Few places are talking about how Iceland went belly up and bankrupt in late October 2008. The tiny country seemed stable (No. 1 in the United Nations’ 2008 Human Development Index) and well-to-do. And yet, when the financial crisis hit, the country fell apart. Its currency (the krona) is kaput, its debt is 850 percent of G.D.P., its people are hoarding food and cash and blowing up their new Range Rovers for the insurance—resulting from a collective madness.
Michael Lewis investigates how a tiny fishing country in 2003 decided to chart a coarse to become a world financial power and in the process turned the country into nothing more than a hedge fund.
Global financial ambition turned out to have a downside. When their three brand-new global-size banks collapsed, last October, Iceland’s 300,000 citizens found that they bore some kind of responsibility for $100 billion of banking losses—which works out to roughly $330,000 for every Icelandic man, woman, and child. On top of that they had tens of billions of dollars in personal losses from their own bizarre private foreign-currency speculations, and even more from the 85 percent collapse in the Icelandic stock market. The exact dollar amount of Iceland’s financial hole was essentially unknowable, as it depended on the value of the generally stable Icelandic krona, which had also crashed and was removed from the market by the Icelandic government. But it was a lot.
Iceland instantly became the only nation on earth that Americans could point to and say, “Well, at least we didn’t do that.” In the end, Icelanders amassed debts amounting to 850 percent of their G.D.P. (The debt-drowned United States has reached just 350 percent.) As absurdly big and important as Wall Street became in the U.S. economy, it never grew so large that the rest of the population could not, in a pinch, bail it out. Any one of the three Icelandic banks suffered losses too large for the nation to bear; taken together they were so ridiculously out of proportion that, within weeks of the collapse, a third of the population told pollsters that they were considering emigration.
In just three or four years an entirely new way of economic life had been grafted onto the side of this stable, collectivist society, and the graft had overwhelmed the host. “It was just a group of young kids,” said the man from the I.M.F. “In this egalitarian society, they came in, dressed in black, and started doing business.”