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“Demonstrators in front of Iceland’s parliament building, in Reykjavík’s Austurvollur Square, on January 31.”

Michael Lewis in Vanity Fair, Wall Street on the Tundra:

““Yes,” he says with a smile, “there’s been a lot of Range Rovers catching fire lately.” Then he explains. For the past few years, some large number of Icelanders engaged in the same disastrous speculation. With local interest rates at 15.5 percent and the krona rising, they decided the smart thing to do, when they wanted to buy something they couldn’t afford, was to borrow not kronur but yen and Swiss francs. They paid 3 percent interest on the yen and in the bargain made a bundle on the currency trade, as the krona kept rising. “The fishing guys pretty much discovered the trade and made it huge,” says Magnus. “But they made so much money on it that the financial stuff eventually overwhelmed the fish.” They made so much money on it that the trade spread from the fishing guys to their friends. It must have seemed like a no-brainer: buy these ever more valuable houses and cars with money you are, in effect, paid to borrow. But, in October, after the krona collapsed, the yen and Swiss francs they must repay are many times more expensive. Now many Icelanders—especially young Icelanders—own $500,000 houses with $1.5 million mortgages, and $35,000 Range Rovers with $100,000 in loans against them. To the Range Rover problem there are two immediate solutions. One is to put it on a boat, ship it to Europe, and try to sell it for a currency that still has value. The other is set it on fire and collect the insurance: Boom!”

Kristof Magnusson, “Inflation will pay!”:

“How did it come to this? The proverbial buck has already been passed round the ministerial departments and political parties – to varying degrees of amusement or dismay among the Icelandic population. But if you look deeper into Icelandic culture and history for reasons behind the current misery, you will find something that is familiar to all Europeans: the desire to be modern, to be one of the winners in the globalised world – paired with the inability to shed traditional behavioural patterns.”

(via)

Willem Buiter, Iceland’s bank defaults: lessons of a death foretold:

“Early in 2008, Anne Sibert and I were asked by the Icelandic bank Landsbanki (now in receivership) to write a paper on the causes of the financial problems faced by Iceland and its banks, and on the available policy options. We sent the paper to the bank towards the end of April 2008. On July 11, 2008, we presented a slightly updated version of the paper in Reykjavik in front of an audience of economists from the central bank, the ministry of finance the private sector the academic community. A link to that paper can be found here.

Because our Icelandic interlocutors considered the paper to be too market sensitive, we agreed not to put it in the public domain. Now that all three formerly internationally active Icelandic banks – Glitnir, Landsbanki and Kaupthing – have gone into receivership, there is no reason not to circulate the paper more widely, as some of its lessons have wider relevance.”

• Hot markets cool off fast in Iceland – Business – International Herald Tribune
  “This tiny windswept island nation of 300,000 people has undergone one of the fastest, fizziest economic transformations in the world in recent years – one that is on par with the expansion enjoyed by many of the world’s fastest-growing emerging markets.”
  (tags: iceland economics)
• quicksilver:plug-ins:flickr_upload [docs]
  “The plug-in provides support for uploading images or directories of images to flickr.”
  (tags: flickr quicksilver)