Iceland's winter of discontent

An in-depth feature retraces the tiny fishing nation's path to economic ruin

Between 2003 and 2006, the average Icelandic family’s net worth tripled. Over the same time span, the country’s banks went from holding a few billion dollars in assets to holding $140-billion worth. The value of Iceland’s stock market multiplied by nine times between 2003 and 2007. The good times seemed like they would last forever. But late last year, the tiny nation’s entire economy crumbled under the weight of crippling debt. Now, its currency, the krona, is all but guaranteed to be replaced by the euro and its once-mighty bankers have gone back to being fishermen. How did it happen? The short version: ” A handful of guys in Iceland, who had no experience of finance, were taking out tens of billions of dollars in short-term loans from abroad. They were then re-lending this money to themselves and their friends to buy assets‹the banks, soccer teams, etc. Since the entire world’s assets were rising–thanks in part to people like these Icelandic lunatics paying crazy prices for them–they appeared to be making money.” As it turns out, they weren’t making anything at all.

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