Iceland currency collapses

Turn the chart upside down to see how far and fast the Iceland krona has fallen compared to the euro. This is a direct result of the collapse of Lehman, who was the major lending facility for the third largest (and way over-extended) bank in Iceland.

: Iceland has suspended trading in their banks, and the domino effect is hitting the UK.

From the comments:

Have been trying to get our money out of IceSave (Landsbanki) all day. It’s impossible. Website allows you to log on, but will not recognize any attempted transfer of funds. We get a message asking us to call the bank, but nobody is there to take the calls. This is a nightmare.

The crisis is now directly impacting small countries, not just corporations.


  1. “All Things Considered” just interviewed the Finance Minister of Iceland. The coiuntry has nationalized one bank and may nationalize the rest. They’re on the verge of bankruptcy. But here’s the interesting part: they got into this trouble because they were borrowing “cheap, short-term” money on the international market and lending it out at higher rates.

    Think about this: Lehman was lending them cheap money thanks to the Fed’s artifically low interest rates. The Icelandic banks were lending it out again at market rates which were much higher. That’s a no-brainer– until the market siezes up due to lack of funds. Then they have to pay back the short-term loans but can’t borrow any short-term money to do pay them with. And voila: meltdown.

    Once again, I submit to you that Bernanke was driving this bus.

  2. Well, that bus company was started by Alan Greenspan, noted acolyte of Ayn “Greed is good” Rand.

    They were all borrowing short-term cheap money and “investing” it long-term at higher rates. Unlike here though, Iceland has no real fallback position, major financial resources, or anyone to prop them up.

  3. “People know that inflation erodes the real value of the government’s debt and, therefore, that it is in the interest of the government to create some inflation.” — Ben Bernanke.

    Note that when Bernanke took over as Fed chair, the Fed Funds Target Rate was a fairly reasonable 4.5%. It even went up over the next five months to a high of 5.25% in June 2006. Then, as inflation heated up, the Fed Rate (counterintuitively) began to plummet, creating an artifically low overnight lending rate– promoting inflation and bending the credit market all out of shape in the process.

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