A new book, Iceland’s Secret: The Untold Story of the World’s Biggest Con, provides an insider perspective into the investigations following the 2008 financial crash, as well as a dire warning that not enough was done against the financiers who actively participated in market manipulation and fraud; that another financial collapse could very well be on the horizon.
The book is written by Jared Bibler, the lead investigator at Icelandic regulator the Financial Supervisory Authority (FME), who had himself worked as an asset manager at Landsbanki only to quit just days before the crash following some shady orders he would given by his immediate superior: he was asked, on three separate occasions, to wire some €5 million euros each time to an unknown account in Norway with no paperwork. When he learned that his manager’s boss was asking questions, and that this manager was blaming Jared for the situation, he quit, on October 3rd of 2008. The bank would subsequently go under on October 7th.
After being taken on board by the FME, he uncovered a vast market manipulation scheme that had been conducted by Iceland’s top banks at the time.
“Delving deeper, Bibler and his team discovered that, in every year since 2004, Glitnir, Landsbanki and Kaupthing had engaged in illegal share-support operations on a massive scale,” a Financial Times review of the book explains. “These securities frauds involved the banks extending huge loans to British Virgin Islands-based shell companies, which had been set up with the sole purpose of secretly buying up the banks’ shares and inflating their share prices, with only the shares themselves as collateral — or variations on this theme.”
This behaviour, Jared contends, was not only endemic in Iceland’s financial sector, but across Icelandic society, and has persisted years after the fact.
“He resigned from FME in November 2011, after his team was dismantled from under him as the regulator’s appetite for pursuing criminal bankers began to wane,” the review continues. “He feels ancillary activities around the illegal share support schemes have been swept under the rug, and that some of the worst crimes — including the alleged use of fake invoices to cheat Iceland’s central bank of its foreign-exchange reserves — persisted in the sector for at least six years after the banking crisis. He also believes that, as many of the guilty bankers were released early with their wealth and status largely intact, the deterrent effect of their hard-won sentences was reduced.”
The book finishes on a note of warning; that little has substantially changed in the Icelandic financial sector, and that another crash may be only a matter of time.
“Despite the devastation of 2008, the dragon of severely corrupt financial markets has yet to be slain,” Jared writes. “… Iceland between 2004 and 2008 serves as a preview of future attractions for the world’s major markets. Today, we find ourselves in the equivalent of the 1930s, convinced that the Great War is finished … We mistakenly refer to 2008 as the Global Financial Crisis, as if there will only be only one, despite the fact that GFC II is virtually probably on the horizon. We are standing on the verge of a time bomb.”
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