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[Freyja]

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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.

[Tulac]

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.

[Freyja]

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....

[Japo]

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

Ludwig von Mises and Friedrich Hayek predicted the Great Depression.[23][24] Hayek made his prediction of a coming business crisis in February 1929. He warned that a financial crisis was an unavoidable consequence of reckless monetary expansion.[25]

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

[Tulac]

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

[Freyja]

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.