For some reason, this morning’s newspapers are full of outcry about what UK councils are doing investing in Iceland anyway. The answer to that seems quite simple; they were seeking the best returns for the council tax payer, which is exactly what they should be doing. Remember, Iceland’s leading banks offered high rates of interest and enjoyed AAA credit ratings. Sounds fair enough to me.
This is a good point well made. The trouble is that seeking the best value for the taxpayer does mean that, when your investments are looking dodgy, you should pull the cash out.
Your humble Devil has been sent this Time article (and I see that they spammed Iain Dale too) which points out that those in the know were aware that Iceland was perhaps just a wee bit dodgy some time ago.
In July, Kitty Ussher, then Economic Secretary to the Treasury and now a minister in the Department for Work and Pensions, was quizzed by an influential House of Commons committee after newspaper reports that the Icelandic Deposit and Investors Guarantee Fund had insufficient resources to cover its potential liabilities. "Are you satisfied, Minister, that British investors in Icelandic banks are fully guaranteed in the event of a bank collapse then?" wondered Michael Fallon, the Conservative MP who chairs the committee. "I am satisfied that the law exists to guarantee them, yes," replied Ussher. Fallon persisted: "You are satisfied that the law exists to guarantee them?" "Yes," came Ussher's reply, "under a combination of European and British law." "So they will get all their money back?" Fallon asked. "That is the legal situation," said Ussher.
The key phrase here is 'British investors'. There was no differentiation between individuals, councils or companies. And Ussher then went on to say that everyone would be legally entitled to get their money back. If she had misspoken, no doubt the record would have been corrected.
What this does show is that there were doubts about Icelandic banks many months ago. On the face of it, it seems incredible that no one who was offering financial advice to local authorities seems to have picked up on this. And what about HM Treasury, the FSA or the Bank of England? Shouldn't one of them have picked up on what was going on and issued some advice?
Those who have followed the Iceland situation for a few years—and your humble Devil is not, I confess, one of those—have long felt that the situation there (banks lending out five times the country's GDP, and the like) was more than mildly insane in the short-term and utterly unstable in the long-term.
One wonders who has been advising the councils...?
UPDATE: according to Gavin Ayling, one or two did get good advice and acted on it.