Iceland economic crisis - part II

Icesave was an online savings account brand owned and operated by the Landsbanki bank from 2006–2008 that offered savings accounts in two countries, United Kingdom and the Netherlands. They managed to attract over 300,000 customers in the United Kingdom, with deposits of more than €5 billion and 125,000 customers who deposited €1.7 billion in the Netherlands. When the banks collapsed in 2008, depositors were unable to access their money creating an international diplomatic incident. Iceland managed to survive the financial crisis by taking over the domestic units of its banks and leaving the foreign creditors with losses of the bad investment decisions. An slump in the krona against the euro offshore pushed the trade deficit into surplus within months. The transformation of economy came at a high cost, the banking system defaulted, but slow recovery signs are present. Read more about the economy of Iceland here. You can also watch a short documentary on the economic crisis and the events that followed.

Iceland economic crisis documentary

Iceland has been ranked high among the best places in the world to live for several years in a row, according to the UN Human Development Index. In 2008 the national economy was devastated with a crisis that arose from the global financial crisis. National banks transformed into huge financial subjects, controlling amounts of money far greater than the country’s own wealth. Iceland faced riots, the resignation of the government and elections as a result. Learn more in this interesting short documentary.

Subprime mortgage crisis

As you could have learned from earlier posts, most of the economic crises start in good times when greed and speculation prevail over the common sense. In March 2007, the United States sub-prime mortgage market witnessed higher-than-expected home foreclosure rates which started a collapse forcing more than 25 sub-prime lenders to declare bankruptcy. Were the expectations wrong? No doubt. While securitization of mortgage market attracted large quantities of money, it allowed banks to basically sell the mortgages thus distributing credit risk to investors. Since risk could be transferred banks allowed more loans than usual, constantly lowering the criteria. Eventually, people who normally wouldn't be able to purchase a home started refinancing their new ventures through mortgages. But when the home prices started to fall, old bills resurfaced and the entire market was shocked with the numerous foreclosures. Bubble burst caused a loss in trillions of dollars, brought the financial sector to the edge of the cliff and created the seed for the global scale crisis. Read more information about the Subprime mortgage crisis critical events here.