Interesting article
 

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An article written by AA Gill from the Sunday Times, about the situation in Iceland these days. I think it's a very interesting read.

Yes, really interesting though it says more about the culture than the financial crisis itself. :P

http://money.cnn.com/2008/12/01/maga...tune/index.htm

This article has more of a financial approach, but it really cleared the situation for me. As far as I can see Icelanders built wealth artificially with high risk and huge amounts of debt, and now it's all gone to pooper. In the mean time Britain and other countries act like asses and don't give any support. So I'd say the blame is half/half.

Just shows that the free market is fundamentally flawed in the long run.

Yeah, that's about right, Tulac. There were investors who took too big chances and invested more than we really had. Then the word on the street is that the Króna was held high for years while they were building THIS - so that importing things needed for it wouldn't be too expensive, and so they could get foreign workers (when the króna is high, people want to come to iceland to work because the money is worth a lot in their home-country). Now they're not importing things anymore, so they dropped the króna, and at the same time the crisis hit. But that's only the word on the street, but I personally believe it might very well be right.

Icelanders got used to being rich. In 2007, i was working fulltime for a part of the year and I got 2800€ per month. I don't even have a high school diploma. That's more than many people in europe get, even after a university degree. With today's exchange rate, it's around 1400€ - the same amount in Krónur.

Everything here is now higher - except the salaries. People are getting bankrupt, and on top of that they're losing their jobs. People are fleeing iceland, lots of the foreign workers are going home. For example a Polish programmer I was dating. He was working for one of the banks. Icelanders are going, most of them to the nordic countries. My dad's going to Portugal in January.

A nation that was so used to being rich, and is now struggling with selling their extra houses and cars. A part of my family has at least 3 houses (probably more, I can't keep track) and several cars - but they can't sell any of this. They used to be billionaires, now they owe money.

Then comes the deal with the Brits... we were hoping to get some help, but nobody would help us except for Russia and IMF. Russia wouldn't be a good idea, since they were just into us because of our position in Nato (it would be a nice way to piss off the other countries), for the Oil on the North Pole (or so I heard, I don't know anything about it) and for our excellent location for a base. Too bad for them that there are now thousands of students living in the old US base :bleh:
So out of two evils, the IMF. And Faeroe Islands helped us, which is awesome!! They're so tiny and stuff.

Now people lost faith in the government, there are protests few times a week that tend to end with the police macing people... there's a lot of tension going on. I personally can't wait for the day I'll move back to Italy. Too bad the flight is two times more expensive now and I totally lost my job because of the crisis.


LONG REPLY, omg....

http://en.wikipedia.org/wiki/Austria...s_Cycle_Theory

http://www.strike-the-root.com/51/smith/smith4.html
(Scroll down to "In Congress, March 1997...")

That might all be true, but Austrian school of economics isn't really based on any data as far as I can see, but on assumptions and critique of the existing solution. I still believe that bubbles would tend to happen without the existing monetary policy like it did so many times in the late 19th century when some economies (primarily US and UK) were practically laissez faire and currency was tied to gold.

No matter the monetary policy it is the recklessness of the actual investor who were not wise enough to see dangers in speculation. Besides perfect competition is impossible today, with so many oligopoles, and heavy concentration of capital which is only concentrating more, something has to be done to prevent that from happening. It is very easy in the free market for companies to merge and obtain control of the prices thus nullifiying any good effects of the free market. I probably don't have to mention pollution, and how the free mearket would deal with that (when it's too late) and etc.

I'm not saying that the existing system is good, but central banks should exist. Here in Croatia we don't have a financial crisis and banks are stable (even though some of their foreign owners aren't), because our central bank had a good policy which was basically completely opposite to Iceland, USA and pretty much the rest of the world. I believe the ideas that banks should have high reserves and that government should restrict business on the amount of risk (leverage) that they are able to take since obviously private capital can not control itself or think rationally.

EDIT: Yes, yes Austria, I don't really mix them up often. :P

Our central bank is led by a lunatic :(
He made a statement the other day.. He's not going to resign like people want him to, and when he eventually does, he's going back to politics. He's the ex prime minister of Iceland, but nobody liked him there either.

It's the Austrian school, Tulac. No offense meant, but thanks for cheering me up... Boom-bust cycles have got a lot more to do with human greed and stupidity. To look at game theory: collective irrationality wins over collective rationality most of the time. You can try to change human nature, but the truth is that the possibility of the quick buck, mutatis mutandis, will win over a long-term investment strategy every time. You cannot ceteris paribus human greed. It goes back to the prisoner's dilemma. Most people will simply prefer short-sighted personal gain over wide-reaching altruism. You can talk yourself into believing the opposite until you feel quite cosy, but then people will turn on you and bite you in the ass... Not even Adam Smith's invisible hand will save us from another great depression happening in our lifetimes. At the rate we're going, dodgy banking practices and over-lending and all, I rather feel we'll see it sooner rather than later.

Obvioulsy majority liked him unless you introduced some form of dictatorship lately.

I don't think that things are as bad as they look because not all banks were into these no return lones.

But yes free market is flawed. it's like letting a kid make his own rules. :doh:

There should be some regulation, but not full one (because then you go to the other extreeme).

Tulac, you could say the same about any other school, economics isn't an experimental science, so it's not really science, and anyone can continue favouring any theory, and nobody can disprove it. I didn't intend to convince anybody, just to provide a new opinion.

The bank panics started after the National Banking Act ended the Free Banking Era of 1837-1862. Then came the Fed, the stock exchange and housing bubble of the 20s, the Depression, and so on.

I haven't seen any proof that miriads of individuals acting on their own can take the economy as if agreed in a direction, let alone towards ruin. That sounds like contrary to the second law of thermodynamics. Anyway as I said you can't prove or disprove, first of all there are of course eras with more economic freedom than others, but you won't find any era without regulations. You can tie what you think are causes and effects anyhow you find more reasonable.

Pollution is a separate issue. I'm certainly not against rule of law, and I won't say in which enviromental issues I think it applies because that's off topic.

Imagine that there are 100 doctors working for a town of 10 000 people (these numbers are hypothetical). Now imagine that there are 500 very rich people.

Now in a free market these 500 people with their paying power could have 50 doctors working for them, because well the wife needs her boobs done, grandpa wants more hair and the wife isn't particularly happy with her nose. So the other 9,500 people could have only the other 50 doctors working for them which would bring about serious health issues, crowded doctor's office etc.

This is why some regulatory organ has to step in and say "hey you know the wife and grandpa can wait a couple of months for their operation, we should make 30 of their doctors work on really important life saving stuff instead of boob jobs". And I believe this is good, because the rich 500 will still have a better standard than the rest of the folks but there will also be a rise of a standard for the rest of the people.

So in a way yes the rich will lose some of their money/comfort simply because they are rich, and you can ask yourself why this is fair, they all worked hard for their money and they deserve every penny of it.

Well the world has finite resources, so if you spend lots of resources someone on the other end of the table won't have those resources available. And as we know often much of these resources are spent on things that are pure luxury and are far away from necessary, so in a way those people took someone's food of the table, or somebody's house, simply by affording some luxury that isn't even necessary or important for that person but is more profitable for companies to produce. That's why they have to give something back because market allocates resources where there is most profit instead of where they are most useful for the society as a whole in the long run.