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Alistair Darling and the Icelandic Bank Collapse. SIC Correctly Identified Risks. Icelanders shocked and dismayed by collapse SIC, Special Investigation Commission, set up with immunity and exceptional powers - PowerPoint PPT Presentation
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Alistair Darling and the Icelandic Bank Collapse
SIC Correctly Identified Risks
• Icelanders shocked and dismayed by collapse• SIC, Special Investigation Commission, set up
with immunity and exceptional powers• Conclusion: Rapid credit expansion and
excessive, obscured risk, created by three business groups
• True, but SIC neglected other source of systemic risk: discrepancy between field of operations and field of institutional insurance
The Baugur Bubble
Foreign Factors Crucial
• SIC identified vulnerabilities in Icelandic banking sector, systemic risks
• Neglected US and UK crucial decisions entering into vulnerable situation
• Darling’s revealing 2011 account of crisis
Darling on Icelandic Bankers
• P. 137: Bankers, or clients, made “handsome donations” to Conservative Party
• Wrong: None of them donor; however, the Rowland family, post-collapse owner of Kaupthing Luxembourg, confusion
• P. 152: Icelandic private jumbo jets in Luxembourg
• Wrong: Cargo planes belonging to Air Atlanta which bought them 1993, long before boom
Darling on Minister B. Sigurdsson
• P. 137–8: At 2 Sept. 2008 meeting, Minister and staff “did not realize just how bad a state Landsbanki was in”
• Was Darling aware of the bad state in which British banks found themselves?
• And was Landsbanki in a bad (risky) state because of British reluctance to move accounts?
• Recovery rate much higher than expected
Darling on Minister G.H. Haarde
• P. 137: Iceland “rapidly becoming insolvent”• Wrong: Economy basically sound• P. 137: Icelandic Minister preferring Russian loan• Wrong: Credit lines and currency swap lines
refused by traditional allies• P. 147: “undertakings … sufficient money”• Wrong: Icelandic authorities never made such
undertakings
Account of Conversation
• P. 147: Prime Minister Haarde tried to negotiate down payment from KSF
• Haarde categorically denies this
• No basis for the allegation that KSF illegally transferred money to Kaupthing
• Book-keeping device: mutual loan agreements
Darling on Minister Mathiesen
• P. 152: Complained, not told the full story• Wrong: Icelandic authorities did nothing to
mislead their British counterparts• P. 154: Other version than in contemporary
interviews on conversation with Mathiesen• UK Treasury Committee concluded that the
account was wrong• Mathiesen did neither accept or deny any
obligations
Sources of Hostility
• Exceptional hostility towards Icelanders in book
• Ordered his pilot to avoid Icelandic airspace (perhaps a joke)
• Possible explanation: upstarts, newcomers, outsiders in British establishment
• Another explanation: Scottish angle, “arc of prosperity”
Upstarts from Nowhere?
Scottish Angle?
Conclusions
• Interest in, and hostility towards, Iceland by Darling and Brown extraordinary
• Government did not help British banks owned by Icelanders, but RBS and HBOS and Bradford and Bingley, etc., anti-terrorism law
• No currency swap deals and empty promises of cooperating with winding down system
• Predictions in 2005 and 2008 by a ret. CBI Governor and a Senior Person in finance
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