Iceland bankrupt
(posted by Angelica)
It was just a last week when I had to correct a South African fellow who smugly opined that Europe is not getting swept up in the finance mess because European did not borrow as much as Americans. Nuh-uh, I said, the European bank, they’re going down. They are?, he said with a questioning tone. Since it is unfortunately impossible to hyperlink IRL conversations, I let it go at that.
Well, dang.
It looks like Iceland is having the banking crisis on speed. It looks like they’re going to have to depend on a loan from the Russians, and there are some reports on the ground of citizens stocking up on groceries.
This article from the Telegraph is perhaps the most cutting in its description of the crisis:
The dramatic change in Iceland, from the poor relation of Europe to one of its wealthiest and apparently most successful, and now back again, dates from the mid-1990s with the privatisation of the banks and the founding of the country’s Stock Exchange.
The free market reforms unleashed a new generation of thrusting, young businessmen, many of whom picked up their banking trade in the United States. They were determined that their country would no longer have to rely on fishing for its principal source of wealth; they loathed the international perception of Iceland as a parochial nation of farmers and fishermen who could not hold their own on the world business stage.
Of course, it’s not just Iceland. As this chart shows, plenty of banks in Europe have assets of close to or above the GDP of their home countries. Too big to fail and too big to bail?
Tags: economics, financial crisis
October 7th, 2008 at 3:25 pm
It was less than a year ago that I was looking at CDs denominated in international currency, and noted that 3-month CDs denominated in ISK had a 20% APR yield.
And they were FDIC-insured. Of course, they weren’t insured against currency risk. You were just guaranteed to get your krona back … which has dropped 80% vs. the Euro over the past year.
I’m glad I didn’t make that investment. (Not that my stock index funds have done well over the past year.)
October 7th, 2008 at 3:27 pm
On the other hand, the collapse of the krona might make it a good time to visit Iceland, which has historically been a very expensive place to vacation.
October 7th, 2008 at 7:55 pm
Zowie! 20 percent? That’s a clue right there that something was very much the matter with Iceland.
October 10th, 2008 at 12:19 am
For years the Icelandic people want the American NATO base to go away. It finally did about 2 years ago. I know times are bad everywhere, but losing American rent on that base was a large blow to their economy and security.