FIRST

Most of what I do for the Grapevine is translate domestic news into English. And because it was the economic collapse in fall 2008 that got me posting news again, it's made a red thread of itself through most of the news I post. So naturally, when I heard that Former Kaupthing manager Hreiðar Már Sigurðsson, along with former Kaupthing bank manager in Luxembourg and current director of Banque Havilland, Magnús Guðmundsson, had been arrested for financial wrongdoing in light of a report from the Special Investigative Commission (SIC), this caused a certain sense of relief. When I'd read Vísir disclosing where the men were being held after their arrest, the police station by Hlemmur, I imagined for a moment a mob descending on the place.

However, at work the following day most everyone was decidedly cautious about celebrating just yet. This is entirely new territory for Iceland, after all. White collar crime is notoriously underprosecuted. All the same, when Reykjavík District Court denied the men immediate release, and instead sent them to custody at the prison Litla-Hraun - where they'll be in solitary - for twelve and seven days respectively, This gave me a bit of hope. The judicial system, it seems, is willing to act.

But even if there aren't any convictions - and I'd be surprised if there weren't - to go from collapse, change of government, investigation and then arrests within about 18 months is quite a feat.

My biggest worry right now is that special prosecutor Ólafur Hauksson will stay focused on the banks alone. As professor of Economics and Law William Black told me during his visit to Iceland, "the Icelandic government at the time [leading up to the bank collapse] was an almost literal cheerleader for the industry. ... That included the prime minister [Geir H. Haarde], that included the Central Bank chairman [Davíð Oddsson], and that included the regulatory agency."

It's not illegal to be a libertarian, of course. Oddsson and Haarde are welcome to believe in the invisible hand. But what Black points out is that the government did not exert the kind of vigorous supervision that is necessary for a healthy economy: "You have to be more objective. For financial institutions to work well, you need trust, and the paradox is, you need somebody who is skeptical. And there was nobody. Nobody in the senior ranks that was skeptical. ... the ruling political parties at that time, if you had to start with accountability, that's where you would start."

Negligence or collusion, there's enough to bring charges on both Haarde and Oddsson. Whether they'd stick is another matter. In the SIC report, Oddsson depicts himself as being constantly lied to by bank managers. He related a story of yelling in the face of an Financial Supervisory official when presented with Glitnir's numbers shortly before the government took it over. He paints himself to be a decent man surrounded by liars. Even the front page of the newspaper he edits, Morgunblaðið, saw fit to run "The Banks Are Responsible" as their banner headline the day after the report was released, while Oddsson himself was recusing himself from his chair for the week. Making charges stick on Oddsson will necessitate proving that he either purposefully turned a blind eye or was in cahoots.

Haarde, for his part, comes out as more clueless than anything else and, unsurprisingly, terrified of Davíð Oddsson. He wouldn't be alone. Oddsson has a strong grip on the old guard of the conservatives especially. But fear carries with it resentment, of course, and some of his own party members have turned a cold shoulder to him.

Even the President has been brought into this. The SIC report basically said the guy was the PR man for the "outvasion vikings", and used his office to gain favors for some of them. The President's denied any wrongdoing, and said the report has numerous inaccuracies regarding him. It's moot either way, because no one is arresting the President of Iceland. It's just not gonna happen.

Right now, there are two men in solitary confinement in prison, essentially charged with helping to ruin Iceland. We're off to a good start. But none of it will mean anything until the apparatus of government itself is changed.

The banks were allowed to grow ten times the size of the GDP not just because the government was whistling as it drove along, the bolts flying off the wheels. There's never been a real financial supervisory force in place. Privatizing the banks - which was finalized in 2003 - was done on the belief that it was more freedom the banks needed, that this would stimulate growth. The pendulum had swung from one side, to straight through the opposite wall.

Until an active, powerful and politically neutral institution that can and does monitor and calibrate the economy is established, nothing in this country is going to change.