The End of Iceland's Innocence: The Image of Iceland in the Foreign Media during the Financial Crisis

Social and Economic Incest—A Closely-Knit Economy

– 99 – SOCIAL AND ECONOMIC INCEST A CLOSELY-KNIT ECONOMY ‘Note that, for Freudians, Icelandic entrepreneurs are either brothers or father-son partnerships.’ Le Monde, October 9, 20081 In all economies, social networks create confidence and encourage trading and dealing. However, in Iceland’s case, the question arises as to whether the overly close ties between politicians, some entrepreneurs and managers ultimately eroded the foundations of its ‘economic miracle’. Iceland’s financial community was described by the London and New York newspapers as one big family—‘the country’s closely knit financial sector’2 —which allowed extraordinary financial fluidity and led to a laissez-faire type of society coupled with a system of political favours that posed a risk for the entire country. As Robert Anderson wrote in an article for the Financial Times, ‘the interconnectedness and indebtedness of the island’s financial sector [was] particularly damaging’.3 Overly tight relations are said to have gradually developed between political and economic players, and specifically between bankers and those responsible for regulating their activity. On this sparsely populated island, where financial activities are concentrated in a single city, family, friendly, political and social relations inevitably converge. That can lead to the risk of straying from an 1 Gérard Lemarquis, ‘L’Islande au bord du gouffre’, Le Monde, October 9, 2008, p. 3. The original quote read: ‘Notons, pour les freudiens, que les entrepreneurs islandais sont soit des frères, soit une association père-fils’. 2 Chris Hugues and Sarah O’Connor, ‘Icelandic krona suffers amid turmoil’, Financial Times, March 20, 2008, p. 27. 3 Robert Anderson, ‘Glitnir funds fail to stop fear’, Financial Times, September 30, 2008, p. 8. – 100 – ethical standpoint, and create the impression of complicity, collusion and laxity. That, at least, was the perception that developed abroad and drew attention to ‘Iceland’s incestuous economy’,4 with all the inherent pitfalls: One of the reasons they say the financial risk was so precipitouswasthattheentrepreneurialpoolissosmall .The bankers and the regulators, the ministers and the judges are all the same people—they’ve known each other all their lives, their wives and their children are friends, and nobody wanted to be the one who said no.5 The risk and appearance of complicity between different powers, laxity in the application of rules, and collusion among entrepreneurs, bankers and financiers tend to increase in a society where family and social ties are closely knit and highly valued. Those ties create new ones that should normally be characterized by opposition or competition . In Iceland, ‘entrepreneurs [are] often the main shareholders of the banks’6 —a fact that worried foreign financial communities because of concerns about economies in which ‘financial institutions and companies are closely linked through shared holdings and loans’.7 ‘David Friedman—Milton’s son—once wrote that about one thousand years ago’, recalls Henri Thornton in an article for the Australian, ‘individuals could buy a seat in the Icelandic parliament’.8 The situation in 2008 was reminiscent of that time, since prominent political and financial figures still seemed to be in a league, which sparked consid4 Financial Times, ‘Icelandic banks’, February 1, 2008, p. 14. 5 A.A. Gill, ‘Iceland: frozen assets’, Sunday Times, December 14, 2008. 6 Gérard Lemarquis, ‘Happés par la tourmente, les Islandais lorgnent sur l’Union europ éenne’, Économie, Le Monde, October 8, 2008, p. 11. The original quote read: ‘les entrepreneurs [sont] aussi souvent les principaux actionnaires des banques’. 7 Robert Anderson and David Oakley, ‘Icelandic bank shares and the krona remain in front line of turmoil’, Financial Times, October 1, 2008, p. 27. 8 Henry Thornton, ‘Vexed questions’, Australian, October 27, 2008. – 101 – erable unrest: ‘Protest demonstrations mostly have targeted a small group of “financial vikings” who turned the banking system into a big hedge fund—with government complicity, of course.’9 The members of the same elite controlled the country’s economic and political levers, exchanging favours in the process: ‘since the beginning of the 21st century, banks and government have worked hand in glove’.10 Such familiarity seemed so natural that it was exposed without precaution at an event in New York in March 2008,11 when the head of Baugur, Jón Ásgeir Jóhannesson, extolled the virtues of his businesses on the same platform as the Prime Minister, Geir Haarde, who was there to reassure investors about Iceland’s financial soundness. Clearly, Iceland cannot be criticised...