Frozen in a State of Distress, and What to do Next?
Well, it's happened. Iceland has frozen. Last week in a literal sense, and this week in a more figurative, but just as real manner. Our economy is collapsing, assets are unavailable, mass layoffs are in the works and we've managed to piss the British off in a big way. Our leaders have agreed to a major loan from Russia, if I remember correctly something in the way of 600 billion króna, or about 4 billion Euros ("The Russian ambassador to Iceland, Victor Tatarintsev, informed central bank governor David Oddsson early this morning that Russia would provide Iceland with the loan for three to five years at rates 30 to 50 points above Libor."). Construction workers are flocking to Norway and Sweden and grants, parties and ads once funded by our major banks are being cancelled.
Now we're trying to save face and remember all those tips and tricks our grandparents tried to teach us before we got all glassy-eyed with consumerism and the vacuous, instant gratification version of the capitalist dream.
Read more here.
Comments
That Iceland Review article, I really like it. And "laws designed to deal with terrorists used against Iceland"? Ouch.
Best wishes, Kurt
Turkey has always been on the edge of such economical crisis. It's sometimes hard to cope with it but social strength and solidarity always works.
Wishing all the very best for the whole world.
And the powers intended for use against terrorists? They're being dusted off to use against ordinary people again and again in all sorts of contexts. It's nothing personal.
Stay safe.
i don't know the details of the unravelling relations between Island and the uk but find it totally terrifying and horrible that the anti terror laws apparently can be used for almost everything.
amazing picture, btw.
The Western media is giving only a dribble of information about Iceland. We know the banks are broke, but we don't know how the Icelandic people are taking this. Is there panic? What does the future look like? Are there fears about the food supply?
I'd be appreciative if you could answer these questions. And for what it's worth, I'm telegraphing Iceland good ju-ju.
I'm sorry to hear about economic problems of such magnitude in Iceland. Here in Argentina we know what this all really means. As Bal said I think social strength and solidarity always works and you will be able to get out of such difficult situation.
I wish you the best.
Saludos desde el sur.
Marcelo
in this terrible turmoil, it's nice to read your idealistic comments. ;-)
In the morning, we found out that 1.4% of our money in a money-market fund have evaporated because they were covered by Icelandic bonds.
It sucks but the Icelandic people are not those whom I would fully blame for that - even though they are surely partly guilty.
Many people around me were linked to Iceland in the past - a boyfriend of a friend of mine, a boss of my housing at Rutgers etc. Quite a lot for a country as large as twice Pilsen, my hometown.
Now I see that you studied at UCSC. I was there for 6 months. ;-)
All the best, Lubos
http://www.grapevine.is/Features/ReadArticle/How-to-Succeed-in-modern-business-Olafur-Ragnar-Grimsson-at-the-walbrook-club
This isn't Schadenfreude. The world simply doesn't want to support the kind of mindset showing in Grimsson's words anymore. Time for a change, folks.
I found it very bizzare, for example, that when the banks privatized six years ago and 100% loans in foreign currency blends became available that suddenly everyone needed a new home. The bizzare thing, though, was this desperate need to own a new home did not taper off, but ballooned while square-meter prices nearly doubled. Companies like REMAX, newly come to Iceland, helped instill a sense of entitlement and ease (the old "I deserve a new home because I'm worth it" ploy) in the real estate game. Even as the prices of existing homes and apartments rose, so did the number of new residences being built, which completely ignores the law of supply and demand.
I could see that even if a crash didn't happen, the flood of new homes on the market by 2010 would make inflated market prices redundant. Why buy this apartment for the price you list when that guy over there needs to get rid of his and will accept a lower price. The bargaining process would begin for real, I assumed, dropping listed values.
Soon after these new loans became available, sellers who had only a few years ago purchased homes at, say, 110,000 króna per sq. meter felt they had the right to sell 2 or 3 years later at nearly double that. It seemed like everyone got in the game. And even when the market slowed this spring, and home loans were not being issued by banks as readily, there was still that stubborn right, fueled of course by the real estate market. Turnover of real estate, with everyone "moving on up" in the market, came to a halt. The builders who had half-finished flats for sale in new neighborhoods started offering loans out of their own pockets (which were, of course, monies they owed to banks on development loans.)
A reasonable person had to ask where all the money was coming from, what kind of shell game was taking place. Mass imports of home-related goods, building material, cabinetry, furniture and decor flooded the market and importers spent more and more money advertising lifestyle and luxury. Why settle for that old kitchen when you can have a fancy new one, the one you always dreamed of but didn't know existed until we brought it to you? We bought into this marketing onslaught with vigor.
Businesses that catered to this lifestyle opened huge new stores. One, BYKO, which is a home and building supply store, has opened two warehouse-sized stores within the past two years, stores that are nearly empty of customers. Discount food stores like Kronan and Bonus opened two or three each, all within the greater Reykjavik area. There are only 300,000 Icelanders. Who, I wondered is going to support these businesses, long term. How will they ever be able to pay for the cost of building these mega stores, let alone keep the shelves stocked? Built on massive loans, they are doomed to fail.
So yes, we, the average Icelander, played a crucial role in fueling the out-of-control loan economy. And corporate greed fueled the rest. All the banks had to do was sit back and keep tabs on their loans. I wonder how many people are looking at their swanky new kitchens, their must-have landscaped yards, their ego-inspiring luxury autos, their bathrooms tiled with $100 per sq. meter tiles and furnished with thousand dollar faucets, and wonder if they feel any better about themselves. I'm sure some do, but maybe deep inside there's a nagging sense of having been duped, and of having let it happen.
As far as Penn's question goes as to how we're handling all of this, it's hard to say. I don't think anyone really believes we're going down. Someone's go to bail us out, right? We'll find out more when November comes. Who has a paycheck then, and how high have our loans risen? There's an idea of freezing loans until things settle out, so that families don't go bankrupt, just like Obama has suggested in the States. Store shelves are emptying and newspapers are getting thinner all the time. We may be in hold-your-breath period similar to when California went essentially bankrupt a few years ago. Californians privatized energy and got rolling brown-outs as a consequence, but life went on as usual. We're not great at protesting, so where the French would have stormed the government buildings by now, we just kind of grumble and blog about it. Ultimately, we are very quick learners, which got us into this trouble in the first place ("just do what that guy over there is doing, but with more vigor!") so we will land on our feet. Right?
to LUMO and GRAY: i see alot of finger-pointing and fist-shaking on many blogs. people all over the world are scared and don't know how to handle what feels like a financial punch in the face. it is wrong to point to just one group of people (those damn icelanders!) and say it is their fault. y'all are taking the fall for what amounts to world greed. consumers, banks, investors, local governments, and nations ALLcontributed to this collapse. i've lost a good chunk of my own retirement savings and my job is now in jeopardy because people can't afford to shop at my store. we are all hurt and it's going to continue to do so for quite a while. we need to stop looking for someone to blame (hate). draw your family and friends close. all our families in different countries have been through calamity MUCH WORSE that this. you will survive, some of you will even regain your prosperity. this will only happen if we stop shaking our fist and start holding out our hands to our neighbors. just remember the lessons we have all just learned the hard way, and promise to not get fooled again.
i officially step down from my soap box.
best wishes to everybody
doug
austin, texas
ps. vote obama in '08
Dear Maria, I wish you and your family luck.
I would like to show your explanation above to people here in Hungary, because, on the one hand, they do not really understand what is going on out there (and our country is being compared to Iceland these days), on the other hand it is something that everyone should be aware of.
I've been shocked by the similarities - the banks, the housing industry, the home&deco stores, the foreign loans, even the grumbling and the international indifference...
I wonder if someone wants to put their hands on the country for some reason - however stupid it might sound.
so, my question is if I can translate your comment with the link for others to see, both literally and figuretively
all the BEST
Liz
And to be clear, Iceland hasn't actually taken any money from Russia yet. Still in the works. The IMF is also a bailout option at this point.
Now that you mention IMF, our PM has just taken the same step, rather creepy, though..
Liz
It seems to me that there is a lot of sympathy in the UK for Icelanders, but none at all for the Icelandic government and Icelandic bankers. There is at least as much anger shown to British and American bankers. I have an account with Bradford and Bingley which was nationalized a couple of weeks ago. The few hundred pounds in my account is safe but my B&B stock, originally worth rather more, is now completely valueless.
Paul
The only articles on Iceland concern the IMF and Russian loans and some of the technical economic developments. But how are the shops looking? Sold out? Is there rising anger toward the government? Is there rising panic?
I wish the Western media would put some eyes on Iceland's streets. There aren't any first-hand accounts out of the country. Maria, you're one of the only sources of information!
Penn.
We're from France and we are analysing your blog. Our teacher give us you link. We find it really interesting with very beautiful pictures !
Have a good day,
M1 infocom
And welcome, French students! Be sure to read Icelandic students' posts on www.icelandsays.blogspot.com, And thanks for the compliment!
It is total doom and gloom everywhere according to the media, but life goes on for the most part.
Having visited Iceland only last year and feeling an immediate affection for the place, I was also shocked and saddened to hear of recent events.
As a Brit, I am rather embarrased by the excesses of our Government in using terrorist legislation to freeze Icelandic assets. I know it was a technicality but it really sends the wrong message.
The British press is to be taken with a big pinch of salt at the best of times and they are in no way representative of British people in general.
I think there is bemusement here as there is across the world at recent events.
British banks came close to collapse themselves 2 weeks ago and our now partly state owned.
We are a nation heading to recession. It is not as scary as the situation in Iceland but this is a global problem.
The one thing that really hits home is just how inter-connected we all are.
At the end of last week I heard that Hungary, Ukraine, Pakistan, Argentina and South Korea were to varying extents in trouble from capital flight. That alone covers 3 continents. It really is a small world.
Sending all the best to all in Iceland.