February 29, 2012
… Corporations understand that they have a green light to punish people ruthlessly for even a modest improvement to their bottom line (ask Caterpillar workers if you want details). Whole nations may be bled dry to shield financial institutions from the consequences of their own bad behaviour. The Greek government is deliberately creating a national great depression to appease international financial interests.
Happily there are some instances of people saying no to this madness. Iceland is a great example of people who stood up and fought for civility.
Iceland used to have a sound but not too adventurous government-owned-and-operated banking system. It more or less did what it was supposed to do to serve local needs. An orgy of neo-liberalism in the 1990s culminated in the privatization of the banks in the late 1990s and early 2000s. The mavericks who took control of the newly privatized banks took corporate greed to extreme levels. They caught the worldwide disease of speculative euphoria, and made immense profits as the country’s banks started doing some pretty crazy stuff.
Financial journalist and former investment banker Michael Lewis offered one financier’s apt depiction of the hocus pocus that was going on in Icelandic banks: “‘you have a dog, and I have a cat. We agree that they are each worth a billion dollars. You sell me the dog for a billion, and I sell you the cat for a billion. Now we are no longer pet owners, but Icelandic banks, with a billion dollars in new assets.'”
This lunacy was largely fuelled by borrowed money. Iceland’s top three banks went on such a pathological borrowing spree that their assets were 10 times Iceland’s GDP. It doesn’t take a genius to realize that this loony behaviour will end badly. When the speculative bubble burst, all three of the country’s major banks suddenly collapsed.
Since Icelandic banks had borrowed so heavily, there were a lot of angry creditors looking to get money back from the government of Iceland. Intense pressure was exerted to force Iceland to compensate anyone that lost money when Iceland’s banks hit the wall — regardless of whether those out-of-pocket were local depositors or international financial high-flyers who should have done their due diligence before getting involved with dodgy hijinks. Governments around the world were issuing blank cheques to pay for the sins of their bankers, and Iceland should be made to pay too.
But the people said no. Weekly assemblies outside parliament made it clear to politicians that the people were not going to be forced to pay for the craziness of the bankers. Politicians responsible for the crisis were given the boot. Out went the prestigious David Oddson, who as Prime Minister (and later as chair of the central bank) had championed the neo-liberal agenda. Geir Haarde, Prime Minster at the time of the crash, has been brought up on charges concerning his handling of the crisis. A left-green alliance elected Prime Minister Johanna Sigurdardottir, who is herself a trailblazer as an openly lesbian head of state.
Iceland’s government faced intense pressure to compensate those financial interests hurt by the wreckage of Iceland’s bank failures. The shoot-out at the OK Corral came over the misadventures of one defunct Icelandic bank that had expanded willy-nilly in Europe. When it collapsed, Britain and the Netherlands rushed to bail out its creditors in an attempt to buttress confidence in their own financial sector firms.
Now the British and Dutch governments demanded that Iceland reimburse them. Naturally Britain and the Netherlands figured they bore no responsibility for their lax oversight in allowing dodgy upstart Icelandic bankers to jeopardize British and Dutch financial stability.
The total bill was US$5.8 billion, but the sale of the failed bank’s assets covers a big chunk of that bill. The estimated final cost to the people of Iceland to compensate these foreign governments would have been over $2 billion. That is a lot of money for a country with a population comparable to that of Windsor, Ontario. A deal was proposed that Iceland pay back this debt — with interest — until 2046.
OK, dear reader, are you sitting down? Because this just might knock your socks off: Iceland figured that this matter should be democratically decided. Those radical Icelanders actually demanded that they vote on the decision to compensate foreign governments.
The people decided not to pay up. In fact, they held two referendums and it was voted down both times. In the words of a spokesperson for the anti-bailout coalition, “It is totally insane that taxpayers foot the bill for failed private companies. It was odious. We had to say no.”
Very ominous threats were made that Iceland would become an international pariah. The U.K. even used anti-terrorism legislation to freeze the Icelandic bank’s assets in Britain. Litigation is still ongoing as Britain and the Netherlands seek ways to force Iceland to pay.
Of course, Iceland went through some tough times in the aftermath of the financial meltdown. Ordinary Icelanders suffered plenty because of the economic fallout from the recklessness of their banks. But Iceland is emerging from this mess in much better shape than it would have been forced into the equivalent of a country-wide debtor’s prison. Even the IMF is holding up Iceland as an example of how to overcome deep economic dislocation without undoing the social fabric.
All of us owe a debt of gratitude to the people of Iceland. They took a stand and held their ground when all of the forces of international capital were allied against them. Whether it is at Caterpillar or in the streets of Athens, we all benefit when people say no to paying the price for corporate greed. Every time we just say no, we have a better shot at demanding sanity in the face of barbarism.
Economist Ellen Russell is a professor at Wilfrid Laurier University. Her column comes out every two months in rabble.ca.