Adalsteinn Hákonarson, a certified public accountant and a divisional manager at the Commissioner of the Inland Revenue (RSK), wrote in an article in Tíund, RSK’s newsletter, that Icelandic companies had thrived on deception.
“It can in fact be argued that the economy thrived on a certain type of deception which evolved around demonstrating as good a financial position at companies as possible by registering all of their assets at the highest possible price and thus make sure that the value of their stocks would be sky-high,” Hákonarson wrote in Tíund, Morgunbladid reports.
Hákonarson described how this business model blew up the balance sheet of the banks and of other Icelandic companies until the balloon exploded.
The total worth of assets of 20 conglomerates in the Iceland Stock Exchange increased from ISK 1,695 billion (USD 15 billion, EUR 10 billion) in 2003 to almost ISK 15,000 billion (USD 130 billion, EUR 92 billion) in 2007, according to Tíund.
“For this invention people have both received much praise and high salaries,” Hákonarson wrote. “To make this work, an easy access to credit was needed and those who were provided with that [credit] were prepared to pay the banks high sums of money for their assistance with creating new companies to sell on the market. That’s how these individuals fed in an encouraging way on each other, the banks and the investors.”
Hákonarson also mentioned taxation, reasoning that the basis for debit entry of interest rates for loans that were taken to purchase companies may have disappeared. Also, the transfer of debts into companies could be categorized as withdrawal of capital and thus untaxed proceeds for buyers.