At Vanity Fair I found this Michael Lewis article about the events that overtook Iceland.
Just after October 6, 2008, when Iceland effectively went bust, I spoke to a man at the International Monetary Fund who had been flown in to Reykjavík to determine if money might responsibly be lent to such a spectacularly bankrupt nation. He’d never been to Iceland, knew nothing about the place, and said he needed a map to find it. He has spent his life dealing with famously distressed countries, usually in Africa, perpetually in one kind of financial trouble or another. Iceland was entirely new to his experience: a nation of extremely well-to-do (No. 1 in the United Nations’ 2008 Human Development Index), well-educated, historically rational human beings who had organized themselves to commit one of the single greatest acts of madness in financial history. “You have to understand,” he told me, “Iceland is no longer a country. It is a hedge fund.”
What made these rational people ‘irrationally exuberant’ to purloin a phrase. How does a whole nation, albeit a small one, become so embroiled in disaster.
Why were warning signs not heeded?
Yet the same question or questions could be asked of the UK, the USA.
It is almost as if the world’s bankers, investors, politicians and many ordinary citizens got caught up in a lemming like rush to jump off the precipice. Bizarre.
Lewis notes some of this in his article:-
In retrospect, there are some obvious questions an Icelander living through the past five years might have asked himself. For example: Why should Iceland suddenly be so seemingly essential to global finance? Or: Why do giant countries that invented modern banking suddenly need Icelandic banks to stand between their depositors and their borrowers—to decide who gets capital and who does not? And: If Icelanders have this incredible natural gift for finance, how did they keep it so well hidden for 1,100 years? At the very least, in a place where everyone knows everyone else, or his sister, you might have thought that the moment Stefan Alfsson walked into Landsbanki 10 people would have said, “Stefan, you’re a fisherman!” But they didn’t. To a shocking degree, they still don’t. “If I went back to banking,” he says, with an entirely straight face, “I would be a private-banking guy.
As I wrote above – Bizarre.
Yet one has to wonder as well about those who invested funds in Icelandic banks, for example many UK councils and those whom recommended them to invest. What happened to informed decision making? Where was risk management and governance?