Things have been happening pretty fast here in Iceland. Without much warning we are in the middle of a financial meltdown. Unfortunately this makes an impact on every living person in the country.
Some say it is the big spenders that went abroad and invested with cheap loans from Japan and other places. That would be the cheap solution to explain how things developed.
The financial situation in Iceland for the last years
For the past years Icelandic politicians have been holding on to the Icelandic krona and staying out of the EU at all cost. In fact you can say there are two currencies here. The krona and the price insured krona that is the basis for long time loans.
With three privately owned and strong banks doing business in our neighbouring countries the central bank was getting pretty small in comparison.
Not many years ago the banks started loaning for real estates with loans made out of other more stable currencies.
Giving talks about the Euro or the EU the “silent treatment” has resulted in a weak currency that has no hope in the hurricane hitting the world financial system.
The central bank has used high rates to fight inflation with little success. Financial speculators have been using that fact to take their place against the krona.
The meltdown starts
The events started when Glitnir bank asked the central bank for a short-term loan. The governor of the central bank advised the Icelandic government to take over the bank. This happened pretty fast and caused a chain reaction that is still going on. In hindsight they probably had a lot more time to think things through to lessen the damage that followed.
Unfortunately the governor of the central bank, David Oddsson, was a prime minister for 13 years and therefor highly political. His advice has been heavily criticized by many economists. The damage following his advice is staggering and runs in the hundreds of billions IKR.
No other civilized nation would consider having a former prime minister as a governor of the central bank.
The emergency law
The government issued an emerency law to be able to take over any financial institution without delay.
Soon after the second bank was overtaken. This time Landsbankinn.
David Oddsson had a live interview in the national TV where he blamed everybody but himself and explained that Iceland would not pay their debt in other countries.
UK prime minister Gordon Brown got furious and used British law against terrorism against Iceland interest in UK.
This made the last remaining and biggest bank, Kaupthing, unable to continue and the bank was overtaken by the government.
The future
What these past events mean for the average person in Iceland is yet to be seen. A lot of bankers are loosing their jobs and other workers also.
I just hope that some of the assets can be saved and that people don’t start loosing their homes. The worst that could happen is families taking off and moving to other countries, looking for more stability and better income.
Like many others, what happens to me and my wife and family is uncertain. The good thing for us is that our income comes from the web and is in US dollars.