Transcript: Thom Hartmann & Gunnar Hrafn Jónsson: Icelandic economics. January 9, 2012

Thom Hartmann: Welcome back, Thom Hartmann here with you in Reykjavik, Iceland. And I am pleased to have with me, an esteemed journalist for the State Broadcasting service, which is RUV.

Gunnar Hrafn Jónsson: Yeah, RUV.

Thom Hartmann: Gunnar Jónsson, and Gunnar, welcome to the program.

Gunnar Hrafn Jónsson: Thank you.

Thom Hartmann: As a reporter, how do you, give us a reporter’s view of what has happened in this country since the bank failures of the last few months of the Bush administration in the U.S. and how tightly did it correspond here to that time, and you know, what’s the story story as opposed to the spin story?

Gunnar Hrafn Jónsson: I think things kicked off a little earlier here than elsewhere. Obviously the collapse happened late in 2008 and it had some connection to the mortgage crisis in the United States and the global credit crunch. But we also had some very specific problems in Iceland that don’t really translate that well, as you’ve probably heard over the last couple of hours, into American terms. We have a very small society, we have a lot of Cronyism. Everybody is somebody’s cousin, everybody knows somebody. And so a lot of the trust that was built into the banking system was built on people knowing each other. This guy is a good guy, I’ll lend him money, I don’t need any credit. And the bubble sort of was self-perpetuating because everybody believed they were geniuses when really they had no experience of international financial markets, they were just handed control of banks without any experience in running banks and they ran them sort of like piggy banks. And they were selling stock to their friends in the bank with no credit and they were loaning, the banks were actually loaning people money to buy stock in the bank, raising the value of the bank. And they could never go on like that. It was, it was a bubble that had to burst.

Thom Hartmann: Yeah, it sounds almost like musical chairs. There was a point, my understanding is you started out with three state-owned banks, do I have that right?

Gunnar Hrafn Jónsson: Well after, before the crash you mean?

Thom Hartmann: Yes, long before the crash.

Gunnar Hrafn Jónsson: Yeah they were privatized under very shady circumstances.

Thom Hartmann: And when were they privatized?

Gunnar Hrafn Jónsson: They were privatized in the years from 2000, you know, after that gradually one at a time and the political parties all had very much control over who got the stock. And there were very political figures who were buying large portions of these banks that were supposed to be public institutions and had, you know, been very small scale. It’s a small country, you don’t need a huge financial system. But it blew up like a bubble. It multiplied until it was much larger than the state. And when it all came down, you know, the Icelandic government didn’t have the capital to back it up. They didn’t have the reserves. And of course then we had the international obligations that we could not honor and it all sort of spiraled down from there. But what happened in the last maybe two years or last few months is that economic indicators in Iceland have been going up. We’ve been getting positive growth on GDP, debt is going down, and at the same time things seem to be spiraling downwards in Europe. So it’s sort of, I’m not sure how much you can connect the two situations, even those.

Thom Hartmann: Europe, first of all to generalize about Europe is kind of dangerous, because there are pieces that are doing well. The Scandinavian countries, for example, seem to be doing fairly well, whereas you’ve got you know, Italy and Spain in big trouble. But the, and Matt Taibbi in the U.S. who writes for Rolling Stone has this whole theory about the banksters took them for a ride, particular Goldman. But, so to the extent that things are getting better here and they’re collapsing there, much of Europe right now is pursuing an austerity agenda. An agenda of let’s cut our way to prosperity. I had an economist on my TV program last week, and said do you know, Gunnar Tómasson, in fact he’s Icelandic, or an Icelander. And I said, do you know of any country in the history of the world that has ever cut it’s way to prosperity, that has used austerity to get to prosperity? And he said no, it’s never happened. Is Iceland pursuing an austerity program? Or is Iceland continuing with a strong social safety net and continued “government spending" and might that have something to do with it, or am I missing something altogether here?

Gunnar Hrafn Jónsson: It depends entirely on who you ask, of course. It’s a very politicized issue. We have a left wing government and we have a right wing opposition. And the right wing opposition obviously says that you know you cannot cut your way to prosperity, you cannot raise taxes and expect growth and of course there’s some validity to that argument but then again, like Paul Fontaine was talking about, they were in government for the previous 18 years before the collapse. So they’ve lost some credibility in the eyes of the public. But they have gotten it back and now people seem, the opinion polls are indicating that people seem to want the right wing government, even though ostensibly things are getting better if you look at the numbers, people…

Thom Hartmann: Under a left wing government right now.

Gunnar Hrafn Jónsson: Yeah under the left wing government, things do look on the up, but people don’t really feel it in the street and that’s the key thing.

Thom Hartmann: You still have a lot of homeowners who are under water in mortgages.

Gunnar Hrafn Jónsson: Yeah, under water in mortgages, the government did introduce some measures to try to help them but it has been a public relations disaster because it wasn’t really, people didn’t know what rights they had. They didn’t know that they could apply for certain things to ameliorate their debt problems. And I think, you know, the government has made a lot of mistakes but probably the biggest one was the PR failure. People do not feel that things are getting better, despite looking at the numbers. And maybe it’s a mis-distribution of wealth as well. Maybe things are getting better for the wrong people. I don’t know, I don’t have any figures to back that up.

Thom Hartmann: Yeah. On the latter in the United States there’s a lot of, there’s subject to great discussion, but on the former the failure of the government to tout their own achievements, is frankly for democrats, and his supporters, it’s their main criticism of President Obama. It’s that nobody knows the things that he has actually done that are of value.

Gunnar Hrafn Jónsson: I think we have a very similar situation here. And it’s very easy to criticize when everything is going to hell. People are losing their houses, wages have been cut, unemployment is high, even though it’s coming down slightly. It’s very easy to criticize and point out what is going wrong. So…

Thom Hartmann: What is the national unemployment rate here now?

Gunnar Hrafn Jónsson: I think it’s between 6 and 7%, I don’t know…

Thom Hartmann: We would kill for that.

Gunnar Hrafn Jónsson: You would. But we went through like ten years where we had 1, 2% unemployment rate.

Thom Hartmann: 1 or 2 percent!

Gunnar Hrafn Jónsson: We had a bakery close to where I live which closed down because they couldn’t get anyone to work in a bakery. People were working for banks, they didn’t want to serve bread.

Thom Hartmann: Amazing.

Gunnar Hrafn Jónsson: So I think what one of your previous guests said, people really want the bubble to come back, that’s what they want.

Thom Hartmann: Yeah, I think so. Gunnar Jónsson, thank you so much.

Gunnar Hrafn Jónsson: Thank you.

Thom Hartmann: Appreciate it. We’ll be right back.

Transcribed by Suzanne Roberts, Portland Psychology Clinic.

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