Wednesday, August 26, 2009

If we want to change the world – we can… we just have to think we can. Kaupthinking was beyond thinking…

I used to look at awed wonder at the insanity of Icelandic banks – but I never heard of this advert (for Kaupthing Bank) until after the collapse and the destruction of Iceland’s economy and I saw it for the first time only recently.  It spreads virally amongst finance types – but I think it will be new to my Talking Points Memo readers…

 

 

Kaupthing was – I believe – the worst bank in the whole crisis… and has since been shown to be corrupt.  But a good proportion of the employees really believed that they were doing something worthwhile which says more about cults than banking (except in as much as modern financial practice is littered with cult-followers).

Hat Tip to Felix Salmon, thence to Ultimi Barbarorum, but really to Lara Hanna Einarsdottir – who writes in Icelandic but who once left some (deservedly nasty) comments on my blog…

Finally – I note with fear that the bank doubled in size in a year – every year for 8 years. I considered shorting Kaupthing several times – but did not (in part because of the cost and difficulty of borrowing the shares).   Banks like Kaupthing might be insane criminal organisations – but they were also impossible to short because they might stay solvent longer than you…  Three doublings and your short has become very painful – even if you are paid in the end.  Add to that a 25 percentage point borrow cost for the shares and there was little chance of making money unless you shorted right at the end.  Oh, and your profit (if any) was realised in Icelandic Krona – and they turned out to be worth much less than you would have hoped.  It is hard to make money of this stuff – even when the end-outcome is obvious.

10 comments:

Alexandra said...

Apparently they levitated and walked on water during their board meetings.
The ultimate victory of mind over reality - until reality asserted itself.
Yes, we can, anyone?

babar ganesh said...

i'm going to short the lottery. thanks for the idea.

RichL said...

This is a link to a well written article in Vanity Fair from April 09 on Iceland -

http://www.vanityfair.com/politics/features/2009/04/iceland200904

狂猪 said...

Can you share your thoughts on the inflation vs. deflation debate?

Some argued that the central bank printed vast quantity of money and the consumers in the developed countries are over burden with debt. Therefore, we'll have "stagflation".

Others feel that the world has hugely excessive production capacity and the consumers in developed countries are over burden with debt. Therefore, we'll have "stagdeflation" (coined by roubini).

Is it wishful thinking that the inflation and deflation forces will balances out just about right?

Thank you for sharing your analysis. I thoroughly enjoyed your blog.

Nemo Incognito said...

John, thats what CDS markets are for, shorting the equity of things like this is just never that much fun and in the end the catalyst is always an inability to finance themselves.

Anonymous said...

Being from Ireland, I couldn't help notice (with due attention to irony) that an Irish band's music played in the background. Of course, Irish banks and society employed, and still do to this day, the very same 'thinking' and logic. Irish banks are bankrupt (as is all moral authority) and have been on life support for over a year.

The govt, the orchestrator of the this conficence tricksterism, has come up with a rescue plan that offlays all responsibity, costs and future risk onto the tax payer. They are about to relaunch the same bankers and I'm sure auld Bono will only be too happy to supply the background music - for a hefty fee - of course.

Meanwhile, at least the Icelandic people, who face immediate financial ruin, have hired an international investigator to find the culprits and bring them to justice. However, I think it will be hard to quantify and criminalise stupidty - especially when an entire nation endulged in self decption and dellusion such as Ireland did. Better luck to the Icelanders!

Anonymous said...

"I must admit that I was a TAD surprised to see old Lýður Guðmundsson at the gym today."

http://icelandweatherreport.com/2009/08/like-a-bomb-waiting-to-go-off-tick-tick.html

Anonymous said...

Reminds me of this ad from Enron:

http://www.youtube.com/watch?v=XZ8XM7JVpYw

Felix said...

What Nemo said. At one point in 2006 I believe that Moody's even gave Kaupthing a triple-A rating. Buying CDS protection on Kaupthing right then was surely one of the trades of the decade.

Anonymous said...

could have, would have, should have - once again, it's all so easy with the benefit of hindsight :)

the only delusion icelandic bankers had was that they could play with the the big boys and win them at their game. Typical newbie's mistake...

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