This page intentionally left blank ÁSGEIR JÓNSSON Head of Research and Chief Economist, Kaupthing Bank New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Sydney Toronto Copyright © 2009 by McGraw-Hill All rights reserved Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher ISBN: 978-0-07-170673-5 MHID: 0-07-170673-9 The material in this eBook also appears in the print version of this title: ISBN: 978-0-07-163284-3, MHID: 0-07-163284-0 All trademarks are trademarks of their respective owners Rather than put a trademark symbol after every occurrence of a trademarked name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringement of the trademark Where such designations appear in this book, they have been printed with initial caps McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales promotions, or for use in corporate training programs To contact a representative please e-mail us at bulksales@mcgraw-hill.com TERMS OF USE This is a copyrighted work and The McGraw-Hill Companies, Inc (“McGraw-Hill”) and its licensors reserve all rights in and to the work Use of this work is subject to these terms Except as permitted under the Copyright Act of 1976 and the right to store and retrieve one copy of the work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create derivative works based upon, transmit, distribute, disseminate, sell, publish or sublicense the work or any part of it without McGraw-Hill’s prior consent You may use the work for your own noncommercial and personal use; any other use of the work is strictly prohibited Your right to use the work may be terminated if you fail to comply with these terms THE WORK IS PROVIDED “AS IS.” McGRAW-HILL AND ITS LICENSORS MAKE NO GUARANTEES OR WARRANTIES AS TO THE ACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUDING ANY INFORMATION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPERLINK OR OTHERWISE, AND EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE McGraw-Hill and its licensors not warrant or guarantee that the functions contained in the work will meet your requirements or that its operation will be uninterrupted or error free Neither McGraw-Hill nor its licensors shall be liable to you or anyone else for any inaccuracy, error or omission, regardless of cause, in the work or for any damages resulting therefrom McGraw-Hill has no responsibility for the content of any information accessed through the work Under no circumstances shall McGraw-Hill and/or its licensors be liable for any indirect, incidental, special, punitive, consequential or similar damages that result from the use of or inability to use the work, even if any of them has been advised of the possibility of such damages This limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or otherwise CONTENTS CHAPTER T HE E NIGM A OF I CELAND CHAPTER T HE B IRTH OF A B ANKING S YSTEM 19 CHAPTER H OW I CELAND B ECA ME A B ANKING C OUNTRY 33 CHAPTER T HE G E YSER C RISIS 57 CHAPTER L IVING IN A B UBBLE 83 CHAPTER T HE R OAD TO 113 P ERDITION CONTENTS CHAPTER T HE D OWNFALL 149 CHAPTER L OST IN I CELAND 189 EPILOGUE R E YKJAVIK ON THE 207 INDEX 213 X vi Z T HA MES CHAPTER T HE E NIGM A I CELAND X A N U LTIMATUM FROM THE OF K ING Z In the early morning in the third week of June 1000 AD, the general assembly of the Icelandic parliament, Althing, was called into session Customarily, the session was held out in the open air, in a natural amphitheater in Thingvellir (Parliamentary fields) in the southwestern part of the country, created by the combination of lava flows and fissure formation in the earth, complete with a speaker podium There was great tension in the air as the 39 MPs, known as the Godi, stepped forth and greeted Thorgeir, the law speaker, as he prepared to address the crowd from the podium The Godi represented free farmers from every corner of the country; indeed, a large part of their constituency stood behind them, fully armed A small minority of the Godi, accompanying a handful of priests in the full regalia of the Holy Roman Church, occupied a corner of the amphitheater at a distance from the others Thorgeir had been charged with the task of devising some kind of compromise to solve the worst political crisis the young democracy had encountered since its founding in 930 X Z WHY ICELAND? Ólafur Tryggvason, the great warrior king of Norway, had issued an ultimatum to the young state to either convert to Christianity or face his wrath The Norwegian king was indeed a formidable enemy He had the largest fleet of long ships—“war dragons”—in the North Atlantic The king’s standard carrier Worm-the-Long was the largest warship the Viking world had ever known Ólafur had used his military might to christen Norway; death and torture awaited those who persisted with their pagan ways Now, his focus was on Iceland The king had sent missionaries to Iceland, German priests accompanied by Icelanders who had served in his army They had tried peacefully to spread the good word around the country with almost no success Frustrated, they had resorted to attacking pagan holy sites and temples and killing prominent pagans The Althing had expelled them from the country and now faced the king’s anger Obeying this king’s—or any king’s—command was not to the liking of the newly established nation The country had been settled by Norse farmers and chieftains fleeing taxes and tyranny as the first unified Norwegian kingdom had been established around 870–900 AD The Icelanders also knew the king would never risk his precious fleet on the high seas to subdue them The country was at a safe distance from all Norwegian kings Nevertheless, King Ólafur wielded sufficient power to enforce near-total isolation on the country, since most shipping routes to Iceland originated in Norway Indeed, the king had already given a strong indication that pagans were not welcome in his kingdom by ordering attacks on Icelanders visiting Norway And to further sharpen the thinking at Althing, the king held five Godi’s sons as hostages To Christianity as such the Icelanders were ambivalent Quite a lot of the original settlers had lived in the British Isles prior to coming to the country Some had become Christians in their new country, although their children would revert back to paganism Others had chosen to worship Christ along with the pagan gods: in peacetime they would pray to Jesus, but when things got tough, Thor was X Z THE ENIGMA OF ICELAND the God to talk to The majority probably had accepted a rudimentary baptism as a token act to being allowed to be in communion with Christians in the British Isles Furthermore, a very significant number of the settlers had married local Christian girls Of the people gathered at Althing in June 1000, practically everyone had Christian grandmothers or at least great grandmothers There was little religious fervor to the Icelandic paganism, but nevertheless the pagan gods were interwoven into the cultural fabric and identity of the nation It suffices to mention that the MPs, the Godi, also served as priests or masters of ceremony in pagan festivals The name God-i is derived from the Germanic word God When the commonwealth was founded in 930 it had been proclaimed that “Iceland is governed by laws not kings.” The new republic prided itself on being able to solve all its affairs through jurisprudence and consensus decisions among the Godi But now the issue of Christianity was threatening to break the commonwealth apart Iceland might have had a small number of actual Christian converts, but a significant number of people had converted to the idea that Christianity was an absolute necessity to keep the door to the outside world open Against them stood the conservative diehards that would not abandon the ways of their father and forefathers for “White Christ” as they would call him They argued for the self-sufficiency of the nation These two groups had confronted each other at Althing and each had threatened to secede from the commonwealth and establish a new regime with separate laws Neither side seemed to be willing to give in As the Althing convened that fateful day in June 1000, everyone knew that if a political solution was not reached, the arms would talk instead of the Godi Thorgeir himself was a pagan, but nevertheless all parties trusted him to deliver a verdict on the matter The Sagas tell that he spent two days and two nights in his tent at the Althing, devising a solution to the crisis while the whole nation waited outside But it is more likely that his tent served as crisis headquarters, and that Thorgeir X Z INDEX Central Bank of Luxembourg, 133 Chick, Victoria, 28 Christensen, Lars, 80 Christianity, 2–4 Citigroup, 121 Class-based politics, 140 Climate of Iceland, 16 Coalition government, 146, 165 Cod War (1972-73), 14, 17, 195 Cold War, 15 Collapse of banking industry, 200 British response to, 177–178 causes of, 208–209 default on debt to Germany in, 39–40 and EEA membership, 130–132 Gnúpur, 115 government response to, 149–156 and hedge fund attack, 113–120 Icelandic government’s role in, 138–147 and illiquidity, 115 and Kauthing’s funding, 160 lack of assistance from central banks, 120–123, 134–138 Landsbanki’s funding position, 161 nationalization of Glitnir, 163– 168 and response to financial changes, 123–130 as “solution” to problem, 200 truth commission investigation of, 203 and U.S financial crisis, 157–159 wall of shields solution for, 169–177 Collateralized borrowing, 132–134 Collateralized debt obligations (CDOs), 90, 115 Commercial banking, 42 Commerzbank, 85 Common European Market, 209 Commonwealth, Iceland as, 3, Confidence of Icelanders, 9–10 Constitution of Iceland, 14 Corporate debt, 40–42, 153 Corporate income tax, 38 Corporate losses, 201 Counterparty risk, 157–158 Credit bubble, 111 Credit crisis, 115 Credit default swap (CDS) spread, 61–62 after Geyser Crisis, 89 after ICC report, 78–79 effects of, 62 of Glitnir, 99–100, 151 of Icelandic banks, 58, 74–76, 115–118, 120, 122–123, 134, 158 of Kaupthing, 63, 75, 125, 151 of Landsbanki, 124, 151 of NBIC, 122 and synthetic CDOs, 90 Credit default swaps (CDSs), 61–62 and Geyser Crisis, 78–79 market for, 62 “naked” trading in, 80 X 216 Z INDEX shorting of Iceland through, 116–117 as unregulated, 61–62 and U.S banking crisis of 2008, 80 Credit freeze, 200 Credit markets, 158 Credit risk, 35 Credit Sights, 167 Creditworthiness of Iceland, 18 Culture of Iceland, American influence on, 15–16 literature in, paganism in, during trade monopoly period, 12 Currency: in 2001-2002, 43 aligned for fishing industry, 36 and carry trade, 69–70 current depreciation of, 200 Danish control of, 19–20 and inflation, 127 liquidity of, 159 rights to print, 25 (See also Icelandic krona) Currency crisis, 159, 192–197 Currency market, 150, 193 Currency reserves, 134 D Danish Basis Bank, 43 Danish finance ministry, 19–21, 26, 29 Danske Bank, 77–78, 80 Darling, Alastair, 152, 179–184, 187 Davis, Mike, 185 Decadence, age of, 108–109 deCODE genetics, 43 Democracy, Denmark: backward society of, 14 banking system under, 29 British blockade of, 13 and economic isolation of Iceland, 10–12 EUR line to CBI from, 134 Geyser Crisis criticism in, 77–78 housing bubble in, 79 military strike by, 12 treatment of Icelanders in, 53 union with, 10 in World War II, 155 Deposit banking, 22 Deposit guarantees, 139, 152–153, 161, 169, 170, 175, 178, 198 Deposit Insurance Fund, 198 Depositors’ and Investors’ Guarantee Fund (DIGF), 176 Deutsche Bank, 102–103, 121, 160, 185 DIGF, 176 Dog-Day King, 13 Dot-com collapse, 43, 48, 87 Drobny, Andres, 72 Drobny, Steven, 72 Drobny Global Advisors, 72–74, 79 E Eastern Europe, 210 EasyJet, 85 X 217 Z INDEX ECB (see European Central Bank) Eclectica Asset Management, 73 Economy of Iceland, 16–18 2003-2007, 104 2006-2008, 106–107 after financial crisis, 202–203 fishing in, 36 and Geyser Crisis, 65–71 and opening of original Islandsbanki, 22 reinvention of, 17 size of, 16 Edge accounts, 125, 132, 160, 161 amount owed in other countries, 199 and Britain’s lack of assistance, 178 British seizure of, 185 deposit guarantee for, 170 in UK, 151–152 and wall of shields plan, 174 withdrawals from, 151–152 EEA (see European Economic Area) Egalitarianism, 204 Einarsson, Sigurdur, 34–36, 46, 51, 54, 97, 108–109, 118, 122, 139, 142, 144n., 152, 160, 185 England, 11, 13–15 English Age, 14–15 EU (see European Union) Europe: 1920 recession in, 23 bank defaults in, 207 in bubble of 2005-2007, 110–111 credibility of financial systems in, 210 effects of financial crisis in, 209– 210 Kaupthing’s move into, 45 nationalization in, 167 Norse settlement in, perception of Iceland in, 10 potential trouble in, 209–210 European Central Bank (ECB), 133, 134 lack of assistance from, 137, 154 margin call by, 151 and wall of shields plan, 156 European Economic Area (EEA), 130–131, 139 and adoption of EU banking legislation, 42 Iceland’s entry into, 38 reform of deposit insurance in, 209 threat of explosion from, 200 European Monetary Union, 131 European Union (EU), 16, 130– 131 and financial blockage against Iceland, 199 membership in, 144, 205 pressure to join, 154 refusal to join, 138 Eurosclerosis, 39 Eurozone, 131, 137, 210 “The Evolution of the Banking System” (Victoria Chick), 28 Exista, 91–95, 97, 115, 125 Exports, 16–17, 22, 37, 126 X 218 Z INDEX F Failure of banks, 207 Falcon Family Fund, 72 Fall, William, 163 Farming, 8, 9, 12 Faroe Islands, 45 FBA, 40, 43, 98 FIH, 52–53, 61, 136, 145, 169 Financial blockage against Iceland, 199 Financial Services Compensation Scheme, 178 Financial Supervision Agency (FSA), 49, 115, 119, 139 approval of Landsbanki’s privatization by, 143 and British Internet accounts, 152 and collapse of banking system, 200 control of Kaupthing given to, 186 Financial system, 37–39 (See also specific topics) Financial Times, 118 Finland, Kaupthing brokerage in, 48 Fishing, 14–15 Cod War, 14, 17 and Danish trade monopoly, 12 economic growth from, 36 during Great Depression, 25 ICEX delisting of fishing companies, 88 inherent risks of, 36 in late twentieth century, 36–37 mechanized power in, 14 and national identity, 24–25 original Islandsbanki investment in, 22 scale economics from, 17, 36 wealth created by, 44 during World War II, 21 Fitch Ratings, 73, 168 FL Group, 82–86, 94, 97, 100, 164 Floki Vilgerdarson (Raven-Floki), 5, Force majeure, 155 Foreign debt, 20, 39, 41 Foreign equity funds, 45 Foreign investment, 86 Foreign service, 197–198 Fractional reserve banking stage, 28, 29 Free-market reforms, 17, 37, 38, 141 Frettabladid, 139 FSA (see Financial Supervision Agency) G GDP, 16–17 comparison of debt and, 60 external liabilities as percent of, 114–115 Icesave accounts as percent of, 132, 198 and ICEX market cap, 121 Jóhannesson’s connection to, 103 market cap to percent of, 87–89 national deficit as percent of, 104, 111 X 219 Z INDEX GDP (continued) ratio of private sector borrowing to, 73 and size of banking system, 208 Geest, 93 Genealogy of Iceland, 6, General Motors, 60 Generation gap, 140 Geography of Iceland, 16 Germany: as funding source of banking expansion, 40 Hanseatic League, 11 Icelandic banks’ exposure to banks in, 137 and IMF request, 198 and trade monopoly, 12 transfer of savings from Iceland to, 40 in World War I, 14 Geyser Crisis (2006), 58–82 hedge fund attack, 71–76 and international expansion, 59–64 lessons from, 79–82 origin of, 59 and overheating of economy, 65–71 response to hedge fund attack, 76–79 Gísladóttir, Ingibjưrg Sólrún, 165, 195 Glacier bonds, 70–71, 105, 127 Glass-Steagall Act (1999), 55 Glitnir: Ármansson at, 100 and Baugur Group, 103, 143 ECB margin call, 151 and financial collapse, 125, 130, 147 financial position of, 163–165 Fitch ratings of, 168 foreign currency loans offered to, 170 Islandsbanki name changed to, 99–100 Moody rating of, 90–91 nationalization of, 162–168 ownership of, 143–144 Smárason’s stake in, 85 and solution to crisis, 154 útrás waged by, 108 and wall of shields plan, 169, 170, 174 Global financial crisis, 82, 113– 115 in United Kingdom, 176–179 in United States, 80, 115, 157– 158, 167 Gnúpur, 115 Godis, 1–4, 7–8 Godord, “Going Iceland,” 210 Gold standard, 21, 23 Goodhart, Charles, 131 Government of Iceland: and abandonment of Icesave depositors, 177 denial of responsibility by, 203 deposit guarantee by, 169 expansionist fever in, 139 financial fallout in, 153 X 220 Z INDEX financial system takeover by, 30 and Geyser Crisis, 76, 80 history of, 1, 7–8, 10–14 lack of resource allocation by, 138 and original Islandsbanki, 19–20, 23–24 proposal for emergency government, 196–197 protest against, 203–204 responsibility of, for collapse, 148 suspected power grab in, 158 wall of shields plan of, 155–156 (See also Althing; Godis) Great Depression, 25, 26 Green energy, 39 Grimsby trash, 24–25 The Guardian, 58–59 Gudmondsson, Ágúst, 93 Gudmondsson, Lýdur, 93 Gudmundsson, Bjưrgólfur, 49, 50 Gunnarsson, Kjartan, 143 H Haarde, Geir, 119, 145, 146, 149, 152, 156, 165, 170, 177, 186– 187, 190, 197, 204 Hafskip, 49 Hagkaup, 101 Hambros bank, 20, 26 Hansa merchants, 11 Hanseatic League, 11 Happiness, Iceland as highest nation in, Harald the Fair-Haired, Havik, Herleif, 63, 79 HBOS, 103 Headline risk, 124 Health services, 17 Hedge funds, 71–72 and collapse of Icelandic banks, 118–119 and credit default swaps, 62 Kaupthing meeting with managers of, 113–114 and shorting of bank stocks, 128 (See also Geyser Crisis) Heineken, 49 Hendry, Hugh, 73–74 Herbertsson, Tryggvi, 79 Herbertsson, Tryggvi Thor, 194 Heritable Bank, 43, 161, 185 Hermannsson, Steingrimur, 37 HF (Housing Financing) Fund, 66 History of Iceland, 1–16 conversion to Christianity, 2–4 Danish union, 10–14 “English Age,” 14–16 and Icelandic dream, 9–10 and origins of the U.S., political system, 7–8 settlement, 2, 5–8 History of Icelandic banking system, 19–31 Bunadarbanki opens, 26–27 development stages of banking, 28–31 impact of Islandsbanki’s opening, 22–23 X 221 Z INDEX History of Icelandic banking system (continued) Islandsbanki problems in early 1900s, 23–26 Landsbanki in early 1900s, 26 Landsbanki in the nineteenth century, 21–22 nationalization of Islandsbanki, 19–21, 26 in post WWII period, 27 rise of banking as an industry (see Banking industry in Iceland) and social transformations, 24–25 Utvegsbanki acquisition and renaming, 27–28 Hoarding, 150 Holding companies, 91–96 Holland, 140, 162–163, 198 Home Country Control Principle, 131 House of Fraser, 100 Household debt, 41 Housing Financing (HF) Fund, 66–67 Housing market, 65–69, 106–107, 200 Hyperinflation, 20, 24 I ICB, 133, 134, 159–160, 164 Icelandair, 84, 85, 100 Icelandic Chamber of Commerce, 79 Icelandic dream, 9–10 Icelandic krona (ISK): 1989 devaluation of, 37 in 2001-2002, 43 and 2003 power/smelting projects, 64 in 2006, 105 in 2008 financial crisis, 117 attack against (see Geyser Crisis) and collapse of banks, 158 and currency crisis, 192–197 frozen market for, 159 and Geyser Crisis, 58–59 glacier bonds denominated in, 70–71 and inflation, 127 printing of, 24 and reverse carry trade, 126–127 and trade surplus, 202 during World War I, 23 Icelandic National Telecom, 94 Icelandic Sagas, 3, 5, 7, 9, 12 Icelandic stock market (ICEX): from 1997 to 2007, 86–91 2004-2005 rise in, 61, 64 bank collapse and loss of value in, 186 buildup of, 87 IMF statement on, 41–42 internationalization of, 87–88 in January 2008, 127 and Kaupthing’s international expansion, 47–48 Kaupthing’s share of, 45 liquidity of, 96 X 222 Z INDEX in summer of 2007, 120 wipeout of, 200 (See also Bubble of 2005-2007) Icesave accounts, 118, 124, 125, 132, 139, 161, 197–199 and antiterrorism laws, 184–188 deposit guarantee for, 139, 175 in Holland, 162–163 in UK, 161–163, 177, 178, 198–199 and wall of shields plan, 174 ICEX (see Icelandic stock market) ICEX-15, 87, 88 Idnadarbankinn (bank of industry), 27 IMF (see International Monetary Fund) Imports, 16–17 Impregilo, 65 Income of Icelanders, 38, 111– 112, 202–203 Income tax, 38, 95 Independence Party, 50, 140, 141, 144–146, 171, 195, 204 Industrialization, 22 Industrivärden, 93 Inflation, 200 in 1930, 20 in 1992-93, 38 in 2001, 43 in 2006, 105 in 2007, 127 and currency depreciation, 127 and expansion of fishing industry, 37 and housing prices, 69 during World War I, 23 Inflation indexation, 37 Inflation targeting, 68–69, 71 Inflation-linked housing bonds, 73 ING, 185 Innovation, 17 Interbank lending stage, 28–30 Interest rates: 2004 rise in, 68 in 2005, 64 in 2006, 105 after crisis, 202 and expansion of fishing industry, 37 for mortgages, 66–69 in nineteenth century, 21 of original Islandsbanki, 22 International Monetary Fund (IMF), 41, 135, 148, 193–199, 202 Internationalism, national character and, 8–9 Internationalization of ICEX, 87–88 Internet banking, 137, 151, 161 (See also Edge accounts; Icesave accounts) Investment banking: from 1997 to 2007, 86–91 in America, 55–56 Icelandic brand of, 56 innovation in, 109–110 Kaupthing’s strategy for, 34–36, 47 X 223 Z INDEX Investment banking (continued) by Landsbanki, 65–66 late 1990s activity in, 42 London as center for, 53 regulators’ concerns about, 132 and universal banking, 42 Investment companies, 201 Investor AB, 93 Ireland, 209–210 ISK (see Icelandic krona) Islandsbanki (new): in 1990s, 40 Ármansson at, 98–100 as biggest risk-taker, 99 Danish Basis Bank acquired by, 43 in early 1990s, 40 and Geyser Crisis, 59–61 merger of FBA and, 40 origin of, 28 renamed Glitnir, 99–100 Islandsbanki (original), 19–20, 22–26 Isolation of Iceland, 10–12 Isolationism, 8–9, 20, 25 iTraxx financial index, 117 J Jännäri, Kaarlo, 138, 143, 146 JC Flowers, 122 JDA (joint default analysis), 91 Jóhannesson, Jón Ásgeir, 100–104, 139, 142, 150, 164– 167, 201 Joint default analysis ( JDA), 91 Jörgensson, Jörgen (Dog-Day King), 13 JP Morgan, 61, 75, 117, 134, 155, 169, 188 JP Nordiska, 48 K Katsouris Fresh Foods, 93 Kaupthing, 208 1999 restructuring of, 47 and Baugur, 101–103 and Britain’s lack of assistance, 178 change of leadership at, 54 credit investors’ visit to, 57–58 under Einarsson, 54–55 and Exista, 91–95, 97 expansion strategy of, 33–36, 47–48 FIH acquired by, 52–53 and financial collapse, 115, 117, 118–119, 121–122, 125–130, 132, 138, 143–145, 147 Fitch ratings of, 168 foreign currency loans offered to, 170 funding position of, 160 and Geyser Crisis, 59–61, 63 hustle for liquidity in, 152 and ING purchase of Edge deposits, 185–186 Internet banking with (see Edge accounts) meeting with hedge fund managers, 113–114 merger with Bunadarbanki, 50–52 Moody rating of, 90–91 X 224 Z INDEX in mortgage market, 66, 69, 108–109 and MTN market, 81 as multinational, 88 Oddsson’s biases toward, 143–146 Oddsson’s opposition to, 142– 143, 144n resources granted to, 169 rise of, 44–48 Singer & Friedlander acquired by, 54 and solution to crisis, 154 útrás waged by, 108 and wall of shields plan, 156, 166, 170, 174 Kaupthing Singer & Friedlander (KSF), 53, 160, 178, 185–186 “Kazakhstan: A Comparison with Iceland,” 114 King, Marvin, 177 Kissinger, Henry, 10 Kitchen-ware revolution, 203–204 Kreditbanken, 99 kreppa, 208 Kristjánsson, Halldór, 98 Krugman, Paul, 119, 167 KSF (see Kaupthing Singer & Friedlander) Kudrin, Alexei, 190 L Labor force, 16, 39, 65 Labor Party (UK), 177, 185 Labor unions, 27, 154 Landsbanki: antiterrorism laws invoked against, 184–188 Árnason at, 51–52 and Baugur Group, 103 and Britain’s lack of assistance, 178 and British authorities, 161–163 and deposit guarantee, 139, 154 in early 1990s, 40 and ECB margin call, 151 and financial collapse, 124–126, 130, 147 Fitch ratings of, 168 funding position of, 161 and Geyser Crisis, 59–61, 65–66 in Great Depression, 26 Gudmundsson at, 49 Heritable acquired by, 43 Internet banking with (see Icesave accounts) Islandsbanki request for assistance from, 25–26 Moody’s rating of, 90–91 and nationalization of Islandsbanki, 21 in the nineteenth century, 21–22 Oddsson’s positive influence for, 143 privatization of, 48–50, 143 request for CBI loan by, 151 rights to print national currency, 25 Samson Holdings’ share in, 49, 92 X 225 Z INDEX Landsbanki (continued) shareholder-management relations at, 98 and solution to crisis, 154 útrás waged by, 108 and wall of shields plan, 156, 166, 169, 170, 174 Landsbanki Freezing Order 2008, 184 Language, 12, 15–16, 40 Law, 3, 4, Left-Green Party, 204 Lehman Brothers, 152, 157–158, 208 Leitner, Jim, 72–74 Lender of last resort stage, 28–30 Liability management stage, 29, 30 Liechtenstein, 131 Liquidity crisis, 96, 111, 122–123, 158, 159 Literacy, Literature, Icelandic, 9, 14, 40 (See also Icelandic Sagas) Loan-to-deposit ratio of banks, 1998-2003, 41 London, as financial center, 53, 209 “Love letters,” 133 Lutheranism, 12 Luxembourg, 45, 84, 151 M Margin calls, 127 “The Market,” 85 Market risk, 35 Matthiesen, Árni, 166, 179–184 Media, 149, 155, 156–157, 166 Medium-term note (MTN) market, 59–61, 81, 90 Meidur, 91 Merrill Lynch, 74, 75, 113, 207 Ministry of finance (Iceland), 185 Mishkin, Frederic, 79 Money market fund, 44 Money markets meltdown, 158 Money multiplication, 22, 65 Moody’s rating, 90–91 Morgan Stanley, 120 Morgan Stanley Fixed Income Research, 75, 79, 115 Morgunbladid, 139 Mortgage lending, 66–69 Motto of Iceland, MTN market (see Medium-term note market) Multinationals, 86–88, 108, 142, 201–202 N National character, 7–10, 13 National debt, 24 National identity, 24 National unity, 205 Nationalization: of Glitnir, 163–168 of original Islandsbanki, 19–21, 26 in U.S and Europe, 158, 167 NATO, 15, 195, 198 Natural resources, 18 “New Year’s Skit,” 83 New York Times, 119 X 226 Z INDEX New Zealand dollar, 73–74 Newfoundland, 11 NIBC, 115, 121–122, 125, 145 Nordea, 110, 158 Nordic banking sector, 56 Nordic culture, Norsemen, 5–8 Northern Rock, 124 Norway: civil war in, and conversion to Christianity, in EEA, 131 EUR line to CBI from, 134 and financial blockage against Iceland, 199 Glitnir’s holdings in, 164 and possibility of loan from Russia, 195 trade with, 10 Norwegian ancestry, 6, 75, 79 Norwegian kingdom, union with, 2–4, Norwegian Oil Fund (NOF), 63 Note issues, 22–25 Novator Partners, 50 O Observer, 118 Occupation of Iceland (WWII), 15 Oddsson, David, 118, 141–146, 165–167, 171–174, 177, 189, 190, 194–197, 201, 203–204 Ólafur Tryggvason, king of Norway, 2, Old bank-new bank division, 200, 201 Oliver Wyman, 169 Overbanked status, 27 Overfishing, 37 P Paganism, 3, Pension system, 18, 39, 44, 153 Petroleum Fund of Norway (PFN), 63, 75, 78, 79 PFN (Petroleum Fund of Norway), 63, 75, 78, 79 Political climate: in aftermath of crisis, 203–205 for free-market reforms, 37 and Icesave issue, 198 and kitchen-ware revolution, 203–204 Oddsson’s influence on, 141–146 Political system of Iceland, 7–8, 140–141 under the Danes, 12 new minority body, 204 party seats on banks’ boards, 27 threats to, two current camps in, 205 Politicians, generation gap between banking community and, 140 Population, 12, 24 Poverty, 12 Power production, 17, 39, 64 Pride of Icelanders, 205 Printing of money, 23 Privatbanken (Denmark), 20, 26 Private consumption, 104, 202, 205 X 227 Z INDEX Privatization: of banking system, 48–53 in financial markets, 38 and ICEX buildup, 87 of Landsbanki, 48–50, 143 Oddsson’s support of, 141 of state banks in 1998, 41 Progressive Party, 25, 27, 50 Prosperity, 18 Purchasing power, 37 Pure financial intermediation stage, 28, 29 Putin, Valdimir, 189 Risk, 35 Royal Bank of Scotland (RBS), 63, 102, 110 Runs on banks, 150–151, 157–158 Russia: Gudmundsson brewing company in, 49 meltdown and currency outflows in, 210 possibility of loan from, 155, 189–192, 194–195 S Q Quality of life, Iceland as highest nation in, R Raphael and Sons bank, 43 Raven-Floki, 5, RBS (see Royal Bank of Scotland) Rebuilding of banking system, 200–202 Recession, 23, 24, 37 Religion, 2–4, 12 Renewable energy, 17 Repo funding, 132 Rescue lending, 129 Rescue package, 153 Retail banking, 42, 66–69, 124, 129–132 Reverse carry trade, 111, 126 Reykjavik Savings Bank, 95 Riksbank, 174 Riots, 150 Sagas (see Icelandic Sagas) Sampo, 94, 125 Samson Holdings, 49, 92, 143 Save & Save, 163 Savings accounts, 22 Savings and loan funds, 21–22, 41, 44, 92, 200 Savings Bank of Reykjavik, 95 Scandinavia: in bubble of 2005-2007, 110–111 and collapse of Icelandic banks, 137 and financial blockage against Iceland, 199 financial crisis in, 42 financial markets of, 53 Geyser Crisis criticism in, 77–78 Kaupthing’s expansion into, 48, 55 lack of assistance from, 154 Scandinavian Danske Bank, 158 Scandinavian kings, Icelandic poets kept by, X 228 Z INDEX Schafer, Jim, 101 Securitization stage, 29–31 Self-governance, 14 Self-reliance, Self-sufficiency, 205 September 11 attacks, impact of, 43 S&F (see Singer & Friedlander) Short selling, 158 Siegenthaler, Beat, 70 Sigurðardóttir, Jóhanna, 204 Sigurdsson, Hreidar Mar, 54–55, 57 Singer & Friedlander (S&F), 53, 121, 145, 161, 185–186 Slavery, Smárason, Hannes, 83–86, 97, 103, 164 Social aftermath of crisis, 150, 204–205 Social Democrats, 140, 165, 195, 196, 204 Society, Icelandic, 8–9, 24–25, 204–205 Soros, George, 54, 74 Sovereignty of Iceland, 2–4, 8, 15 Special prosecutor, 203 Special purpose entities (SPEs), 90 State banks, 40 State-controlled banking system, 21, 27 Stock market exuberance, 107 Stodir, 164 Storebrand, 94, 125 Storytelling, Straumur-Burdaras (STRB), 50, 97, 163, 200 Subprime mortgages, 90, 122–123 Subsidiaries, 161–162 Svenska Enskilda Banken, 93 Svenska Handelsbanken, 93 Sweden, 48, 110, 134, 137 Switzerland, 209 Synthetic CDOs, 90 T Tatarintsev, Victor I., 189 Taxes, 37–39, 95, 141 Tech bubble, 43 Thomas, Richard, 74–75, 79, 100, 123 Thorgeir, 1, 3–4 Times (London), 118 Toronto Dominion bank, 70 Tourism, 17, 40, 203 Trade, 10–16, 203 Trade monopoly (1602-1800), 12 Trade routes, 5–6 Truth commission, 203 U UBS, 57 UK (see United Kingdom) Unemployment rate, 39, 200, 202 United Kingdom (UK): antiterrorism legislation invoked by, 184–188, 209 and Darling—Mathieson conversation, 179–184 Edge accounts in, 151–152 X 229 Z INDEX United Kingdom (continued) financial crisis in, 176–179 Icesave accounts in, 151, 161–163, 198–199 shared characteristics of Iceland and, 209 (See also Britain; England; Ireland) United Nations Security Council, 165, 197–198 United States: AIG nationalization in, 158 banking crisis of 2008 in, 80 credit bubble in, 90 credit crisis in, 115 Icelandic naval base of, 15, 16, 138 Iceland’s relationship with, 15, 138 investment banking in, 55–56 Lehman Brothers bankruptcy, 157–158 nationalization in, 167 parallel between origins of Iceland and, and possibility of loan from Russia, 195 trade with, 15 Universal banking, 42 Urbanization, 24 U.S FDIC, 155, 169 U.S Federal Reserve, 135, 154, 159 U.S SEC, 158 útrás, 107–109, 123 Utvegsbanki (the bank of fisheries), 26–28, 49 V Values of Icelanders, 38, 205 Verslunarbankinn (bank of commerce), 27 Viking age, 2–9, 12 Viking warships, 2, Vikings, 5–6 VIS, 94 W Wall of shields plan, 155–156, 169–179 Wall Street Journal, 119 Warner, Jeremy, 58–59 Washington Mutual, 155, 165, 169 Welding, Lárus, 100, 165, 166 Western banks, 207 Western governments: bad/good division implemented by, 200 bank bailouts by, 193 lack of assistance from, 154 Westman Islands, 11 World War I, 15, 23 World War II, 15, 21, 155 X XL Leisure, 163 Z Zeal of Icelanders, 9, 10 X 230 Z ... handful of priests in the full regalia of the Holy Roman Church, occupied a corner of the amphitheater at a distance from the others Thorgeir had been charged with the task of devising some kind of. .. stood the conservative diehards that would not abandon the ways of their father and forefathers for “White Christ” as they would call him They argued for the self-sufficiency of the nation These... chance in the mid-eighth century the apex of the Viking age—when ships were blown off course by bad weather There was little there to exploit and no one to conquer; the only mammal living on the island