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Iceland puts on trial those responsible for the crash. Why doesn’t Britain?

Iceland had a spectacular economic collapse in October 2008 which bankrupted the country. This followed two decades in which right-wing governments engaged in an orgy of financial deregulation, launching a bonanza for its bankers with plentiful credit for its citizens, weak financial oversight and an unspoken rule not to ask too many questions but keep on spending.

How similar to the UK! Iceland’s 3 main banks, controlled by a tiny elite clique, had a paper value 10 times Iceland’s GDP. How similar again – in 2007 RBS alone had a loan book equal to 5 times Britain’s GDP.

Now the roof has fallen in, Iceland’s people are hitting back. They’re now putting on trial Geir Haarde, the prime minister, though many think the real culprit is David Oddson who was prime minister fro 13 years till 2004 and who chaired the Icelandic central bank when it collapsed. Charges however have not yet been brought which will stick against him. Nevertheless criminal indictments have been brought against several leading bankers. The obvious question arises: if in Iceland, why not here?

The City of London was second only to Wall Street in the invention and dissemination of novel and exotic financial products (structured investment vehicles, collateralised debt obligations, credit default swaps, etc.) which lay at the dark heart of the 2008 crash, yet no charges have been levelled against any bank. Big Finance in the neoliberal splurge of the last decade turns out to be Big Fraud.

Charges against banks have abounded in other jurisdictions:

  • the Anglo-Irish bank over alleged fraud;
  • the Icelandic banks over opaque deals;
  • Lehman over its manipulated balance sheet (its notorious Repo 105s and ‘debt mule’ to shuffle debt around);
  • the Swiss UBS for running 17,000 offshore accounts to evade tax;
  • Goldman Sachs for generating a dud financial instrument packed with valueless sub-prime mortgages to enable a hedge fund client to make more than $1bn at the expense of duped investors.

That is to name but a few – but it is not so in the UK. Yet the scams were identical in the UK – using financial complexity to deceive, and then using so-called independent experts (lawyers, accountants, credit rating agencies, ‘portfolio selection agents’, etc.) to validate the deception.

Only in regulation-lite Britain has no action been taken agaist the bank perpetrators and their legal and accountancy accomplices. Massive fraud, deliberate deception about the value of financial assets, the use of offshoring and tax havens on a huge scale to escape tax, widespread mis-selling (most recently in London, pensions and PPI), the vast worldwide peddling of securitised assets known to be faulty, huge manipulation of balance sheets to give a false valuation of worth, conspiring with auditors and accountants to deceive the public, reckless lending or trading beyond any reasonable limits of risk – all this malpractice indulged in the City of London needs to be robustly brought to book. The cosy nexus between politics and finance has to be broken and financial malfeasance pursued with the same rigour as other organised crime.

The FSA failed to do this between 1997-2010, and transferring their powers back to the Bank of England as the Tories did in 2011, will make little or no difference. Britain needs a vigorous proactive Securities and Exchange Commission (SEC), drawing on the US model, focused on rooting out big-time financial wrongdoers. Nor is it sufficient just to hand down a whopping fine on the bank or other financial institution or to quietly shift sideways a wrongdoing chairman or chief executive a few months after the event; the individuals guilty of financial mal-engineering on such a scale should be subject, where appropriate, to a custodial sentence and/or disqualification from any directorship/senior management position in the financial sector either for life or for some prescribed period.

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