In an interview with The Grapevine, professor of Economics and Law William Black – who is visiting Iceland to share his thoughts on the 2008 banking collapse – said he believes that “the Icelandic government at the time [leading up to the bank collapse] was an almost literal cheerleader for the industry.”
Black, who gave a lecture today at the University of Iceland on the causes of the banking collapse, was asked by the Grapevine why he believes warnings from financial institutions such as Moody’s and Standard & Poor’s that the economy was overheating in 2006 went ignored. To this he replied, “Because the Icelandic government at that time was an almost literal cheerleader for the industry. That included the prime minister [Geir H. Haarde], that included the Central Bank chairman [Davíð Oddsson], and that included the regulatory agency.”
Furthermore, he added, supervisory institutions provided no oversight, but instead gave glowing opinions of the same banks that were in trouble. “The banks were wonderful, [they said,] they could do no wrong, et cetera. You have to be more objective. For financial institutions to work well, you need trust, and the paradox is, you need somebody who is skeptical. And there was nobody. Nobody in the senior ranks that was skeptical.”
When The Grapevine asked what institutions he believes are most in need of re-working, Black was frank in his assessment.
“This was a political decision of the Icelandic government to privatize [the banks], and to give control from one of them to a someone who has a record as a convicted fraudster,” he said. “What do you think will happen if you put frauds in charge of financial institutions in situations where there’s no effective regulations at all? You’ll have a disaster. So, certainly the ruling political parties at that time, if you had to start with accountability, that’s where you would start.”
Black is best known in the United States as the founder of the concept of “control fraud,” in which a business or national executive uses the entity he or she controls as a “weapon” to commit fraud. Black was litigation director for the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and the General Counsel of the Federal Home Loan Bank of San Francisco.