Adonis Diaries

Case of State of Island referendum: Feudal system adopting modern financial “tools

Posted on: May 27, 2011

Feudal system adopting modern financial schemes:The case of Island vote on referendum.

In 2007, the average income of the around 350,000 “citizens” of Island was 60% higher than the average US citizen, and was ranked 5th in the world.  The gas guzzling 4*4 were crowding the streets.

Iceland was a feudal system for 600 years, an extension of the kingdom of Danmark. Cold-water fishing was the main income generator.  Before 1940, 14 families represented the feudal system: They supplied the elite classes for the political, economical, and financial institutions.  The 14 families were known as “the Octopus”.

During WWII and after, the economy of Iceland boomed, thanks to the US “Marshall” economic and financial plan, the establishment of an US military base to servicing the NATO in Western Europe, and for enjoying a highly educated small population.

By 1980, the government had instituted vast public social services, financed by taxes, and competing in quality with Norway, Sweden, Danmark, and the Netherlands.  The local oligarchies was taking care of the “citizens”.

The “Octopus” dominated all the major sectors in transport, import, fish export, banks, insurance… The Octopus was represented by the “Independence” political party that controlled the medias, the army, the police force…

In the 70’s, students in law and business published the daily “Locomotive” and this daily managed to break through the Octopus monopoly in politics.  After the fall of the Berlin Wall in 1989, the Locomotive brought to power David Oddsson.

In 1998, Iceland had three public banks.  Oddsson reigned for 14 years as PM:  He privatized the three major banks.  The banks were headed by members of the Octopus families: The Landsbank representing the IP party, the Kaupthing  representing the CP party, and the Glitnir, servicing the small enterprises.  The banks acquired assets over 100% of Iceland GNP in 2000.  The assets jumped to over 800% of the GNP in 2007, second after Switzerland. 

Oddsson carried out a “liberal” economy, lowered the tax and TVA rates, and the citizens could borrow up to 90% of their income.  The financial oligarchy took over the political structure.  In 2004, Oddsson headed Iceland central bank!

Iceland was vying to become a major international center for financial transactions.  The three banks borrowed from one another to repurchase shares in their own societies. 

In the decade 1990 and 2000, Island political regime facilitated the job of private interests to enacting public laws and regulations that encouraged financial institutions to balloon the financial sphere of activities.  This financial system imploded even before the financial crisis of 2008.  The dynamics of Bubble economy was taking hold.

In 2006, the financial press started criticizing the stability of the financial institutions in Iceland: The three banks were having difficulties getting loans from the financial world market to sustain growth and maintaining liquidity.  Iceland deficit grew to 20% of GNP in 2006.  The stock exchange “capitalization” in 2007 was 5 folds the level of 2001.  The central bank could not have rescued the banks in times of crisis.

The financial crash of 2008 pressured the government to re-nationalize the 3 banks.

The hot question is: “Is there a legitimate institution linked to popular sovereignty that is capable of opposing financial institutions supremacy?”

April 10, 2011:  60% of the citizens of Island answered “NO” in the referendum for paying back deposits made by British and Netherlands depositors into the private bank “Icesave” in Iceland.  They had answered “NO” in 2010 by 93%.  The Financial Times wrote: “It is now legitimate to advancing the citizens’ interest before banks.”

What is the financial Icesave scheme? 

In 2006, the three banks were hard-pressed generating fresh money to resume new acquisitions and reimbursing their debts.  Icesave is basically an internet service attracting deposits, at lucrative interest rates that traditional banks would not offer.  Over 300, 000 British and Netherlands private depositors were lured into this scheme. 

Within 18 months, universities, police associations, and even the Audit Commission of London were enjoying early high income.  The entities of Icesave were agencies and not affiliate and thus, under the control of Island authority and not the European Union economic Space.

Another financial tool used was what was known as “Love letters” since the credits are simple promises for repay.  The mechanism is for the three big banks to selling credits to smaller regional banks, which they deposit at Iceland central bank for fresh guaranteed loans.  This tool is generalized internationally and the big banks opened affiliates in Luxemburg and use the EU central bank.

Two weeks after the fall of Lehman Brothers, Iceland is facing a serious situation:  the currency is in free fall, the government buy 75% of the shares of Glitnir Bank, and Britain freezes the assets of Landsbank.  Joblessness climbs to 9% and Iceland witness a reverse immigration of the workforce, back to their country of origin.  The IMF imposes the constraint of reimbursing the debts of Britain and the Netherlands for any further loan extensions.

In October 2009, the Parliament of Iceland agrees to repay $5.5 billion, or 50% of the GNP, in the years 2016-2023.  But the government changes tactics and demands a referendum for validating the parliament decision. 

Basically, what the referendum said: “Send the bill back to whoever made your finance deficit worse”.  I could understand that logic if the international financial institutions made loans to the poorer States governed by oligarchies, dictators, and absolute monarchs who never mean for the money to be invested in society and human development. 

The case of Iceland is highway robbery:  It was intentional never to pay back the deposits, and it was done by the government who had nationalized the three major banks.

Note:  The information were taken from a thorough article published in the French monthly “Le Monde Diplomatique.  The article was written by Robert Wade and Sila Sigurgeirsdottir.

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May 2011

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