The failed state of Iceland

IN A WORLD where international reputations seem to topple like dominoes every few months – Greece being the latest casualty – it’s worth stepping back in time to the mother of all financial disasters. When Iceland’s banking sector disintegrated in autumn 2008 it spelled the end for the nation’s big three lenders – Kaupthing, Glitnir and Landsbanki – creating the greatest banking collapse relative to economic size in history.

But it did much more. It shredded a tiny nation’s hard-won economic reputation in a heartbeat. It bankrupted hundreds of Icelandic firms, many of which had grown fat and rich with cheap loans from local banks. Worst of all it impoverished tens of thousands of poorly advised (and often greedy) consumers, who are now deeply in debt and bitter towards everyone – bankers, politicians, regulators and the entire global financial system that allowed Iceland to...