The concepts of liberty and justice are somewhat contradictory. If I am completely free, I should not have to justify myself to any tribunal, or suffer any consequences for any harm I may have inflicted on others. Anyone who gets in my way deserves whatever punishment I dole out.
The idea of justice dampens our most libertarian impulses and forces those of us who choose to live in society to conform our behavior in a manner that punishes us for ignoring the rights of others.
The extreme form of libertarianism adopted by Davíð Oddsson and his followers predictably resulted in the gross inequities we can all now observe in Icelandic society. Unfortunately, however, the results of their extremist views continue to cast a pall over our world.
The system used by the Iceland's ruling caste to launder their ill-begotten gains is simple to describe: The members of the financial class created a dizzying multitude of limited liability entities which obtained vast loans from the banks controlled by their owners, purportedly based on sound business plans. The owners paid themselves high salaries, large bonuses, and unjustified dividends. When the pretense of sound business practices wore thin, they funneled the remaining assets of these companies into newly-created shell companies, had the original companies declare bankruptcy, then convinced the banks (still operated by their co-conspirators) to write-off personal guarantees and security interests on property acquired by the original companies. Result: the rich got richer, the banks lost their investments, and the government (i.e., the rest of us) got stuck with the bill.
Now, here's how it works for the ordinary citizens: After taking out an 80 million króna mortgage loan for an overpriced residence at the peak of the real estate market, the borrower gets laid off. Despite her desperate pleas, the bank forecloses on the property, sells it for a fraction of the amount loaned, and then obtains a personal judgment against the borrower. Even if the borrower declares bankruptcy, she is still personally liable for the remaining debt until the end of her days. So, she has no job, no residence, a judgment against her that she can never pay off, but the bank will be able to maintain the judgment on its books as an asset. Her only escape from a life of indentured servitude is a one-way ticket out of Iceland -- which loses all of its investment in her (education, health care, etc.).
Practically, it is simply not possible for most of us to exploit this system. We don't have lawyers to draft and file the documents, accountants to navigate the regulations, or bankers willing to give us loans without collateral. We do not have friends at the decision-making level who would value our well-being over that of their employers, and write-off our losses without attempting to extract a pound of flesh.
This is not a failure of the laws. They are not being misinterpreted by the courts or the regulators. This is precisely how the laws enacted by our representatives are intended to function.
This is, however, a failure of justice.
The freedom of the moneyed class to move capital from one pocket to another, regardless of the harm to the nation as a whole, is deemed under our laws to be more important than the provision of life's necessities to the rest of us.
An average worker with an underwater mortgage has no freedom, no future. He doesn't spend his days searching for the meaning of life. He's toiling like Sisyphus, pushing the boulder up the hill, watching it go down the other side, then starting all over again the next day. His nights are not spent in intellectual discourse. Instead, he wakes in the middle of the night worrying how he's going to make it to his next payday.
In a civilized country, one might expect the government to recognize that the needs of the many outweigh the desires of the few, but this has not been the case in Iceland over the past decade. The laws themselves are designed to funnel a higher and higher percentage of the nation's wealth to a select few, while doing nothing to guarantee a minimal level of economic security for those in greatest need.
John Locke wrote that, "The end of law is not to abolish or restrain, but to preserve and enlarge freedom. For in all the states of created beings capable of law, where there is no law, there is no freedom." Modern Iceland is not the "zero-government" libertarian state that Milton Friedman and his followers idolized, but something more sinister. There are laws, but they are specifically intended to rob the majority of citizens of their liberty.