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He Saw Iceland’s Banking Fraud From Inside. Now He’s Worried About Crypto

Scorpio

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He Saw Iceland’s Banking Fraud From Inside. Now He’s Worried About Crypto​

“I think we’re living on a sand castle financial system,” says former banker and fraud investigator Jared Bibler.​

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"Iceland's Secret" author and financial fraud investigator Jared Bibler. (Harriman House)

David Z Morris
Oct 27, 2021
CoinDesk Insights

Jared Bibler was in the belly of the beast. Then he got to perform the autopsy.
Bibler was an asset manager at Landsvaki, one of Iceland’s largest banks, from early 2007 to late 2008. By then he had seen enough rampant fraud at the bank to prompt him to jump ship. Less than two weeks later, the bank collapsed.
At the center of Iceland’s huge banking fraud was an elaborate scheme involving stock buybacks and shell companies, which had been going on since the late 1990s. Very quickly the entire Icelandic economy went down. Cash withdrawals were frozen, pensions were destroyed and the small nation’s stock market lost 90% of its value.

David Z Morris is CoinDesk’s Chief Insights Columnist.
Within months, in a very satisfying plot twist, Bibler had taken his insider knowledge to the Financial Supervisory Authority of Iceland, where he served as an investigator, playing a major role in peeling the onion of fraud that led up to the collapse. Bibler recounts his days as an investigator, and his stunning findings, in the immensely readable new book “Iceland’s Secret: The Untold Story of the World’s Biggest Con.” (To learn more of the story, read CoinDesk’s in-depth review.)
Bibler now runs a private consulting firm focused on financial investigations, particularly “greenwashing” fraud meant to conceal corporate environmental misconduct. We talked about his perspective on finance as someone who grew up working class, what went wrong in Iceland and the prospects for a repeat of a crisis fueled by elite fraud.


This interview has been edited for length and clarity.
Tell me about the experience of living through the Icelandic crisis, when the stock market collapsed and failing banks had to limit cash withdrawals.
You know when you have that feeling like, “I’m hungry, what’s in the fridge?” As we were living through the crisis, instead of wondering “What’s in the fridge?” there was a new feeling of, “How much food do we have today?”
How much do we have in our wallets? How long will that last? When will the banks open again? It was a survival mentality for at least a few months. That was a trauma that changed the way I see the world. You realize money is just a construct – it’s a convenience, but it could be worth zero tomorrow. It was a different way of seeing life. That was the kind of visceral piece.
The second piece that I hope people take away would be extending that idea to the markets – there’s not as much there as we think.
You say it changed the way you see the world. How, exactly?
My view of the world is, the vast majority of people are hardworking and honest, and go through life in a pretty upstanding way. Then, it was very obvious in Iceland, there was this very small elite class that was rent-seeking on the people. That class has different words for when they’re going to screw somebody.
I come from a working-class background. And the common people are always the ones who pay the bill in the end. People like us who read the book, who know about markets, we’re shocked. But average people, the guy on the street, he already knew that the system is corrupt. They’re like, “Well, of course these guys are crooks.”

In Iceland the burden fell on people who had nothing, and then had less than nothing. The ease with which these [finance] guys could just see past that, or not be troubled by it, was really shocking to me. When I would bring up things like, “What about these other people?”, the response would be, “Why are you making problems?”
How has the book been received in Iceland? As your title points out, the real story is not well known.
People in Iceland are shocked. They don’t know the degree to which they were deceived with the stock market manipulation. Nobody ever came out and said, this was happening for 10 years, and everything about this market and what you invested in was a lie. The banker’s line today is that they did nothing wrong … The story is, things were fine in Iceland until Lehman [Brothers, whose failure was a major factor in the 2008 financial crash] came along. [In fact, the stock fraud at the center of the Icelandic crisis began 10 years before the global financial crisis.]
And because the story was never really told, I think the lessons never got learned in Iceland. And that was a big driver for me to write the book. I wanted to show the inside of the banks, and how wretched that was. This is how the system works.
I think we’re living on a sand castle financial system. I fear that Iceland 2008 is going to be the rest of us in 2030.
What happened to Iceland’s regulators? Aren’t they supposed to be watching for this kind of stuff?

[Regulatory agencies] hire people I would call “page turners.” The guy who can turn to some page and say, “We don’t do that here” and take his paycheck and go home. That culture is pervasive. They’re not aggressive. They’re not the people like you and me who get excited about some fraud and want to go after it.
Some agencies are better than others. The [U.S. Securities and Exchange Commission] brings a lot of little insider cases. But they don’t go after big systemic [problems].
He won’t let me quote him, but a Nobel economist told me, this is the story of every bank. They’re not all out there buying their own stock. But anything to boost their quarterly [results]. In a financial institution it’s easy to do that. Much easier than in a manufacturing firm.
We’re in the midst of a major debate about monetary policy, particularly in the U.S. Is there a relationship between fraud and the money supply?
The kind of hijinks the banks got up to would not have been possible without easy money. In this case the easy money came from the most profligate lenders in the world – the Germans. Deutsche Bank never met a loan they didn’t want to make. And the German government backs them up.
So [Icelandic banks] always had enough cash to do the [stock] manipulations. That enabled what I see as the fundamental fraud that underlay [the banks’] growth.
More generally, when there’s too much cash sloshing around, people in society make terrible decisions. There’s a lot of fraud and a lot of conspicuous consumption. They sold more Range Rovers in Iceland than in Norway and Sweden combined in 2007 and 2008. My wife’s job [later] was to repossess all those cars.

You had a pretty unique path into banking, as a person who grew up not just working class but surrounded by economic decline.
I grew up in Billerica, Mass. It’s probably pretty Trumpy [Republican] these days. Working class, no hope. So I was kind of a miracle. I was first in my class and I got into MIT.
Because I came up working class, people think that if you’re at MIT your life is fixed. But it turns out it’s not true, because you have to figure out what to do with your life. After I graduated, I got involved in a dot-com that was a big fraud.
They were selling software that didn’t exist. Vaporware. Coming out of MIT, it’s a hard place to go to school, and everything is very factual. If you design a machine that doesn’t work, it falls apart right away. You can’t get around physics. But these guys did it all the time.
They had these high-pressure sales guys. They’d go into an insurance company and say, we can give you a complete claims management system … Like Enron, as soon as they made that software deal, they booked that revenue. Goldman Sachs took them public, and they had 12 or 20 customer lawsuits against them … The sales guys would get a 10% cut, do a couple deals and move to the Caymans or something. Absolutely zero ethics.
It wasn’t a great experience while I was there, but it was a learning experience. Their biggest clients were Enron, HealthSouth and Global Crossing [some of the most notorious frauds of the dot-com bubble]. They were only missing WorldCom.

After that, you got a position with a more above-board operation.
I went to building global back-office software for Morgan Stanley. It was super-hard work but a very good learning experience, and what we delivered I can believe in. That’s another example of something that has to work – they have to settle their trades every day.
Then I went to Iceland and it was just bubblegum and toothpicks.
If the tendency of the financial world is towards fraud, how does crypto fit in?
To take an example, someone here in Switzerland was building a real estate token … which is a cool idea, it’s fine. But none of the things in a regulated fund are being done. It was an even less transparent thing, but because it was packaged up in a token it was like, whoo, exciting.
It seemed like a way to do what every fund manager wants to do – take in a lot of money, charge a big fee and who cares what you do with it. Where you invest that money is often secondary.
I have a lot of worries about crypto being financially [misused]. There’s a whole infrastructure being built where people are packaging things in different ways. I see a lot of the problems in asset management being replicated over in crypto.
DISCLOSURE
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

David Z Morris
David Z. Morris is CoinDesk's Chief Insights Columnist. He holds Bitcoin, Ethereum, Solana, and small amounts of other crypto assets.
Follow @davidzmorris on Twitter

https://www.coindesk.com/markets/2021/10/27/he-saw-icelands-banking-fraud-from-inside-now-hes-worried-about-crypto/
 

gringott

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He knows a con when he sees one.

Edit: The few Icelanders I had in depth conversations with during my two (short) visits were very inteligent and well spoken. They seemed very awake and not woke. Just a personal impression.
 
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solarion

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He said very little about crypto currencies, save to suggest that bankster scumbags are doing what bankster scumbags always do...they're stealing. ...and surprise surprise, they found a way to steal from people using blockchain technology too.

People that think cryptocurrencies are bad because of what some people choose to do with them, must therefore believe the same about guns. The argument is every bit as valid. The article isn't even anti-crypto, it's anti-bankster, but many here will believe so just the same.

I share Bibler's concerns and believe an otherwise useful path to economic freedom is being co-opted by wall street banksters and their ilk around the world.
 

gringott

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Personally I have nothing against bitcoin and I encourage anyone who wants to, to buy in.

Not my problem.
 

Scorpio

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with chitcoin being the in thing to talk about, writers do what they do, talk about the 'in thing'

no one wants to hear or read about the evil bankers,

so he used that as a lead in to talk more about the system,
and he is also talking about the same chit going on in crypto that it is anywhere else in the financial world,

not all is aok in crypto land,
and not all is bad in crypto land,

he is illuminating that there are hucksters everywhere in the crypto space, and he is 100% correct if one were to ask me,
but no one has, so there is that
 

solarion

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At the end of the day crypto currencies will prove themselves as a reliable and effective means for individuals to transfer wealth vast distances while circumventing banks entirely. That is their strength.

Bitcoin up slightly with futures still deep into the red. Wonder if we're beginning to see it decouple from the techs. ETH still getting hammered hard though.
 
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ds_mustang

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His only example of a problem with crypto was a real estate token. That's a crypto token that represents actual physical property, which requires a third party, centralized, service to manage the real estate portion of the token. So he's not complaining about crypto, he's complaining about centralized banks and financial services and their expansion into crypto.

Crypto itself is transparent, with all transactions tracked and verified with rules and polices enforced by code. So I don't see how there's any fraud going on with the major crypto at a fundamental level. Maybe there is fraud with real estate tokens or other crypto that interface with centralized services and people, or perhaps in pricing of some crypto like NFTs (because pricing is human driven). But any fraud would be happening with the centralized services or human components, not the crypto. Big difference.
 

gringott

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Bitcoin rocks. As soon as I dump all my PMs I am all in.
 

Lancers32

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Didn't Powell just come out the other day saying that we need crypto regulations? Cryptos that will not be backed are a speculative vehicle at best? What crypto are the banks using now and what will they be using to transfer money in the future? Not Bitcoin or Ethereum.
 

gringott

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A wild guess but they may make bitcoin illegal to hold much like gold after FDR.
 

solarion

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Cryptocurrencies and blockchain are not the same thing. Both are incredibly disruptive and revolutionary concepts, but very different.
 

Scorpio

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Crypto itself is transparent, with all transactions tracked and verified with rules and polices enforced by code. So I don't see how there's any fraud going on with the major crypto at a fundamental level. Maybe there is fraud with real estate tokens or other crypto that interface with centralized services and people, or perhaps in pricing of some crypto like NFTs (because pricing is human driven). But any fraud would be happening with the centralized services or human components, not the crypto. Big difference.

ohhh bull thistle,

all of these nft's?
garbage and 100% worthless, open source or not, complete rubbish

no useful utility at all

so let's be real here

the crypto space is chock full of shysters and snake oil salesman,

and yes, it is a different story to talk about the base players, as there are those doing some things that are aok,

but as in all, blanket statements do not work

it is our job to find those that are actually worth a tinkers damn, and to steer clear of the rubbish,
unless of course you are yield chasing, where greed is your driver
 

Buck

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EO 11110

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see the untold billions in nyc vipers' hands - harvested from the crypto scam

profit motive was a key part of developing the technology - so the (intl banker) could use it for their goals. goals which are slowly being revealed every week

and it's still a mystery who created bitcoin....lol
 

gringott

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They catch you with a wallet and they take it, and put you in the slammer.

or they treat it like any other commodity. buy/sell it all you want -- it will be reported and taxed. but only theirs will be 'money'
 

Buck

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They catch you with a wallet and they take it, and put you in the slammer.
not exactly, i meant the Hold part

1646663586148.png


here's me holding cryptos
 

gringott

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solarion

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...and if you could physically hold it, it would be worthless. ...like an idea without a patent.

Both are valuable, in the correct circumstance. The idea that things you cannot hold cannot have value is provably wrong.
 

Buck

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You got me good bro. "My Bad" as some persons like to say constantly.
i didn't mean that as a 'set up', i figured you'd know, right away

:green tea:

it just worked out that way
 

Lancers32

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or they treat it like any other commodity. buy/sell it all you want -- it will be reported and taxed. but only theirs will be 'money'

I think it will depend upon how the SEC IRS rule on what each crypto is. I think XRP has been considered a currency might be wrong. The banks are using XRP/Ripple now a lot of them anyhow.
 

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ohhh bull thistle,

all of these nft's?
garbage and 100% worthless, open source or not, complete rubbish

no useful utility at all

so let's be real here

the crypto space is chock full of shysters and snake oil salesman,

and yes, it is a different story to talk about the base players, as there are those doing some things that are aok,

but as in all, blanket statements do not work

it is our job to find those that are actually worth a tinkers damn, and to steer clear of the rubbish,
unless of course you are yield chasing, where greed is your driver
I agree a lot of NFTs are mispriced, as are a lot of speculative crypto. But that doesn't make them frauds, that makes them speculative. Pricing is subjective and dependent on silly humans. That brings in the hucksters. But the technology itself is open, objective, and transparent. The tech does what it says it does, it's not a fraud. If the government buys a hammer for $50k that doesn't make the hammer a fraud. If a shyster uses a spreadsheet to track and sell fraudulent claims on real estate that doesn't make the spreadsheet software a fraud.
 
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Scorpio

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not true either,

tech doesn't exist without the frauds perpetrating the nonsense,
it doesn't exist without 2 leggahs at this point,

so to try to claim it virgin is silly, when from the jump, it was created as a way to fleece the slaves

and you are correct, creating and selling pet rocks isn't illegal either,
and that is all these nft's are to me, pet rocks
 

Lancers32

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I'm old fashioned and out of date but I could never figure how anybody could buy an NFT other than to sell it to a greater fool.
 

ds_mustang

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not true either,

tech doesn't exist without the frauds perpetrating the nonsense,
it doesn't exist without 2 leggahs at this point,

so to try to claim it virgin is silly, when from the jump, it was created as a way to fleece the slaves

and you are correct, creating and selling pet rocks isn't illegal either,
and that is all these nft's are to me, pet rocks
NFTs aren't crypto, they are a use case of crypto. Crypto allows the function of NFTs (tracking ownership of digital media), which works as expected, openly and transparently. Pricing on NFTs is completely up to humans--they can value it or not as they wish. If they want to be fools, that's their right. It doesn't make crypto a fraud.
 

Scorpio

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Now you are just talking smack

that chit don't exist without crypts, and the platform,

it is a extension of the cryptoverse,
 

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I wouldn't count out NFT's at this point. There is a crap ton of potential there. To think turning your avatar there into a NFT is the extent of their usefulness is foolish.
 

Scorpio

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and just to be clear, there is all manner of garbage in the crypto space too,

doge/shib/etc.

pure rubbish with no reason to exist other than to fleece the slaves

so to pretend this is ex cyrpto, is inaccurate also

all manner of hucksters making claims and collecting dough, issuing worthless tokens,

no different than the .dom craze
same story all over again with a twist

what i do find interesting is a battle for the future going on,
the algorithmic vs the AI or artificial intelligence, vs the blockchain

who survives for the long term, or do they all, and in what capacity
 

Scorpio

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There is a crap ton of potential there.

you would have to clarify what the exact potential of that stuff is to get my vote
 

#48Fan

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you would have to clarify what the exact potential of that stuff is to get my vote
Since these tokens are non-fungible and can't be duplicated, maybe your medical history could be turned into a nft, or your driver's license. I'm not saying I'm for any of this. But I wouldn't be surprised if it comes about in the future.
 

ds_mustang

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and just to be clear, there is all manner of garbage in the crypto space too,

doge/shib/etc.

pure rubbish with no reason to exist other than to fleece the slaves

so to pretend this is ex cyrpto, is inaccurate also

all manner of hucksters making claims and collecting dough, issuing worthless tokens,

no different than the .dom craze
same story all over again with a twist

what i do find interesting is a battle for the future going on,
the algorithmic vs the AI or artificial intelligence, vs the blockchain

who survives for the long term, or do they all, and in what capacity
The dot-com craze had a real revolutionary technology behind it that changed the world. People did silly things at first trying to figure out how to use and value the technology. Maybe Pets.com was the dogecoin of the dot-com period. But if you picked the right projects you did extremely well over time despite the initial bubble. Crypto is no different... and it is growing faster than even internet adoption did.
 

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How much do we have in our wallets? How long will that last? When will the banks open again?
Salient questions... prepare today for tomorrow....