Iceland: The country that became a hedge fund

Today the economy is in unbelievably horrible shape: The three banks – Kaupthing, Landsbanki, and Glitnir – are in receivership. The stock market has lost 90% of its value. The central bank is technically insolvent, its modest pile of assets dwarfed by a mountain of liabilities.

The currency, the krona, has lost more than half its value. GDP is expected to drop by a stomach-churning 10% in 2009, and unemployment will probably hit a 40-year high. At Reykjavík’s port sit gleaming new Range Rovers and other SUVs that are now unsellable, and newspapers are exhorting the public to buy no-frills Icelandic goods.

Above all, the nation’s future is heavily mortgaged. Claims from Britain alone amount to half of what’s left of its GDP. “It’s like a neutron bomb that has wiped out all monetary assets but left the people intact,” says Ólafur Isleifsson, a former IMF official who teaches at Reykjavík University’s business school.

Fortune’s article


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