Iceland -- the Nordic Zimbabwe

01/05/2009 04:27 pm ET | Updated May 25, 2011

The catastrophic economic collapse of Iceland has in international news stories been described as simply another, inevitable casualty of the credit crunch. A Wall Street Journal story last week noted that Iceland was one of the international financial bubble's most enthusiastic players," but failed to mention how Iceland's largely homemade crisis was created by a small group of powerful political and financial figures who literally have looted the nation's treasury.

According to the Fund for Peace, a state that is failing has several characteristics, such as group-based inequality, brain drain, sharp economic decline, corruption and criminal behavior, to name a few attributes. The magnitude of corruption and wrongdoings at the highest levels of Icelandic political and financial system that have come to light following the country's economic collapse begs this question: Is Iceland a failing state?

In October 2008, Iceland's three major investment banks -- Glitnir, Kaupthing, and Landsbanki, which the Conservative party had privatized eight years earlier in favor of their cronies -- collapsed and were taken over by the Icelandic government. They had, through various questionable artifices, incurred a combined debt equal to 7-10 times Iceland's gross domestic product (GDP). Hundreds of thousands of investors outside of Iceland lost all of their savings, inducing the British government to invoke anti-terrorism laws in an attempt to contain the damage.

Since this collapse, the Icelandic stock exchange has plummeted, the Icelandic crown has lost one-half of its value, and the unemployment rate rose 60% from October to November. The sudden halt of major construction projects -- including what was to be an iconic opera house -- has caused foreign workers to flee the country in droves. Automobile sales have nearly stopped, and massive residential foreclosures loom. One-third of Icelanders have indicated that they are considering leaving the island.

Despite obvious mistakes and wrongdoings by governmental regulators and bank executives, no observable changes have ensued. The current regulators--including the head of the Icelandic Central Bank, Davíð Oddsson (Prime Minister from 1991-2004) -- are the very same people who encouraged and approved these fantasies. The majority of the top executives in the newly-nationalized banks are the same directors who created the overleveraged castles in the air. Instead of criminal charges, they get to keep their jobs and handsome paychecks, and remain in position to further manipulate the country's finances. Average Icelanders, on the other hand, get to scratch out a living and the responsibility (along with their children and grandchildren) for paying the billions of debt Iceland is now saddled with.

The gang's perp-in-chief, Jón Ásgeir Jóhannesson, who also happens to "own" most of the private media in the country, is free to gallivant in his private jet between luxury homes in several countries. At this writing, he and his fellow crooks, who invented false enterprises and inflated their "worth" by selling pieces of paper back and forth to each other, continue to engage in all kinds of business transactions in Iceland and wait like carrion for opportunities to "buy" for pittance businesses that have closed or gone bankrupt since the collapse (the same fate awaits many others in the new year), not to mention real estate when thousands of Icelandic families lose their homes in this inferno of greed.

The crimes and corruption that has flourished under Iceland's conservative rule make Bernie Madoff's schemes look like Mother Goose tales. Each day brings forth ever more incredulous stories. Icelanders who are struggling to hold onto their homes and pay the bills were outraged at to learn a few days before Christmas that certain well connected individuals -- bank execs, their families and friends (including members of the Icelandic government) -- hoping to cash in on the boom, borrowed hundreds of millions to buy bank stock, but as the collapse became imminent, the loans were conveniently "forgiven" in secret meetings, with a single penstroke! The average Icelander of course gets no such absolution.

The democratic process is paralyzed. The legislature, Alþingi, is little more than a rubber stamp for the administration and has basically shut itself down. Despite massive popular protests, Prime Minister Geir Haarde's ruling junta refuses to call for new elections before making what will certainly be extremely painful decisions.

Failed states are unable or unwilling to "protect their citizens from violence and perhaps even destruction," and "regard themselves as beyond the reach of domestic or international law." They may have democratic forms but suffer from a serious "democratic deficit" that deprives their democratic institutions of real substance.

The tyrant Robert Mugabe declared a few days ago that "Zimbabwe is mine. "I will never, never, never, never surrender." Iceland's Prime Minister Geir Haarde, the Central Bank Governor Davíð Oddsson, and the members of their little gang are telling Icelanders and the world that -- like Mugabe -- neither will they.