A major factor in the Icelandic expansion of banks and businesses abroad was the belief held by these expanding forces that they had important qualities and ways of doing business that outdid foreigners. Time and again, Icelandic bankers and business leaders said that their way of doing business was something others could learn from. Olafur Ragnar Grimsson president of Iceland was a diligent propagator of this thesis of the Icelandic business Übermench. Grimsson eventually formed a theory of thirteen key characteristics that made Icelandic banks and businesses so good at conquering the world, most eloquently explained in a speech in May 2005. The collapse of the three Icelandic banks, a large part of the Icelandic financial sector and many of those businessmen who formed part of the Icelandic financial elite has seriously undermined the validity of this theory. Interpreting this belief through the Icelandic sagas ‘hubris’ is a better explanation – after hubris comes the fall.
The recent ruling of the Icelandic High Court on the so-called ‘currency-basket loans’ is another chapter in the story of the Icelandic hubris. Instead of doing something to properly strenghten the economy and fight inflation the created a byway, linking loans to low interest rates abroad by issuing loans to individuals and companys that were set up as loans in foreign currencies but were actually in Icelandic kronur. This has now been ruled an illegal form of loans by the Icelandic High Court: it’s illegal to tie interest rates to foreign currencies when the loans aren’t really in foreign currencies.
A source familiar with the situation pointed out to me that the ruling is yet another ‘thumbs down’ for the Icelandic banks. These loans could easily have been set up so that they would have complied to Icelandic law. It was just a matter of wording the loan contracts more precisely. If the legal departments of the banks had done their job properly and the managers of the banks had been alert to the importance of working out the details, acknowledging that the devil is in the details, and leaving no issue unexplored this wouldn’t have happened. Not only did the banks mess up things abroad. They didn’t do a brilliant job at home either.
There were from the beginning critical voices regarding the currency loans – but the banks seemed to have ignored them, probably thinking it was good enough to function. Rather like the BP employee who wrote in an email when BP cut corners drilling the now so infamous well in the Gulf of Mexico: “Who cares, it’s done, end of story, will probably be fine.” – Relying on the ‘probable’ can be a damaging and dangerous strategy.
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