New York Times photo
Ah, Iceland: a land where the bankers were careful students of the United States:
The dramatic change in Iceland, from the poor relation of Europe to one of its wealthiest and apparently most successful, and now back again, dates from the mid-1990s with the privatisation of the banks and the founding of the country's Stock Exchange.
The free market reforms unleashed a new generation of thrusting, young businessmen, many of whom picked up their banking trade in the United States. They were determined that their country would no longer have to rely on fishing for its principal source of wealth; they loathed the international perception of Iceland as a parochial nation of farmers and fishermen who could not hold their own on the world business stage.
They had learnt at school all about the last Cod War with Britain, in 1976, when Iceland unilaterally extended its territorial waters, desperate to increase the financial yield from its trawler fleet. So, in keeping with the traditions of their Viking ancestors, the new army of corporate raiders went overseas to seek their fortune.
According to the New York Times, this is what Iceland currently faces:
After the dust began to settle last year — after the banks failed, the currency collapsed, the stock market crashed and the government fell — the dazed inhabitants of Iceland woke up to another unpleasant problem: They owed, it seemed, some $5.3 billion to more than 300,000 angry people in the Netherlands and Britain.
Prime Minister Johanna Sigurdardottir called resolving the debt dispute "a matter of life and death" for the economy.
These were the customers of Icesave, a now notorious online retail branch of the Icelandic bank Landsbanki, which went bankrupt in October 2008 along with 85 percent of Iceland's banking system. The British and Dutch governments reimbursed their citizens, but then demanded that Iceland repay the money, the equivalent of $65,000 per household here, plus interest.
But there is a big difference between Tea Bag Iceland and Tea Bag U.S. Here, the Treasury and the Federal Reserve Bank intervened and kept the entire banking system from crashing around our feet, kept the dollar from collapsing, and made it possible all across America for people to continue to buy their imported gasoline from the Middle East and salad shooters from China. Whether in the long run this is a good thing remains to be seen.
In the short run, though, it clearly saved our unworthy butts. Sure, it saved some unworthy bankers’ butts along the way, but the just let ‘em fail approach would have been a catastrophe. In our case, the creditors knocking on our door wouldn’t have been a pesky bunch of Brits looking for a better rate on passbook savings: they would have been OPEC and China.
Tell you what, Uncle Sam, just give us your Pacific Fleet, and we’ll call it square.
The Tea Partiers have, naturally, no conception of any of this. But the case of Iceland is definitely a cautionary tale:
Iceland had ousted Norway from the head of the UN's league table of 177 countries that compared per-capita income, education, health care and life expectancy – which, at 80.55 years for males, was third highest in the world.
This was only one in a string of glowing assessments of a country (population 313,000) which had pulled off a modern-day economic miracle. No wonder they are also said to be the happiest people on the planet. The inhabitants of this newly discovered Utopia, with its much-admired free health and education systems, bought the most books, owned most mobile telephones per head, and included the highest proportion of working women in the world.
Iceland had also presided over the fastest expansion of a banking system anywhere in the world. Little did anyone know that the expansion once so admired would go on to saddle the country with liabilities in excess of $100 billion – liabilities that now dwarf its gross domestic product of $14 billion.
Fastest expansion of a banking system. In other words, Iceland grew not because it made anything or did anything that really created value or wealth; it was all just financial smoke and mirrors.
Does this remind you of anybody?
But really, for now, anyway, Tea Bag U.S. ought to thank it’s lucky stars that it’s not Tea Bag Iceland. The trick now is to put some regulation of the financial industry (back) in place, because we may not be so lucky the next time.