Iceland’s Secret | Jared Bibler

Summary of: Iceland’s Secret: The Untold Story of the World’s Biggest Con
By: Jared Bibler

Introduction

Dive into the astonishing account of Iceland’s 2008 financial meltdown with ‘Iceland’s Secret: The Untold Story of the World’s Biggest Con’ by Jared Bibler. Uncover the unique circumstances and murky dealings that led to the collapse of Iceland’s three largest private banks, and discover the repercussions that sent shockwaves through the nation. The book dissects the cultural and historical roots that played a significant role in the crisis, as well as the shockingly flawed banking practices and deep-rooted corruption that contributed to this financial disaster. This summary will offer insights into the extent of the impact and the inadequate investigative processes that followed.

The 2008 Icelandic Financial Crisis

The collapse of Iceland’s three largest banks in October 2008 was a devastating blow to the country’s economy, wiping out the value of its stock market, causing massive unemployment and the disappearance of legally mandated pensions. The public’s outrage led to the “pots and pans revolution,” demanding new elections and the resignations of politicians. Iceland’s economy eventually recovered, but at a significant cost to its citizens, and its appeal to foreign tourists was due to the nosedive of its currency’s value. The Icelandic crisis of 2008 was an earthquake that leveled the financial fortunes of a whole country.

Iceland’s Economic Turmoil

Iceland’s economic collapse in 2008 was uniquely Icelandic and not only caused by the US subprime crisis or Lehman Brothers’ collapse. The country’s late development of an economic system due to being under Danish rule for so long, a trust in authority resulting in illegal orders being followed, and a small population where personal connections overrule accountability contributed to the crisis. Icelandic banks mismanagement and inability to compete with international banks caused the widespread collapse of the economy.

Overcoming Obstacles in Investigating Banking Crisis

The Icelandic authorities’ investigation into the 2008 financial crisis was hindered by various obstacles, including lack of urgency, limited cooperation from banks, bureaucracy, and incompetence. The Financial Supervisory Authority (FME) struggled with miscommunication, leaks, and prior mistakes. Despite uncovering unusual buying activity prior to the crisis, the FME faced a culture that avoided conflict and naming names. However, the special prosecutor appointed by the Icelandic authorities asserted that people commit crimes, not banks. The investigation ultimately had to overcome these obstacles to have a chance at revealing the truth behind the banking crisis.

The Icelandic Banks’ Proprietary Trading Scheme

The Icelandic banks in the 1990s developed proprietary trading desks that bought their own banks’ shares. This manipulation boosted demand for the stock, leading to increased prices. The banks did not publicly declare these purchases and instead bought huge blocks of shares from the prop desk near the end of each quarter. It was a typical buyback scheme but demanded no public disclosure. The banks persisted in this activity, considering it normal business practices, despite warnings from outsiders of the potential problems that could arise.

Iceland Bankers’ Fraudulent Actions

Icelandic bankers used illegal tactics to manipulate their own bank’s shares leading to the corruption of the entire Icelandic economy. Wealthy private clients with “discretionary mandates” allowed banks to manage their money without permission for each transaction and created offshore shell companies to lend money and buy more bank shares. As no foreign banks or mutual fund companies purchased these shares, fictive trades were made illegally to fuel growth, earn commissions, and pay high salaries to bank executives. Kaupþing manipulated the credit default swap (CDS) market, using depositors’ money to sell insurance on itself. These corrupt tactics led Iceland’s banking system to collapse in 2008.

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