Iceland’s Secret
Jared Bibler
Harriman House, £22.99
The global financial crisis of 2008 engulfed almost every Western country.
It hit Iceland particularly hard. The tiny Nordic nation became the epicentre of a massive financial bubble in the boom years, only to see its banks implode once the music stopped playing. Indeed, at one point the UK government resorted to anti-terrorism legislation to try to recover large amounts of money that had been lost by the collapse of the Icelandic bank Icesave. Iceland later became known as the only country where the heads of the major banks ended up in jail.
Jared Bibler tells the tale in Iceland’s Secret, and he has a unique perspective on events. He moved from Boston to work for an Icelandic technology company in the summer of 2004 and later moved into fund management for an Icelandic bank just as the boom was peaking. He grew increasingly concerned about the corners he was being asked to cut and resigned just days before the bank collapsed. He was later hired by the Icelandic financial regulator to lead its investigations into what happened in the crisis. He uncovered illegal operations on a massive scale by Iceland’s major banking institutions,
“Bibler’s book is the story of his struggle to get people in Iceland to take fraudulent behaviour seriously”
involving the use of off-shore financial vehicles to prop up their share price. Bibler spent years bringing those responsible to book and some of the bankers he pursued were sent to prison.
The causes of the crisis
Several factors contributed to the collapse of the Icelandic financial system, according to Bibler: a botched bank privatisation that placed the country’s banks in the pockets of a handful of well-connected people ill-suited to running institutions was one. Iceland’s high interest rates (a by-product of high inflation) also sucked in foreign capital, especially from those betting on the carry trade (borrowing at low interest rates and buying currencies with a high yield), leading to overheated markets. Most important was naivety concerning finance, which, combined with the close-knit nature of Icelandic society, meant that employees and regulators were unwilling to question corrupt behaviour.
The book is the story of Bibler’s struggles to get people to take fraudulent behaviour seriously. Even when prosecutors finally managed to secure convictions, legislation discreetly brought in drastically reduced the sentences, while appeals to European courts also complicated matters. The country’s approach has not, he thinks, solved the fundamental problem. Iceland’s particular problems may not be applicable to the rest of the world, but a clear lesson is that better regulation is still needed.