What makes a bank?
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"Vis, well, simply smarter than everyone else." The man on the other side of the table looks blankly at me with ice blue eyes. Not the slightest hint of a smile. The statement is apparently nothing new stand-up material, but meant as a deadly serious.
It is June 2008 and we are sitting in a building that feels like something out of a James Bond movie, an eagle’s nest in glass and granite, with huge panoramic windows out against a vindpiskat the Atlantic ocean that spreads out in a blyertsgrå horizon.
the Place is Islands the capital Reykjavik and the bank, kaupthing’s head office. The man in the shiny tailored suit, not unlike the 007 actor Daniel Craig, is the bank’s only 37-year-old ceo Hreidar Mar Sigurdsson.
To the already known risks for the unborn fetus, such as smoking and alcohol, can thus be fartblinda bankers.
Kaupthing has, together with the other icelandic banks spent the 2000s to the first years to an aggressive overseas expansion which has given them the epithet finansvikingar.
The icelandic banking sector have by this time swelled to a size equivalent to ten times the whole of the icelandic economy. Kaupthing and other banks at the same time have attracted hundreds of thousands of small savers throughout Europe by offering sky-high interest rates on their accounts. All this has got the world to start asking a simple question: how is it possible? In its futuristic décor, office jerk Kaupthingchefen on the shoulders: we have the right, all the others are wrong.
Relevant supplementary with the benefit of hindsight: hey, but are you stupid in the head?
I set the never. In the summer of 2008 and with the icelandic bank managers still like something kind of serious businessmen. This should be changed, to put it gently.
When I somewhat puzzled leaving the kaxige bankdirektörens office, it remains less than 90 days before both Kaupthing and the whole of the Island to succumb in one of history’s most spectacular finanskrascher. The answer to the question of how the icelandic "finansundret" was possible was, of course: it was not. Everything turned out to be a castle in the air. But if kaupthing’s ceo already the where försommardagen realized that the end was near he concealed it with the pathology skill.
To say that the banking crisis of 2008 was transformative for the Island would be to use a too light word.
the Researcher S Vardardottir have shown that the birth weight of the newborns decreased as a direct result of the stress associated with the banks ‘ collapse. To the already known risks for the unborn fetus, such as smoking and alcohol, can thus be fartblinda bankers.
It was as familiar not only in Iceland that the banks proved to have been living on borrowed time. Kaupthing’s ceo was not the only bankbossen with inflated self-image.
The small island republic’s collapse was overshadowed by that the same thing happened all over the world, just in a much larger scale. The entire financial system was a wink from breaking down. An event that usually go under the name of the financial crisis.
the Consequences do you know already, but they can most easily be summarized as this: the world will never be quite the same again.
The economic growth that the western world’s citizens have become accustomed to during the entire post-war period, appears today as a nostalgic dream. In countries like the united states and the united kingdom, estimated GDP will be 15 percent lower than if the development continued to follow the same curve up to 2007. This corresponds to a loss of the equivalent of over 70 000 sek per year for every american.
Kaupthing Bank’s young ceo Hreidar Mar Sigurdsson. Photo: Björn Larsson Ask
In Sweden, the Riksbank has calculated that without the financial crises in the 90s and 2008, Swedish GDP in 1 000 billion higher than in the day. Or around 100 000 sek per Swedish.
In an attempt to boost the economy, has the world’s central banks invested everything in what, without exaggeration, can be called history’s greatest monetary experiment. Interest rates have been reduced to zero and even less.
in the Autumn of 2016 traded bonds worth over 100 000 billion to the negative interest rate. Not only countries such as Germany and Sweden, but also large companies get paid to borrow money. The who ten years ago had spått such a scenario had not received the Nobel prize in economics, but more likely a psychiatric diagnosis.
Europe’s leaders wrote out a blank check and the central banks set up with unlimited money.
This experiment done to many old problems become larger, while there have been a lot of new.
For a financial journalist in the autumn of 2008, it took no genius powers of deduction to understand that the crisis seemed to have a deal with the banks to do.
It also appeared quickly that these institutions apparently were very important. The world’s policymakers were prepared to do quite a lot to save them. How much? In principle, anything. Europe’s leaders wrote out a blank check and the central banks set up with unlimited money. Which is quite a lot.
But what was it with the banks, which did that they deserved this treatment? What had really happened with the financial industry the past few decades? And with our economy?
When I began to ask these questions became the answers astounding.
It turned out that no other privately-owned profit-maximizing firms in the world assigned to so many unique privileges, such as banks. They had in fact received the power over the economy’s most important commodity: money.
This worked rather good, but has over time made that the world economy is stuck in a pattern of ever-new bubbles and crashes. And at the same time we become so dependent on the financial industry that the politicians have lost control.
Kaupthing Bank’s headquarters in Reykjavik. Photo: Yvonne Åsell
In practice throughout the our future outsourced.
perhaps The most surprising is that the entire design is based on the assumption that the banks will exercise his power in a wise way that will benefit all and not just themselves. Freedom under responsibility, as a grammar school teacher would say.
Here is a small understatement: it has not really worked.
over the years it has also another and more unpleasant realization crept in. It is significantly more important things than money in the pot.
Scientists have shown that there is a clear historical pattern in countries affected by serious economic crises triggered by the same maps banks.
They seem to be very often affected by political uncertainty, polarization, fragmented majorities and a strong rise of the populists, particularly on the extreme right, which often puts the blame on the immigrants and minority groups.
Things that have long been seen as obvious, such as peace, democracy, openness and tolerance, it is not anymore.
An almost eerily apt description of the situation in many countries in the west. And a spooky echo from the the 30′s.
Things that have long been seen as obvious, such as peace, democracy, openness and tolerance, it is no longer. Carefully worded social contract is torn up and spread like confetti in the wind. The unthinkable has become painfully normal.
And all because of some failed banks.
in the Autumn of 2016, eight years after the fall of Lehman Brothers, Europe’s largest bank, Deutsche Bank on the ropes. Once again there was talk that the taxpayer must turn out, despite all the promises that it would not happen again. It all begins to resemble a hostage situation.
A sequence of events that can make anyone start to wonder: what really makes a bank?
Continue reading – Chapter 1: The worst-case scenario: return to normal
What makes a bank? Welcome on the lecture by Andreas Cervenka and Joel Dahlberg on January 26. Book here.
Purchase "What makes a bank?" as an e-book directly from the publisher here.
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