Financial Crisis – Needull in a haystack

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Iceland was unique in that they handed over jail terms to bankers.

Gylfason believes that when a country goes through a major economic shock, in addition to getting its financial house in order – which Iceland successfully accomplished at the behest of the IMF — it also needs to clean up its act in the judicial and political realms. “We have a mixed picture here,” he says. “Thirty-nine bankers were awarded prison sentences by the Supreme Court of Iceland, to the tune of 2.5 years on average. This means the amount of prison time in man-years that the Supreme Court handed out is close to 100.” He admits some critics have alleged that “the small fry were sentenced, while the big fish got away. This raises sensitive questions about equality before the law. But we will know more once the Supreme Court hands out its last sentences in 2019.”

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Knowledge@Wharton

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Most of us remember the pains and uncertainty around that time. But, have we learnt the lessons?

During former Federal Reserve Chairman Paul Volcker’s famous remarks to members of the Economic Club of New York after details about Bear Stearns’ rescue by JP Morgan Chase and the Fed came out ten years ago, he pointedly observed that such actions carried an “implied promise of similar action in times of future turmoil.” The Fed’s intervention is commonly remembered as the start of a cycle of institutional collapse and government bailouts that defined the 2008 financial crisis. Volcker went on to observe that such crises have in fact been a “recurrent feature of free and open capital markets” and that “any return to heavily regulated, bank-dominated, nationally insulated markets is pure nostalgia.”

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Luzi Hail, Ahmed Tahoun, Clare Wang — Institute for New Economic Thinking

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