Sunday, March 11, 2012

Iceland calls its former PM to account for financial crash

Geir Haarde, whose trial began this week, could face up to two years in jail if convicted over country's 2008 economic collapse

Geir Haarde
Geir Haarde just before his resignation as Iceland's prime minister in January 2009. He is now being tried over his alleged role in the country's financial collapse. Photograph: Ints Kalnins/Reuters
On a low hill overlooking Reykjavik's harbour the members of a small camera crew wrapped in many layers of winterwear are wrestling with the horizontal snow in an attempt to film a short comedy sketch. The set-up of the skit, one explains, involves "a bum, he lives in the park and he is trying to sell tickets at crazy high prices for the show".
The show in question is taking place in a nearby white building, and the joke turns on the fact that, three and a half years after what is known here simply as The Crash, Icelanders have learned the hard way that you can't, after all, value something worthless simply by naming your price, and then adding zeroes.
That's not to say that what is taking place inside the white building – Reykjavik's Culture House – is not, in its own way, a hot ticket.
In a smart wood-panelled former library on the first floor a special criminal court has been convened for the first time in the country's history. Its purpose is to try the former Icelandic prime minister Geir Haarde over the spectacular economic collapse in October 2008 which catastrophically bankrupted the small island nation.
Haarde, 60, is to date the only politician anywhere in the world to face criminal charges over the financial crisis. The charges, which he denies, include "serious neglect of his duties … in the face of major perils looming over Icelandic financial institutions and the state treasury, a danger he knew of, or should have known of".
If convicted he could face up to two years in prison.
If the world has been rocked by the financial collapse, its effect on Iceland was convulsive.
Once the poorest country in Europe, which before 1990 did not have its own stock market, Iceland in the years after the millennium set out to reinvent itself as a global financial hub, embarking on what has been described as "one of the purest experiments in financial deregulation ever conducted".
Successive politicians privatised Iceland's natural resources and dismantled its regulatory mechanisms, sparking an economic bonanza for its bankers and mixing for its citizens the now-familiar toxic cocktail of bountiful credit, flaccid financial oversight and an unspoken collective agreement not to ask too many questions but just keep on spending. In 2007 Iceland topped the UN Human Development Index as the most developed country in the world.
Its three main banks, controlled by a tiny elite cabal, had a paper value of more than 10 times the country's GDP.
"I had the belief that Iceland could become an international financial centre," Haarde, who became prime minister in 2006, told the court this week. "None of us realised at the time that there was something fishy within the banking system."
The collapse of the three banks, requiring the country to take an emergency IMF loan, was "the most terrible shock", says Silla Sigursgeirsdottir, assistant professor of public governance at the university of Iceland.
"Those first two weeks of October [2008], it was like the sky had fallen on our heads. Most people didn't know anything about this." Prefiguring what would happen elsewhere, the country was forced to enact harsh cuts to public services, and many families suddenly found themselves sharply poorer.
It has left a bitter taste, she says. "The sense of injustice is very strong here, because people feel they were deceived. They were kept in the dark and they were fooled.
"We were told the world had never seen entrepreneurs like this before. This was preached here by the people in positions of authority, like the president.
"When people suddenly realised, what the hell is going on here?, they were taken aback. How could I ever have gone along with this?"
She stresses, as does everyone I talk to, Iceland's tiny size – with 320,000 inhabitants it is only slightly larger than Hull. Betrayal feels much more personal when everyone knows everyone else.
Margre Tryggvadóttir, then a literary theorist and editor, was living abroad until 2008, and had scratched her head, she says, over how "Icelanders could go abroad and live like millionaires. There were a lot of moments when you read something or noticed something and thought, this really can't be how things work."
Iceland's entire political elite failed, she believes, in not holding the executive, or the bankers, to account. "I was just a regular person out there, taking care of my kids and working, but after the crash I just felt like my whole existence was based on a lie."
Angered and appalled, she stood for the Althing, Iceland's ancient parliament, and was elected as an MP in 2009 in the wave of protest that saw Haarde ousted in favour of current PM Jóhanna Sigurðardóttir.
It was the country's parliamentarians, as empowered by the country's constitution, who unearthed an obscure piece of legislation many thought to be obsolete and sought to prosecute four of the principal political players.
After a series of legal challenges and political concessions, charges could be made to stick only to Haarde.
Tryggvadóttir voted for the indictments, and was disappointed the other three did not stand. "Some people have said of course that it's ridiculous to blame one man for this, and that's a little bit true.
"The Crash was of course the result of a lot of things, not just the fault of the man who was PM for a while."
She still believes the case is worthwhile, however. "I think it's very important to get to the truth, even if just for regular Icelanders to feel that this was not OK.
"Nobody wants to say, 'I was responsible for this thing that went wrong, and I have to live with it.' Everybody says, 'It was someone else's fault.'
"I don't think we can live here and raise our children here unless we feel that there is some kind of justice."
While the anger with bankers is palpable, however, few legal observers believe there is much chance of Haarde being convicted; many people say they don't want to see the former PM go to prison – an acknowledgement of responsibility would be enough.
Shoppers and cafe customers braving the Reykjavik wind largely purse their lips or shrug when asked about the prosecution.
Sunna Mgoll is typical – she lost her job as a care worker in a home for the elderly as a result of public sector cuts, and says her mother, a hairdresser, lost IKR 80,000 (£400) from her income in the space of a month.
And yet, "when all this was on the news I stopped watching the news". Is she angry? She shrugs. "I live a good life even though I have less money."
Like many, she is less inclined to blame Haarde than Davíð Oddsson, PM for 13 years until 2004, who chaired the Icelandic central bank at the time of the collapse.
Oddsson is one of the three against whom charges collapsed. He now edits Iceland's main newspaper.
Eirikur Bergmann, director of the centre for European studies at the Bifrost University in Iceland, sees Haarde's trial as "vastly significant".
But he stresses it is only one of a number of processes that are "marking the resurrection not only of Iceland's economy but its society".
These include criminal indictments against a number of bankers, still pending, the debate over Iceland's possible entry into the EU, and the redrafting of the constitution, a process in which he is personally engaged and from which he has snatched a short break to meet in a lively Reykjavik cafe.
Iceland's economic fightback has certainly begun – its economy grew by 1.9% in the last quarter alone, while its credit rating was revised by Fitch last month from junk to an investment grade BBB+.
But Bergmann says the country must emerge from the ruins of its collapse "almost a renewed society, so it will become something different in a significant way from what it was before" – less elitist, more open, more democratic.
In this context, the Haarde trial "kind of feels like a circus, really".
"Nothing is anyone's fault. As of yet it doesn't yet really provide us with what it was meant for, that we'd get some sort of closure, an understanding of what happened.
"Not to punish, but to say once and for all, this is what happened, now we move on."

Pennsylvania's Harrisburg to Skip Two Debt Payments

Pennsylvania's distressed capital city, Harrisburg, will skip $5.3 million of debt payments due next week, the first time the city has defaulted on its general obligation bonds, to ensure there is enough cash to fund vital services.
Harrisburg, Pa., plans to skip $5.3 million of debt payments due next week.
Jeremy Woodhouse | The Image Bank | Getty Images

Pennsylvania's capital of 50,000 people is mired in $326 million of debt due to the expensive retrofits and repairs of its troubled trash incinerator.
"Although this default on general obligation bonds is unfortunate, I don't think it's going to hold up the process for proceeding under the recovery plan," Receiver David Unkovic said.
The state tapped Unkovic to serve as receiver, and he devised a recovery plan that includes the proposed sale or lease of the city's major assets, including parking garages and the incinerator itself.
Commonwealth Court President Judge Bonnie Leadbetter on Friday approved the plan, noting that it may change with more investigation from the receiver.
Holders of the affected bonds and notes do have some protection because principal and interest payments are insured by Ambac Assurance Corp., Unkovic said.
So far in 2012, there have been 21 defaults on muni debt totaling $978 million, according to Richard Lehmann, publisher of Distressed Debt Securities Newsletter, who expects the pace of defaults to increase.
"For cities and counties it's starting to happen now because they're running out of cash," he said, noting that Stockton, California, announced a default last month. 

 During the same period in 2011, there were 28 defaults totaling $522 million, while the full-year total was a whopping $25.2 billion, which included defaults on $18 billion of tobacco bonds that occurred when reserve funds for the issues were tapped, Lehmann said.
In a sign that Harrisburg's financial crisis was expanding to affect additional types of debt, Unkovic noted that this is the first time the city has defaulted on its general obligation debt. It has previously defaulted on revenue bonds tied to its incinerator project, and continues to not make those payments.
The payments that will be skipped consist of: $2.735 million due on the city's general obligation refunding bonds, Series D of 1997, and $2.53 million due on the city's general obligation refunding notes, Series F of 1997, Unkovic said.
The city filed a rare municipal bankruptcy, but a judge threw out the case last year.
Unkovic has said that five to 10 companies are interested in purchasing city assets. He hopes to name winning bidders by June.
The plan has its critics. An attorney representing the city council president and Harrisburg's treasurer and controller has blasted the plan as a fire sale.
Even though it will not make the two payments on its general obligation bonds, the city is still falling at least $5 million short on its budget, Unkovic said.
Harrisburg Mayor Linda Thompson, in a comment, said Unkovic "is charting the best fiscal recovery course given the current situation."
Copyright 2012 Thomson Reuters. Click for restrictions.

S. Ashland Bank of America robbed

The Bank of America at 2305 Ashland St. was closed just after 3 p.m. Friday after a man told a teller he had a weapon and made off with an undisclosed amount of cash, Ashland police said.
Ashland Police Chief Terry Holderness described the suspect as a white male, 25 to 30 years old, 6 feet, 2 inches tall, with a medium build and dark beard.
The suspect was last seen wearing a dark-colored knit-style hat with ear flaps that had a multicolored design, dark-colored, wraparound-style sunglasses, a dark gray, zip-up jacket, a royal blue pullover shirt, blue jeans and brown work-style boots, a press release said.
The man allegedly passed a note to one of the tellers claiming he had a weapon and demanded money. The teller complied.
Police said the man ran toward Bi-Mart with the money following the incident. No one was hurt.
Anyone with information is encouraged to contact the Ashland Police Department at 541-482-5211 or the APD anonymous tipline at 541-552-2333.

India on a tightrope as traders head to Iran

New Delhi:  A major Indian trade delegation headed to Iran on Friday to explore "huge" commercial opportunities created by US-led sanctions against the Islamic republic over its disputed nuclear plans.

The mission sees India walking a diplomatic tightrope as it seeks more business from Iran while managing a growing partnership with the United States and maintaining good relations with Israel, a key arms supplier.

US lawmakers and pro-Israel groups have accused New Delhi of undermining American and European efforts to isolate Tehran and force it to abandon its nuclear programme.

An attack that severely injured an Israeli diplomat in New Delhi last month -- blamed by Israel on Iran -- has further complicated matters.

The trade team will be in Iran until March 14 and expects "a lot of business" from the trip, said Anand Seth, spokesman for the government-backed Federation of Indian Export Organisations, which is leading the delegation.

"It's a big market for Indian exporters," Seth told AFP.

But the federation declined to name the firms taking part in the visit and a source close to the delegation said the companies involved were worried about potential US reprisals.

The delegation, of around 70 companies and top government officials, wants to boost exports to improve India's trade balance with Iran, which runs at a huge deficit as the Islamic republic supplies 11 per cent of its oil imports.

Under the plan, India would pay for up to 45 per cent of those imports in rupees that would stay in the country and be used in turn to fund Iran's purchases of Indian goods.

The move would sidestep Western sanctions that have made it difficult to continue paying for Iranian crude in dollars, Seth said.

Indian Commerce Secretary Rahul Khullar said this month there are "huge opportunities" in Iran for exports such as textiles, tea, rice, wheat and other foods, as well as pharmaceuticals, auto components and factory machinery.

Iran is India's second-largest oil supplier after Saudi Arabia, and while India has diversified to cut its dependence on the country in recent years, New Delhi says replacement of "all Iranian oil imports" is not "a realistic option".

"From India's side, their stand is very much a case of practicality. Iranian oil is not easily replaceable," Subhash Agrawal, political analyst and editor of India Focus, told AFP.

"But America sees India's move as a disappointing signal for their strategic friendship," he said. "Also this is US election year and for Americans, Iran is the number one security issue. They're hyper-sensitive on the sanctions issue."

India has said it will abide only by UN sanctions and will not implement others imposed unilaterally by the United States and European Union.

Indian officials also insist recent events should not overshadow the country's historic "rich civilisational" ties with Iran, seen in New Delhi as a vital regional counter-balance to arch-rival Pakistan.

India, which has one of the world's largest Muslim populations, is also uneasy about joining a US-led drive against the Islamic republic that could have domestic political repercussions, analysts say.

Earlier this week, the Indian embassy in Washington said accusations that New Delhi was playing sanctions spoiler "overlook the imperative of India's dependence on oil imports from Iran to serve the energy needs of its people."

More than 400 million Indians do not "have access to commercial energy", it said.

Two-way trade between India and Iran is around $13.7 billion annually, of which Indian exports account for just $2.74 billion, but Indian experts estimate bilateral trade could reach $30 billion a year by 2015.

Annual trade with Israel currently stands at $5 billion and the two countries are negotiating a free-trade agreement.

The investigation into last month's bomb attack on an Israeli diplomat resulted in its first arrest this week.

Police detained a 50-year-old Indian freelance journalist who is thought to work part-time for the Iranian news agency IRNA. Foreign nationals are suspected of being behind the bombing.

A senior Delhi police source, speaking to AFP on condition of anonymity, said investigators probing the case "at this point of time cannot say for sure who are these foreign nationals".

$5 Gas This Summer?

The way things are going,  gas prices will probably top $5 a gallon this summer. We may be lucky if it stops there. Some industry experts, including former Shell CEO John Hoffmeister, believe that a combination of bustin’ loose inflation and real fears about an impending war in the Middle East being pushed by neo-con chickenhawks will push gas over $5 per gallon by July. An actual war with Iran, courtesy of these chickenhawks, could push prices much higher.
It’s possible we’ll be paying $7 or $8 a gallon if there’s a U.S.-Israeli strike on Iran – god help us all.
Remember: It was $4 a gallon gas back in ’08 that triggered the economic free-fall we’re still trying to pull out of today. And while many of us have acclimated ourselves to the New Normal of $3-and-something gas, an uptick to $4 or more is likely to have the same effect it had back in ’08 – only worse because millions of people don’t have the reserve cash (savings, equity) they still had back in ’08 – many don’t even have a job.
It might be a good time to start thinking about how you’ll handle $5 gas – before everyone else starts thinking about it.
Now, for example, might be a good time to buy a motorcycle or motor scooter for “just in case.” Rising gas prices are a good excuse to indulge – and smart policy if gas prices do go through the roof.  Not just because of the money you’ll save on gas, either. If the cost of fuel continues to rise, expect the cost of high-mileage transportation options to go up, too. Supply and demand. Simple. A used 50 MPG bike that goes for $2,500 today might very well draw $3,500 (or more) a couple of moths from now, in a world of $5 regular. Same goes for scooters. They were very popular circa ’08 – and popularity equals pay more.  Right now, it’s still cold out and gas prices, though higher, are still manageable. I have a buddy who owns a bike shop; he also sells Chinese-made scooters. Things have been slow for the past year. If you walked into his store today, odds are you’d ride out on a good deal. But tomorrow? What happens when customers are lining up for his 80 MPG scooters? Right. Forget about haggling. If you don’t want to pay full MSRP sticker, the next guy in line behind you will. So, again, if you’re worried about what’s coming and are considering possible ways to insulate yourself, the time is, indeed, now.
Another option is a basic beater. Something you can sub in for your current (thirstier) ride, to get you from a to b as inexpensively as possible or at least, less expensively. Let me give you an example:
Friends of ours recently nabbed a steal of a deal on a one-owner late ’80s GM compact-sized station wagon. Just over 70,000 miles, great shape – and 30-plus MPG on the highway. They picked it up at an estate sale for $2,200. If they drive this unit instead of their Suburban (12 MPG) they’ll have recovered the $2,200 outlay within a year. After that, it’s gravy.
As with bikes and scooters, expect the price of used economy cars to skyrocket along with the cost of gas. And not just because people will want more fuel-efficient cars. $5 gas is going to make it that much harder for many people – millions of people – to buy a new car, including new economy cars. When food costs 15 percent more; when your heating bill has gone up $100/month – and so on – there’s less money on hand to buy a new car. This will boost the price of used cars, which people will smile on as more financially feasible. And high-mileage models will be especially popular.
The last thing is to consider doing what the smart money does on Wall Street – get out before the bottom falls out.
If you currently own a big SUV – or even a mid-sized crossover – be aware that its value could drop like, well, a Hummer falling down an elevator shaft if we get to $5 a gallon gas. Remember Hummers? Don’t see them much anymore. Even with gas “reasonable” at $3.60 per gallon, they are about as popular as mustard on a hot fudge sundae. The people who held keys to them back in ’08 found they owned the four-wheel-drive equivalent of an underwater McMansion. No one wanted them. Depreciation rates soared. The Hummer itself soon became extinct.
I expect a lot of the same to happen again. So if you have a vehicle likely to become a liability in a world of $5 gas, it might not be a bad idea to consider selling it now – before it loses 30 percent of its market value in a matter of weeks.
Throw it in the Woods?

E-book Cartel Exemplifies What America's Economy Has Become

"Competition is a sin." -- John D. Rockefeller

Eric Blair
Activist Post

First there were oil cartels, then banking cartels, and food and drug cartels. Now there are E-book cartels?

Most Americans are still not aware of what type of economic structure they have. However, a recent story about electronic book (E-book) distributors, of all things, may hold a more succinct definition: Cartelism.

A cartel is a "group of companies or countries which collectively attempt to affect market prices by controlling production and marketing."  They are effectively a monopoly made up of several organizations that still give the appearance of random competition.

The story that broke yesterday about five large publishers colluding to form an "agency model" for E-book pricing exposes an unmistakable example of what has happened to American capitalism.

The publishers named by the Justice Department are HarperCollins Publishers Inc, a unit of News Corp; Pearson Plc's Penguin Group; Simon & Schuster Inc, a unit of CBS Corp; Lagardere SCA's Hachette Book Group; and Macmillan, a unit of Verlagsgruppe Georg von Holtzbrinck.

Reuters reports that the U.S. Justice Department threatened this group of publishers and their Apple iTunes ringleader with an antitrust lawsuit over price fixing of E-books.

 This publishing cartel is accused of fixing industry prices to "block rivals and hurt customers" with Apple being guaranteed 30% profit margins across the board.  But the cartel made one fatal mistake when they inked this deal in 2010.  They forgot to pay off the mafia government in the process.

Contrary to popular belief about capitalism, these types of colluded monopolies cannot exist without the blessing of the government.  It's against the law for corporations to engage in this type of monopolistic behavior.  However, the law is only used to extract hush money from cartels through a "settlement" so business can continue as usual.

Indeed, the Wall Street Journal reports that several parties are in negotiations to settle the potential antitrust case.  An anonymous publishing executive was quoted that "a settlement is being considered for pragmatic reasons but by no means are we close," citing significant legal costs associated with the probe. "You have to consider a settlement, whether you think it's fair or not," the person added.

Clearly this executive knows how the game is played.  It's all about cost-benefit analysis and little fear of actual prosecution or jail time.  So, the mafia will get their payoff and the cartel will be allowed to continue their plunder while still blocking any attempt of new competitors from entering the market.

Of course, E-book publishers are hardly a significant industry in terms of human necessity.  Yet, this case is a perfect microcosm of how the entire economy of the Western world now works.  It displays all the collusion to fix prices, squash competition, and bribe government officials that is now commonplace for what passes as "free market" capitalism.

It's time we stop blaming capitalism for the lack of competition in all facets of the economy and start demanding that our government uphold the laws -- starting with dismantling the mega-cartels that run the world.