When it comes to handling an economic collapse, Iceland is not the U.S. When the worldwide economy melted in 2008-as America bailed out Wall Street-Iceland let its major banks fail, tossed bankers in jail, and has seen its economy rise.
That was the word this past week from √ìlafur Ragnar Gr√≠msson, Iceland’s president. He was interviewed by Al Jazeera television news at the World Economic Forum in Davos, where the globe’s political and financial elite rub elbows, tap wine glasses, and laugh about the rest of us.
But Gr√≠msson wasn’t laughing; he was calmly making sense, saying that Iceland now is recovering with economic growth and “very little unemployment. We didn’t follow the prevailing orthodoxy of the Western world in the last 30 years. We established currency controls, let the banks fail, provided for the poor, and didn’t introduce austerity measures on the scale you’re seeing in Europe.”
Asked if he thought letting banks fail would work for the rest of Europe, Gr√≠msson replied:
I think it would work for the rest of Europe. Why do you consider banks to be the holy churches of the modern economy? Why are private banks not like airlines and telecommunications companies, allowed to go bankrupt if they’ve acted in an irresponsible way? The theory that you have to bail out banks is about bankers enjoying for their own profit or success, and letting the ordinary people bear the failure through taxes and austerity. People in enlightened democracies aren’t going to accept that in the long run.
One thing we learned: Icelandic banks, like British and American banks, have become high tech companies, hiring engineers, mathematicians and computer scientists. When they failed, the innovative sectors-the IT sector, the high tech sector-blossomed, and have done better in the last three years. The lesson is, the financial sector, even successful, is in fact bad news if you want to be competitive in innovation and technology.
You can see Gr√≠msson’s three-minute interview here.
Gr√≠msson’s dialogue didn’t get into three other hard legal facts:
First, by 2010, Icelandic bankers began going to jail, and finding themselves as defendants in billion-dollar lawsuits. More about that here.
Second, a European court ruled just today that Iceland acted responsibly by refusing to repay billions of euros to Britain and the Netherlands for bailing out depositors in a failed Icelandic bank, Landsbanki.
After the collapse four years ago of Iceland’s top lenders during the credit crunch, the British and Dutch governments stepped in to repay savers in the online “Icesave” account run by Landsbanki and wanted Iceland to pay them back directly.
Iceland did not comply, triggering a row between the governments and potentially complicating the island’s bid to join the European Union.
But the court of the European Free Trade Association (EFTA) bloc found Iceland did not break depositor protection laws by refusing to return the money.
Third, Iceland also forgave mortgage debts, which you can see here.
That hasn’t been the American experience, where the federal government has bailed out the big banks-with little of that money going to help homeowners-and refused to prosecute bankers for obvious criminal activity.
The Justice Department’s chief investigator of bankers’ wrongdoing even indicated in a PBS Frontline interview last week that he was concerned that prosecution would negatively affect the banks and the nation’s economy, meaning to hell with the law and the American taxpayer. You can read a portion of that interview and see the Frontline segment here.
To view the full Frontline program, entitled “The Untouchables,” look here.