How Iceland Went From Codfish to Meltdown

Country built a huge financial bubble based on a vulnerable currency

By Rob Quinn,  Newser Staff

Posted Dec 27, 2008 11:18 AM CST

(Newser) – How did a chilly nation of cod fishermen play a key role in the world's crumbling financial markets? Seeking to avoid the boom-and-bust of fish catch, Iceland started by privatizing banks in the mid-1990s. It built a colossal banking system on a puny currency and attracted international deposits with high returns. Then the country went on a shopping spree. "I didn't really worry about money," said one banker, who is now laid off.

Populated by fewer people than Wichita, Kansas—and some who still believe in alfar, or elves—the nation was unable to refinance its debts when the Wall Street crisis struck and sparked a run on deposits. The Wall Street Journal chronicles the dying days of Iceland's top three banks, as the currency sank and depositors from Britain to Beverly Hills took massive hits.

Some of the thousands of Icelanders who protested outside Iceland's parliament, in  Reykjavik, Saturday, Nov. 29, 2008 at the country's economic meltdown.
Some of the thousands of Icelanders who protested outside Iceland's parliament, in Reykjavik, Saturday, Nov. 29, 2008 at the country's economic meltdown.   (AP Photo/Brynjar Gunnarsson)
A man shops at Kolaportid flea-market, located near the harbor in Reykjavik, Iceland on Sunday, Nov. 30, 2008.
A man shops at Kolaportid flea-market, located near the harbor in Reykjavik, Iceland on Sunday, Nov. 30, 2008.   (AP Photo/Brynjar Gunnarsson)
Around 2000 demonstrators crowd into a city square in Reykjavik, Iceland, Monday Dec. 1, 2008, during a protest provoked by the country's economic collapse.
Around 2000 demonstrators crowd into a city square in Reykjavik, Iceland, Monday Dec. 1, 2008, during a protest provoked by the country's economic collapse.   (AP Photo/Brynjar Gunnarsson)
Some of the thousands of Icelanders who protested outside Iceland's parliament, unseen, in  Reykjavik, Saturday, Nov. 29, 2008 at the country's economic meltdown.
Some of the thousands of Icelanders who protested outside Iceland's parliament, unseen, in Reykjavik, Saturday, Nov. 29, 2008 at the country's economic meltdown.   (AP Photo/Brynjar Gunnarsson)
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