The Fall Of Iceland

by dday

There may not be another nation in the world I have more of an interest in visiting than Iceland; friends have described it as an entire country run by young indie music fans. It’s very distressing to see them on the business end of this financial crisis.

Iceland is on the brink of collapse. Inflation and interest rates are raging upwards. The krona, Iceland’s currency, is in freefall and is rated just above those of Zimbabwe and Turkmenistan. One of the country’s three independent banks has been nationalised, another is asking customers for money, and the discredited government and officials from the central bank have been huddled behind closed doors for three days with still no sign of a plan. International banks won’t send any more money and supplies of foreign currency are running out.

People talk about whether a new emergency unity government is needed and if the EU would fast-track the country to membership. On Friday the queues at the banks were huge, as people moved savings into the most secure accounts. Yesterday people were buying up supplies of olive oil and pasta after a supermarket spokesman announced on Friday night that they had no means of paying the foreign currency advances needed to import more foodstuffs.

They bought up lots and lots of international credit in the late 1990s and now the debt is mounting and the currency is plummeting. And this is happening, albeit to a lesser degree, throughout Europe, suggesting that this is a global crisis which is moving in waves.

This is going to be a painful few years. Many more banks will fail, and the resultant fallout will leave a financial industry with bigger firms than ever, hardly eliminating the number of those that are “too big to fail.” The Treasury Department buyout of those toxic assets is going to be slow and unlikely to do anything but put a tourniquet on things, and this line is astonishing:

Even after working feverishly over the last two weeks, the Treasury will not buy its first distressed asset from a bank for roughly six weeks, and almost certainly not until after the Nov. 4 elections.

Good thing we rushed into action, then, and put together such an expansive authority.

This is the final reckoning of a corrupt bargain that deindustrialized this country (for the sake of world peace, so it was told to us) while maintaining our quality of life through borrowing. Ultimately we created a market for all that debt, magnifying the consequences exponentially when the financial industry could no longer cover its bets. This is drowning the entire world as they try to recoup their losses and make back some of the money from their American counterparts.

The deindustrialization legacy can be best seen right now from Reykjavik, walking through an empty aisle at the supermarket. The next half-decade will be a time to rebuild.

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