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Icelandic logic behind the meltdown (vanityfair.com)
126 points by wave on Mar 4, 2009 | hide | past | web | favorite | 44 comments

I am Icelandic, living in Iceland so I know a thing or two about the situation. The article has some simplifications obviously but the overall picture is pretty much as he describes.

If it is true that Icelandic males are over educated (for local industries) and aggressive risk takers, maybe software startups would have been a better outlet for them? Focus that aggression on being ramen profitable, instead of risking huge sums on assets you don't understand. At least then you have risk taking focused in a way that does not risk national solvency. (I suppose this advice would have also been good for Wall Street quants.)

What other economic activities would be a good fit for an educated population willing to take risks?

One of the great tragedies (one of many) in Iceland is that for the last 4-5 year, these 3 big banks sucked up the larger part of the group that would otherwise have founded startups. There was just too much money floating around inside these crazy places.

As a consequence, there was actually quite a bit of decent software created within these banks. Unfortunately the business side failed to match the quality of the software!

(By the way, if someone needs some Django hacking and can pay in anything other than icelandic Kronas, give me a ping!)

> What other economic activities would be a good fit for an educated population willing to take risks?

Solving the engineering challenges on sub-sea high voltage DC power transmission would be a worthy goal. Iceland has vast geothermal power reserves. CO2 permit trading would be a nice complimentary business, though I suspect it could get a little out of hand...

Uh, Wall Street did a excellent job at screwing at being Wall Street. Why do we have to blame some special Nordic trait for Iceland screwing up at being Wall Street?

"(I suppose this advice would have also been good for Wall Street quants.)"

"You have a dog, and I have a cat. We agree that they are each worth a billion dollars. You sell me the dog for a billion, and I sell you the cat for a billion. Now we are no longer pet owners, but Icelandic banks, with a billion dollars in new assets."

What a wonderfully simple explanation of mark-to-market!

Summary: Silly, foolish, naive young Icelanders who obviously couldn't play in the big leagues with the trained financial professionals, lost billions and billions of dollars loaned to them by... um...

Michael Lewis is kind of famous for saying that those trained financial professionals don't actually know what they are doing.


But yeah, your point is good. Iceland could yet end up a net winner from its financial dealings, depending on what their creditors decide to forgive. Certainly those creditors will end up net losers no matter what.

This is one of the funniest and more informative articles I have read in a long time.

I loved this bit:

"Alcoa, the biggest aluminum company in the country, encountered [problems] peculiar to Iceland when, in 2004, it set about erecting its giant smelting plant. The first was the so-called “hidden people”—or, to put it more plainly, elves—in whom some large number of Icelanders, steeped long and thoroughly in their rich folkloric culture, sincerely believe. Before Alcoa could build its smelter it had to defer to a government expert to scour the enclosed plant site and certify that no elves were on or under it. It was a delicate corporate situation, an Alcoa spokesman told me, because they had to pay hard cash to declare the site elf-free but, as he put it, “we couldn’t as a company be in a position of acknowledging the existence of hidden people.”"

Compared with some of the things American financiers were believing during the height of the bubble, elves and trolls seem downright rational.

Absolutely! I was pretty skeptical going in (and the headline here didn't help), but it was a great read.

"Wall Street on the Tundra" by Michael Lewis would have attracted more upvotes, immediately.

You would think so, but apparently not...


I've come to expect no less from Michael Lewis.

"Iceland instantly became the only nation on earth that Americans could point to and say, 'Well, at least we didn’t do that.'"

I'm not sure if that makes me feel good or bad.

I think Zimbabwe also qualifies. Probably plenty more...

The big difference is that Zimbabwe isn't playing in the big leagues, Iceland was supposedly a rocksolid 1st world country.

Seems like that's just better PR. 10 Years ago Iceland was, in most people's minds, something akin to Greenland now. Cold, desolate, poor.

These people obviously weren't well read. Iceland was well to do even 10 years ago.

A rebuttal: http://isteve.blogspot.com/2009/03/bubbles-and-sex.html True, but it's still a great article.

That's a really terrible rebuttal. I was struck by the fact that Sailer seems to think it's impossible to be both aggressive and "cultivated." In my experience, these two traits are almost uncorrelated.

Also, his argument (insinuation, really) that female consumer spending in the US was a driving force of the sub-prime crisis completely is completely tangential to Lewis's argument, which is about male financial workers. (To my mind, both arguments seem unlikely and rather sexist. I'd like to think Sailer is being ironic, but no, he's not.)

Sailer agrees with you about the male/female thing. He's saying it doesn't seem to be a factor.

Sailer agrees with you about the male/female thing. He's saying it doesn't seem to be a factor.

I was in Europe during the Great Banking Failure of 2008. I was in London and was heading up to Stockholm. A quick kayak.com search found the cheapest airfare was on an Icelandic airline named "Sterling". I'd never heard of it, but then, I'm an 'merican, so I haven't heard of most of the European carries. So I sign on, for like 80 euro one way to Stockholm as I wouldn't be returning directly to London.

My flight was at around 7 in the morning, which meant getting up at 4 and hurrying from the Islington area in Central London to the airport. I still have to hustle to make sure I'm on time, and I really make tracks to get there.

And then the plane is late, and I'm stuck waiting at Stansted Airport for a couple hours. Ah whatever, such is the nature of airports. It really wasn't such a big deal.

But then I get the most surprising, strange, somewhat wonderful email I've ever gotten from an airline:


Dear Guest,

Please allow me to be the first to apologize for the very unfortunate circumstances surrounding the delay of your flight on the 15th of October 2008.

We are aware of our responsibility and we would of course very much like to maintain the trust your have shown Sterling. Having said this I would like to explain the cause for this delay and hope you can accept this apology on behalf of Sterling and myself.

I can inform you that we did everything possible to avoid the delay, which unfortunately happened due to a number of different causes. Sterling had unfortunately 2 aircraft that had to stay on ground because of technical problems, together with the fact our route network, which is built up as a coherent schedule, dependant on all aircraft serviceable and available, resulted in multiple delays, including your departure.

Of course, we tried to find alternative flights, but we were not able to fly at the precise time we needed them for and therefore had no other choice but to delay your flight. Sterling sets safety above all other concerns which we hope our guests understand and appreciate.

That being said, I can assure you that we are fully aware that the circumstances that you endured in connection with the delay were neither a pleasant beginning nor conclusion to your journey, and this is highly regrettable.

In light of the above circumstances and by way of acknowledgement that your experience was not the best with Sterling, I would like to offer you and your possible travel companion a gift certificate for 1 one way flight within Europe. The gift certificate will be valid until 10th of October 2009 and will be sent by e-mail, together with another copy of this letter.

In closing, I would like to take the opportunity once more to offer my regrets about the delay and I hope that you will accept the above offer and allow us to welcome both you and your companion to enjoy a more positive experience with us in future.

Best regards Sterling Airlines

Michael T Hansen Chief Commercial Officer


I got that email on October 17th, and I thought to myself, "Wow, those Icelanders are alright." The airline went bust 12 days later.

went to iceland on my honeymoon over the holidays, and i can attest to the intense blame the general public places on the bankers and the politicians for what happened. we took a few bus tours, and on each of the the tour guides made a point to bad-mouth them.

Would this have been worse (or better) if Iceland had not nationalised their banks and simply allowed them to go bankrupt?

The real question would be, would Iceland have been better if it never privatized banks to begin with and never adopted Americanized economics.

The problem was that there was (and still is to some extent) some confusion about how much of their debt was implicitly or explicitly insured by the government. And yes, I realize how ridiculous this sounds but these things (billions of dollars in obligations) really were completely up in the air, partly due to crap EU legislation.

It depends if having all of your country's assets overseas seized and gunboats arriving in Reyjavik would be better than the current situation or not.

When you owe other countries a ton of money and you're not paying, you either need a quid pro quo, a payment plan, or you're going to get your balls busted.

I did idly wonder if it would come to that, when Icesave announced it wouldn't honour guarantees given to British savers. Iceland's defence strategy during the Cold War was to umm, do nothing, and rely on NATO, knowing that it would never permit the Soviet Empire to gain such a strategic foothold. Even tho' the Royal Navy is but a shadow of its former self, invading Iceland would have taken all of one afternoon, if that.

Economically the UK almost did that by seizing Icelandic assets. Quite the quid pro quo, pun intended ;-)

When you owe 850% of your GDP it doesn't really matter if you nationalize them or not - your country is screwed.

What about 350%? (USA)

That number seems to be inaccurate. The Treasury Direct website http://www.treasurydirect.gov/NP/BPDLogin?application=np states that the total U.S. public debt is: 10,943,838,929,434.92 (~11 trillion dollars). The U.S. GDP is close to 14 trillion dollars, making the debt somewhat less than 100%. I'm not sure where that 350% figure comes from.

I think it is debt owned by banks not national debt.

Depends if you spent the money you borrowed on Nukes or Herring :-)

I guess I would put it this way: The growth of societies needs and wants have far outpaced the capacity to deliver those. Not from a physical resource capacity but from an intellectual one. Combine this with the greed that is part of human nature, these large spikes and collapses will be common place until a new social-economic model is created. One that is a steady state model, which allows for the obsolesce of the antiqued without punishment.

For those interested in the back story (or interested in a great data gathering startup) go to http://datamarket.net/request_data/icelandic_economy/

I'm headed to Iceland in a couple of weeks, so this was a very apropos read. Thanks!

There are no countries anymore, there are only hedge funds...

But there are all sorts of things your hedge fund can't do if it doesn't have national sovereignty.

The title here to this article is stupid, and the summary is even more moronic. However, the article is actually a pretty interesting read.

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