Iceland, Fervent Prosecutor of Bankers, Sees Meager Returns
Don’t you love those stilted NYT headlines? And the ‘light sentence’ was nine months in prison, with six suspended - substantial indeed from the current Irish perspective. Yet I’m suspicious about the value of pursuing white-collar crime like this outside of its benefit to ‘cleaning up’ the banking industry - which should really mean addressing the massive deregulation of capital and financial services in past decades - and natural justice as it relates to the criminal system. I’m far more sceptical about the usefulness of exemplary justice in its own right - the US, with its famed ‘perp walk’, was after all the site of the financial excess and dodgy dealings which precipitated the whole global crisis.
As for Iceland’s broader response, the article has this to say:
“After the crash, the new government pushed to restructure the failed banks, purging their former management and owners and prodding them to write off a big chunk of their loans to homeowners burdened with big mortgages. The government declined to bail out foreign bondholders, who lost about $85 billion. Iceland now has a growing economy.
But it is not entirely clear that Iceland deserves its reputation as a warrior against Wall Street orthodoxy. In time, Iceland won praise from the International Monetary Fund for sharp cuts in spending and tax increases that slashed the government’s deficit and helped put the country back on an even keel.”
Ireland’s problem is clearly that we have taken the second set of measures (problematic in themselves) without also taking the first. The post-austerity boat remains firmly underwater with all the public debt the banks have caused us to take on, and even the national orthodoxy struggles to deny it. It’s become an article of faith that we can’t ‘decline to bail out foreign bondholders’, although there’s little discussion of what the consequences would be - the identities of the bondholders remain largely secret - and the ultimate obstacle is probably the unwillingness of our European partners to pursue that route any further than they already have with Greece. I don’t think it would be a panacea either, and I have suspicions about what the real Icelandic economic experience was like (I heard a lot of people had to take to the earlier industry of fishing, which seems uncomfortable if true), or if it’s even been long enough to tell.
Yet jailing a few bankers (in an overcrowded prison system) won’t solve many problems either, and I think it disguises some of the real ones:
“Mr. Sigfusson, the minister of industry, said he was regularly invited to speak on how Iceland dealt with its banking crisis. Iceland, he said, has “no magic solution” but has managed to push through unpopular cuts in spending in part because it managed to curb public anger by pushing for the prosecution of its bankers.”
Again, Ireland has made such cuts without taking the same measures to ‘curb public anger’ (limited anyway because, possibly, of a kind of national passivity). But how many of the cuts are really necessary, and how many are a cover for the reduction in state services and the privatisation of its resources and activities? “It is important to reiterate that the fiscal deficits in the European countries, including Britain, are largely due to the fall in tax revenues following the finance-induced recession, rather than to the rise in welfare spending” (And particularly in the Irish case, welfare spending has risen in the recession because of increased unemployment, driven in part by public sector reductions)
The ‘public anger’ that is there is often expressed as being about the unfairness that the ordinary citizen has to suffer for the misdemeanours of the banking classes, but it doesn’t follow that the only or correct solution is to make a few convicted wrongdoers ‘suffer’ judicially, when it relies on the premise that the economic suffering in general is necessary or that it is fairly distributed amongst the public and the wealth of ordinary citizens. By all means lock up the bankers (or liquidate the kulaks, or whatever) but they’re only part of the problem. The larger issue is, of course, capitalism, and how to fashion a humanist response to it.