Letter From Iceland

November 15, 2008 10:50 AM

Letter from Iceland. There you see the Iceland of today – the victim of an economic 9/11 and one of the very few places in the world where the words “financial meltdown” can be used without fear of exaggeration.

From the article:

We live now in a foreign-currency lockdown, and although the government has assured everyone that there are sufficient reserves to buy essentials such as oil, grain and medical supplies for the winter, such assurances only serve to create a further sense of unease in a people who have learnt to take such commodities for granted.

posted by jason's_planet (33 comments total)

reg free link (at least it worked for me)
posted by delmoi at 10:54 AM on November 15, 2008 [3 favorites]

(registration required)

from bugmenot.com:

"no login is necessary if you change the
Password false in link to true. It should work
everytime. Don't let FT.com know!"
posted by Bokononist at 10:56 AM on November 15, 2008

Think of Ireland. Rotate it 90 degrees clockwise, make it a third bigger and hang it like a pendant from the Arctic Circle. Crack open the earth’s crust below to release limitless supplies of geothermal steam, then fill its territorial waters, all 200 miles of them, with an abundance of cod.

Nifty lede. I was sorta hoping it would spin off into a kaleidoscopic, psychedelic drug reference.
posted by darth_tedious at 11:03 AM on November 15, 2008

Holy crap:

Iceland is the only country in the world that indexes its loans in addition to charging interest. This means that when Icelanders borrow IKr1,000 from the bank and inflation increases by 5 per cent, the bank increases their debt to IKr1,050 at the end of the year. A great deal for the bank and fine for you, too – so long as the property’s value and your salary are increasing by inflation and more. The majority of Icelandic mortgages are based on this punitive system and with inflation running at nearly 20 per cent, they will see their IKr1,000 loan turn into a IKr1,200 loan. The interest burden will increase proportionally.

I don't have anything to add to that except lots of shocked question marks and a quick thanks for my fixed-rate mortgage.
posted by ZakDaddy at 11:06 AM on November 15, 2008

"no login is necessary if you change the
Password false in link to true. It should work
everytime. Don't let FT.com know!"

You also have to delete some crap from the URL (which I did, see my first comment.)
posted by delmoi at 11:10 AM on November 15, 2008

Thanks, delmoi. I wasn't aware there was a problem with the URL.
posted by jason's_planet at 11:17 AM on November 15, 2008

Does anyone have a sense of how the people are handling this day-to-day. I mean are there food shortages? I figure heating isn't a problem but what about other utility issues?
posted by Hypnotic Chick at 11:22 AM on November 15, 2008

“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. ... Thus with Icelandic optimism, fortitude and solidarity as weapons, we will ride out the storm.

“God bless Iceland.”

Not sure why today's posts keep reminding me of poetry, but this evokes Marianne Moore's The Steeple-Jack. Written in 1932, it's about a small seaside town in the face of a storm, serving as a metaphor for optimism through the Great Depression. Good luck, Iceland.
posted by ageispolis at 11:26 AM on November 15, 2008 [2 favorites]

Wow, those mortgages are punitive.

I don't understand how the "man in the street" ever supports deregulation. The only people it ever benefits is a handful of the wealthiest people, while it socializes their risk. These are not, generally, people who think of anything but making themselves obscenely rich, moreso if they can suffer no consequences if the risk turns out to be too great.

Most government regulation, despite the masturbatory fapping of the "Atlas Shrugged" crowd, arises for a reason, based on past problems.
posted by maxwelton at 11:31 AM on November 15, 2008 [3 favorites]

I don't understand how the "man in the street" ever supports deregulation

well put, max. I have been wondering this since I was about 12 and tried, in vain, to convince my parents not to vote for Reagan. 2 years later my dad is unemployed and we're in dire financial straits...duh!
posted by supermedusa at 11:44 AM on November 15, 2008 [1 favorite]

I don't understand how the "man in the street" ever supports deregulation.

Well, bear in mind that you've got an enormous vested industry who spend a shitload of money, telling them that this is essential if the communists aren't to win. People fought and died for our right to be morons.

And presumably it's quite exciting to take your life savings or your national economy, and stick it all on Red 13.

But it's always the casino owner who ends up with all the money.
posted by PeterMcDermott at 12:34 PM on November 15, 2008 [4 favorites]

the victim of an economic 9/11

9/11 changed everything, giving us an endless supply of cliches that can be used inappropriately on unrelated topics.
posted by grouse at 12:48 PM on November 15, 2008 [8 favorites]

Does anyone have a sense of how the people are handling this day-to-day. I mean are there food shortages? I figure heating isn't a problem but what about other utility issues?

There isn't a food shortage per se, but food prices are rising of course, as most foodstuffs are imported and domestic goods, such as fish, are subsidized.

The Icelandic people are handling this day-to-day mostly by breathing down the neck of the government, as well they should be. Some 6,000 people turned out for a protest today in front of the house of parliament (video here). That's 2% of the population. Imagine if some 6 million Americans protested in front of Congress, voicing their outrage over the financial crisis. Not to mention the fact that Iceland doesn't exactly have what you'd call a "protest culture" - it's a very recent phenomenon. That should give you some idea of how angry people are at the government.

Two big things happening right now are: the possibility of joining the EU is being discussed by some parties, and new elections are being called for. A little background on both:

The ruling coalition - the conservatives and the social democrats - have traditionally differed when it comes to the EU question; the conservatives were against joining, whereas the social dems have always been for it. Every other party has been against it. This financial crisis has, however, given the social dems fuel for their pro-EU cause, and more and more Icelanders are beginning to consider it. The only problem is, the EU has made it very clear that there will be no steps taken to bring Iceland into the EU until their financial problems are solved; especially with regards to Icesave. And while a solution regarding Icesave seems to be on the horizon, there's still a ways to go before the economy is fixed. And even if Iceland did join the EU, it's still no magic wand - the transition period for a small country with limited exports could actually make things get much worse for years to come before they even began to stabilize (Portugal's story is a good example of this), so the question is not a simple one.

The government did, to its credit, announce a relief package for Icelandic consumers, which includes capping the interest rates on their mortgages, and increasing child support payments to a monthly basis, instead of every 3 months (NB: by Icelandic law, parents are given a payment from the government for each child they have until the child is 18 years old.) This relief package is a small relief, but still doesn't address the question of who's running the show here - which brings us to the new elections.

The pressure has certainly been on the government. The ruling coalition, the conservatives in particular, are seen by many Icelanders as having really dropped the ball on this. The protests are a reflection of this. The PM has bodyguards now, which was virtually unheard of in the past. Opposition parties have been calling for a new election, and it looks more and more imminent every day.

In any event, I see this as Iceland going through the sort of changes that every emerging economy goes through - from a sort of libertarian free-for-all, to boom, to overheating, to recession, to regulation. It's all a part of the process for a growing nation. As Jackson's article points out, Icelanders have lived through plagues, volcanic and seismic devastation, a crippling trade monopoly with the Kalmar Union, and much worse. They'll get through this, too.
posted by Marisa Stole the Precious Thing at 12:57 PM on November 15, 2008 [3 favorites]

I take just the tiniest morsel of solace from this story, in knowing that American financiers don't have a monoply on greed and stupidity.
posted by stargell at 12:59 PM on November 15, 2008

...one of the very few places in the world where the words “financial meltdown” can be used without fear of exaggeration.

Because it has glaciers and icefields and stuff that can actually melt .... right?
posted by sour cream at 1:12 PM on November 15, 2008

Iceland/USD currency chart showing substantial one-month losses.

Good time to visit Iceland? Maybe next summer?
posted by Kickstart70 at 1:24 PM on November 15, 2008

Good time to buy Iceland? Maybe next summer?
posted by Dumsnill at 1:26 PM on November 15, 2008 [1 favorite]

By the way, anyone remember this FPP about how awesome Iceland was back in May? I was a little skeptical, and Mutant popped in saying:

So all in all, while the article admits some concerns about the countries financial condition, its a pretty fluffy piece in that regard.

On the other hand, the market is telling you that Iceland's economy is gonna crash, unless something changes.

posted by delmoi at 1:48 PM on November 15, 2008

Iceland has done one thing amazingly well.

Morgunbladid, Iceland's national newspaper, sometimes seems written more by its readers than its staff. Unsolicited opinion can run to 10 pages - editorial space eagerly subsidized by advertisers who have quickly realized the interest generated by the content.

"You would have to look long and hard," editor Olafur Stephensen says, "to find a newspaper as open to its readers. On Wednesday, we ran 11 pages of op-eds. This weekend, we have up to 45 contributions from people who have a dire need to express themselves."

A national newspaper run like metafilter but with longer comments would be intersting to see. A very high signal to noise ratio makes compelling reading, why don't more newspapers do this? Thanks Iceland, for proof that a better world is possible & profitable.

FWIW: Here's a link to page 1 of the article which is not about economics instead it concentrates on framing Iceland as a free society which has constructed a set of ethics and norms via a literary tradition of sagas. Also more than 1% of the country is out protesting.
posted by ecco at 5:17 PM on November 15, 2008 [1 favorite]

re: the sagas

In their attention to the actions of individuals within social networks, and the working through of their consequences, the Icelandic sagas are important precursors of the modern novel. They directly influenced many writers, among them Walter Scott and J.R.R. Tolkien. The sagas are also a valuable source of information about medieval Iceland, a subject of interest to more than medievalists. One of its notable features is that it had a sophisticated legal system but no executive government, which makes it a magnet for political theorists — if you search the web for information on medieval Iceland, you'll find a running fight between the libertarians and anarchists over who can best claim it as an exemplum.

re: meltdown

• Iceland, Switzerland, Denmark, Sweden, Jordan and countries with banks that are too big to bail out (Bronte)
• How likely is a sterling crisis, or is London really Reykjavik-on-Thames? (FT)

cf. Who Would Bail Out Switzerland's Banks?

In this crisis, the strength of a bank's balance sheet is of little consequence. What matters is the explicit or implicit guarantee provided by the state to the banks to back up their assets and provide liquidity. Therefore, the size of the state relative to the size of the banks becomes the crucial factor. If the banks become too big to save, their failure becomes a self-fulfilling prophecy.

oh and re: iceland's freedom of the press (and awesomeness in general :) [via]

cheers!
posted by kliuless at 6:32 PM on November 15, 2008

ZakDaddy - I don't have anything to add to that except lots of shocked question marks and a quick thanks for my fixed-rate mortgage.

fixed-rate has nothing to do with it. this is an adjustment of the outstanding principal independent of the interest rate.
posted by russm at 7:54 PM on November 15, 2008

I'd be very surprised if the net cost of borrowing wasn't exactly what it would be if the inflation adjustment wasn't done - under normal circumstances, anyway.
posted by cillit bang at 8:07 PM on November 15, 2008

btw niall ferguson also concurs: "I should say, my own country, Britain, ... is on track to be Iceland mark two, when you look closely at the numbers."

like i don't think they're alone in thinking they may be facing a financial regime change; they're just ahead of the curve...
posted by kliuless at 8:15 PM on November 15, 2008

and to see what a sane financial system might look like:

Strict rules also govern mortgage lending. By Canadian law, any mortgage that will finance more than 80 percent of the price of a home must be insured. Two-thirds of all Canadian mortgages are insured by the quasi-governmental Canadian Mortgage and Housing Corp. As a result of the tough standards for insurance, "people tend not to get mortgages they cannot afford," Gregory said.

Defaulting on a loan is also more difficult in Canada than the United States, Gregory said. "You can't just drop off the keys and walk away."

For Canada's seven biggest banks, the percentage of mortgages at least three months in arrears was 0.27 percent in July, close to historic lows, according to the banking association. Also, few Canadian banks got caught holding large numbers of toxic American mortgages.

Another difference is that in Canada, mortgage interest is not tax-deductible, making it harder to buy a house. As a result, Canada did not have as strong a construction surge as the United States did during the boom years, and thus does not now have a big oversupply.

more sane commentary...
posted by kliuless at 8:34 PM on November 15, 2008

Hang in there Iceland. And by all means, feel free to hang your financial "wizards" by the balls from the highest tree if they haven't already taken a red-eye from Reykyavik to Miami.

I became fascinated with Iceland after watching Cold Fever.
posted by bardic at 8:38 PM on November 15, 2008

speaking of balls! (and selling all your base to russia ;)
posted by kliuless at 8:54 PM on November 15, 2008

the victim of an economic 9/11

What the tapdancing fuck is 'an economic 9/11'?

I think I just took a colorectal 9/11 in my pants.
posted by stavrosthewonderchicken at 10:02 PM on November 15, 2008

What the tapdancing fuck is 'an economic 9/11'?

As a response to the economic crisis, they've invaded Burkina Faso.
posted by dirigibleman at 11:02 PM on November 15, 2008 [2 favorites]

I refuse to read any article that contains the term "economic 9/11" in reference to this situation. I may, however, instead just go have a tapdancing fuck.
posted by RockCorpse at 2:21 AM on November 16, 2008

I don't understand how the "man in the street" ever supports deregulation.

Presumably because they are in favour of small government/deregulation "as a rule", and they (like most people) aren't finance wizards and so can't evaluate the need for an exception to that rule.

It's understandable how the average person might be in favour of small government/deregulation. To give a non-finance-related example: In work the other day I needed a tube of superglue, but due to safety regulations I need to read and sign off on a safety data sheet, fill out a three-page risk assessment, submit it online, print three copies of it, sign them all, and get my boss to sign them all - before I'm even allowed to order the superglue. My point being: Depending on your personal experiences with government regulations, you might see them as bureaucratic, and just getting in the way.

If you were of that opinion, and someone said to you "should be deregulate X" where X is something as complicated and hard to understand as the financial derivatives market, you might say "sure, why not, deregulation is good".
posted by Mike1024 at 4:03 AM on November 16, 2008

I became fascinated with Iceland after watching Cold Fever.

I became fascinated with Iceland after watching Jar City.
posted by PeterMcDermott at 6:45 AM on November 16, 2008

Anyone interested in the latest developments in English from Iceland really should check out www.icelandweatherreport.com Lots of inside comment, and plenty of chat after each blog entry. Also worth keeping an eye on www.icelandreview.com for translated news to keep you up to date.

Great article by the way. Thanks for posting.
posted by Fezzer at 8:38 AM on November 16, 2008

In the "How the Worm Turns" department: Look for the Russians to buying one of our former Atlantic forward SAC airbases in Iceland.
posted by tkchrist at 11:47 AM on November 16, 2008