Tantamount to financial terrorism

You sport a huge beard and a towel on your head and in the name of Allah you try to bring down the computer infrastructure on which the world depends. You are, in contemporary argot, a ‘cyber-terrorist’. You wear a button-down shirt and chinos, and in the name of turning a profit you deliberately set out to wreck a pillar of the financial system, or a country’s economy. In this case you are, it appears, a ‘market manipulator’. Can you spot the difference? Aside from motive, little separates the two: one wants to create a global caliphate, the other to make billions, but neither employs violence and both are indifferent to the chaos they cause. Is it time for hedge-fund managers to be subjected to extreme rendition from their Mayfair offices? Alas probably not, but the case for some equally firm application of justice is compelling.

Take the Icelandic crisis earlier this month. The frozen island in the north Atlantic undoubtedly has a puzzling economy. Once almost entirely based on fish, it has been enjoying a boom that brought with it a high current-account deficit and high inflation; and Iceland must surely lead the world in Range Rovers per capita. Its three leading banks are famous for their aggressive expansion and relatively heavy reliance on market funding rather than retail deposits — something superficially reminiscent of the dreaded Northern Rock. The banks’ assets are a vast eight times Iceland’s GDP, yet they are in some respects conservative, apparently avoiding, for example, the dodgy debt instruments that have caused so much trouble elsewhere. The overall picture has the elliptical and sometimes gnomic quality of the lyrics of that most famous of modern Icelandic exports, Björk.

Such obscurity provides the perfect grounds for market manipulation in tandem with short selling. For the uninitiated, this phenomenon allows institutions to take negative positions on stocks or currency; the more they fall, the more you profit.