I have always been fascinated with Iceland and, recently, everyone else has been, too. But not for the reasons Icelanders would prefer. Not for its thermal pools. Not for the lofty life expectancy of its residents. Not for Björk, either. Iceland has made news for a recent volcano and something far worse: banking.
While the world’s attention is fixed on the plume of smoke and steam rising over the island nation of just 300,000 residents, it is useful to catch up on the current affairs in that country. It’s also a crucial point of reference for the men and women serving in our Congress as they argue, as only they can, over financial reform.
You see, in the fall of 2008, when the stock market tanked and big American banks failed, in Iceland, everything was far worse. In fact, after that country essentially went bankrupt, a man at the International Monetary Fund told the magazine, Vanity Fair, “You have to understand, Iceland is no longer a country. It is a hedge fund.”
For a nation ranked No. 1 in the United Nations’ 2008 Human Development Index, the meltdown was a mighty blow. And it must have been especially disheartening since the country’s banks avoided much of the risky subprime market. Instead, dependent on the availability of foreign credit, it had rapidly increased lending and expanded its banking system faster than perhaps anyone ever had. Over a four-year span, while our stock market doubled, theirs multiplied by nine times.
In 2008, James Surowiecki wrote in The New Yorker: “Iceland’s current woes teach a useful lesson about the interconnectedness of global markets: trouble can come from anywhere. Homeowners default on mortgages in San Diego, and suddenly people in Reykjavik are paying more for gasoline and wondering if their bank deposits are safe.”
While few financial experts foresaw much of world’s economy collapsing in the fall of 2008, the majority of us now knows that dollars on the books at several of the world’s largest banks were worthless. Our Congress is debating how to prevent something similar from ever happening again. It would appear to be an issue that would foster bipartisanship. But, of course, it hasn’t.
Similar to the way in which health care legislation divided the Senate, the Democratic leadership is asking for a floor vote on financial reform, while Republicans are asking to start over. And both parties blame the other’s position for potentially making it possible for the next crisis to happen.
Meanwhile, two years after taxpayer dollars saved many of those suspected in facilitating the economic crisis, the country’s – rather, the world’s – Main Streets continue to suffer. Our office is located on one of those streets.
In March, Flathead County’s non-seasonally adjusted jobless rate hit a new bleak record: 13.8 percent. Like other small economies that depend heavily on the commodity and manufacturing sectors, we’re especially struggling to dig out of this economic hole.
To be sure, Wall Street isn’t solely to blame for the Great Recession. There is something to be said for personal responsibility; not spending, or borrowing, more money than you can afford. But the careless and often deceitful decisions made by some of the most powerful people in America’s financial sector are still affecting the pocketbooks and lives of the scores of under- and unemployed here in Northwest Montana and elsewhere.
Recently, an investigation into the circumstances that led to bank failures in Iceland accused several government officials, and the former prime minister there, of “negligence.” Three members of the parliament took a leave of absence pending a review of the report.
In contrast, America’s politicians are struggling to move forward on a plan that would provide additional oversight to the country’s biggest banks. Oh, and apparently none of them are to blame for not doing so in the first place.