Sigrún Davíðsdóttir's Icelog

A week is a long time in (Icelandic) politics

with 8 comments

Last week started with a TV interview where prime minister Sigmundur Davíð Gunnlaugsson spent the best of half an hour arguing with the journalist, much to the dismay of many TV watchers. Then there was a report on Iceland and the EU, which led to the government deciding to break off EU membership negotiations, in spite of earlier promises to vote on continued negotiations; a decision ex prime minister Þorsteinn Pálsson called the greatest political betrayal in Icelandic history. And lastly, it was also last week that the government, at the 12th hour, announced it was going to take time to set up a committee to ponder on changes, or not, at the Central Bank. This which means that the CBI will clearly not be taking any major decisions until new governor(s) are in place, which again must set some creditors thinking – and perhaps also some Icelanders.

For two days protesters have gathered outside the Icelandic Alþingi, parliament. It is not an angry mob, more like a crowd during an interval at a theatre waiting patiently for the second half. What started out as an awkward election promise is now a millstone around the neck of prime minister Sigmundur Davíð Gunnlaugsson but more seriously minister of finance and leader of Independence Bjarni Benediktsson. At the time, Benediktsson himself now against Icelandic membership of the European Union (but pro EU some years ago) but trying to avoid alienating pro-EU voters, eased out of anything final on the matter by promising a referendum on continuing the negotiations or not.

A history of broken promises

Both parties promised in no uncertain terms that they would not break off negotiations without a referendum but instead hold a referendum on whether to continue the membership negotiations. What the two parties had not foreseen was that there would be a clear majority for continuing.

Many voters now seem to feel that this promise has been broken in spite of the coalition parties offering various different version of actually-not-broken-promise. The government had said it would make up its mind on EU after a report it had promised already last autumn. Now that the report is out, a balanced overview of the negotiations and options, the government intends to skip earlier promise and instead break off the negotiations without any further ado. It even seemed to want to rush the matter through parliament last week, holding a parliamentary debate only a day after the 1000 pages report had been published thus giving MPs no time to study the report but it was forced to change its tempo and give more time.

This awkward promise of a referendum on continued negotiations now haunts the government. Benediktsson tries to spin it as being impossible to continue though he struggles to explain what should have changed since the promise was given. He did however say in a TV debate last night that he could “not completely” keep his promise.

This issue is particularly difficult for Benediktsson, less for Gunnlaugsson whose party is firmly against EU membership. Although opinion polls indicate that majority of Independence party voters are against EU membership the business elite, except for those with interests in the fishing industry, is for membership. This is turning into a major problem for the government. One Independence party member, Vilhjálmur Bjarnason, has said he will reflect the opinion of many party members and vote against breaking off the negotiation. The government’s majority is however still secure.

One who voices dismay in no uncertain terms is Benediktsson’s fellow party member ex prime minister Þorsteinn Pálsson who calls the change of course “the greatest political betrayal ever” in Icelandic politics. Pálsson is a respected commentator and many well-known Independence party members from the business community who side with him.

In addition, Iceland also now has its very own version of Sarah Palin. Last week, Progressive MP and chairman of the budgetary committee Vigdís Hauksdóttir stated during a radio debate: “There is famine in Europe now” and later said that Malta is “a self-governing zone within a larger country. It is not a country.” Before these remarkable statements her most memorable statement had been (during a TV interview on earlier promised action on the health service “at once” her party were in power) that the phrase “at once” was an “elastic concept” – a novel and highly creative interpretation that has now turned into a saying in Iceland.

CBI in limbo

By stepping in to make changes at the CBI the government has effectively kicked the CBI off the field of any major decisions regarding the estates of the collapsed banks and ultimately of the capital controls for some time, probably most of this year. This is seen a cause for worry in the business community tired of non-action on the capital controls. The bigger companies, often with foreign operations that ease the pain of the controls, find their way within the controls but smaller and medium sized companies are complaining loudly.

The first step towards changes is to set up a working group (no names yet) apparently to come up with suggestions as to what the changes should be. As pointed out earlier, it seems that the government was going to set all of this in motion at a later date but then realised, at the last moment, that by waiting it might have to pay the present governor Már Guðmundsson salary of the rest of his 5 year term, which would have been renewed automatically February 20 unless he had been notified. Which he then duly was, on that day. *

The situation now is of completely opacity as to the procedure. Also there is a complete lack of policy as to where the government is heading with the CBI. It is unclear who will come up with proposals, unclear what the government policy is (some indication that the FME, financial supervisory authority, might be put under the CBI as it was until 1998) and it is also unclear as to what the criteria will be for hiring a new governor and if there will be more than one governor. And obviously it is completely unclear as to how long all this will take and when new governor(s) might be in place.

Will the past replace the future?

Generally, countries where the government meddles in matters of the central bank do not fare well. Right now, it is not only the Icelandic government that is creating such headlines but also the governments in Hungary and Nigeria. Not exactly countries that Iceland has been comparing itself to over the years.

One of the more interesting remarks made by the prime minister in the TV interview a week ago was when he stated on CBI independence that “it would be good to have an independent central bank if we had a different government.”

The fact that the CBI had criticised the “correction” – debt write-down for borrowers who could afford their loans and consequently had not profited from earlier write-downs by the previous government – was obviously a matter of great irritation to the prime minister.

This ill-prepared intervention against the CBI has instigated a feeling in Iceland that the country is about to be steered back to the past where all public institutions and state-owned companies were carved up between the political powers. People were chosen to leading offices of power not according to merits but according to party affiliation. It came as a great surprise when Benediktsson recently appointed a young ex banker, Halla Sigrún Hjartardóttir. She has no previous experience of bank supervision but is an investor with rumoured connections to wheeling and dealing connected to the oil company Skeljungur. Not exactly a career similar to her opposite numbers in the neighbouring countries. The question is if this was only the first of similar nominations.

The question is if old politicians will now be put into power as once was the rule rather than the exception. Might ex prime minister Davíð Oddsson become the chairman of the board of Landsvirkjun? And will his successor as party leader and later prime minister Geir Haarde. So far, the rumours are utter speculations but they indicate a state of mind prepared to see the past turn into the future.

The past practices of the old banks live on (in hidden assets)

It remains to be seen if the strong feeling of the political past being projected into the future materialises. What clearly lives on from pre-collapse Iceland is the effect of the old banks’ operations, both its earlier practices and that most of the big borrowers still have access to considerable assets.

Post-crisis bankrupt companies with humongous debt and hardly any assets (left) shows how assets did migrate out of these companies to somewhere mostly out of sight and reach of administrators. Most of the well-known holding companies, supporting the ownership of the major shareholders of the banks have followed this pattern, i.a. Novator, Baugur, Exista, Fons etc. This alleged migration of wealth out of sight was facilitated by the banks’ lenient lending practices: the banks took all the risk, the favoured borrowers got covenant-light loans.

The clearest shift of risk took place during the winter of 2007 and 2008 when foreign banks, reacting to falling share price in the Icelandic banks, initiated margin calls affecting almost all of the big Icelandic bank shareholders who had placed their Icelandic bank shares as collaterals with foreign banks. The Icelandic banks, rather than seeing their shares flood the market evidently precipitating further falls in share price if not a total meltdown, stepped in and increased their lending to these shareholders. By Easter 2008, this shifting of risk and rapidly increased exposures was over and done with.

In only a few months these moves, well documented in the SIC report, hugely increased the Icelandic banks’ already considerable exposures to their largest shareholders and their business partners, in some cases going over legal limits (though in some cases the banks’ lending hovered under the legal limits by abstruse definition of “related parties”: i.a. Glitnir did not consider Jón Ásgeir Jóhannesson and his wife as related parties nor did Landsbanki classify Björgólfur Guðmundsson and his son Björgólfur Thor Björgólfsson as related parties).

Coming soon: transfer of wealth of historic magnitude

What is at stake in the coming months and years? The banks have amassed a great amount of assets that will be sold. Already, there is anecdotal evidence that the practice from the old banks, of issuing loans to favoured clients against shares with non-too punishing haircut, is abounding. After all, the banks do want to lend money and inside capital controls bad practices can fester.

The most prized assets, already for sale, are the two new banks, Íslandsbanki and Arion, owned by foreign creditors. Most likely these assets are highly coveted by certain forces in Iceland where banks have always bastions of political power and centres of handing out assets to favoured clients.

How the foreign-owned ISK assets of the estates – not only if Glitnir and Kaupthing but also of Straumur and Icebank – will be dealt with decides to a certain degree the price tag on Íslandsbanki and Arion. Any government action, affecting the price, such as converting all foreign assets into ISK/paying foreign cash out in ISK will be of huge interest to Icelanders with money and ambition to buy into Íslandsbanki and Arion.

It is no understatement that the sale of Arion and Íslandsbanki will greatly affect the business climate in Iceland in the coming years and possibly decades. If these assets could be sold on the cheap, aided by pension funds willing to act as silent owners by the side of active investors, the past might indeed be the future, not only in politics but also in the business community.

And now, over to creditors and mobile and educated Icelanders

By the end of 2012 both Glitnir and Kaupthing had presented the CBI with drafts of composition. The matter is still unsolved. Most of last year was lost to election and then a run-in time for the new government. That year went by without any bringing any clarity as to the abolition of the capital controls and the steps needed to solve the problem of the foreign-owned ISK assets.

Now the CBI is in limbo. What will creditors do when faced with an uncertain future of the CBI and an uncertain effect on how to resolve the problem of the ISK assets in Iceland? The creditors have various possibilities. Do they deem the government to be hindering access to the estates’ fx assets? If so, they could try to sue the Icelandic state abroad, i.a. in London. Argentina is the scare example of a country that for years has been kept under pressure from creditors. Not necessarily the Icelandic saga any time soon.

Some drama might come later. Then, on the other hand there will not necessarily be any big drama: some of the creditors might just silently choose to sell their claims. In troubled times the buyers are investors looking to recover their claims by litigating every penny, or in this case, every króna.

Ireland is now back in the market though the country is by no means on a safe ground yet. When will Iceland be in the market to refinance its debt? Judging from the government’s tendency to prolong problems instead of solving them it might take a while. Even a long while.

For Icelanders locked inside capital controls there is yet another “if”: if Iceland will be further isolated from other countries the effect of the growing income difference of the mobile and well educated classes compared to the neighbouring countries might take its toll. As counts for much in Iceland the changes are very gradual. Lost opportunities or loss of work force who does not return to Iceland after studies abroad is difficult to calculate.

* In his letter to CBI employees, Guðmundsson noted that he should have been alerted before midnight February 19. However, he was apparently not notified until evening of February 20. It remains to be seen if this will pose a problem for the government: if Guðmundsson will/cannot reapply, i.e. he could possibly claim that he should be paid for the rest of his term. Judging from his previous dealings regarding his salary, where Guðmundsson maintained earlier promises had been broken – he lost a court case on this issue – Guðmundsson will no doubt explore his position were he to lose his job.

See below for recent three blogs on power and politics in Iceland. The latest blog on capital controls is here

Follow me on Twitter for running updates.

Written by Sigrún Davídsdóttir

February 26th, 2014 at 6:19 am

Posted in Iceland

8 Responses to 'A week is a long time in (Icelandic) politics'

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  1. Sigrún,

    In your last several postings you have discussed political and economic aspects of the ongoing Icelandic International Banks Saga,‭ ‬but have given only slight notice to the legal aspects.‭ ‬You believe politics will play the dominant role as the saga continues and will determine the saga’s ending,‭ ‬and you suggest that if legal elements play any role at all their role will be of gadfly or spoiler ‬if delays irritate creditors so they bring lawsuits,‭ ‬or they sell to hedge-funds,‭ ‬who specialize in forcing pay-offs through suing.

    My view is that law will play the dominant role and the legal arena will be where the Saga plays out ‬in the end.‭ ‬I see Iceland’s politicians playing a Greek tragedy chorus role, rather than a starring one,‭ ‬and in the end either explaining and crowing,‭ ‬or wailing and lamenting,‭ which ‬depending on the Iceland’s high court’s decision settling the appeals brought by Icelandic bankers who have been prosecuted by Iceland’s Special Prosecutor and convicted by Iceland’s lower courts for banking activities they carried on outside Iceland, in Luxembourg,‭ ‬legal in Luxembourg,‭ ‬but illegal in Iceland.

    I believe the late Icelandic international banks‭’ ‬foreign creditors have been quiet and patient for awaiting that decision,‭ ‬which they expect to affirm the lower Icelandic courts‭’ ‬convictions against the bankers.‭ ‬I interpret the November‭ ‬2013‭ ‬initiations of actions,‭ ‬in Iceland,‭ ‬by the Dutch and British insurers who paid out to reimburse Icesave depositors to indicate that they believe the Icelandic high court will affirm.‭ ‬Their initiations of claims actions suggest them jumping to get on board to get in on a plundering of Iceland that will follow an affirmation and Mme.‭ ‬Hamilius succeeding in her actions to plunder owners of Spanish and French real properties, reaching from her Luxembourg jurisdiction,‭ ‬for her Landsbanki Winding-up Committee,‭ Icelandic, clients.

    The importance of the two events,‭ ‬the Icelandic high court establishing,‭ ‬through affirming that Icelandic prosecutors and courts may extend Icelandic jurisdiction to prosecute and convict Icelanders for actions engaged in in other nations,‭ ‬that Iceland permits and approves jurisdictional extension and reaching,‭ ‬and the success of Mme.‭ ‬Hamilius extending Luxembourg’s jurisdiction,‭ ‬at the request and behest of her Icelandic entity client,‭ ‬the Landsbanki‭
    ‬Winding-up Committee‭ (‬who are,‭ ‬therefore responsible for Mme.‭ ‬Hamilius‭’ ‬extension of Luxembourg jurisdiction to foreclose against real properties in France and Spain‭) ‬both succeeding is that,‭ ‬first,‭ ‬the Icelandic high court affirmation will establish the Landsbanki Winding-up Committee’s employment of Mme Hamilius to do what she is doing as legal,‭ ‬second,‭ ‬the same affirmation will establish that Iceland allows jurisdictions to control outside their natural national boundaries,‭ ‬and third,‭ ‬that Icelandic entities,‭ ‬and therefore Iceland,‭ ‬approve and permit‭ (‬and even advocate‭) ‬foreclosures against real properties in one jurisdiction from another,‭ ‬and approve and permit possessory actions to then allow the creditors‭ (‬in Mme.‭ ‬Hamilius‭’ ‬cases the Landsbanki Winding-up Committee‭) ‬to take adverse physical possessions of foreclosed from alien jurisdiction real properties.

    In law what is sauce for a goose is sauce for a gander.‭ ‬This means that if Iceland’s high court judges are goose enough to condone Iceland’s anti-banker crusaders‭’ ‬hatreds against bankers expanding the reach of Iceland’s national jurisdiction,‭ ‬for that expanding providing a legal basis for the lawyers of greedy Icelandic creditor entities to reach across borders to take properties,‭ ‬including real properties,‭ ‬to satisfy debts the Icelandic entities deem owed to them,‭ ‬then Iceland,‭ ‬herself,‭ ‬is legally subject to the same actions,‭ ‬which may be engaged in by creditors outside her borders who see properties inside Iceland,‭ ‬including real properties,‭ ‬that they might want to extend their‭ (‬or copying the Landsbanki Winding-up Committee’s example,‭ ‬Luxembourg’s‭) ‬jurisdiction to engage in the same foreclosing and the same adverse possessory actions,‭ ‬including of real property,‭ ‬in Iceland.

    With Mme.‭ ‬Hamilius achieving success in her takings of Spanish and French real‭ ‬properties from their pensioner owners per authority of foreclosure and right to possession orders issued by a Luxembourg court,‭ ‬and those successful adverse possessory takings establishing a precedent in law,‭ ‬on that precedent the Icelandic banks‭’ ‬estates‭’ ‬foreign creditors will have a legal authority established in Iceland’s high court and a legal right found upon an established precedent supported by Icelandic law as defined by Iceland’s high court,‭ ‬for doing as the Landsbanki Winding-up Committee has,‭ ‬except to deprive Icelanders,‭ ‬including pension funds,‭ ‬of property through debt foreclosure actions initiated in Luxembourg.‭ (‬Note that Mme.‭ ‬Hamilius,‭ ‬because she is a lawyer,‭ ‬and is working for Icelandic clients,‭ ‬and because a lawyer’s obligation is to serve her clients,‭ ‬is,‭ ‬indeed,‭ ‬as she has asserted,‭ ‬doing nothing illegal.‭ ‬Even if the Icelandic high court overturns the Icelandic lower courts‭’ ‬permissions of extensions of Icelandic Jurisdiction,‭ ‬so that the Landsbanki Winding-up Committee’s order authorizing her to extend Luxembourg jurisdiction for them becomes illegal,‭ ‬Mme.‭ ‬Hamilius will not have done anything illegal,‭ ‬because she will have just followed orders.‭)

    I anticipate that with affirmation from Iceland’s high court in the Icelandic international banker appeals cases things in Iceland will become very exciting.‭ ‬Especially since the property being adversely taken from the pensioners in France and Spain,‭ ‬in the precedent setting cases is real property.‭ ‬For the precedent establishing real property to be subject to adverse possessions by foreigners,‭ ‬Iceland will lose its authority to determine who may buy and own real property,‭ ‬and where and how much,‭ ‬in Iceland.‭ ‬Iceland,‭ ‬the land,‭ ‬itself,‭ ‬will go the same way the old Icelandic Saga books went,‭ ‬except it will go to Holland and Britain and Berlin and New York investment bankers/funders and holding companies,‭ ‬instead of to Denmark.

    Of course,‭ ‬the Icelandic high court may not affirm.‭ ‬The whole business,‭ ‬from prosecuting the bankers through the lower court’s convicting them could have been a strategic ploy.‭ ‬International law games are frequently not straightforward and simple.‭ ‬The Icelandic international bankers were not the ones responsible for the collapses of the Icelandic international banks.‭ ‬The British regulators kept moving the ground,‭ ‬changing their regulatory rules and demands,‭ ‬and they were working for the British banking industry,‭ ‬whose cozy collusions and bent banking practices were being threatened by their Icelandic competitors offering honest alternatives.‭ ‬None of the colluding and crooked British bankers,‭ ‬or their regulatory and Downing Street partners have ever been prosecuted,‭ ‬or even charged.‭ ‬The Icelandic Special Prosecutor’s periodic announcements of charges,‭ ‬and their trials and convictions in the Icelandic lower courts have served as periodic reminders that no one had been and no one was,‭ ‬doing anything,‭ ‬even to sweep the crooks out of the industry or positions of regulatory responsibility.‭ ‬All in Britain would have been long ago forgotten,‭ ‬were it not for the periodic Icelandic prosecutions appearing in headlines,‭ ‬instigating people to ask,‭ ‬again,‭ ‬and wonder,‭ ‬again,‭ ‬why no one had done,‭ ‬or was doing,‭ ‬anything.

    The Icelandic bankers were,‭ ‬of course,‭ ‬not out of money‭; ‬they could afford lawyers‭; ‬and they had the time:‭ ‬A few months of Arcadian incarceration is hardly any hardship,‭ ‬really,‭ ‬and they were out of work,‭ ‬anyway,‭ ‬weren’t they‭? ‬They can look on their trials and incarcerations as a form of national service.

    And the lower Icelandic courts,‭ ‬well,‭ ‬no court is obligated,‭ ‬or expected,‭ ‬to return correct verdicts in every case.‭ ‬Their errors and departures are what appeal to higher courts is there fore.‭ ‬And their verdicts don’t establish precedents or even set trends,‭ ‬except in the minds of gossips.‭ ‬They do,‭ ‬by their decision decisions send questions up to be pondered and answered.‭ ‬That is one of the jobs lower courts do.‭ ‬So lower courts sending up a few dubious verdicts is right enough for a lower court to do.‭ ‬What they don’t do is define or change the law‭; ‬that is for high court decisions to do.

    So Iceland’s lower courts‭’ ‬line of potentially jurisdiction-expanding decisions against bankers could as well be appeals for the high court to consider questions and exorcise confusions,‭ ‬rather than serious-conviction verdicts.

    And,‭ ‬Iceland being a fishing nation,‭ ‬what would be more natural than for an Icelandic lower court to fish a little,‭ ‬trolling a line with a wormy Luxembourg case for bait on the hook‭? ‬Bait and a hook that British banking appears to have taken.‭ ‬That Holland took,‭ ‬too,‭ ‬though Holland is hardly a big enough fish,‭ ‬and will have to‭ ‬be thrown back.

    But Britain,‭ ‬lured up to file a case in the Icelandic courts…‭ ‬Britain’s banking industry voluntarily carrying itself into a court system that does try bankers and banking questions‭! ‬If Britain believes itself owed a debt by TIF,‭ ‬well,‭ ‬the source of that debt,‭ ‬where the debt came from,‭ ‬how it came about that the debt was incurred,‭ ‬who was responsible for the situation that brought the debt and caused it to be incurred…

    It could be that at long last the means is at hand for persons with questioning minds,‭ ‬not only in Iceland,‭ ‬but also in Britain,‭ ‬and around the world,‭ ‬to get some answers,‭ ‬to find how and why the British FSA ramped up its requirements,‭ ‬singled out Icelandic owned banks and denied normal and common considerations,‭ ‬to say nothing of equal treatments,‭ ‬and so on.

    If the high court of Iceland reverses the lower courts‭’ ‬decisions based on extensions of Iceland’s national jurisdiction,‭ ‬it will not affect the matters brought into Icelandic courts in Iceland by the British and the Dutch.‭ ‬Those are solidly within Iceland’s traditional jurisdiction.‭ ‬And,‭ ‬of course,‭ ‬they having sued,‭ ‬they may be counter-sued,‭ ‬in the same jurisdiction they came as aggressor in…

    I see all sorts of potentials and possibilities for exciting developments in the legal arena.

    RL Dogh

    27 Feb 14 at 1:46 am

  2. RLD, I don’t see the parallel between the two cases. It seems to me that the British and Dutch suit is entirely about Icelandic law within Iceland, and is quite strong, although no doubt Iceland will find some excuse to argue that their own law and promises never quite meant what a reasonable person might have thought they did!

    Iceland’s rejection of the UK/Nl claim was based on the argument that the TIF is a private foundation. Now if the TIF is not a ex-ante funded investor protection scheme, it must, to have any value whatsoever, be an ex-post funded scheme. Following the way that deposit insurance is supposed to work, the TIF should be a priority creditor of the Landsbanki estate, having subrogated the part of British and Dutch depositor’s claims that relate to the TIF deposit guarantee. Although the TIF was unable to pay the British and Dutch depositors in the timely manner prescribed because the Icesave referendum rejected the loan terms offered by the British and Dutch, I would have thought that it still has responsibility to repay the depositors’ representatives (ie the FSCS and DNB) as it is able to do so. If the final distribution from the Landsbanki estate fails to generate enough money to meet those repayments, to fill that gap the TIF should be levying ex-post the revived (thanks to government intervention) Icelandic banks. That means that, if the Icelandic government chooses to raid the Landsbanki estate in various ways (eg a tax to fund its mortgage write-downs), the British and Dutch should be partly (only partly, because they still are subrogated to the claims of British and Dutch depositors for losses exceeding the TFI guarantee but paid under the larger FSCS and DNB guarantee) shielded by the TIF. And since of course the Icelandic government benefits from the revived Icelandic banks in various ways, not least as owners of Landsbankinn, it will mean that the government will bear some of the costs of its own tax.

    No doubt the Icelanders will find some way to wriggle out of their responsibility again, such as a statute of limitations, declaring the old TIF to be bankrupt and defunct etc etc, but for me, the legal gymnastics that Iceland will have to perform to get around the spirit of its own laws will underline again the utter immorality of Iceland’s position in the Icesave dispute.

    You may find an article I have written for Central Banking Publications on the background to the UK/Nl lawsuit interesting. To read it, google “cold comfort for Icesave guarantors” and follow the link to avoid the paywall.

    Finally, I would note the irony of this latest twist in the Icesave dispute, which Icelanders tend to characterise as their justified refusal to bailout the participants in risky private banking activities, but which in this case derives from their own risky borrowing on inflation-indexed terms to avoid the risk premium on nominal ISK interest rates reflecting Iceland’s history of using inflation to reduce its debt burdens. It seems that, to Icelanders, finance is a game of “heads I win, tails we renegotiate the contract”.

    Tim Young

    27 Feb 14 at 10:05 am

  3. RL Dogh, I don’t see any evidence so far of Mme Hamilius succeeding in getting possession of pensioners properties in France and Spain.

    Landsbanki Victims Action Group, Govollux

    Nina Foster

    27 Feb 14 at 7:10 pm

  4. Nina,

    I am glad to be informed that the Landsbanki Luxembourg play to take pensioners’ real properties is still failing. I would say that that is as it should be, but ‘as it should be’ would be no attempts to take such possession ever taken. Under traditional international law no such attempt would, or could, have been attempted, and there would have been no Landsbanki victims, or any necessity for defensive action. The reason is that the ‘real´ of ‘real property’ references ‘realm’, and under traditional law the property of a realm, being part of the realm and not removable from the realm is, one, not movable property, and, two, recognised in law owned by the realm, with individual property owners owning under sufferance of the realm. This gives the realm ultimate say in all transactions, and gives the realm exclusive jurisdiction, which means no courts except the courts of the realm may issue any order controlling real property in a realm.

    For a realm having exclusive final legal control over real property in the realm, if the pensioners who accepted Landsbanki Luxembourg’s Equity Investment Offers had taken their properties to Luxembourg to mortgage them to monetize their equities, which is what the Landsbanki Winding-up Committee had their lawyer Mme. Hamilius claim, Landsbanki Luxembourg, had it made those loans, on collateral of real properties it could not reach to take, would have made unsecured loans. It is unlikely the Landsbanki Luxembourg bankers would have done that. From this you can see that, under traditional law the pensioners’ real properties, for being real properties, were protected, which means that if they asked local lawyers to evaluate their risks they would almost certainly have been told there were none: their real properties were safe, and if Landsbanki Luxembourg reneged its borrowing of their equities, they would get back their equities, losing only the interest on the loan.

    This is the reason it is almost certain that the real structures of the Equity Release Offers was for the owners of the equities in properties to take their equities to Luxembourg, which they could do, equities being only monetary values, and so movable property. Landsbanki Luxembourg could then have, quite legally, borrowed the equities from the owners, being loaned rights of ownership, to give Landsbanki Luxembourg evidence of right in ownership. Landsbanki Luxembourg could then borrow the value of the equity it held evidence of right in ownership of, to monetize the equity, and then invest the equity money. In Luxembourg Landsbanki Luxembourg could lend money to itself legally, so all of the borrowing would be ‘in-house’. In the pre-crash economic climate, when interest rates were high and leveraging ten times was considered conservative for banks, the operation was economically feasible, since if the bank paid one return value to borrow the equity, one for interest on its loan to itself, and one for administrating costs, it would have seven leverages left to produce profits. It is almost certain that this is what Landsbanki Luxembourg did, since anything else would have been foolish. Landsbanki bankers could probably confirm this, except Iceland’s special prosecutor prosecutes Icelandic bankers who loaned to themselves (meaning within their banks, or between bank-owned shells), for which their lawyers will have advised them to say nothing.

    When the market conditions changed the Equity Investment Offer schemes became liabilities. What responsible bankers, as those of Rothschilds Bank, did was inform those they had borrowed equities from that they could not meet the obligations under current conditions, and give them back their equities, returning the paper they held representing them. That is what Landsbanki Luxembourg would probably have done, had it not been in receivership and being administered by a Committee whose members, it appears, could not bring themselves to speak to bankers.

    The administrators (probably helped to think of the idea by hedge-fund vulture creditors), apparently decided to try to steal the properties whose paperwork Landsbanki Luxembourg held, by treating Landsbanki Luxembourg’s borrowing as lending and attempting to foreclose and take possession of real property in Spanish and French realms from Luxembourg jurisdiction.

    Luxembourg has, of course gone along, since there is no risk in the attempt for them, and a great deal to gain if they can swing a precedent-setting bending of the law, and the international money powers, who would love to be able to buy and sell realms (especially at the moment Iceland) without traditional law restrictions, are, of course, fully supportive.

    And so the matter is where it is now, with your group at the front lines beating back the attack.

    RL Dogh

    28 Feb 14 at 1:47 am

  5. I think that the broken promise, in Iceland, of a referendum on the E.U. is one we know well in the U.K.!

    The other thing that has become crystal clear is that despite the courageous efforts of the Icelandic Procureur general, who is greatly admired across the world and who has uplifted the image of Icelandic more than the Icelandic people seem to realize or appreciate, the bankers have been outrageously protected.

    London is a disgrace and the world knows it and so they have made pathetic semblances of toughening up, but the old boys club of corruption and conflict of interests is shared by Iceland and Luxembourg so we have a bank power & corruption triangle which seems determined to continue to pillage the citizens and abuse the taxpayer as they continue their plunder just as before the crisis so well explained in the S.I.C report.

    There is in fact a power and corruption struggle and the taxpayer and citizen is finding it difficult to protest or change things as their lives have been made so difficult as their struggles are centered on finding food and shelter for their families rather than fighting Political and Judicial corruption, Clubs and conflicts of interests brought on by abuse of power within groups.

    Financial Institutions and Politicians whatever their sect, religion, club or nationality, have made the world a worse place and ordinary people’s lives very difficult because there are people who are obeying orders and performing acts which are profoundly wrong, immoral, unethical and against the law.

    “I AM ONLY DOING MY JOB… I AM ONLY OBEYING ORDERS”, is the usual mantra which they are sometimes even told by their unconscientiously lawyers, is a legally and morally acceptable excuse!

    Just take the shocking example of the most powerful and well-protected Luxembourg lawyer and bankers helping hand, Yvette Hamilius’ and her Luxembourg lawyer, Rosario Grosso, who made some astonishing assertions in the Luxembourg press.

    There was a piece on the site and in Facebook referring to the gross Grosso quote which is interesting as one is still a criminal if one breaks the law on the orders of someone who is breaking the law, however much he would wish to protect his power-hungry Hamilius!
    This is precisely about the Theory of the Intelligent Bayonet, of which Grosso cites but a half.




    when he tried to protect Yvette Hamilius and Karin Guillaume in view of the advancing Criminal proceedings across Europe in the Landsbanki administration scandal when he said :

    “NO OFFENCE is committed when the ACT was ordered by law and ORDERED by the LEGITIMATE AUTHORITY ” ???

    How many are those who obeyed the orders to OBSTRUCT JUSTICE and withhold the truth from the magistrates and to withhold the evidence that there was false accounting, embezzlement and fraud being withheld by all those working in the Landsbanki offices and all those presently obeying orders both as well as before and AFTER the bankruptcy?

    Who is to blame for this OBSTRUCTION OF JUSTICE through the DELIBERATE withholding of evidence of crime in the Landsbanki administration case?

    Do they think they did NOT breach the E.U. rulings and the law, simply because they were ORDERED to act UNLAWFULLY and in a breach of morals and ethics as well?

    Do they too think they too are “PROTECTED” by the Juncker/Frieden and helping hands gang, who apparently were there to protect the Hamilius/Guillaume tandem?


    Soldiers and all other professionals have legal obligations to follow orders.

    However, ALL of these, also have both moral and legal obligations NOT to follow orders that are IMMORAL or ILLEGAL.

    Questions of conflict between a man’s moral duty and his obligations to the state have been around for many centuries.

    However, it must be noted that NO ONE is above the law and there is a moral imperative to refuse illegal orders.

    A good example is that when former NAZI Adolph Eichman was tried for war crimes in Israel in 1962 his contention that he was merely “FOLLOWING ORDERS and DOING HIS JOB ” was not accepted.

    While in Eichman’s case evidence was submitted that Eichman carried out his DUTIES with zeal , often going beyond what was required of him the inadmissibility of the
    ” JUST FOLLOWING ORDERS ” excuse was also NOT accepted at the Nuremberg trials of NAZI war criminals.


    NO ONE CAN FOLLOW ORDERS WHICH ARE IMMORAL OR ILLEGAL, WHOEVER GAVE THOSE ORDERS and think they are above the law and protected by those in power or the judiciary.

    When receiving an order, as a REASONING person on has to identify a manifestly unlawful order

    One is obliged to respond not as a MACHINE but as a person, as a Human Being.

    This means that instead of automatically responding to orders without thinking one must STOP AND THINK and use reasoning and judgement to decide whether or not the order is LAWFUL and MORAL.

    Every person has to understand an order and needs to consider what the order means to him and to others and it’s consequences to him and others.

    Then he needs to examine his conscience and establish whether or not the action he is being asked to take, or the consequence he is being asked to bring about is right or wrong and complies with his own moral values and standards.

    If it does, he then needs to consider whether or not the order is within the law whether it is a criminal offence to obey the order.


    What is an unlawful order?

    An unlawful order is:
    a.) Any order which if followed will PUTS OTHER PEOPLE’S LIVES IN DANGER, by harassment or psychological or physical abuse which could lead to mental harm or death.

    b.) Any order which if followed will break the law.
    c.) Any order which if followed will lead to the commission of a criminal offence.
    d.) Any order to take part in an unlawful activity.

    Landsbanki Luxembourg in administration is full of people obeying orders which break the law and all rules of ethics and morals and they are causing psychological torture and endangering the lives of hundreds of elderly people through harassment and intimidation as they follow the orders of a power-hungry administration Tandem that is OUT OF CONTROL for many years.

    Enough is enough. It is time to say NO to INJUSTICE and ABUSE OF POWER in Luxembourg and anywhere else where ABUSE of power exists.

    It is up to the Citizens to insist on JUSTICE when the judiciary is pretending there is “NOTHING WRONG”.
    The Icelandic people have set an example of peaceful protest against the evil and abuse that was going on. What a shame there are not more people across the world who are standing up and saying NO!
    The world could become a better and fairer and more peaceful place.

    Rachael Williams

    28 Feb 14 at 9:02 am

  6. Tim,

    It appears that you misunderstand what TIF is, and was, and what the TIF-type entities’ roles were under the EU and EEA deposit guarantee regulations as those stood at the time the Icelandic international banks were forced into dissolution (I don’t know if they were changed subsequently, or were not).

    The situation was, and is, really very funny, but you must know the roles of each player to enjoy the humour.

    First, you must recognise that TIF had only one obligation, to assure that in event of a failure of an Icelandic bank the retail depositors of the failed bank should receive return of their deposits, up to the designated limit, in a manner timely as defined by law. Nothing in the law said how TIF was to accomplish this ‘raison d’etre’ for its existence, nor if it might by means foul as well as fair.

    Iceland’s deposit guarantee scheme was, as I believe you noted, an ex post one (I believe Britain’s Bank of England’s scheme is the only ex ante in Europe). In ex post schemes the means to reimburse the savings-denuded depositors must be found after the failure event.

    Iceland’s deposits guaranteeing scheme being ex post was well known, including in Britain, we know: Evidences show British regulators questioning where funds would come from if all three of the Icelandic international banks wee collapsed ‘en coup’. In the Icelandic international banks case Kaupthing, the international arm of Kaupþing, was the majority share-holder in the bank KSF, a British bank, and was operating in Britain as KSF, a British bank. As a British bank in Britain, in Britain Kaupthing was entitled to the same aids other British banks were entitled to, wherefore if British regulators launched a regulatory attack to drive Icelandic banks out of Britain, they could knock down Landsbanki, leaving Kaupthing, the British bank with only Icelandic majority ownership, standing. Kaupthing’s parent, Kaupþing, the largest of Iceland’s banks, could borrow from Kaupthing to provide TIF the funds TIF would need to reimburse Landsbanki depositors. Thus, British regulators had a viable option they could have exercised to prevent TIF being left without a source from whom to obtain reimbursing funds.

    British regulators, and their allies, elected, instead, to take that source down, too, knowing that their doing so would leave TIF no source for reimbursing funds. They knew that TIF would have to look for someone to borrow from. They knew they could offer to loan to TIF and that TIF, between a rock and a hard place, in a position to have to borrow at any cost or break the EU law, would borrow at any cost, meaning from Britain, on whatever Britain might want to set for terms. This is gangster-dealing, extortion. TIF, Britain reasoned, would have to borrow from the government of Iceland to repay what Britain would lend it.

    Britain convinced Holland there was good money in its game and cut Holland in, then British regulators attacked both Landsbanki and Kaupthing-KSF as if both were Icelandic banks, denying KSF protections and considerations due it as a British bank, and singling KSF-Kaupthing out for special (mis)treatment to force it and Landsbanki both to fail.

    Obviously the plan was to drown Iceland in debt, then impose extortionate interest to force her nder and keep her under.

    The plan went well. Landsbanki and Kaupthing were both forced to fail. In Iceland no one was left with resources enough to cover the costs of TIF’s obligation. TIF was offered loans by the kindly-seeming British and Dutch thugs. TIF lept for the lifeline they tossed, was hooked and hauled in.

    Eagerly, frantically, TIF agreed to borrow on terms to be decided later. TIF was sure, of course, that the government of Iceland would agree to cover the British and Dutch loans.

    Britain and Holland were sure, too. And so they gave TIF the money, or paid the reimbursements due to the depositors, covering TIF’s obligations, which was the same thing.

    What Britain and Holland overlooked in their haste to rush their easy-kill squeeze-play to its gangster-glamourous conclusion was that getting the depositors reimbursed within the time limit of the statute was all of TIF’s obligation, the sum-total, the alpha-to-omega.

    There is no evidence to suggest that TIF stiffed the British and Dutch gangsters. In fact, the evidence indicates pretty clearly that TIF believed that the Icelandic government would accept the debt and repay, on ‘terms to be decided’ what the extortionists put forward. But TIF appears to have also believed the British and Dutch sharks would set a reasonable and affordable interest. TIF was naíve. It’s a story as old as soap-opera and melodrama. In fact it is a standby of melodrama. The naíve kid from the Thules get skinned by the slick city sharpers.

    Except this time the kid was under-age and the parents with the money, or the farm the sharpers wanted, to sell for obscene profit to the railroad, refused to accept the obligation. And the confidence men, over-confident, had already fronted the money.

    Now the confidence-men, the slick grifters, have brought a suit claiming TIF, even though not competent to incur debt obligation, owes the money it never had, and had only authority, if it ever had any money, to only pass such money through, from the giver to the authorized receivers. TIF is still no more than an agent, a courier, who takes the parcel and delivers it.

    But what about the British and the Dutch? Let’s consider an example: If I had a garage along a highway, next to a café, and you stopped to eat at the café, parking your car on the side near my garage, and while you were in eating, I pulled some wires from your car, disabling it, when you came out to drive on your car would not start. I could then offer to repair your car. I could do so, putting your wires back on, and then charge you a substantial amount. Would I be clever an dentitled to my profit, or criminal and a swindler?

    Most places it is considered criminal for someone to cause a problem to profit by fixing the problem he caused. But this is exactly what the British did in taking down the Icelandic banks and then seeking to profit by covering the costs to Iceland for the damage done by Britain’s illegal actions.

    And now Britain has placed herself where she may be questioned. Where her actions and behaviours may be enquired into. Do you see now why this case is amusing?

    at could ain game would, meaning the people of Iceland, to pay would agree to means to . This means that if one wishes to fail the banks of a

    RL Dogh

    4 Mar 14 at 2:42 am

  7. RLD, I find your conspiracy theory ridiculous.

    By the way, the FSCS deposit guarantee, like most, is largely ex-post funded – I suspect Iceland just copied this model, without really thinking through the implications, because failures of large banks had become extremely rare.

    Your entrapment story rings false in at least two respects. One, that the British tried to avoid a situation in which British depositors depended on the TIF for protection, and two that, when the TIF did nevertheless end up on that position, the loan terms the British offered the TIF were not extortionate. I cover these, and other misconceptions about the Icesave dispute in my blogpost from the time here: , but in brief:

    On one, the British authorities, being worried about the capacity of the TIF, tried to get Landsbanki to make Icesave a subsidiary, which would have meant that Icesave was covered by the FSCS instead of the TIF, but also that the FSA would have had more supervisory power over Icesave, which is presumably why Landsbanki resisted this approach, because it would have made it more difficult to use Icesave to raise funds for Landsbanki. When the FSCS merely mentioned on its website the possibility that Icesave depositors might face delays in getting deposit insurance payments from the TIF, Icesave complained that such warnings were a violation of European competition law. And when it looked like the Icelandic banks were close to the edge, the British government sought, and received, assurance from Iceland that the Icelandic government would back the TIF in raising any funds necessary to compensate British Icesave depositors. These do not sound like actions of people trying to entrap the TIF into needing to borrow from them.

    Second, the loan terms offered by the British and the Dutch were about fair (I believe that in one form offered, the terms followed terms that Iceland had accepted shortly before for a Nordic loan). The simplistic comparisons made at the time between the interest rate on the loan to the TIF and yields on gilts neglected to allow for the fact that the loan was (a) forward-starting and (b) repayable early by Iceland. If the British are sharks, they are more like basking sharks than great whites.

    Tim Young

    4 Mar 14 at 10:27 am

  8. Tim, given the neolibs were minding the store in Iceland at all times material, nothing about the “planning” that created this mess was really thought through. As for the ultimate solution being political, I have no doubt that will be the case. This isn’t just a matter of “ability to pay over time,” it’s a pure “ability to pay” case. Iceland can’t cover the losses on ANY meaningful time scale. As I tell my clients, “A judgment is no guarantee of a recovery.” Court orders will not create recoveries; at some point a series of deals will have to be cut, and everyone’s hair will get cut too. I can only hope the Independence Party and all the financial “wizards” will be in the chair getting “high and tights.”

    Knute Rife

    26 Mar 14 at 2:51 am

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