Justice: Lock'em up! But only for a bit.


Sculpture of man with briefcase and block on his head, Reykjavik

Throughout the world, people wanted to lock up those bankers who were responsible for the 2008 crash. Iceland is one of the few countries that actually managed to do it.

It started with a public discussion on the TV show Silfur Egils, the name of which refers to our thuggish poet friend Egil from the sagas and his lost silver, but is presented by the journalist Egill Helgason. One of his guests, Eva Joly, was a Norwegian-French judge who had some bracing suggestions for bringing the perps to justice. She was persuaded to spend several months in Iceland advising the government.

There was a strong suspicion among many that the Outvaders, the bankers, the politicians and indeed the lawyers of Reykjavík all knew each other too well, so the government searched for a prosecutor from outside the capital to go after the culprits.

Ólafur the salmon catcher

They found one in the small town of Akranes, Ólafur Hauksson. This all seemed a bit of a joke at first. Ólafur had no experience of financial crime: the only picture of him I could find on the internet at the time was of a comfortable middle-aged man with an enormous grin standing next to a river holding a very large salmon. Which was kind of apposite, since you may remember the Icelandic phrase for ‘Big Cheese’ is ‘Big Salmon’.

Anyway, Ólafur got himself a small office in Reykjavík, a couple of computers and three colleagues, and set to work going through documents. Methodically.

Unlike other countries’ prosecutors, who imprisoned the small fry and fined the companies, Ólafur built up his team and kept going until he found the bosses responsible. He didn’t let the shareholders of the banks pay the fines, as happened in Britain and the US; he was going after people, not institutions. And it worked. Senior executives at all three of Iceland’s banks were successfully prosecuted. They went to jail.

Follow the Money

So where did all that money come from? How did Kaupthing go from capital of a couple of million dollars in the 1990s to deposits of many billions?

In London, the gossip was that the money came from Russia. I checked this out. While it was true that one of the Outvaders had cashed out from successful bottling and brewing investments in St Petersburg, which may have inspired the rumour, I could find no evidence of Russian oligarchs’ money sloshing around the Icelandic banking system.

Once again, the culprit was ‘clever’ ways of borrowing. Banks are allowed to borrow several times their capital. So a bank with capital of £1 million may have made loans of £10 million, back before the crash. What if £1 million of those loans was made to someone to invest £1 million of new equity in the bank? Then the bank would have £2 million of capital and be able to lend £20 million. £2 million is lent to someone to invest in the bank, which now has £4 million of capital. And so on.

Sounds clever, doesn’t it? Money is magicked out of money. The Icelandic bankers thought it was clever. That’s how they had so much money to lend, to themselves and to their Outvader friends.

It’s not actually that clever, it breaches many regulations, regulations that the bankers either didn’t know about or thought were just red tape. These men are not nearly as crooked as many of the financiers I have come across during my career in the City where I invested in junk bonds, or when writing my financial thrillers, men like the people who put together fake mortgages and sold them on or, more importantly, the people who managed these men. My impression, which is backed up by the views of bankers in London who dealt with them, is that the Icelandic bankers were optimistic, naive and lacked judgement rather than evil masterminds. Don’t get me wrong: they broke rules that were put there for a reason, they should have been punished and they have been.


The Independent Party was thrown out of government. Jóhanna Sigurdardóttir became prime minister, the first openly lesbian leader of a country.

The comedian Jón Gnarr stood for mayor of Reykjavík in 2009. He is well known as the lugubrious manager of a petrol station in the sitcom The Night Shift. He stood on a manifesto of a drug-free Parliament by 2020, a polar bear for the zoo, tollbooths at the border with Seltjarnarnes and the construction of a large white-collar prison for foreign bankster criminals. His motivation for becoming mayor was it would be nice to have a chauffeur to chat to while he was driving to work.

He won, but, like many politicians before him, he didn’t keep his promises. There is no polar bear in Reykjavík’s tiny zoo: probably a good thing too.


Eventually, after several years of pain, Iceland pulled itself back on to its feet. Tourism, which has been booming for a decade now, saved the economy. The ‘For Rent’ signs have disappeared in Laugavegur, the skyline is dotted with cranes again, and brand-new Range Rovers which had become known by locals as ‘Game Overs’ are once again seen powering down Reykjavík’s roads. But there remain people who are having difficulty paying the mortgages they took out in 2006. The fallout from the kreppa still overshadows many ordinary Icelanders’ lives.

The Sculpture

There is a sculpture just by Reykjavík's city hall beside the Tjörnin lake of a man holding a briefcase with a big block of something dropped on his head (see photo above).  I'm not entirely sure what this is supposed to represent, but I can guess.  

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