Guest Post: The Icelandic Success Story

Tyler Durden's picture

Submitted by John Aziz of Azizonomics

The Icelandic Success Story

Emotionally, I love Iceland’s financial policies since the crash of 2008:


Iceland went after the people who caused the crisis — the bankers who created and sold the junk products — and tried to shield the general population.

But what Iceland did is not just emotionally satisfying. Iceland is recovering, while the rest of the Western world — which bailed out the bankers and left the general population to pay for the bankers’ excess — is not.

Bloomberg reports:

Few countries blew up more spectacularly than Iceland in the 2008 financial crisis. The local stock market plunged 90 percent; unemployment rose ninefold; inflation shot to more than 18 percent; the country’s biggest banks all failed.

This was no post-Lehman Brothers recession: It was a depression. 


Since then, Iceland has turned in a pretty impressive performance. It has repaid International Monetary Fund rescue loans ahead of schedule. Growth this year will be about 2.5 percent, better than most developed economies. Unemployment has fallen by half. In February, Fitch Ratings restored the country’s investment-grade status, approvingly citing its “unorthodox crisis policy response.”

So what exactly did Iceland do?

First, they create an aid package for homeowners:

To homeowners with negative equity, the country offered write-offs that would wipe out debt above 110 percent of the property value. The government also provided means-tested subsidies to reduce mortgage-interest expenses: Those with lower earnings, less home equity and children were granted the most generous support.

Then, they redenominated foreign currency debt into devalued krone, effectively giving creditors a big haircut:

In June 2010, the nation’s Supreme Court gave debtors another break: Bank loans that were indexed to foreign currencies were declared illegal. Because the Icelandic krona plunged 80 percent during the crisis, the cost of repaying foreign debt more than doubled. The ruling let consumers repay the banks as if the loans were in krona.


These policies helped consumers erase debt equal to 13 percent of Iceland’s $14 billion economy. Now, consumers have money to spend on other things. It is no accident that the IMF, which granted Iceland loans without imposing its usual austerity strictures, says the recovery is driven by domestic demand.

What this meant is that unsustainable junk was liquidated. While I am no fan of nationalised banks and believe that eventually they should be sold off, there were no quick and easy bailouts that allowed the financial sector to continue with the same unsustainable bubble-based folly they practiced before the crisis (as has happened throughout the rest of the Western world).  

And best of all, Iceland prosecuted the people who caused the crisis, providing a real disincentive (as opposed to more bailouts and bonuses):

Iceland’s special prosecutor has said it may indict as many as 90 people, while more than 200, including the former chief executives at the three biggest banks, face criminal charges.


Larus Welding, the former CEO of Glitnir Bank hf, once Iceland’s second biggest, was indicted in December for granting illegal loans and is now waiting to stand trial. The former CEO of Landsbanki Islands hf, Sigurjon Arnason, has endured stints of solitary confinement as his criminal investigation continues.


That compares with the U.S., where no top bank executives have faced criminal prosecution for their roles in the subprime mortgage meltdown. The Securities and Exchange Commission said last year it had sanctioned 39 senior officers for conduct related to the housing market meltdown.

Iceland’s approach is very much akin to what I have been advocating — write down the unsustainable debt, liquidate the junk corporations and banks that failed, disincentivise the behaviour that caused the crisis, and provide help to the ordinary individuals in the real economy (as opposed to phoney “stimulus” cash to campaign donors and big finance).

And Iceland has snapped out of its depression. The rest of the West, where banks continue to behave exactly as they did prior to the crisis, not so much.

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Abrick's picture

That all makes too much sense.  Better add some religion and ideology to confuse the issues.

I think I need to buy a gun's picture

everything is fine in the united states stadium and concerts are packed, everyone has their new tv and has a new leased suv,,,,,,,carry on

The Alarmist's picture

"The rest of the West, where banks continue to behave exactly as the did prior to the crisis, not so much."

Correction ... before the crisis, banks actually paid interest on deposits.  Now they have figured out two ways to get our money for free.

strannick's picture

Ragnarok the Reckoning, banks...

Supernova Born's picture

It's what we got that they don't got that is the key.

TwoShortPlanks's picture

America is not Iceland.

I believe Americans lost their ability (perhaps even their will) to control their own country and destiny somewhere between the day Kennedy was shot, and that of his brother, along with MLK. So, since 1963 to 1968 it's been down hill ever since.

Those three killings effectively put to death, "land of the free, home of the brave" in every Americans' psyche. Because ever since then, every American has lived in fear of the American Government itself....BUT that fear has been actively projected outward (Vietnam, Cold War, Iraq, Afghanistan, War on Terror etc, and now it's the Debt Ceiling). Look at the US MSM, it's a furnace of fear, and they're used to direct that fear toward a predetermined target/focal point. Whatever it takes to prevent the public from realising that what they really fear, is their own fucking Government.

And now I can see that activity, that focal point, is being turned inward, against the American citizens. Soon they'll start identifying specific types of people to they did in Nazi Germany.

The Icelandic Government says something, and does it. The US Government says one thing, and does another. This is because the Icelandic Government fears it's public, the US Government does not.

Woodyg's picture

Downhill from 1937? we were then entering the greatest middle-class growth period EVER!

I point to 1971 and Nixon ending the Bretton Woods - and then Opening China.

francis_the_wonder_hamster's picture

I'm torn between 1861 and 1913.  One saw the destruction of States rights and the other saw the destruction of money.  I'm pretty sure our grandchildren will be adding 2008 to that list.

Cathartes Aura's picture

if you accept the notion that this corporate nationstate is a long term planned "event" then one needn't choose a date within the timeline,

but merely acknowledge the whole event.

economics9698's picture

When the fiat dies form new countries.

1865, 1913, 1937, 1962, 1965, 2001, 2009.

7againstThebes's picture

TwoShort Planks: great post. Right on the money. You absolutely nailed it.

The American Reublic was tattered but more or less was surviving until  the coup d'etat of Nov. 22, 1963, brought it to a close. 

It is amazing how effective the coup was.  You'd think that there would have been a pocket of resistance emerging from somewhere or other in our government, military or society.  But, alas, it seems that we American men have become cowards.  Yes, and this includes the military, where they are the worse form of cowards, i.e., the coward/bully(fawning with the strong and brutal with the weak), and the moral coward (lacking the balls to oppose the hierachy or jeopardize a career). 

I suppose it is going to come down to doors getting knocked on late and night, and we have to make a terrible calculation:  live like a slave or die like a man.


Woodyg's picture

They were quite good at killing any truly effective Leftwing leaders that weren't secret corporatists or bilderbergers.

Too bad theres not a law prohibiting any person from entering government with ANY connection to Kissenger or Brizinski

mvsjcl's picture

Precisely. Iceland isn't large enough to provide refuge for criminals. It's essentially a community. No place for the bankers to hide. They are forced to live next door to the people they're screwing. Easy enough to find them and root them out. Likewise for the law makers. No gated enclaves with bought cops for protection.

Stuck on Zero's picture

Iceland: People control the government.  Government controls the banks.

USSA: Banks control the government.  Government controls the people.


cranky-old-geezer's picture



This is because the Icelandic Government fears it's public, the US Government does not.

I don't think Iceland's govt fears the people, I think they just have some principles, like punish troublemakers, not reward them.

Iceland's govt isn't trying to loot the nation like our govt is.  That might be the biggest difference.

rwe2late's picture









For once try doing some factual research before you otherwise opine based on nothing but your old misbegotten prejudices.

The bailouts were NOT rejected because Iceland’s politicians have “some principles“.

The politicians made repeated efforts to comply with the bankster demands

and had to be repeatedly STOPPED by citizen outrage and opposition.



cranky-old-geezer's picture



I stand corrected, but I have a difficult time believing any govt feels the least bit beholden to the people these days.  Color me cynical.

And if pols wanted to give bankers what they want, it'll happen sooner or later, people be damned.

Kobe Beef's picture

But it didn't happen in this case. The people won. At least, for now, I think. And that's why it's important to study Iceland.

Freddie's picture

College ball with 100,000 screaming idiots and full TV brainwashing.   The kids in colleges sold into debt slavery with no jobs thatks to dear marxist mullah.   These dumb kids cheer for Whatever State University where the tenured marxist profs making $200,000 a year insure these kids are debt slaves for life.  They are cheering the institution that will make them debt serfs.

The other kids in uniform get to die because our mullah said they cannot fire back because it might offend Allah.

GMadScientist's picture

If they were going to Whatever State, they wouldn't be racking up the Stafford Loan was paid off before I graduated.

And the professors at Whatever State are driving Toyota Corollas; you're thinking of lobbyists or maybe your boy Rushbo.

UE without degree: 9.4

UE with degree: 4.9

The other kids in uniform might have been better served by paying attention in class than by being patriotic to a traitorous regime who would send them to die for the sake of their private profits.

Freddie's picture

Who is Rushbo? You mean Limbaugh who fawns over Apple, the NFL and the Steelers?  The Limbaugh who was denied the chance to buy into an NFL (monopoly) team which was bought by a shady pal of obama?   The arse still sucks up to the NFl like a dummy.

Limbaugh the idiot who denied the 2012 election was rigged and was a total set up?   He is another dumb puppet serf like you.   He makes a bit more money being a stooge than most.   No - I realize the whole TV, media and Hollywood support The Matrix.  My guess is you are one of the sheep who watch their crap too.

Oh and the kids in uniform should have paid better attention in school?  So they could go to college and become debt serfs?  Graduate with no prospects for a job?

When did you pay off your Stafford loan?  The costs today for these kids is almost impossible to have a job and go to school.  It was possible about 20 years ago.  Go back to sleep sheep.

TruthHunter's picture

dear marxist mullah. ?

Wasn't it Bush and cronies that shielded student loans from bankruptcy?  So what

did our dear marxist mullah have to do with the student loan debacle? 

philipat's picture

Sweden is another useful comparison. It must be something to do with the climate in these far Northern European States that allows them to think clearly and maintin a degree of integrity.

The US chose to follow the Japan model. With similar results in view of the fact that things never are different this time. The only "Sanctions" in the US have been against the Banks themselves, which are therefore (Unreasonably) paid by the Shareholders. There haven't even been any Civil actions against Banksters, which would at least hit them in their beloved Cayman accounts. What a complete joke.

ThirdWorldDude's picture

Are you saying it with a straight face?

There's only 1 word that explains Sweden - parabolic!

Rationale here, latest update here...

philipat's picture

"Are you saying it with a straight face?"

Yes, I am. Sweden temporarily Nationalised its Banks. The Managements were fired and the Shareholders and Bondholders were wiped out. Depositors were protected. The Banks were later re-privatized and the taxpayer made money in the process. The Banks are PRIVATE so if they fuck things up allover again, that is no fault of an earlier pragmatic Central Government policy but yet more Bankster ineptitude  If they fail again because of Bankster greed and stupidity, so be it. The US approach of "Screw everyone but the Banksters" makes no sense to anyone other than the Banksters.

Kobe Beef's picture

Couldn't just one motivated, patriotic, Special Ops Unit extract the Banksters and waterboard them until the attorneys arrive? Why not a little rendition? Diego Garcia's nice this time of year. C'mon Colonels, we know you're out there.

dolly madison's picture

There haven't even been any Civil actions against Banksters, which would at least hit them in their beloved Cayman accounts. What a complete joke.

Yeah, I'm getting really fed up with the limiting of liability.

Muddy1's picture

All together now: Jon Corzine and MF Global

brettd's picture


Chris Dodd....

GMadScientist's picture

Bank of Lynching America CountryWide.

Mozillo, Thane, Greenberg,...

philipat's picture

"Yeah, I'm getting really fed up with the limiting of liability".

Actually, "Limited Liability" does not applly in the case of fraud or any other criminal activity. And civil suits can be brought against anyone BY anyone.

Lebensphilosoph's picture

It's called race, not climate.

JohnnyBriefcase's picture

Yeah, but where do they stand on gay marriage and abortion?

disabledvet's picture

actually the article doesn't make sense at all...though the policy response does. this is a Bankster paradise...having all debt denominated in the local currency, have it devalued to nearly nothing then have all your debts be forced to repaid in a "hard currency." (British Pounds, euro's...maybe even dollars who knows.) the households still have the debt...they still have to scrimp and save and work and live...just in a devalued world. I wouldn't call this response "unorthodox" but in fact "text book on how to deal with a property bubble." namely, devalue, destroy, inflate. this is obviously what Ireland, Portugal, Greece and Spain SHOULD be doing...and the fact that they are not, have not...will not be allowed to? having dramatic consequences on the Continent. The USA is the "off the wall" case actually. i have argued the USA model is the "nothing succeeds like excess" approach. And this is as it relates to bailouts, credit writedowns, massive increases in Government entitlement programs, a further expansion of the war...was there a downsizing i missed here? "there wasn't a downsizing but a super-sizing"? as if MF Global "will now pay for everything." the USA's approach so far appears to be one where creditors don't even exist...let alone do not matter. Amazingly so far it has succeeded as "the dollar has remained at albeit low levels, interest rates have plunged, the economic recovery barely has a pulse...but it does have one" etc, etc, etc. Obviously "long everything" continues to work...and as long as you don't try to explain it then "everything is just fine." there is a point however where that devalued dollar turns into Hitler. The irony that it is cash itself that is in such short supply should be lost on no one. "And now the Government is stepping up activities to see what's going on there":
this was a critical component of the "Epic Fail" of 2008...namely overnight rates for just plain old cash went through the roof. where are these rates now? what have we done to create the conditions whereby such an event cannot happen in the near term again? haven't we in fact done the exact opposite of solving the problem and in fact are recreating the crisis of 2008? it sure seems that way to for the fact of a barely registering cyclical recovery. in many ways (relative to the deficit and debt for example) you could argue our current situation is far worse...especially given the a massive new set of tax increases to go along with the biggest unfunded entitlement in US history. (Social Security and Medicare would fully funded in my view.) And lest we forget we are at war.

Yen Cross's picture

I would not call a "volcanic Island" of 300k people a resounding economic success/ What is your turn around on (GDP)?  Same as it ever was/ Fishing the North Atlantic, with some small oil fields!

The Alarmist's picture

You forgot threatening to lease air,naval, and intelligence collection facilities to rival wannabe superpowers and using that to extort contributions from a Hyperpower. That's gotta be good for a few billion a year.

Yen Cross's picture

Polar routes for surveilance/ Yes that makes sense/

willwork4food's picture

If a macho H.S. bully promised his drug man the money he extorted from all the 98lb weenie's lunches he collected for protection then blew it all on a weekend hooker, would it be right for the drug man to have the right to come and continue to shake down the kids?

YC,   the concept is honor and form and therefore the size of the monetary value is irrelevant.

The fuckers here in the US that are FUCKING PAID TO SERVE US screwed us and should hang for high treason. Got rope? I wanna be first.

Yen Cross's picture

 It's not about $. $ are the by-product of  good ideas, with a good team of people.

willwork4food's picture

Yes it is about the $. If the IRS wants to steal $ from me and my business to fund the hypocrital US-Israel Government and pay illegals for their child care without my consent then I can have a great team of people with good ideas I have to get rid of because I was robbed and can't pay them because they have more guns than I have.

Usually I agree with your posts, perhaps I am missing your point.

Yen Cross's picture

  Lay off the Northern Lights Iceland. We are your friends. We come in peace/

GMadScientist's picture

A little bit goes a long way.

Just remember (if you can), when you're already at the North Pole, you don't get any more North...

Yen Cross's picture

What the heck does Child support and the Middle east have to do with Iceland?

  I see credit ratings/ I see business ratings/   I see people voting for socialized government services?

  What am I missing? 

Gross Domestic Product, Iceland
willwork4food's picture

What does Child support and the ME got to do with Iceland?


Ahh, let's see..yea, got it: Everything?

CPL's picture



Iceland does not have anymore "wealth" than it did when it nationalised their banks and stopped the slide into the gutter.  All they did was postpone the inevidable of fractional reserve banking's implosion.  

So enough of the backclapping, Industry stands at zero from the socialist volcano island.  There have been discussions in the past to evacuate the whole place because of the geological possiblity of the island growing a bit bigger.  Not economically, from lava flow.  BUT if all of you wish to throw money at oil wells that wouldn't provide a city of 50000 with energy for the day and pickled herring, that's great.  But understand that this article is as much an advertisement as it is a showcase.


Keep things in perspective.

There are towns in Oregon of 50000 that have more robust industry, manufacturing, energy, farming, logging, minerals and trades people than Iceland does.  Plus they grow great weed and there are some mighty fine brew masters plying their trade.


francis_the_wonder_hamster's picture

The diving in Iceland is epic.  Just saying....