The Norse Sagas
of the Viking Age portray the people of Iceland as sturdy, independent folk –
fine role models for entrepreneurs – as they would have to be to make a living
in such a hard, barren land.
Their descendents seem worthy of those heroes: in last
week’s referendum, 93% of them voted to defy the “global financial community”
and not underwrite the losses of failed private banks that were located in
The “global financial community” – a misnomer if ever there
was one – needs to be reintroduced to the concept of moral hazard, i.e. those
who profit from taking risks must take responsibility for losses when those
risks do not pay off if they are not to become irrational in their risk-taking.
The US government’s purchase of banks’ toxic assets in 2009
was a regrettable necessity: without it, the whole system would have collapsed.
However, no one should be led to believe that is the way it will always be.
The controversial decision to let Lehman Brothers fail may
yet be vindicated so long as bankers are made to understand that such non-intervention
will be standard procedure in future, and that they cannot rely on governments
bailing them out if they get into trouble. Only when they accept that will they
do business responsibly.
The Icelanders’ vote is therefore a small step in the right
Those who deposited money in the Icelandic banks knew that
they were dealing with private companies not backed by big-government
insurance. They were induced to do so by high interest rates. They thought they
were being clever. They thought they were getting something for nothing. They
should have thought harder.
Everyone has setbacks in life, Winners and Losers alike.
What differentiates between Winners and Losers is the different ways they react
to those setbacks.
Winners take responsibility for their mistakes – and,
because they take responsibility, they are less likely to make the same mistake
in future. This is why they end up Winners despite suffering losses along the
way. They learn.
Losers do not take responsibility for their mistakes. They
look for someone else to blame – someone else to take responsibility. They
never learn. They stay Losers.
The people of Iceland have declined to take responsibility
for the mistakes of others. We should all learn from them.