Iceland: "Voices of caution ... were drowned out"

Iceland: What It's Like to Live in a World Without Money

Excerpts:

There is no daytime TV in Iceland. Parents are at work and children at school, so the test card, that feature of a bygone age, is the only thing aired. For the transmitters to be switched on in mid-afternoon and a sombre-looking Geir Haarde, the prime minister, to appear behind a desk, a national flag at his side, it had to be serious – and it was. The country was on the verge of bankruptcy; the government was taking control of the banks and was going to assume far-reaching powers to secure the safety of the nation and its savers.

As I watched, I felt a detached sympathy for those poor people living on a blighted island – until it dawned on me that I was one of them. Recent events had savaged my net worth by 60 per cent and pushed up my cost of living by more than 20 per cent. Iceland’s plight was mine, too. What I failed to appreciate at the time was the emotion of this unprecedented television address, particularly in the way it finished:

“Fellow countrymen ... If there was ever a time when the Icelandic nation needed to stand together and show fortitude in the face of adversity, then this is the moment. I urge you all to guard that which is most important in the life of every one of us, to protect those values which will survive the storm now beginning. I urge families to talk together and not to allow anxiety to get the upper hand, even though the outlook is grim for many. We need to explain to our children that the world is not on the edge of a precipice, and we all need to find an inner courage to look to the future ... Thus with Icelandic optimism, fortitude and solidarity as weapons, we will ride out the storm.

...

Picture a pig trying to balance on a mouse’s back and you’ll get some idea of the scale of the problem. In a mere seven years since bank deregulation and privatisation, Iceland’s financial institutions had managed to rack up $75bn of foreign debt. In his address to the nation, Haarde put the problem in perspective by referring to the $700bn financial rescue package in America: “The huge measures introduced by the US authorities to rescue their banking system represent just under 5 per cent of the US GDP. The total economic debt of the Icelandic banks, however, is many times the GDP of Iceland.”

And here is the nub. Iceland’s banks borrowed more than $250,000 for every man, woman and child in Iceland, and placed an impossible burden on the modest reserves of the central bank in the event of default. And default they have.

Voices of caution – there were many in Iceland – were drowned out by a media that became fixated on the nation’s emergence from drab pupa to gaudy butterfly

Comment: Iceland today could be the US in a decade!