Ice, ice baby

Sure, the president of Iceland's decision to override parliament and not repay the country's debts to the UK and the Netherlands is an outrage, and no doubt one for which the country's citizens -- who are clamouring for the debt to be repudiated -- will pay heavily. Truth to tell, though, there's more than enough blame to go around in the whole sorry saga, enough for...

....the cowboy "bankers" who used Reykjavik as a base for marauding around Europe, using deposits gathered under dubious circumstances to purchase a stunning array of ropey assets;

....the Icelandic government and regulators, led by the now-discredited David Oddson (-ofabitch), who failed to realise what was going on;

....the money "experts" in the media who urged depositors to pile their money into these bogus banks, highlighting the availability of deposit insurance while ignoring concerns about the safety of the banks themselves;

....the greedy depositors who took the juicy bait, but then had no qualms going to the authorities in both the UK and Netherlands demanding repayment of monies beyond the deposit insurance limits;

....the UK and Netherlands governments for agreeing to make these depositors whole, though in the fraught circumstances of the time this is perhaps understandable.

In retrospect the Icelandic bank story never made sense, a fact that was brought home to me when it emerged that the "multi-millionaire" owner of West Ham FC was....an Icelandic biscuit "tycoon". With a population of 300,000, how many packages of biscuits per head do you have to sell to have enough spare dough around to buy a Premiership foootball team, even West Ham? I pointed this out to a former colleague and he said "they're partial to a nice digestive up in Reyjavik" -- which is fortunate, as they may have very little else on the menu if they actually default on the debt.

There's a bigger point to be made here, though. For a number of years, the banking sector was Iceland's key source of growth and prosperity. Almost none of its activities took place in Iceland; Reykjavik was just a convenient place to operate from, rather like registering your oil tanker in Monrovia. The sector became way too large in relation to the rest of the economy, yet when it all went bad, it was the locals who took the brunt of the pain, and who the UK and the Netherlands are counting on to pay back their depositors. The parallels with the City of London are too numerous to count, even if the scale is wildly different. It's to be hoped that UK regulators and politicians have taken due notice, because this is why separating "utility banking" from riskier activities is a good idea.