Icelanders Leap Into
Global Financial "Berserkerdom-Chutzpah"
and "Zombie March" into an Icelandic Financial
Version of "Stalingrad II"
First edition published
30 May 2010
Street on the Tundra, by Michael Lewis, Vanity
Fair, April 2009 describes amazing recklessness by high
rolling Icelanders during the so-called "Viking outvasion"
Icelanders are among the most inbred human beings on earth—geneticists
often use them for research. They inhabited their remote island
for 1,100 years without so much as dabbling in leveraged buyouts,
hostile takeovers, derivatives trading, or even small-scale
financial fraud. When, in 2003, they sat down at the same
table with Goldman Sachs and Morgan Stanley, they had only
the roughest idea of what an investment banker did and how
he behaved—most of it gleaned from young Icelanders’
experiences at various American business schools. And so what
they did with money probably says as much about the American
soul, circa 2003, as it does about Icelanders. They understood
instantly, for instance, that finance had less to do with
productive enterprise than trading bits of paper among themselves.
And when they lent money they didn’t simply facilitate
enterprise but bankrolled friends and family, so that they
might buy and own things, like real investment bankers: Beverly
Hills condos, British soccer teams and department stores,
Danish airlines and media companies, Norwegian banks, Indian
was the biggest American financial lesson the Icelanders took
to heart: the importance of buying as many assets as possible
with borrowed money, as asset prices only rose. By 2007, Icelanders
owned roughly 50 times more foreign assets than they had in
2002. They bought private jets and third homes in London and
Copenhagen. They paid vast sums of money for services no one
in Iceland had theretofore ever imagined wanting. “A
guy had a birthday party, and he flew in Elton John for a
million dollars to sing two songs,” the head of the
Left-Green Movement, Steingrimur Sigfusson, tells me with
fresh incredulity. “And apparently not very well.”
They bought stakes in businesses they knew nothing about and
told the people running them what to do—just like real
American investment bankers! For instance, an investment company
called FL Group—a major shareholder in Glitnir bank—bought
an 8.25 percent stake in American Airlines’ parent corporation.
No one inside FL Group had ever actually run an airline; no
one in FL Group even had meaningful work experience at an
airline. That didn’t stop FL Group from telling American
Airlines how to run an airline. “After taking a close
look at the company over an extended period of time,”
FL Group C.E.O. Hannes Smarason, graduate of M.I.T.’s
Sloan School, got himself quoted saying, in his press release,
not long after he bought his shares, “our suggestions
include monetizing assets … that can be used to reduce
debt or return capital to shareholders.”
were the Icelanders particularly choosy about what they bought.
I spoke with a hedge fund in New York that, in late 2006,
spotted what it took to be an easy mark: a weak Scandinavian
bank getting weaker. It established a short position, and
then, out of nowhere, came Kaupthing to take a 10 percent
stake in this soon-to-be defunct enterprise—driving
up the share price to absurd levels. I spoke to another hedge
fund in London so perplexed by the many bad LBOs Icelandic
banks were financing that it hired private investigators to
figure out what was going on in the Icelandic financial system.
The investigators produced a chart detailing a byzantine web
of interlinked entities that boiled down to this: A handful
of guys in Iceland, who had no experience of finance, were
taking out tens of billions of dollars in short-term loans
from abroad. They were then re-lending this money to themselves
and their friends to buy assets—the banks, soccer teams,
etc. Since the entire world’s assets were rising—thanks
in part to people like these Icelandic lunatics paying crazy
prices for them—they appeared to be making money . Yet
another hedge-fund manager explained Icelandic banking to
me this way : You have a dog, and I have a cat. We agree that
they are each worth a billion dollars. You sell me the dog
for a billion, and I sell you the cat for a billion. Now we
are no longer pet owners, but Icelandic banks, with a billion
dollars in new assets. “They created fake capital by
trading assets amongst themselves at inflated values,”
say s a London hedge-fund manager. “This was how the
banks and investment companies grew and grew. But they were
lightweights in the international markets.”
Kaupthing video raises attention," 25 August 2009 caption
"...The Danish newspaper Berlingske Tidende covers
the video today and says it is a mark of the way of thinking
within the bank and finally lead to the collapse of the bank.
the video which is in English is a question: "What is Kaupthing?"
That question is then answered with pictures of many of the
main people from history and information that Kaupthing had
doubled its size each year for eight years and the profits had
increased by 500% in only three years. "Kaupthinking" is the
thought behind a normal thought.
is the rare view into the culture that was ruling in the largest
bank of Iceland and one does not need a University degree in
understanding signs to see clues of megalomania - and so the
explanations of why everything turned out for the worst," says
the Danish newspaper. The
article in Berlingske Tidende"
all probability, these Icelanders were pumped up by brokers
who saw them as fresh meat for juicy commissions and fat merger
and acquisition (M & A) fees. They were also exploited by
academics willing to tell them what they wanted to hear for
hefty consulting engagement payments. The article "Mishkin
for sale, Nov 23, 2008 comments:
Mishkin is a professor at Columbia Business School. In the
world of economics Mishkin has enjoyed a distinguished career
and when he speaks, people listen.
2006, Mishkin co-authored a report called “Financial
Stability in Iceland”. The report was commissioned by
the Icelandic Chamber of Commerce as a way to respond to massive
critical coverage of the Icelandic economy and Icelandic companies
in the international business media. The report put forth
that Iceland’s economic fundamentals were strong. Mishkin
was reportedly paid $160,000 for his troubles."
was a glaring lack of regulatory oversight during this period.
failed state of Iceland," by Elliot Wilson Friday,
Euromoney (PDF), 5 March 2010, commented on why the
"FME" (Iceland's regulatory agency) was completely
then, was regulating Iceland’s out-of-control banks?
Simply put, the answer is no one – or at least, no one
worth mentioning. By late 2007 Iceland had essentially become
a financial banana republic. The FME had long been a cipher,
offering empty platitudes about financial supervision. Its
offices sit in the distant outskirts of Iceland’s capital,
anonymously nestled at the back of a ramshackle office building
and above a Chinese noodle shop. They could not be farther
– literally or metaphorically – from the gleaming
steel-and-glass waterfront real estate chosen by leading local
banks, most based a stone’s throw from government offices
and Reykjavik’s retail centres.
the most sane time to go on a buying spree is after markets
have been severely pummeled by a prolonged bear market and valuation
metrics such as price to earnings and price to cash flow ratios
are at 20 to 50 year inflation-adjusted lows. Under ideal bottom
fishing conditions, bearish sentiment is usually at all time
highs (a contrarian indicator), and strong economic fundamentals
are growing on the horizon.
good example took place in the early 1980's after Fed Chairman
Paul Volcker made it clear he was serious about cutting inflation.
Long term bond rates had soared over 20% after nearly a decade
of double digit rates. Bond yields would now start coming down.
The price of gold, which had enjoyed a speculative spike over
$800 an ounce as a barometer of inflation fears, would also
start a long decline. Average common stock P/E multiples and
prices had nowhere to go up.
is where ace investors like James Sinclair bailed out of gold,
Mike Milken started gobbling up undervalued Real Estate Investment
Trusts, and Warren Buffet became extremely aggressive on common
stocks in general. Sir John Templeton declared on the PBS show
Wall Street Week that never again in ones lifetime
would one see such a common stock buying opportunity. Many other
savvy investment managers with proven track records said the
forward to 2003 and the exact opposite market conditions
prevailed everywhere. I can prove this point with my own writings,
which in turn show how many leading financial professionals
held the same viewpoint. Therefore, it is highly likely that
financial professionals from major New York and UK firms who
advised the Icelanders deliberately set them up for
2003, I was publishing articles at leading online financial
sties that are listed in my online author
archive in the "Business
and Technology-Related Articles " section. They correctly
warned about underlying realities. I drew upon my experience
as a stockbroker since 1995 as well as my close attention to
financial media since I started taking business courses at the
University of Hawaii in 1980 and at Harvard in 1982. The following
are some key articles that have proven prescient: 28
Bear Case Overview. All my section headings regarding market
and economic fundamentals have proven correct, namely, "Numerous
key macroeconomic indicators look bad with no near term recovery
in sight," "Policies on a government, corporate, Wall
Street, and national media level may still be adding fuel to
the fire, driving us deeper into crisis," and "Certain
overall patterns may suggest something more serious than a relatively
short, self-correcting recession."
was true back then, and even more true today. 20
Bullish Hoopla: A "Behind the Curtain" Look at Fed
Desperation and Intervention Wizardry. I explain the danger
of unchecked derivatives growth, and how the markets are heavily
manipulated by the "Plunge Protection Team" and other
entities sponsored by an alliance of the Fed, U.S. Treasury
(typically run by ex-Goldman Sachs executives), and major Wall
Street firms. I also explained how long term bond rates had
been artificially forced down by the Fed into the low single
digit area despite money supply growth (M3) of around 10% a
year over the prior decade.
the long run, inflation is a function of money supply growth,
(adjusted for productivity gains and the ability of a dominant
economy to get foreign central banks to absorb excess money
creation, if you want to get technical). Typically long term
bond yields should exceed money supply growth and inflation
rates to at least preserve purchasing power. I explained in
this article how the Fed could not keep long term bond rates
artificially suppressed forever. Worse yet, America has lost
the structural ability to reign in its money and credit growth.
Therefore, stock market investors are headed into a trap. At
some point artificially suppressed long term interest rates
must rise, and the artificially elevated stock market must plummet.
It will not be pretty once the final shoe drops, as recently
noted by Dr. Marc
important topic area I covered is why the Fed is unwilling to
regulate the exponential growth of dangerous derivatives. There
are at least three reasons for the deliberate lack of regulation:
Derivatives are extremely profitable for hedge funds that work
closely with both major Wall Street firms and the Fed;
The Fed can set short term rates on its own, but it does not
directly control long term rates. It needs hedge funds that
use sophisticated financial tools like derivatives to transmit
short term rate changes out the long term bond yield curve;
America created strong demand for speculative financial instruments
like derivatives once it delinked the dollar from gold in the
early 1970's. At the same time, the U.S. continued to demand
that the world use the dollar as a global currency. Before long,
as Ferdinand Lips observed in his book The Gold Wars,
all the major nations of the world were delinked from gold and
were "floating on nothing but a sea of paper.". In
the contrast, in the 19th century when countries used a gold
standard for international trade, they simply repegged their
currencies to precious metals whenever the inflation of their
paper money supply required adjustments. This was a much simpler,
less volatile, and more robust system, without any need for
such sophisticated financial instruments as derivatives. 29
Templeton Trepidations, Buffett Battle Stations I explain
and correctly predict the continuing bear market in the dollar.
The key to this prediction was understanding how Robert
Rubin, as former co-Chairman of Goldman Sachs and head of
the U.S. Treasury, was able to artificially manipulate the value
of the dollar upward against other currencies in the late 1990's
to the point that the government finally lost traction. An important
reason for this eventual turnaround was the fact that central
banks started running low enough on their gold reserves that
they could no afford to keep gold suppressed at a particular
price, but instead had to switch into a "rearguard"
mode where they manage a steady up trend in gold prices to prevent
them from exploding too far upward in any given time period.
According to a 22 April 2010 3rd hour interview by Alex Jones
with Bill Murphy of GATA (Gold Anti-Trust Action Committee)
the central bankers have been showing a steady pattern of knocking
the gold price back down every time it achieves a certain percentage
level of appreciation. Gold prices and the strength of currencies
like the dollar are inversely correlated as historical barometers,
and the Fed has had a longstanding policy of manipulating both
the strength of the dollar and gold prices in ways that serve
the social, political, and economic objectives of America's
"hidden rulers," as discussed in Chapter
33 of my Trilogy.
Both gold prices and the strength of the dollar have
been manipulated by Zionist central bankers for decades as part
of short term, intermediate term, and long term political and
economic deception operations.
March 2004Back of the Envelope Analysis for $1,000 Gold in Five
Years Everything I said in this prediction when
gold was $400 an ounce proved correct as a long term forecast,
to include not only the expected price level, but also the way
gold achieved my $1,000 price target over a five year time horizon.
The rise in gold prices shows how market manipulators have been
"running out of ammo" with the gold reserves necessary
to keep gold prices artificially suppressed. All of this in
turn reflects their increasingly inability to manage the extreme
distortions that they have created in the economy from such
factors as exploding debt, the loss in manufacturing competitiveness,
the chronic trade deficits, and the housing bubble. All of this
in turn implies periodic market dislocations of the type that
brought down Lehman Brothers and Iceland.
previously mentioned, I have to believe that Icelanders were
deliberately misled into their predicament by international
bankers who needed "fresh meat" for commissions, advisory
fees, and false front operations, much like the way heroin pushers
need a steady supply of fresh new addicts with money whose physical
health and whose financial situations have not yet broken down
from their drug habits.
more alarming is the uniquely criminal way in which global financial
conditions have steadily gone from bad to worse to even worse
since 2004. Take for example derivatives, which Warren Buffett
once warned are "weapons of mass financial destruction."
According to my 21 March 2004 gold
Moriarity of 321gold.com commented in his March 13th Korelin
interview that global debt now stands at $100 trillion, more
than twice the world economy of $45 trillion. Even worse,
the Bank of International Settlements (BIS) reports total
derivatives at $207 trillion, or a little under five times
the global economy. They have grown from zero in 1971 when
Nixon completely de-linked the dollar from gold.
flash forward to Wayne Madsen's 2009 report about where derivatives
stand today, to include their connection with Mossad-CIA global
operations. (I reproduce his full report below. The details
provide important background on the depth, breadth, and level
of ultra high level international organized crime).
trillions at stake globally, try quadrillions and . . ."
has learned from sources inside "The Temple," otherwise known
as the Federal Reserve Bank, that the amount of money that
is at risk worldwide is not in the trillions but the quadrillions.
has learned from informed sources that French President Nicolas
Sarkozy will soon face renewed charges that he received illegal
foreign funds through the Luxembourg banking company
Clearstream. Luxembourg is a well-known tax haven that maintains
strict confidentiality over banking and corporate records.
Foreign Minister Dominique de Villepin met with the recently-retired
head of French military intelligence Philippe Rondot and EADS
deputy director Jean Louis Gergorin. Gergorin told de Villepin
that two names on the secret list of French politicians who
had Clearstream accounts -- Paul de Nagy and Stéphane
Bosca -- were pseudonyms for Sarkozy. It was believed by French
intelligence that the names came from Sarkozy's father's full
name, Nicolas Paul Stéphane Sarkösy de Nagy-Bosca.
reportedly represented a massive money laundering operation
that financed political and other operations around the world.
Banks and companies with Clearstream accounts included the
Bank of Credit and Commerce International (BCCI), Bank Menatep
of jailed Russian oligarch Mikhail Khodorkovsky, Banco Ambrosiano
(also known as the Vatican Bank), Bahrain International Bank
(with reported links to Osama Bin Laden), and The Carlyle
was Interior and, for a short time, Finance Minister in the
Union pour un Mouvement Populaire (UMP) government in which
De Villepin served as Foreign Minister and Prime Minister.
camp denounced the Clearstream list as a forgery and, as President,
Sarkozy has put de Villepin under a criminal investigation.
However, WMR has learned from sources close to France's General
Directorate for External Security (DGSE) that Sarkozy's removal
of Pierre Brochand, a Jacques Chirac appointee, as the
head of DGSE in October will soon have unpleasant consequences
for the mercurial Sarkozy.
classified documents could soon appear that will re-ignite
the Clearstream affair and prove that Sarkozy's political
career was financed by foreign funds. The revelations will
reportedly exonerate de Villepin and Chirac, who have been
charged by pro-Sarkozy elements in France of a criminal conspiracy
to defame Sarkozy.
and his neocon allies were able to kill the story of Clearstream
by lawsuits against journalists and criminal charges against
French officials who were aware of the details of the case.
An Excel spreadsheet of Clearstream accounts was removed from
several web sites under threat of legal action. WMR
obtained a copy of the 2002 spreadsheet.
release of classified information on Clearstream may have
repercussions far beyond France and shed light on an international
quadrillion dollar scheme involving Israeli-connected gangsters
to line the pockets of billionaires, launder cash, defraud
banks, and loot national treasuries."
neocons and their allies in the corporate media have labeled
the Clearstream documents as forgeries. However, neocons,
who favor using forgeries to push their own agenda, are also
apt to label as "forgeries" any document that threatens their
continued grip on power. Because of what Clearstream
represents, Sarkozy has also sought to abolish the posts of
independent investigative judges in France so they are not
prompted to dig further into the world's shadow economy.
term quadrillion in relation to worldwide derivatives was
also cited in Len Bracken's guest editorial in WMR on October
9, 2009: "The worldwide notional value of outstanding derivatives
is now estimated to be $1.405 quadrillion, up 22 percent from
the 2008 level. DK Matai of the Asymmetric Threats Contingency
Alliance notes that a conservative 10 percent default or decline
could result in $100 trillion of payouts. Financial institutions,
nation states, even blocs such as the European Union will
be unable to fund these obligations, often owed to speculators
by bankers that grossly mispriced risk . . . The Soviet Union,
by the most reliable accounts, imploded in large part because
of its Afghan war. While the United States and its allies
now have their crippling campaign in that unforgiving country,
the weakest links to the empire controlled by Wall Street
and The Square Mile are formed by a quadrillion dollars in
derivatives and a hundred trillion dollars of securitized
succeeds against the hordes of financial marauders in
France as a modern-day Charles Martel and begins to unravel
the global financial shysters and fraudsters who have, like
locusts and rats, decimated the economies of Iceland, Ireland,
Greece, Spain, Portugal, and, soon, possibly bring the
United States and France to economic collapse, it may be an
issue of being too little and too late.
is worth noting that markets heavily entangled with derivatives
are always dangerous. One of the ever-present great dangers
of any highly leveraged arbitrage activities on Wall Street
are called "rogue wave effects." (Please see the "Rogue
Wave"-related articles published online in 2000 by
James Puplava as part of his famous "Perfect Storm"
series at financialsense.com). Once in a while market behavior
will change radically, just like freak waves that come out of
nowhere in the ocean. As one example, some major news event
can cause investors to suddenly freeze up in fear. Markets suddenly
become illiquid. Computer models which assume that sophisticated
financial instruments can hedge risk (such as hundreds of trillions
of dollars worth of derivatives that nobody really understands)
suddenly no longer work because there are no longer any buyers
(or "counter parties to a transaction") around that
enable risk managers to unwind or clear their positions.
Ignoring Recent Lessons
addition to all the "red flag" areas that I have just
mentioned, namely (a) peak-market conditions (b) global banking
establishment corruption and (c) ever present "rogue wave"
vulnerability, there is one other very important red flag area
that deserves elaboration.
the prior two decades, Wall Street was repeatedly scandalized
by outbursts of major fraud and market malfunctions. Furthermore,
there was no indication that Wall Street was seriously mending
its ways to prevent reoccurrences.
of the most glaring examples included the $1.4 billion Securities
Settlement of 2003, the bursting of the Internet bubble
in 2000, the Long Term Capital Management disaster of 1998,
and the Robert Citron-Merrill Lynch scandal of 1994.
Settlement of 2003 resulted in a record fine for leading
securities firms. This made it clear how the much of the much-touted
"Chinese Wall" that allegedly existed between securities
analysts and investment bankers who conducted Initial Public
Offerings (IPO's), Secondary offerings, and Mergers and Acquisitions
(M & A) was a complete fiction. Securities analysts like
Henry Blodget for Merrill Lynch and Mary Meeker with Morgan
Stanley were hyping stocks to help fuel IPO and M & A business
for their investment banking departments. They were not warning
retail investors about underlying realities, which was supposed
to be their real job.
hyped-up research reports to run up stocks is called "pump
and dump" in Wall Street jargon. The Global Settlement
of 2003 suggested that major Wall Street firms function on the
moral and ethical level of sleazy, fly-by-night "boiler
the year 2000, the financial press commented extensively on
how distorted the American economy had become with the run-up
of the Internet and telecom stock bubbles. The S&P 500 financial
sector had grown from 5% to 25% of total market capitalization.
Many market professionals commented on this distortion, and
accurately predicted that it would eventually regress to the
mean. Sure enough, this regression took place after the market
bubbles finally popped. .
In this David Dees satire, "Helicopter money"
Ben Bernanke and "Bubble-market" Alan Greenspan out
for a little helicopter joy ride as they preside over America's
unlimited debt and derivatives explosion.
worse, leading alternative media financial pundits such as Doug
Noland at Prudentbear.com, Dr. Marc Faber, and James Puplava at
financialsense.com warned in the early 2000's that "helicopter
Ben Bernanke," that is, the Chairmen of the Fed who likes
to create fiat money as if he were going to "bomb" America
cities with this "monetary stimulus" out of hovering
helicopters, was going to create a new bubble in the housing market
to keep the "Don't Worry, Be Happy" economy going. These
experts accurately predicted that this bubble would eventually
come to a bad end just like the aforementioned stock market bubble
of the late 1990's created by the loose monetary policies of the
prior Fed Chairman Alan Greenspan. As
a matter of fact, this housing bubble did eventually pop. The
after shocks played a key role in wiping out Lehman Brothers and
Most of the "smart money" on Wall Street knew
well in advance that the housing bubble would come to a bad
end. One wonders how any intelligent person could live through
the Internet and Telecom bubbles and not smell this a mile away.
Ultimately the Fed was forced to put the brakes on this very
same monster that it created.
specifically identified the new housing bubble problem on 28
Jan 2003 when I published A
Bear Case Overview at Financial Sense University and other
leading financial web sites. This was the first key macroeconomic
indicator that I covered in this article. I stated:
Debt is at historic highs and keeps growing while
credit quality is deteriorating.
According to Doug Noland, author of "Credit Bubble Bulletin,"
Total indebtedness (corporate, personal, and government) is
currently about three times GDP compared to 2.6 times during
the Great Depression. Corporate and individual bankruptcies
are at record highs. Consumer spending, which comprises about
75% of GDP, now appears to be slowing down as a result of
higher debt levels eating into discretionary funds, while
credit creation by Government Supported Enterprises such as
Fannie Mae, GNMA, and Freddie Mac outside the banking system
continues to grow by as much as 20% a year. The national strategy
of outsourcing manufacturing and emphasizing services through
a very liberal approach to "free trade" has distorted
our economy in both directions. The mortgage refinance boom
has been an important element to provide consumers with liquidity
and keep the economy going, but this can not last forever.
Isle That Rattled the World," Wall Street Journal,
December 27, 2008, observed how Icelandic banks acted oblivious
to these warnings as they leveraged themselves to the hilt in
this bubble environment. "By earlier this year, the three
main banks had grown so much that they accounted for around
three-quarters of Iceland's stock-market value. Their loans
and other assets totaled about 10 times Iceland's gross domestic
Hazard in Iceland" by Iris Erlingsdottir,
Huffington Post, February 10, 2010 notes that "Of
course, gravity never goes away, and, as Daníelsson has
noted, `If the banks become too big to save, their failure becomes
a self-fulfilling prophecy.'" The banks' sheer size relative
to Iceland's economy and Central Bank inevitably pulled them
down to size."
were other major malfunctions in recent history that should
have served as warning to Icelandic bankers. The Long
Term Capital Management (LTCM) fiasco of 1998 illustrated
how sophisticated trading models created by two Nobel prize
winners could suddenly become inverted under freakish, market
was an extremely leveraged hedge fund that had become "too
big to fail" on Wall Street. Rather than allow LTCM to
go belly up, the Fed stepped in and orchestrated a bailout by
bombed Iceland? by Uwe E. Reinhardt, the Daily Princetonian,
November 3, 2008, describes how Icelandic banks jumped into
the carry trade just like LTCM right in the middle of a market
that was dangerously inflated by the housing bubble, central
bank manipulation, and toxic derivatives growth:
Iceland’s economy basically relies on a few staples,
its bankers discovered during the ’90s that the island
of some 300,000 inhabitants could be converted into the analogue
of a highly leveraged hedge fund. Such funds scour the earth
for low-cost credit – usually available in Asia –
and then scour the world for investments with higher yields.
They live on the spread between the higher returns on their
assets and the lower interest rates they pay on debt. In the
jargon of finance, this was called the “carry trade.”
Eventually, Iceland’s bankers pushed the carry trade
to a point where the amount of money they owed mainly to foreign
lenders and depositors amounted to almost 10 times Iceland’s
gross domestic product (GDP). And unlike the legendary prudent
banker, they had only skimpy equity cushions to absorb any
decline in the value of the assets they bought.
appears that, unlike their colleagues on Wall Street, Iceland’s
bankers did not invest heavily in the dodgy mortgage-backed
securities based on subprime mortgages, which have brought
down so many banks in the United States. Instead, they were
heavily involved in financing entrepreneurs in Europe and
elsewhere. But caught in the global credit squeeze, they found
it impossible to roll over their huge short-term debt, while
the looming recession impairs the value of the loans made
Congressman Ron Paul's recent initiatives to audit the
Fed, although unsuccessful, are the closest Congress has ever
come to actually auditing this creature since its founding in
1913. The U.S. Constitution states that only Congress should
regulate money, a responsibility abdicated to private bankers
when the Fed was created. Even worse, in 2006 the Fed arrogantly
announced that it would stop reporting M3 money supply growth
to Congress. Inflationary monetary policies without direct Congressional
oversight is a form of "taxation without representation,"
since inflation is a form of sneaky taxation. Then in 2008 the
"Fed Axis" (the Fed and the U.S. Treasury run by former
Goldman Sachs CEO Hank Paulson) threatened Congress with martial
law if it did not fork over $700 billion in bailout money, a
figure that has since grown to $24 trillion, according
to Paul Joseph Watson.
four years before the LTCM blow-up, Wall Street witnessed the
L. Citron-Merrill Lynch scandal of 1994. As a pension fund
bond portfolio manager for Orange County, California, Robert
Citron used complex derivatives he did not understand to goose
up his rate of return -- in all probability just like the above
market rates of return offered by Icesave Internet savings accounts
that became focus of Iceland's crash in October 2008. Citron
wound up bankrupting Orange County when interest rates rose
and he got caught in a liquidity squeeze --just like Icesave.
accounting professor Bob Jensen of Trinity University, author
of the web page "History
of Fraud in America," reviewed
the book FIASCO by Frank Partnoy, which analyzed not
only the Citron debacle, but also the culture of infectious
greed on Wall Street that provided an important backdrop to
this scandal. In professor Jensen's review below, those readers
with a macabre sense of humor may consider substituting the
term "bunnies" with "Icelandic bankers."
Frank Partnoy, FIASCO: The Inside Story
of a Wall Street Trader (Penguin, 1999, ISBN 0140278796,
is a blistering indictment of the unregulated OTC market for
derivative financial instruments and the million and billion
dollar deals conceived in investment banking. Among other
things, Partnoy describes Morgan Stanley’s annual drunken
skeet-shooting competition organized by a “gun-toting
strip-joint connoisseur” former combat officer (fanatic)
who loved the motto: “When derivatives are outlawed
only outlaws will have derivatives.” At that event,
derivatives salesmen were forced to shoot entrapped bunnies
between the eyes on the pretense that the bunnies were just
like “defenseless animals” that were Morgan Stanley’s
customers to be shot down even if they might eventually “lose
a billion dollars on derivatives.”
book has one of the best accounts of the “fiasco”
caused almost entirely by the duping of Orange County ’s
Treasurer (Robert Citron) by the unscrupulous Merrill Lynch
derivatives salesman named Michael Stamenson. Orange County
eventually lost over a billion dollars and was forced into
bankruptcy. Much of this was later recovered in court from
Merrill Lynch. Partnoy calls Citron and Stamenson “The
Odd Couple,” which is also the title of Chapter 8 in
the book. Frank Partnoy, Infectious Greed: How Deceit
and Risk Corrupted the Financial Markets (Henry Holt
& Company, Incorporated, 2003, ISBN: 080507510-0, 477
pages) Frank Partnoy, Infectious Greed: How Deceit and
Risk Corrupted the Financial Markets (Henry Holt &
Company, Incorporated, 2003, ISBN: 080507510-0, 477 pages)
shows how corporations gradually increased financial risk
and lost control over overly complex structured financing
deals that obscured the losses and disguised frauds pushed
corporate officers and their boards into successive and ingenious
deceptions." Major corporations such as Enron, Global
Crossing, and WorldCom entered into enormous illegal corporate
finance and accounting. Partnoy documents the spread of this
epidemic stage and provides some suggestions for restraining
learn that neither] Citron (nor the people above him and his
investment participants), who had no real background in finance,
did not know the difference between market price and face
value, nor did he know the difference between an option on
an asset and the outright ownership of an asset. Based on
one very bad bet on the movement of interest rates, Citron
fully invested Orange County's finances in derivative securities
that he did not understand at all, and compounded the problem
by leveraging his position (basically using a little money
to borrow a lot of money) to the extreme.
also sounds like widespread criticism of David Oddsson's lack
of financial experience before he took over Iceland's central
provide some important additional historical perspective, we
can learn not only from the Robert Citron-Merrill Lynch affair
of 1994, but also go back even further to the "Golden Rule
of Banking" described by Ludwig Von Mises in a paper written
in 1912, as explained in the article "Iceland's
Banking Crisis: The Meltdown of an Interventionist Financial
System" by Philipp Bagus and David Howden, Mises
Daily, 9 June 2009:
Maturity Mismatching and Artificial Booms
crisis shares a common bond with those that have infected
other developed economies recently: all have banking systems
heavily engaged in the practice of maturity mismatching. In
other words, Icelandic banks issued short-term liabilities
in order to invest in long-term assets, as can be seen in
figure 1, which presents the funding gaps (i.e., liabilities
less assets) of a given maturity for the three largest Icelandic
banks — Kaupthing, Glitnir, and Landsbanki.
the banking system had to continuously roll over (renew) their
short-term liabilities until their long-term assets fully
matured. If an event arose whereby Icelandic banks failed
to find new borrowers to continue rolling over their liabilities,
they could face a liquidity crisis and, more importantly,
spark the collapse of the Icelandic financial system; recent
events have borne out this exact scenario...
most policy recommendations to Iceland have been undertaken
with little to no knowledge as to the true source of the bust.
Willem Buiter and Anne Sibert (2008) have completed the most
complete analysis of the Icelandic crisis to date. By only
dealing with the evident issues, they deem the real downfall
of Iceland to have been a central bank unable to issue the
necessary credit when the need arose. Hence, as a recommendation,
they believe Iceland should look towards joining the European
Monetary Union in order to gain a central bank credible as
a lender of last resort. What they fail to realize, unfortunately
for those who will listen to their prescription, is that the
boom was unsustainable from the start; prolonging it will
only offer temporary relief, if any at all. The misallocations
of capital disrupted the productive portion of the economy
in ways that could not prevail indefinitely, given the preferences
of Icelanders as well as foreigners. The moral hazard created
by the diminutive Icelandic central bank has already provided
us with a spectacular blowup; are we to believe that the moral
hazard guaranteed by the European Central Bank will be any
we find that the solution is not a central bank as a lender
or roller-over of last resort, but, as Ludwig von Mises had
already stated in 1912, the solution is rather that banks
conform to the golden rule of banking:
the activity of the banks as negotiators of credit the golden
rule holds, that an organic connection must be created between
the credit transactions and the debit transactions. The credit
that the bank grants must correspond quantitatively and qualitatively
to the credit that it takes up. More exactly expressed, "The
date on which the bank's obligations fall due must not precede
the date on which its corresponding claims can be realized."
Only thus can the danger of insolvency be avoided. (The
Theory of Money and Credit)
summary, I believe that key Icelanders were so massively misled
for so long with such incredible blindness to historical lessons
and ongoing red flags that the problem has to be much bigger
and more sinister than their own greed, naivety, or hubris.
I believe it highly likely that Alex Jones is correct, namely
that Icelanders were deliberately subverted by globalist
when we "rewind the tape" and try to figure out how
the financial sectors of Scandinavian countries --or for that
matter America-- can try to prevent these kinds of tragedies
from ever repeating themselves, we are presented with broad
social and political issues. These problems are certainly much
broader and deeper than any thing one would ordinarily find
within today's "politically correct" and "highly
sanitized" business school text books or financial sector
trade publications alone. To find real answers, one requires
free alternative media.
on all this later in my alternative media and nationalist analysis
Keiser: Predicting the collapse of IcelandFilmed
in April 2007. Caption from YouTube: "Watch for the scene
in the Blue Lagoon in which Max predicts a global Depression
to be caused when all these debts driven by low interest rates
The Zombie March into an
Icelandic Financial Version of "Stalingrad II"
deliberately named this section to resemble Chapter 37 titled
Blackjack,' The Kansas City, KS Nuke, and the Zombie March Towards
`Stalingrad II'" of my Mission of Conscience
series because I perceive many disturbing parallels between
Iceland's misguided establishment and the Obama Nation's "Road
to Armageddon" handlers at the Pentagon.
Nation, Zionist neo-con "High
Priests of War" not only keep saber-rattling
at Iran, but have built up more troops in Afghanistan than
Iraq. They have done this despite the strong evidence that the
American approach to conducting the war in Afghanistan is unwinnable,
and the country can become a logistical death trap for U.S.
forces if the American economy collapses.
both cases, as warning signals gained in strength, major leadership
elements of both Iceland and America have proven themselves
incapable of engaging in any kind of meaningful damage control
or course correction change to avert disaster. What they also
share in common is that they are both heavily influenced behind
the scenes by Bilderburgers, Trilateralists, and other elite
bankers and Zionist globalist oligarchs.
Isle That Rattled the World," Wall Street Journal,
27 Dec 2008, describes how serious warning signals appeared
makes Iceland different: It tried to build a global banking
center on top of a tiny currency. So when foreign investors
tried to pull out -- converting kronur back into dollars or
euros en masse -- its currency fell like a rock, spurring
Iceland's euphoria, there were warnings. In 2006, analysts
at Danske Bank wrote a paper titled "Geyser Crisis" saying
that Iceland's banks had grown too much, and the country was
dangerously reliant on the willingness of foreigners to keep
funds attacked the Icelandic krona. The banks weathered the
assault, and the krona bounced back. Fatally, Iceland viewed
its successful defense as proof of the banks' resilience.
the Danske Bank team wasn't wrong, just early.
to the Forbes article "Icelandic
Meltdown", "In January , rating
agency Moody's had said that the [three leading Icelandic] banks'
fragility was putting the country's Aaa sovereign rating at
following are examples of other warning signs reported by Bob
Chapman's International Forecaster newsletter beginning
in March 2008, seven months before the October 2008 collapse:
22 March 2008 International Forecaster, p. 14 "The
cost of [credit default swap] protection for two banks in
Iceland, one its biggest bank, rose 22 BPS to 855. That is
an average of seven times more than banks in Europe."
2 April 2008 International Forecaster p. 16 "...Word
is that German bank write downs on US subprime debt could
hit $110billion. The risk of Iceland’s biggest bank
defaulting rose above 49% as contagion from the US subprime
crisis spreads, default swaps show. This is the early stage
of the banking crisis....Hungary’s central bank increased
interest rates by 50 BPS to 8%. Inflation is 6.9% in February
and 7.1% yoy in January. The fear is that Iceland will implode,
then Hungary and other Eastern European nations."
5 April 2008 International Forecaster p. 17 "The
Bank of Finland might bail out Icelandic banks. The central
banks of the Nordic countries agreed four years ago to maintain
the stability of the banking system in the region by bailing
out banks that operate in at least two of these countries.
Glitnir, Kaupthing and Landsbanki are Icelandic banks that
operate in Finland."
12 April 2008 International Forecaster p. 17 "Iceland’s
central bank raised its interest rate for the second time
in three weeks from 15% to 15.5%. Rates were raised 1-1/4%
on 3/25. Thursday’s rate increase failed to halt a further
decline in the Krona because it was not accompanied by measures
to boost foreign currency reserves. The bank needs to raise
its reserves to reassure investors it can act as a lender
of last resort to banks that own more foreign assets than
Iceland’s GDP. The Krona has lost 21% of its value versus
the euro this year. Inflation has exceeded the bank’s
2.5% target every month since 4/04. Inflation should average
9.3% this year and 5.9% in 2009.
Supervisory Authority] alleges that a handful of international
hedge funds conspired to initiate a speculate attack on Iceland’s
currency, banking system and stock market. After all, Iceland
bank credit default swaps surged from only 50 last August
to 1000 basis points at the height of the speculative attack.
The credit default swaps crisis led to a global run on the
Icelandic kroner, forcing the central bank to hike interest
rates to 15 per cent even as the national currency collapsed
from 90 to 120 against the Euro. Icelandic politicians, central
bank governors and politicians accused foreign hedge funds
of malign intentions in a manner reminiscent of Malaysian
Prime Minister Mahathir accusations against billionaire foreign
exchange speculator George Soros. Iceland’s economy,
once dominated by fishing and tourism, has been turbo charged
by the spectacular growth of its international banking assets.
Iceland is clearly not out of danger yet. The Icelandic kroner
has lost one fifth of its value against the Euro in the foreign
exchange market, meaning the inflation rate can only rise.
The Reykjavik stock exchange is in a vicious bear market.
Icelandic banks still are high risk borrowers in the international
money markets. While the speculative crisis has abated since
early April, international confidence in Iceland is still
woes reflect a broader rise in investor risk aversion against
countries with high external deficits that are serial borrowers
in the international loan and capital markets. The South African
Rand, the Romanian Leu, the Kazakh Tenge and the Turkish Lira
have also been victims of the post - bubble rise in risk aversion
in the capital markets. A hot money attack can do lasting
damage to a target country’s financial market or banking
system. Iceland, for instance, has the highest interest rates
in Europe to defend the kroner. Yet high interest rates are
a disaster for Icelandic banks and borrowers. Iceland’s
central bank must also boost its foreign exchange reserve
and risk additional downgrades on its sovereign ratings by
Moodys, Fitch and S&P.
economic imbalances and banking excesses of Iceland have been
exposed and the Icelandic kroner has now lost one fourth of
its value against the Euro. It is now evident that highly
leveraged banks will be blackballed from the international
back to Bob Chapman's International Forecaster:
30 April 2008 International Forecaster p. 18 "Icelandic
inflation for March reached its highest level since 1990 at
26 June 2008 issue of Forbes magazine article "Icelandic
Meltdown" by Paul Maidment commented:
dependence on financial services renders the economy susceptible
to severe shocks to the banks' operations. The country's economic
situation, whose dash for growth has made its citizens among
the world's richest but also created systemic imbalances,
has deteriorated sharply in the wake of the credit
are used to volcanic eruptions, but their geographic isolation
hasn't kept the fallout from the global credit crisis from
their banks' doors.
doors were fragile to start with. Heavy borrowing from capital
markets, particularly via krona-denominated "glacier bonds,"
to fuel a spectacular run of acquisitions in the Nordic countries
and the U.K., had started long before credit conditions tightened,
worsening the effects.
now, credit default swap spreads--a rough and ready measure
of a bank's likelihood of default--have widened to more than
1,000 basis points from 50 basis points last August. CDS spreads
for the country's three largest banks-- Kaupthing, Glitnir
and Landsbanki, which account for 88% of industry assets and
50% of the Reykjavik bourse's capitalization--are among the
highest in the world.
January, rating agency Moody's had said that the banks' fragility
was putting the country's Aaa sovereign rating at risk. In
April, it cut Icelandic banks' financial strength ratings,
placing them on negative watch.
vultures sense carrion. Earlier this year, central bank governor
and former prime minister David Oddsson accused "unscrupulous
dealers" of putting undue pressure on the Icelandic economy,
by pushing Icelandic banks to fail.
fear was that self-fulfilling market speculation only possible
in a country of such small size, openness and imbalances,
would lead to financial crisis unjustified by the economic
Back to Bob Chapman's International Forecaster again:
28 June 2008 International Forecaster p. 21 "Iceland’s
inflation rate rose to 12.7% in June, more than five times
the central bank's target, after a slump in the krona sent
import prices surging, maintaining pressure on the central
bank to raise interest rates. Inflation accelerated from 12.3%
the month before."
Boyes, Times correspondent and author of the new
book Meltdown Iceland, says that everyone except
Icelanders knew the Icelandic economic collapse was approaching
as early as 2006. In
an extended interview on RUV’s Silfur Egils political
talk show, Boyes said Iceland had been poorly governed by
the Independence Party and that they had betrayed the nation. Boyes
said David Oddsson’s Independence Party had tried to
implement a Margaret Thatcher-style economic revolution without
putting the necessary strong state infrastructure in place
to regulate it. Iceland is, he said, a great nation, but a
also criticised the fact that Icelanders allowed Geir Haarde
to act as crisis manager for three months despite being ineffective
and “David Oddsson’s lapdog”, although he
later rephrased it to “very loyal”.
"everyone" referred to by Robert Boyes above includes
the "Circle Z" malefactors described in Act
II, who knowingly pumped up false pride and self-destructive
greed in their Icelandic clients and colleagues, and setting
them up for a fall that we will witness in the next Act.