Range Rovers, Ruin & Redemption: Iceland’s 2008 Crash

[00:00:18] Welcome to Great Business Stories and today's episode is called Range Rovers, Ruin and Redemption Iceland's 2008 Crash. 2008 was a monumental year. Financial markets collapsed and many countries including Ireland where both myself and Keith live found out pretty quickly that we'd been living in a bubble. And while the impact of this crash affected so many people around the world, I don't think any other country had such a huge proportion of its citizens

[00:00:48] affected as adversely as the 370,000 people in Iceland. So in this episode we examine why Iceland pivoted from its traditional industries into banking, how its economy grew at a breakneck speed and then how it all came crashing down. I hope you enjoy it and remember a new episode is released on the first of every month. But please note, this was our second recording

[00:01:15] ever so forgive us if we sound a bit raw around the edges. Thank you. Hello. So, hello. So here we are. Morning Keith. Good morning. The subject today is Iceland. Can I ask what led you to kind of latch onto this story, what drew you to it and what's the fascination?

[00:01:40] Well, I've read some books and seen a ton of documentaries on the 2008 financial crisis, you know, and that's, that's a big, big topic. And Iceland was there, was one of the first ones and one of the biggest ones and one of the most prominent ones that happened in 2008. And I thought I can do a story on the 2008 crisis by looking at Iceland because Iceland would be a a microcosm really of what happened around 2008. And it is in a way, but then when you read more into it

[00:02:09] and you see statistics like 97% of the banking sector collapsed within three days, 75% of the companies in Iceland had to be restructured. You know, nearly every citizen's mortgage and loans doubled and in some cases tripled overnight. You know, I kind of realized, okay, no matter how bad it was for us in Ireland, for people in the US or people in the UK,

[00:02:33] in Iceland, nearly every adult was affected a lot more severely and a lot more suddenly than in anywhere else in the world. So that made it a really, really good point. Yeah. And I guess it's a relatively small population as well. So I mean, the pain is, is pretty much universally then, right? It is, it is. And it's that smallness that actually, that creates the crisis.

[00:02:59] It was caused, obviously there was a huge bubble, but it's because it's a small country with just 370,000 people. One of the red flags that we'll talk about is this, um, sense of cronyism that happened between the business people and the banking sector. Um, so it was, it was, it's a very interesting story overall, I think, because it's, it's so unique because of, as I said, the suddenness of it, the severity of it,

[00:03:25] and the fact that every single citizen more or less was affected. Yeah. And I suppose from, from today's removal, looking at the country now, the stability, the growth, the relative prosperity, the boom in tourism, it's hard, hard to really appreciate it at the, at the hands of the year it was really. It does. And we mentioned the smallness of us, part of the reason why they were able to recover so quickly as well.

[00:03:53] They are a small economy and you mentioned the tourism sector there, which we'll probably talk about again later on. Yeah. They have an abundance of natural resources. Mm-hmm . I was watching a documentary called Ransact, um, on the collapse of Iceland. And it was very interesting. And it starts off with a guy who says we were doing well before we started privatizing the banks and all that. Why did we become so greedy? And they were doing well.

[00:04:16] And now there's continuing to do well because they have this abundance of, um, natural resources and tourism. They don't need this thriving financial sector that they did have. And that caused all this chaos. And, uh, where would you, where would you start the story of, uh, Iceland in this context? Would you go immediately before the crash or? Yeah, I would start it off as well, if we looked at it just before the crash.

[00:04:46] Okay. So before the crash, the economy was, and as we said now is dependent on its amazing natural resources. It's got fish, it's got cheap energy due to the fact that it's one of the most geologically active regions in the world. And when you combine it with our abundance of hydroelectric power, it produces more electricity per capita than anywhere else in the world. I mean, their electricity bills, I think average at $30 a month. And this is a cold place, you know, so that's cheap. Yeah. And it is. Yeah.

[00:05:15] The heat is on all the time. And I remember reading the Michael Lewis, um, he had a great article, Michael Lewis of Liars Poker. He had a great kind of sneery article as he can be sometimes, but still very, very interesting one where he was in Iceland and he said, the water there is so hot. He said, it's just boiling. He said, there's so much energy coming through that the radiators make this big loud noise every morning because there's just so much power going through their electrical systems.

[00:05:42] But because they have this cheap energy, um, they've built this huge aluminum industry as well. You've got to remember like 370,000 tiny nation, but yet they're the 15th largest producer of aluminum in the world. So they had all this going for them. Um, so what happened? Yeah. If you were to pin us, then it's unfair to pin us on any one person, but I'm going to do it anyway.

[00:06:04] If you are to pin us on one person, you'd have to say that it was, uh, the prime minister, David Ottson, who was prime minister from 91 to 2004. And he was very much, uh, a follower of Ronald Reagan's and Margaret Thatcher's privatization ideas. And he didn't want them to become, he didn't want Iceland to be dependent too much on the industries that they had. Now, part of me is thinking, why not? They have fishing, hydroelectric power.

[00:06:32] These are great industries, but he wanted to broaden their horizons. And he started doing this when he came into power. He privatized the fishing business. He reduced corporate tax for 40 years. Yeah, that was huge. Huge. Huge. I mean, probably dropped like 30%. He ended subsidies for unprofitable businesses. He liberalized the currency.

[00:06:52] And then around the turn of the decade, around 2000, he started the privatization of the three major banks, Landsbank, C, Coutinho and Gibson. And just to stop you there, I suppose on face value, you could see a lot of this as market reform. Is it just that he moved too aggressively, too quickly? Clearly. It looks like there's a few different factors. I mean, you're right. There's nothing wrong with privatization. It cuts a lot of the fat in bureaucracy.

[00:07:22] It makes the businesses answerable to shareholders. Nothing wrong with that in theory. But what happened in Iceland shows what goes wrong when privatization is handled badly, I suppose. And there are a few big red flags. Now, one of the criticisms that I saw, including in Michael Lewis's article, was that, and again, it was a bit sneery. They were saying they privatized the banks and these Icelandic people had no experience in international finance.

[00:07:52] And I was kind of going, yeah, well, you know, Wall Street has plenty of experience in international finance. And they went bust in 2008. They went bust in 2000 with the dot com bubble. So this idea of, oh, they didn't have any financial experience. I think it's a bit arrogant when you look at the cock-ups that Wall Street makes. But there were still some big, big red flags.

[00:08:13] I suppose the first one was, we mentioned earlier, was this whiff of cronyism in terms of the business people who bought and invested in the banks and the cozy relationships they had with the bankers. See, these business people, they saw their investment not just as a straight up investment, but they also saw it as a strategic move in that they could use their influence as large investors and part owners to facilitate loans that would help them buy assets. And they wanted to buy assets overseas as well, right?

[00:08:43] Oh, they went, they went, they went crazy. They, um, like if you look at by 2007, Icelanders owned roughly 50 times more foreign assets than they had in 2002. Yeah. And I think so. I think for them as well, they were, they were the biggest international owner of, um, businesses in the UK as well. I think it was crazy. Talk about kind of punching above your weight.

[00:09:10] It was, and I mean, we'll talk a bit more about why they thought they were so good at buying these businesses, uh, which is a very interesting topic that I'm sure will make all Icelanders cringe. But yeah, that was one of the big red flags. Like they were, they saw the banks as their personal piggy banks. And because they had this close relationship with the bankers, the bankers were just throwing money at them to buy all these assets with very little due diligence, very little regulation.

[00:09:35] And on top of this, the bankers were also giving them money so that these shareholders, stroke owners, stroke investors could also buy the bank's shares as well to prop up the banks. And that's something the banks did as well. The banks were also big buyers of their own shares. And I know, you know. I read just, um, Jared Bilber's book, um, who he's kind of been on the inside track from within a bank to within the regulator.

[00:10:01] And as he kind of unpeeled that onion, it was layer after layer of interconnected share dealing and market manipulation really as much as anything else. Mark, that was this. Yeah. So that was one big red flag, this cronyism and this very little regulation going on between the shareholders and the bankers. Another big red flag was, um, what they called inflation targeting. This is what the monetary policy that the Icelandic government had.

[00:10:29] Now, I'm really not going to pretend to understand how it works because I'm not an economist, but essentially it resulted in interest rates in Iceland being very high, 15%. And this made the krona a destination currency, what they called the carry trade. And it's where speculators would borrow at a low rate, say 3% in Japan, and then invest it at a high rate in Iceland at 15%. So you could see how they made money. And as long as the money flowed in and its big banks and currencies remained really strong. Yeah.

[00:10:59] And then I think, I think the banks leveraged that for consumers as well by establishing saving accounts in the UK for the regular kind of John Doe on the street to allow them to leverage these high interest rates as well. Exactly. Exactly. Exactly. Yeah. So we did an Icelandic, um, mortgage calculator exercise. And I'm still trying to get my head around how the repayments are calculated.

[00:11:23] That's this index linking appears to be kind of directly linked to inflation perhaps. So the banks are trying to keep pace with inflation and baking this into your mortgage repayments. And it was crazy. But it still exists. I still, I still, yeah. Do they still do it? Yeah. There's still a live calculator where you can go in and calculate your payments. So it's very hard.

[00:11:49] I think, uh, Jared Biblir spoke about it in his book where what he said was it makes personal financial planning or financial planning as a family extremely difficult. So in other words, every month your repayments could fluctuate. Yeah. And, and the, the total amount repaid at the end of your period could be five, 10 times your original principal. So it becomes crazy and, and, um, and it accumulates.

[00:12:19] So at the end of the period of your mortgage, your payments are hugely significant because all of that interest is accumulating up towards the end. As I understand anyway. And again, like yourself, it's, uh, I'm no waste of urgent, but if you're nervous and you're not going to repayments. Yeah. It'd be virtually a hospital. Yeah.

[00:12:42] I think that's part of the problem with Iceland when I was looking at it is that it's the second smallest country in the world with its own, um, monetary policy and, um, uh, currency after it's a shells. And an awful lot of economists say if you're a country under 2 million people, you shouldn't have your own currency in your monetary policy. It's just crazy. You're too small. And obviously index linked mortgages, like what you're talking about there is a result of having that small economy, that small monetary policy.

[00:13:11] But as I said, I'm no expert in it. But what I do know is that because there was so many people taking out loans during this, uh, bubble, um, the statistics are just off the charts. There was more Range Rovers sold in Iceland during the boom than there was in Denmark and Sweden combined. And Denmark and Sweden have a population 50 times the size of Iceland. The, um, house prices in Reykjavík tripled over three years by 2007.

[00:13:39] The, um, average family was three times richer in 2007, Icelandic family, than it was in 2003. So the standard of living just went through the roof. Yeah. If you're not in a, if you don't realize you're in a bubble, then there's something. Yeah. It's interesting. There's an anecdote in the book, um, the British book, um, where he's talking about going to the airport. Cause of course he's not Icelandic and, uh, he's going home. Flying back to Boston, I believe it was.

[00:14:08] And surrounded by Icelandic people where it's lots of empty luggage. And then, um, meeting a friend and going to a hotel mall to catch up and meeting the same people, um, around the Boston area that, uh, he saw the plaintiff. And because the currency and, uh, economy is doing so well at that time, these people are frantically buying branded goods, which were very difficult to get.

[00:14:34] But I guess because of the small population, there wasn't a lot of high street stores and buying huge rounds of stuff. It just struck me. You do look at them in a way or look at this particular case in isolation, but I can certainly remember similar patterns of behavior in the Celtic Tiger area, as we called it over here. Or people were, you know, heading off to New York for the weekend or heading off to Boston for the weekend. Yeah. Yeah.

[00:14:59] So this is one of the key elements to any kind of financial bubble is when there's loads of capsules made available by the banks. And that's what was happening in Iceland. And that was happening in, in Ireland as well. There was so much money floating around and people were spending like the new time. Yeah. It's interesting. Yeah. And, uh, Biber Alto was saying he was remarking upon the, the HQ of the banks and the, the, the buildings.

[00:15:26] And there were this kind of towering monuments to, to capitalism, shiny, vast, beautiful buildings, mini wall street. Yeah. And, as his career progressed and he moved into the financial regulator and investigation or the contrasted against these drab sort of. Yeah. Uh, temporary partitions blocking in your cubicles, looking out at these banks that caused so much destruction. And it's kind of an interesting one.

[00:15:55] Um, and, and was there a point, was there warning signals along the way? Do you think, was there sort of alarm bells? There was. There, there, there was, uh, and they weren't alone in these alarm bells and I'm going to go into them now just in a second, but there was two other red flags. I just want to note because these were real alarm bells as well. That didn't happen in other countries.

[00:16:18] And when you see the impact they had on ice and those disasters, the one big red flag was the size of its banking sector. Um, the banking sector was 10 times larger than the country's GDP. Um, and so this would be the equivalent of say in the U S the three major banks, JP Morgan, Bank of America and Wells Fargo being 33 times bigger than they are now. And the problem with that is that enormous circumstances. That's fine.

[00:16:45] The Icelandic banks were well capitalized, but in a crisis, the strength of a bank's balance sheets is of little consequence. What matters is the implicit guarantee provided by the state, the banks to back up their assets. So in other words, when the shit hits the fan, can the state, you know, back up? Yeah. So there's a roll out of the banks. People want them. They're money. Exactly. And in Iceland, because the banks were 10 times bigger than the national GDP, that couldn't happen. So they were in big trouble.

[00:17:14] Should anything bad go wrong? You know, there was no way the state could bail them out. And then the other problem with them was that their, their governance structure, the central bank uniquely has three governors rather than one. And two of those are usually political appointees. And guess who was the governor of the central bank in 2004 to 2008? The same. No, no. Reformer.

[00:17:38] Their former prime minister, David Odson, the guy who pushed all these privatizations through when he left, when he stepped down from prime minister in 2004, he became chairman of the central bank. Now I can't see that happening anywhere else in the world. No. You know, it's crazy. The conflict, everything, but you're right. Getting back, you asked me, were there people who were raising the warning flags? And there were.

[00:18:03] You know, you had the IMF in 2006 brought out a report where they talked about vulnerabilities that included considerable near-term financing needs, credit quality, long-term sustainability of the bank's presence in the domestic mortgage market, and the cross holdings of equity, which we discussed. You had Lars Christensen of Danske Bank, the largest bank in Denmark. He came out in 2006 and said that the economy in Iceland was growing at an unrealistic pace and was on a collision course with disaster.

[00:18:32] You had Joseph Stieglitz, Nobel Prize winner, who personally warned the prime minister in a report that because of Iceland's small economy, it was really vulnerable to an economic shock. And there was many, many more. I'm sure you came across them in Bibbler's book as well. Yeah, but I guess, I guess there was plenty of sort of warning signals over here as well as in states.

[00:18:56] I guess it loads of canaries in the coal mine, but if you're living the highlight as an ordinary consumer in the street, things are going well. But maybe the extent to which you absorb that information or pay attention to it, or even if you're a learned bite, you can do much about it is probably reasonably limited. This is this. Like when people say to Iceland, you know, you had loads of warnings. What were you doing? So did Ireland. Yes. So did America. I watched a great documentary.

[00:19:22] It was called Inside Job on the subprime mortgages in the USA, and they had prominent economists coming out and they were well publicized. In Ireland, we had probably our best known economist, David McWilliams. He brought out a book in 2005 called The Pope's Children, which warned us that the housing market was a bubble. There wasn't going to be any soft landing. We were headed towards crisis. And that book wasn't just the best selling nonfiction book of the year. It was the best selling nonfiction book of the decade. Okay.

[00:19:50] So people read it, you know, he brought out a documentary the following year on TV. 36% of the adult population watched the documentary. So we all got the worries. And when I say we, I'm not saying everybody partied, but we all knew us. And yes, the buying still. So we were engrossed in the book as we sailed over the abyss. Yes. Exactly. And when people say, oh, well, the politicians and the bankers, they should have known better.

[00:20:20] Yes, they should have, but they had a vested interest. And I wonder, is it because everybody had a vested interest? Everybody was at the party having a good old time and they just didn't want them having a vested interest. I don't know. And I think, for me as well, there's this sense of, uh, probably it's present in every country, this sense of, sort of exceptionalism. There was often that term, we're the greatest little country in the world, Ireland.

[00:20:44] And there was, I remember in Ireland, we had this pride, our builders and investors, they're taking over the world. They're buying office blocks in Mayfair in London and in New York. Aren't we brilliant? But I suppose what was different about Iceland is that while we might've kept that internally to ourselves, we might've thought, yes, we're great. But in Iceland, and I know they're going to be cringing about this, they actually did have this idea of Icelandic exceptionalism.

[00:21:11] And they didn't just keep it internal. Like their president went around the world talking about Icelandic exceptionalism. There were research projects in the universities that explained Icelandic exceptionalism. And this was actually a philosophy that they believed in. And it was a belief founded on the premise. I mean, it's funny when you think about it now. And as I said, I know the Icelandic people are probably. Yeah, I'm not familiar with this at all.

[00:21:39] Well, the premise is that because of Iceland's ever changing weather, right? Stay with me here. They're inherently well practiced in the art of making quick decisions. And this combined with their informal channels of communication as a result of them being a small state, explained why the Icelandic business model and the Icelandic businessman and they were all men was superior. So they believed.

[00:22:04] So in other words, these Atlantic Vikings, as they were called corporate Vikings, who use their ranks money to hoover up assets across Europe, including well-known. We talked about high street chains like Debenhams. Hamerys. Yeah. West Ham football club. So with hindsight, they weren't cunning businessmen, you know, with an eye for an undervalued assets and the ability to size up opportunities quicker than anyone else.

[00:22:28] You know, for the most part, they simply had easy access to a lot of money as a result of their unusually close relationships with the banks. And so they moved quickly and bought assets at a price that other investors weren't willing to pay. Yeah.

[00:22:41] It's interesting because almost when you think about that definition of exceptionalism, it could be also distilled into agile sort of rapid decision making, which maybe flies in the face of standard sort of due diligence and sort of investigations into viability. They didn't do due diligence by the sounds of it, you know, they, they just had a lot of money. They had easy access.

[00:23:11] The banks were giving them money. And, but there was a belief that they were making these quick decisions because the ability to make quick decisions and good decisions was part of the use in them. Yeah. Yeah. Interesting. But it didn't work out that way. They weren't. It did. And I'm trying to think about how they drew the money into the country. So they established, I know we touched on it briefly earlier, sort of consumer savings accounts.

[00:23:41] Were those in Europe or? They were. They were. One of the main reasons why they went out to Europe to get these additional savings was because there was a mini crisis. Because even though the Icelandic people and the Icelandic politicians dismissed all those reports from the IMF and all that, international banks and hedge funds did. Right. They took, they took note of these, uh, these warnings.

[00:24:06] So the hedge funds started shorting the Krona and the international banks who were their biggest lenders or, you know, putting money into Iceland, they started raising their interest rates. So the Icelandic banks, they did what the experts really was telling them to do, which was you need to get more deposits. So they did. They got more deposits by setting up banks like iSave. iSave is the biggest example. I think it was launched by Kaupting. Yeah. It was an online bank which offered, um, UK and Dutch depositors. That's the two markets they went through.

[00:24:35] I'm not too sure why maybe it was their biggest and easiest market. Or deregulated, particularly the UK. I think, I think so. Yeah. I think the regulation was a big thing. And so they were offering higher interest rates than depositors could get in these countries, about two to three percent higher with a view to getting more deposits. And they got more deposits. They got 340,000 UK and Dutch depositors putting in a total of 6.7 billion. So, you know, and, and let's say stick a pin in iSave because it does. Yeah.

[00:25:05] And then they used that to essentially fund the other investments or to allow their, their customers in the corporate world to fund their sort of lavish spending. And it also kept the share price up. The share price of the banks kept doubling year by year by year, which is again, crazy. Yeah. Because they were buying, buying their own shares, right? Yeah. They were.

[00:25:31] I think I saw a statistic that in 2007 Kaupting, which had a market value of 5 billion in that year alone, the bank itself bought something like 1.25 billion of its own shares. You know, and, and, and they had relationships overseas when things started to kind of hit the skids a little bit. They had a relationship with a Qatari, uh, investor. I don't know if you know that one. Oh, I didn't know about that.

[00:25:57] So, so, um, he was buying shares in the bank, um, which sort of settled, um, people's nervousness and the jitters. But in actual fact, they were folding this loan. That credibility was undermined by the fact that the reason their own money to buy their own shares and never cost this particular kind of, um, sovereign wealth fund or wealthy individual from Qatar. A penny. Or a crown. Yeah.

[00:26:26] Uh, so you have that in a lot of cases, you had people buying shares in the bank, not just the bank buying them, but individuals. Um, and those are funded by borrowings from the bank and the shares of the bank are used that, that they're buying are used at the collateral for the loan. So it's really a house of cards. Didn't that happen with Anglo as well? Wasn't that a similar incident with Anglo? The Mabel.

[00:26:53] You know, the Mabel 10, which is something that the listeners wouldn't be aware of. It's a very niche thing that happened in Anglo Irish, a bank in Ireland, whereby they had a, a large investor, um, Sean Quinn, who owned something like 27% of the bank or something like that. He owned too much of the bank and they wanted, they wanted him to sell some of it. So they got 10 large property builders. That's right. Investors mainly, wasn't it? To buy some of those shares and they lent the money to them. So you have all that happening at the time.

[00:27:23] And of course, then we reached the crisis point. This is a huge bubble. That's just getting bigger and bigger and bigger. And then the crash happens. Now in my mind's eye, Keith, when the, when the crash happened, I thought it all happened. Looking back on it within the space of weeks, if not months, the whole crisis I thought happened pretty quickly. But when I look back on it, it stretched out over 18 months, the whole global economic crisis. The global one did, yeah.

[00:27:49] Because when the global one hit with Lehman's in September, 2008, that's really when Iceland crashed. But it started in 2007. The subprime mortgage crisis started in Q2, 2007. And then it was in six months later in September, 2007, you had to run on Northern Rock in UK. So that was September, 2007. Then six months later, March, 2008, Bear Stearns collapses.

[00:28:15] So, and then it was another six months, 5th of September, 2008, before Lehman's files for bankruptcy. So the whole thing was stretched over 18 months. Lehman seemed to have grabbed the majority of the headlines for some reason. Maybe it's because of the scale. It was the scale and it was also the tipping point. It was the, the, when Lehman's, um, collapsed.

[00:28:38] Now, despite what an awful lot of politicians, um, continue to try and convince themselves and others that Lehman's was the cause of the crash. And if only Lehman's had been saved, then everything would have been all right. Uh, this idea of a soft landing, it's just a fallacy. The end game for bubbles isn't a soft landing. Bubbles bust, you know. Um, but the collapse of Lehman's was the tipping point in that lending between international banks, more or less stopped overnight.

[00:29:07] Once Lehman's collapsed, that was the end of the market. Did, did that immediately, if, if you're thinking along a timeline basis, then did that immediately trigger the crisis? Because, yeah, that bubble burst pretty quick. Your chocolate went in two or three days, really. The banks were gone. Well, Lehman's went on the 15th of September and then the Icelandic prime minister did his national address on the 6th of October. Oh. So three weeks after Lehman's passed. God bless Austen, so I have a speech. This is brilliant. This is, uh, yeah.

[00:29:37] Uh, so I, I've got an eyewitness account, um, from a guy called Erker Bergman. He's an academic and I think it's just, I, I, I used his quotes because it's, uh, it's worth reading from an Icelandic perspective because this is an address that the prime minister gave on the 6th of October. And it was just a short 11 minutes address, but here's what, um, Erker, I think I'm, I hope I'm pronouncing it right Erker. I'm trying to stay away from pronunciations.

[00:30:04] I know that's a, you'll notice I haven't used many names at all because everything about Iceland is hard to pronounce. But anyway, this is what he says. We are all watching gathered round TV sets and computer screens in our workplace, in cafes and at home on that misty afternoon. It was not just that this sophisticated and usually perfectly composed man seemed shaken, but that he concluded his unique address by asking God to bless Iceland. This is when we knew we were in serious trouble.

[00:30:37] The first thing is that Icelandic politicians never refer to God in public, at least without not cracking a joke. End quote. So it's fair to say that the address, particularly ending with the words, God bless Iceland, scared to be Jesus out of everybody in Iceland. So particularly, um, you know, I, I have a friend who, whose life's ambition is to travel to Iceland because there's the belief in the little people or the fairies.

[00:31:07] I love that. So for anybody with even a fleeting belief in, in the fairies and little people to hear the, the mention of a Christian God wasn't really huge alarm call. Although I probably should have left, but when did that happen? That happened on the 6th of October. And then on the 7th and 8th of October, all three banks collapsed. Oh my God. So that statistic of 97% of the banking sector collapsed within two to three days.

[00:31:35] And is that, is that because the interbank lending from an international perspective just stopped? Just stopped. Just stopped. All their financial sector, their financial system was based on this money coming in. That was it. What was the immediate impact for the person on the street? ATM, withdrawals, illimited. Anybody who had any sort of mortgage or loan out. That loan doubled. And in some cases just doubled overnight. Overnight.

[00:32:05] Um, and according to the economist on a personal level, the average Icelander, as a result of this overnight collapse was $403,000 in deaths. Now I have another statistic that had it, $160,000. So there's a big discrepancy there. But even if you compare it to the U S at the height of the subprime mortgage, the U S per capita death was $53,000. So in Iceland, it was either three times higher than that or eight times higher than that,

[00:32:32] but more or less overnight, nearly every adult in Iceland, their level of death just, you know, Yeah. And I think, I think there was sort of an embargo on the transfer of money overseas. It all had to be sanctioned. So one of the results of that was a lot of stores and traditional retailers couldn't buy certain food items, um, from overseas suppliers.

[00:32:59] So it forced people to survive on locally produced food. Yeah. It's actually one of the Oakley parts of Jared Buber's book where he talks about a horse meat sausage, which. I read that. Yeah. It sounded disgusting. Yeah. But it was emblematic of the limited range of foods and, um, the sheer cost of it, the inflationary cost of food and the people. So because normal food was so expensive, him and his wife had to eat this horse. Yeah. Yeah. No, I'm not quite sure.

[00:33:29] I mean, we read some pretty interesting things over here. Maybe it's a delicacy. I'm sure if we talk to people about black pudding and what's in the last of my go, God, those, those Irish guys are eating boiled blood. I don't know. Maybe horse meat is a delicacy, but he, he certainly, uh, Bivar didn't sell it in that way. I think, no, I read that paragraph and talked about it and it sounded disgusting. Um, but there must've been panic, right? So there, well, there was, there was.

[00:33:58] And then when you think about it, so you've got like within the space of two or three days, the rug is just pulled from underneath the people. And then in the middle of this on, on October the 8th, remember we mentioned, I save the online bank that offered a big interests to interest rates to depositors. Well, the UK used our anti-terrorism laws on October the 8th to ensure that I save UK depositors would get their money back. Effectively, the Bank of Iceland and the Iceland finance ministry were put on a list

[00:34:28] with the Taliban, Al Qaeda and North Korea. So as if Iceland wasn't going, you know, the UK government lobbed this in. Like this was a pretty extreme act by the British government towards a friendly name. Yeah. You know, you got it. Like Iceland and then the UK are, are friends. And now based on my reading of this, the Icelandic government didn't do themselves any favors in terms of how they handled the immediate crash.

[00:34:53] But in fairness, I'm guessing they were in a state of shock and the UK government is every right. Yeah. I think, yeah. Well, I read it. I suppose I took a more benign view of it. Um, looking at Alistair Darling and, and, uh, Gordon Brown, they probably had to make an emergency decision to freeze assets and not allow them to freeze those assets and keep them domiciled in the UK.

[00:35:19] Probably from a branding and marketing perspective, there may have been a different way to portray it, but I guess it gave them a power to kind of freeze those assets. Yeah. I'm sure the UK government were as panicked as the Icelandic government and used this legislation, as you said, to make sure that the depositors were saved. But at the same time, lumping Iceland in with Al Qaeda and North Korea and the Taliban, you know, was not a nice thing to do.

[00:35:47] And I'm right in saying then, in terms of that agility that we were questioning, um, earlier on, I guess it has to be said in terms of trying to act in the circumstances that we're in and give all the cronyism, this idea just salvaged a new bank and old bank. But that was done quite quickly, right? So to try and write their circumstances. I think it's because of the size. Their size allowed them to move quickly, which was a big advantage.

[00:36:17] And also they had control over their own currency, but it's not like in Ireland we were part of the Euro. We were very much under the thumb of what our European partners wanted us to do, you know? Whereas Iceland had their own currency. So they had this ability to control the situation a lot better than Ireland did. And they did move quickly on October the 15th, just, you know, nine days after the address by the prime minister, they introduced these good banks and bad banks.

[00:36:44] The good banks, they put all the Icelandic deposits and all that in there. The bad banks were all the foreign deposits and all those bad assets that the corporate colleagues had bought. So that was done. Then they asked for help from the IMF. They got it pretty quickly. They got a loan from the IMF. They also got loaned from their neighbors. I think the UK put in money. So they were still friends, I'm guessing, despite everything that had gone on. And they also, you mentioned there, they put in very strict capital controls, which restricted

[00:37:14] the movement of money both in and out of the countries. So they did move very quickly. They also did stuff like they increased taxes, particularly on higher incomes. There were spending reductions were made on health and education. Public sector pay was cost, but they didn't touch social benefits. So they were... Yeah. Unemployment did go up. But again, over the years, they have managed it really, really well. Iceland, and we'll just talk quickly, I suppose, near the end about how they're doing.

[00:37:42] But there was a lot of... I didn't go into too much because we're looking at it from a business point of view, but there was obviously huge, huge socialists. Yes. And these protests went on until 2011. It was what was called the pots and pans protests. You'd have 10,000 people outside the parliament banging pots and pans. There was huge civic forums where the politicians themselves would be more or less paraded in front of the citizens and have to explain themselves.

[00:38:11] So the size definitely helped them. This was a good sort of cleansing process in a way. And they also passed many referenda, which also sort of changed their laws. So they did move quickly. Their size definitely helped them. And they did come out. Yeah. I think what really struck me was you had soldiers like Jared Bibbler who worked in the banking industry

[00:38:34] and then joined the regulators and tried the FME to try and trying to kind of understand what was happening in the industry retrospectively. So some detective work. And sifting through the ashes of the bad banks ended up meeting some of the same characters in these opium offices after the crash in the new bank. Yeah.

[00:39:02] And some of these people who he was meeting and talking to and trying to chase down these paper trails were just saying people who've ultimately participated in and led to the crash itself. Yeah. So I think it contrasted. I mean, yeah, you have people on the streets. You have all the blinders, people are protesting. But there still seems to be that weird sort of cronyism going on, even at the worst of us. And is that because of its size, do you reckon?

[00:39:31] It just, they, they weren't able to get replacements for these people. So these people had the expertise. So they were put into the good banks, even though they were responsible for the. Maybe. Maybe. But I think what is interesting is even when there's very palpable and clear blame on individuals, in some cases, it seems as if.

[00:39:53] But society intervened through the Supreme Court and there was clemency on even what was reasonably light sentences compared to somewhere like America for very obvious financial fraud. There seems to have been sort of a societal clemency where the punch was a whole. Forgiveness. Forgiveness, a healing sort of a movie. Yeah.

[00:40:18] The people were kind of in very kind of comfortable prison for maybe nine months or 10 months and, and then they're out. And I see. But Iceland is one of the few, they were put up as the only country. Now I know Ireland did jail three bankers. I think, I think from Anglo, there was Willie McIntyre, John Boe, and, um, uh, were eventually all jailed. But Iceland is still the only country to jail a significant number of senior bankers.

[00:40:47] I think in total 26 bankers went to jail, some of them for as much as five years. Now I know what you're saying. And there has been much criticism within Iceland. Um, and believe not all of the right bankers prosecuted. Uh, some of the sentences were too lenient. They got to stay in this really nice open prison. I've seen pictures of it, you know, you'd nearly pay to go on holidays there. It's a, it's such a scenic place.

[00:41:12] Um, and, and that may all be true, but at least they recognized that people at the top had to be held responsible. And some justice was served something that hasn't happened in, in nearly every other country. I know I get what you're saying, but 26 top bankers is still a pre for a small country. Like in America for the subprime, there wasn't one top banker, not one top banker was jailed.

[00:41:38] A few lowly people in Goldman Sachs and some other institutions, but they were so far down the chain. Yeah. Whereas the top bankers, chief executives of the banks were brought into court, were found guilty, were sent to prison. Okay. You can see nice open prison sentence was a bit lenient, but some of them did get five years. And I know there's also criticisms. They still got out and held onto an awful lot. Exactly. Yeah. So maybe, so maybe it was a cathartic cleansing as a result of that, but it just, it just strikes me as a nation.

[00:42:08] The Irish aren't particularly good at the pots and pans types of protests. No. Well, certain, certain kind of small pockets of, of society are maybe, but, um, it just seems to contrast with the punishments that were meted out. But I think it's just interesting from my perspective, these towers and luxury offices. And I wonder really if anywhere in the world has learned their lesson that are we headed for another one somewhere along the line.

[00:42:37] Well, I don't think the lesson has been learned. It seems like from all the crisis that have gone on because the people at the top aren't held responsible. Yes. And I know I've spoken about, you know, well, the people knew about it as well, and they still partied. But at the end of the day, the people did take responsibility. The people lost their taxes. Yes. The people had to pay big taxes. The people lost their jobs. Whereas the politicians, if they had to retire, they still retired on fat pensions.

[00:43:06] The bankers still got their big payoffs. They didn't take responsibility. And I think this is probably, I mean, it's a much wider argument or discussion. Uh, it's probably, uh, one of the reasons why there is such huge disillusionment across the world with modern capitalism, with bankers, with everything. Because all this stuff happened and it seemed that other than the common people for want of a better word, nobody at the top really took responsibility. No one at the top felt the pain. Yeah.

[00:43:34] And I guess for me, when I looked at it, read the book and looked at the sheer number of people who are involved in these kind of market manipulation, share buying schemes where banks were buying their own shares. Um, they were using senior executives as, as the purchasers, they're funding it. Yeah. It's, it's endemic, right? It's systematic. Yeah. The entire, everybody kind of knew what was going on, I guess. Yeah.

[00:44:02] And all three banks were doing the same thing. It's an interesting one. Where is Iceland today, right? Well, it's doing well. Although the living costs remain high, a combination of capital controls, a tourism boom. Yeah. They still have their cheap energy. And with that, a flourishing IT sector as well now. Um, the economy has bounced back. It's, um, its growth is more than 3%. Unemployment is less than 4%. According to the IMF, the GDP per capita in Iceland is $77,000.

[00:44:33] That's very close to the U S at $78,000. Well above the UK at $51,000. So while there was a big crash and it was all severe from what I can gather, there's, and there's still a lot of resentment and skepticism among the public towards politicians. Economically though, the country has bounced back. That's interesting. We used the U.N. And what, one of the terms that was thrown around in Ireland at the time of our crash was burn the bondholders.

[00:45:00] Burn the, the external banks who had invested here. Um, and, um, we were lent on by our family in Europe. Yeah. Not to burn the bondholders. Am I right in saying Iceland burned their bondholders? They did, but there's sort of false narrative out there that people say, oh, well, you know, um, Iceland let its banks collapse. The fact is Iceland didn't have a choice. Yeah. Whereas across the rest of the world, um, it was the banks are too big to fail.

[00:45:30] Yes. In Iceland, it was, they are too big to save you. Yes. Iceland couldn't. Now, whether they would have or not, if they could, who knows? The fact is that they weren't able to, but the fact is also, as I said, they were a small economy and they had a lot more control over their economy. And they, they were never a financial powerhouse anyway. So maybe they could afford to burn the bondholders. Maybe they could afford to have bad relationships with these international banks because in fairness, their wealth comes from what they have internally.

[00:46:00] What they always had. As your man said, in the Ransack documentary, we had it good before they started this financial boom. We had it good. Why did we want to become greedy? And I think they've gotten back to their roots of just relying on what they own currently. I think for most, when you think of, when you kind of spin the wheels back and think about the narratives that were swirling around here. So Ireland is part of the EU. We were a systemic danger to the overall EU.

[00:46:26] And we were told to take our medicine and pay the bondholders and set their debts. You do wonder. Which we did. I think we got a huge write off, didn't we in 2000? I don't think huge percentage wise. I think we got a write off. But ultimately, you know, we still are settled with a lot of debt. We took the same route. It's just interesting to juxtapose the two journeys and wonder, you know, when we're looking back

[00:46:53] in 10 years, 20 years time, who would be the better off for us? I wonder. I know what you're saying. And the thing is, whether we like it or not now, we're bound to Europe. And I do think there's some advantages in that. But I admire the way that Iceland went through this. And as I said, every country went through this. But this affected the more individuals, more suddenly and more severely in Iceland than anywhere else in the world.

[00:47:21] And I admire the way that while there is, as I said, things aren't perfect over there. There still is this resentment and skepticism from what I can see against the politicians and the sort of business community. But they have rebuilt. They seem to have taken stock of what went wrong. And they're relying on what they have, their natural resources. And I think there's a toughness to be an Icelandic person that I admire.

[00:47:48] And yeah, who knows who's going to come out the best in the end. Were they on the cusp of joining the Europe or...? I remember reading in certain articles that they were betwixting between two different things. First of all, there was pressure. And there was people, I think in Michael Lewis's article, he says, well, of course, after the crash, they're going to join the Europe.

[00:48:15] Now they didn't, but they were also at the time, I don't know how serious they were, looking at getting a bailout from the Russians. Yes, I read that too. The Russians had been offering them money. Now I'm sure they're glad they didn't take that money. But they were the two choices they had at the time. It was very much, you either join the Europe and I think they were being put under pressure to join the Europe. Or else take this money from the Russians. And again, you got to admire the Icelandic people. They stood their grounds.

[00:48:42] They didn't take the Russian money, which probably would have been a very easy thing to do in one way. But I'm guessing they knew that's, you know, that would be a deal that would have the reasons further down the road. And they didn't join the Europe. They wanted to keep their independence. Yeah, so is that the lesson in it all then? Kind of resilience and independence? Well, that's definitely a lesson that you can take from us. But for a country like Ireland and any country that's part of the Euro now, I don't know.

[00:49:10] I mean, you look at Brexit and you look at what's happening there. I don't think that's the right route. And I think there's an awful lot of buyer remorse going on in Britain as we speak. My key takeaway, and it's a pretty obvious observation, but it's one I think that we really need to keep in mind.

[00:49:27] And it's one of the great rules when you're examining financial history is that when you reach the time where there's rapid expansion and growth, where the governments, the financiers are all saying that, yes, this time we know how to manage this. This time is different because we found the secret to keep inflation low, to keep growth high, to give everyone access to credit and to ensure that everyone makes profits.

[00:49:52] When that mood takes hold for several years, then there's a crisis around the corner and you don't need economic experts to warn you. When all of those conditions are in place, watch out and cash in your chips because that's what happens in every financial taxes. It's a bubble. It's a bubble, but people are looking at it and all the experts are saying, oh no, this time we know how to manage it. When you start hearing that, when there's loads of capital, David McWilliams, I was reading his articles.

[00:50:21] He always talks about the key to any bubble is plenty of capital being made available by banks. When everybody is being lent money left, right and center and the economists are saying, no, no, we're okay this time. Inflation is low. We were managing it. When that's happening, get cash in your chips. Yeah. Because JP Morgan is the savior of the banking system in the US. And there's an anecdote that he went down to get his shoes polished. You've probably heard that before.

[00:50:51] Oh, this is during the 2009 crisis. When the shoeshine boy started talking to him about economic policy and what shares to buy. And he immediately ran upstairs and said, if these guys are experts, we need to get out of this. That's interesting. Yeah. Yeah. Yeah. What did you take out of it? I mean, I admire the resilience. I admired the independent spirit of the people.

[00:51:16] I was puzzled a little bit by the temancy and the mercy shot to some of these people. Um, not that I wanted to burden the stake or anything, but there was ample evidence. Um, and a very impressive, uh, investigative and prosecutorial system that really nailed these guys through all. So I think, I think it's an incredibly impressive story.

[00:51:42] I think it's a warning sign for banking system scrutiny for everybody. Um, and I think there are some exceptional qualities in every country. Um, but I think maybe one of the learnings here is not to let that sense of exceptionalism go to your head. Yeah. Very much so. Very, but yeah, very interesting story. Great story. Cool. All right. Good catching up.

[00:52:11] Well, good catching up as well. And, um, it's your turn. Okay. Do you have any idea? I'm thinking about it this morning, um, but I'll come back to you on that one. Cool. Alrighty. Listen, Keith, I'll talk to you over the weekend. All right. Bye.