In a new interview with Foreign Policy magazine, Icelandic president Ólafur Ragnar Grímsson claimed his pre-crash belief in the success of Iceland’s banks was due in part to foreign credit agencies giving them a “clean bill of health” at the time. However, many of these agencies were in fact warning of the economy overheating as early as 2006.
In the interview, the president responded to a question on how Iceland allowed its banks to get so big, in part, by saying:
I am often asked the question, “Why did you believe in the success of the banks?” Which I did. I mean, I supported them. I helped them expand. Voices of warning started to come in 2007, from some specialists and advisers, and I listened. But I then asked myself, “What are the rating agencies saying about the Icelandic banks?” I was minister of finance 20 years ago, so like almost every finance minister, I was subjected to the idea that the rating agencies were the golden judges of financial health. I made the mistake of believing what they were saying about the Icelandic banks, because they were giving all of them an extraordinarily clean bill of health — Moody’s, Standard & Poor’s, Fitch, all of them.
In fact, the New York Times reported on April 18, 2006 that “With a population on a par with a midsize American city and a gross domestic product of around $10.3 billion, or just below that of Rwanda, Iceland would not seem to be on the radar screen of many financial experts. But analysts from Merrill Lynch, Danske Bank, Fitch, Standard & Poor’s and Moody’s Investors Service and many economists have weighed in with concern.”
In 2007, Standard and Poor’s released a report warning that Iceland would soon have trouble getting loans on the global market – concerns which then director of local Landsbanki Bank’s analysis division Björn Rúnar Guðmundsson dismissed in Fréttablaðið.
NYT reported again, on April 18, 2008, that “Now the banks — the symbol of Iceland’s metamorphosis from a poor fishing society into the North Star of the global economy, holding assets nearly 10 times the nation’s gross domestic product — are fending off rumors that they may need a bailout. On Thursday, Standard & Poor’s, saying the banks’ problems could make the downturn longer and deeper, cut Iceland’s credit rating.”
Earlier in the interview, the president accused then British Prime Minister Gordon Brown of “financial terrorism”, saying, “When the first bank was coming down, we didn’t realize the other banks would go down, as well. Gordon Brown went on global television and announced we were a bankrupt country, which was utter nonsense, an outrageous statement.”
The full interview can be read here.