Sorry about the delay in posting, but this is my latest blog for the Huffington Post.

“One is president of a country of about 300,000 people — Iceland — a country about the size of Virginia, President Olafur R. Grimsson. The second is president of a country of about 300,000,000 people, the United States. President Obama.

Both their presidencies have been scarred by the financial crisis. Both have had to balance the interests of their people against the interests of their bankers.

President Obama has allowed that balance to tilt in favor of the bankers.

President Grimsson yesterday took a stand against bankers and international creditors, including the British and Dutch governments.

Instead, he stood up to defend the interests of his people.

He vetoed legislation agreed to by the parliament under which Icelandic taxpayers were due to shoulder the burden of losses incurred by a collapsed private Icelandic bank. The matter will now be put to a referendum and the President Grimsson’s action will likely be endorsed by the people.

His courage stands in stark contrast to that of President Obama.

Americans woke up on September 15, 2008 to find their economy on the brink of systemic failure.

While the crisis was averted by massive taxpayer-funded bail-outs, the burden of losses was transferred on to the shoulders of middle class Americans. Unemployment and foreclosures rocketed, and the government deficit ballooned.

To avoid systemic economic failure, and in defiance of the dogma of the Chicago School of Economics, private Wall St. losses were nationalized and bankers were not just protected but cosseted.

After September 15, 2008, Icelanders woke up to find their banks failing, their currency devalued, and their economy effectively bankrupted. Many citizens and all of their bankers faced massive losses.

What happened next? Well, both countries held elections, and both elected progressive politicians as leaders. But now the paths followed by the leaders of these two countries have diverged. One has stood up to the bankers, and refused to nationalize private losses. The other faces a precipitous decline in political support as he bows to the bankers, and effectively victimizes taxpayers.

Unsurprisingly, Wall St. profits and bonuses have soared under Obama’s watch and that of Fed Chairman Bernanke, while the monopolization of Wall St. has intensified. Worse than that, the bankers have been invited in — to both the Treasury and the Congress — to stall and undermine proposed regulation of the sector.

This concession of huge power has, naturally, gone to their heads.

Far from being grateful for the president’s continued support, for his administration’s kid-glove handling of the finance sector, and for the generosity of government guarantees, bankers have, like many disillusioned Americans, become contemptuous of the American Presidency. After all, they, not the elected president, are the real governors of the country.

So contemptuous are they that Lloyd C. Blankfein, the chief executive of Goldman Sachs, John J. Mack, chairman of Morgan Stanley; and Richard D. Parsons, chairman of Citigroup failed to turn up to a meeting President Obama had especially convened on the 14th of December.

This in contrast to the way they turned up early at the Paulson Treasury last year, after less than 24 hours notice, to collect $10 – $25 billion of taxpayer money.

Where will this all lead?

We can expect further financial turbulence in Iceland, but President Grimmson can be sure of one thing: popular political support for his stand against the bankers. Support that will stiffen the spines of legislators and regulators, and ultimately subordinate the interests of finance to the interests of the Icelandic people.

Next November the opposite is likely to occur in the United States. President Obama will lose political support and his enemies will gain from his administration’s failure to stand up for the people, and against the bankers.

As for Wall St? They will be cooking up the next financial crisis with which to undermine a popular, elected American president.”

7th January 2010,

Read Ann Pettifor and Jeremy Smith’s letter on why Iceland must NOT repay the debt in the FT today:

” Sir, The president of Iceland’s refusal to approve repayment to the British and Dutch governments should be welcomed (January 5). The pause gives the Anglo-Dutch governments an opportunity to withdraw their demand for full repayment from the government of Iceland, a country whose population at 317,000 is somewhat smaller than Leicester’s.

The UK and the Netherlands, with a combined population of 76m, should cease to use economic force majeure on a tiny country, and accept the principle of co-responsibility for the crisis. Repayment of the nationalised losses of a private bank amounts to €12,000 per Icelandic citizen, and will inevitably impact harshly on their lives and public services. By contrast the cost to Dutch and British taxpayers of the bail-out will be about €50 per capita.

We understand the strong desire of the present government of Iceland to restore the country’s tattered reputation.

But anyone reading the financial press in 2007 and 2008 (as opposed to the academic reports commissioned by Iceland’s chamber of commerce) would have known that Iceland’s banks were far from risk-free. That was why British and Dutch depositors enjoyed good rates of return on their deposits.

The British and Dutch governments have sound political reasons for protecting small savers lured into shark-infested financial waters. What is unjust is that the tiny population of Iceland should be forced to bear the full costs of the laxity of Icelandic, British and Dutch regulators and the reckless behaviour of private bankers and risk-takers. “

Read the letter on the FT website here.

The latest news from Iceland, as reported in the Guardian today:

” The president of Iceland has refused to sign a bill to repay more than €3.8bn (£3.4bn) to Britain and the Netherlands following the collapse of the country’s Icesave bank in 2008.

Olafur Grimsson threw the long-running issue into fresh uncertainty today when he declared that a national referendum must be held to determine whether or not the legislation is passed.

This is thought to be only the second occasion when the president of Iceland has refused to ratify a bill passed by the country’s parliament. Grimsson took the decision after hearing the depth of public anger in Iceland against the bill, which was narrowly approved by MPs on 30 December.

“The cornerstone of Iceland’s constitution is that the nation is the highest judge for the validity of law,” said Grimsson. “Now the nation has the power and the responsibility in its hands.”

At last!  A political leader that sides with the people, not the bankers.

4th January, 2010

I am proud of the great Jubilee 2000 petition, which I helped draft.

Within a short time, and making revolutionary use of the internet, we had circulated the petition worldwide.  Millions were printed, signed and returned in battered packages to our small HQ in London.

As Paula Goldman noted in an article in the Financial Times (17 May 2008) “the Jubilee 2000 petition holds two world records, according to Guinness World Records: it was the largest petition ever signed (24,391,181 signatures) and the most international (with people from 166 countries signing). Sheer size was no doubt key to the Jubilee petition’s success: when talking to decision-makers, campaigners could rightly claim historic levels of public interest.”

Now our example is being followed by the people of Iceland.

About one quarter of Iceland’s voters – 56,000 people – recently signed a petition which urges President Olaf Ragnar Grimsson to ‘drop the debt’ owed to the British and Dutch governments.  This petition reflects the view of 70% of Icelanders, according to a poll taken in August.

This debt – which amounts to 12,000 Euros per Icelandic citizen – is the result of reckless lending by an unregulated, private bank – and reckless, unregulated borrowing by British and Dutch depositors that earned high real rates of interest on their risky deposits – until things went wrong.

For political reasons, these depositors were bailed out by the British and Dutch governments – at a cost of about 50 Euros per citizen.

A country with a population the size of the city of Leicester – 317,000 – is now asked to bear the full burden of losses incurred by a private bank, and by private citizens in two countries with a joint population of 76 million.

Icelanders – the people of countries as diverse as Rwanda, the Phillipines and Argentina feel your pain. Millions of Jubilee 2000 campaigners would salute your struggle to drop the debt. They would urge you to follow their example, and keep up the pressure. After all they did not give up until more than $100 billion of debt owed by 42 countries was acknowledged as unpayable by powerful creditors.

You dear people of Iceland, can do the same.

Have just returned from a flying visit to Iceland, where I was mightily impressed by the warmth and strength of the Icelandic character. Also struck by the pride Icelanders have in the way the financial crisis deepened and strengthened their democracy – leading to the ousting of a corrupt government, and the election of a progressive coalition.

Like many other visitors no doubt, I was bowled over by the austerity of the landscape. These people live on a volcanic island close to the Arctic Circle, and go about their business while mighty tectonic plates regularly shift beneath their feet. Sure those shifts generate massive doses of geo-thermal energy, making this country one of the world’s most sustainable, in energy terms. Nevertheless those plates regularly cause the earth to move, while Arctic gales whistle down glaciers and chill one to the bone, and volcanic rocks litter a treeless landscape. Icelanders – descended from Vikings and Celts -  are an extraordinary and resilient people!

Which is why it was sad to see proud, independent and innocent sheep farmers, fishermen and workers lose their independence to creditors. One complained that Icelanders could handle the severity of financial losses. However, what is unbearable to the Icelandic ‘soul’ is the damage inflicted on their nation’s reputation by a small group of bankers – cheered on by internationally-renowned, neo-liberal economists.

I learned a lot. The one fact that angered me most is that Icelanders that took out loans with domestic banks have had those loans ‘indexed’ to inflation -  by law it appears. Clearly, Iceland was another bank-owned-state, governed in the interests of creditors. If their new government is to represent the interests of the Icelandic people, and not just those of creditors, then legally-binding indexing must be repealed.

Here is more of what I learned:

• Ordinary protesting Icelanders, using and amplifying their voices with pots and pans, drove a government from office. This has given Iceland’s people renewed confidence that they can, and should, remove governments that prioritise the interests of the finance sector over the interests of the people.
• 43% of the new Parliament is made up of women MPs.
• The new Prime Minister, Johanna Sigurdardottir (daughter of Sigurdar) is a woman and openly gay. She is the Minister of Economic Policy, as well as Prime Minister.
• Prominent neo-liberal economists, including Fred Mishkin, a high-profile advocate of ‘inflation targeting’ and Bush nominee to the Federal Reserve, (until he unexpectedly resigned in May, 2008) and Tryggvi Þór Herbertsson, were paid,  I have been reliably informed, considerable sums by the Icelandic Chamber of Commerce to produce a report on Financial Stability in Iceland in September, 2006. The purpose of this report was to keep the banking party going after the near-disastrous ‘mini crisis’ of March, 2006.  The report was the centrepiece of a ‘road show’ promoting Iceland as a haven of financial stability that autumn. (See this speech made in New York by Mrs. Valgerður Sverrisdóttir, Minister for Foreign Affairs of Iceland at the time, and a proud farmer.)
• We know that Fred Mishkin (now of Columbia University) was not the only academic economist to act as cheerleader for Iceland’s reckless bankers. Prof. Richard Portes, President of Britain’s Royal Economic Society, played a similar role. (For more about Professor Portes’s role in the Icelandic saga, go here.)
• A year after the Mishkin Report, in November, 2007,  Prof. Portes produced another report for the Icelandic Chamber of Commerce which concluded that Iceland’s banks were ‘successful and resilient’ and that ‘the banks have been highly entrepreneurial without taking unsupportable risks; good supervision and regulation have contributed to that, using EU legislation.”
• The privatisation of Iceland’s banks began as late as 1998, and was not complete until 2002. See the excellent chart below, courtesy of Stefán Ólafsoon of the University of Iceland.  The banks lost no time in piling  up debts.
• By 2008 – when Prof. Portes wrote his report – private bank liabilities made up 10 – 12 x Iceland’s GDP, according to a reliable source.

• Ratings firms, I was told, maintained the AAA status of Icelandic banks until two days after the collapse of these banks. Have not been able to check this.
• The debt burden falls disproportionately on low income groups. In other words, it was the poor and other low-income groups that were encouraged to borrow and finance the bankers’ party. (See another of Stefán Ólafsoon’s charts below.)

• As a result of the financial collapse, unemployment is expected to rise to 10% in 2009 – particularly difficult for a ‘work society’ Stefán Ólafsoon argues.
• In a new take on ‘inflation targeting’ Icelanders have the principal on their loans to domestic banks indexed to inflation. In other words, if inflation rises, the value of their debts rise too! Inflation is currently at 11.9%.
• Creditors are protected from inflation – by contract law, it seems.
• After the crisis  broke on the 6th October, 2008, 95% of Iceland’s stock market was wiped out.
• The $2.1 billion loan to Iceland is one of the biggest ever made by the IMF.
• Iceland introduced currency and capital controls in December, 2008, and operates these effectively, according to an adviser to the Prime Minister. Effectiveness is maintained by revising the regulations every two weeks to fix loopholes.
• The IMF supported the introduction of capital controls ‘forcefully’.
• As a result of capital controls, interest rates had fallen from 18% at the height of the crisis in September, 2008, to 13% last Thursday. Rates for corporate borrowing remain in the region of 17%.
• The UK has loaned to Iceland the money needed to compensate UK depositors. Revenues from the sale of Iceland banks will be used to pay interest on this loan.
• GDP is expected to drop 10-12% this year.
• Consumption has declined by 25%.
• Real wages have fallen by 10%
• Real incomes are falling by 12-15%.
• 20% of families are in negative equity. The comparable figure for the US is 28%.
• Icelanders have made substantial losses on their savings
• In a bid to lower employer costs, people have had 2 working hours cut each week.
• Iceland’s fish exports, thanks to currency devaluation, now have an edge over those of Norway.
• For the last 30 years, Iceland has imported coffins. Because of the decline in the value of the Icelandic Krona, two companies have started making coffins – and are now exporting these to Canada.

I am waiting to hear of the new Prime Minister’s cabinet appointments this weekend. Sincerely hope that, in tackling this crisis, she calls on a wider range of economic advisers – and advice – than her predecessors. Or indeed than that offered by IMF staff.

There is surely a case for inviting economists who share the new Parliament’s values and are not the ‘hired guns’ of bankers –to visit Reykjavik to offer independent advice. Only after considering a range of such independent advice, can all those good women parliamentarians make sound judgements and begin the long process of ending the debt bondage of Iceland’s low-income earners.

To make Icelanders once again proud “independent people” in the words of Halldor Laxness, the country’s great Nobel-prize-winning novelist.