Iceland Crisis

Background Information In three year period of 2008-2011 Iceland suffered one of the worst pecuniary crisis in history. It Is bewildering how a country with universe of only 320,000 could gather massive sums of money per capital, lose It all in all In such a short time period, and then manage an incredibly brisk recovery since. Lets start by shedding some light on the situation leading to the crash. Iceland has always been affiliated with nature and fishermen. Fishing was the most usual occupation in Iceland, and a major backbone of their economy for years.Things turned direction in the ass hobby the liberalizing of Icelandic banks. Deregulation of banks added a self-coloured new dimension to Icelandic economy and money was flowing more than ever. Glitter, Gapingly. And Landsman were Icelands three most notable commercial banks who were enjoying a great time. amply savings interest rate offered by Icelandic banks attracted plenty of foreign investors . Fishermen slowly turned into financial advisers to manage the capital inflow from issueside, particularly from Germany and the I-J and pretend more wealth for Icelandic economy in the long-term.As with every great financial crash, greed and carelessness played a part. Banks, having believed the hype and buzz, were careless handing out big mortgages to loads of under-qualified applicants on low interest and made under-thought Investments abroad, particularly in the US. Icelands banking sector was pride of the country which had transformed Iceland into one of the richest countries in europium in a couple of decades. What Went Wrong The banks were accountable for themselves. There was no precise rules set for them.They had to go out there and produce. Their capabilities was the most important hinging and all else was entropyary. If the banks didnt have to give ethical answers to the governing, then they could be capable of many unthinkable things, especially in the banking world of the asss and early a sses. The prime minister of Iceland in that period (1991-2004), David Dodson, was no fan of government owned banks in Iceland, so none of the banks In Iceland had to answer directly to governmental authority. Reliant on away financing.They used mass wholesale financial backing to finance their way into the local mortgage market and obtain foreign financial firms mostly in the UK and Scandinavia. The banks were following the international ambitions of a new generation of Icelandic entrepreneurs who set to form global empires in industries from retailing to food production to pharmaceuticals. By the end of 2006, the agree assets of the three main banks were $150 billion, eight times the countrys GAPS. Low interest rate offered by Icelandic banks had allowed financing for rapid and pre- mature expansion of mixed companies in various industries perhaps beyond the nations capacity.In half(prenominal) a decade, Icelandic banks experienced a mass transformation from being pretty much tout ensemble domestic lenders to becoming major international financial intermediaries. The shift and growth was almost too good to be true. This is where things started to go south. As wholesale funding markets seized up (e. G. Lehmann Brothers bankruptcy in September 2008), Icelandic banks were shaken and started to collapse under a mountain of foreign debt. The Crash and Its Consequences On October 8th 2008, Suppurating was pose into administration. The government had to intervene. Iceland was on verge of national bankruptcy.Foreign investors were seeking their money from Icelandic banks and threatened to sue. Everything was a sees. The Icelandic government nationalized Glinting. The control of Lambskin and Glinting were attached to representatives of FM (Financial Supervisory Authority). Prime minister, Geri Heard, believed those actions interpreted by the government prevented the country from national bankruptcy. The impacts of the crash were severe on Icelandic economy, how ever. At end of second quarter of 2008, Icelands external debt rose to close to ?50 billions), more than 80% of which was held by the banking sector.The national currentness (Icelandic Akron) fell sharply in value. Foreign currency orientations were basically suspended for weeks. The Icelandic stock exchange fell by more than 90% and as a consequent Iceland officially bid hello to a period of economic recession. Recovery Icelandic economy continued to suffer for two years, still the signs since late 2010 have been very positive. Islanders have taken the right steps and have shown urgency in their efforts to get their economy back on track and it has paid dividends. The governments priority was to minimize the impact of financial crisis on the country.They placed Iceland ahead of foreign investors. As a result, an emergency isolation was passed, allowing the Financial Supervisory Authority to take over the domestic trading operations of Icelands three major banks. The state inter vened by protecting domestic creditors and depositors, not allowing the taxpayers to take the burden of a bailouts. Instead of bailing out the banks (e. G. I-J, Ireland, etc), Iceland opted for defaults of the banks. This fumed foreign depositors, but Icelandic quick recovery was devaluation of Icelandic currency and implementing measures of capital control. The Coronas value halved making Icelandic exports (e. . Fish) and ours cheaper and more attractive to foreigners. These two sectors flourished as a result and played a significant role in growing the Icelandic economy again. Iceland have worked hard in restoring macroeconomic stability and rebuilding the financial sector. They put the money they received from MIFF ($10 Billion) in use to a 3-year restructuring programmer. The results are impressive as since then, the GAP has grown 2. 5% in two consecutive years. Now that the Icelandic economy is doing better, the government is making settlements to gradually pay the foreign inve stors back.The unemployment rates have fallen in half and those accountable for the crash, even the former prime minister, were persecuted at the courts. Iceland did the opposite of Europe and the US to the situation and it has proved effective. Of course, its a different situation managing 320,000 people as opposed to millions. Its not all rosy yet, however, as other economic sectors, notably private and household must catch up to fishing and touristry sector to take the momentum to next level and fully take Iceland out of what could have been a fatal blow. Conclusion 2008 Financial crash agitate the world.The impact in Iceland was more incredible than most places as it nearly brought depression to the country. Deregulated Icelandic banks bit more than they could chew and ambition turned into greed and gamble. Series of factors gave hands to each other and took Iceland on verge of national bankruptcy. What happened after, is perhaps a lesson for all other nations who are struggli ng with their economies. Icelandic government prioritize its own nation above anyone else, and allowed its banks to default, protecting its people. They have since taken the right measures to increase spending and business in the entry.