Economist: The American Bee Glut

http://www.economist.com/science/displayStory.cfm?story_id=13226733 The bees are back in town Theeconomic crisis has contributed to a glut of bees in California. Thatraises questions about whether a supposed global pollination crisis isreal AT THE end of February, the orchards of California’s Central Valleyare dusted with pink and white blossom, as millions of almond treesmake their annual bid for reproduction. The delicate flowers attractpollinators, mostly honeybees, to visit and collect nectar and pollen.By offering fly-through hospitality, the trees win the prize of a brushwith a pollen-covered bee and the chance of cross-pollination withanother tree. In recent years, however, there has been alarm overpossible shortages of honeybees and scary stories of beekeepers findingthat 30-50% of their charges have vanished over the winter. It iscalled colony collapse disorder (CCD), and its cause remains a mystery. Add to this worries about long-term falls in the populations ofother pollinators, such as butterflies and bats, and the result is agrowing impression of a threat to nature’s ability to supply enoughnectar-loving animals to service mankind’s crops. This year, however,the story has developed a twist. In California the shortage of bees hasbeen replaced by a glut. Bee good to me The annual orgy of sexual reproduction in the Californian almondorchards owes little to the unintended bounty of nature. FrancisRatnieks, a professor of apiculture at Sussex University who has workedon the state’s almond farms, says the crop is so large and intensivelygrown these days that it has greatly surpassed the region’s inherentability to supply pollinators. Decades ago, when there were feweralmonds, farmers could rely on pollination just from the beekeepers wholive in the Central Valley. Now, they have to import migrant apianlabour. Scientific AG, a firm based in Bakersfield, California, helps brokerpollination deals between local almond growers and apiarists fromacross America. Joe Traynor, the pollination broker who foundedScientific AG, says that in the 1960s there were 100,000 acres (40,000hectares) of groves. Today it is 700,000 acres and the industry claimsit supplies 80% of the world’s almonds. In order to meet thispollination demand, more than a third of America’s beehives must bemoved to California for the season. Such changes to the industry havebeen reflected in the prices for bee hives. In 1995 growers could renta hive for $35. Today, says Mr Traynor, a strong colony would cost$150-200. It is hard to pin down what has been causing honeybees to vanish.“People want it to be genetically modified crops, pollution,mobile-phone masts and pesticides,” says Dr Ratnieks, and it is “almostcertainly none of those”. But he adds that such large losses to apopulation are not unusual in epidemics. One explanation offered by both Dr Ratnieks and Mr Traynor is of aonce-rare disease, possibly caused by the Israeli acute paralysis virus(IAPV), sweeping through colonies that have already been weakened byparasites such as Nosema ceranae, a parasitic fungus from Asia. Some have suggested that N. ceranae alonemight be sufficient to cause CCD, as the fungus is believed to havebeen widespread since 2006, when CCD first became a problem. There isalso Varroa, a parasitic mite, which has been another problemin bees for some time, and which might also transmit the IAPV. Butthere is almost certainly a further factor causing stress on the bees—apoor diet. Bee-conomics It is increasingly being recognised that managed bees need foodsupplements. In some places, a decline in the area of pasture land onwhich they can forage, the loss of weedy borders and the growth of cropmonocultures mean it is hard for bees to find a wide enough range ofpollen sources to obtain all their essential amino acids. In extremecases they may not even find enough basic protein. Writing in Bee Culturethis February, Mr Traynor observes that places where crops withlow-protein pollens, such as blueberries and sunflowers, are grown arealso places where CCD has appeared. The suggestion is that poor nutrition has weakened the bees’ immunesystems, making them more vulnerable to viruses and other parasites.Feeding bees supplements, rather than relying on their ability toforage in the wild, costs time and money. Many beekeepers therefore tryto avoid it. Anecdote suggests, however, that those who do fork outfind their colonies are far more resistant to CCD. This year’s Californian bee glut, then, has been caused by a mixtureof rising supply meeting falling demand. The price of almonds droppedby 30% between August and December last year, as people had less moneyin their pockets. That has caused growers to cut costs, and thereforehire fewer hives. There is also a drought in the region, and manyfarmers are unlikely to receive enough water to go ahead with theharvest. Meanwhile, the recent high prices for pollination contractsmade it look worthwhile fattening bees up with supplements over thewinter. That may help explain why there have been fewer colonycollapses. The rise and fall of the managed honeybee, then, owes as much to theeconomics of supply and demand as it does to the forces of nature. Andif the nutrition and disease theory is correct, next year’s lowercontract prices may see beekeepers cutting back on supplementalfeeding, and a resurgence of CCD. Bee off with you! Despite the importance of the honeybee, none of this is evidence ofa wide-scale pollination crisis or a threat that is specific topollinators. No one has shown that colonies of wild bees are collapsingany more frequently than they used to. And while it is true that manyspecies of butterflies, moths, birds, bats and other pollinators are inretreat, their problems are far more likely to mirror broader declinesin biodiversity that are the result of well-known phenomena such ashabitat loss and the intensification of agriculture. Troubling though this loss of diversity is, it does not necessarilytranslate into a decline in the amount of pollination going on. JabouryGhazoul of the Swiss Federal Institute of Technology in Zurich, writingin Trends in Ecology and Evolution in 2005, points out thatthe decline of bumblebees in Europe that has been observed recentlymostly affects rare and specialised species—an altogether differentproblem. Though the idea that there is a broader and costly pollinationcrisis under way is entrenched (the United Nations Food and AgricultureOrganisation is spending $28m on a report investigating it), the truepicture is cloudier. In 2006 America’s National Academy of Sciencesreleased a report on the status of pollinators in North America thatconcluded “for most North American pollinator species, long-termpopulation data are lacking and knowledge of their basic ecology isincomplete.” Simply put, nobody knows. As for the managed bees ofAmerica, Dr Ratnieks says that “the imminent death of the honeybee hasbeen reported so many times, but it has not happened and is not likelyto do so”.

Wired: The Untold Story of the World’s Biggest Diamond Heist

http://www.wired.com/print/politics/law/magazine/17-04/ff_diamonds The Untold Story of the World’s Biggest Diamond Heist By Joshua Davis Email 03.12.09 Leonardo Notarbartolo strolls into the prison visiting room trailing a guard as if the guy were his personal assistant. The other convicts in this eastern Belgian prison turn to look. Notarbartolo nods and smiles faintly, the laugh lines crinkling around his blue eyes. Though he’s an inmate and wears the requisite white prisoner jacket, Notarbartolo radiates a sunny Italian charm. A silver Rolex peeks out from under his cuff, and a vertical strip of white soul patch drops down from his lower lip like an exclamation mark. In February 2003, Notarbartolo was arrested for heading a ring of Italian thieves. They were accused of breaking into a vault two floors beneath the Antwerp Diamond Center and making off with at least $100 million worth of loose diamonds, gold, jewelry, and other spoils. The vault was thought to be impenetrable. It was protected by 10 layers of security, including infrared heat detectors, Doppler radar, a magnetic field, a seismic sensor, and a lock with 100 million possible combinations. The robbery was called the heist of the century, and even now the police can’t explain exactly how it was done. The loot was never found, but based on circumstantial evidence, Notarbartolo was sentenced to 10 years. He has always denied having anything to do with the crime and has refused to discuss his case with journalists, preferring to remain silent for the past six years. Until now. Notarbartolo sits down across from me at one of the visiting room’s two dozen small rectangular tables. He has an intimidating reputation. The Italian anti-Mafia police contend he is tied to the Sicilian mob, that his cousin was tapped to be the next the capo dei capi—the head of the entire organization. Notarbartolo intends to set the record straight. He puts his hands on the table. He has had six years to think about what he is about to say. “I may be a thief and a liar,” he says in beguiling Italian-accented French. “But I am going to tell you a true story.” It was February 16, 2003 — a clear, frozen Sunday evening in Belgium. Notarbartolo took the E19 motorway out of Antwerp. In the passenger seat, a man known as Speedy fidgeted nervously, damp with sweat. Notarbartolo punched it, and his rented Peugeot 307 sped south toward Brussels. They hadn’t slept in two days. Speedy scanned the traffic behind them in the side-view mirror and maintained a tense silence. Notarbartolo had worked with him for 30 years—they were childhood buddies—but he knew that his friend had a habit of coming apart at the end of a job. The others on the team hadn’t wanted Speedy in on this one—they said he was a liability. Notarbartolo could see their point, but out of loyalty, he defended his friend. Speedy could handle it, he said. And he had. They had executed the plan perfectly: no alarms, no police, no problems. The heist wouldn’t be discovered until guards checked the vault on Monday morning. The rest of the team was already driving back to Italy with the gems. They’d rendezvous outside Milan to divvy it all up. There was no reason to worry. Notarbartolo and Speedy just had to burn the incriminating evidence sitting in a garbage bag in the backseat. They were accused of breaking into the Antwerp Diamond Center’s supersecure vault and stealing $100 million in diamonds, gold and jewelry. The loot was never found, but their trash was. For more, visit wired.com/video. Notarbartolo pulled off the highway and turned onto a dirt road that led into a dense thicket. The spot wasn’t visible from the highway, though the headlights of passing cars fractured through the trees. Notarbartolo told Speedy to stay put and got out to scout the area. He passed a rusty, dilapidated gate that looked like it hadn’t been touched since the Second World War. It was hard to see in the dark, but the spot seemed abandoned. He decided to burn the stuff near a shed beside a small pond and headed back to the car. When he got there, he couldn’t believe what he was seeing. Speedy had lost it. The contents of the garbage bag was strewn amongst the trees. Speedy was stomping through the mud, hurling paper into the underbrush. Spools of videotape clung to the branches like streamers on a Christmas tree. Israeli and Indian currency skittered past a half-eaten salami sandwich. The mud around the car was flecked with dozens of tiny, glittering diamonds. It would take hours to gather everything up and burn it. “I think someone’s coming,” Speedy said, looking panicked. Notarbartolo glared at him. The forest was quiet except for the occasional sound of a car or truck on the highway. It was even possible to hear the faint gurgling of a small stream. Speedy was breathing fast and shallow—the man was clearly in the midst of a full-blown panic attack. “Get back in the car,” Notarbartolo ordered. They were leaving. Nobody would ever find the stuff here. The job was done. Patrick Peys and Agim De Bruycker arrived at the Diamond Center the next morning. They had just received a frantic call: The vault had been compromised. The subterranean chamber was supposed to be one of the most secure safes in the world. Now the foot-thick steel door was ajar, and more than 100 of the 189 safe-deposit boxes had been busted open. Peys and De Bruycker were stunned. The floor was strewn with wads of cash and velvet-lined boxes. Peys stepped on a diamond-encrusted bracelet. It appeared that the thieves had so much loot, they simply couldn’t carry it all away. Peys and De Bruycker lead the Diamond Squad, the world’s only specialized diamond police. Their beat: the labyrinthine Antwerp Diamond District. Eighty percent of the world’s rough diamonds pass through this three-square-block area, which is under 24-hour police surveillance and monitored by 63 video cameras. About $3 billion worth of gem sales were reported here in 2003, but that’s not counting a hidden world of handshake deals and off-ledger transactions. Business relationships follow the ancient family and religious traditions of the district’s dominant Jewish and Indian dealers, known as diamantaires. In 2000, the Belgian government realized it would require a special type of cop to keep an eye on things and formed the squad. Peys and De Bruycker were the first hires. De Bruycker called headquarters, asking for a nationwide alert: The Antwerp Diamond Center had been brazenly robbed. Then he dialed Securilink, the vault’s alarm company. “What is the status of the alarm?” he asked. “Fully functional,” the operator said, checking the signals coming in from the Diamond Center. “The vault is secure.” “Then how is it that the door is wide open and I’m standing inside the vault?” De Bruycker demanded, glancing at the devastation all around him. He hung up and looked at Peys. They were up against a rare breed of criminal. About 18 months earlier, in the summer of 2001, Leonardo Notarbartolo sipped an espresso at a café on Hoveniersstraat, the diamond district’s main street. It was a cramped, narrow place with a half-dozen small tables, but from the corner by the window Notarbartolo could look out on the epicenter of the world’s diamond trade. During business hours, Hasidic men wearing broad-brimmed hats hurried past with satchels locked to their wrists. Armored cars idled tensely while burly couriers with handguns wheeled away small black suitcases. There were Africans in bright blue suits, Indian merchants wearing loupes around their necks, and bald Armenians with reading gl asses pushed up on their mottled heads. Billions of dollars in diamonds pass by the café’s window. During the day, they travel from office to office in briefcases, coat pockets, and off-the-shelf rollies. At night, all those gems are locked up in safes and underground vaults. It’s one of the densest concentrations of wealth in the world. It’s also a thief’s paradise. In 2000, Notarbartolo rented a small office in the Diamond Center, one of the area’s largest buildings. He presented himself as a gem importer based in Turin, Italy, and scheduled meetings with numerous dealers. He bought small stones, paid cash, dressed well, and cheerfully mangled the French language. The dealers probably never knew that they had just welcomed one of the world’s best jewel thieves into their circle. By his own account, Notarbartolo had pulled off dozens of major robberies by 2000. It wasn’t just about the money anymore. He stole because he was born to be a thief. He still remembers every detail of his first robbery. It was 1958—he was 6. His mother had sent him out for milk, and he came back with 5,000 lira—about $8. The milkman had been asleep, and young Leo rifled through his drawers. His mother beat him, but it didn’t matter. He had found his calling. In elementary school, he filched money from his teachers. As a teenager, he stole cars and learned to pick locks. In his twenties, he devoted himself to the study of people, tracking jewelry salesmen around Italy for weeks just to understand their habits. In his thirties, he began to assemble teams of thieves, each with their own specialty. He knew lock-picking experts, alarm aces, safecrackers, guys who could tunnel under anything, and a man who could scale the sleek exteriors of office buildings. Each job brought a different mix of thieves into play. Most, including Notarbartolo, lived in or near Turin, and the group came to be known as the School of Turin. Notarbartolo’s specialty was charm. Acting the part of the jolly jeweler, he was invited into offices, workshops, and even vault rooms to inspect merchandise. He would buy a few stones and then, a week or a month later, steal the target’s entire stock in the middle of the night. Antwerp provided a wealth of opportunity and a good place to fence hot property. A diamond necklace stolen in Italy could be dismantled and its individual gems sold for cash in Antwerp. He came to town about twice a month, stayed a few days at a small apartment near the Diamond District, then drove home to his wife and kids in the foothills of the Alps. When he had stolen goods to sell, he dealt with only a few trusted buyers. Now, as he finished his espresso, one of them—a Jewish dealer—came in and sat down to chat. “Actually, I want to talk to you about something a little unusual,” the dealer said casually. “Maybe we could walk a little?” They headed out, and once they were clear of the district, the dealer picked up the conversation. His tone had changed however. The casualness was gone. “I’d like to hire you for a robbery,” he said. “A big robbery.” The agreement was straightforward. For an initial payment of 100,000 euros, Notarbartolo would answer a simple question: Could the vault in the Antwerp Diamond Center be robbed? He was pretty sure the answer was no. He was a tenant in the building and rented a safe-deposit box in the vault to secure his own stash. He viewed it as the safest place to keep valuables in Antwerp. But for 100,000 euros, he was happy to photograph the place and show the dealer how daunting it really was. So he strolled into the Diamond District with a pen poking out of his breast pocket. At a glance, it looked like a simple highlighter, but the cap contained a miniaturized digital camera capable of storing 100 high-resolution images. Photography is strictly limited in the district, but nobody noticed Notarbartolo’s pencam. He began his reconnaissance at the police surveillance booth on the Schupstraat, a street leading into the center of the district. Behind the booth’s bulletproof glass, two officers monitored the area. The three main blocks of the district bristled with video cameras: Every inch of street and sky appeared to be under watch. The booth also contained the controls for the retractable steel cylinders that are deployed to prevent vehicular access to the district. As Notarbartolo walked past, he began taking pictures. He headed toward the Diamond Center itself, a gray, 14-story, fortresslike building on the south end of the district. It had a private security force that operated a nerve center located at the entrance. Access was blocked by metal turnstiles, and visitors were questioned by guards. Notarbartolo flashed his tenant ID card and breezed through. His camera captured crisp images of everything. He took the elevator, descending two floors underground to a small, claustrophobic room—the vault antechamber. A 3-ton steel vault door dominated the far wall. It alone had six layers of security. There was a combination wheel with numbers from 0 to 99. To enter, four numbers had to be dialed, and the digits could be seen only through a small lens on the top of the wheel. There were 100 million possible combinations. Power tools wouldn’t do the trick. The door was rated to withstand 12 hours of nonstop drilling. Of course, the first vibrations of a drill bit would set off the embedded seismic alarm anyway. The door was monitored by a pair of abutting metal plates, one on the door itself and one on the wall just to the right. When armed, the plates formed a magnetic field. If the door were opened, the field would break, triggering an alarm. To disarm the field, a code had to be typed into a nearby keypad. Finally, the lock required an almost-impossible-to-duplicate foot-long key. During business hours, the door was actually left open, leaving only a steel grate to prevent access. But Notarbartolo had no intention of muscling his way in when people were around and then shooting his way out. Any break-in would have to be done at night, after the guards had locked down the vault, emptied the building, and shuttered the entrances with steel roll-gates. During those quiet midnight hours, nobody patrolled the interior—the guards trusted their technological defenses. Notarbartolo pressed a buzzer on the steel grate. A guard upstairs glanced at the videofeed, recognized Notarbartolo, and remotely unlocked the steel grate. Notarbartolo stepped inside the vault. It was silent—he was surrounded by thick concrete walls. The place was outfitted with motion, heat, and light detectors. A security camera transmitted his movements to the guard station, and the feed was recorded on videotape. The safe-deposit boxes themselves were made of steel and copper and required a key and combination to open. Each box had 17,576 possible combinations. Notarbartolo went through the motions of opening and closing his box and then walked out. The vault was one of the hardest targets he’d ever seen. Notarbartolo leans toward me in the Belgian prison and asks if I have any questions so far. It is a rare break in his fast-moving monologue. There is a sense of urgency. He is allotted only one hour of visiting time per day. “You’re telling me that the heist was organized by an Antwerp diamond dealer,” I say. “Bravo,” he replies, smiling. “What about your cousin?” His smile disappears. Notarbartolo was born in Palermo, Sicily, and members of his extended family have long been dogged by accusations of Mafia connections. Those accusations reached a crescendo last year when anti-Mafia police arrested Notarbartolo’s cousin Benedetto Capizzi, claiming he was about to become the new leader of the Sicilian Mafia. Notarbartolo says the Italian authorities traveled to Belgium soon after the heist to question him about Capizzi’s possible role in the robbery. If there is an organized-crime link, Notarbartolo might be inventing a story abou t the Jewish diamond dealer to distract attention from what really happened. Notarbartolo scoffs at this idea and insists that his cousin had nothing to do with the heist. The reality, Notarbartolo says, is that he thought the vault was impregnable. He didn’t believe it could be robbed until the dealer went to extraordinary lengths to prove him wrong. It took five months for the diamond dealer to call back after Notarbartolo told him the heist was impossible. He had even given him the photographs to prove it. Notarbartolo thought that would be the end of it, but now the dealer wanted to meet at an address outside Antwerp. When Notarbartolo arrived, the dealer was waiting for him in front of an abandoned warehouse. “I want to introduce you to some people,” he said, unlocking the battered front door. Inside, a massive structure was covered with black plastic tarps. The dealer pulled back a corner and they ducked underneath. At first, Notarbartolo was confused. He seemed to be standing in the vault antechamber. To his left, he saw the vault door. He was inside an exact replica of the Diamond Center’s vault level. Everything was the same. As far as Notarbartolo could tell, the dealer had reconstructed it based on the photographs he had provided. Notarbartolo felt like he had stepped into a movie. Inside the fake vault, three Italians were having a quiet conversation. They stopped talking when they saw the dealer and Notarbartolo. The dealer introduced them, though Notarbartolo refuses to reveal their names, referring to them only by nicknames. The Genius specialized in alarm systems. According to the dealer, he could disable any kind of alarm. “You can disable this?” Notarbartolo asked, pointing at the replica vault. “I can disable most of it,” the Genius said with a smile. “You’re going to have to do one or two things yourself, though.” The tall, muscular man was the Monster. He was called that because he was monstrously good at everything he did. He was an expert lock picker, electrician, mechanic, and driver and had enormous physical strength. Everybody was a little scared of him, which was another reason for the nickname. The King of Keys was a quiet older man. His age set him apart from the others—he looked like somebody’s grandfather. The diamond dealer said that the wizened locksmith was among the best key forgers in the world. One of his contributions would be to duplicate the nearly impossible-to-duplicate foot-long vault key. “Just get me a clear video of it,” the man told Notarbartolo. “I’ll do the rest.” “That’s not so easy,” Notarbartolo pointed out. The King of Keys shrugged. That wasn’t his problem. “Don’t worry,” the Genius said. “I’ll help.” In September 2002, a guard stepped up to the vault door and began to spin the combination wheel. It was 7 am. He was right on schedule. Directly above his head and invisible behind the glare of a recessed light, a fingertip-sized video camera captured his every move. With each spin, the combination came to rest on a number. A small antenna broadcast the image. Nearby, in a storage room beside the vault, an ordinary-looking red fire extinguisher was strapped to the wall. The extinguisher was fully functional, but a watertight compartment inside housed electronics that picked up and recorded the video signal. When the guard finished dialing the combination, he inserted the vault’s key. The video camera recorded a sharp image of it before it disappeared inside the keyhole. He spun the handle, and the vault door swung open. Thursday morning, February 13, 2003. Two days before the heist. The thud-thud-thud of a police helicopter beat over a convoy of police cars escorting an armored truck through the heart of Antwerp. They blew past posters of Venus Williams—she was due in town to compete in the Proximus Diamond Games tennis tournament. The escorts bristled with firepower. They belonged to a special diamond-delivery protection unit, and each cop carried a fully automatic weapon. Their cargo: De Beers’ monthly shipment of diamonds, worth millions. De Beers is the world’s largest diamond-mining company. In 2003, it controlled 55 percent of the global diamond supply and operated mines in South Africa, Namibia, and Botswana, among others. The rough, unpolished gems were flown to London, where they were divided and placed in 120 boxes—one for each official De Beers distributor, many of which were headquartered in Antwerp. Every month, Antwerp’s share of the boxes was flown into Belgium and transferred to a Brinks armored truck. Once the truck’s doors slammed shut, the convoy sped away, sirens wailing. The vehicles rocketed past the guard gate at the entrance of the district, and the giant metal cylinders rose out of the ground behind them, blocking any further automotive access. The armed escorts fanned out on foot around the armored truck to form a perimeter. No one was allowed near the vehicle. The doors swung open, and the boxes were quickly carried through an unremarkable entrance in the middle of the block. It was payday. The Diamond District was flush. Notarbartolo was buzzed into the vault the next day, Friday, February 14—the day before the robbery. He was alone. In his jacket pocket, he carried a can of women’s hair spray. Notarbartolo used women’s hair spray to temporarily disable the vault’s combined heat/motion sensor. A security camera recorded his movements—police would later watch the footage—but the guard had gotten used to the Italian’s frequent visits and wasn’t paying attention. Notarbartolo stepped away from the safe-deposit boxes and pulled out the aerosol can. With a quick, practiced circular movement, he covered the combined heat/motion sensor with a thin coat of transparent, oily mist. The vault was momentarily filled with the smell of a woman’s hair. It was a simple but effective hack: The oily film would temporarily insulate the sensor from fluctuations in the room’s temperature, and the alarm went off only if it sensed both heat and motion. Still, it was hard to guess how long the trick would work. Once the Monster was in the vault, he had to install the sensor bypass before his body heat penetrated the film. He might have five minutes—he might have less. Nobody knew for sure. Venus Williams smashed the ball crosscourt with a yelp, overwhelming her leggy Slovakian opponent. It was Saturday night, and Williams was dominating the semifinals of the Diamond Games, an event that hyped Antwerp’s predominant position in the gem world. Many of the city’s diamantaires watched as Williams beat down the Slovak and moved one step closer to winning a tennis racket encrusted with nearly $1 million worth of stones. Across town, the Diamond District was deserted. Notarbartolo drove his rented gray Peugeot 307 past the city’s soot-covered central train station and turned onto Pelikaanstraat, a road that skirted the district. He pulled to the curb, and the Monster, the Genius, the King of Keys, and Speedy stepped out carrying large duffel bags. The King of Keys picked the lock on a run-down office building, and they disappeared through the door. It was a little past midnight. The Genius led them out the rear of the building into a private garden that abutted the back of the Diamond Center. It was one of the few places in the district that wasn’t under video surveillance. Using a ladder he had previously hidden there, the Genius climbed up to a small terrace on the second floor. A heat-sensing infrared detector monitored the terrace, but he approached it slowly from behind a large, homemade polyester shield. The low thermal conductivity of the polyester blocked his body heat from reaching the sensor. He placed the shield directly in front of the detector, preventing it from sensing anything. The balcony was now safe. While the rest of the team scrambled up, the Genius disabled an alarm sensor on one of the balcony’s windows. One by one, the thieves climbed through the window, dropped into a stairwell, and descended to the darkened vault antechamber. They covered the security cameras with black plastic bags and flipped on the lights. The vault door stood imposingly before them. The building was quiet—no alarms had been triggered. The police never determined how the men had entered the building. The Genius pulled a custom-made slab of rigid aluminum out of his bag and affixed heavy-duty double-sided tape to one side. He stuck it on the two plates that regulated the magnetic field on the right side of the vault door and unscrewed their bolts. The magnetic plates were now loose, but the sticky aluminum held them together, allowing the Genius to pivot them out of the way and tape them to the antechamber wall. The plates were still side by side and active—the magnetic field never wavered—but they no longer monitored the door. Some 30 hours later, the authorities would marvel at the ingenuity. Next, the King of Keys played out a hunch. In Notarbartolo’s videos, the guard usually visited a utility room just before opening the vault. When the thieves searched the room, they found a major security lapse: The original vault key was hanging inside. The King of Keys grabbed the original. There was no point in letting the safe manufacturers know that their precious key could be copied, and the police still don’t know that a duplicate was made. The King of Keys slotted the original in the keyhole and waited while the Genius dialed in the combination they had gleaned from the video. A moment later, the Genius nodded. The Monster turned off the lights—they didn’t want to trigger the light detector in the vault when the door opened. In the darkness, the King of Keys turned the key and spun a four-pronged handle. The bolts that secured the door retracted and it swung heavily open. Speedy ran up the stairwell. It was his job to stay in touch with Notarbartolo, but there was no cell phone reception down in the vault. Upstairs, he got a signal and dialed his old friend. “We’re in,” he said and hung up. Notarbartolo put his phone back on the dashboard. He was sitting in the Peugeot and could see the front of the Diamond Center a block and a half away. His police scanner was quiet. He took a sip of cold coffee and waited. In the antechamber, the King of Keys deftly picked the lock on the metal grate. He shuffled backward as the Monster propped the grate open with two cans of paint he found in the storeroom. Like the rest of the team, the Monster wore plastic gloves—the police would find no prints on the cans. It was now up to him to disable the remaining systems. The Monster oriented himself in the darkness at the vault entrance. The only sound was the steady breathing of the others behind him. His body was already projecting heat into the vault—the hair spray on the infrared sensor wouldn’t last. Every second he was there would raise the ambient temperature. He had to move quickly but keep his heart rate low. As he’d practiced in the warehouse, he strode exactly 11 steps into the middle of the room, reached for the ceiling, and pushed back a panel. He felt the security system’s main inbound and outbound wires. An automatic electric pulse constantly shot into the room and back out along these wires. If any of the sensors were tripped, the circuit would break. When a pulse shot into the room, it expected an answer. If it didn’t get one, it activated the alarm. With his hands over his head, the Monster used a tool to strip the plastic coating off the wires. It was a delicate task. One slip could cut through, instantly breaking the circuit and tripping the alarm. The police would later discover stripped wires in the ceiling and guess that the thieves considered cutting them, only to lose their nerve. But Notabartolo says that the Monster knew exactly what he was doing. Once the copper wires were exposed, he clipped a new, precut piece of wire between the inbound and outbound cables. This bridge rerouted the incoming electric pulse over to the outbound wire before the signal reached the sensors. It no longer mattered what happened further down the line. The sensors were out of the loop. It was now safe for the others to enter. Still, the men were cautious. They blinded the heat/motion detector with a Styrofoam box, covered the light detector with tape, and then set to work. The King of Keys unloaded a homemade, hand-cranked drill and fitted it with a thin shaft of metal. He jammed the shaft into one of the locks and cranked for about three minutes—until the lock broke, snapping open the box. The guys took turns yanking the contents out. Since they had memorized the layout of the vault in the replica, they worked in the dark, turning on their flashlights only for split seconds—enough to position the drill over the next box. But in those muffled flashes, they could glimpse their duffel bags overflowing with gold bars, millions in Israeli, Swiss, American, European, and British currencies, and leather satchels that contained the mother lode: rough and polished diamonds. They resisted the urge to examine their haul; they were running out of time. By 5:30 am, they had opened 109 boxes. A tamped-down giddiness pervaded the dark vault, but they had to stop. The streets would fill with people soon, and they needed to transfer their bags into Notarbartolo’s car. Speedy relayed the message to him. They were coming out. It took almost an hour for the team to haul the bags up the stairs, pass by the infrared sensor, lower the loot down the ladder, and gather in the hallway of the decrepit office building. Notarbartolo idled at the curb while on the phone with Speedy. A bus came and went, and then the street was empty. “Now,” he hissed. In the predawn half-light, the four men raced out of the building. They jammed the bags in the car, slammed the doors, and headed off on foot for Notarbartolo’s apartment. He put the car in gear and slowly pulled away. In half an hour, they were huddled around the bags in the apartment. The Monster unzipped one and pulled out a leather satchel. It was time to celebrate. He opened the satchel and looked up, bewildered. It was empty. He took out another. It was also empty. A wave of anxiety swept the room. They unzipped all the other duffel bags and rifled through the satchels. More often than not, there was nothing in them. Something had gone wrong. The diamonds should have been there. “We’ve been set up,” Notarbartolo said. Notarbartolo stepped into a scalding-hot shower while the others made salami sandwiches in the kitchen. He needed some clarity—the fatigue was weighing on him. In the weeks preceding the heist, he had seen many of the satchels in the offices of the diamantaires, and they were always filled with inventory. He expected the total take to exceed $100 million. Now they were looking at a fraction of that—probably about $20 million. Notarbartolo reflected on his interactions with the diamond dealer, and a thought flashed through his mind: Maybe the dealer wasn’t operating alone. If he tipped off a group of his fellow merchants, they could have pulled their inventory out of the vault before the heist. Each could then claim that their gems were stolen and collect the insurance while secretly keeping their stones. Most had safes in their offices—they could have simply kept the stock there. Notarbartolo realized that the heist he had spent so much time planning might have actually been part of an elaborate insurance scam. He shut off the water. A half hour earlier he was a king. Now he felt like a pawn. Speedy and Notarbartolo were on the E19 heading out of Antwerp. It was 6 o’clock on Sunday evening. Notarbartolo settled in for the 10-hour drive back to Turin. The garbage bag filled with i ncriminating evidence sat in the backseat. Notarbartolo planned to stop in France and burn it, leaving no trace of the crime. But Speedy was having trouble. His face was ashen, and his eyes darted madly at the cars around them. Finally, after only 20 minutes on the road, he snapped. “I can’t do the drive,” he said. The guy was melting down. Notarbartolo told him to take it easy. He’d drop him at the train station in Brussels if that’s what he wanted. It might actually be nicer to do the trip without his friend driving him crazy. “We can’t take the garbage into Brussels,” Speedy stammered. The city was crawling with cops—maybe they would be looking for them. They couldn’t run the risk. They had to drop the bag immediately. “Pull off up here,” he said abruptly from the passenger seat. “This is a ridiculous time to be having a panic attack,” Notarbartolo muttered. “Just pull off,” his friend snapped. Notarbartolo took the exit and surveyed the darkened surroundings. “There’s a dirt road,” Speedy said, peering into a forest. “It’ll be perfect.” August Van Camp likes weasels. The 59-year-old retired Belgian grocer had two—he called them Mickey and Minnie—and he enjoyed sending them down holes in the forest. Typically, a rabbit came rocketing out the other end. It was a lot of fun. In 1998, he bought a narrow strip of forest alongside the E19 motorway. It was about a five-minute drive from his house, and if you ignored the sound of cars hurtling past at 80 miles an hour, it was a pretty 12 acres of trees with a gurgling stream. There were also a lot of holes with rabbits in them. But because it adjoined the highway, Van Camp found a lot of garbage. The local teenagers once decided to have a party there and burned down a little hut he’d built. It made him fume with anger. When he found garbage, he phoned the police, who had gotten used to his calls. A typical conversation: “The kids have made a mess on my land again.” “I am sorry to hear that, Mr. Van Camp.” “I demand that you send someone to investigate.” “We will pass along your request.” Van Camp rarely heard back. While hunting one morning—Monday, February 17, to be exact—Van Camp was incensed to find yet another pile of junk in the underbrush. After a flash of pique that made him puff out his cheeks, throw up his arms, and wonder what the world was coming to, he knelt down and glared at the refuse. He wanted to be able to describe to the cops what he had to put up with. There was videotape strewn all over the place. A wine bottle rested near a half-eaten salami sandwich. There were also some white envelopes printed with the words diamond center, antwerp. Van Camp’s irritation increased. “Kids,” he grumbled. At home, he punched in the number for the police and asked to lodge a complaint. The officer listened as Van Camp tallied the mess. When Van Camp mentioned Diamond Center envelopes, the officer broke in. “What was that?” he said. “Antwerp Diamond Center envelopes,” Van Camp sputtered. This time, the police came running. By mid-afternoon, a half-dozen detectives swarmed the forest, painstakingly gathering the garbage and collecting stray gems. Van Camp watched with satisfaction. The police were finally treating his litter situation with the proper respect. Within hours, the trash began to fill the evidence room at the Diamond Squad headquarters in Antwerp. A member of the squad bent over the clear plastic bags, looking for immediate clues. A pile of torn paper seemed promising. It didn’t take long to reassemble the pieces like a jigsaw puzzle. It was an invoice for a low-light video surveillance system. The buyer: Leonardo Notarbartolo. Back at Van Camp’s property, another detective knelt among the thorny brambles and peered at a small, jagged piece of paper poking out of the mud. He carefully lifted it free and held it up to the light. It was a business card that bore the address and phone number of Elio D’Onorio, an Italian electronics expert tied to a series of robberies. Notarbartolo has consistently refused to identify his accomplices, but all evidence indicates that D’Onorio is the Genius. The lab techs also bagged a half-eaten salami sandwich. They found Antipasto Italiano salami packaging nearby and sent it along to Diamond Squad headquarters. Four days later, the detectives executed a search warrant on the apartment Notarbartolo rented in Antwerp. In a cupboard, they found a receipt from a local grocery store for Antipasto Italiano salami. The receipt had a time-stamp. A detective drove to the grocery and asked the manager to rewind his closed-circuit television to 12:56 pm on Thursday, February 13. When the video came to a halt and snapped into focus, there was an image of a tall, muscular Italian purchasing salami. His name: Ferdinando Finotto—the man most likely to be the Monster. On Monday — about 36 hours after the job was completed—the team of thieves reassembled at a bar in Adro, Italy, a small town about 50 miles northeast of Milan. They had agreed to meet the diamond dealer there and divide the loot. The dealer would get a third for financing the operation and putting the team together. The others would split the rest. They had anticipated a haul in the tens of millions each. Now they were looking at roughly $3 million per man. It was still a lot of money, but they couldn’t help feeling they’d been played. Everybody had a lot of questions for the dealer. Hour after hour, he didn’t arrive. Notarbartolo was already uneasy about what had happened in the forest. He knew he had made a mistake—he should have turned around after he dropped off Speedy at the train station and gone back to burn the garbage. It was an embarrassing oversight, but what really irked him was that he had vouched for his friend, and the guy had cracked. They waited at the bar until closing, drinking espressos and then beer. The dealer never showed. On Thursday night, Notarbartolo ate dinner with his family at home outside of Turin. He tried to pretend that everything was normal. As usual, his 3-year-old granddaughter played with his cell phone and made him laugh. He momentarily forgot his worries. His biggest problem was that he needed to go back to Belgium; the rental car was due in Antwerp the next day. The plan had always been to return it and show his face at the Diamond Center. That way, if the cops were looking for tenants who’d disappeared, he wouldn’t be on the list. It would also give him an opportunity to clean his apartment more thoroughly. He told his family that he’d be leaving early the next morning. His wife decided to come along; she hadn’t seen much of him lately. They could even have a nice dinner party with some friends from the Netherlands. The next morning, as the Notarbartolos blew through the Swiss Alps, the police surrounded their home in Italy. Acting on the surveillance-system invoice discovered on Van Camp’s land, the Belgian diamond detectives had asked the Italian police to search Notarbartolo’s house. His 24-year-old son, Marco, was there and refused to open the front door. He frantically dialed his father’s cell phone while the police smashed the door open. In Notarbartolo’s jacket pocket, his phone flashed but made no sound. His granddaughter had accidently turned off the ringer the night before. Marco called his mother’s phone—it was turned off. He tried his dad’s phone repeatedly. It just rang and rang. Unaware, Notarbartolo sped toward Antwerp. As Notarbartolo drove back to Belgium, Peys and De Bruycker wondered whether they’d ever catch the thieves. They could be anywhere by now: Brazil, Thailand, Russia. It never occurred to the detectives that one of the robbers would walk right back into the district. But that’s exactly what Notarbartolo did. While one of his fri ends from the Netherlands waited on the street outside the Diamond Center, Notarbartolo waved at the security guard and dropped in to collect his mail. The guard knew that the police were investigating Notarbartolo and phoned the building manager, who immediately called the detectives. When the police arrived, they found Notarbartolo chatting with the building manager and began peppering him with questions. The friend took off as Notarbartolo stalled for time, pretending to have trouble understanding French and claiming that he couldn’t remember the exact address of his own apartment. He just knew how to walk there. “Let’s go then,” Peys said and loaded the Italian into a car. Eventually, Notarbartolo pointed out the apartment. As the police car pulled to the curb, Notarbartolo’s wife and the friends who’d come for dinner stepped out of the building. They were loaded down with bags and one carried a rolled-up carpet. Another minute and they would have been gone. The police took everyone into custody. The bags contained critical evidence. The police dug out a series of prepaid SIM cards that were linked to cell phones used almost exclusively to call three Italians: Elio D’Onorio, aka the Genius; Ferdinando Finotto, alias the Monster; and the person most likely to be Speedy, an anxious, paranoid man named Pietro Tavano, a longtime associate of Notarbartolo’s. On the night of the heist, a cell tower in the Diamond District logged the presence of all three, plus Notarbartolo. During that time, Tavano stayed in constant contact with Notarbartolo. The day Notarbartolo was arrested, Italian police broke open the safe at his home in Turin. They found 17 polished diamonds attached to certificates that the Belgian diamond detectives traced back to the vault. More gems were vacuumed out of the rolled-up carpet from Notarbartolo’s Antwerp apartment. The Belgian courts came down hard. They found Notarbartolo guilty of orchestrating the heist and sentenced him to 10 years. With the cell phone records and the peculiarly precise salami sandwich evidence, the Belgian detectives persuaded French police to raid the home of Finotto’s girlfriend on the French Riviera. They retrieved marked $100 bills that the detectives say belonged to one of the Diamond Center victims. Legal proceedings dragged on, but Finotto was finally arrested in Italy in November 2007 and is serving a five-year sentence there. When questioned by police in Italy, D’Onorio admitted that he had installed security cameras in Notarbartolo’s office but denied any involvement in the crime. Nonetheless, his DNA was found on some adhesive tape left in the vault. He was extradited to Belgium in November 2007 to begin a five-year sentence. The high-strung Pietro Tavano is serving a five-year sentence in Italy for the crime. He has refused to allow his attorney to make any statements on his behalf. A fifth thief has never been identified, though police know of his existence via cell phone records and DNA traces. The King of Keys was never apprehended. On January 4, 2009, I see Notarbartolo for the last time. Over the past 14 weeks, we have met seven times in the prison visiting room, and yet questions remain. Was $100 million stolen as the police estimate, or just $20 million as Notarbartolo insists? Does it make sense that the heist was part of a larger insurance scam or is Notarbartolo’s story a decoy to throw suspicion on others? Perhaps Notarbartolo’s cousin, the Mafia don, was behind the whole thing. Whatever the truth, where is the loot now? The murky nature of the diamond trade makes it difficult to get clear answers. For instance, detective De Bruycker says that three-quarters of the business is done under the table. According to Denice Oliver, the adjuster who investigated the robbery for insurers, there were roughly $25 million in claims, all documented by legitimate invoices. As a result, De Bruycker calculated that at least another $75 million in goods was stolen, bringing the total value of the heist to about $100 million. If Notarbartolo’s insurance scam theory is correct, it went down like this: The dealers who were in on it removed their goods—both legal and illegal—from the vault before the heist and then filed claims on the legitimate gems. Oliver calls this the “double whammy”—these dealers would have gotten the insurance payouts and kept their stock. The $20 million found by the thieves belonged to traders not in on the scam. Or: There was no insurance scam. The thieves actually found $100 million in the vault and Notarbartolo has spun a story to cloud the true origins of the heist. Regardless of which theory is correct, there is agreement that the thieves got away with millions that were never recovered. Notarbartolo refuses to talk about what happened to the goods, adding that it is something best discussed once he is out of prison. In the meantime, his share may very well be waiting for him, hidden somewhere in the foothills of the Italian Alps.

Bespoke: S&P 500 5% Days

S&P 500 5% Days

Even though the prevailing view over the last few days has been that stocks simply won’t go up ever again, today’s 5%+ rally (as of 2:00 PM) has investors once again asking if this is the bottom.  Before getting too far ahead of ourselves though, we would note that today’s gain is the eighth one-day rally of 5% or more since the S&P 500 peaked in October 2007, and we’re lower now than we were at the close of any of those seven other days.

NYT: Ivory Tower Unswayed by Crashing Economy

http://www.nytimes.com/2009/03/05/books/05deba.html?_r=1&pagewanted=all Ivory Tower Unswayed by Crashing Economy http://www.nytimes.com/2009/03/05/books/05deba.html?_r=1&pagewanted=all

Ritholz: Was the ‘00-03 Crash Bush’s Fault? ‘09 Obama’s?

Was the ‘00-03 Crash Bush’s Fault? ‘09 Obama’s? The incessant parade of bad advice, partisan quackery and generalignorance about the way markets work is fascinating to watch. I used tofind it annoying, but now I simply use it as a way to make money. Justfind the dumbest of the group, and take the other side of their trades. The latest idiocy coming out of the usual collection of misfits,dolts and cheerleaders is that the last 20% leg down in the market ispretty much all President Obama’s fault. Now before I explain — yetagain — why this is so foolish, I have to point out that just abouteveryone who is saying this has been pretty much wrong about, well,pretty much everything. This collection of seers, pundits and talking heads have a track record that would make the 1927-1933 group of Pompous Prognosticators blush with pride. Their sterling track record includes: • Failing to recognize the importance of the Housing Boom; • Not understanding the impact of ultra cheap credit; • Failing to notice the economy weakening appreciably in 2008; • Missing all of the warning signs of distress in firms as varied asBear Stearns, AIG, Lehman, Citigroup, Freddie Mac, Wachovia,Countrywide and WAMU; • Utterly missing the most telegraphed recession in history; • Believing the sub-prime problems would be contained; • Expecting the rest of the globe would decouple form the US economy; • Believing that deregulation was the path to prosperity; And many more. That this pool of idiots missed all of the above merely suggeststhat are grossly incompetent as market and/or economic observers. Thatthey now want to blame Obama for what happened only compounds theirawful track record, and reveals them as nothing more than shamelesspartisans.   For the rest: http://www.ritholtz.com/blog/2009/03/2000-crash-bush-09-obama/

Boys will be boys: The effect of gender on investor overconfidence

BoysWillBeBoys.pdf

Michael Lewis: Wall Street on the Tundra

Wall Street on the Tundra http://www.vanityfair.com/politics/features/2009/04/iceland200904?printable=true&currentPage=all Iceland’s de factobankruptcy—its currency (the krona) is kaput, its debt is 850 percentof G.D.P., its people are hoarding food and cash and blowing up theirnew Range Rovers for the insurance—resulted from a stunning collectivemadness. What led a tiny fishing nation, population 300,000, to decide,around 2003, to re-invent itself as a global financial power? InReykjavík, where men are men, and the women seem to have completelygiven up on them, the author follows the peculiarly Icelandic logicbehind the meltdown. by Michael Lewis April 2009 Justafter October 6, 2008, when Iceland effectively went bust, I spoke to aman at the International Monetary Fund who had been flown in toReykjavík to determine if money might responsibly be lent to such aspectacularly bankrupt nation. He’d never been to Iceland, knew nothingabout the place, and said he needed a map to find it. He has spent hislife dealing with famously distressed countries, usually in Africa,perpetually in one kind of financial trouble or another. Iceland wasentirely new to his experience: a nation of extremely well-to-do (No. 1in the United Nations’ 2008 Human Development Index), well-educated,historically rational human beings who had organized themselves tocommit one of the single greatest acts of madness in financial history.“You have to understand,” he told me, “Iceland is no longer a country.It is a hedge fund.” An entire nation without immediate experience or even distant memoryof high finance had gazed upon the example of Wall Street and said, “Wecan do that.” For a brief moment it appeared that they could. In 2003,Iceland’s three biggest banks had assets of only a few billion dollars,about 100 percent of its gross domestic product. Over the next threeand a half years they grew to over $140 billion and were so muchgreater than Iceland’s G.D.P. that it made no sense to calculate thepercentage of it they accounted for. It was, as one economist put it tome, “the most rapid expansion of a banking system in the history ofmankind.” At the same time, in part because the banks were also lendingIcelanders money to buy stocks and real estate, the value of Icelandicstocks and real estate went through the roof. From 2003 to 2007, whilethe U.S. stock market was doubling, the Icelandic stock marketmultiplied by nine times. Reykjavík real-estate prices tripled. By 2006the average Icelandic family was three times as wealthy as it had beenin 2003, and virtually all of this new wealth was one way or anothertied to the new investment-banking industry. “Everyone was learningBlack-Scholes” (the option-pricing model), says Ragnar Arnason, aprofessor of fishing economics at the University of Iceland, whowatched students flee the economics of fishing for the economics ofmoney. “The schools of engineering and math were offering courses onfinancial engineering. We had hundreds and hundreds of people studyingfinance.” This in a country the size of Kentucky, but with fewercitizens than greater Peoria, Illinois. Peoria, Illinois, doesn’t haveglobal financial institutions, or a university devoting itself totraining many hundreds of financiers, or its own currency. And yet theworld was taking Iceland seriously. (March 2006 Bloomberg Newsheadline: iceland’s billionaire tycoon “thor” braves u.s. with hedge fund.) Global financial ambition turned out to have a downside. When theirthree brand-new global-size banks collapsed, last October, Iceland’s300,000 citizens found that they bore some kind of responsibility for$100 billion of banking losses—which works out to roughly $330,000 forevery Icelandic man, woman, and child. On top of that they had tens ofbillions of dollars in personal losses from their own bizarre privateforeign-currency speculations, and even more from the 85 percentcollapse in the Icelandic stock market. The exact dollar amount ofIceland’s financial hole was essentially unknowable, as it depended onthe value of the generally stable Icelandic krona, which had alsocrashed and was removed from the market by the Icelandic government.But it was a lot. Iceland instantly became the only nation on earth that Americans could point to and say, “Well, at least we didn’t do that.”In the end, Icelanders amassed debts amounting to 850 percent of theirG.D.P. (The debt-drowned United States has reached just 350 percent.)As absurdly big and important as Wall Street became in the U.S.economy, it never grew so large that the rest of the population couldnot, in a pinch, bail it out. Any one of the three Icelandic bankssuffered losses too large for the nation to bear; taken together theywere so ridiculously out of proportion that, within weeks of thecollapse, a third of the population told pollsters that they wereconsidering emigration. In just three or four years an entirely new way of economic life hadbeen grafted onto the side of this stable, collectivist society, andthe graft had overwhelmed the host. “It was just a group of youngkids,” said the man from the I.M.F. “In this egalitarian society, theycame in, dressed in black, and started doing business.” Five hundred miles northwest of Scotland theIcelandair flight lands and taxis to a terminal still painted withLandsbanki logos—Landsbanki being one of Iceland’s three bankruptbanks, along with Kaupthing and Glitnir. I try to think up a metaphorfor the world’s expanding reservoir of defunct financial corporatesponsorships—water left in the garden hose after you’ve switched offthe pressure?—but before I can finish, the man in the seat behind mereaches for his bag in the overhead bin and knocks the crap out of me.I will soon learn that Icelandic males, like moose, rams, and otherhorned mammals, see these collisions as necessary in their struggle forsurvival. I will also learn that this particular Icelandic male is asenior official at the Icelandic stock exchange. At this moment,however, all I know is that a middle-aged man in an expensive suit hasgone out of his way to bash bodies without apology or explanation. Istew on this apparently wanton act of hostility all the way to passportcontrol. You can tell a lot about a country by how much better they treatthemselves than foreigners at the point of entry. Let it be known thatIcelanders make no distinction at all. Over the control booth they’vehung a charming sign that reads simply, all citizens,and what they mean by that is not “All Icelandic Citizens” but “AllCitizens of Anywhere.” Everyone is from somewhere, and so we all windup in the same line, leading to the guy behind the glass. Before youcan say, “Land of contradictions,” he has pretended to examine yourpassport and waved you on through. Next, through a dark landscape of snow-spackled black volcanic rockthat may or may not be lunar, but that looks so much as you wouldexpect the moon to look that nasa scientistsused it to acclimate the astronauts before the first moon mission. Anhour later we arrive at the 101 Hotel, owned by the wife of one ofIceland’s most famous failed bankers. It’s cryptically named (101 isthe city’s richest postal code), but instantly recognizable: hipManhattan hotel. Staff dressed in black, incomprehensible art on thewalls, unread books about fashion on unused coffee tables—everything toheighten the social anxiety of a rube from the sticks but the latestedition of The New York Observer. It’s the sort of placebankers stay because they think it’s where the artists stay. BearStearns convened a meeting of British and American hedge-fund managershere, in January 2008, to figure out how much money there was to bemade betting on Iceland’s collapse. (A lot.) The hotel, once jammed, isnow empty, with only 6 of its 38 rooms occupied. The restaurant isempty, too, and so are the small tables and little nooks that once ledthe people who weren’t in them to marvel at those who were. A bankruptHoliday Inn is just depressing; a bankrupt Ian Schrager hotel istragic. With the financiers who once paid a lot to stay here gone for good,I’m given a big room on the top floor with a view of the old city forhalf-price. I curl up in silky white sheets and reach for a book aboutthe Icelandic economy—written in 1995, before the banking craze, whenthe country had little to sell to the outside world but fresh fish—andread this remarkable sentence: “Icelanders are rather suspicious of themarket system as a cornerstone of economic organization, especially itsdistributive implications.” That’s when the strange noises commence. First comes a screeching from the far side of the room. I leave thebed to examine the situation. It’s the heat, sounding like a teakettleleft on the stove for too long, straining to control itself. Iceland’sheat isn’t heat as we know it, but heat drawn directly from the earth.The default temperature of the water is scalding. Every year workersengaged in street repairs shut down the cold-water intake used totemper the hot water and some poor Icelander is essentially boiledalive in his shower. So powerful is the heat being released from theearth into my room that some great grinding, wheezing engine must beemployed to prevent it from cooking me. Then, from outside, comes an explosion. Boom! Then another. Boom! As it is mid-December, the sun rises,barely, at 10:50 a.m. and sets with enthusiasm at 3:44 p.m. This isobviously better than no sun at all, but subtly worse, as it tempts youto believe you can simulate a normal life. And whatever else this placeis, it isn’t normal. The point is reinforced by a 26-year-old IcelanderI’ll call Magnus Olafsson, who, just a few weeks earlier, had beenearning close to a million dollars a year trading currencies for one ofthe banks. Tall, white-blond, and handsome, Olafsson looks exactly asyou’d expect an Icelander to look—which is to say that he looks not atall like most Icelanders, who are mousy-haired and lumpy. “My motherhas enough food hoarded to open a grocery store,” he says, then addsthat ever since the crash Reykjavík has felt tense and uneasy. Two months earlier, in early October, as the market for Icelandickronur dried up, he’d sneaked away from his trading desk and gone downto the teller, where he’d extracted as much foreign cash as they’d givehim and stuffed it into a sack. “All over downtown that day you sawpeople walking around with bags,” he says. “No one ever carries bagsaround downtown.” After work he’d gone home with his sack of cash andhidden roughly 30 grand in yen, dollars, euros, and pounds sterlinginside a board game. Before October the big-name bankers were heroes; now they areabroad, or laying low. Before October Magnus thought of Iceland asessentially free of danger; now he imagines hordes of muggers en routefrom foreign nations to pillage his board-game safe—and thus refuses toallow me to use his real name. “You’d figure New York would hear aboutthis and send over planeloads of muggers,” he theorizes. “Most everyonehas their savings at home.” As he is already unsettled, I tell himabout the unsettling explosions outside my hotel room. “Yes,” he sayswith a smile, “there’s been a lot of Range Rovers catching firelately.” Then he explains. For the past few years, some large number of Icelanders engaged inthe same disastrous speculation. With local interest rates at 15.5percent and the krona rising, they decided the smart thing to do, whenthey wanted to buy something they couldn’t afford, was to borrow notkronur but yen and Swiss francs. They paid 3 percent interest on theyen and in the bargain made a bundle on the currency trade, as thekrona kept rising. “The fishing guys pretty much discovered the tradeand made it huge,” says Magnus. “But they made so much money on it thatthe financial stuff eventually overwhelmed the fish.” They made so muchmoney on it that the trade spread from the fishing guys to theirfriends. It must have seemed like a no-brainer: buy these ever more valuablehouses and cars with money you are, in effect, paid to borrow. But, inOctober, after the krona collapsed, the yen and Swiss francs they mustrepay are many times more expensive. Now many Icelanders—especiallyyoung Icelanders—own $500,000 houses with $1.5 million mortgages, and$35,000 Range Rovers with $100,000 in loans against them. To the RangeRover problem there are two immediate solutions. One is to put it on aboat, ship it to Europe, and try to sell it for a currency that stillhas value. The other is set it on fire and collect the insurance: Boom! The rocks beneath Reykjavík may be igneous, but the city feelssedimentary: on top of several thick strata of architecture that shouldbe called Nordic Pragmatic lies a thin layer that will almost certainlyone day be known as Asshole Capitalist. The hobbit-size buildings thathouse the Icelandic government are charming and scaled to the city. Thehalf-built oceanfront glass towers meant to house newly rich financiersand, in the bargain, block everyone else’s view of the white bluffsacross the harbor are not. The best way to see any city is to walk it,but everywhere I walk Icelandic men plow into me without so much as aby-your-leave. Just for fun I march up and down the main shopping drag,playing chicken, to see if any Icelandic male would rather divert hisstride than bang shoulders. Nope. On party nights—Thursday, Friday, andSaturday—when half the country appears to take it as a professionalobligation to drink themselves into oblivion and wander the streetsuntil what should be sunrise, the problem is especially acute. The barsstay open until five a.m., and the frantic energy with which the peoplehit them seems more like work than work. Within minutes of entering anightclub called Boston I get walloped, first by a bearded troll who,I’m told, ran an Icelandic hedge fund. Just as I’m recovering I getplowed over by a drunken senior staffer at the Central Bank. Perhapsbecause he is drunk, or perhaps because we had actually met a few hoursearlier, he stops to tell me, “Vee try to tell them dat our problem wasnot a solfency problem but a likvitity problem, but they did notagree,” then stumbles off. It’s exactly what Lehman Brothers andCitigroup said: If only you’d give us the money to tide us over, we’llsurvive this little hiccup. A nation so tiny and homogeneous that everyone in it knows prettymuch everyone else is so fundamentally different from what one thinksof when one hears the word “nation” that it almost requires a newclassification. Really, it’s less a nation than one big extendedfamily. For instance, most Icelanders are by default members of theLutheran Church. If they want to stop being Lutherans they must writeto the government and quit; on the other hand, if they fill out a form,they can start their own cult and rec eive a subsidy. Another example:the Reykjavík phone book lists everyone by his first name, as there areonly about nine surnames in Iceland, and they are derived by prefixingthe father’s name to “son” or “dottir.” It’s hard to see how thisclarifies matters, as there seem to be only about nine first names inIceland, too. But if you wish to reveal how little you know aboutIceland, you need merely refer to someone named Siggor Sigfusson as“Mr. Sigfusson,” or Kristin Petursdottir as “Ms. Petursdottir.” At anyrate, everyone in a conversation is just meant to know whomever you’retalking about, so you never hear anyone ask, “Which Siggor do youmean?” Because Iceland is really just one big family, it’s simply annoyingto go around asking Icelanders if they’ve met Björk. Of course they’vemet Björk; who hasn’t met Björk? Who, for that matter, didn’tknow Björk when she was two? “Yes, I know Björk,” a professor offinance at the University of Iceland says in reply to my question, in aweary tone. “She can’t sing, and I know her mother from childhood, andthey were both crazy. That she is so well known outside of Icelandtells me more about the world than it does about Björk.” One benefit of life inside a nation masking an extended family isthat nothing needs to be explained; everyone already knows everythingthat needs to be known. I quickly find that it is an even greater thanusual waste of time to ask directions, for instance. Just as you aremeant to know which Bjornjolfer is being spoken of at any particularmoment, you are meant to know where you are on the map. Twogrown-ups—one a banker whose office is three blocks away—cannot tell mewhere to find the prime minister’s office. Three more grown-ups, allwithin three blocks of the National Gallery of Iceland, have no ideawhere to find the place. When I tell the sweet middle-aged lady behindthe counter at the National Museum that no Icelander seems to know howto find it, she says, “No one actually knows anything about ourcountry. Last week we had Icelandic high-school students here and theirteacher asked them to name an Icelandic 19th-century painter. None ofthem could. Not a single one! One said, ‘Halldor Laxness?’!” (Laxnesswon the 1955 Nobel Prize in Literature, the greatest global honor foran Icelander until the 1980s, when two Icelandic women captured MissWorld titles in rapid succession.) The world is now pocked with cities thatfeel as if they are perched on top of bombs. The bombs have yet toexplode, but the fuses have been lit, and there’s nothing anyone can doto extinguish them. Walk around Manhattan and you see empty stores,empty streets, and, even when it’s raining, empty taxis: people havefled before the bomb explodes. When I was there Reykjavík had the samefeel of incipient doom, but the fuse burned strangely. The governmentmandates three months’ severance pay, and so the many laid-off bankerswere paid until early February, when the government promptly fell.Against a basket of foreign currencies the krona is worth less than athird of its boom-time value. As Iceland imports everything but heatand fish, the price of just about everything is, in mid-December, aboutto skyrocket. A new friend who works for the government tells me thatshe went into a store to buy a lamp. The clerk told her he had sold thelast of the lamps she was after, but offered to order it for her, fromSweden—at nearly three times the old price. Still, a society that has been ruined overnight doesn’t look muchdifferent from how it did the day before, when it believed itself to bericher than ever. The Central Bank of Iceland is a case in point.Almost certainly Iceland will adopt the euro as its currency, and thekrona will cease to exist. Without it there is no need for a centralbank to maintain the stability of the local currency and controlinterest rates. Inside the place stews David Oddsson, the architect ofIceland’s rise and fall. Back in the 1980s, Oddsson had fallen underthe spell of Milton Friedman, the brilliant economist who was able topersuade even those who spent their lives working for the governmentthat government was a waste of life. So Oddsson went on a quest to giveIcelandic people their freedom—by which he meant freedom fromgovernment controls of any sort. As prime minister he lowered taxes,privatized industry, freed up trade, and, finally, in 2002, privatizedthe banks. At length, weary of prime-ministering, he got himselfappointed governor of the Central Bank—even though he was a poetwithout banking experience. After the collapse he holed up in his office inside the bank,declining all requests for interviews. Senior government officials tellme, seriously, that they assume he spends most of his time writingpoetry. (In February he would be asked by a new government to leave.)On the outside, however, the Central Bank of Iceland is still anelegant black temple set against the snowy bluffs across the harbor.Sober-looking men still enter and exit. Small boys on sleds rocket downthe slope beside it, giving not a rat’s ass that they are playing atground zero of the global calamity. It all looks the same as it didbefore the crash, even though it couldn’t be more different. The fuseis burning its way toward the bomb. When Neil Armstrong took his small step from Apollo 11 and lookedaround, he probably thought, Wow, sort of like Iceland—even though themoon was nothing like Iceland. But then, he was a tourist, and atourist can’t help but have a distorted opinion of a place: he meetsunrepresentative people, has unrepresentative experiences, and runsaround imposing upon the place the fantastic mental pictures he had inhis head when he got there. When Iceland became a tourist in globalhigh finance it had the same problem as Neil Armstrong. Icelanders areamong the most inbred human beings on earth—geneticists often use themfor research. They inhabited their remote island for 1,100 yearswithout so much as dabbling in leveraged buyouts, hostile takeovers,derivatives trading, or even small-scale financial fraud. When, in2003, they sat down at the same table with Goldman Sachs and MorganStanley, they had only the roughest idea of what an investment bankerdid and how he behaved—most of it gleaned from young Icelanders’experiences at various American business schools. And so what they didwith money probably says as much about the American soul, circa 2003,as it does about Icelanders. They understood instantly, for instance,that finance had less to do with productive enterprise than tradingbits of paper among themselves. And when they lent money they didn’tsimply facilitate enterprise but bankrolled friends and family, so thatthey might buy and own things, like real investment bankers: BeverlyHills condos, British soccer teams and department stores, Danishairlines and media companies, Norwegian banks, Indian power plants. That was the biggest American financial lesson the Icelanders tookto heart: the importance of buying as many assets as possible withborrowed money, as asset prices only rose. By 2007, Icelanders ownedroughly 50 times more foreign assets than they had in 2002. They boughtprivate jets and third homes in London and Copenhagen. They paid vastsums of money for services no one in Iceland had theretofore everimagined wanting. “A guy had a birthday party, and he flew in EltonJohn for a million dollars to sing two songs,” the head of theLeft-Green Movement, Steingrimur Sigfusson, tells me with freshincredulity. “And apparently not very well.” They bought stakes inbusinesses they knew nothing about and told the people running themwhat to do—just like real American investment bankers! For instance, aninvestment company called FL Group—a major shareholder in Glitnirbank—bought an 8.25 percent stake in American Airlines’ parentcorporation. No one inside FL Group had ever actually run an airline;no one in FL Group even had meaningful work experience at an airline.That didn’t stop FL Group from telling American Airlines how to run anairli ne. “After taking a close look at the company over an extendedperiod of time,” FL Group C.E.O. Hannes Smarason, graduate of M.I.T.’sSloan School, got himself quoted saying, in his press release, not longafter he bought his shares, “our suggestions include monetizing assets… that can be used to reduce debt or return capital to shareholders.” Nor were the Icelanders particularly choosy about what they bought.I spoke with a hedge fund in New York that, in late 2006, spotted whatit took to be an easy mark: a weak Scandinavian bank getting weaker. Itestablished a short position, and then, out of nowhere, came Kaupthingto take a 10 percent stake in this soon-to-be defunctenterprise—driving up the share price to absurd levels. I spoke toanother hedge fund in London so perplexed by the many bad LBOsIcelandic banks were financing that it hired private investigators tofigure out what was going on in the Icelandic financial system. Theinvestigators produced a chart detailing a byzantine web of interlinkedentities that boiled down to this: A handful of guys in Iceland, whohad no experience of finance, were taking out tens of billions ofdollars in short-term loans from abroad. They were then re-lending thismoney to themselves and their friends to buy assets—the banks, soccerteams, etc. Since the entire world’s assets were rising—thanks in partto people like these Icelandic lunatics paying crazy prices forthem—they appeared to be making money. Yet another hedge-fund managerexplained Icelandic banking to me this way: You have a dog, and I havea cat. We agree that they are each worth a billion dollars. You sell methe dog for a billion, and I sell you the cat for a billion. Now we areno longer pet owners, but Icelandic banks, with a billion dollars innew assets. “They created fake capital by trading assets amongstthemselves at inflated values,” says a London hedge-fund manager. “Thiswas how the banks and investment companies grew and grew. But they werelightweights in the international markets.” On February 3, Tony Shearer, the formerC.E.O. of a British merchant bank called Singer and Friedlander,offered a glimpse of the inside, when he appeared before a House ofCommons committee to describe his bizarre experience of being acquiredby an Icelandic bank. Singer and Friedlander had been around since 1907 and was famousfor, among other things, giving George Soros his start. In November2003, Shearer learned that Kaupthing, of whose existence he was totallyunaware, had just taken a 9.5 percent stake in his bank. Normally, whena bank tries to buy another bank, it seeks to learn something about it.Shearer offered to meet with Kaupthing’s chairman, Sigurdur Einarsson;Einarsson had no interest. (Einarsson declined to be interviewed by Vanity Fair.)When Kaupthing raised its stake to 19.5 percent, Shearer finally flewto Reykjavík to see who on earth these Icelanders were. “They were verydifferent,” he told the House of Commons committee. “They ran theirbusiness in a very strange way. Everyone there was incredibly young.They were all from the same community in Reykjavík. And they had noidea what they were doing.” He examined Kaupthing’s annual reports and discovered some amazingfacts: This giant international bank had only one board member who wasnot Icelandic, for instance. Its directors all had four-year contracts,and the bank had lent them £19 million to buy shares in Kaupthing,along with options to sell those shares back to the bank at aguaranteed profit. Virtually the entire bank’s stated profits werecaused by its marking up assets it had bought at inflated prices. “Theactual amount of profits that were coming from what I’d call bankingwas less than 10 percent,” said Shearer. In a sane world the British regulators would have stopped the newIcelandic financiers from devouring the ancient British merchant bank.Instead, the regulators ignored a letter Shearer wrote to them. A yearlater, in January 2005, he received a phone call from the Britishtakeover panel. “They wanted to know,” says Shearer, “why our shareprice had risen so rapidly over the past couple of days. So I laughedand said, ‘I think you’ll find the reason is that Mr. Einarsson, thechairman of Kaupthing, said two days ago, like an idiot, that he wasgoing to make a bid for Singer and Friedlander.’” In August 2005,Singer and Friedlander became Kaupthing Singer and Friedlander, andShearer quit, he said, out of fear of what might happen to hisreputation if he stayed. In October 2008, Kaupthing Singer andFriedlander went bust. In spite of all this, when Tony Shearer was pressed by the House ofCommons to characterize the Icelanders as mere street hustlers, herefused. “They were all highly educated people,” he said in a tone ofamazement. Here is yet another way in which Icelandechoed the American model: all sorts of people, none of them Icelandic,tried to tell them they had a problem. In early 2006, for instance, ananalyst named Lars Christensen and three of his colleagues at Denmark’sbiggest bank, Danske Bank, wrote a report that said Iceland’s financialsystem was growing at a mad pace, and was on a collision course withdisaster. “We actually wrote the report because we were worried ourclients were getting too interested in Iceland,” he tells me. “Icelandwas the most extreme of everything.” Christensen then flew to Icelandand gave a speech to reinforce his point, only to be greeted withanger. “The Icelandic banks took it personally,” he says. “We werebeing threatened with lawsuits. I was told, ‘You’re Danish, and you areangry with Iceland because Iceland is doing so well.’ Basically it allhad to do with what happened in 1944,” when Iceland declared itsindependence from Denmark. “The reaction wasn’t ‘These guys might beright.’ It was ‘No! It’s a conspiracy. They have bad motives.’” TheDanish were just jealous! The Danske Bank report alerted hedge funds in London to anopportunity: shorting Iceland. They investigated and found thisincredible web of cronyism: bankers buying stuff from one another atinflated prices, borrowing tens of billions of dollars and re-lendingit to the members of their little Icelandic tribe, who then used it tobuy up a messy pile of foreign assets. “Like any new kid on the block,”says Theo Phanos of Trafalgar Funds in London, “they were picked off byvarious people who sold them the lowest-quality assets—second-tierairlines, sub-scale retailers. They were in all the worst LBOs.” But from the prime minister on down, Iceland’s leaders attacked themessenger. “The attacks … give off an unpleasant odor of unscrupulousdealers who have decided to make a last stab at breaking down theIcelandic financial system,” said Central Bank chairman Oddsson inMarch of last year. The chairman of Kaupthing publicly fingered fourhedge funds that he said were deliberately seeking to undermineIceland’s financial miracle. “I don’t know where the Icelanders getthis notion,” says Paul Ruddock, of Lansdowne Partners, one of thosefingered. “We only once traded in an Icelandic stock and it was a veryshort-term trade. We started to take legal action against the chairmanof Kaupthing after he made public accusations against us that had notruth, and then he withdrew them.” One of the hidden causes of the current global financial crisis isthat the people who saw it coming had more to gain from it by takingshort positions than they did by trying to publicize the problem. Plus,most of the people who could credibly charge Iceland—or, for thatmatter, Lehman Brothers—with financial crimes could be dismissed ascrass profiteers, talking their own book. Back in April 2006, however,an emeritus professor of economics at the University of Chicago namedBob Aliber took an interest in Iceland. Aliber found himself at theLondon Business School, listening to a talk on Iceland, about which heknew nothing. He recognized instantly the signs. Digging into the data,he fou nd in Iceland the outlines of what was so clearly a historic actof financial madness that it belonged in a textbook. “The PerfectBubble,” Aliber calls Iceland’s financial rise, and he has the textbookin the works: an updated version of Charles Kindleberger’s 1978classic, Manias, Panics, and Crashes, a new edition of whichhe’s currently editing. In it, Iceland, he decided back in 2006, wouldnow have its own little box, along with the South Sea Bubble and theTulip Craze—even though Iceland had yet to crash. For him the actualcrash was a mere formality. Word spread in Icelandic economic circlesthat this distinguished professor at Chicago had taken a specialinterest in Iceland. In May 2008, Aliber was invited by the Universityof Iceland’s economics department to give a speech. To an audience ofstudents, bankers, and journalists, he explained that Iceland, far fromhaving an innate talent for high finance, had all the markings of agiant bubble, but he spoke the technical language of academiceconomists. (“Monetary Turbulence and the Icelandic Economy,” he calledhis speech.) In the following Q&A session someone asked him topredict the future, and he lapsed into plain English. As an audiencemember recalls, Aliber said, “I give you nine months. Your banks aredead. Your bankers are either stupid or greedy. And I’ll bet they areon planes trying to sell their assets right now.” The Icelandic bankers in the audience sought to prevent newspapersfrom reporting the speech. Several academics suggested that Aliberdeliver his alarming analysis to Iceland’s Central Bank. Somehow thatnever happened. “The Central Bank said they were too busy to see him,”says one of the professors who tried to arrange the meeting, “becausethey were preparing the Report on Financial Stability.” For his partAliber left Iceland thinking that he’d caused such a stir he might notbe allowed back into the country. “I got the feeling,” he told me,“that the only reason they brought me in was that they needed anoutsider to say these things—that an insider wouldn’t say these things,because he’d be afraid of getting into trouble.” And yet he remainsextremely fond of his hosts. “They are a very curious people,” he says,laughing. “I guess that’s the point, isn’t it?” Icelanders—or at any rate Icelandic men—had their own explanationsfor why, when they leapt into global finance, they broke world records:the natural superiority of Icelanders. Because they were small andisolated it had taken 1,100 years for them—and the world—to understandand exploit their natural gifts, but now that the world was flat andmoney flowed freely, unfair disadvantages had vanished. Iceland’spresident, Olafur Ragnar Grimsson, gave speeches abroad in which heexplained why Icelanders were banking prodigies. “Our heritage andtraining, our culture and home market, have provided a valuableadvantage,” he said, then went on to list nine of these advantages,ending with how unthreatening to others Icelanders are. (“Some peopleeven see us as fascinating eccentrics who can do no harm.”) There weremany, many expressions of this same sentiment, most of them inIcelandic. “There were research projects at the university to explainwhy the Icelandic business model was superior,” says Gylfi Zoega,chairman of the economics department. “It was all about our informalchannels of communication and ability to make quick decisions and soforth.” “We were always told that the Icelandic businessmen were so clever,”says university finance professor and former banker VilhjalmurBjarnason. “They were very quick. And when they bought something theydid it very quickly. Why was that? That is usually because the selleris very satisfied with the price.” You didn’t need to be Icelandic to join the cult of the Icelandicbanker. German banks put $21 billion into Icelandic banks. TheNetherlands gave them $305 million, and Sweden kicked in $400 million.U.K. investors, lured by the eye-popping 14 percent annual returns,forked over $30 billion—$28 billion from companies and individuals andthe rest from pension funds, hospitals, universities, and other publicinstitutions. Oxford University alone lost $50 million. Maybe because there are so few Icelanders in the world, we know nextto nothing about them. We assume they are more or less Scandinavian—agentle people who just want everyone to have the same amount ofeverything. They are not. They have a feral streak in them, like ahorse that’s just pretending to be broken. After three days in Reykjavík, I receive,more or less out of the blue, two phone calls. The first is from aproducer of a leading current-events TV show. All of Iceland watchesher show, she says, then asks if I’d come on and be interviewed. “Aboutwhat?” I ask. “We’d like you to explain our financial crisis,” shesays. “I’ve only been here three days!” I say. It doesn’t matter, shesays, as no one in Iceland understands what’s happened. They’d enjoyhearing someone try to explain it, even if that person didn’t have anyidea what he was talking about—which goes to show, I suppose, that noteverything in Iceland is different from other places. As I demur,another call comes, from the prime minister’s office. Iceland’s then prime minister, Geir Haarde, is also the head of theIndependence Party, which has governed the country since 1991. It ruledin loose coalition with the Social Democrats and the Progressive Party.(Iceland’s fourth major party is the Left-Green Movement.) That anation of 300,000 people, all of whom are related by blood, needs fourmajor political parties suggests either a talent for disagreement or anunwillingness to listen to one another. In any case, of the fourparties, the Independents express the greatest faith in free markets.The Independence Party is the party of the fishermen. It is also, as anold schoolmate of the prime minister’s puts it to me, “all men, men,men. Not a woman in it.” Walking into the P.M.’s minute headquarters, I expect to be stoppedand searched, or at least asked for photo identification. Instead Ifind a single policeman sitting behind a reception desk, feet up on thetable, reading a newspaper. He glances up, bored. “I’m here to see theprime minister,” I say for the first time in my life. He’s unimpressed.Anyone here can see the prime minister. Half a dozen people will tellme that one of the reasons Icelanders thought they would be takenseriously as global financiers is that all Icelanders feel important.One reason they all feel important is that they all can go see theprime minister anytime they like. What he might say to them about their collapse is an open question.There’s a charming lack of financial experience in Icelandicfinancial-policymaking circles. The minister for business affairs is aphilosopher. The finance minister is a veterinarian. The Central Bankgovernor is a poet. Haarde, though, is a trained economist—just not avery good one. The economics department at the University of Icelandhas him pegged as a B-minus student. As a group, the IndependenceParty’s leaders have a reputation for not knowing much about financeand for refusing to avail themselves of experts who do. An Icelandicprofessor at the London School of Economics named Jon Danielsson, whospecializes in financial panics, has had his offer to help spurned; sohave several well-known financial economists at the University ofIceland. Even the advice of really smart central bankers from seriouslybig countries went ignored. It’s not hard to see why the IndependenceParty and its prime minister fail to appeal to Icelandic women: theyare the guy driving his family around in search of some familiarlandmark and refusing, over his wife’s complaints, to stop and askdirections. “Why is Vanity Fair interested in Iceland?” he asks as hestrides into the room, with the force and authority of the leader of amuch larger nation. And it’s a good question. As it turns out, he’s not actually stupid, but political leadersseldom are, no matter how much the people who elected them insist thatit must be so. He does indeed say things that could not possibly betrue, but they are only the sorts of fibs that prime ministers arehired to tell. He claims that the krona is once again an essentiallystable currency, for instance, when the truth is it doesn’t currentlytrade in international markets—it is assigned an arbitrary value by thegovernment for select purposes. Icelanders abroad have already figuredout not to use their Visa cards, for fear of being charged the realexchange rate, whatever that might be. The prime minister would like me to believe that he saw Iceland’sfinancial crisis taking shape but could do little about it. (“We couldnot say publicly our fears about the banks, because you create the verything you are seeking to avoid: a panic.”) By implication it was notpoliticians like him but financiers who were to blame. On some levelthe people agree: the guy who ran the Baugur investment group hadsnowballs chucked at him as he dashed from the 101 Hotel, which hiswife owns, to his limo; the guy who ran Kaupthing Bank turned up at theNational Theater and, as he took his seat, was booed. But, for the mostpart, the big shots have fled Iceland for London, or are lying low,leaving the poor prime minister to shoulder the blame and face theangry demonstrators, led by folksinging activist Hordur Torfason, whoassemble every weekend outside Parliament. Haarde has his story, andhe’s sticking to it: foreigners entrusted their capital to Iceland, andIceland put it to good use, but then, last September 15, LehmanBrothers failed and foreigners panicked and demanded their capitalback. Iceland was ruined not by its own recklessness but by a globaltsunami. The problem with this story is that it fails to explain whythe tsunami struck Iceland, as opposed to, say, Tonga. But I didn’t come to Iceland to argue. I came to understand. “There’s something I really want to ask you,” I say. “Yes?” “Is it true that you’ve been telling people that it’s time to stop banking and go fishing?” A great line, I thought. Succinct, true, and to the point. But I’dheard about it thirdhand, from a New York hedge-fund manager. The primeminister fixes me with a self-consciously stern gaze. “That’s a grossexaggeration,” he says. “I thought it made sense,” I say uneasily. “I never said that!” Obviously, I’ve hit some kind of nerve, but which kind I cannottell. Is he worried that to have said such a thing would make him seema fool? Or does he still think that fishing, as a profession, issomehow less dignified than banking? At length, I return to the hotel to find,for the first time in four nights, no empty champagne bottles outsidemy neighbors’ door. The Icelandic couple whom I had envisioned as beingon one last blowout have packed and gone home. For four nights I haveendured their Orc shrieks from the other side of the hotel wall; nowall is silent. It’s now possible to curl up in bed with “The EconomicTheory of a Common-Property Resource: The Fishery.” One way or another,the wealth in Iceland comes from the fish, and if you want tounderstand what Icelanders did with their money you had betterunderstand how they came into it in the first place. The brilliant paper was written back in 1954 by H. Scott Gordon, aUniversity of Indiana economist. It describes the plight of thefisherman—and seeks to explain “why fishermen are not wealthy, despitethe fact that fishery resources of the sea are the richest and mostindestructible available to man.” The problem is that, because the fishare everybody’s property, they are nobody’s property. Anyone can catchas many fish as they like, so they fish right up to the point wherefishing becomes unprofitable—for everybody. “There is in the spirit ofevery fisherman the hope of the ‘lucky catch,’” wrote Gordon. “As thosewho know fishermen well have often testified, they are gamblers andincurably optimistic.” Fishermen, in other words, are a lot like American investmentbankers. Their overconfidence leads them to impoverish not justthemselves but also their fishing grounds. Simply limiting the numberof fish caught won’t solve the problem; it will just heighten thecompetition for the fish and drive down profits. The goal isn’t to getfishermen to overspend on more nets or bigger boats. The goal is tocatch the maximum number of fish with minimum effort. To attain it, youneed government intervention. This insight is what led Iceland to go from being one of the poorestcountries in Europe circa 1900 to being one of the richest circa 2000.Iceland’s big change began in the early 1970s, after a couple of yearswhen the fish catch was terrible. The best fishermen returned for asecond year in a row without their usual haul of cod and haddock, sothe Icelandic government took radical action: they privatized the fish.Each fisherman was assigned a quota, based roughly on his historicalcatches. If you were a big-time Icelandic fisherman you got this pieceof paper that entitled you to, say, 1 percent of the total catchallowed to be pulled from Iceland’s waters that season. Before eachseason the scientists at the Marine Research Institute would determinethe total number of cod or haddock that could be caught withoutdamaging the long-term health of the fish population; from year toyear, the numbers of fish you could catch changed. But your percentageof the annual haul was fixed, and this piece of paper entitled you toit in perpetuity. Even better, if you didn’t want to fish you could sell your quota tosomeone who did. The quotas thus drifted into the hands of the peopleto whom they were of the greatest value, the best fishermen, who couldextract the fish from the sea with maximum efficiency. You could alsotake your quota to the bank and borrow against it, and the bank had notrouble assigning a dollar value to your share of the cod pulled,without competition, from the richest cod-fishing grounds on earth. Thefish had not only been privatized, they had been securitized. It was horribly unfair: a publicresource—all the fish in the Icelandic sea—was simply turned over to ahandful of lucky Icelanders. Overnight, Iceland had its firstbillionaires, and they were all fishermen. But as social policy it wasingenious: in a single stroke the fish became a source of real,sustainable wealth rather than shaky sustenance. Fewer people werespending less effort catching more or less precisely the right numberof fish to maximize the long-term value of Iceland’s fishing grounds.The new wealth transformed Iceland—and turned it from the backwater ithad been for 1,100 years to the place that spawned Björk. If Icelandhas become famous for its musicians it’s because Icelanders now havetime to play music, and much else. Iceland’s youth are paid to studyabroad, for instance, and encouraged to cultivate themselves in allsorts of interesting ways. Since its fishing policy transformedIceland, the place has become, in effect, a machine for turning codinto Ph.D.’s. But this, of course, creates a new problem: people with Ph.D.’sdon’t want to fish for a living. They need something else to do. And that something is probably not working in the industry thatexploits Iceland’s other main natural resource: energy. The waterfallsand boiling lava generate vast amounts of cheap power, but, unlike oil,it cannot be profitably exported. Iceland’s power is trapped inIceland, and if there is something poetic about the idea of trappedpower, there is also something prosaic in how the Icelanders have cometo terms with the problem. They asked themselves: What can we do thatother people will pay money for that requires huge amounts of power?The answer was: smelt aluminum. Notice that no one asked, What might Icelanders want to do? Or even:What

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Kasriel – Paradox Squared.pdf

Chart of the Day: 15 Worst Dow Corrections

Chart of the Day Poorretail sales, doubts about GM’s viability, and a clarification by theChinese government that they would not add to its current $585 billionstimulus plan as some had hoped yesterday all helped push the marketdown 4% on the day. As a result of today’s decline, the Dow closed at anew bear market low. The Dow is currently down 53.4% since peaking inOctober 2007. To put the magnitude of the current correction inperspective, today’s chart illustrates the 15 worst corrections of theDow since its inception in 1896. As today’s chart illustrates, thecurrent Dow correction already ranks as the second worst on record.Only the correction that began in 1929 was worse.

McKinsey: When job seekers invade Facebook

http://www.mckinseyquarterly.com/Organization/Talent/When_job_seekers_invade_Facebook_2317 When job seekers invade Facebook Theincreasing popularity of online social networking is changing not onlythe way people manage their careers but social networking itself. MARCH 2009 • Soumitra Dutta and Matthew Fraser This short essay is a Conversation Starter, one in a series ofinvited opinions on topical issues. Read what the authors have to say,then let us know what you think. As the downturn continues, millions ofcorporate managers—gripped by the job jitters—are rushing to joinonline social networks in a scramble to build their social capital. Thepopularity of sites such as LinkedIn is soaring: less than a year agothe site had little brand profile and was seen mostly as a venue forcorporate suits trolling for professional contacts while plotting theirnext career move. Facebook, by contrast, has largely attractedindividuals seeking a compelling site for fun social networking. Today LinkedIn’s year-on-year growth is up nearly 200 percent in theUnited States and it now has more than 35 million members—many of whomwere formerly employed within the hard-hit financial sector. And it’sjust one of the many sites to which recession-struck managers areflocking: Xing (based in Germany), with its 7 million members andspecial Lehman Brothers alumni section, and Meet the Boss (based in theUnited Kingdom), which restricts membership to C-level financial types,are also experiencing burgeoning membership levels. This surging popularity of online social networking is transforming thenature of business networking, with profound implications for the waybusiness people manage their careers. But it also augurs profoundchange for social networking itself. With so many people stampeding into Web-based social networks, the linebetween social and business networking is becoming increasinglyblurred. An important question is whether the values and codes ofconduct specific to the virtual world will come into conflict withreal-world values and norms. Facebook, where the idea of a “friend” isdirectly embedded in the interface, is increasingly cluttered withself-promoters, career artists, and marketing entrepreneurs. Whathappens as this trend intensifies and those using Facebook exclusivelyfor career networking invade? There are, of course, powerful economic reasons behind the trend. As sociologist Nan Lin puts it in his book, Social Capital,1“Individuals engage in interactions and networking in order to produceprofits.” These profits are based upon information, influence, socialcredentials, and recognition. The accumulated social capital,meanwhile, helps individuals to gain competitive advantages in thelabor market as a result of privileged access to “resources” located onthe social networks. Still, for many there’s nothing more irritating than when a new“friend” contacts you almost immediately with an inappropriate requestfor a favor. Generally, it’s more advisable to approach socialnetworking as a giver, not a taker, and gradually build relationshipsaccording to reciprocated favors. Overall, online social networking,with its support groups and trusted access, is governed by a culture ofsharing, not selling. And can the throngs of interlopers really be considered friends?Anthropologists tell us that it’s impossible to maintain stable socialrelationships with more than 150 people. Maintaining a professionalnetwork of more than 150 looser connections on LinkedIn might beplausible, but it would strain the richer social relations that make upthe fabric of sites such as Facebook. Among Facebook’s 175 millionmembers, the instances of “defriending” are already growing. It’s a safe bet that if the economic downturn grinds on, we willwitness further conflict between the nonrational instinct to connectsocially and the rational calculation to build social capital forprofessional reasons. If so, it may put further strain on the notion ofan online friend. We may find ourselves asking more frequently thatage-old question, “What are friends for?”