Often we look to Iceland to see if we can discern events that will assist the United States. As you know, Iceland is a tiny country in the Atlantic that in the mid 2000s had some of the largest banks in the world. Then in 2008 the country and its currency collapsed. Unemployment jumped from about 3% to currently about 9% even though the country is almost bankrupt. Iceland has had inflation run from about 2.6% at the middle of 2007 to 18% at the height of the economic collapse to about 2.6% currently.
The result of all this turmoil is that Iceland recognizes that the country’s system suffered from corruption. The fact is fascinating because the CIA and other entities that measure transparency and corruption always rate Iceland as one of the most transparent and least corrupt nations. Yet, the collapse of its economy due to the failure of its banks proves otherwise. The citizens have banded together and agreed to draft a new constitution similar to what occurred in the United States back in 1770s and 80s.
There are people of all walks of life who are running to draft the constitution. Some are lawyers, some are fishermen, farmers, bankers, garbage collectors and from this group of 500 or so, 31 elected citizens will work together and draft a new constitution. The amazing part is that the results of the economic collapse of Iceland are the proof that these people need that their system was not transparent and that the leaders and bankers were corrupt.
Our situation is such that we should be following in Iceland’s footsteps. Not in necessarily drafting a new constitution but in the soul searching review of the regulators, institutions and elected officials who did not do their job to prevent our economic meltdown. As with Iceland, what was occurring was not transparent or we would have stopped it. As with Iceland the people in the know were corrupt or we would not have had such a breakdown.
The only Wall Street entity that could not tell Bernie Madoff was a crook was the Securities and Exchange Commission. They were the only entity with a large presence in Manhattan that did not suspect Madoff & Company, as proven that Goldman Sachs and the other big Wall Street players avoided Madoff investments, yet most have many investments with other firms. Only Congress could defend Fannie Mae and Freddie Mac months before the entities began to implode from bad loans. Where were the regulators and law enforcement agencies catching the fraudulent subprime mortgages when it is estimated that by the end of 2006 40% of those mortgages were taken out fraudulently?
