Last month a WSJ article on the Icelandic banking crisis chose to focus on Iceland's role in the financial excess that led to the global meltdown. I suggested that the WSJ reporter missed a more interesting story -- about how tiny Iceland got caught in the meltdown and then victimized by its powerful neighbor and competitor, the UK.
In particular, I wrote:
One Icelandic bank, Kaupthing, was still trying to work things out when the Brits seized Kaupthing's UK assets and transferred them to ING. This triggered "a cascade of defaults for Kaupthing, blows it simply couldn't survive." * * *
And what about Great Britain’s role – a rival not only in banking, but for the raw material of its lifeblood – fish and chips (it fought several “Cod Wars” with Iceland). In the banking crisis, Britain claims it needed to protect its depositors. But how exactly did shutting down Kaupthing, precipitating defaults and exacerbating a run in the midst of its salvage efforts accomplish that?
I concluded that "the real story seems to me to be more interesting than the one he chose to tell."
Well, we may get a chance to hear the real story. From the AP, via Dealbook:
Iceland’s state-run Kaupthing bank will sue the British government for its decision to force the bank’s British subsidiary into a form of bankruptcy * * * Prime Minister Geir Haarde said Monday that his government supported the lawsuit and could help fund it. ”We think that it is very important that we ascertain if U.K. laws were misused against Icelandic interests,” he said.
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