They knew, but did nothing.

The Icelandic bank and financial collapse gets worse and worse according to Egill Helgason, journalist and political talk show host. He asks why noting was done after the Central Bank got the report by London School of Economics professor Willem Buitier. See article in the Financial Times here. In the report orignally made for Landsbanki it was clear that the Icelandic business model would never last. It was in fact doomed.The report was kept secret from the media, politicians, and other business people. Its content leaked out sooner than later.

Helgason claimes that it should have been abundantly clear to every one that something needed to be done.  He asks correctly why, and adds that it seemed to be common knowlidge in february 2008 that things would end badly, and for example, Landsbanki continued to suck in money from the IceSave accounts.

The answer is not to complicated, but it is material for a whole book come to think of it. Short version is this:

1. The government continued to listen to the bankers who refuted those “stupid accusations”.

2. The government kept promoting the Icelandic financial sector abroad, like they were getting paid for it after this report and other simlar concerns came to light.

3. The government considered this to be an image problem, not a financial problem.

4. The Central Bank wrote a report, but did nothing to stop this. They had the tools but did not use them and did not alert the govenment CLEARLY about the problem. It was mentioned over coffee and danish.

5. The government didn´t have, and still does not have, the ability to assess this kind of matters. Lack of experience, lack of knowlidge and last but not least lack of will.

6. The Independence party, the former Central Bank CEO, David Oddsson and the whole Central Bank board did believe, and still do, that the market will correct itself. A notion based on a belief system, not actual academic science.

7. The Krona. ISK. The currency is to small to be used in a global economic system. That is a fact.

8. Political opinions and political gain. The main issue in Willem Buitiers report is that this would not have happened if Iceland would have had the Euro.  A quote from his article linked above:

Our main point was that Iceland’s banking sector, and indeed Iceland, had an unsustainable business model.  The country could retain its internationally active banking sector, but that would require it to give up its own currency, the Icelandic kroner, and to seek membership of the European Union to become a full member of the Economic and Monetary Union and adopt the euro as its currency.  Alternatively, it could retain its currency, in which case it would have to move its internationally active banking sector abroad. It could not have an internationally active banking sector and retain its own currency.

9. The issue of joinin the Europien Union has never been discussed properly. The Independence party under the rule of David Oddsson was aginst it. And it was the only mission to keep it that way. No matter what the public said.

This can be added to, but in very short this is the governments plan. Do nothing and hope things get better. They all believed the hype. Ignored warnings and kept on going, no matter what, in order to support their own ideology. Stand or fail by it. They failed.

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