Where Exactly Is "Money Heaven"?

When one of the billionaires behind the collapsed internet bank Icesave in relations to a new film was asked what happened to all the money, his answer was astonishingly nonchalant: “A lot of money goes to money-heaven,” shrugged Björgólfur Thor Björgólfsson, the Londonbased investor who co-owned 41% of Icesave’s parent bank, Landsbanki.

“They have evaporated. It’s a common misunderstanding to ask;  where did the money go.”

Björgólfur Thor Björgólfsson

No wonder the people of Iceland are really pissed off. Sure, the money has “evaporated”, but Icesave’s €4 billion debts remain and are now the subject of fury in Mr. Björgólfsson’s home country.

Icelanders were set to become the world’s first rebels against the idea of clearing up after the mess made by a reckless private bank.

This popular insurrection has been watched anxiously by the governments in Greece, Ireland, eastern Europe – and even Britain – concerned that this defiance could become contagious.

Almost 18 months after its financial system, currency and government went into meltdown, the country is still spiralling downwards into what one economist has called a “vortex of debt default, unemployment, and an exodus of people”.

Public outrage has been brought to a peak by the fact that there are now 43 cases of alleged criminal activity under investigation in connection with the country’s scandal-hit financial institutions, including Landsbanki, and, in the country’s first referendum, the 320,000 people of the island were expected to vote against a deal to compensate the UK and the Netherlands for the failure of Icesave.

So,what really happened?

Here’s a little – but very interesting – piece of news broadcasted by Iceland Radio on October 15th 2008:

“Islands Radio reports that the Icelandic Finance Council was started to investigate a series of mysterious transactions prior to the collapse of Landsbanki.”

“17 percent of the bank’s shares changed hands on October 3. The price was 5 percent above market price. October 3, 2008 was the last day of trading with the shares of Landsbanki. The day after the authorities suspended trading, and four days later the bank was taken over by the Icelandic government. According to Icelandic radio, it is unclear who has bought or sold shares in Landsbanki.”

All the three major Icelandic banks, Landsbanki, Kaupthing and Glitnir, was later declared bankrupt.

We have never heard another word on what happened to the investigation of the mysterious transaction.

But it gets even better

“Landsbanki’s biggest owners, Mr. Björgólfur Thor Björgólfsson, and his father, the ex-owner of West Ham FC, Björgólfur Gudmundsson – two Icelandic businessmen with close links to the country’s ruling Independence Party benefited from Iceland’s move to privatize its banks in the early 1990s, despite the fact that Mr Gudmundsson had a conviction for false accounting, following the collapse of his shipping empire in 1985,” according to The Telegraph.

The pair had no experience in banking and were not the highest bidders. However, the privatization helped catapult Mr. Björgólfsson on to the Forbes list of richest people.

At the peak of his wealth he had an estimated fortune of $3.5bn – now an estimated $ 1 billion.

No one quite knows how Landsbanki and the other Icelandic banks managed to grow so big, so quickly. But it is now well-documented that some of the biggest shareholders of the banks were lending each other vast sums of money in a complex network of mutually beneficial business relationships.

This had begun to worry financial observers by March 2006.

Richard Thomas, an analyst at Merrill Lynch, said at the time: “We are seeing the classic signs of a over-leveraged banking system and this has flashed a red alarm signal.”

And there’s  more

In September last year The British Serious Fraud Office sent a team of investigators to Iceland to get to the bottom of the suspicion that there had been any criminal offense in connection with the collapse of the banks, and whether it had any connection to London.

As expected, very little have come out of this investigation, so far.

More than 30 houses on the Island have been ransacked by police and more than 60 people have been brought to interrogation.

The international corruption investigator, Eva Joly, who is brought in as a consultant for the Icelandic government, believe this might be the biggest criminal case Europe has ever seen.

Eva Joly told The Telegraph last year that the British authorities must take their share of responsibility because they have did not have a good enough supervision of the Icelandic banks.

“They received several warnings about banks, but they did nothing. In my opinion that has been very harmful,” she said.

Personally, I can’t wait for the next shoe to drop in this case, (and perhaps somebody finally will tell us where money-heaven is – that answer is long overdue.)

In the meantime; the hardworking people of Iceland needs our support.

Related by the Econotwist:

Iceland Refuse To Accept Debt

Iceland Voting Over Icesave Repayments

Iceland Debt Talks Collapse

På (litt) lenger sikt

BBC:

Iceland rejects plan to repay Icesave debts

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