Not only was he PM when the shit hit the fan in 2008, he was Minister of Finance
from 1998 to 2005 (and an adviser and central bank economist before that), when the big Icelandic bank privatisation and deregulation happened - hence
speeches like this.
A bit of analysis after it all went wrong:
BU Today: Can you explain how a country goes bankrupt in a matter of 10 days?
Corgan: The way the country went bankrupt is that its banks got into the international financial networks and started lending money to various enterprises after a lot of individuals made money in Russia following the fall of communism. Icelanders found that with very little regulation back home, they could open up bank branches and entire banks in various places, like the United Kingdom. They made sound, reasonable loans. They were the only banking system in Europe that did not buy into subprime mortgages the way other European banks did. Icelanders made a lot of money. It had its first billionaire about two years ago. That had never happened before. But by 2007, the assets of its banks were 10 times the GDP of Iceland. In other words, they really had a lot of money out there. As long as the system was working right and there were no bumps or slackening or loss of confidence, they were doing fine. But if the banks ever went bad, there’s no way the government could back them up. And things went bad. The mortgage meltdown in the United States was like a volcano erupting under the water, and there was a tsunami.
What was Iceland’s financial system like before deregulation?
The system was highly regulated, with tight currency controls. Even into the 1980s, it used to be that if you had a credit card, you could use it to buy things only in Iceland. Or if you bought something overseas, you couldn’t transfer it to Iceland. However, Iceland opened up its international airport in a big way and got completely modernized. The power elite in the dominant political party had very entrepreneurial free market ideas, and they prevailed upon the Parliament to cut back corporate taxes and deregulate, following what the United States had been doing with deregulation. They essentially bought our system completely, and their banks expanded enormously.
http://www.bu.edu/today/node/7685And, from July 2008, when things looks a bit dodgy, but the Icelandic banks were still going concerns:
The banks were privatised around 2000 in a hasty and politically driven process. Ownership
went to people with close connections to the parties in the conservative coalition government,
which had scant experience in modern banking. The central bank and the finance ministry
were staffed at the top by people who preferred as light a regulatory touch as possible.
The banks soon extended their operations from commercial banking to investment banking.
Neither they nor the regulators separated the implicit guarantees they received as commercial
banks from their operations as investment banks. The extension of the safety net allowed them
to take big bets at home and abroad. They operated like hedge funds, financing their
expansion largely from foreign borrowings rather than domestic deposits.
The central bank tied its own hands so as to leave only the interest rate as its control
instrument. It gave up reserve requirements on grounds that the banks did not want them; and
it also failed to exercise moral suasion. Its efforts to restrain inflation by raising short-term rates
(to 15 per cent by 2008) had the effect of sucking in more “carry trade” capital, undermining the
intended curbing of demand and leading the krona to appreciate despite the huge external
deficit.
During the 2000s, Icelandic companies and households have taken to borrowing as though
there is no tomorrow. Now Iceland’s external liabilities swamp the central bank’s ability to act
as lender of last resort, and other Nordic central banks have felt obliged to offer support lest
an Icelandic implosion blow a hole in their own banking systems.
http://www.borgarafundur.org/wp-content/uploads/2009/01/iceland_pays_price_for_financial_excess.pdf
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