Day 2 of the trial of former Prime Minister Geir H. Haarde is underway, and former Central Bank chairman Davíð Oddsson has taken the stand. During the course of his testimony, he said he warned Geir about an impending crash, but believes the overall cause of the crisis had its roots in the United States.
Davíð was chairman of the Central Bank in the time leading up to and shortly after the crash. He was eventually forced out of his position by the new government, and moved on to the editorial office of Morgunblaðið. The Special Investigation Commission (SIC) report, which examined the causes of the crash, depicts the relationship between Davíð and Geir as one where the latter was frankly terrified of the former. Former Minister of Foreign Affairs Össur Skarphéðinsson described Geir’s reaction to being told the Social Dems wouldn’t accept Davíð Oddsson leading an emergency government by saying, “And then he began to shake and stutter. He said, ‘You can’t do this to me. I can’t go up there and say that to Davíð.'”
Davíð took the stand today to offer his take on where everything went wrong.
While Davíð conceded that internal management of the banks had taken the banks “to the brink”, he said he believed that a global economic crisis began to take form in mid-2007. The sub-prime mortgage market crisis in the United States, he said, contributed to distrust between banks.
While saying, just as Geir had yesterday, that no one could have foreseen the 2008 crash, Davíð said he had warned Geir and other ministers that he was worried about the state of the Icelandic banking system. However, he said that even in the wake of a “mini-crisis” in 2006, that he and Geir did not meet often enough to discuss economic matters; that their relationship was quite informal, due to their long time spent working together in the Independence Party. He added that it was difficult to convince Geir that anything was wrong with the banks, as there was little evidence to support the idea; the quarterly reports of the banks at the time showed strong profits. Nonetheless, Davíð said he was convinced the banks were on their way down in late September 2008, and began making preparations then.
One of the charges pertaining to Geir is that he was negligent “for having neglected to ensure that the work and emphases of a consultative group of the Government on financial stability and preparedness, which was established in 2006, were more purposeful and produced the desired results,” as the charges say. Davíð said the work group could have been more effective. He said that it became clear within the group that the state did not have a plan of action in the event of a banking crisis.
The trial will continue tomorrow.
See Davíð entering court today!