Iceland, the volcanic island near the Arctic Circle is claimed to be the first "national bankruptcy" of the global financial meltdown.
The credit crunch, banks have brought a whole nation to bankruptcy. It is those in power, and the central bank, who have not behaved how they should. Too many of the people in control there are not experts, but politicians interfering in the economy.
The government shut down the stock market and seized control of its last major independent bank on Thursday and revealed it had taken control of Landsbanki after the bank was forced into receivership. The whole board was sacked on the spot.
It was the government's first decisive move after passing a series of emergency laws on Monday night, giving it carte blanche to do whatever it would take to rescue its bloated banking sector. It is not just the banking sector that is suffering. Huge borrowing has fuelled inflation, now running at 14 per cent.
Iceland's once-strong currency, the krona, has plummeted in value. It brought trading in the country's currency to a halt, with foreign banks no longer willing to take Icelandic krona, even at fire-sale rates. Everything was closed and Icelanders couldn't sell their stock or take money from the bank.
The Prime Minister, Geir Haarde, even addressed the nation directly on Monday, assuring his 320,000 people that their savings would be guaranteed by the state.
The country's third-largest bank, Glitnir, was nationalized under emergency laws enacted to deal with the crisis last week. The overstretched firms were ordered to hand back some of the many foreign companies they had bought up.
Kaupthing, Iceland's largest bank and one of those whose share trading was suspended last week to stop a huge sell-off, has also invested in European retail groups. The bank has been lent €500m by the central bank.
The country's top four banks now hold foreign liabilities in excess of $100 billion, debts that dwarf Iceland's gross domestic product of $14 billion. Those external liabilities mean the private sector has had great difficulty financing its debts, such as the more than $5.25 billion racked up by Kaupthing in five years to help fund British deals.
Analysts said there was probably only one realistic option left: for Iceland to be bailed out by the International Monetary Fund.
"Iceland is bankrupt," said Arsaell Valfells, a professor at the University of Iceland. "The Icelandic krona is history. The IMF has to come and rescue us."
Political appointments in the banking sector and a hands-off approach by regulators created the conditions for a massive investment binge among Iceland's banks and companies, funded almost entirely by foreign borrowing.
Working with Icelandic entrepreneurs they made acquisitions across Europe including buying up major British high street names such as Hamleys, House of Fraser and Karen Millen.
They were acting more like a private equity fund than a country," said Lars Christensen, head of emerging markets research at Danske Bank, who has been predicting meltdown in Iceland since 2006.
"They made themselves the most exposed country when the credit crunch finally arrived.” So successful were they that the assets of the banks amounted to 10 times the country's GDP by the end of last year. But that made it vulnerable. When disaster struck, it was rapid.
Home to just 320,000 people on a territory the size of Kentucky, Iceland has formidable international reach because of an out sized banking sector that set out with Viking confidence to conquer swaths of the British economy — from fashion retailers to top soccer teams. It gave Icelanders one of the world's highest per capital incomes.
The average family's wealth soared 45 percent in half a decade and gross domestic product rose at around 5 percent a year and rated by the UN as the most developed society on earth.
The credit crunch, banks have brought a whole nation to bankruptcy. It is those in power, and the central bank, who have not behaved how they should. Too many of the people in control there are not experts, but politicians interfering in the economy.
The government shut down the stock market and seized control of its last major independent bank on Thursday and revealed it had taken control of Landsbanki after the bank was forced into receivership. The whole board was sacked on the spot.
It was the government's first decisive move after passing a series of emergency laws on Monday night, giving it carte blanche to do whatever it would take to rescue its bloated banking sector. It is not just the banking sector that is suffering. Huge borrowing has fuelled inflation, now running at 14 per cent.
Iceland's once-strong currency, the krona, has plummeted in value. It brought trading in the country's currency to a halt, with foreign banks no longer willing to take Icelandic krona, even at fire-sale rates. Everything was closed and Icelanders couldn't sell their stock or take money from the bank.
The Prime Minister, Geir Haarde, even addressed the nation directly on Monday, assuring his 320,000 people that their savings would be guaranteed by the state.
The country's third-largest bank, Glitnir, was nationalized under emergency laws enacted to deal with the crisis last week. The overstretched firms were ordered to hand back some of the many foreign companies they had bought up.
Kaupthing, Iceland's largest bank and one of those whose share trading was suspended last week to stop a huge sell-off, has also invested in European retail groups. The bank has been lent €500m by the central bank.
The country's top four banks now hold foreign liabilities in excess of $100 billion, debts that dwarf Iceland's gross domestic product of $14 billion. Those external liabilities mean the private sector has had great difficulty financing its debts, such as the more than $5.25 billion racked up by Kaupthing in five years to help fund British deals.
Analysts said there was probably only one realistic option left: for Iceland to be bailed out by the International Monetary Fund.
"Iceland is bankrupt," said Arsaell Valfells, a professor at the University of Iceland. "The Icelandic krona is history. The IMF has to come and rescue us."
Political appointments in the banking sector and a hands-off approach by regulators created the conditions for a massive investment binge among Iceland's banks and companies, funded almost entirely by foreign borrowing.
Working with Icelandic entrepreneurs they made acquisitions across Europe including buying up major British high street names such as Hamleys, House of Fraser and Karen Millen.
They were acting more like a private equity fund than a country," said Lars Christensen, head of emerging markets research at Danske Bank, who has been predicting meltdown in Iceland since 2006.
"They made themselves the most exposed country when the credit crunch finally arrived.” So successful were they that the assets of the banks amounted to 10 times the country's GDP by the end of last year. But that made it vulnerable. When disaster struck, it was rapid.
Home to just 320,000 people on a territory the size of Kentucky, Iceland has formidable international reach because of an out sized banking sector that set out with Viking confidence to conquer swaths of the British economy — from fashion retailers to top soccer teams. It gave Icelanders one of the world's highest per capital incomes.
The average family's wealth soared 45 percent in half a decade and gross domestic product rose at around 5 percent a year and rated by the UN as the most developed society on earth.
