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.

AccessTimeIconOct 27, 2021 at 6:25 p.m. UTC
Updated May 11, 2023 at 3:55 p.m. UTC
AccessTimeIconOct 27, 2021 at 6:25 p.m. UTC
Updated May 11, 2023 at 3:55 p.m. UTC
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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.


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David Z. Morris

David Z. Morris was CoinDesk's Chief Insights Columnist. He holds Bitcoin, Ethereum, and small amounts of other crypto assets.

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