And other markets as well.
jessescrossroadscafe.blogspot.com
There will be a 'reversion to the mean' and a return to the primary trends. And if it happens precipitously, it will shake the nation.
The problem with the Fed's 'stimulus' is that it is a blunt instrument, and is largely channeled by those with their hands on the financial throttle into their own pockets, and not into the productive efforts of the real economy.
'Modern Monetary Theory' merely shifts the money printing power from the Fed directly into the hands of the Treasury and the politicians.
This is not Keynesianism but crony capitalism. Austerity is also another Wall Street alternative, allowing the monied interests to obtain productive assets on the cheap.
There is only one path that the status quo hates and fears, and that is genuine reform.
Monday, March 12, 2012
The Land of the Mega-rich: No Jobs For Americans
March 9. Today the Bureau of Labor Statistics (BLS) announced that 227,000 new nonfarm payroll jobs were created by the economy during February. Is the government’s claim true?
No. Statistician John Williams (shadowstats.com) reports that 44,000 of these jobs or 19% consist of an add-on factor derived from the BLS’s estimate that 44,000 more unreported jobs from new business start-ups were created than were lost by unreported business failures. The BLS’s estimate comes from the bureau’s “birth-death model,” which works better during normal times, but delivers erroneous results during troubled times such as the economy has been experiencing during the past four years.
Taking out the 44,000 added-on jobs reduces the February jobs number to 183,000, but does not provide a full correction. In an economy as troubled as the US economy is, most likely the deaths exceeded the births, but we don’t know what the number is. Was it 20,000? 50,000? What number do we deduct from the 183,000? We simply do not know.
Williams reports that seasonal adjustment factors do not work properly during troubled economic times and add their own overstatement to the jobs figure. If anyone could estimate the overestimate of new jobs that results from malfunctioning seasonal adjustments, it is John Williams, but he doesn’t provide an estimate.
Most likely, the new jobs did not exceed 150,000, a figure that would merely keep even with population growth and thus not reduce the rate of unemployment, which, consistent with this deduction, remained constant.
Let’s look now at the kind of jobs that were created. Of the new jobs reported by BLS, 92% are in services. Of this 92%, only 7% could possibly relate to exportable services--architectural, engineering, and computer systems services.
Of the reported new service jobs, 29% are in health care and social services. The categories that account for the health services jobs are ambulatory health care services and hospitals. Waitresses and bartenders account for 20% of the reported new jobs. Employment services account for 29% of the new reported jobs. Transportation and warehousing accounted for 5% of the reported new jobs, despite a loss of 60,000 jobs in general merchandise and department stores.
In other words, the vast majority of the new jobs are low paying jobs, except for a few truck drivers.
Other conclusions that we can draw are:
The US has nothing to export to reduce its massive trade deficit, which has, sooner or later, disastrous implications for the US dollar.
Middle class income jobs are declining, with polarization at the two extremes.
US economic policy continues to focus on the mega-rich at the expense of 99% of the population. US interest rates are kept at, or near to, zero in order to maximize mega-bank earnings, while depriving tens of millions of retired Americans of interest income on their lifetime savings, forcing them to spend their capital in order to live, thus depriving their heavily indebted children of inheritance.
In short, the US is well on its way to becoming a third world country, as I predicted would be the case in 20 years at a Brookings Institution conference in Washington DC early in the 21st century.
America is no longer the land of the free and independent. It is the land of the 1% mega-rich.
Paul Craig Roberts is a frequent contributor to Global Research. Global Research Articles by Paul Craig Roberts
No. Statistician John Williams (shadowstats.com) reports that 44,000 of these jobs or 19% consist of an add-on factor derived from the BLS’s estimate that 44,000 more unreported jobs from new business start-ups were created than were lost by unreported business failures. The BLS’s estimate comes from the bureau’s “birth-death model,” which works better during normal times, but delivers erroneous results during troubled times such as the economy has been experiencing during the past four years.
Taking out the 44,000 added-on jobs reduces the February jobs number to 183,000, but does not provide a full correction. In an economy as troubled as the US economy is, most likely the deaths exceeded the births, but we don’t know what the number is. Was it 20,000? 50,000? What number do we deduct from the 183,000? We simply do not know.
Williams reports that seasonal adjustment factors do not work properly during troubled economic times and add their own overstatement to the jobs figure. If anyone could estimate the overestimate of new jobs that results from malfunctioning seasonal adjustments, it is John Williams, but he doesn’t provide an estimate.
Most likely, the new jobs did not exceed 150,000, a figure that would merely keep even with population growth and thus not reduce the rate of unemployment, which, consistent with this deduction, remained constant.
Let’s look now at the kind of jobs that were created. Of the new jobs reported by BLS, 92% are in services. Of this 92%, only 7% could possibly relate to exportable services--architectural, engineering, and computer systems services.
Of the reported new service jobs, 29% are in health care and social services. The categories that account for the health services jobs are ambulatory health care services and hospitals. Waitresses and bartenders account for 20% of the reported new jobs. Employment services account for 29% of the new reported jobs. Transportation and warehousing accounted for 5% of the reported new jobs, despite a loss of 60,000 jobs in general merchandise and department stores.
In other words, the vast majority of the new jobs are low paying jobs, except for a few truck drivers.
Other conclusions that we can draw are:
The US has nothing to export to reduce its massive trade deficit, which has, sooner or later, disastrous implications for the US dollar.
Middle class income jobs are declining, with polarization at the two extremes.
US economic policy continues to focus on the mega-rich at the expense of 99% of the population. US interest rates are kept at, or near to, zero in order to maximize mega-bank earnings, while depriving tens of millions of retired Americans of interest income on their lifetime savings, forcing them to spend their capital in order to live, thus depriving their heavily indebted children of inheritance.
In short, the US is well on its way to becoming a third world country, as I predicted would be the case in 20 years at a Brookings Institution conference in Washington DC early in the 21st century.
America is no longer the land of the free and independent. It is the land of the 1% mega-rich.
Paul Craig Roberts is a frequent contributor to Global Research. Global Research Articles by Paul Craig Roberts
“A harder Default To Come”
“We owed it to our children and grandchildren to rid them of the burden of this debt,” said Greek Finance Minister Evangelos Venizelos about the bond swap that had just whacked private sector investors with a 72% loss. While everyone other than the bondholders was applauding, the drumbeat of Greece’s economic horror show continued in its relentless manner.
In central Athens, a stunning 29.6% of the businesses ceased operations, up from 24.4% in August; in Piraeus 27.3%, a 10-point jump since March. The whole Attica region lost 25.6% of its businesses. “This worsening of the survival index in the commercial sector ... shows that resistance is waning,” said Vasilis Korkidis, president of the National Confederation of Hellenic Commerce. “We must continue the battle of daily survival and keep our shops open,” he pleaded—while fourth quarter GDP was being revised down to -7.5% on an annual basis. The Greek economy has shrunk about 20% since 2008.
Unemployment is veering toward disaster. The overall rate of 21% in December, announced Thursday, was horrid enough, but youth unemployment rose to a shocking 51.1%, double the rate before the crisis. A record 1,033,507 people were unemployed, up 41% over prior year. Only 3,899,319 people had jobs—a mere 36.1% of a total population of 10.8 million!
No economy can service a gargantuan—and rapidly growing—mountain of debt when only 36.1% of its people contribute (by comparison, the US employment population ratio is 58.6%, down from 64.7% in 2000). Hence, another bout of red ink. The “cash deficit” at the end of 2011 hit €24.9 billion, 11.5% of GDP, far above the general budget deficit. Government-owned enterprises, such as the public healthcare sector, couldn’t pay their bills. Total owed their suppliers: €5.73 billion.
Yet, forcing down the deficit is one of the many conditions that the bailout Troika of EU, ECB, and IMF have imposed on Greece. And: “If the Greek people or the Greek political elite do not apply all of these conditions, they exclude themselves from the Eurozone,” said Luxembourg’s Finance Minister Luc Frieden. All of these conditions. Then he added the crucial words: “The impact on other countries now will be less important than a year ago.” Read.... Firewalls In Place, Markets ready: Greece Can Go To Heck.
Under pressure to cut its healthcare budget, the government reduced the prices that the industry can charge state-owned insurers. So wholesalers are selling their limited supply outside Greece, while out-of-money state-owned insurers delay payments to pharmacies and hospitals, which then can’t pay their wholesalers for the medications they do get. In return, wholesalers turn off the spigot. And the system is locking up.
Even Health Minister Andreas Loverdos conceded that there were shortages, but that they were limited to lower-priced medications. Of the 500 most common drugs, 243 have disappeared from the shelves, including antibiotics and drugs for treating diabetes and hypertension. The Panhellenic Association of Women with Breast Cancer, for example, received many complaints from patients who claim they weren’t treated due to lack of oncology drugs. And the world’s largest pharmaceutical companies are worried that Greece and some other countries might not be able to pay them at all.
A bright spot: tourism. In 2011, receipts rose by 9.5% over prior year as the Arab Spring had scared tourists away from destinations such as Egypt and Tunisia. In July, receipts jumped 14.4% and in October 15%. Alas, in December they declined 4.9%. And that reversal has now infected 2012. Tourist arrivals so far this year are down 10.7% in Athens and 6.7% for the country. Its last growth industry has hit the skids, too.
With unemployment climbing, production and consumption tanking, businesses shutting down, and tourism nose-diving, there is only one way for tax revenues: down. Budget deficits will be worse than promised. Greece’s debt—now largely to taxpayers of other countries—will continue to balloon. The standard of living of the vast majority of Greeks will get slammed, though the elite that are negotiating these deals will do just fine.
“We still don’t have a solution for Greece, so there will be a harder default to come,” predicted Charles Wyplosz, director of the Geneva-based International Center for Money and Banking Studies. Yet, in a bitter irony, Germany—the country where tax dodging is a national sport—has decided to send 160 employees of its Ministry of Finance to Athens to fix against all odds the tax collection system, a debacle that will endear the already reviled Germans even more to the Greeks. Read.... Final Spasm: Greco-Teutonic Wrestling.
In central Athens, a stunning 29.6% of the businesses ceased operations, up from 24.4% in August; in Piraeus 27.3%, a 10-point jump since March. The whole Attica region lost 25.6% of its businesses. “This worsening of the survival index in the commercial sector ... shows that resistance is waning,” said Vasilis Korkidis, president of the National Confederation of Hellenic Commerce. “We must continue the battle of daily survival and keep our shops open,” he pleaded—while fourth quarter GDP was being revised down to -7.5% on an annual basis. The Greek economy has shrunk about 20% since 2008.
Unemployment is veering toward disaster. The overall rate of 21% in December, announced Thursday, was horrid enough, but youth unemployment rose to a shocking 51.1%, double the rate before the crisis. A record 1,033,507 people were unemployed, up 41% over prior year. Only 3,899,319 people had jobs—a mere 36.1% of a total population of 10.8 million!
No economy can service a gargantuan—and rapidly growing—mountain of debt when only 36.1% of its people contribute (by comparison, the US employment population ratio is 58.6%, down from 64.7% in 2000). Hence, another bout of red ink. The “cash deficit” at the end of 2011 hit €24.9 billion, 11.5% of GDP, far above the general budget deficit. Government-owned enterprises, such as the public healthcare sector, couldn’t pay their bills. Total owed their suppliers: €5.73 billion.
Yet, forcing down the deficit is one of the many conditions that the bailout Troika of EU, ECB, and IMF have imposed on Greece. And: “If the Greek people or the Greek political elite do not apply all of these conditions, they exclude themselves from the Eurozone,” said Luxembourg’s Finance Minister Luc Frieden. All of these conditions. Then he added the crucial words: “The impact on other countries now will be less important than a year ago.” Read.... Firewalls In Place, Markets ready: Greece Can Go To Heck.
Under pressure to cut its healthcare budget, the government reduced the prices that the industry can charge state-owned insurers. So wholesalers are selling their limited supply outside Greece, while out-of-money state-owned insurers delay payments to pharmacies and hospitals, which then can’t pay their wholesalers for the medications they do get. In return, wholesalers turn off the spigot. And the system is locking up.
Even Health Minister Andreas Loverdos conceded that there were shortages, but that they were limited to lower-priced medications. Of the 500 most common drugs, 243 have disappeared from the shelves, including antibiotics and drugs for treating diabetes and hypertension. The Panhellenic Association of Women with Breast Cancer, for example, received many complaints from patients who claim they weren’t treated due to lack of oncology drugs. And the world’s largest pharmaceutical companies are worried that Greece and some other countries might not be able to pay them at all.
A bright spot: tourism. In 2011, receipts rose by 9.5% over prior year as the Arab Spring had scared tourists away from destinations such as Egypt and Tunisia. In July, receipts jumped 14.4% and in October 15%. Alas, in December they declined 4.9%. And that reversal has now infected 2012. Tourist arrivals so far this year are down 10.7% in Athens and 6.7% for the country. Its last growth industry has hit the skids, too.
With unemployment climbing, production and consumption tanking, businesses shutting down, and tourism nose-diving, there is only one way for tax revenues: down. Budget deficits will be worse than promised. Greece’s debt—now largely to taxpayers of other countries—will continue to balloon. The standard of living of the vast majority of Greeks will get slammed, though the elite that are negotiating these deals will do just fine.
“We still don’t have a solution for Greece, so there will be a harder default to come,” predicted Charles Wyplosz, director of the Geneva-based International Center for Money and Banking Studies. Yet, in a bitter irony, Germany—the country where tax dodging is a national sport—has decided to send 160 employees of its Ministry of Finance to Athens to fix against all odds the tax collection system, a debacle that will endear the already reviled Germans even more to the Greeks. Read.... Final Spasm: Greco-Teutonic Wrestling.
Dutch Freedom Party pushes euro exit as €2.4 trillion rescue bill looms
The Dutch Freedom Party has called for a return to the Guilder, becoming the first political movement in the eurozone with a large popular base to opt for withdrawal from the single currency.
Geert Wilders made his decision after receiving a report by London-based Lombard Street Research concluding that the Netherlands is badly handicapped by euro membership Photo: EPA
"The euro is not in the interests of the Dutch people," said Geert Wilders, the leader of the right-wing populist party with a sixth of the seats in the Dutch parliament. "We want to be the master of our own house and our own country, so we say yes to the guilder. Bring it on."
Mr Wilders made his decision after receiving a report by London-based Lombard Street Research concluding that the Netherlands is badly handicapped by euro membership, and that it could cost EMU’s creditor core more than €2.4 trillion to hold monetary union together over the next four years. "If the politicians in The Hague disagree with our report, let them show the guts to hold a referendum. Let the Dutch people decide," he said.
Mr Wilders is not part of the coalition. However, the minority government of Mark Rutte relies on the Freedom Party to pass legislation. The two men were in talks on Monday on €16bn of fresh austerity cuts needed stop the budget deficit jumping to 4.5pc of GDP.
The study said the eurozone cannot survive in its current form. The longer Europe’s politicians dither, the more costly it will become. "The euro can only survive if it becomes a fiscal transfer union with national sovereign debt subsumed in eurozone bonds," said co-author Charles Dumas.
Greece will opt for a "negotiated exit" later this year, once the pain becomes excruciating. This will be after the French elections in May, but before the German electoral season begins in 2013.
Portugal will follow in "short order" as markets focus on its struggling banks and nasty logic of recession for debt dynamics. "At that point, if not before, attention will turn to Spain and Italy, both likely by then to be much weakened by savage austerity programmes now being implemented," said Mr Dumas.
That is the moment when the creditor core will face the decision they have "ducked" for the past two years: either accept an EMU reflation strategy, along with debt pooling, fiscal union, and transfers; or accept a break-up.
Under an "optimistic scenario" it would cost €1.3 trillion to shore up Med-Europe, rising to more than €2.4 trillion if Italy and Spain need some form of bond relief. "The staggering trillion bill to preserve the euro only takes us to 2015. In reality, most of the debts will never be repaid and subsidies will need to continue, year in and year out," said Mr Dumas.
The report said exit by Italy would be relatively easy. The country would recover once it regained currency freedom, though foreign bondholders would take an exchange rate hit. Spain’s exit would be harder to manage since it has a primary budget deficit of 7pc of GDP, and its companies have large euro debts abroad.
Exits costs will rise relentlessly for both countries over time. Prolonged economic depression within EMU would render their debt mostly worthless in the end. So if there is to be break-up, "the sooner the better".
Italy and Spain are more likely to hang on as long as they can, until Northern patience snaps. Germany and Holland would then leave, causing a general return to the "sanity" of floating currencies.
The report said Holland had fallen behind non-euro Sweden and Switzerland since the launch of EMU. Its growth rate dropped from 3pc over the preceding 20 years to 1.25pc under the euro, compared with 2.25pc in Sweden and 1.75pc in Switzerland. The Swedes have stolen a march worth €3,500 per head over the past decade.
The report said Sweden and Switzerland have performed better on every front, relying on currency swings to check imbalances. "They created more jobs than the Dutch and especially the Germans. They enjoyed lower inflation. They were more successful in balancing their budgets. And they have run larger current account surpluses. Only wishful thinking could absolve the euro from blame."
Holland had enjoyed a "one-off" gain of 2pc to 2.25pc of GDP from the launch of the euro, and transaction costs have fallen. However, the trade benefits have been scant. The value-added share of exports has not risen.
The pan-EMU convergence in borrowing costs cited for many years as the great success of EMU proved to be a curse. It let the South borrow too cheaply and too much, lulling creditors into a false sense of security, and ultimately led to the debt crisis.
The report conclude that EMU membership "locks the Netherlands into a system in which cost competitiveness is matched by massive structural over-valuation of costs in Med-Europe, resulting in deficits that will suck cash out of the core Eurozone".
Mr Wilders said the study "goes against everything we are told in the media and by the left-wing elite on a daily basis".
The Dutch government is unlikely to pay any attention to the findings, but the Freedom Party’s populist campaign may force Mr Rutte to take an even harder line in loan talks with Greece, Portugal and Ireland, or over the expansion of the EFSF rescue fund.
The Dutch are major net contributors to the EU budget and have long resented serving as a cash cow. They rejected the European Constitution by a wide margin in 2005. A bitter edge has crept into Dutch political discourse.
Mr Wilders is known for his astute political instincts. His demarche tells us all too clearly that Dutch patience is wearing very thin.
That is the moment when the creditor core will face the decision they have "ducked" for the past two years: either accept an EMU reflation strategy, along with debt pooling, fiscal union, and transfers; or accept a break-up.
Under an "optimistic scenario" it would cost €1.3 trillion to shore up Med-Europe, rising to more than €2.4 trillion if Italy and Spain need some form of bond relief. "The staggering trillion bill to preserve the euro only takes us to 2015. In reality, most of the debts will never be repaid and subsidies will need to continue, year in and year out," said Mr Dumas.
The report said exit by Italy would be relatively easy. The country would recover once it regained currency freedom, though foreign bondholders would take an exchange rate hit. Spain’s exit would be harder to manage since it has a primary budget deficit of 7pc of GDP, and its companies have large euro debts abroad.
Exits costs will rise relentlessly for both countries over time. Prolonged economic depression within EMU would render their debt mostly worthless in the end. So if there is to be break-up, "the sooner the better".
Italy and Spain are more likely to hang on as long as they can, until Northern patience snaps. Germany and Holland would then leave, causing a general return to the "sanity" of floating currencies.
The report said Holland had fallen behind non-euro Sweden and Switzerland since the launch of EMU. Its growth rate dropped from 3pc over the preceding 20 years to 1.25pc under the euro, compared with 2.25pc in Sweden and 1.75pc in Switzerland. The Swedes have stolen a march worth €3,500 per head over the past decade.
The report said Sweden and Switzerland have performed better on every front, relying on currency swings to check imbalances. "They created more jobs than the Dutch and especially the Germans. They enjoyed lower inflation. They were more successful in balancing their budgets. And they have run larger current account surpluses. Only wishful thinking could absolve the euro from blame."
Holland had enjoyed a "one-off" gain of 2pc to 2.25pc of GDP from the launch of the euro, and transaction costs have fallen. However, the trade benefits have been scant. The value-added share of exports has not risen.
The pan-EMU convergence in borrowing costs cited for many years as the great success of EMU proved to be a curse. It let the South borrow too cheaply and too much, lulling creditors into a false sense of security, and ultimately led to the debt crisis.
The report conclude that EMU membership "locks the Netherlands into a system in which cost competitiveness is matched by massive structural over-valuation of costs in Med-Europe, resulting in deficits that will suck cash out of the core Eurozone".
Mr Wilders said the study "goes against everything we are told in the media and by the left-wing elite on a daily basis".
The Dutch government is unlikely to pay any attention to the findings, but the Freedom Party’s populist campaign may force Mr Rutte to take an even harder line in loan talks with Greece, Portugal and Ireland, or over the expansion of the EFSF rescue fund.
The Dutch are major net contributors to the EU budget and have long resented serving as a cash cow. They rejected the European Constitution by a wide margin in 2005. A bitter edge has crept into Dutch political discourse.
Mr Wilders is known for his astute political instincts. His demarche tells us all too clearly that Dutch patience is wearing very thin.
ISDA Says Greece In Default, CDS Will Trigger
Greece has gone ahead with the first phase of their restructuring - Getty Images via @daylife
UPDATE (2:43 p.m.): An ISDA spokesman told Forbes no decision has been reached regarding on whether Greece’s restructuring qualifies as a credit event, which would in turn trigger CDS protection.
A report by Derivatives Intelligence published around 2:00 PM New York time said the ISDA had indeed considered the PSI/debt restructuring deal a credit event. Their report from the supposed ISDA release, noting the application of collective action clauses had “reduced” bondholders’ ability to receive payments, and that an auction for outstanding CDS would be held March 19.
Kevin Dugan, the journalist who published the initial report, tweeted a picture of the ISDA’s supposed press release. Click here for the picture.
Greece did it! The Hellenic Republic executed the highly controversial PSI or debt restructuring deal, getting 85.8% of holders of Greek-law governed bonds and 69% of foreign-law bonds to tender. All eyes will now fall on the ISDA as the Greek government uses collective action clauses (CACs) to force holders of bonds governed by domestic law to take the debt swap, potentially triggering credit default swaps (CDS).
While Greece hasn’t missed a bond payment yet, it has effectively defaulted by forcing a 74% haircut on those creditors that held out, as Fitch’s calculations in their recent downgrade of Greece’s sovereign rating to “selective default” show. The question of a Greek default may appear superfluous to some, given the country is relatively small and has been bailed out, but the resolution of the situation will set historical precedents that could take on massive importance if other peripherals, particularly Spain and Italy, face serious financing problems.
For more analysis, read Greek Default Provides Temporary Relief As EU Crisis Marches On.
And that is why the International Swaps and Derivatives Association’s decision on CDS is actually transcendental. Greece announced that holders of €152 billion of bonds governed by Greek law, of the approximately €177 billion issued, voluntarily tendered their bonds and accepted a 74% haircut. Also included in the deal were holders of laws governed by foreign law, generally British or Japanese, whom tendered €20 billion or 69% of bonds outstanding.
Using retroactively inserted CACs, Greece can force bondholders governed by domestic law to take the deal, as long as they meet a certain threshold, which they did: beyond the 85.8% of those bondholders that tendered their bonds, an additional 5.3% (about €9.38 billion in face value) voted to force the restructuring terms, without tendering their bonds. Presumably, that 5.3% consists of bondholders that bought CDS protection, and need the CAC implementation to trigger that protection.
At the end of the day, this means Greece is forcing 9.9% of bondholders under domestic law to both accept the retroactively inserted CACs and to take a 74% haircut (according to Fitch’s calculations). Just to clarify, an additional 5.3% held out but voted to enforce the CACs, presumably because they bought CDS to cash-in on Greece’s sovereign debt crisis.
It’s all down to the ISDA now. The group has been under fire by the media for failing to consider Greece in default when it was clearly imposing a massive haircut on its creditors. To the ISDA’s defense, no bondholder had actually suffered a haircut. As of Monday, when Greece implements the swap, this will have occurred, against the will of 9.9% of those bondholders.
The ISDA was set to meet at 1PM London time on Friday to figure out if a restructuring credit event had occurred, a circumstance that would trigger CDS. Both Nomura and Barclays have come out expecting the ISDA to rule in favor of a credit event, thus triggering CDS protection.
The net notional value of CDS outstanding is relatively small, around $3.2 billion. Barclays’ analysts considered the process to be “relatively uneventful” given how small the actual liabilities are. But they are missing the point. As the ISDA has made clear in the past, these products are in their infancy and are in a process of evolution. The Greek restructuring is a defining moment for CDS and other derivative products, giving the ISDA’s decision value in terms of precedence, much like a in a legal system based on jurisprudence. The net notional value of total CDS outstanding is $15.7 trillion according to DTCC, that’s larger than the U.S. economy.
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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 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."
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."
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