The mad financial merry-go-round by Quentin Bates

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Baldur Gudlaugsson is starting a prison term. A judge handed down a two-year sentence to be served, not suspended, on the former civil servant convicted of some fairly blatant insider trading. Prison in Iceland is fairly comfortable, compared to say, a prison in South America or the Far East. He’ll probably have a room to himself, his own TV, computer (no internet), books, and a good few luxuries brought in from outside.

He’ll be joining the rest of Iceland’s growing prison population and will make an odd figure among the usual villains at Litla-Hraun prison where a high proportion are there for drugs-related offences, before he’ll undoubtedly be transferred to a more open establishment.

What is interesting about Baldur Gudlaugsson’s conviction is that he is first of those sentenced following Iceland’s post-Crash turmoil, as well as being a pillar of the establishment and a lifelong Independence Party man of the kind parachuted into top positions to ensure that everything was running along party lines. It was as a senior Ministry of Finance official that he attended meetings in London that demonstrated just how shaky the ground was under Landsbanki – remember IceSave, anyone?

Using the information he was party to, that wasn’t available to the general public, he hastily sold his holding in the bank shortly before its collapse and doubtless few people in his own circle thought any less of him for having done so.

This is corruption, Icelandic style. It’s the way business has been done for years, behind closed doors, with the party faithful rewarded for toeing the line and keeping things ticking over. I hasten to add, this isn’t something that only the Independence Party and its people have been guilty of, but the IP has long been the largest power in the land with a strong hold on politics and business in Reykjavík. The Progressive Party, and to an extent the other political camps, have all been involved in patting people’s backs and giving them a helping hand in antics that range from a job for m’boy to a bank loan that wouldn’t otherwise be available, to giving the right people a bank of their own to play with.

Icelanders grumble about it, but have generally grudgingly accepted that this is the way things are. This is the downside of the delightfully compact society in which everyone knows someone who knows someone or has a cousin who knows just the right person. 300,000 people is about right for a sizable market town anywhere in Europe and Reykjavík is one of the smallest capital cities in the world. This tiny society allows levels of contact that wouldn’t be possible otherwise. If you’ve a gripe with a government department, ring them up and if you’re patient and forceful enough, or simply persuasive – or properly connected – there’s every chance the Minister will take your call. If that doesn’t work, the Minister’s home phone number may well be in the single volume of phone book that serves the entire country, and failing that, he or she will more than likely be happy to be your friend on Facebook.

The dark side of the same coin is that in such a small society, conflicts of interest aren’t just rife, they’re virtually unavoidable.

For an outsider, it’s very difficult to pick up the subcurrents of connection that run through society. Family ties are stronger than they tend to be in other, more dispersed societies, and it’s also the case that virtually everyone is related to everyone else if you dig back half a dozen generations. The fact that a purchasing officer somewhere may be giving a contract to a supplier who is his cousin is nothing unusual and the assumption is that blood is thicker than water, so what do you expect? That’s the way it goes. People grumble and take it on the chin.

Almost any aspect of society and business can be a minefield of interconnections, made more difficult by these connections being ingrained and accepted in a way that would not be possible in many countries. It’s hard work if you want to do business in Iceland, but for a crime writer, it’s all thoroughly fertile territory.

So far Baldur Gudlaugsson is the first to be sent to prison as part of the investigations being carried out by the Office of the Special Prosecutor appointed to look into the bizarrely complex ramifications of the 2008 Crash. It’s yet to be seen if he’ll be the only one. But the Special Prosecutor has now also levelled charges against four senior former Kaupthing banking executives with offences relating to market manipulation. The bones of the story are that a Qatari sheik bought a 5% holding in Kaupthing – but it since emerged that he wasn’t risking his own cash at all. It appears that the bank had lent him the money to buy shares in the bank that had lent him the money to start with in a mad financial merry-go-round.

It’s the tip of the iceberg and a significantly more complex case than that of Baldur Gudlaugsson’s insider trading. A great many Icelanders are watching with interest to see how this one goes, as while Baldur Gudlaugsson was a government mandarin who abused his position and was caught, he wasn’t one of the clique of businessmen who bankrupted the country.

The case of the Kaupthing four, all wealthy men with permanent homes overseas, strikes much closer to the heart of the group who really did drive the country’s financial system over the brink. It’s all fertile ground, but the trouble is that much of it is so far-fetched that it goes beyond anything you could get away with in fiction.

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