From his weekend column:
Iceland managed to create three massive global banks. The economy itself is tiny: Iceland has the same population as Coventry, although arguably the scenery is better. That’s really not big enough to support a lot of globally competitive export industries. Iceland had three: fish, aluminium smelting and tourism. Four if you count Björk. Can you blame them if they fancied dabbling in something a bit sexier, such as investment banking?
Investment banking is sexier than Björk?
I don’t think investment banking even manages to be sexier than aluminium smelting these days, but eight or nine years ago it must have seemed like a great gig. So these Icelandic banks borrowed loads of cash and used it to buy pretty much anything they wanted. In particular, they bought from each other at rather ebullient levels, which made for substantial profits on paper. The whole thing was a classic bubble.
And when the flow of loans dried up?
The banks crashed and there was clearly nothing the government could do to save them – they were far too big. And the party came to a grinding halt.
It doesn’t make a lot of sense.
No. It’s hard to understand why anyone wanted to lend them the money, and just as hard to understand why they thought they could instantly learn the craft of global investment banking.
