An Inside Job - Essay Example
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An Inside Job
Iceland’s business tycoon and three main private sector banks of the country acquired ten times more debt than its economy. In my opinion, these banks acquired many assets that were disproportionate to the size of the economy and its ability to back up such lending by banks. I believe the steps that Iceland’s government took five years before in 2003 were the main cause of the crisis. This was when the Iceland’s government made financial deregulatory decision by allowing multinational companies to built huge energy projects and furthermore it privatized three of its major banks. Government’s lack of concern and unethical financial practices of the prominent multinational companies and private bank risked survival of entire Iceland. The first mistake the government did was to allow these multinational huge energy projects to acquired extraordinary amount of assets and privatize Iceland’s three banks. These banks took debts from foreign banks and allowed loans to finance these huge projects that government overlooked. Also, it was shown in the documentary that KPMG and other American firms, which audited financial of these companies, did not find anything wrong. I believe that these audit firms were unable to evaluate these issues or they just simply avoid them. The Iceland financial crisis is a result of the fraud and false financial reporting of the privatize banks and multinational huge projects. In my opinion, though the government’s decision was for the prosperity of the country, but
the government failed to monitor the functioning of the private sector. One of the major flaws of the deregulatory decisions was that the government privatized three main banks of the country. The credit created by these banks was ten times more than the actual money in the economy and surpassed the annual growth of the economy. When these projects and businesses defaulted on their payments, this caused the entire Icelandic economy to collapse. As a result of this, 90 percent of the Icelandic stocks declined in value and national gross domestic product went down by 5.5 percent. Half of the economy found that their accounts frozen; this crisis caused millions of people around the world jobless and homeless. This all was the result of the uncontrollable business industry, and privatization of three main banks Landsbanki, Glitnir and Kaupthing bank. Furthermore, the three main business tycoons of Iceland that were considered to be the guru and prosperity of the Icelandic economy; Jon asgeir Johannesson, Lyour Guomundsson and Bjorgolfur were found guilty to cause the financial crisis. Analyzing the information in the film, I believe that the Icelandic financial crisis is a lesson for other nations of the world. This shows the inappropriate measures and decision of the government to allow private sectors to function so liberally caused the Icelandic economy to fall into financial crisis. This was the major cause that the boost in the Icelandic economy suddenly turned into a crisis situation in 2008 (Boyes). After the investigation, it was found that the major energy plants acquired substantial assets, but the actual production of these multinational companies was very low to generate enough cash flow to pay their debts. Furthermore, the business tycoons rather than investing this money in the financial sectors were actually spending on their luxury and pleasure. Similarly, like Enron, Jon Asger
Summary
Iceland financial crisis 2008-2011 Icelandic financial Crisis 2008-2011 was one of the major economic and political crises in Iceland (Boyes). The economic crisis of the country affected three countries having ownership of private owned commercial banks…
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