.”

“Playbooks are not readily available when it comes to new systemic themes. This leads many to revert to backward-looking analytical models, the thrust of which is essentially to assume away the relevance of the new systemic phenomena”

“He’s learn­ing the hard way the les­son I and many other crit­i­cal econ­o­mists acquired as we stud­ied for our eco­nom­ics degrees–mostly by react­ing incred­u­lously to weird propo­si­tions that our Pro­fes­sors would use to derive their models–that there is some­thing rot­ten in the state of eco­nomic thinking.
For­tu­nately, I had time to under­take schol­arly research to con­firm that ini­tial gut­tural reac­tion. Yes, what sim­ply felt like crap to me rather than wis­dom, really was crap: the weird propo­si­tions that my Pro­fes­sors would put for­ward were kludges to hide fun­da­men­tal flaws in the under­ly­ing the­ory. In full view in the aca­d­e­mic lit­er­a­ture of eco­nom­ics, paper after paper proved that the the­ory did not hold together.
Some­times, as with Piero Sraffa, a critic had proven a fatal flaw in one aspect of the the­ory (in Sraffa’s case, the the­ory of income dis­tri­b­u­tion and the con­cept of a pro­duc­tion func­tion link­ing out­put of goods to inputs of labor and cap­i­tal). Other times, it was an “own goal”, as lead­ing neo­clas­si­cal econ­o­mists tried to prove some­thing they hoped was true–such as that mar­ket demand curves obeyed all the laws they had derived for indi­vid­ual demand curves, and that they there­fore nec­es­sar­ily sloped down­wards so that there could be only one equi­lib­rium between sup­ply and demand–and proved that this wasn’t true.
In any gen­uine sci­ence, these dis­cov­er­ies, being fun­da­men­tal to the the­ory, dev­as­tat­ing in their impact and vast in num­ber, would have caused an intel­lec­tual cri­sis that would ulti­mately have led to a revolution–as with the shift from the Ptole­maic to the Coper­ni­can view of the struc­ture of the solar sys­tem. But in eco­nom­ics, what hap­pened instead was that these flaws were ignored–if they had been dis­cov­ered by the crit­ics like Sraffa–or papered over by truly absurd assump­tions, if they had been “own goals”.
The end result was that eco­nomic the­ory was an utter sham­bles of false abstrac­tions, and I wrote Debunk­ing Eco­nom­ics to bring this to the atten­tion of peo­ple who fight­ing for social jus­tice but whose endeav­ors were being blocked by economists.”

“I think Prof Lucas means that attempts to construct general models of exceptions to the efficient market hypothesis have enjoyed little success. There can be no method that systematically identifies departures from EMH because, if there were, people would act on that knowledge, and the observations would cease to be anomalies or exceptions. But to conclude that there is no general model of exceptions and anomalies in the EMH is not the same as saying that such exceptions and anomalies do not exist.
Profit opportunities are not easy to come by, but the search for such opportunities drives markets. Nothing could be stranger – or more deeply irrelevant – than a model of the market economy whose axioms exclude its central dynamic”

“The shortcomings of prevailing macro models include: an equilibrium assumption (by contrast, financial markets, which impact the real economy, have no propensity to equilibrium), no role for credit, banks, or even money (except sometimes in error terms). “


It’s the non-disclosure and, much more importantly, the non-recourse financing. As with Guinness it is the guarantee of no, or limited, losses to the ‘investor’ that is key. Other parties supported Guinness but they made a genuine investment to do so.


Yes, but..

The shock to the country was massive. As BEB says, capital controls, currency collapse (making their foreign mortgages multiply in value) not to mention the exploding Land Rovers and fish eating. [God I hate that tourism journalism, those images stick. We’re stuck with fecken pigeon eating now – just when Corn Flakes for Dinner was fading….]

I’m not saying our way was the right way, nor that life ain’t tough here for many – especially where there is unemployment, but there were cushions. The centre has held and [nearly] everything still works. As bad as things are, I can’t imagine how we would have coped with capital controls and the rest. Can you really see us doing that? And what would have been the results? (Ecsascerbating (ok I give up trying to spell that properly) unemployment surely?

And Iceland still wants to get into the EU! If independence served them so well, why do they still want in?

I propose a fact finding mission to Iceland from this blog. I want to know what life is actually like there, outside of debt:GDP ratios…

We’ll need funding..


‘The really disgraceful aspect of the attitude of the authorities in the US and Europe is that the big banks caught in the act in criminal activity are allowed to simply buy themselves out of jail.’
Not often we find you making a normative statement of that type, but that’s feature, not a bug. Welcome to the 21st c. world of financial tyranny and high-stakes plea bargaining. Ordinary morality is totally irrelevant where big calls are made. Not many criminals went to Nuremberg, because other considerations were at work. The winners, in this case, the big banks, and their in house lawyers, get to write history. To parody the country song, they get the goldmine, we get the shaft.

@ grumpy
‘Most market guys despise market rigging and corruption. The former explains part of the hostility to QE, despite the fact that this policy has been amazingly beneficial to the wealthy.’
Most of the guys you know, who are straight like you, think like that. QE has been amazingly beneficial to the big ‘market guys’, including and especially the trading desks of the globally dominant banks. It’s not so much that the system is corrupt, more like corruption is progressively being systematized and embedded in the structures of the financial markets. ‘Market guys’ are probably being engineered out. Too human.
‘“Efficient Market Hypothesis” is something that has, for decades, been covered in ‘training courses’ as a historically interesting curiosity.’
With the greatest of respect, that statement is stone wrong. Read Amar Bhides thoroughly researched and dispassionate ‘Call for Judgement’.
The EMH is the Trojan horse which bought-and-paid-for US economics depts. provided to shadow bankers and their associates, to capture the global financial systems. Why do you think so many of the illuminati were favored with public and private appointments ? They were useful.
@ MH
‘It’s amazing how useless and conflicted the Big 4 auditing firms were…nevertheless, they continue to prosper.’
Of course. They provide indispensable cover for the ‘financial engineering’. Professional ethics at the ‘top’ in organisational terms, which is the bottom, in moral terms, are all about plausible deniability.

All right Pau,l Sales & Marketing people (which include some quants in my view) & some academics might not have moved on, or exist in an environment where it suits them not to move on, but real people did, long ago.


No I don’t see us really doing that [capital controls]. As a nation we have never taken a brave decision that I can see in our history. Even the rebels of 1916 were on a solo run – national outliers.

@Johnny foreigner
So low interest rates (they worked super for us in teh past), low inflation (we are on the brink of deflation btw) and falling unemployment (emmigration is good for you!)….are all as a result of “paying our debts”. Notwithstanding my bracketed narrative, it takes a hell of a leap to put all that down to ‘paying our debts’.


Of course. We’re conservatives at heart. I keep telling that to people who think that if FF and FG merged, a left wing would miraculously appear. For now, exotics like Higgins and posh-boys like Boyd Barrett are all we’re willing to indulge.

So let me re-phrase it: What do you imagine the consequences would have been? i.e we impose capital controls. Burn the seniors. What happens next? Today we might be better off, but what happens between 2008 and 2011?


To borrow Eamon Gilmore’s unforunate analogy we could have had an ice cream strike in summer – in the blazing white heat of the euro crisis. Greece didn’t quite have a strike but they ran out of ice cream and Draghi et al saved the Euro “at all costs”.

We lacked the leadership, courage and intellectual capacity to recognise our opportunity. Instead we had our strike during a polar vortex and our leaders basked in the glory of a paltry deal on promissory notes! But to have the courage to go to the brink we should have the courage cross the threshold if needs be. What would have happened. Like everything else that happens in this country – our conservative side would kick in on cue and we would have sucked it up – got on with it. Are we stoic or docile – it doesn’t matter – either outcome woudl have been better for us.

Btw, JF is clearly not a post-tracker era mortgage seeker when he applauds our low interest rates. Has low ECB rates translated into investment? Substantially increased liquidity here…it has kept the wolves from the door of tracker mortgage holders and in that regard it is helping stabilise consumption….but was the intent of the ECB in its round of rate reductions – any positives we are getting from a monetary union are less by design and purely incidental.

Oooh – from Iceland to Greece!

“Greece didn’t quite have a strike but they ran out of ice cream and Draghi et al saved the Euro “at all costs”.

But Greece got hammered, right?

I agree we probably could’ve recognised our power to demand more, etc etc, I don’t want to bore everyone by rehashing THAT NIGHT or arguing counterfactuals.

“Either outcome would have been better for us”

That’s where I need convincing.

I still don’t want to live in either Iceland or Greece!

Anyone else?

@ PQ

Buying themselves out of jail is one thing but rigging the rules that are going to lead to the next crash is unforgivable IMO

“You know she got big, well, she’s gonna get bigger”

And there may not be any CB rescue cavalry capable of sorting out the next blowup.

“When the regulation to be complied with is an 882-page rider (Volcker Attachment B) to an 828-page bill slated to generate a stack of “rulemakings” 10ft high, we are not talking about regulators so much as exegetes. A law like that makes such demands on one’s understanding that only an obsessive or a monk could develop the mastery to enforce or evade it. No influence-peddling will be needed to produce what the economist George Stigler called “regulatory capture”. Regulator and banker will share an ethos, a language and a folklore.

Bankers will have to walk regulators through their plans and positions. Something that looks strange and suspicious could be a brilliant new hedging strategy. Any regulator who masters the law’s applications to company Y’s portfolio will become a desirable hire for company Z’s trading desk. Over time, all participants in investment banking and investment oversight will know each other’s secrets – totally arcane to the rest of society – and rotate in and out of government and business. Already in the past half-decade, a small cast of bankers and senior policy makers have traded places without friction: Hank Paulson and Tim Geithner in the US; Mario Monti and Mario Draghi in Europe.

Complexity is regressive. While the Volcker rule exposes big bankers to various regulatory sanctions, it actually shelters them from something more threatening: the kind of democratic scrutiny Glass-Steagall brought.”

And Caldwell is no leftie either.


“I agree we probably could’ve recognised our power to demand more, etc etc, I don’t want to bore everyone by rehashing THAT NIGHT or arguing counterfactuals. ”

Are you referring to the night Ireland bounced Europe into bank liability guarantees and a policy of promoting senior bank debt to more risk-free than sovereign debt, or do you mean the night prior to the state agreeing to accept loans to honour that policy?

If the former, wasn’t Ireland was leading the way rather than ‘demanding’ anything?


I am saying greece got a massive write down on debt – its forogotten about already, markets move on – they got it because the Euro was to be saved at all costs and they were granted it by the very people that told our guys it simply was possible. Greece didn’t have an icecream strike, they had no icecream – it amounts to the same thing to the people who want to buy icecream. We failed failed miserably to recognise that.

This has nothing to do with aspiring to be greece or iceland….the point is that Greece got what we could not…because we never really put it to the test. Spineless.

I will turn the question back on you because you playing the governments trick here – they smuggly present a definitive apocolyptic narrative to the counterfactual by telling us we are a lot better off than we would have been. What do you say WOULD have happened in the counterfactual?

Because the bottom line is no one can say for sure – as such its too easy to dismiss it as the wrong option – as you say we are the Irish and better the devil you know sort of approach is our mantra.

Firslty, I honestly believe we would have got a deal on debt if we went to the brink at the right time. I also honestly believe in the event we didn’t get the deal we should have left the Euro. It is mind boggling how little coverage our economic elite has given this option notwithstanding their reconigtion that we are a member of a deeply flawed monetary construct which continues to have a detrimental impact on our country.

How can I convince you? I can’t. But what I believe is if we skp past the supposed chaos that would insue in the short term (capital controls etc), in the medium term we would much better off on all key economic metrics….but it annoys me even typing this now…. because Draghi and co would NEVER have let it happen anyway….we just didn’t have the courage to test that.


I fully share your disdain for bureaucratic monsters like the Volckers rule.

But we should also not hold the errant ways of their youth, like working for Goldman-Sachs, against folks like the 2 Marios forever.

Richard Wagner did lead an armed revolution.
Joschka Fischer was a street fighter and book thief.

Most of our RAF terrorists are out of jail now.

Forgiveness is part of our european social democrat family values : – )

” It is mind boggling how little coverage our economic elite has given this option notwithstanding their reconigtion that we are a member of a deeply flawed monetary construct which continues to have a detrimental impact on our country. ”

Not so mind boggling, I suggest.

Why would people, paid very handsome sums of money in euros based on unfailing State contracts with ‘defined benefit’ pension promises that have the status of constitutional property rights, even consider for one moment the uncertainty of euro exit and the immediate collapse in their salaries and conditions, do anything else except defend Ireland’s membership of the euro, down to the very last emigrant to leave the country.

The decision makers and their supporters are a privileged minority, and they intended in 2008, and intend now, to retain those privileges.
Some would even be of the view that the plebs lost the run of themselves during the ‘boom’, and it is time to have those plebs reacquainted with their traditional positions in society.

What is in the national interest is defined by the interests of the people who make the decision on what constitutes the national interest; and those interests were to continue to line their own pockets in euros.

Hi John G,

excellent link, as always.

Remember when I wrote here about “choppin heads”, prime and finance ministers fired, on principle : – ) and the Sachsen LB already “stricken from the records” forever, just like the Varus legions (XVII, XVIII/XIIX, and XIX/XVIIII) ?

When I came to the US I was actually “sitting on my porch and reading ‘The federalist papers'”,

and we certainly studied the US constitution (6th amendment, fair and SPEEDY trial) in detail


And I should add that the euro membership supporters undoubtedly include the bonanza consultant brigade, including the prospective Irish Water consultants who garnered €50 million last year. Not bad, if you have a State quango dispensing the largesse of borrowed billions in your direction.
Uisce Óir for the consultants. Uisce Cráite for the rest.


They are all really good points and I agree with much of it. If we were in the pub I’d argue counterfactuals forever just for fun 😉 but let’s step back to where I started out.

I’m taking issue with the meme that Life is Better in Iceland (and you added in Greece, I’m happy to go with that).

I don’t believe that the quality of life, or experience of the financial crisis, for the ordinary citizen is better in either Iceland or Greece than in Ireland or at the very least, cannot be illustrated by the debt ratio. They paid a huge cost – much bigger than we did – for their “deals”. We’ve taken a severe hit, but based on media reports of those countries (and okay, they are probably victims of the pigeon style of journalism too) the cuts were much more severe. I’m not sure they’re the kind of deals we’d like.

Which is why I want more info on real life situations there.

I think it’s too simplistic to say – they went to the line, got a deal, and now everything is better there than here. As I say, a personal visit will be required to actually back this up.

Hi Sarah,

I think it would be a great idea for a programme, radio or TV, if you were to head over to Iceland and Cyprus and do some digging. I’m sure you’d get to talk to a wide range of interesting people and I’m sure people would help out with contacts/research.

Or maybe you could do a pro/con debate on similar lines with you taking one and AN Other, er, the other?

Do you think Newstalk might support you in your curiosity?



Its about relativity though. You might have gone to Iceland in 2006 and said I wouldn’t wish this on my worst enemy – so that is not the proper comparator. Are they and we relativity better off when considered against the counterfactuals is what should be considered. The dual carraige way from Dublin to Galway wasn’t going to disappear simply because we left the Euro.

@GK and Kerchav

I was just thinking that this morning. No harm asking….And yes, Kerchav you couldn’t take a snapshot then. And I do always say, hey we didn’t entirely waste the boom: that’s a damn fine motorway… (Even if it does go perilously and noisily close to my home…)



at least in Poughkeepsie, one could always see on the maps on flights coming in from Europe, they project plus 13 deg C for tomorrow.

I remember the first winter over there, the jet stream turned a little different then projected and we had 2 feet of snow, and stupid new german engineers like me were the only ones showing up for work : – )

That one listens to the radio in such cases, and obeys government curfew orders, was simply not on my map of possibilities : – )

Back to topic, I believe you will only see the real full consequences of what Iceland did in 10 – 20 years down the road, just as in Argentina. One part of the population saying, oooh we did bankruptcy one time, wasnt soo bad, and the other part knowing full well to take their money out of the country at every opportunity.

The Fed’s report is close to what I think:

basically cutting their GDP per capita by 20 – 40% against potential, and this for a larger country, with plenty of energy, wealth of agriculture.

@francis it may not take that long,its a funky little place a friend was just there interviewing Annie Mist,daughter of “Thor’ and the fittest woman on the planet:)
Latest CPI numbers, support your comparison to Argentina,they have these weird inflation linked mtg.’s,the link just above has a great update on Vox article.

“Twelve-month CPI inflation was 4.2% in December, according to
measurements published by Statistics Iceland on 20 December 2013. Inflation
therefore exceeded 4%, the upper tolerance limit for the inflation target.”—EN/News-main-page/Br%C3%A9f%20til%20FJR%20vegna%20ver%C3%B0b%C3%B3lgu%20umfram%20%C3%BEolm%C3%B6rk%20jan%2020.pdf


as far as I know, only Greece did a sovereign default, so far.

I would go with the declaring a “credit event”, to define that.

The Iceland case is extremely murky, it was basically departments of Icelandic banks in the EU, of which Iceland is not part, selling savings account with claiming european deposit insurance, but, errm, not being part of a european system, but allegedly of their home banks in iceland, and on and on and on.

Soo they stiffed dutch and english savers out of supposed save accounts, but not their own guys, the governments of NL and UK did take up the tap so far, and it is going the rounds through courts nobody of us has ever heard of. EEA , all kinds of weird stuff.

Hi Francis,

I take your point above.

I was being a bit tongue in cheek there.

AFIAK the Iceland sovereign has paid all its dues on time and in full so no default.

Greece certainly defaulted (was made to). In the sense that sovereign debt for Portugal and Ireland was restructured, it could be argued that they defaulted. I remember at the time that there was a general argument that Ireland should not even ask for ‘better terms’ as this was tantamount to default.

@GK +Francis

So, what exactly was it that the government of Iceland did that was so much better than us that leaves them so (allegedly) better off today?

Hi Sarah,

Well, here’s a go. I don’t think Francis or John Gallagher think that Iceland did do the right thing and to some extent the argument seems to be turning to time lines: short, medium, long.

But Joe Stiglitz certainly reckons Iceland went the right way:

“What Iceland did was right. It would have been wrong to burden future generations with the mistakes of the financial system.”

They key bit is that the Ireland sovereign (chose? was forced? first chose and then was forced?) to take on private bank debts, whilst the Icelandic sovereign imposed private losses on private entities and kept them off the people/taxpayer.

Perhaps the losses were unfairly imposed on foreigners, as Francis notes, but then, you know, Cyprus, where the troika signed off on losses for Cypriots but not ‘foreigners’ at the same banks in other countries.

Underlying this seems to be an ongoing debate as to whether sovereigns have always implicitly stood behind ‘their’ banks and therefore what the crisis did seems to show that this ‘implicit’ guarantee was called out and made explicit, regardless of what the previous government did, or whether there is no such implicit guarantee as Iceland seems to show. Oddly left wingers (private losses should not be socialised) and right wingers (private enterprises must take losses for bad decisions or what is the point?) agree that the latter is the ideal way to go. Most seem to agree that in the long run the financial system should have the wherewithal to cope with its own messes, but we seem to be getting there with the pace of a snail crawling along a razor blade.

My, rather general point, is that it is better for actual citizens to make, and own, that choice and you can make a case, if you like, that both Iceland and Ireland are actually doing rather well all things considered because there is enough social cohesion there to ‘own’ their respective destinies. That’s a rather sunny view of things. Certainly that is what the current government would like us to believe.

You can also see the contrast in the way mortgage debt has/is being dealt with and, fro my point of view, the way the arts are being treated.

I linked to Icelandic stats from their Central Bank above and you can compare and contrast with our own CSO. Not sure about figures for Cyprus.

But, with regard to your ‘allegedly’, the moment you start looking at things like well-being, actually Ireland and Iceland score pretty well, which is why I definitely think it is worth your while looking at a human/investigatory level by visiting and interviews to see if you can get a sense of how things are in addition to what the numbers seem to say.

@ Sarah + Gavin,

I scrolled back, and I think I didn’t pass any judgement on the actions of Iceland.

I just warned to draw false comparisons, and pointed out very significant differences, and that this case is still very much open.

As the CIA states:

“Iceland owes British and Dutch authorities approximately $5.5 billion for compensating British and Dutch citizens who lost deposits in Icesave when parent bank Landsbanki failed in 2008. ”

That would be over 40% of GDP, which are still in dispute, maybe those courts find, that it was a failure of the NL +UK consumer protection to prohibit false advertising, but maybe the outcome would be, that NL + UK decide to have enough reason to play hardball. Who knows ? At least not me.

Defaulting against a foreign individual or bank is one thing.

Defaulting against a sovereign, 200 times your size, with tanks, airplanes, and warships at his disposal, is a very different ball game.

Playing it rough could just come handy for Cameron at the next UK elections, to polish up his Thatcherite credentials. And who would stop him for what reasons?

@ Gavin

From my perspective, Ireland played it close to the possible optimum, getting very favourable interest terms on the back of what was done for Greece and Portugal, and successfully simply appealing for “fair” similar, without playing the wild kid. And I think the present risk premiums, as in interest spreads vs bund pretty much reflect the beneficial consequences.

“From my perspective, Ireland played it close to the possible optimum…the present risk premiums, as in interest spreads v bunds pretty much reflect the beneficial consequences”

So firstly favourable rates on debt is a determinant factor of the fairness or not of the deal Ireland got? – not the level of debt itself. Secondly, todays rates are determined by the market not by anything Ireland negoitated and pleaes tell me you don’t for one second think Ireland master minded Draghi LTROs that has driven these rates to their current level. Moody’s still rate us ‘junk’ status on our bonds at 3.4% We will be paying 5.5% of GDP next year in debt servicing alone. So next year, if we are lucky we could add 2 euro of value to the economcy – but we have to suck 5.50 out of it….how long is that sustainable? Optimum indeed.


What I said was that Ireland played it close to the optimum of available options.

Freibier für alle

Free beer for all, free lunch for all, everyday, wouldn’t that be wonderful?

And not to forget “… and a pony”

Well, somehow these options are not available in real live.
The alternative would have been to go straight to a rating of D as in “default”, the other 2 major rating agencies have available.

What would have been the consequences?

As I stated in the thread “2013/12/18/boi-downgraded-by-Moody’s” on December 19th, 2013 at 11:21 am
Moody’s rates Ireland pretty much at were the “market consensus” sees it.

Given that the Irish Government really wasted not one single month, as soon as the Troika cat was out of town, to go back to the old habits, with the disappearing Lenihan documents and as some Irish guy said in a parallel thread, promising tax reductions and more social goodies, it reflects the behavior of the Republic of Ireland.

We have a German proverb for this

“ Wenn die Katze aus dem Haus ist, tanzen die Mäuse auf dem Tisch.“
When the cat is away, the mice will play

What you forget is that the <=2.0% coupons on most of the Euro 30 year loans will stay low.

A somewhat indirect, but useful link

1.5% interest on 30-year loans, no interest in the first 10 years,

Makes for a NPV of 0.45, using the US 30-year rate of 3.9%


i’m afraid your post makes little sense to me. But I agree with your view of Germany seeing itself as the Cat keeping the peripheral
mice in order.
I think of a another proverb more apt to our times:

“when the mice are kept squirming out of sorts, the cat will keep loading up at the ports”

As for the the Irish Government playing the game of the political business cycle…The germans would never play such games with its electorate – no we have never seen that….the demands at 6% unemployment and a heaving export book probably means the german electorate are somewhat easier to appease.


The second post was a little too cryptic for an Irish reader, I freely admit that. Soo, some lengthy background, but I was in the mood to type away: – )

1. “Chaka, Chaka” was one of these slogans in certain business seminars / self help groups, late 1990ties, early 2000s, bubbling up the self confidence “nothing is impossible”, until people crash into reality.

2. Prokon is a typical German investment scam, just popping up now.
They promised folks some “safe” 8% return on “green investment”, with tons of TV advertising, no verified balance sheets since 2 years.
If you hit the green button of many folks in Germany, their brain goes in standby mode. And now some of them do not blame the management, but some evil electricity producer conspiracy. You have to see it, to believe it.

And for me that looks all very similar, from panicking in one moment to blind faith “Everything will work out”

And if it doesn’t, when you don’t care about the numbers, steal from your neighbors.

Unfortunately, I did not find any example for your proverb, can you help me with that?

In general, the benefits of a hard money and the need to balance the budget is deeply ingrained in the moral structure of the vast majority of Germans, even more so, after the last 5 years. And we will not fail to lead on that, I promise you.

When our new commander in Chief, Ursula von der Leyen, (7 kids) announced plans to improve child care in our armed forces, in order to make sure, that our warrior princesses can march into battle, without worrying about that : – ) , a green “defense expert” went on record, that he doesn’t believe this can be extracted from streamlining operations, he estimates some 10 Mio add. Cost, and wants to see where the money comes from. 10 Mio, out of a federal budget of 295 000 Mio, but bitching : -)

Every local politician knows, that for every additional spending he is proposing, he must make equivalent proposals for cuts.

All left parties (SPD, Grüne, Linke) had specific plans for raising taxes to finance the social goodies at the elections, the SPD a little on the vague side.

People who fail on fiscal prudence get some public opinion court martial.

Just as Chairman Mao said:

Strike one, educate one hundred

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