Iceland’s+Deep+Freeze+_+The+New+Yorker

Iceland’s+Deep+Freeze+_+The+New+Yorker -...

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B THE FINANCIAL PAGE ICELAND’S DEEP FREEZE by James Surowiecki APRIL 21, 2008 y now, we’re all familiar with the major victims of the subprime meltdown: greedy mortgage brokers, overleveraged hedge funds, feckless banks and brokerages, incautious homeowners, and so on. But the crisis is also wreaking havoc in places that, on the surface, might seem to have nothing to do with the price of foreclosed homes in Miami. Places, that is, like Iceland. Insofar as Americans think about Iceland at all, it’s as a land whose remoteness belies a vibrant cultural scene featuring hipster titans, like Björk and Sigur Rós, and exceptional social conditions—it’s the top-rated country in the U.N.’s most recent human-development index. But in the financial world Iceland is now a hot topic of discussion for a different reason: many people suggest that it could become the “first national casualty” of the ongoing credit crunch. Until last year, Iceland’s economic track record in this decade had been phenomenal—its annual growth rate averaged close to four per cent over the past decade, and its per-capita gross national income is now higher than that of the U.S. This year, though, the country’s currency, the króna, has fallen twenty-two per cent against the euro; the economy has stagnated; and a global rating agency has put the nation’s three major banks on a credit watch. Now analysts are wondering whether the new Nordic Tiger will end up, instead, as “the Bear Stearns of the North Atlantic.” So how did Iceland get in so much trouble? That’s the odd part of the story: it isn’t because its banks gambled on the
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