Tell me of the Iceland default

[Zkribbler]

Lately I've been hearing references to a default by Iceland, but it's never clear what happened.

I heard vague references to a default by the govenment on its bonds, to a possible or actual default by Icelandic banks, by the avoidance of a default by Icelandic banks due to a bailout by the Icelandic government.

What the heck is going on in Iceland??

[Thue]

http://en.wikipedia.org/wiki/2008_Icelandic_financial_crisis

[Richelieu]

They're steamed.

[Q Classic]

From the Economist, Guardian, salmon-coloured FT, and the Times Online

[Q Classic]

In short, until the mid-90s, they had a large base of deposits in their banks; these banks were then liberalized, and used, in the noughts, easy credit to make massive buyouts and investments.

This would have been fine for a while, though risky, until the whole bottom fell out of the market--the sad thing is, Iceland didn't invest in the mortgage-backed securities; rather, their crisis was precipitated because the collapse of those securities made the entire credit market shrink.

Because the three large Icelandic banks which held all of these risky loans and investments collectively owed a sum an order of magnitude larger than Iceland's yearly GDP, the weakly capitalized central bank with few foreign reserves couldn't serve as a lender of last resort and guarantee the bank's debts--and couldn't defend the Icelandic Krona.

Which is why their stock market is closed indefinitely (it reopened recently for a day and fell 76%), currency exchanges are frozen, and why everyone shipping to Iceland is now demanding payment up-front--and in external currency.

There's also the sordid fact that the UK government seized and nationalized a subsidiary of an Icelandic bank through the use of an anti-terror law.

Anyway, that's my understanding. If I've made any errors, I welcome corrections?

[Q Classic]

In other interesting news, Porsche just ****ed over a bunch of short sellers and hedge funds betting against VW.

[Thue]

Originally posted by Mrs Snuggles
Which is why their stock market is closed indefinitely (it reopened recently for a day and fell 76%)

I think that fall most mostly due to the value of the three huge banks being readjusted to 0.