Show host Gene Tunny interviews Jared Bibler, author of the book “Iceland’s Secret: The Untold Story of the World’s Biggest Con.” Jared discusses his firsthand experience during the brutal 2008 financial crisis in Iceland, where he worked at a collapsed bank and later at the financial markets regulator. He sheds light on the dodgy behavior of bankers leading up to the crisis and the severe consequences that followed. Stay tuned to the end of the episode for Gene’s interpretation of Iceland’s secret and its relevance to economies worldwide.
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About Jared Bibler
Jared started his career as a consultant for a Wall Street giant in Boston and New York until moving to Iceland to support the Icelandic pension funds’ foreign investments. He resigned from his job at a leading Icelandic bank a weekend before the 2008 Icelandic financial crisis.
He was subsequently hired to lead a special investigation team, which referred more than 30 criminal cases to the Special Prosecutor of Iceland, including the largest stock market manipulation cases to be prosecuted globally.
Jared’s insider knowledge and unwavering persistence helped Iceland to famously become the only country to jail its bank CEOs. But the real story, deeply complex and sinister, has direct relevance today as banks once again begin to tumble.
What’s covered in EP215
- 00:02:56 Iceland’s financial crisis was fueled by the growth of banks that became Enron-sized and collapsed, causing significant damage to the economy.
- 00:05:49 Financial industry corruption and collapse.
- 00:11:30 Iceland’s banking system collapsed.
- 00:19:33 Icelandic banks manipulated stock prices.
- 00:27:26 The financial system is vulnerable.
- 00:34:58 Banking fraud and economic collapse.
- 00:35:58 Currency crisis in Iceland.
- 00:47:19 Iceland faced economic crisis and unemployment.
- 00:50:54 Iceland’s recovery transformed into something ugly.
- 00:57:38 Lessons from Iceland’s banking collapse.
- 01:00:16 Incentives and regulation in finance.
Links relevant to the conversation
Amazon page for Iceland’s Secret:
https://www.amazon.com.au/Icelands-Secret-Untold-Worlds-Biggest/dp/0857198998
Transcript: Iceland’s Secret: The Untold Story of the World’s Biggest Con w/ Jared Bibler – EP215
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Jared Bibler 00:04
What meagre foreign currency reserves we had at the Central Bank, were being depleted. That’s another piece of the book. You probably didn’t get to but the central bank gave away most of its FX reserves. After the first two banks collapsed, central bank gave 500 million euros to prop up the Third Bank. That money disappeared in one day and then the third bank also collapsed. And they, they have never got that money back. That was that was a substantial chunk of Iceland’s FX.
Gene Tunny 00:40
Welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show. Hello, and welcome to the show. This episode is about Iceland’s secret, the untold story of the world’s biggest con. That’s the title of a book by my guest, Jared nibbler. Jared witnessed the brutal 2008 financial crisis in Iceland firsthand, he worked at one of the banks that eventually collapsed, and later on he worked at the financial markets regulator. His work contributed to the prosecution and conviction of several bank executives. In his book, Jared highlights the dodgy behaviour of bankers leading up to the financial crisis in Iceland and just how bad things got stay tuned until the end of the episode to hear my interpretation of Iceland’s secret, which is relevant to economies worldwide. Okay, let’s get into the episode. I hope you enjoy it. Jared Biblia Welcome to the programme. Hey,
Jared Bibler 02:03
thanks so much for having me, Gene. It’s a pleasure to be here. Oh, of course,
Gene Tunny 02:07
Jared. So yep. I’ve been reading your book with much interest, Iceland’s secret The Untold Story of the world’s biggest con. Now, I was in the treasury here in Australia during the financial crisis. And so we had our own challenges here. And I mean, not as much as other places, but that I remember seeing the news about Iceland that I just didn’t realise just how crazy things that got in, in Iceland, and it was great. Your book, really set it all out and had all your personal stories and recollections in it too. So it’s terrific. So to kick off with, could you just give us a flavour please? What was Iceland secret?
Jared Bibler 02:54
Well, I think you have to read the book to see the secret. But the the secret of the of the crash, I think was that we had these banks, which had been very sleepy institutions catering to a population of just around the time at that time in the 90s, about 250,000 people, very sleepy small savings banks, one was called the agriculture bank. One banks really financed the fisheries, and so on. But these are very small institutions. And they were able to grow a Ponzi like doubling in size every year during the during the first decade of the century, for several years, and so they they grew to each become the size of an Enron. And at that time, when they crashed, the population was still only 300. Little over 300,000 people. So we had these, we had these huge Enron sized collapses in one week, in a country with, you know, one 1000 for the size of the US. When Enron collapsed, it was a it was a big story, you know, and it was, there was a task force of 600 federal investigators, I believe, looking into Enron, and there were movies, there were five or six books, there was an Enron musical, I don’t know if you remember. And I was talking to a reader the other day, and he said, Look, this Iceland story was just so much bigger. And what why is why is your book deal now there are a few other books about it. There’s a lot of books in Icelandic about it. But there’s not that much talking about it. I didn’t really want to write this book. But I felt like after a few years, I have to tell this story. And I actually really struggled to tell the story. But first because I was trying to tell the story as an outside, outside, you know, so third person just here’s what happened in Iceland. And a very good friend of mine who helped me with the book. She said, No, you have to tell it through your own, you know, your own walk through the crisis. So that’s, that’s what we ended up doing. Yeah,
Gene Tunny 04:52
because you had experience in a bank, one of the big banks in Iceland prior to the crash, and then you ended up as a regulator, didn’t you investigating what went wrong? Could you tell us? I mean, how did that transition go? How did you go from being the banker and then leaving just before the crash and then to the, to the regulatory agency? Well,
Jared Bibler 05:16
my wife who the book is dedicated to, she had a dream. And, and a prophetic dream, as I think you see in the book, and she told me just to get out of the bank, and I had been in an asset management role, we had been managing money for mainly the pension funds in Iceland. So we had we had funds of private equity funds and hedge fund to funds was my main product. But I was really unhappy with the things I was seeing around me in the asset management department. You know, it’s the standard asset management stuff that people do, you know, if you want a big client to come in you, you price things in a way that all the existing people in the fun pay for that person that come in, and they never know it, right. So there’s a lot of that stuff. And I guess that’s pretty endemic, still in that industry. But that really bothered me. I mean, I was really, I was studying for the CFA, I was signing these ethics statements, and I was saying, so my wife knew that how upset I was, she told me to quit. So I just quit, I didn’t have a job to go to. And that was a Friday that it was my last day the all the banks collapsed, the next two of them collapsed on Monday, and one of them collapsed on Thursday of the next week. Right? Then we were just really, almost penniless. Because at the time, I mean, the crash, how it felt to live through that cannot be overstated. It was it was a horrendous experience. Because we didn’t it at some points, we couldn’t even access the money in our bank accounts. And almost everything that we had was frozen and later hair cut and discounted, we ended up losing our house in the end. And a lot of our friends did as well. So I mean, it was it was a horrendous time, the British had invoked terrorist legislation against the whole country of Iceland, declaring Iceland a terrorist organisation. And, you know, and this is what was barely reported, you know, we were sitting there being called terrorists by Gordon Brown. And that meant that all the payments into the country and foreign currencies were frozen for weeks or months. So that was a very dark winter, people were out on the streets. And the winter in Iceland is not that cold, but it’s dark. You know, it’s in Reykjavik, it’s about zero degrees, most of the time in the winter, but it’s dark. And people would be out on the street in the dark banging pots and pans and in front of the parliament building. And so I finally I didn’t have a job for the for all these months, my wife had a new job. And so we were trying to live on what she was making. And in Iceland, your mortgage payment goes up every month. So the principal balance is recalculated with the inflation of the preceding month, and then the the monthly payment is recalculated each month. So our payments went up something like 40% 50% in a very short time. So then I got very luckily, hired by the regulator, they said they wanted to hire one investigator to help them untangle the mess of the collapsed, you know, the three Enron collapses that we’d had ended up hiring to others, they hired me, another guy who had been in the banks and a woman who was a lawyer. And they just said to us, you know, go investigate the crisis. And so that was about six months after. I eventually, as you see in the book, I eventually got more people. But it took, I think it took 12 months to get my first person to add add to my team. And then eventually, we got we got a nice team together to do these investigations. So yeah,
Gene Tunny 08:48
so I’ve got sort of halfway in the book. So I apologise I haven’t read it all. And I’m still learn Iceland secret. I thought I’d died. Yeah, yeah. What What I found fascinating about the book is just because you’re American, aren’t you? You’re You’re you’ve studied in the States, and you end up in, in Iceland, and the, the culture is different. And yeah, I thought some of those recollections were terrific. And you’re talking about, you know, working with your, your fellow team members, so that that was great. So it’s worth reading for that. So yes. Can I just fix it in time? So we’re talking, we’re talking about October 2008. Is that right? That’s right. Yeah. Yeah. And Lehman Brothers had collapsed a couple of weeks before so you weren’t worried about that?
Jared Bibler 09:40
Oh, everybody was ever Yeah. So for? Well, to put a timeline on the whole on the whole episode, from 1998 was the beginning. I believe of the banks being privatised in Iceland. So the banks had been government owned, more or less. And they were still Hold off in pieces, but not in a, in a way that’s still being criticised today, and in Iceland and still hasn’t really been fully investigated today. Because basically, the powerful politicians gave bank a lot of banks out to people affiliated with those political parties. And so there wasn’t a lot of transparency, there was no, there was apparently foreign interest for lunch bunkie which was the oldest bank, but then the guest that bid was never even really considered. They just wanted to keep it in the family. Keep it keep it national, you know, Icelandic owned. And so that was 98 203 was a sort of beginning of the privatisation wave. And then in oath 203, they floated the ISK on global currency markets. So it was an exchangeable currency. And when that happened, it just things just took off. Yeah, so So the boom years was really I moved there in oh four, which was maybe one year in one, two years into the boom. And the whole thing lasted only a couple of years, really. Because by oh five, according to one, former executive, I believe oh five, he said, a quick thing, bank was already insolvent. And so the only you know, they, they weren’t doing great banking, at any, in my opinion, in any of these years, the banks were not the only way to escape the bad decisions of the year before was to double the bank in size, the next year, and they had a they had big foreign lenders just pumping money into these banks, so that it for a few years, they could borrow as much as they wanted. From European and later American lenders, there was already a mini crisis in 2006, where the currency crash stock market crashed and everything was a bit a bit, you know, up in the air, what would happen. And at that point, the banks actually started open retail savings accounts for retail customers in Europe, in order to collect the funding that they needed. And they were able to then keep the party going. So then I started in LHINs. Bucky in the Asset Management Department in early oh seven. And the subprime in the trade press, people were talking about subprime already, January Oh, seven, I was started to follow it. And things got more and more. At first, we thought this isn’t gonna, this isn’t going to touch us. Now, Icelandic banks barely invested in subprime. They weren’t doing much, they were just making bad loans to their friends, more or less. But though eight was when things were getting more and more dicey in the bank. And by the end by, I think, looking back when Lehman collapsed, the credit markets between banks in the world really froze. And those weeks and the Icelandic banks were on writing on just fumes anyway. And so that was the final straw, but they were not healthy. Now, this is not the story that I’ll tell you today. By the way, my book is not so popular in Iceland. Because Because the story now is that we had a great banking system, even though it was 11 times bigger than our GDP, but we had a great banking system. And and Lehman killed it. When otherwise it would have been fantastic. But yeah, it was Yeah. Yeah.
Gene Tunny 13:26
What I was asking was because you you quit in a period where I mean, did you? Did you ever you had a parent or your wife or her or your partner had a premonition that the bank was just going to go down and you wanted to get out? You should get out as soon as possible is that is that she
Jared Bibler 13:45
actually said? And she never talked like this. She said, Don’t let those eight holes fire you. You need to get out of there. She said, she had a dream that I was being fired and something bad had happened. And she said you need to be the one to quit to get out of there first. So as soon as she said that, I I I went, you know, I think I quit within a couple of days. So yeah.
Gene Tunny 14:09
So it’s interesting you talking about the rock the fact that Iceland floated, visit the kroner the corona, was that in early 2000s, that late in I think it was oh two, I think oh two, right. And so probably liberalised capital flows. And, yes, so you’ve got all of these, all of this lending, what to have any idea what was in the minds of the lenders? I mean, what were they seen in Iceland? What is the story they’re telling themselves? I
Jared Bibler 14:44
have a thought experiment for you imagine if a small Caribbean nation with 300,000 people went to Deutsche Bank just to pick on them because Deutsche lay a lot of money and lost a lot on the Icelandic banks. Majan if a 300,000 person Island went to Deutsche Bank He said our main exports are fisheries and tourism. Yeah. And we’d like to have a great banking system. But they would have laughed, right? They would not have probably went into that. But because it’s this, especially in German because now we live in Switzerland, especially in the German speaking imagination, Iceland is really to lay Iceland is really the, the mythical land of of, well, well, it is. It is the mythical land of the Sagas and Vikings and so on. And so the they were happy to, to to lend into this. They said, Oh, we’re liberalising our banking system were developed Western economy. The interesting thing about No, I, I am an Icelander. So I have, you know, I have the passport. And, you know, we we have probably socially one of the very most developed countries in the world. Certainly for women’s rights, gay rights, it’s it’s, it’s, it’s, it’s leading edge. But the economy is not developed to match that. So the economy in those days was a lot of fishing, fish exports, and heavy power exports. And today, we’ve added huge and disgusting levels of tourism onto on top of that, so the cup before the pandemic, I think there were 10 tourists per year for every man, woman and child and in Iceland. And so that has become the, that has become the biggest export, I believe. Gotcha.
Gene Tunny 16:30
And can I ask you about? Yeah, that all of this lending, and where was it going? Was this going into your, into the property market in Iceland? Or what was what was being done with all the money that the banks were borrowing?
Jared Bibler 16:45
Yeah, the first thing they did is, is inflate all the bubbles they could domestically. So property bubble, they had a they had a little mini private equity boom in Iceland, maybe in? Oh, 304 I think where they, you know, did sale and lease backs of, I think who says Smithian, which is the it’s a home improvement chain in Iceland, but like a chain and Iceland maybe has only five, five locations or 10. You know, there’s really only one city in Iceland, which is Reykjavik. Yeah, most people live there. And so, so they did a sale and leaseback of these five or 10 properties, and you know, they did things like that. But then by Oh 405 They were increasingly looking to do investments abroad. And so there was a there were private equity style investment groups in Iceland that went and bought up things like European airlines. They bought a lot of high street shops in the UK, for example, they bought famously based on the really based on the historic relationship between the two countries. This was a big, this was a big win for Iceland. We bought Denmark’s Copenhagen’s most prestigious department store became Iceland owned, which was kind of a big, big faced, because Denmark had been the colonial masters for 700 years and just treat it still today that Danish tend to come to Iceland and bark orders at people on the street and so on. So to buy their department store was just seen as you know, the crown jewels, so they did a lot of very expensive deals in those years. You know, we had pretty low interest rates in those years, and there was a lot of a lot of these deals going on. But a lot of them ended up not being not being great. And so, yeah, so it was it was kind of a family family game where bankers made made loans to their colleagues in this in this connected private equity world of Iceland and they, you know, they went and did deals. The banks, the banks also bought other banks. So, they expanded hugely into Scandinavia. They bought some of the oldest London banks, singer and Friedlander inheritable and you know, they were by the time I think in oh eight, my bank lens bunkie had even opened a branch in Hong Kong, I believe, or Singapore. I mean, they were really they want it to be these globe straddling behemoths.
Gene Tunny 19:13
But a Yeah, yeah, but what happened? I mean, they, they borrowed too much from abroad. They learned domestically and in the, their, their data is they just, they couldn’t pay it back. And then the banks crash, they ran out of cash or liquidity. I mean, well, so what actually happened?
Jared Bibler 19:32
The first thing that I discovered as an investigator, which is which is how the book opens, is I get this letter from the stock exchange. Yeah. And the Stock Exchange says saying, hey, look, on the three days before these banks collapsed, they each seemed to be buying their own shares up on the exchange, and they seem to be doing it with with bank money. And I thought that’s a little bit crazy because they hadn’t announced any Any share buybacks, right. And the volumes on the last three days were huge. It was effectively, they bought the whole market. Every trade that came across the exchange was the bank’s cash on the buying side, keeping the price up. And I thought this is crazy, right. So as you saw in the book, I tried to figure out when that behaviour had begun. So I went back to the Lehman and went back a few weeks to cover Lehman because I thought, okay, probably after Lehman, they got really nervous, and they started trying to manipulate their own stock price, you know, I just wanted to put a book end on the activity, before I wrote up, you know, a criminal case to send to the prosecutor. And I had to keep going back and back and back. I went back to first I thought I was being very bold when I when I covered a six month period. And then it turned out that the activity was the same for the whole for basically the whole six months of April, oh, eight to the to the crash, more or less, they were in the market every day. And many days, they were buying more than 75% of the market for their own shares. And so I went back, we ended up going back to 2004, which is coincidentally when I had moved to Iceland, so for five years, they had been doing this behaviour. Later, when I was closing the research for the book, I came across some court documents where and we had seen indications of this. But there’s court documents where some of the traders openly talk about this behaviour going back to 1998. So from the first days of the banks being privatised by the government, they were already intervening in the market to to and so with my perspective, and of course, I’m biassed because I was the investigator who developed those cases, my perspective is without that share price manipulation, the banks could never have grown the way they did. Because they had such healthy performance on the equity market. One of them was dual listed in Stockholm and and Reykjavik. And so whenever they went to lenders, they could say, look at how great our results we will look. The markets love us, you know, look at our stock is up another 20% another 30% this year, or 100%. I mean, the markets, the Icelandic stock market in those boom years, it was going up 60% A year the whole market only Wow. Right. And, and the bat and that was that that lasted for several years, that was the broad market was 50 to 60% a year. And the banks, but the banks grew so fast, that they ended up becoming seven year 80 or 90% of the market cap because they crowded out everything else. And so when they collapsed, of course, the stock market lost 93%. In 2008, it was basically closed for equity trading after the bank collapse. And so all of our, for example, if you talk about damage to the people of Iceland, all of our pension funds had to be in the equity market. Right. And so, and basically that meant they had to be in the, in the banks. When when I was investigating the the manipulation that the banks did was looking at lists of buyers of the shares. And there were some periods in Oh 708, where the only legitimate buyers of the banking of the bank shares were the Icelandic pension funds. And all the rests were, you know, because, yeah, they were accumulating so many of their own shares each quarter that, you know, and that they were going to be in they had, you know, the big four auditors were, were their auditors. I mean, all this is all big names. You know, the Stock Exchange was called NASDAQ, oh, MX, Iceland, you have KPMG you have EY you don’t have the the big four auditors are in Iceland, they knew that when their books were audited, they couldn’t be sitting on, you know, $200 million worth of their own shares, which they had just bought on the exchange. So they did these complex and runs style machinations at the end of the quarter to offload the, the, the shares. And so they would create, I would find a shell company that British Virgin Islands that had just bought 100 million worth of shares. And so to answer your what one of your questions a few questions ago, what were they making loans to well, by the by Oh 607 their loan book was almost entirely to these bogus companies that they had just created to buy the shares from them. Yeah, so So you know, it doesn’t make any sense at all, but it was uh, I think fake wanted to keep that, that that. I call it shear laundering. I think they wanted to keep that scheme going as long as they could. Yeah. Now
Gene Tunny 24:59
is that all Iceland secret or is Iceland secret something far worse that I’ve yet to discover?
Jared Bibler 25:04
I think I’ll tell you that secret, if you want. I’ll do a spoiler alert. I don’t know. This. That is the secret is the share is certainly a big secret. Because you know, that that was never really reported. This is one of the reasons I wrote that was like, I have to tell this story. I mean, yeah, they basically deceived the whole country. And all the investing world, I mean, London, all the big markets knew about these Icelandic banks that were lending to them, they were doing business with them. And the whole time they had created, you know, an illusion of success based on this market manipulation that they were doing daily behind the scenes, you know, the guys who were doing the manipulation had to do it so much that if if there’s a famous phone call, and one of the court documents where the guy’s late for work in the summer, and the price in Sweden has already dropped a couple of percent, and his boss is calling him saying, Get in here, man, we’re losing, like, you know, if they had to be in there on every trade, to keep up this illusion, and they did this free for for a decade. So I think that’s, that’s, that’s one of the secrets of the book. Well,
Gene Tunny 26:14
I can we can leave it under wraps. Okay, because I don’t I don’t want to ruin any potential sales of your book. And I don’t want to spoil that for myself, too. But I was just wondering, because when I when I saw the title, and then I started radio, then I that must be the seagull you’re talking about. But if there’s something far worse that that really gets me interested,
Jared Bibler 26:35
there is something far worse. Okay. And I would, you know, go ahead. Well, I just want to make the point that a lot of people say, Who cares about Iceland, and I, of course, I love Iceland. So I care about it a lot. But, for example, when people here in Switzerland, read the book, or hear me talk about it, I get a lot, there’s a lot of scared faces in the crowd. Because a lot of a lot of the world’s financial markets are are subject to the same forces and incentives as we had in Iceland, which led to this incredible collapse, which devastated the country. And I think it’s really the story again, I’m biassed, of course, but I think this is really kind of the story of what we may be all facing in the next couple of decades. Because we, we haven’t managed yet. And that and I also people get offended when I say this, but in two or 300 years, I think people will look back on us and the way we structured our financial systems and laugh at the way we laugh at Dutch tulip mania, or, you know, because we have kind of no put in no incentives, or no structures to keep an Iceland from happening elsewhere. Now it’s going to be maybe the nice thing about Iceland is it’s such a small place. It’s such a small population that the scam is very easy to for me to describe to you. I think in a bigger market, it’s going to be more it’s gonna be more subtle. But But still, all the incentives are on the side of of cheating, and building in, in sustainability to our markets. And nobody is really paid good money to, to stop these things can mean you have some window dressing like you have comply. I mean, they stopped some things. But in my experience, when senior management of a bank wants a big deal to go through, that deal is gonna go through nobody’s sitting, nobody’s gonna get paid have a 5 million franc bonus to stop to stop to stop something. This is not how it works.
Gene Tunny 28:41
Okay, we’ll take a short break here for a word from our sponsor.
Female speaker 28:47
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Gene Tunny 29:16
Now back to the show. One of the interesting stories in the book is where you’re having to clear or run a transaction, aren’t you or make a transaction or deposit two was at a bank in Europe and trying to remember exactly yeah, it was trying to remember the details but in your manager, he initially said I Yep. Sounds fine to me. Just let it go through then. Later on. Oh, that must be it’s Jarrettsville. Sir, could you tell us about that?
Jared Bibler 29:49
Oh, yeah. So I tried to sprinkle in actually, my dream is to rereleased Iceland secrets sometime in the future with with more of the stories in there but my publishers said, you know, you’re a first time author, you only get 300 pages. Sorry, Jared, but, but I had more of more of those things have I tried to sprinkle in stories in the beginning, which are representative of the culture within the bank? And when actually when other bankers and other countries read this state, none of them says, They all say, oh, geez, yeah, that’s exactly how it is where I work, you know, none of them says, oh, Jared, this, this only happens in Iceland, they all say, Oh, yeah. So the story you’re referring to is we had a, some guys who call themselves a hedge fund. And they wanted our bank. To be basically we were the administrators of the fund, and the custodians of the funds, assets, but they were going to trade. And they had, they had got the investors, and they had, I think 120 million euros come into the fund. And they, as far as I could see, they weren’t hedging anything. They were just buying long positions and in equity, and very few companies. And I think they, I think they had some inside information, basically, on these few of these companies. But as the, as the saga went on, they did more and more crazy things. And one point they said, We’re, we’re investing in a shipping portfolio. I don’t even know what that means. And I was waiting for like the paperwork about because when you do an investment, you know, you know how it is. I mean, there’s there’s a contract, and there’s there’s there was nothing. They said just Just what please, they wrote me like, please help us wire 5 million euros to this account in Norway. Yeah. At at such and such bank, it was one of the biggest Norwegian or Scandinavian banks. So it was a reputable bank, but we didn’t count just had a person’s name. All I had was like an AI ban and a person’s name. And I went to my boss, and I said, I don’t think we should send 5 million customer money out of this fun to this account. We don’t have anything. He said, Why are you always making problems? You know, bring the solutions. And so I just decided, eventually I did it. I sent the money. I mean, I copied him on and and in an email to cover myself. And I said as as we discuss, you know, and as soon as I sent the 5 million, as soon as that went through they, they wanted another five. I mean, within within, as I remember it within a day. I mean, it was very quick. They ended up they ended up sending out 15 in cash. And the other weird thing about this was that it was such a, you know, when you’re looking for fraud, usually round numbers is a good flag, because most things don’t. There’s always a commission or you know, taxes or something, or exchange foreign exchange differences. Things never come out or rarely do they just come out to like 5,000,005. So yeah. So then the fund within a couple of weeks, got into trouble for some other things. Now, I had been trying to warn these guys about about the problems with this fund for more than a year. And they just said, you know, making problems just it’s going to be fine, you know, let it ride. And so you can see more of that in the book, but that they were going to scapegoat me then for this 15 million they went out. Because yeah, when his boss looked at it, and all the transactions that just jumped off the page, they were the biggest ones. And you know, all these zeros, they just jump off the page at you. He said, he said, What’s this? And my boss said, Oh, I don’t know, that looks like something that Jared did. That was that was the weekend. I think that happened on a Sunday. If I recall correctly that night was when my wife had the dream. And that Monday, she woke up and she said you have to get out of there. Yeah.
Gene Tunny 33:53
Was very smart. And that was a Friday. So yeah, there was the Friday that.
Jared Bibler 34:00
Well, I quit. So I put me so that was a Monday in Monday. Yeah, that. Well. That was right after Lehman. I have to go back. And look, it might have even been the Lehman weekend that that happened. It was in September, then I quit when you resign in Iceland, you you resign on the on a month end. Gotcha. So I put in my resignation for 31st of October. Sorry, 35th of September. So I probably put that in within a couple of days, effective 30. September, then I would have needed to work three more months, according to my contract. So So I should have been there October, November, December. But they was that stories in the book too. They basically let me go on the Friday October 3. And then the banks collapsed on the seventh eighth and the sixth, seventh and ninth of October.
Gene Tunny 34:58
So the banks collapsed. This is a day that was at the three biggest banks in Iceland collapsed. Yes. Right. Yeah. And you talked about the the hardship before. But so what did it mean, you know, one could get people weren’t able to get cash they the economy basically stalled? Yeah, it
Jared Bibler 35:18
was. So I’ll try to walk you through it. I mean, it was, it was frightening, because for months, the currency of the currency against the euro had been depreciating. So it’s through the, through the crisis week, the currency depreciated so much that it was it had lost half of its value, since maybe five, six months before that. So everything we were used to like flying to Europe and having vacations and things, everything was now double in price in a very short time. So that had already been going on. And the politicians were just saying, well, the currency will come back. There’s, there’s nothing on the other side, it’s never come back, of course, still today, and then what happened in the crisis is that it actually just, they just stopped trading. Nobody. So outside of Iceland, during the good years, it was 60 or 70 krona to the dollar. And then the offshore rate became something like two or three or 400 to the dollar raw. So anybody offshore who had ISK, they just wanted to dump it, they didn’t care what the rate was. So you had this offshore rate of two or three or 400, whatever it was. And then onshore, we had capital controls, which lasted a decade. So in Iceland, you could buy euros for, you know, for a predetermined rate set by the central bank. And they would basically give you the euros that they had against ISK. This lasted for a long time. And but you couldn’t get them you could only get them if you were travelling. Or if you hadn’t, if you had an invoice. That’s it. Yeah, there was no way to get dollars or euros or anything else for a long time. And of course, that that begat a huge new scam industry. All the bankers who had just been laid off from the banks, not all some of them started faking invoices from foreign companies. And you know, get if they had a relative in the UK, they have the relative send an invoice which said so and so’s consulting company 50,000 British pounds, they would get the, the onshore Icelandic rate, they’d wire the pounds out to the foreign account, the foreign guy would would take the British pounds and buy some Icelandic government bonds from a British guy who didn’t want them and would take the offshore rate. And they’d send the bonds back in in one in a one or two day round trip. They could double their money or triple their money in local currency terms. So that became a whole industry, which ran for about six. Yeah, to try to profit on the capital controls and but what it was really doing was depleting. The what meagre foreign currency reserves we had at the Central Bank, were being depleted. That’s another piece of the book. You probably didn’t get to. But the central bank gave away most of its FX reserves. After the first two banks collapse, central bank gave 500 million euros to prop up the Third Bank. That money disappeared in one day. And then the third bank also collapsed. And they they have never got that money back. That was that was a substantial chunk of Iceland’s FX. Yeah.
Gene Tunny 38:56
And you mentioned the the exchange rate and prior to the crisis, and you tell a story about how I mean teachers and people you would normally expect would be going they’ll be travelling overseas for shopping trips. Yeah.
Jared Bibler 39:10
Yeah. Because I just realised I didn’t really answer your question, the last one about how to live through it, but but to come to the teachers. Yeah, I mean, for those few years after the after the FX trading was free, you know, globally available. There was a huge demand for ISK assets among investors around the world because the yield was so high, you could get an eight or 10% and it was perceived to be a safe place to invest. And so a lot of money just flooded into the country. And that meant that the exchange rate went, the ISK got 20 3040 Maybe 50% stronger in a very short time. So people felt very rich and Um, but things in Iceland are still very expensive because you have almost no competition on retail and wholesale and, you know, maybe one wholesaler for anything you might buy. And so the currency was very strong. But that doesn’t mean that domestic prices are going to go down. They should, but they’re sticky. They don’t go down, right? Yeah, but that means you can go abroad and for and for the savings that you will have on buying, like, say, a laptop computer, you go to Boston to buy it would pay for the trip, the savings would pay for the trip. So that was a calculation that many of us made, people would just go to buy. I was in Boston once and someone had bought four big tires for his SUV in Iceland, and he was putting them on the plane they were putting them on, it’s just luggage with, you know, with a tag just wrapped around the tire and putting them on the belt, he probably saved enough on that to pay for a weekend in Boston. So as if it was a calculation a lot of us made. And so yeah, we felt super rare, we felt like the world was our oyster. And when we would go, also things seemed very cheap. So I went to Boston, and I took out my mom and dad, my brother and his wife for a meal. And even with a generous tip for a meal for the five of us, it cost only a little more than a meal for one person would have cost in Reykjavik at that time. So we just felt they felt like for me, it only lasted maybe 36 months or 24 months, but we felt like kings. Yeah. And then And then yeah, the the, the loss of that was that the times were very desperate in, in especially the autumn of Oh, eight, we had no idea what what the next week was going to bring. I mean, we had the terrorist thing from the UK, which really, that meant that all the companies in Iceland, let’s say that you had a fishing exporting fisheries company that was expecting to be paid for fish that they’d already exported to the UK or to the mate or mainland Europe. The payment would be just frozen in Swift, it would just have to be blocked somewhere in the UK and not allowed to go through because the whole country was considered a terrorist organisation. So
Gene Tunny 42:16
what was going on there? Jared? Was Was there any? Was that legit? I mean, what what’s going on? What were the banks? Did they have? Did they take deposits, so facilitate transactions for some shady people? What was actually going on?
Jared Bibler 42:31
That was just to punish Iceland? There’s many there’s different explanations? I’ve never heard a great one. I mean, Iceland, in England have a long standing tension are overfishing actually, there’s something called the cod wars in the 70s. Which Iceland one. But it meant that the fishing grounds that the English had been using, were no, we’re now claimed by Iceland. So some people say that this was retribution for the cod wars. Others say that, you know, it was retribution, because there was a lot of misunderstanding around savings accounts. And, and, and more generally bank products in the UK, that the Icelandic banks had offered. And so for example, there’s something called Icesave under under EU law, a bank in one country can open a branch in another country, and not be regulated by this by the new country. So so the Icelandic banks, when they were running out of money in oh six, they decided to use this to open online savings accounts in the UK. And take money from retail depositors in the UK, pay them higher interest rates to to lower them and take the British pounds, because they needed, they needed FX they needed foreign currency to keep to keep going. And so there was a there was a big misunderstanding between the two governments on the eve of the crisis, where famously the key was the finance minister, but he was a veterinarian, and he did not speak very good English, he should have had a interpreter. And he also should have had a UK cultural interpreter. Because as you as you know, you know, when, when an Englishman says I’m very concerned, that means like, you’re dead, you know. And so Alistair Darling was on this famous phone call. He says, I’m very concerned about the status of these deposits and so on, you know, I can’t remember the exact words, but the Icelandic guy just as well, well, we’re looking into that. And, you know, dollar darling is like, look, we’re going to talk tomorrow at eight in the morning, I’m going to call you but if this isn’t done, you know, we’re going to take we’re going to take measures, and I think I can’t remember the days how they played out but it was that day or the next that, because they had after 911, they had these new terrorist powers in the UK where they could put on her majesty’s treasury, they could put like al Qaeda on there, and that would just freeze all payments. Okay. So Gordon Brown just decided to put, so they put. So it was like al Qaeda, al Qaeda in Syria, I want to say or al Qaeda in Iraq, there was a whole bunch of terrorist names. And then it said republic of Iceland, Central Bank of Iceland. Financially, they even put the Financial Supervisory as a separate separately from the Republic as its own its own line item. But that just killed us, man, because that was in the middle of it. These countries are ostensibly NATO allies, right. And that just that just devastated us. And so yeah, so those months were just super dark we. Because they’re because of the freezing payments, there wasn’t like no food being imported. So we were eating more and more just locally, and we were anyway, for price reasons, eating only locally grown stuff. We just, I mean, we stopped driving the car. I mean, just I don’t want to sound like these are not complaints compared to what people have going through in Gaza right now, for example, but I mean, our lifestyle just was cut down to just the just getting through which we lived like that for years after, after that. Because the SAT and what is also sorry, the salaries were the same, but the buying power of the of the salary was half of what it had been in real terms. And then they they also raised taxes, the government raise taxes so that the income tax was almost 50%. In the years after the crisis, so I mean, I always tell Swiss people living in Iceland is like paying Zurich prices, but getting a Lisbon salary, you know, you have a quite low salary with high taxes, but then you have one of the most expensive cities in the world. So it’s all, even in the even in the good years. It was a struggle. Sometimes. Things are just unbelievably expensive. And even Swiss people today who go to Iceland as tourists, they say, Wow, it’s so expensive there. Then I say, Yeah, imagine living there and an Icelandic salary. It’s, you know, it’s not easy. Yeah. So
Gene Tunny 47:19
yeah. So during the crisis, you had a big increase in unemployment. Didn’t y’all have to look at what the stats are. But it was a huge economic shock. And it went
Jared Bibler 47:28
up four or 500% the unemployment rate. Right. Yeah, it was a huge shock, because the banks had employed the banks for so huge. I think they employ between them 10 or 12,000 people in a country of only at the time, 300,000 or so. And then you have all the you know, the follow on effects of such a big layoff. So, yeah, the unemployment rate was just just rocketed. And we just tried to Yeah, we just somehow got through it, everyone somehow got through it. But a lot of us lost our houses and, and all the pensions, pension savings that we had thought we had was was was decimated when the stock market dropped like that.
Gene Tunny 48:14
Right. So people are still feeling the effects of it. 15 years later, I would just I mean, people
Jared Bibler 48:20
don’t talk about it. Well, actually, they do. They do talk about it. Yeah, they are. Because they were they were projects like infrastructure projects. It’s almost like it’s, it’s almost though, like if so friend of mine was in Iceland, and said she was trying to talk to people about the crisis, and that nobody would talk about it still, like, people want to forget about it. Basically. There were infrastructure projects and ideas that we desperately need, like expansions to hospitals. There’s no rail infrastructure in the country at all. And the International Airport to Reykjavik is like a, it’s like an hour drive, it should have a train link. So there, there were things that the country needs that have just never been executed. And now they’re put on the back burner for 50 more years or something, who knows. So that’s definitely an effect and they actually closed some hospitals and some birthing centres, which forces people to drive over these, you know, really dangerous mountain passes and stuff in the winter to get medical care. So there were effects like that. And a lot of people lost their family businesses and, and so on. So the biggest effect is that when when the currency lost half of its value, Iceland suddenly became a tourist, you know, hotspot and, and Iceland marketed itself as such. And so that that that began the tourist wave, which continues today, but it’s like, it’s like what’s happened in other European cities but on steroids because the city of Reykjavik, the old towns centre is really only five or six streets. I mean, it’s a very small village. And now and that had very cosy things there like, like an old cafe with doily lace doilies, where the grandmothers drank coffee. And, you know, there was some classic things of old Reykjavik that were there. And almost all of that is gone now. Because it’s all just t shirts stores, or they’re selling like stuffed animal puffins, you know, and at the end, all the neighbourhoods around the old centre, including where I used to live, have become dominated by Airbnbs. So you can even walk around and not even hear the Icelandic language in the nation. And the, the old neighbourhoods are very giving because it’s just become tourists defied. And so that was the response. So people, often I face resistance, people say, Oh, Jared, come on Iceland recovered. And I’m like, well, first of all, nobody, nobody knocked on my door and said, Here, here’s the keys back to your house. But the other thing is that it all it only recovered by transforming into something pretty ugly for my from my eyes. Yeah, yeah.
Gene Tunny 51:19
Yeah, yeah. Yeah, it’s. Yeah, I mean, it really was a huge shock. And I mean, I didn’t appreciate like we we sort of sailed through it. Reasonably. Okay. Here in Australia, there was a little bit of a slowdown, but then we were insulated from a lot of it partly because of mining. Right? Yeah, it was extraordinary to see just how bad things were there. So I’d recommend the book on that count, for sure. Just a couple more things before we wrap up. What happened to the perpetrators? Were some of the people do jail time. Is that correct? That’s,
Jared Bibler 51:51
that’s part of the secret at the end. Yeah, they some of them actually did a few months here and there. We, because the headline of Iceland was it was the only country that prosecuted bankers after 2008. Yes, and that is true. And the cases that you read about in the book are the reason the main reason behind the big prosecutions, but in the end, so in many European, I’m not a lawyer, so this surprised me. But in many European legal codes, you can’t get charged for multiple counts of the same crime. So if you if you did market manipulation, but you did it every day, for 1000 days in a row, which is what they did, when I and the max penalty, if you read the way the law is written, which is a European legal code that Iceland imported. But clearly, the spirit of the law is for someone who did a manipulation, maybe for a day or two or a week or like a single event. And then in Iceland, its maximum of six years in prison for that. So I was naively thinking, Oh my God, these poor guys, like they did it every day for 1000 days. It was gonna be, yeah, up to 6000 years in prison. And people said, No, charity, don’t be silly. Like it’s market manipulation. That’s one thing. And so the sentences that the so we were able to show that a lot with emails and internal documents, we’re able to show that, of course, the knowledge of this multibillion dollar manipulation went all the way to the CEOs of the of the banks, and even higher into the boards, and the ownership. But we were able to show that that went up in the biggest bank to the executive chairman of the board that he was getting daily reports on the manipulation directly from the traders. So they were they were writing these things, and I’m paraphrasing here, but Hey, boss, you know, we bought another XYZ number of shares today, the price is up 1.2%. You know, so that was a daily update to the chairman.
Gene Tunny 54:10
And did they not just not appreciate what they were doing was? I mean, I presume this I mean, this is illegal in Yeah, it sounds it sounds healthy, go. Did they just not appreciate it or they?
Jared Bibler 54:23
That’s what I think the book is, of course, I’m biassed again, but I think the books super important because it gets into a little bit. And you see this now with Sam Backman freed and the FTX trial and so on. The behaviour of white collar scammers, part of their shtick is that they can’t even admit to themselves that they’re doing criminal things. They, even after they’re charged, convicted and they serve jail time. My experience with the Icelandic situation would would lead me to believe that Sambac been freed for example, will probably never have a moment of clarity He, where he says I did some bad stuff. I mean, he should because it would help his soul it would help him like karmically to, to release that right. But he, I hope he does, but he probably will not. Because So, for the very top people who are masterminding the scheme, their justification is always like, Well, we were doing great things with the bank. So whatever it took to keep the bank alive is good. And then the people lower down in the scheme are just following orders. You know, like, like the guards that Auschwitz or something, you know that, and, and many of them are naive. So, some of them knew it, but some of them in my experience actually didn’t even think about. Because Iceland can also sometimes be very hierarchical culture where if your boss tells you, hey, buy all the shares on the market today, you’ll do in, it’s like, oh, my boss told me, you know, I’ll do that. So I think this is kind of a good template story for how these frauds go on. And, and I don’t know if I say this in the book, but the entire business of the of these banks, by the end, was perpetuating, perpetuating the buying of shares in the hiding of shares offshore. And they involved every department. And so, a lot of those people, I think, just just were just doing their job.
Gene Tunny 56:34
That’s how they see it. And so this was an important or this was an essential part of making the banks look much better than they were, and attracting the letting them borrow more from overseas, and then they lend that onto their, their friends or cronies. Okay, that’s
Jared Bibler 56:52
right. That’s yeah.
Gene Tunny 56:55
Yeah. Yeah. So the untold story of the world’s biggest con so. Yeah, I mean, that’s a big call world’s biggest con, but you, you’re confident it is. So you think
Jared Bibler 57:05
maybe it’s maybe it’s been outpaced now by crypto or, you know, but but certainly in the sense of a con that takes down a whole country. I think that scale definitely is still the biggest.
Gene Tunny 57:18
Yeah, yeah. It’s pretty extraordinary. Yeah. Okay, so, Jared, this terrific. It’s really, this conversation has really motivated me to finish the book and make sure I understand all the details as best I can. I think it’s yeah, it’s just extraordinary. What happened, I guess, to end on what do you think the lessons are for the rest of the world? I mean, we talked about how the, you know, you mentioned there could be a certain type of person who’s a white collar criminal, and there’s the quite brazen, I guess, you’ve got to look out for those people. I don’t know how you do that. I mean, you obviously need some sort of regulation. It sounds like the regulator in in Islan, Mae, it probably wasn’t doing the job it should have been doing beforehand. I mean, you discovered that you could actually go and visit these banks and force them hand over documents, which are was very good. So yeah, what are the lessons for the rest of us? Now for the rest of the world?
Jared Bibler 58:15
I think we need to. So this pattern keeps repeating. And my point with the book is that if you let this thing get out of control, it can take down your whole country, because our financial system is not just a playground of of, you know, Sam Backman, freetds and billionaires. But it’s also how we pay for things. It’s also how we save money. And we rely on it to it’s, you know, we take it for granted. But it’s kind of like the air we breathe in our daily lives to get to get groceries to, you know, buy a car or house, whatever. And so those two things, unfortunately, are connected. And the incentives for for having a system that that works well, and is not subject to gaming and collapse, I think are not. We have we have plenty of we have too many regulations probably, you know, we have a lot of people who spend their days checking boxes and things like that, both at regulators and within these institutions. But we haven’t really yet thought about what structure do we want the market? The markets to have? Markets are always created by us, you know, they’re not we, you know, people say, oh, you know, that let the market sorted out. But markets always have rules. You know, I used to work at the Swiss stock market here you have an opening time and closing time you have a cloud closing auction, how that works. I mean, you have the whole thing is rules. And we need to think more about as citizens I think we need to think more about what do we want our banking system to do, what are the outcomes we want? And then how can we best get those incentives, incentivized and I think and again, I’m biassed, but And this is very controversial, but I would like to see someone try this, I would like to see what happens in a country where the country’s regulator regulators would be incentivized to bring in the biggest cases they could, or prosecutors, right? Imagine, imagine if the incentives that bankers get, because if you do a $10 million, or $100 million deal, you get a piece of that as a as a bank employee, if you bring in that business, if I bring in which in Iceland, I brought in three, I don’t know, you can measure the cases different ways. But let’s just say conservatively, three $4 billion frauds. Each of the banks, for example, if you just take the last year, each of them spent about a billion US dollars or more just buying up their own shares on this tiny Icelandic stock market that you’d never heard of. Right. So but my team doesn’t get any, we don’t get any team dinners or anything for that, we just get a salary. So there’s actually, it’s even worse in most regulators. If you are someone like me, who’s a bit of a maverick, who wants to go after things, you don’t last, you won’t have a job, because that’s not the personality that anybody is looking for in those in those institutions, unfortunately. So we need to incentivize that we need to have the same type of risk taking and so on, on the regulation side that we have on the banking side, because otherwise you have a and the same thing with salaries. I mean, if you’re a great regulator, you know, you can always walk across the street to a bank and double your salary. So, so what’s going to make you you know, go after people at that bank or or look too deeply into anything you don’t. So the whole system is kind of really tilted. One one way. I don’t have all the answers to this, but I would really like to have this be in the conversation. And I suspect that after the next financial crisis, which I think is coming, I think it I hope, my hope with writing the book was to get this out there so that we could start to have that conversation. Because since 2008, we haven’t changed enough to keep that from happening again.
Gene Tunny 1:02:10
Yeah, absolutely. Fully agree with you there. Have been talking about this on my show from time to time, so absolutely, fully agree there. Okay, Jared, is there another book coming out anytime soon? I
Jared Bibler 1:02:23
have one but I’m, I’m not sure what I’m gonna do with it. But I’m working on one.
Gene Tunny 1:02:26
Okay. Okay, so
Jared Bibler 1:02:28
you keep that under? Yeah, under under wraps. It’s another secret, it might have secret in the title.
Gene Tunny 1:02:35
If they’re sick if they’re if I still don’t know, Iceland’s secret, I’ll put a segment at the end of this episode just for those who want to know, but I’ll encourage people to read the book. Because I think it’s an enjoyable read. And I love the all the stories and just how you learned about the issues in Iceland’s before the time before you saw teachers going by on buying trips overseas, people were importing BMWs and Mercedes while you are importing your rav4. Stories. Thank you, Jared. That’s, that’s great. Right. Any any final thoughts for wrap up?
Jared Bibler 1:03:13
No, I just really appreciate the time to talk to you. And that was it was lovely to be on your show. Very
Gene Tunny 1:03:20
good. Thanks, Jared. Thanks. Okay, I hope you enjoyed my chat with Jared. Thanks got pretty messed up in Iceland didn’t that. According to Jared, things aren’t much better today. Jared left his job at the regulator in late 2011. After there was a reduction in the resources he had to investigate the misdeeds of the bankers. Unfortunately, the response to Iceland’s financial crisis ended up being inadequate. Several wrongdoers were punished, but they received relatively light sentences and many bankers got away with it. In Jarrods opinion, the regulator’s still don’t have enough power in Iceland. Politicians were unwilling to make tough decisions and apply the level of oversight and enforcement that is required in Jarrods view. That’s possibly because of the close relationships between politicians and bankers and business people in Iceland. Iceland is still experiencing financial scandals. For example, in October 2023 Bjarni Bennett Dixon, a former Iceland Prime Minister, he had to resign as finance minister, there was an irregularity with the privatisation of one of the banks that was taken over by the government during the financial crisis. It turns out is a company owned by his father was one of the purchasers of shares in the bank that was, that was privatised, so that raised a few eyebrows. Okay, Mr. Bennett Dixon, he has a reputation for being a Teflon politician. Though and only a few days after resigning he was appointed as Iceland’s foreign minister. That’s an impressive comeback for sure. From what I can tell what Jared thinks is Iceland’s big secret is this ongoing permissiveness regarding dubious financial dealings. It could be a big secret in in many other countries too. So for those of us in Australia, the US, UK and elsewhere, we need to be vigilant and watch for any signs of financial shenanigans in our countries. Finally, I’d encourage you to pick up a copy of Gerrard’s book, Iceland secret. There’s a lot of fascinating and intricate detail about the various financial shenanigans that occurred in the lead up to Iceland’s financial crisis. Jared did a great job with his book, and I’m very grateful to have had him on the show. Thanks for listening rato thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact at economics explore.com Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting outlets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.
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Credits
Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.