How not to deal with the aftermath of a financial crisis

We have a report and column telling us how to deal with the aftermath of a financial crisis. The problem being that they’ve not correctly identified what was done right after the last one, therefore they’re not picking up the correct lessons.

It is true that their exemplar, Iceland, sorted itself out rather well, certainly doing very much better than Greece which faced similar pressures even if a different policy environment.

Our comparative research, carried out with Kieran McEvoy Neophytos Loizides, reveals that Iceland stands out from the rest. Iceland, a tiny European nation of 330,000 inhabitants, offers valuable lessons on the importance of accountability and suggests how to deal with such issues if or when the world suffers another financial crisis.

Days after the collapse of 97% of its banking industry, Icelandic authorities designed a comprehensive policy of accountability, based on two overlapping objectives: establishing the truth and punishing those responsible. An independent truth commission was mandated to document the causes of the meltdown, and the newly established Office of the Special Prosecutor was tasked to thoroughly investigate and prosecute those responsible for any crimes committed in the run up to the crisis. Both mechanisms have been remarkably successful.

That is to concentrate upon the trivia. What actually mattered was that Iceland allowed all the banks to go bust, the currency to collapse and repudiated whatever debts it possible could. That extreme free market - very close to an Austrian view of what to do - led to an horrendous collapse, most certainly it did. And now Iceland is back at full employment, again on#e of the richest nations in the world even if a rather icy social democracy.

The committee which looks into things afterwards is rather less important than the things done in the heat of the crisis. And liquidationism has now been tried in the real world and it works, works rather well in fact. Better than non-liquidationism in Greece for example.