From the well-attended meeting. Photo: Arni Saeberg.

Six examples of unnecessary losses incurred by the fallen Icelandic banks were analysed in detail by Professor Hannes H. Gissurarson, in a lecture at the spring conference of the Institute of Business Studies at the University of Iceland 21 April 2015. Two of the examples—which Professor Gissurarson has discussed previously—are from Norway and Finland, where in the 2008 international financial crisis the central banks of those countries refused to provide subsidiaries of Glitnir Bank with liquidity, even though in both countries the companies were registered there, and paying taxes. This was different from the Swedish Central Bank which provided liquidity to Swedish companies owned by Icelandic banks. Professor Gissurarson estimated the loss from the subsequent forced assets sales in Norway and Finland to be about $460 million.

CBI Governor Mar Gudmundsson

Professor Gissurarson argued that something similar took place in Denmark two years later. In the beginning of the international financial crisis, the Danish Central Bank had provided liquidity and capital to the Danish FIH Bank, owned by Kaupthing, in the same way as to other Danish banks. FIH Bank had been used as collateral for an emergency loan which the Central Bank of Iceland, CBI, gave to Kaupthing in the beginning of the crisis. On the initiative of CBI governor David Oddsson, this was made into a comprehensive collateral, covering all potential debts by Kaupthing to the CBI. It had also been confirmed to the CBI by Danish authorities that FIH Bank was a sound collateral, with book equity of value double to the Kaupthing loan. The emergency loan was not paid back as a result of the fall of Kaupthing so the CBI gained control over the bank. However, in the autumn of 2010, the new CBI governor, Mar Gudmundsson, succumbed to pressure from Danish authorities and sold FIH Bank with only a part of the total price being paid out, whereas remaining payments would be linked to possible losses incurred by the bank in 2010–2014. In fact, the buyers were given almost unlimited discretion as to how to define losses in this period, with the result that the CBI will probably never see any of the remaining payments, even if the FIH Bank is now being dissolved, with a $860 million book equity of value which would be divided up between the buyers who would thus receive a hefty return on their investments. Professor Gissurarson criticized Governor Gudmundsson for not standing firm in 2010 against the Danish authorities and for not writing adequate safeguards into the contract with the buyers of FIH Bank. He estimated the potential loss from this to be about $460 million.

UK Prime Minister Brown

Professor Gissurarson then turned to the United Kingdom where the Labour government in early October 2008 introduced an enormous rescue package for the British banking sector at the same time as it closed down the two British banks owned by Icelandic banks, Heritable and KSF. In telephone conversations with their Icelandic colleagues prior to closing the two banks, British ministers had accused the banks of various illegalities. The British Labour government had even invoked an anti-terrorist law against various Icelandic institutions and companies, presenting them on the Treasury’s website on the same list as the Al-Qaida and Talibans. Now, however, the winding-up processes of the two banks were being completed, and it seemed clear that neither of them had really been bankrupt. The return rate to creditors was close to 100 per cent, even if enormous legal and auditing costs had been imposed on the estates. Nothing illegal had been discovered despite thorough investigations by British authorities, including the Financial Services Authority and the Serious Fraud Office. Professor Gissurarson estimated the unnecessary losses from these brutal acts by the British government to have been at least about $1.1 billion.

The total unnecessary loss in those six examples, brought about by the unhelpfulness of the Danish, Norwegian and Finnish central banks, by Icelandic foolishness in the case of FIH Bank, and by British brutality in the case of Heritable and KSF, amounted to $2 billion, according to Professor Gissurarson. His argument provoked much discussion. It made the front page of the leading daily Morgunbladid, and the government broadcasting service and two online magazines, Kjarninn and Stundin, reported it. Professor Gissurarson also wrote an online article for the business weekly Vidskiptabladid. Governor Mar Gudmundsson protested, in the case of FIH Bank, that the book equity of value was not a proper reference point in a crisis. Professor Gissurarson responded that he could agree with this, but that he had criticized the Governor for succumbing to pressure and for not safeguarding properly the interests of the CBI when FIH Bank was sold. Now the CBI would only see half the value of the 2008 emergency loan to Kaupthing, even if the collateral accepted back in 2008 had been perfectly sound and worth much more than the loan. Professor Gissurarson’s lecture formed a part of the joint research programme of RNH and AECR on “Europe, Iceland and the Future of Capitalism”.

Reykjavik Slides of Gissurarson

Gissurarson giving his talk in Berlin. Photo Marek Tatala.

At the 4th annual European Students for Liberty conference in Berlin, 10–12 April 2015, Professor Hannes H. Gissurarson, RNH Academic Director was one of the speakers. The title of his lecture was “Three Modern Masters: Hayek, Popper and Friedman. Personal Recollections.” Professor Gissurarson recalled that he first met Friedrich von Hayek in April 1980 when the Anglo-Austrian economist and Nobel Laureate visited Iceland. In the following years, he met Hayek frequently, both at meetings of the Mont Pelerin Society meetings and in Oxford, where he was working on a doctoral dissertation on Hayek’s political theory. An Austrian aristocrat by birth, and a scholar by temperament, Hayek never ascribed base motives to his opponents and always sought to meet their arguments on their own merits. He told Professor Gissurarson that he was delighted that young people were interested in ideas, but that he did not want them to become Hayekians; they should exercise their critical minds.

During his Oxford years, Professor Gissurarson was also able to visit Karl F. Popper at his house in Penn, Buckinghamshire, and to discuss philosophy and politics with him, for example whether Popper’s analyses of Hegel and Marx were entirely fair. Professor Gissurarson first met Milton Friedman in the autumn of 1980, and many times after that, both at meetings of the Mont Pelerin Society and at Stanford University where Friedman was a Senior Research Fellow at the Hoover Institution and Gissurarson a Visiting Fellow. Friedman also visited Iceland in 1984 and participated in a memorable television discussion with three Icelandic socialists. Here is a very short part of it:

Comparing these three thinkers, Professor Gissurarson submitted that Hayek was the most profound, with his insights that dispersed knowledge required dispersed power and that individuals could overcome their inevitable ignorance in and through the free market and spontaneously developed practices and traditions. Popper was perhaps the most reasonable or moderate, with his contention that man should aim at minimising identifiable evils rather than trying to maximise contestable ideas of happiness. Friedman was the sharpest in debate, quick to strike as a lightning, and also a very serious and original scholar.

Other speakers at the conference included Sam Bowman from the Adam Smith Institute in London who described the benefits of immigration, Professor Pierre Garello from France who discussed globalisation and its discontents, Danish journalist Flemming Rose who defended press freedom, Dr. Tom G. Palmer of Cato Institute in Washington DC who gave a summary of his forthcoming book on liberty, and English MEP Daniel Hannan, Secretary-General of the AECR, Alliance of European Conservatives and Reformists, who argued that classical liberals should be eurosceptics. Five Icelandic students attended the conference, free-lance journalist Asgeir Ingvarsson, economics student Thorsteinn Fridrik Halldorsson, chairman of the Libertarian Society of Iceland, law student Ingvar Smari Birgission, chairman of Heimdallur in Reykjavik, law student Markus Arni Vernhardsson and business administration student Jon Axel Olafsson. Professor Gissurarson’s lecture formed a part of the joint RNH-AECR project on “Europe, Iceland and the Future of Capitalism.” Here is a tape of his lecture and the slides he used:

Berlin Slides of Gissurarson

Prof. Gissurarson giving his talk. Photo: Ann-Kari Edenius.

Professor Hannes H. Gissurarson, RNH Director of Academic Research, gave a paper at a morning seminar conducted by the Ratio think tank in Stockholm, Sweden, Thursday 9 April 2015. The paper was about Swedish-Icelandic relations through the centuries. Professor Gissurarson pointed out the little-known fact that Iceland was in a personal union with Sweden, and neither with Norway nor Denmark, in 1355–1364 under King Magnus smek who had been driven out of Norway. In 1814, when Sweden received Norway after the Napoleonic Wars, as a substitute for Finland, the King and his ministers did not want with it Iceland or the other old Norwegian dependencies in the North Atlantic. Professor Gissurarson recalled that the first leader of the liberal-conservative Independence Party in Iceland, Prime Minister Jon Thorlaksson, was much influenced by renowned Swedish economist Gustav Cassel. The history of Nordic liberalism remains to a large extent untold, the Professor submitted. The success of the Nordic countries was not least because of economic freedom in late 19th and early 20th Century and a strong tradition of the rule of law, rather than because of redistribution imposed by Social Democrats.

Professor Gissurarson also discussed the 2008 Icelandic bank collapse where the Swedes behaved better than the other Nordic countries by providing liquidity to Swedish banks owned by Icelanders, whereas both the Norwegian and Finnish authorities forced a “fire sale” of Icelandic bank assets to local businessmen. Sweden had however, and unfortunately, supported the United Kingdom in the Icesave dispute in 2008–13. This was mostly evidence of the fact that the smaller nations in the European Union such as Sweden did not have much scope for independent decision-making. They had to follow the dominant nations such as the United Kingdom, Germany or France.

It could be argued, Professor Gissurarson added, that the Swedes had reached a reasonable conclusion in 1814 when they decided that Iceland did not belong to continental Europe. While the Icelanders should remain friends with the Swedes, the Germans and other European nations, they ought to forge closer political relations with the North Atlantic nations, Norway, Great Britain, Canada and the United States. His lecture formed a part of the joint RNH-AECR project on “Europe, Iceland and the Future of Capitalism”.

Stockholm Slides by Gissurarson

Vargas Llosa giving his speech at the MPS meeting.

RNH was represented at the Mont Pelerin Society regional meeting in Lima, Peru, 22–25 March 2015 by Professor Hannes H. Gissurarson, a MPS member since 1984. Professor Gissurarson organised, with Professor Harold Demsetz, a MPS regional meeting in Iceland in 2005. The 2015 Lima meeting was devoted to “Liberty: Theory and Practice”. The keynote speaker at the opening ceremony was Peruvian writer Mario Vargas Llosa, the 2010 Nobel Laureate in literature and a MPS member. Vargas Llosa said that classical liberalism was for him grounded on tolerance, the awareness of human fallibility. The MPS President, Professor Pedro Schwartz from Spain, argued in his address to the meeting that the objective of liberals should be freedom of opportunity, not the equality of opportunity. Lecturers at the meeting included Professor Arnold Harberger from the US and Professor Rolf Lüders from Chile, who both analysed the success of the Chilean economic reforms in the late 1970s and early 1980s. Many other distinguished men of letters participated in the meeting. Chilean writer and philosopher Arturo Fontaine discussed the prospects of Chile and the battle of ideas in Latin America. Flemming Rose, editor of Danish daily Jyllandsposten, spoke in defence of press freedom: he has received death threats from muslim fanatics because of cartoons published in his newspaper. Professor Gissurarson participated in a discussion group on natural resources and property rights, where he explained the workings of the Icelandic system of ITQs, Individual Transferable Quotas, in the fisheries. The meeting was ably organised by Peruvian lawyer and writer Professor Enrique Ghersi. The next meeting of the Mont Pelerin Society will be the 2016 general meeting in Miami, Florida.