Skip to content Skip to footer

New York Times Reporting Misses the Mark on Iceland, Prints Neoliberal Line

Icelandic bank Glitnir was nationalized and rebranded as Islandsbanki before it was sold back to its former creditors. (Photos: kfcatles, Li'l Wolf)

“Everyone is entitled to his own opinion,” the late former Sen. Patrick Moynihan once said, “but not to his own facts.” Does this explain why The New York Times' editorial board appears to believe that its opinion pieces don't require fact-checking? Their routinely misleading editorials are based on opinions that the editorial boards are entitled to have, after all; never mind the idea that opinions should be based on fact. And a prime example of flimsy Times editorializing can be found in a piece dated from April 18 about a subject that exemplifies catastrophic dishonesty itself: the economy of Iceland.

The piece theorized Iceland was better off than other crisis-stricken European countries – even to the point of having recovered – because it “let its banks fail” and forced creditors to “share in the pain.” However, to believe that to the extent it was being pushed by the Times and to buy their argument that the collapse is behind Iceland, would require a suspension of reality required of a loyal Glenn Beck viewer. Iceland didn't “let its banks fail.” Here, on planet Earth, the extent to which the collapse wreaked havoc in Iceland remains uncertain. But one thing is clear: Iceland did not “let its banks fail.” And furthermore, perhaps if the country took a more comprehensive or compassionate interventionist tack – one not limited to helping bankers and foreign creditors – feelings of grave injustice and fears that the worst of the crisis is yet to come might have been assuaged.

All the Skews Fit to Print

It doesn't even take a great deal of knowledge about Iceland's collapse to know that the Times was well wide of the mark in its assessment. In the fourth paragraph, for example, directly after the “let its banks fail” claim, the Times admits that the Icelandic government “transferred domestic deposits and loans, at a discount, into new banks, with some $2 billion in money from taxpayers.” What is that if not a bailout and rebranding of failed financial institutions? The banks were even nationalized – two of them only temporarily – and in a State Department Cable released by WikiLeaks, an American diplomat not only referred to the saving of Glitnir as a “bailout” of the institution, but also pointed out that the $878 million intervention was greater than 6 percent of Iceland's 2007 GDP. Moreover, $2 billion – the cost of the intervention according to the Times itself – amounts to about 15 percent of Iceland's 2007 GDP. If the US government staged a proportionally comparable $2 trillion intervention to save financial institutions here and The New York Times claimed the US “let its banks fail,” its editorial board would be laughed off the island of Manhattan.

And beyond the $2 billion quoted by the Times, the Icelandic government's approach to the collapse was far from laissez faire. After the collapse, large sums of public money “were arbitrarily transferred to the banks to make their books look a little better” prominent Icelandic economist Thorvaldur Gylfason said in an email to Truthout.

“Also, before the crash,” he added, “the Central Bank lent the commercial banks a lot of money against collateral of dubious value with the result that the Central Bank became technically bankrupt. For this reason, the recapitalization of the Central Bank was about as costly to the taxpayers as the recapitalization of the three failed banks.”

It is hardly surprising, considering the size of the collapse, that Iceland intervened. Gylfason said that the fiscal cost of the crisis “is considered by the IMF [International Monetary Fund] (to be equal to 64 percent of GDP [about $7.7 billion in absolute terms], breaking the previous world record held by Indonesia.”

But Iceland's government refusal to “let its banks fail” went deeper than sinking billions in taxpayers' money into its hemorrhaging financial institutions. After being effectively revived by the public purse, two of Iceland's three major commercial banks – rebranded as Arion (formerly Kaupthing) and Islandsbanki (formerly Glitnir) – were then sold to the old banks' creditors, despite these moneylenders' previous failure to manage their own risk, i.e. despite their enabling the Icelandic banksters. And it's true that the old executives, whose take on ethics didn't differ much from their Viking forefathers, might no longer be in charge – mitigating moral hazard. But contempt for bankers in the Icelandic street has hardly subsided. With Iceland's financial system effectively controlled by shareholders whose primary interests lie off the island, a great number of Icelanders may face a lifetime of difficulty; a concern not necessarily the result of xenophobia in this community-sized country, with its population just over 300,000.

“Many observers have expressed the concern that the foreign creditors who own two of the three failed banks are short-term-oriented profit-maximizers who have little long-run interest in establishing a foothold in Icelandic banking by winning the confidence of the local customer base,” Gylfason said.

It could be argued that selling the new banks to the old banks' creditors – despite the discount – saved the government money and hassle. If these banks remained nationalized, the government, in order to avoid a default (itself not the end of the world), probably would have had to pay the old banks' creditors with the old banks' assets, new bank revenue and probably would've needed to negotiate debt write-downs. But the way the situation has unfolded, the public hanging onto the banks might have helped the country out more. In spite of the Icelandic government's generosity toward the old banks' creditors, the new banks will hardly save it a headache in the long run, as social problems galore loom.

“The new banks got these loans or assets at 45-55 percent of their face value but are not willing to give any discounts or write-downs except if they are definitely sure that the household or firm can't pay and that takes time,” Lilja Mósesdóttir, an independent Parliamentarian explained.

With so much uncertainty in the air, the situation has created a logjam in credit markets in addition to being unduly harsh on households that have fallen prey to turbulent circumstances wrought by the mismanagement of a few.

“Many observers,” Gylfason remarked, “have commented that the banks have done too little – in fact, almost nothing – and too late to accommodate their most distressed customers, both households and firms.”

And to compound Icelanders' anxieties about their financial system being under the thumb of foreign financiers, little is known about who actually owns Islandbanki and Arion.

“I am very worried about this,” Mósesdóttir said. “We don't have really an overview of who are the owners of the banks.” Arion is owned by a group called Kaupskil Ehf; Islandsbanki is owned by ISB Holding Ehf. But that is the most that the public knows about who owns the banks.

Thus, to argue that creditors have “shared in the pain” is disingenuous, even if Iceland's bailout wasn't as obvious as Ireland's and some creditors might have to accept a “bondholders' haircut.”

“[S]ome of the funds borrowed abroad by the Icelandic banks and not paid back were invested and remain, in Iceland,” Gylfason said. “The magnitude of the shortfall was such that honoring the debts of the Icelandic banks – they were private banks, remember – to their foreign creditors was completely impossible.”

But given that it is not known who owns the new banks themselves, it appears that these foreign creditors might eventually get what they believe is theirs.

Even if they don't, there is hardly reason to claim with authority at this point that Iceland “let its banks fail.”

Optimistic, but for Whom?

The Times, however, is right that Iceland is better off than Ireland, Greece, and other European crisis economies. However, the North Atlantic island nation is not doing better than expected for any reason that the Times cites.

For one, the nature of the old Icelandic banks' debts made the crisis seem worse than it turned out to be. The old Icelandic banks had assets that retained a great deal of value after the global collapse (and bailouts). While Icelandic bankers might not have known a great deal about these assets – mainly high street retail chains in the UK – and they may have engaged in questionable practices in order to acquire them, unlike Spanish and Irish banks, Icelandic bankers largely avoided being stuck with worthless property assets after the bubble burst. Not only does this further illustrate that creditors weren't forced to “swallow their loses,” but it is a main reason that the severity of the Icelandic debt crisis is not as extreme as some initially feared. Iceland's banks, simply put, didn't have as much debt to put on “the shoulders of taxpayers” as it was once believed; the assets acquired gave the new banks the means to repay a significant amount of the old debt.

Another reason that Iceland is better off than Ireland and the other continental crisis countries is that Iceland's economy is not fettered by monetary union. The fact that Iceland still has its own currency – many had declared it to be a liability at the onset of the crisis – has given Icelandic exports a leg up when the country needs it most. It is certainly true that a country highly dependent on imports for consumer goods has felt the pain of its currency losing much of its value in a short amount of time. And capital controls themselves, while they have helped mitigate the trauma of the crisis, come at a price. But devaluation has had its upside for Icelanders, in that the unemployment rate is probably lower than it would be if Iceland was on the euro.

Still, claims made by the Times praising Iceland for having put the crisis behind it are, more or less, hooey.

Primo, antsy, foreign investors currently own billions in assets that are frozen by the aforementioned capital controls. It is a situation that will most likely result in much of the money eventually being withdrawn; an outcome that would put even more of a strain on Iceland's financial system.

Secondly, there is an impending mortgage crisis that is constantly put off by a government trying to reconcile its fear of people power with its close ties to the financial sector. Wanting to avoid an orgasm of street protests like The Kitchenware Revolution of 2008-2009 that forced out the right-wing government responsible for the boom and bust, the Social Democrat/Left-Green coalition government has implemented a series of foreclosure moratoriums to appease angry citizens, while it simultaneously panders to bankers.

If the government took a stance that looked more kindly upon these crisis-stricken households, perhaps the situation would be as optimistic as the Times described it. Unfortunately, the most significant interventionist measures have not been directed to the innocent victims affected most profoundly by the crisis.

“The government is always talking about Scandinavian Wellfare, but it seems they are building a welfare system for the financial elite and the banks,” said Gunnar Kristinn Thordarson, a spokesperson for a group of indebted homeowners known as Hagsmunasamtök Heimilanna (HH).

In Iceland, according to the HH, almost half of households are in need of some sort of financial assistance; 20 percent of all households are unable to pay their debts and another 20 percent are “headed for trouble,” while a mere 22 households have agreed to the government's and banks' adjusted payment plans (with most preferring traditional bankruptcy). Moreover, Thordarson said that the IMF estimated last year that 64 percent of households and businesses are in possession of “non-performing” loans.

Independent journalism is rare. Click here to get Truthout stories sent to your email daily.

“The most common misunderstanding is that people think that the recession is over,” said Thordarson.

“Speaking plainly, we are in deep shit.”

Why Iceland is pursuing its welfare-for-the-elite policies is anyone's guess, but with the IMF providing emergency currency support, it has had influence in diverting Icelandic resources back toward the financial sector. In 2009, Mark Flanagan, the IMF's Iceland mission chief, said that discussions concerning a second review of Iceland's program revolved, in part, around “steps to fully recapitalize the banking sector” even though many commentators and Parliamentarians believe that the banks were and still are too large. Moreover, it was revealed in a WikiLeaks State Department cable that Flanagan encouraged the Icelandic government in 2009 to facilitate debt restructuring outside of the court system, even though there remained – and still remains – a host of questions concerning the legality of interest payments tied to the consumer price and foreign exchange indexes. It is the position of Thordarson and the HH, for example, that loans tied to the consumer price index are illegal “according to the constitution and EU consumer laws” and the Icelandic legal system has already ruled Krona loans tied to foreign exchange rates to be illegal. A class-action type settlement, as opposed to this piecemeal approach to debt, might prove to yield a better deal for troubled households and remedy both the problem and uncertainty in an expedient matter. But despite the abject systemic failure of the previous regime, the IMF and the Icelandic government believe that this across-the-board approach would be morally hazardous.

This belief that the new banks must be “fully capitalized” above all else is not only causing significant harm, but raising questions about undue influence in Iceland. Beyond the policies toward indebted households and the austerity measures that the IMF is far less shy about promoting, it has raised suspicion about whether or not the privatizations of Arion and Islandsbanki themselves were done at the behest of the IMF. If Iceland had refused to share the IMF's worldview, it could have been denied funds necessary to implement capital controls and stop the Krona's tailspin. Failure to adhere to the IMF's demands could have also caused Iceland's sovereign credit rating to drop significantly, which could have isolated Iceland from international capital markets (despite the fact that credit ratings agencies, in the wake of 2008, are in need of urgent reform). Given that the IMF recently bullied the German government into guaranteeing a Greek bailout by threatening to trigger a seismic Greek default, it is obvious that strong-arming countries is still an IMF forte. But given the lack of transparency in matters concerning finance in general and the IMF in particular, it isn't clear just what sort of influence the supranational institution wields in Iceland.

“You know, they never said directly that all policy and legislation concerning the banking sector had to be agreed with the IMF,” Mósesdóttir said. “The IMF always makes sure that they don't make public anything that can be interpreted as a political view or a political policy.”

Although it should be noted that not all Icelanders view the IMF as villainous. Gylfason described the IMF as “the only game in town” and said it has “done well by Iceland.” Thordarson personally feels that the IMF, despite its reputation, isn't to blame and denounced Steigrimur Sigfússon, the current finance minister and leader of the junior coalition member Left-Green Party, for making an “unholy deal” with foreign creditors, which has enabled them to “profit off of the terrible debt burden of Icelandic households.”

But whatever the cause of intervention on behalf of the elite is, it is clear that many Icelanders are actually wringing their hands over their future – contrary to the Times' assessment.

Their anxiety doesn't originate solely from issues of personal finance, either; Icelanders are concerned about the future of their natural resources as the government looks to raise cash. A geothermal energy company called HS Orka, Iceland's third-largest energy company, was effectively privatized by a Canadian mining company to the dismay of many. The hastily cobbled-together sale – marred by allegations of unlawful activity and corruption – may have been called into question due, in part, to the efforts of Bjork (no joke) and other less famous Icelanders opposed to the deal. But it serves as a reminder to Icelanders that the collapse will have long lasting and far-reaching consequences.

The resolution of the infamous Icesave dispute, too, remains far from complete. While the need for Iceland to foot the bill is a hotly contested issue – why should the Icelandic taxpayer pay for private losses, it is argued, when state guarantees of cross-border saving schemes are illegal in Europe? – it remains likely that the Icelandic taxpayer will have to pony up for Icesave. Because domestic depositors were bailed out by the Icelandic government, the British and Dutch governments argue that under European Law, Iceland must also cover British and Dutch depositors (who were reimbursed by their governments), a sum roughly equal to half of the country's annual GDP.

the Times even admitted that Iceland is being sued by Britain and Holland, yet doesn't seem to think that this massive blip on the radar should dampen their optimistic assessment of the situation.

But even with the worst perhaps yet to come, the crisis has hit Iceland harder than The New York Times, or traditional macroeconomic measures have reported.

“An unemployment rate of only 7.2 percent in May this year is also seen as sign of successful recovery,” explained MP Mósesdóttir. “However, the unemployment rate would be twice as high if we add to those registered as unemployed those who have left the country since the bank crash in 2008 and those who have left the labor market,” she added. “Young, well educated people with young children are emigrating to countries like Norway.” There is a palpable fear that they may never come back. A handful have even been goaded by hardship to join the Norwegian Army, some of whom have fought in Afghanistan.

To add insult to injury, many executives who illegally took out loans for a myriad of illicit reasons – one of them being criminal stock manipulation – have had debts erased by banks while homeowners face foreclosure. And while many of these banking executives have been charged for their crimes, the same can't be said about politicians who may have broken Iceland's law on Ministerial responsibility. Former Prime Minister Geir Haarde is being charged with violating that statute, but is the only one who has been charged. Meanwhile, other equally (if not more) culpable politicians, including those in the ruling Social Democratic party, have escaped punishment. David Oddsson, another former Independence Party prime minister who was the architect of Iceland's corrupt push toward privatization and the country's premier libertarian ideologue, appears to have avoided being held accountable for his influential role in marching Iceland over the edge.

In that vein, perhaps The New York Times' assessment isn't entirely off base; some Icelanders were allowed to fail and the future looks optimistic to the well connected. Their narrative, however, lacks a few crucial twists and turns. For those commoners who were infected by the Icelandic illness, the grim reality is scarcely reflected in a brief editorial of a chest-beating libertarian bent. Despite the country appearing to do better than had been feared, any claims that Iceland is playing host to something of a new economic miracle (how did the last one turn out?) or that the worst days are over should be dismissed outright, even if Icelanders' resistance to the imposition of Icesave and their prosecution of bankers and a former prime minister are rare feel-good stories in the context of global finance's implosion.

Portraits of Failed Finance, Journalism

Considering that 21st-century Iceland is synonymous with financial catastrophe, it is only appropriate that the Times distorted the situation there to fit its editors' narrow worldview. When Iceland collapsed, it was known as the canary in the coalmine, an indicator that the West (and by extension the world) was taking a nosedive. Similarly, the Times' take on the situation in Iceland is a glaring example of how that paper regularly keeps its readers at arm's length from the truth. If the Times can't discuss the situation in tiny Iceland with precision, why should readers assume that its editorials on other weighty issues are based on reality?

One out of many possible examples of dishonest editorializing from the Times can be found in a piece from June 27, in which the editorial board ponders how the government can rein in high agricultural commodity prices without once proposing limits on (or even mentioning) speculation. It has been shown that speculators have had a massive role in inflating world food prices.

Articles based on selective analysis aren't just limited to the Times' opinion pages, either. In their federal deficit reporting, the Times coverage of Tea Party proposals to put together a plan that addresses the deficit discussed them as serious plans. Yet, a reality-based and far more popular already-hashed-out alternative plan from the left, The Progressive Caucus' “People's Budget,” never received full coverage.

Similarly, in their May 14 coverage of Palestinian Nakba demonstrations in the occupied territories, the Times depicted the initial Palestinian refugee crisis as a result of the Arab Invasion of Israel. But as Yousef Mounayyer explains in Adbusters, the hundreds of thousands of Palestinians were displaced by Zionists in the run-up to Israel's war for independence; not the other way around.

That the Times ' own reporting from 1948 – as Mounayyer pointed out – contradicts its new narrative is perhaps the ultimate proof of the paper's changed primary allegiance from the facts to the status quo: Once, it published the Pentagon Papers and defended Daniel Ellsberg; today, it distanced itself from WikiLeaks and Julian Assange as soon as the web site and its eccentric founder were deemed useless to it. America's paper of record's cozying up to the establishment at the expense of the news perhaps helps to explain the decades-long decline in Americans' trust in the media, and is indicative of a systemic problem.

For whatever the reason – a desire to please corporate advertisers, perhaps – the Times carries a growing amount of water for America's elites much to the detriment of an already malfunctioning American civil society. It's no accident that Iceland – our asphyxiating canary – is in the process of attempting sweeping media and transparency reforms following its economic trauma, an initiative that those involved are even looking to expand globally. The Icelandic public were duped, for the longest time, into thinking everything was going swimmingly. When the media fail to do their job – in Iceland and elsewhere – societies are doomed to repeat past mistakes. Even the establishment would ultimately benefit from the public actually knowing the facts.

Countdown is on: We have 10 days to raise $50,000

Truthout has launched a necessary fundraising campaign to support our work. Can you support us right now?

Each day, our team is reporting deeply on complex political issues: revealing wrongdoing in our so-called justice system, tracking global attacks on human rights, unmasking the money behind right-wing movements, and more. Your tax-deductible donation at this time is critical, allowing us to do this core journalistic work.

As we face increasing political scrutiny and censorship for our reporting, Truthout relies heavily on individual donations at this time. Please give today if you can.