In the previous stage of the financial crisis, companies went bust.

[randomness]

In this stage, countries are on the edge of going broke.

Today, it's Iceland. They've just sent officials to Russia to beg for a €4 billion loan. At first, they'd claimed they'd gotten one, but then the Russians said they hadn't formally been asked and hadn't made any decisions. Finally, Icelandic officials admitted they had "overstated" the agreement and that talks were still "ongoing".

One of their smaller problems? Their banks had been taking lots of deposits from abroad:

From http://www.portfolio.com/views/blogs/market-movers/2008/10/07/the-iceland-dow-connection?tid=true:

There's a British angle, of course: Icelandic banks have been taking Brits' deposits. This is not exactly reassuring:

Times readers reported yesterday morning that they could not withdraw their money from Icesave accounts over the internet. But a spokesman for the bank said that Icesave was now operating normally and depositors could withdraw money. He added that the Icelandic Government had ample foreign reserves to cover the £4bn of British deposits in the event of any collapse.

Er, no, it doesn't. The Icelandic government has 374 billion kronur of foreign exchange reserves; if you convert that at 188 kronur to the pound (as plausible an exchange rate as anything else, and the one I get from Yahoo), that works out at less than £2 billion. Even with an extra €4 billion from Russia (Russia!), Iceland's foreign-exchange reserves aren't enough to last a day, if the locals sensibly decide they'd really rather be in any currency but kronur.

In actual fact, Icesave depositors are being stiffed by the Icelandic government, which took over the bank. In response, Britain's Prime Minister Brown says the UK will sue Iceland over the 300,000 accounts belonging to UK account holders.

"The Icelandic government, believe it or not, have told me yesterday they have no intention of honoring their obligations here,'' [British Chancellor of the Exchequer Alastair] Darling told the British Broadcasting Corporation.

"The first call would be on the Icelandic compensation scheme which, as far as I can see, hasn't got any money in it," he added.

Of course, Iceland's a tiny country. But when this all started, the banks that went bust were tiny ones no one had ever heard of...

Comments

[mizkit.livejournal.com]

I'm just wondering when countries are going to basically declare it all a wash and start over again.

I keep wondering about that wrt world debt, but nobody seems to actually do it.

Your icon wakens glee and love in my little geek heart. :)

[mizkit.livejournal.com]

*snurches happily*! Thank you! :)

[marginaleye.livejournal.com]

but this virtual currency system just seems to be spiraling downward and it seems like it was an experiment that went horribly wrong

A monetary system tied to something real and intrinsically valuable seems sensible to me, but gold would be kind of retro. How about a monetary system based on carbon-credits? Or renewable energy generation capacity?

[karakara98.livejournal.com]

How about a monetary system based on carbon-credits? Or renewable energy generation capacity?

The problem is that that while they have intrinsic value, those things are not as necessarily as real and solid as they seem. What I know of carbon trading systems is that carbon credits are as virtual as money at this stage (verification is a real problem), and renewable energy generation capacity is also not always as solid and tangible. The first market that seems to be getting up and going is the Forward Capacity Market that's part of RGGI in New England. The "Forward Capacity" is key--they're selling tomorrow's electricity today. That means they can take into account energy efficiency, but it's hardly a tangible asset.

Nifty idea though!

[r-ness.livejournal.com]

Looking at that and their GDP ($20 billion), it's entirely plausible that a Paulson-sized rescue plan could buy Iceland outright a couple of times over.

Eight and a half times, perhaps.

"At the end of July its banking sector liabilities stood at 850 per cent of GDP". (from http://ftalphaville.ft.com/blog/2008/10/08/16792/how-much-for-this-fjord/)

[belfrynotes.livejournal.com]

Iceland was the last place the Plague arrived in Europe, in 1402. This time looks like they weren't so lucky.

[trowa-barton.livejournal.com]

Remember that scene from "Sneakers"?

Cosmo: Posit: People think a bank might be financially shaky.
Martin Bishop: Consequence: People start to withdraw their money.
Cosmo: Result: Pretty soon it is financially shaky.
Martin Bishop: Conclusion: You can make banks fail.
Cosmo: Bzzt. I've already done that. Maybe you've heard about a few? Think bigger.
Martin Bishop: Stock market?
Cosmo: Yes.
Martin Bishop: Currency market?
Cosmo: Yes.
Martin Bishop: Commodities market?
Cosmo: Yes.
Martin Bishop: Small countries?