23: Iceland Jailed Its Bad Bankers But People Are Still Angry

Tracy Alloway (0:07)

Welcome to Odd Lots, I'm Tracy Alloway, executive editor of Bloomberg Markets.

Joe Weisenthal (0:10)

And I'm Joe Weisenthal, managing editor of Bloomberg Markets.

Tracy Alloway (0:13)

Joe, I am so glad to have you back.

Joe Weisenthal (0:16)

It's great to be back, Tracy. This is where I'm naturally most comfortable, chatting with you about issues in markets and econ and finance. So glad to be back on Odd Lots with you.

Tracy Alloway (0:27)

Aw, well, that's nice. I was going to say, I'm glad that you're back today specifically, because I think we have a show that you're going to be really interested in.

Joe Weisenthal (0:36)

Oh, really?

Tracy Alloway (0:37)

Yes, because I know that you like the intersection of markets and finance and politics and sort of public mood. And boy, are those the topics of discussion for today.

Joe Weisenthal (0:48)

100%. You know, you edit a lot of the stuff I write, and I try to bring in politics and public stories all the time. So anything that hits at all those stuff, I like. So what are we going to talk about?

Tracy Alloway (1:01)

All right.

Up for today, we have two of Bloomberg's finest journalists. We've got Omar, I'm going to mispronounce this, Valdemarsen and Edward Robinson. And they have just written a great story about Iceland, which you might know as the tiny sort of frozen island country in the Atlantic. But it's also special because it's the only place that has actually sent any bankers, high level bankers, to prison.

Joe Weisenthal (1:29)

I've been to Iceland. It's a beautiful country. They have the best hot dogs in the world.

And, as you noted, not only did they send bankers to prison after the economic crisis, it's one of these, the Icelandic financial story is one of these stories that just kind of goes on forever, every once in a while popping back into the news. And as you said in the beginning, it's fascinating because it's this tiny country, just over 300,000 people. It's kind of, it's an exaggeration, but not much. Everyone sort of knows each other.

And so it's been fascinating to see this tiny country deal with the post-crisis era. And there have been a lot of interesting twists and turns along the way.

Tracy Alloway (2:14)

So they had a massive banking crisis, a massive financial crisis, and now they are still years later dealing with the aftermath. And to your point, Joe, this week, and I should say we're recording this slightly early, so things could change.

But this week, we saw Iceland kind of shoot into the headlines again because of one thing, and that is the Panama Papers.

Joe Weisenthal (2:36)

Right. It's prime minister, according to these league documents, had connections to an offshore fund where he may have had investments in some of these collapsed banks, and that led to gigantic protests in the country, and ultimately led him to leave his post, and another turn in the political turmoil there.

Tracy Alloway (2:59)

Right. And there is a thought here that you could make, or a theory, I should say, that a lot of the anger we've seen this week at the prime minister and the Icelandic government is a sort of continuation of the outrage we saw in the aftermath of the crisis.

Joe Weisenthal (3:13)

Right. So there's this gigantic banking bubble for a while. Everyone in Iceland seemed to get wildly rich off of it, and then when everything collapsed, and we'll talk about that, there was a lot of frustration at the elites, both in government and banking, for essentially taking the country on this very risky ride that not only damaged the economy, but essentially damaged the fabric of society as a whole.

Tracy Alloway (3:40)

Okay. Well, let's catch up with Bloomberg's Omar Valdemarcen first. He's actually in Iceland, although I think he's driving in his car at the moment. So the sound quality might not be that great, but I'll leave that to our producers to fix.

You've obviously been on the ground in Iceland for a long time. Tell us exactly what happened here.

Omar Valdimarsson (4:07)

I guess it all begins with the privatization of Iceland's banks in the early 2000s, in the Nazis, I guess. The Icelandic government decided to privatize two of its state-run banks, and basically at the time it was sold to political friends of the two coalition parties, which coincidentally are the same coalition parties that are in government today. Those banks then utilized the good credit rating of Iceland, because these were previously state-owned bank, and then they still had AAA rating with all the rating companies when they became privately held, and went on a borrowing spree all over the world. And what they eventually did is they accumulated so much debt that their balance sheets were ten times the size of Iceland's economy.