Photo: Ivar Orn Thrainsson.

At a conference on social sciences at Bifrost University 3 May 2013, Professor Hannes H. Gissurarson gave a lecture on “The International Financial Crisis and the Collapse of the Icelandic Banks”. He rejected four common explanations for the bank collapse:

1. The banks were too big. According to Professor Gissurarson, the banks were not too big; it was Iceland which was too small. The system error was that the banks’ field of operations was the whole European Economic Area, EEA, but their field of insurance or mutual guarantees was Iceland alone. Luxembourg and Switzerland had relatively big banking sectors, like Iceland before the collapse.

2. A “neo-liberal” experiment in Iceland failed. This was what Ha-Joon Chang asserted in his book, 23 Things They Don’t Tell You About Capitalism. Professor Gissurarson pointed out that the regulatory framework  in Iceland for financial markets was identical to that in other member-states of the EEA.

3. The Icelandic bankers were reckless and incompetent. Professor Gissurarson pointed out that if so, then their creditors in foreign banks were no less incompetent. Recent examples from HSBC, Danske Bank, Barclays Bank, Royal Bank of Scotland and Deutsche Bank, showed that foreign bankers could be pretty reckless, too.

4. The Icelandic Central Bank, under the leadership of David Oddsson, had made a series of mistakes. This was what Robert Wade asserted in New Left Review and elsewhere. Professor Gissurarson pointed out many factual errors in Wade’s articles.

Professor Gissurarson argued that the main causes of the international crisis were systemic: Banks had underestimated risk, not least because of the moral hazard created by an indirect government guarantee of their liabilities, and government intervention had made matters worse, for example subprime loans in the US and the expansionary monetary policies pursued by the US Federal Reserve System after 2002. Two causes of the Icelandic bank collapse were also systemic, Professor Gissurarson said: Iceland had become too small for the banks; and an additional systemic risk had been the cross-ownership and hidden liabilities of the banks’ largest Icelandic debtors who had formed a closely-knit group; indeed, Iceland’s market capitalism of 1991–2004 had been replaced by crony capitalism in 2004–2008.

Two other contributing factors had been the ruthlessness of the UK Labour government under Gordon Brown which had, unbelievably, used counter-terrorism laws to bring down Icelandic banks operating in the UK, and widespread resentment and envy against the Icelandic “lean and mean” newcomers in European financial markets, which meant that few if any central banks or commercial banks wanted to assist them in the rough waters of 2007–2008. Professor Gissurarson recalled that immediately after the collapse, many of the banks’ foreign assets had been sold at a fraction of their real value.

The seminar was well-attended. Iceland’s leading daily, Morgunbladid, published an interview with Professor Gissurarson 4 May under the title “Crony Capitalism Contributed to Collapse”.

Professor Gissurarson appeared on a popular television show on current affairs on Icelandic Broadcasting Service 5 May 2013 to explain his ideas:

Mrs. Margaret Thatcher, Baroness Kesteven, Prime Minister of the United Kingdom in 1979–1990, will have a state funeral in London Wednesday 17 April 2013. Thatcher was protector of AECR, the Alliance of European Conservatives and Reformists, which works jointly with RNH on two projects, “Europe, Iceland and the Future of Capitalism” and “Europe of the Victims: Remembering Communism”.

Thatcher was strong as a lion and cunning as a fox, which is indeed how Machiavelli thought efficient political leaders had to be. Her firmness and willingness to fight for her principles evoked mixed reactions in that group of respectable, middle-aged men in grey suits and with ties, who occasionally met at the time and spoke in the name of Europe. “Mrs. Thatcher! She has the eyes of Caligula and the lips of Marilyn Monroe,” French President François Mitterand once exclaimed to his Minister of European Affairs, Roland Dumas.

Professor Hannes H. Gissurarson of RNH Academic Council speaks to Margaret Thatcher at a reception she gave in the House of Lords.

Thatcher herself once said to the RNH academic director, Professor Hannes H. Gissurarson, at a dinner they were attending: “The problem with the politicians on the continent is that they have never understood the Anglo-Saxon tradition of liberty under the law.” From the time King John Lackland had to sign the Magna Charta in 1215, there has been a strong movement in England to constrain the Sovereign’s power, a movement no less vigorous after the Public had replaced the King as Sovereign. In England, law is supposed to impose limits on both the rulers and the ruled, in the service of individual liberty.

French military leader Napoleon spoke contemptuously of the English being a nation of shopkeepers. But in the Second World War this nation of shopkeepers saved the countries on the European continent from themselves. And even if the politicians on the continent did not perhaps fully understand the Anglo-Saxon tradition of liberty under the law, the leader of the 19th Century Icelandic Independence Movement, Jon Sigurdsson, firmly shared Thatcher’s view. “Many of the wisest men who have written on the political arrangements in England, analysing them thoroughly, regard freedom of enterprise as the main source of progress there,” Jon Sigurdsson wrote in Ny felagsrit 1844.

It was however The Red Star, magazine of the Russian Red Army, which gave the name “Iron Lady” to Thatcher. Characteristically, she relished in the name, and said in a speech in her constituency, Finchley, 31 January 1976: “The Iron Lady of the Western World? Me? A cold war warrior? Well, yes — if that is how they wish to interpret my defence of values and freedoms fundamental to our way of life.” It was then Thatcher’s fate, and destiny, to win the Cold War, in close cooperation with President Ronald Reagan of the United States.

British Prime Minister David Cameron paid tribute to Thatcher in a special meeting of the House of Commons 12 April 2013:

From left: Dr. Yaron Brook, Ayn Rand Institute, Bruno Zaffari from IEE, Eduardo Campos, governor of Pernambuco, and Professor Hannes H. Gissurarson, University of Iceland.

Professor Hannes H. Gissurarson, University of Iceland and RNH, gave a paper at the conference Fórum da liberdade in Porto Alegre 9 April 2013. The title of his paper was “Making the Invisible Hand Visible: Reflections on the Political Economy of Freedom”. According to Professor Gissurarson, the biggest news in the early 21st Century was not the financial crisis in the West, but rather the fact that big countries like Brazil, Russia, India and China had entered the world economy and established capitalism, however imperfect, in their economies, with a corresponding rapid economic growth. This was a challenge to the North American and European countries. Professor Gissurarson said that the goal was not to maximize the tax revenues of government, as some proponents of the Laffer Curve thought, but rather to maximize economic growth by keeping taxes low, for example at the same level as in Switzerland, which, incidentally, had about the same tax revenue per capita as Sweden, about $25,000, but with much lower tax rates, 28% of GDP instead of 44%. To demonstrate how important economic growth was to well-being and living standards, Professor Gissurarson showed a graph of the different paths taken by Argentina and Australia since 1929 and their results in terms of GDP per capita: the Argentinians, under the spell of despots and demagogues, were busy trying to redistribute wealth, whereas the Australians were more concerned with creating wealth.

Sharing the panel with Professor Gissurarson were Dr. Yaron Brook from the Ayn Rand Institute in Irvine, California, and Eduardo Campos, governor of Pernambuco and widely seen as the next presidential candidate of Brazil’s Socialist Party. Other lecturers at the conference included José Mariano Beltrame, director of security in Rio de Janeiro, Professor Randy T. Simmons, author of several books about public choice, Jorge Gerdau, one of the most influential businessmen in Brazil, Paulo Kakinoff, director of the airlines GOL, and Alexandre Tombini, governor of Brazil’s Central Bank. João Robert Marinho, one of the directors of the Globo media company, received a medal for his energetic defence of freedom of expression in Brazil.

IEE (Instituto Estudos empresariais), an association of young entrepreneurs and businessmen in Porto Alegre, organised the event, which was attended by about four thousand people. The theme was from French writer Frédéric Bastiat on what is seen, and what is unseen in political economy. Here is Gissurarson’s speech:

The discussion in the panel was described in the website journals Voto and Agenda 2020. Gissurarson’s lecture was a part of the joint project by RNH and AECR, the Alliance of European Conservatives and Reformists, on “Europe, Iceland and the Future of Capitalism”. During the conference, he used the opportunity to discuss possible future lectures in Iceland by Dr. Yaron Brook on Ayn Rand’s life and works, in special connection with the publication of the novel We the Living, Professor Randy T. Simmons on public choice theory and endangered species, and Professor João Carlos Espada on the Anglo-Saxon Tradition of Liberty.

Gissurarson Slides 9 April 2013