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Iceland, six years after the meltdown

Six years ago today, my bank, Glitnir, collapsed.

It was a regular Monday. EPI and I had just returned from a holiday abroad the night before, he had gone to work, and I was at home unpacking the suitcases. At around 9 am he called me and told me that Glitnir had gone bankrupt.

I was speechless. Having been abroad, I had no idea that anything was amiss [though we certainly had noticed that the Icelandic krona had been devaluing steadily while we were away]. Of course that was only the beginning of what was to come. Within days everything had spiralled out of control, the krona was in free-fall and Iceland’s other two commercial banks had also collapsed.

Suddenly the eyes of the world were on Iceland. The international media flocked here and variously reported that Iceland was a pariah state, or the canary in the coalmine of what was to come. Meanwhile, all was chaos in Icelandic society and those of us who lived here struggled to come to grips with what had happened, and what lay ahead. It was a scary, scary time.

HopelessnessSoon, though, it became apparent that the implosion that had taken place was not going to manifest instantly. Indeed, foreign reporters seemed perplexed to come here and see that life was more or less continuing as normal – there were no people throwing themselves out of windows in despair, or families in tattered clothes living in cardboard boxes on the streets. [I sometimes got the feeling that they were a little disappointed not to find more physical signs of the disaster – it didn’t exactly lend itself to visual representation in the media. That changed when the demonstrations started – but that’s another story.]

Those of us on the inside, meanwhile, knew that the disaster would be less a sudden implosion than a gradual, debilitating erosion that would only begin to show its true face in a few years’ time.

And that is where we are now.

This weekend I had a lengthy conversation with a friend of mine – one of several conversations I have had with people on the same topic in the past while. The stories are all more or less the same, only with a slight variation of circumstance. Her story is this: around ten years ago she bought a condominium in Reykjavík. [Most people in Iceland, incidentally, own their own flats. The rental market is both small and outrageously expensive.] She took out a mortgage from the state mortgage fund for ISK 16 million [around USD 132K]. Since then, she has been making payments religiously every month. Today, even though she has made regular payments and not remortgaged her home, she owes ISK 27 million [USD 223K].

Why? Because of the system of mortgage indexing. Here in Iceland, our mortgages are indexed to inflation, which means that when there is rampant inflation [which is the result of, say, a country’s economy melting down] the principal of our mortgage increases in tandem. And of course the interest just piles up on top of that.

Since the meltdown six years ago, everyone’s mortgage has gone up. People owe a lot more than they did when they started. It’s the same for us. EPI and I were very lucky in that we bought our home in 2002, just before the mortgage bubble started and property prices rose astronomically. That means we didn’t have to take out a very high mortgage compared to those who bought a few years later, but even so, it has increased by 50 percent from what it was 12 years ago – even though we have made our payment every single month since then.

For us it is manageable because the amount is relatively low [and there are two of us]. Not so for most other people. Take my friend, for instance. She is in her early sixties and has always been a vibrant and energetic woman with no financial issues. Then she had an accident that rendered her unable to work. Today she is on a disability pension. She is divorced, and her kids have moved out [her youngest lived with her until recently and helped with the mortgage]. Her payment is now so high that she struggles to make ends meet. She has tried to sell her apartment but so far has had no luck. By the time she has paid her mortgage each month she has ISK 50K [USD 413] left over on which to live.

She has sold her car and is trying to get a little extra in by renting out the parking space in a communal garage. She has also considered renting out rooms in her flat to help offset the costs. I asked whether she could rent out to tourists, through Air B’nB or some such outfit. No – there has recently been a crackdown on people doing that [at the behest of the association of hotels and guest houses who saw that regular folks were starting to get a substantial slice of their pie] and they now require people to apply for licences if they want to rent out. I asked whether she couldn’t just do that, then. No – because as soon as you have the licences, they raise your property taxes sixfold. So that would eat up all her profits and even drive her into the red. Meanwhile, regular property taxes have gone up anyway, as has everything else – food, gas, heating costs, etc. All except disability pension.

Again, this story is not unique. It is the norm. And it is so frustrating and infuriating that I could scream. My heart bleeds for all the people, like my friend, who have tried and tried and tried to do the right thing – to make their monthly mortgage payments, even though it means cutting down somewhere else: scrimping on food, or on buying their kids new shoes, or whatever. Because that is what the vast majority has done. Tried and tried, for the sake of their own pride and dignity. Meanwhile, if they want to take some initiative to help themselves, like renting out rooms in their homes, they are shot down before they even begin. People are THIS CLOSE to giving up. And many of them already have. Many have stopped making payments and declared bankruptcy with the resulting implications, and/or buggered off to Norway. And who can blame them? I can’t. But my heart really goes out to all the people who have struggled, and are struggling, to serve a horribly corrupt and unjust system that has absolutely no regard for their welfare.

Because after a while you really do wonder: what is the point? When your government consistently lies to you, staring you in the face and promising relief while at the same time blatantly shifting money from the poor to the rich, when Iceland is losing on average 66 doctors a year [in a country with a population of 320,000], when young people are opting to join the European Union one by one by leaving a country that offers them no future and moving abroad … it really is hard not to wonder: What is the point?

EPI met a man last Friday who owns a chain of shops here in Iceland and is consequently financially stable. Even he is horribly pessimistic. He cannot see how this country will go on, and predicts another collapse in another year or so.

Yeah. So that’s where we’re at, six years on. And no solution in sight, only more of the same.

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