Iceland: What happens when a country goes bankrupt?

Especially when their banks were crazy over-extended in other countries? The government of Iceland has now nationalized all their major banks, their currency is dropping off a cliff, and their stock market has been closed until Monday.

Apparently their banks took a cue from US banks, and went insane on leveraged greed too – but even more excessively. Not a good idea for a tiny country.

How insane did it get there?

In the past five years, people’s average wealth has grown by 45 per cent – and the money has gone into houses and cars, financed by 100 per cent loans based on a spread of foreign currencies. Now the krona is plummeting, loans are ballooning and thousands are defaulting.

Basing the interest rates of car loans on a spread of foreign currencies is howling at the moon madness. Good for coyotes maybe, but not for financial institutions.