wade & sigurgeirsdottir:
7November 2008 the Icelandic króna had fallen to 190 to the euro, froma previous exchange rate of around 70—a massive cut in the islanders’purchasing power. The foreign-exchange market stopped working, andworld currencies were available only for government-approved imports.The stock market plunged by about 98 per cent, and by March 2009, thebanks’ senior bonds were trading at between 2 and 10 per cent of theirface value. Average gross national income fell from 1.6 times that of theUnited States to 0.8 times in February 2009, at market exchange rates.These are measures of a calamity.Iceland is interesting partly because it is an unusually ‘pure’ exampleof the larger dynamics that produced the rising levels of ﬁnancial fragil-ity across the developed world through the 1990s and 2000s. In manycountries the ﬁnance sector grew relative to the rest of the economy,thanks to a combination of three factors: the ‘post-Bretton Woods’architecture of ﬂoating exchange rates and free capital movements; theinternet; and surging concentrations of income and wealth in the topfew percentiles of the population in the advanced-capitalist countriesand several other major economies, including China and India, thatraised the demand for complex ﬁnancial instruments in which to storetheir accumulating funds. In earlier periods when ﬁnance was in thedriving seat—for example, at the start of the twentieth century, in theBelle Epoque—ﬁnanciers retained close ties to production. They sat onthe boards of the great electrical, chemical, metallurgical, railroad andshipping conglomerates; they helped to create oligopolies and decidewhere to invest in production. The difference this time, especially afterthe high-tech crash of 2000, is that ﬁnance in the driving seat has beenable to generate giant proﬁts and remuneration ‘within itself’, by ‘casinoeconomy’ operations far from production.Then the positive-feedback loop kicked in, as many governments—notably those of Britain and the
, home to the City of London andWall Street—became more beholden to their ﬁnancial industries than
Geir Haarde, speech to the 2008 annual meeting of the Central Bank of Iceland,quoted in the report of the Special Investigation Commission,
Causes and the runup to the collapse of the Icelandic banks in 2008
, vol. 1, ch. 5, sec. 3, Reykjavik 2010,p. 216; henceforth,
Report. This 9-volume, 8kg report is an invaluable sourceof information, though one has to read between the lines to sense the John le Carréaspects of the story. The government has declined to undertake an English transla-tion beyond an executive summary.