A Bankruptcy Lawyer’s Blog

A Review for – Meltdown Iceland: Lessons on the World Financial Crisis from a Small Bankrupt Island

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Review:

I must have received a better edited edition of Meltdown, as none of the problems with the text cited by earlier reviewers appeared in mine.

Boyes has done an excellent job investigating the interaction of a culture and its financial system. He does so with a clear eyed balance and sense of moderation.

Iceland, as Boyes points out, is a uniquely problematic economy because the home population is miniscule, hardly more than a typical small American city, especially relative to the gross area of the island surface, which is forbiddingly rough, not conducive at all to agriculture. The economic aspects of Iceland are naturally limited to an unusual resource mix, fisheries and aluminum smelters primarily. The only other more abstract resource Iceland posseses is its geo-strategic position near the arctic where it serves as an ideal forward base for either the United States or the (former) Soviet Union.

On the cultural side of the equation, the Icelandic system is uniquely ancient, heavily intermarried and obsessed with family trees, often dating back to the 10th century. This deeply rootbound system has produced a tiny, self absorbed elite that has traditionally held controlling interest in pretty much any and all Icelandic industry that matters.

As Boyes details here, with globalization, there would be an inevitable collision between the condensed, inward looking traditional system and the rise of the Neoliberal model of open borders and free capital flows.

At first, this seemed like a magical elixir had been discovered which could transform the static, engrained world of customary relations and limited horizons into a delerious, fantasy Iceland of cutting edge hipness, rather as if Iceland had take a quantum leap from being the ultimate backwater to the very model of the new economy.

The less romantic reality appear to have been that Iceland was both seduced into believing things about itself that could not possibly be true, as a model of sustainable growth, and Iceland’s far more cynical investor class lit on the idea of using Iceland’s banking system as a way of systematically looting not only the citizens of Iceland, but more, depositors in the EU who could be tempted into parting with their savings, their retirement funds, and entire community investment projects. When the fantasy imploded into a cloud of volcanic dust, so did many billions of gullible foreign investment. It sounded not unlike many of the tales recounted by Charles McKay in his classic work Extrordinary Popular Delusions and the Madness of Crowds. The more things change, it seems, the more they stay the same.

Boyes then notes, most interestingly, that right before the great collapse, a large percentage of Iceland’s baking system’s capital base was spirited off to the tax haven island of Tortola in a flurry of shell corporation asset shifting. It would have been excellent if Boyes could have expanded on exactly how much was wired out of the country, on who’s authority, to the sunny island of Tortola. Because if this claim holds up to scrutiny, there would have been a much greater element of foreknowledge and premeditation than the bankers allowed.

Needless to say, the charming nation of Iceland to this day remains embroiled in exactly the profoundly dysfunctional system that led up to to the denoument, one day saying it will honor its deposit guarantees, and the next day vetoing them. Quelle surprise.

Boyes book is essential reading for anyone considering a career in international business or developing nation finance, and probably should be a required text in American business schools as well. There is much to learn from this remarkable cautionary tale.