It's payback time for bankers in Iceland

PUBLISHED : Tuesday, 24 April, 2012, 12:00am
UPDATED : Tuesday, 24 April, 2012, 12:00am


It's too bad that Premier Wen Jiabao - in Iceland over the weekend to conclude energy agreements - didn't take the opportunity to praise his host's unconventional recovery from the Western economic crisis.

China and Iceland have both pursued heterodox economic policies against the advice of experts, pundits and policymakers from Europe and the United States. Iceland's example especially deserves to be better known.

With a population of just 320,000, the country was in economic hell at the outset of the crisis. Its three biggest banks - Kaupthing, Landsbanki and Glitnir - went belly up. This was followed by the collapse of the national currency, the government under Geir Haarde, the disgraced former prime minister, and much of the economy.

Unlike the US, Britain and Ireland, Iceland didn't buy the too-big-to-fail argument. It let its banks fail and default on US$85 billion of debt. This left mostly foreign bondholders, creditors and depositors holding the bag, rather than Iceland's people. The welfare of its citizens comes before foreigners. Iceland is committed to paying back the debts, but at its own pace. It gave the bond vigilantes the middle finger. Armageddon? Not quite. In February, Fitch upgraded Iceland's debt from 'junk' to investment grade.

Iceland has put Haarde on trial; a verdict was expected late yesterday. Prosecutors have opened criminal investigations against dozens of top bankers and financiers. This has helped placate an angry populace. Similar investigations in the US - where the Western crisis started - do not remotely compare in scale or scope, though two former CEOs at mortgage giants Fannie Mae and Freddie Mac are facing charges in connection with the crisis.

This was so unlike the earlier US savings and loans crisis, which saw hundreds of bankers charged and dozens jailed. Call it legalised corruption, Wall Street's capture of regulators and politicians is complete.

I do not look forward to the so-called 'decline of the West'. But if the financial crisis has dialled down the volume of once-cocksure and arrogant Western pundits and policymakers, that is a good thing indeed.