Janine Wedel - Unaccountable - How Elite Power Brokers Corrupt Our Finances, Freedom, and Security

What did get written? One paper in 2006 was called “Financial Stability in Iceland,” which prominent American economist Frederic Mishkin was paid $135,000 by the Icelandic Chamber of Commerce to co-author. (The fact that he was paid does not appear in the report, but rather in a 2007 disclosure after he joined the Federal Reserve as a governor. It’s worth noting that he lists various other countries in which he also had lucrative consulting deals.) 94The Chamber of Commerce also enlisted British economist Richard Portes. That body received a similarly positive assessment in 2007; he earned a reported £58,000. 95

The shadow-elite MO suited the Locomotives perfectly. For a while, the Icelandic engine roared; but when it finally began sputtering in the mid to late 2000s, the Locomotives and their allies worked to suppress various outlets of independent economic research that ran counter to their narrative. Scholars Wade and Sigurgeirsdóttir explain that “[They] undertook an extreme ‘privatization’ of information, relying primarily on the research departments of the banks themselves for analysis of the economy and its prospects.” 96

When shadow elites get into trouble, they respond by switching positions with others in their network and enforcing an even tighter grip on information. Iceland’s Oddsson and Haarde (and others) shifted ministerships with ease. At a lower level, the young economic talent made frictionless and lucrative moves from official to private venues: according to Wade and Sigurgeirsdóttir, “People joined the Central Bank or the FME [the government agency charged with overseeing the financial industry] with the aim of learning enough to cross the street [to join private banks] and double their salaries.” 97

The Locomotives kept the information and the decisionmaking to themselves. As worldwide economic collapse loomed larger, in October 2008, the Iceland Central Bank, led by Oddsson, decided to peg its currency, the króna, to the Euro, in a last-ditch attempt to prop it up even though Iceland at that point didn’t remotely have the means to justify that artificially, fictitiously high rate. World markets caught on fast. In fact, one commentator described it as “probably . . . the shortest peg in history.” The currency collapsed within hours. 98

According to the two scholars, Oddsson consulted not even the central bank’s chief economist, but rather his friend and protégé Haarde. This was much like the Summers-Rubin circle excluding the much-needed input of Brooksley Born and Sheila Bair.

With shadow elites, different rules apply to insiders and outsiders. Even though pegging the króna was short-lived, those insiders in the know would have had the opportunity to exchange their fast-depreciating currencies for stronger ones. 99Outsiders, on the other hand, were left to suffer the consequences.

The resulting financial collapse outraged Icelanders, and Geir Haarde was their first and only major leader to face indictment for wrongdoing. But in the shadow-elite spirit, Haarde’s “punishment” was a virtual slap on the wrist. Meanwhile, Oddsson installed himself in a media role that allowed him to brand the crisis—and deflect responsibility. That was possible because “Iceland’s media has long been dominated by its financial elite,” notes the Telegraph . 100By September 2009, with the crisis still in full swing, Oddsson was a top editor at the leading Reykjavik daily, whence he orchestrated coverage of it. “It was roughly the equivalent,” as Wade and Sigurgeirsdóttir recapped the words of one commentator, “of appointing Nixon editor of the Washington Post during Watergate.” 101

Could the law offer any accountability? It’s difficult to prosecute activities that are legal. A special prosecutor brought in to look at these activities described facing suspects who “are not aware of when they crossed the line” and “defend their actions every step of the way.” 102Part of the difficulty in prosecuting bankers, he said, is that the law is often unclear on what constitutes a criminal offense in high finance. “Greed is not a crime,” he noted. “But the question is: where does greed lead?” The prosecutor said it was often easy to show that bankers had violated their own internal rules for lending and other activities; but, “as in all cases involving theft or fraud, the most difficult thing is proving intent.” 103

By populating key posts and switching roles to cover their actions, containing information, and dissolving independent parts of government and the media, the Locomotives and their allies reveled in deniability. They steeped themselves in unaccountability and violation of the public trust. 104

RESURRECTING SHAME

What is inherently wrong with the overlapping roles and incestuousness that are the MO of shadow elites and some of their kin? After all, such roles and networks can make a community like the one I grew up in vibrant and strong—and help explain why it can be, at one and the same time, insular and highly engaged with the world. This structure supports mobilization, whether for a community festival at home or relief efforts abroad. That is at least in part because firsthand information and interdependencies are mainstays of community life.

There is nothing inherently wrong with that. In my home community, there is a lot of (sometimes too much!) transparency. Here’s the difference: as in any small community, when an acquaintance approaches you at a funeral expressing condolences at a relative’s passing and you’ve already heard that the acquaintance sells life insurance on the side, you can discern his agenda pretty quickly—and make a decision to smile and nod or turn away. He may be all about maneuvering you somewhere else. But with shadow elites or shadow lobbyists, we don’t know when or to what end we’re being maneuvered. Simply put, the information system is woefully inadequate.

On a small scale, such interdependency of roles and relationships can be beneficial. But when applied to today’s top power brokers, the model can lead to the violation of the public trust. Whereas in a small community it’s easy to ferret out hidden agendas and to know whose word counts for what, no such system is available to the public when it comes to the players here described. They rely on the same kind of firsthand information exchange, but they guard it closely and block its release to the public. We are left without reliable means of knowing what shadow elites and shadow lobbyists are up to—be it their overlapping roles, dense relationships, or undisclosed sponsors and agendas—which would, of course, be the basis for our ability to make informed judgments.

The damage that shadow elites and shadow lobbyists can do is not just in their lack of transparency and the policies they put in place: the effects of their practices are wide-ranging and long-term. Inequality is a huge case in point: these players have been the virtual progenitors of wide disparities in income and wealth that also have helped them continue to receive excessive rewards, while the “99 percent” suffer real-world trauma.

Can these power brokers be curbed? If so, how?

Sadly, they face few institutional roadblocks as they leapfrog rules and borders. As we shall see in more detail in Chapter 5, focused on the media, one venue for checks and balances has been hobbled: journalism overall and investigative journalism in particular.

Is there anything we, the public, can do? For one thing, we can help resurrect shame. It used to be that players in need of reprimand could be more easily sanctioned by society for violating its trust. Today, shame seems to be an alien concept, especially to those who most need to feel it. But we do not have to accept the camouflage of track records à la Robert Rubin or Lawrence Summers.