It is hard to know how – or indeed, if – to respond to some of the comments that have been written on this blog over the last couple of days.
Some readers and commenters are adamant that Iceland is already bankrupt, or that bankruptcy is inevitable. I do not know what sort of information those people are privy to, or how they arrive at that conclusion, but if that is the case then that’s just one more thing we – the regular people who make up this nation – will have to accept. We’ve been told that this is not the case, and being someone who resides outside the scope of economic and fiscal management and consequently does not understand its intricacies, I have to choose to believe that’s true. Because the fact is that there’s a lot of conflicting information floating around these days and it’s come down to choice – that is, if one wants to get through this with one’s mental health somewhat intact. You can choose to buy into the fearmongering and doomsday predictions, or you can try to shut it off and just get on with the business of day-to-day living in a world where nothing is the same as it was just three days ago.
As most of you who are regular readers know, this is not a propaganda blog. I am not here to provide spin for the Icelandic government or any particular individual or to defend anyone’s actions. Normally I just write about my boring life and silly Icelandic customs and inane googlies. However, suddenly I find myself thrust into the midst of a storm that I – like thousands of other Icelanders – am trying to make sense of. And writing about it here in some convoluted way helps me make sense of it. It does not make me an authority. It makes me someone who likes to blog about what is happening around me.
In reading some of the comments to the last post, you’d think I and all of my fellow Icelanders were personally responsible for the way things are unfolding here. To wit:
I must say I do not have much sympathy for Iceland’s predicament … Icelandic people should have been more vigilant and demanded better economic policies from their government.
How many people, anywhere in the world, who are not specifically educated in economics or business, are perpetually vigilant enough to demand better economic policies from their governments? “Icelandic people” in most cases are people who are getting up in the morning, rushing to get their kids off to school, going to work until 5 pm, taxiing their kids to soccer practice or music lessons or whathaveyou, rushing to the supermarket for something to eat, getting the kids to bed, and falling into bed exhausted themselves not much later. Those are the “Icelandic people” I know. They are people who have to trust their politicians or people who are running their institutions to do their jobs properly because they’ve got their hands full with other things. Sadly for us, our institutions and politicians failed. There were some people who rang the alarm bells, but the people who should have heard them were not listening. And yes, we now have to suck it up and pay – just to what extent still remains to be seen. And it’s hard as hell because some of us probably won’t have jobs any more.
Another commenter seems to think that we the “Icelandic people” have been having one long extended party over the last few years and it is now time to “pay the piper”. To wit:
The Icelandic government has appeared hapless, disorganized and in way over its head. Private banks with 10x liabilities of GDP? How can a democratically elected government allow such a thing to occur? Hint – the Icelandic people allowed it, not a few speculators were the cause but the Icelandic nation as a whole who benefited for years from the “nordic tiger”.
Believe it or not, most citizens of this country have not been drinking Champagne for breakfast or eating caviar for lunch. The wealth that has poured into this country in the past few years, among other things through the banking system, has by and large not wound up in the pockets of regular Icelanders. The normal citizens of this country are people like EPI and myself who work hard to make ends meet, who have mortgages and orthodontists’ bills and have to pay tuition for our kids. Yes, we would have liked to buy a bigger home – you could even argue that we ‘need’ a bigger home – but we haven’t, because frankly we can’t afford it. We do have two cars – neither one is a SUV, mine is ten years old, EPI’s is 11 years old. Those two cars are regularly used by four people – our two daughters, as well as ourselves. We have not been wallowing in cash by any stretch of the imagination. We work hard for everything we get.
Saying that we the “Icelandic people” deserved what we had coming because we were not vigilant enough to monitor what our government was doing or because we were having so much fun benefitting from the “nordic tiger” is ridiculous. It would be sort of like saying that everyone in Britain deserved the July 7 bomb attacks because Tony Blair decided to invade Iraq along with George Bush. Absurd.
I’m aware that emotions are running high right now. A lot of things are being done and said, people are jumping to assumptions and conclusions and undoubtedly making bloody stupid decisions and mistakes. People in the UK are angry at Icelandic banks and entrepreneurs and, believe me, people here are angry, too. Very angry. Very angry and very scared. The sort of schadenfreude I have observed in the comments box here on this blog and on message boards worldwide is extremely demoralizing for the regular citizens of this country who live normal lives just like people everywhere else in the world. I’ve truly wondered whether it is worth continuing here simply because it might have an adverse effect on my sanity. Like everything else these days, it’s something that has to be considered and reconsidered on a moment-to-moment basis, like whether or not to turn on the news.
I plan to leave comments open for the time being, but if they become too distressing, I will close them. I hope you understand.
{ 57 comments… read them below or add one }
my heart goes out to you alda , and all the icelandic people. be strong, you will survive. the whole world is in economic turmoil and we all have to hold on. i wish i could be there right now, but like alot of people, i am tapped out and praying for a minor miracle.
austin, texas
ps. Bush is a punk-ass chump
Saell! takk fyrir! its hard to get english blogs/news from my favorite “rock” esp. now, in times where everybody is talking about iceland, but have now clue how it is to stand in “bonus”, akureyri and wonder if the svid will be more expensive in 2 hours … anyway, all the best!
bless bless, daniel
Once again well said Alda. I think you are right when you say that this comes down on those who deserve it the least. That is the tragedy of the situation.
Being an Icelander that has lived in the US for the past 12 years, I can see things from both sides. I cant say that the average Icelandic consumer is a completely innocent bystander here. I do think a lot of people put their blinders on and kept on with their spending and buying stocks and shares in something of a “bjartsýniskast”. I also think that consumption is the national sport of Iceland and that things have been out of control for a while. I also know from reading the news for the past 12 months, that there have been a lot of warning signs out there that the Icelandic nation as a whole ignored. But as is almost always the case the people who behaved are also severly affected and that is incredibly sad.
As you bring up the issue of July 7th, I must tell you that I have been thinking about it today how on the days following September 11th 2001 I was bombarded with emails from back home about how the US foreign policy led to the events of 9.11 and how that felt at the time. Although I shared the same sentiment before and then some time after, it took a while for me to get there again and get over the shock. So on that note, although I do agree with some of the criticism in the previous comments, I would also like to say (and I hope everyone this concerns read this) that a little bit of tactfulness and sensitivity goes a long way and that sometimes its best to keep your thoughts to yourself even if your point of view is “right” which is all relative anyway.
Hang in there Alda. Þetta reddast
Í alvöru.
Very. Well. Said!
I’m very sorry for the negativity and speculative remarks. I have really appreciated your posts on this matter. As someone who doesn’t fully understand the intricacies, they have helped me understand generally what is going on, and I sincerely appreciate that.
For what it’s worth – and certainly not to justify personal insults or attacks on the people of Iceland – a lot of emotions seem to be running high among people due to the anxiety, fear and uncertainty of their economic situations. We’ve seen a lot of that here in the US – people pointing fingers and placing blame. While it may be warranted to an extent (for instance, because it’s an election year here), the best thing would seem to be for people to look forward and figure out how we can move on and solve this mess, as hokey as that might sound (and I realize that there must be an understanding of what lead to the crisis to figure out how to avoid it in the future), without the personal accusations and insults.
I really enjoy your blog and have been checking in for updates on the financial crisis even though it is not your normal blogging subject. It is great to get a ‘normal’ persons perspective. Hope things come out in the wash but I think we are all in the same boat. A lot of banks are on shaky ground unfortunately.
Hi Alda (and RK)
As an Icelander living abroad, I kind of agree with both of you. I understand Alda point, because I also know lot of good solid Icelandic people like she describes. But I also understand RK point because I also know Icelanders that were impressed with the “economic adventure” and happily participated. But the bottom line is, both groups are suffering today, they are scared about the future, and many of them are angry (maybe not least at them self for having believed).
Many people will be losing their financial security, but that’s “just” money. Families will break up, lives might be lost, nation self esteem is destroyed, etc. The Icelandic nation is paying a very very very high price for the last few years, no one should be in any doubt about that. My thoughts are with the Icelandic nation, megi allir góðir vættir vaka yfir þjóðinni á þessum erfiðu tímum.
Baráttukveðjur til allra Íslendinga
Ása
Ps. Alda, getur verið að þú hafir í den unnið í sumarvinnu við að selja útlendingum lopapeysur og minjagripi í Álafoss búðinni á Vesturgötu?
Please don´t stop Alda. I really enjoy your “reporting” of the facts as you and I see them without the apocalyptic tone of the local media (and the foreign media for that matter). I think the uncertainty and apprehension of the current state of affairs is worse then the actual sting of bankruptcy, if that is indeed what we are facing here. I say, Bring it on and let´s get on with it.
When it´s all said and done, we will all have learnt our lessons and I would like to point out to your fingerpointing American readers that this has all happened because of their perfect capitalist model gone wild. That sort of arrogance is exactly what happened here in Iceland with people who thought we were untouchable, thinking our credit lines (the US and UK) were strong enough to keep this going longer. We will all have hard times, although ours will start earlier then most.
But I shutter to think what will become of the working poor in the US who have been screwed by Bush and co. for so many years before the crisis. We, the Icelandic people, will take care of our own!
Hæ Alda,
Takk fyrir bloggið eins og alltaf. Vona að allt gangi vel hjá ykkur Ella.
Alda, I have to admit that I have not been reading the comments on your financial posts. In fact, I’ve kind of skimmed the posts themselves, knowing very little of the Icelandic economy. However, it’s pretty obvious that many nations’ ;markets (not least the USA’s) are in a world of hurt, and that the blame can’t be laid in one particular place. It’s been a combination of a lot of bad decisions by governments, businesses, and individuals. It stands to reason that it will be even harder on a small nation, just as a small business has a tougher time in a downswing than a large corporation. There are just fewer resources to draw on.
I suppose this comment should have a point, which I guess is that I understand where you’re coming from–as a citizen, not an economist or politician.
I spent the last 2 days trying to make sense of everything. Iceland – a country that most Britons know little about – is now the most unpopular country on the planet for many people here. Relations on a governmental level have also hit an all time low. As far as I can see the Icelandic government told the British government that it had no intention of paying out on the compensation scheme. Now all the assets of Icelandic banks in Britain have been seized – under anti-terrorism law!
Now I know that that the people of Iceland in general had no part in all that has happened, and are in fact victims of the situation. You will just have to ignore all the unpleasant comments at this present time. All the anger should subside once all these hundreds of thousands of British savers get their money back. But of course, many Icelanders have their money at risk too! Such as yourself.
A few days ago the BBC was interviewing people (on the street) in Iceland about the situation and one lady very forcibly said that it is the fault of just 20 people in Iceland. Would you agree with that?
Alda: I, for one, commend you for your excellent writings about the Nicelandic economy. When “those stupid people” make blanket remarks about a country, they should be taken with a grain of salt. As an old bumper sticker used to read, “Don’t let the turkeys get you down.”
P.S. to Digdug727:
Bush is not a punk-ass chump!! He is a viper and an A#0ne JACK-ass chimp. I don’t believe he even understands what’s going on. BTW I’m proud to be an American but I’m not proud of him!
With the advent of “Uncle Vladimir’s” sudden interest in Iceland’s welfare, the possibility of deeper ulterior causes for the crisis is always a possibility. The abandonment of Iceland by the U.S. government over the last few years has reached an inevitable tipping point. The lack of interest in and support of the USA’s traditional allies may well end up being the worst blunder (of many) by the Bush Administration.
I’m sorry for anybody’s distress, and I’m the last person to make a judgment about who deserves what. (Although, I am convinced that lack of vigilance and not demanding better in our last USA presidential election was the root cause of all of this.) As with most moments of change, there is always some good that will arise. I admire your attitude, Alda. Enjoy the moments.
While I am not one to write negative comments about the economic situation of Iceland, I must say that I was under the impression that Iceland was on the verge of bankruptcy too: to the people outside, who get news from AP (for instance, but there’s a similar article from the Wall Street Journal), we read in http://ap.google.com/article/ALeqM5hJdb2RwrEg_X8yNRHcVvn_OE9vKwD93LRO8O1 “Iceland teeters on the brink of bankruptcy”. We get our news where we can…
Well I hope you DO NOT stop this blog! I found it the other day while trying to find good, non-UK press, English-language news sources on what’s going on… and have to say yours is GREAT! Very well written and amazing that you’re Icelandic not English or American. So please, Keep it up! Takk fyrir!
I hope you aren’t deterred from blogging by commenters with a blame-the-victim mindset. Here in the US there are a lot of people blaming the hapless people who got suckered into bad mortgages, like they were going from bank to bank putting guns to loan officer’s heads and forcing them to make bad loans. There was much unfettered greed and wildly imaginative game-playing by minds I kinda wished had focused on something like curing cancer or coming up with alternative energies instead.
I can see where people would get upset by the situation but I hope you all weather the storm – Iceland is a wonderful unique nation whose people don’t need that crap.
I’m sure Bartur of Summerhouses would have something to say about the current predicament.
Perhaps Iceland’s banks banked on some ‘creative financing’ that was beyond their geographical practicalities. I love Iceland and wish her the best. But I doubt Iceland was ever in a position to play the same games as the more continental forces. I’m not saying you should close your gates and fish. But it doesn’t surprise me that Iceland is one of the first to be hit the hardest by this crisis.
Alda, please don’t stop writing. And let the ‘turkeys’ say what they will. Don’t censor them. Had you, we wouldn’t be having this discussion.
Hi, Alda
Thanks for your thoughts on this issue. I know it is a whirlwind of sometimes conflicting thoughts and emotions, and I am glad there is a good counter-voice to what is being said around the world; your perspective is important, even if you don’t have all the pieces of the puzzle – no one does.
I lived in Iceland for 5 years and my wife’s family is from up north – we are currently in the U.S. but still connected. I have written up a few thoughts of mine at http://www.real-iceland.com – it is undoubtedly more removed and hypothetical than your comments – I relied more on phone conversations with people in Iceland and what is being written in various publications – some of these publications are reputable (but not infallible), some are just wild speculation and should be corrected … but all of them are part of the discussion.
Keep doing what you can and don’t let yourself get burnt out.
I guess I don’t really have anything to add except to let you know that I’m reading every post (although not thoroughly understanding all the financial mumbo-jumbo) and am thinking of you and your family and everyone else in Iceland who’s been hit with this bombshell.
It sounds to me like your nation is handling the crisis a lot better than some nations (e.g., the one I live in) might (or will, when the shit hits the fan). That attitude of pulling together to get through a crisis is exactly what’s needed and from what you’ve said it sounds like that’s what Icelanders will do.
Anyway, don’t heed the trolls.
Alda,
Before the financial crisis your blog was a quirky and interesting take on Iceland and the Icelanders. Your current reporting of the crisis from a ‘normal person’ perspective is unique as the only other reports one can read are in the general media so thank you very much for what you have already written and I hope that you will go on with it. Bless,
Aidan
You have lots of support Alda, and we wish Iceland well !
I’ve read this post and would like to also point out something too. Not every post was in the same negative vein and critical of the Icelandic people. Far from it, I thought there was also plenty of post that really felt for Icelandic people and the very fact that people spent the time to post on your blog about the situation also shows that people do care about Iceland even if they want to lay the blame somewhere.
The fact is it really doesn’t matter who is to blame at this moment in time to anyone – in this country, in Iceland, in the US nor anywhere else in the world. What matters now is that its sorted out but whatever means and then you start looking for heads to roll. I’m not sure it helps anyone to point the finger at this stage – it doesn’t help anyone. At the end of the day I’m sure when you start thinking about it most people in the UK and US can probably think of a friend who has debt and is starting to feel the pinch now, because they made ill-advised financial decisions which over-stretched themselves because they didn’t think things would go bust.
Anyway, still saving for the next plane ticket over your way…
Agreed, bravo and well said, and thanks again for the continuous updates. Your blog has been excellent resource for getting a feel for what is going on over there.
In the UK press I’ve never seen so much coverage of Iceland, and the schadenfreude element of it is disappointing to say the least, but it appears that the UK business press, and much of the rest of the world, are trying to deflect blame by saying “Well hey, we might be in the poo, but look at Iceland, they were really stupid.”
I think that’s a little unfair, yes Iceland’s banks were running away with themselves, but so was every other bank in world. Iceland’s problem is obviously inescapably linked to its small GDP. This can be spun two ways: either we can bleat on about the insanity of “private banks with 10x liabilities of GDP” or we can point out that this actually only 85 billion EURO, and that covers both Landsbanki and Kaupthing.
I never thought I’d use the phrase “only” in that sense but these are crazy times. I mean only relative to the capitalization of the UK banks. RBS might “only” be trading at 126% of UK GDP but the difference is a staggering 434 billion EURO. And that’s only one bank!!! Perhaps we should take the plank out of our own eye! (
I have been saving to buy a flat for a while now, but with all this going on in the UK, I think I’d be mad to buy it here. I am actually giving serious consideration to buying one in Reykjavik instead. Obviously the currency makes it attractive right now, but there’s more to it than that. If the world does go bankrupt at least I’d still have an apartment in my favourite country in the world, and be enjoying armageddon with people who I suspect will weather it better than most!
Oops, c*cked up that link a bit, sorry Alda!
Alda,
There are many special and unique things about Iceland, and the Icelandic people. Being in a financial crisis is not one of them, and your country is not alone. So take heart, ignore the negative opinions, and write on through the storms! Your blog is enjoyed far and wide (I’m in Africa) and has brought me much pleasure in reading it over a couple of years.
Hi Alda et al. I have not been to your site for many months but felt I had to call in today. I am so sorry for you and the family that so called ‘fellow bloggers’ have taken to personal vitriol and bile.
Hazel and I have very fond memories of visits to Iceland and the smashing people we met in your beautiful country. They will still be there whatever else goes in the next weeks/months/years. Hang on to what matters.
Best wishes to you and them.
dave and hazel
Sorry Alda,
I was not trying to be a troll or put you/other Icelanders down. My OH is Icelandic and we both maintain very close ties with the family back in Iceland…and we certainly do not make light of their and other common Icelander’s hardships.
Most people may not know economics, but my Icelandic mom-in-law, who probably knows the least about high finance, knew that the house of cards had to crash at some point. Like you, she is not a big spender, but she will need to tighten her belt going forward.
I guess I find it difficult to understand how a a small country of 300,000 people, where the citizens can have so much of power to influence and shape public dialogue/policies…yet don’t do much about it.
May be this is just too much of a generalization…it is true that most Icelanders vote. But yet, I have rarely seen any public protests and I don’t think my OH’s family, friends, acquaintances have engaged in publicly organizing/protesting government policies…I compare that to my street corner here, in another western democracy, where we constantly have some group or the other protesting about something they care about. Or look to Thailand, where the common people (bless them) are fighting tear gas to protect their democracy and hold politicians accountable.
That is what I meant by saying the common people need to be vigilant…obviously, your elected representatives failed you, but in a democracy, everyone is accountable for what they allow their government to do, no?
Hello Alda
I can’t believe people can write such idiotic comments. It is fairly evident that most govts around the world have been extremely hapless with all of our money – and now we are all prob going to have to pay the price for it. In fact, facing a £500 billion bail-out here in the UK which is still a staggering £200 billion short is beyond shocking and inexcusable seeing as we are such a small country. It is the same everywhere because it is like a big house of multinational cards that has just collapsed – time to start again although I am personally not convinced that bailing out is a solution – that’s a bit like papering over a major chasm with tissue paper! We all need and deserve something a bit more clever than that. I wish you well. x
Hi Alda,
I’ve been reading your blog with interest for the last couple of years. Its always interesting and entertaining. I hope you keep it up, its brightened up several dark days for me.
With the financial crisis affecting so many small savers (as well as large companies), its no wonder emotions are running high. People will calm down, and reason will prevail, eventually.
Having visited Iceland, I found the people to be very hardworking, with many working two jobs to cope with the already high cost of living. Its clearly nonsense to blame the ordinary people, of any one country, for the collapse of the international financial system.
Please keep up the good work, and don’t let the naysayers grind you down.
Peter
PS: My comment related to your theme of your post not to any specific comment above!
Your blog has helped me to understand what’s going on. Keep writing.
Iceland’s economy is staggering under mounting foreign debt, rising inflation and a decline in its currency’s value.
Iceland’s net foreign debt as a percentage of GDP
2007 -107%
2008 -147% (Forecast)
2009 -151% (Forecast)
Inflation rate
2007: 5%
2008: 14%
Andrew, no, the government did most forcibly NOT say that Iceland won’t pay, and the people won’t get more than 10-15% of their money, it was the head director of our Central Bank. (and ex Prime Minister) The bloody blistering, ##%$#&@ idiot, hadn’t he gone and said this, the British gov most likely wouldn’t have invoked that terrorist law and forced the hand of our only remaining bank that had actually prepared for this crisis, to pay out every single penny of what the British people owned in the bank. Now, what bank in the whole world can do such a thing? This remaining bank (Kaupthing) has now succumbed, leaving me and the rest of Iceland, I’m sure, way more scared than yesterday.
Well said. I can only support your text – its usually the people in the streets, who pay for it. And thats the same everywhere.
A stock market boom in the mid-1990s supported the rapid growth of the country’s banking sector, which now dwarfs the rest of the economy with assets at nine times annual gross domestic product of $19 billion.
The newly wealthy banking sector provided financing for a number of business deals across Europe — Kaupthing alone has racked up debts of more than $5.25 billion in five years to help fund British deals.
When liquidity markets dried up around the world, they struggled to refinance those heavy debts.
Haarde said on Wednesday that the banking sector had “become too big” as he acknowledged that it will take the nation of just 320,000 people several years to recover from the crisis.
Hi Alda,
thank’s a lot for your excellent writing in this dark times.
Actually we are in Phase 5 of this Project:
Punishment of the Innocent
keep on writing !
p.s. i missed the wheater today
Hey Alda, thanks again you are a good spokesperson for us non elloquent average Icelanders… We´ll get through this, we always have. Chin up, the weekend will be with us soon.
Oh gosh, Alda. You don’t have to justify yourself to anyone. It’s happening in Iceland right now. It could be happening anywhere and everywhere and probably will, idc. I’ve stopped watching the news days ago so I commend you for keep abreast of this sorry mess.
Oh… and small country bashing is a popular sport – I know that from experience.
Love, and sorry I haven’t been around for a while.
o xxx
First of all, thank you for keeping this blog open. It is really interesting to hear about the situation from a personal level.
I wasnt very familiar with this situation until now, and there are certainly better qualified people to make sense of it. For me the most important law of economics is “If something cant go on for ever, it wont”. Simple, clear and easy to understand even if one is not an economist.
A budget deficit of 25% certainly can not go on for ever and neither can a 25% current account deficit, especially when you are a small country issueing your own currency.
And sorry but it has to be said, this crisis didnt come out of the blue. Even back in 2006 there were many warning voices:
the IMF
a report from the IHT
a report from an economic magazine
Now in 2007 there was an election in iceland. Was the current account deficit an issue in the elections? Wasn’t anybody concerned about this? What about the press? Did nobody pick this up? And if they did what happened? In every democracy, voters are usually concerned if the government is running up a big deficit, and a current account deficit is not much different. I would like to know what the Icelanders thought about this.
I dont want to sound smug about this, let alone criticise you. I just would like to understand how this could have happened. I think there are lessons to be learned for the future. Yes unfortunately it will be the people in the streets who pay for it. Again thanks for running this blog and I wish you all the best.
Hmm beginning to understand why the British government is just so upset about this. Its not about all the average British savers who may/may not loose money.
Turns out a large number of local councils followed government advice in investing their money in places where they thought they would get the best returns. Central government advised local authorities that Icelandic banks that they were AA rated so the local councils thought that their money was safe. So now, when theres the remotest possibility that they might loose tax payers money which is supposed to be for local services (eg road repair, waste removal, fire, policing etc etc) theres now a real political issue here about whether they will get their money back and whether the councils affected are going to have to raise local taxes to cover the cost. Kent County Council alone has £50million tied up in Icelandic Banks.
Of course people here want to blame it on Iceland rather than taking some level of the responsibility themselves… but like I said before theres little point in making accusations of fault at this late stage.
Thank you everyone for your wonderfully supportive comments. They really do mean a lot. This is a catastrophic situation and it can be really hard to keep one’s head above water. I’ve read them all, except those that I quickly see I can’t really deal with right now. I just have to apply a filter.
And just for the record – I am not a spokesperson for the Icelandic government or for the general population of Iceland. As for all the DIDN’T YOU SEE THIS COMING??? questions – once and for all: NO, I DID NOT SEE THIS COMING. Maybe it’s because I was blind or stupid or not paying attention, but honestly, I don’t even understand the term CURRENT ACCOUNT DEFICIT. As for whether anyone else saw this coming, I don’t know. Ask them.
Ása – já, nákvæmlega. Hæ!
Hi Alda!
) to another, this is not the worst thats ever happened. Considering what you`ve seen in the past, this economic thing is merely an inconvenience. Be well.
From one regular citizen ( well, OK, maybe slightly irregular,
Alda; Your blogging is much needed, love you for doing this. You all so have to explain to readers what kind of tool we have running the central bank
But now, from what I read on the web, we can thank the UK government for killing our last standing bank, Kaupthing. (In Icelandic, so someone please translate) http://eyjan.is/blog/2008/10/09/velti-misskilningur-breskra-radherra-kaupthingi-um-koll/
Dave,
In March 2006 there was a report by Danske bank which was very critical of Iceland’s financial policies. The Iceland Prime Mister publicly denounced the report, and then as far as I know, it was pretty much swept under the carpet. The report was prescient, some key findings (again this is in March 2006):
• On most measures, the small Icelandic economy is the most overheated in the OECD area. On top of the macro boom, there has been a stunning expansion of debt, leverage and risk-taking that is almost without precedents anywhere in the world. External debt is now nearly 300% of GDP, while short term external debt is just short of 55% of GDP. This is 133% of annual Icelandic export revenues.
• We look at early warning indicators for financial crises and conclude that Iceland looks worse on almost all measures than Thailand did before its crisis in 1997, and only moderately more healthy than Turkey before its 2001 crisis.
• Inflation linked mortgage debt stood at 165% of disposable income at end-2004.
• The cost of tapping into the global capital market is rising for the Icelandic banking sector. As they have substantial foreign-denominated debt falling due over the next 18 months, Icelandic banks are facing financial headwinds.
• Against this background, we see a substantial risk of a financial crisis developing as an integral part of an Icelandic recession in 2006-7. The banks funding squeeze will probably force them to reduce lending to domestic players and could force a sell-off of external assets.
http://danskeresearch.danskebank.com/link/FokusAndreIceland21032006/$file/GeyserCrises.pdf
Thank you for keeping this blog. There isn´t too much information available about the thoughts of “the common man” concerning the difficult times in Iceland. My sympathies are on your side.
This horror story of Iceland reminds me all too much of the depression in Scandinavia from 1991 onwards. Especially in Finland the downturn was devastating. Currency devalued by 30-40%, unemployment rate reaching 20%, countless bankrupties, foreclousers etc. BNP fell in two years over 10%. We called the predepression years casinoeconomy. With reason.
After deregulation in 1987 houseprices skyrocketed and people started to move assets from bankaccounts to stocks. There was a choice to be made.
Do you say yes to an offer from a bank to grant you a loan to buy stocks with no extra security. Or to take a huge loan in foreign currency with very attractive interest to buy a nicer a home. Many said yes.
And when the bubble bursted almost everybody suffered. Anyway to become a national crisis you need to have many participants. That is apparently the case also in Iceland in 2008.
So your fellow yes-citizens are clearly very quilty indeed for the outcome. But you don´t want to blame them as they are the ones who loose the most and often end up under water. Finland was lucky to have large enough economy to handle the mess, but that is not the case in Iceland. Finland was also positioned as one of the top three richest nation in the world (as was Iceland 2006), but would soon drop to be one of the poorest economies in Westeurope . I won´t dare to think how far Iceland is going to fall.
I can only hope you realise as soon as possible that after these 7 years you will be lucky to be back on track in the next 7 years, as in Finland.
But life goes on and I wish you all the best!
Of course nobody sees it coming, and those of us who do (i.e. we remember the last housing boom and how it and the yuppie era ended), aren’t necessarily in a position to get those in power/full of themselves to listen. I totally understand what you say, Alda, about being a regular person in a regular and well-run nation, assuming that the regular and well-run government is on top of things. The fact is that the financial market is international, global and extremely sensitive. The fact is, the US is so large and mighty and interconnected that its domestic problems affect other nations.
I was sad to read today that Kaupthing, too, is now under government administration and its Norwegian customers cannot make withdrawals. I will allow myself to be happy that I did not open an account with Kaupthing. By the time I started to seriously consider that, the bad press about Iceland’s economy had started so I held off. That is all. My faith in Iceland is not shaken. Any bank that has too much risky business is vulnerable right now. It doesn’t matter which nationality the bank is.
What’s really making matters worse, is the fear. The more people who panic – who make withdrawals weakening their banks or fear to sell or buy anything – the more things grind to a halt, increasing the lacks and even unemployment. And this is why president Franklin D. Roosevelt said in his first inaugural speech during the Great Depression, “the only thing we have to fear is fear itself.”
Thanks, Keera. Comforting words.
Alda, I’ve been reading your blog for some time and I sincerely hope that you didn’t take any of my comments as being rooted in a “blame the victim” mentality – my impression was that Icelanders were being spun a tale by their government, an all too familiar experience on this side of the Atlantic.
I find this sort of thing fascinating but now it’s tipped over into morbid fascination. Understanding what a current account deficit is (since I was an adolescent dork, as opposed to the middle aged dork I am now) hasn’t helped me much – in fact, I didn’t really grasp the full enormity of what was going on until I listened to This American Life’s explanation of the commercial paper market and credit default swaps. I was listening on the way home from work and the missus said I looked ashen when I walked in the door.
As for whether or not individual citizens are to blame, now is not the time and your blog is not the venue to be working through that question. There’s plenty of blame to go around, and when the people making decisions that affect billions of people are doing so in a way that makes it hard to know when to intervene, it’s a little too easy to fall back on hindsight and take your anger out on people who are not directly to blame.
Like you, we’ve been careful with our money. I can’t say that I’m enthusiastic about being left holding the bag, but what choice do we have?
Colin, your comment about governments spinning yarns has reminded me of one of the biggest differences between Europe (esp. the Nordic countries) and the US: The level of trust in their respective governments. Americans have historically been skeptical to big government and government involvement (and that is one reason for US skepticism towards nationalized healthcare) whereas in Europe, especially in the Nordic countries, it is the reverse. Europeans want their governments to take care of things and expect them to.