2008–2011 Icelandic financial crisis: Causes and Consequences

The 2008-2011 Icelandic financial crisis was a perfect storm of reckless lending and borrowing that ended in a catastrophic collapse. Iceland's three major banks, Kaupthing, Glitnir, and Landsbanki, had been expanding rapidly, fueled by cheap credit and a lack of regulation.

The banks' reckless lending practices had created a housing bubble, with prices skyrocketing to unsustainable levels. By 2007, the bubble had burst, and the banks were left with massive amounts of worthless assets.

Iceland's economy was heavily reliant on these banks, and their collapse sent the country into a deep recession. The crisis had a devastating impact on the country's economy, with GDP falling by over 10% in 2009.

The crisis also had a profound impact on Iceland's citizens, with many losing their life savings and facing unemployment.

Iceland's Financial Crisis was a significant event that occurred in 2008-2011. The crisis was extensively studied by Rok Spruk in his 2010 publication, "Iceland's Economic and Financial Crisis: Causes, Consequences and Implications".

The crisis was caused by a combination of factors, including a severe economic downturn and a collapse of the country's banking system. This led to a sharp decline in the value of the Icelandic króna, making imports more expensive and contributing to a severe recession.

In 2010, Rok Spruk published a detailed analysis of the crisis, identifying the key causes and consequences. His work is a valuable resource for understanding the complexities of the crisis.

The collapse of the banking system was a major factor in the crisis, with three major banks - Glitnir, Kaupthing, and Landsbanki - failing in rapid succession. This led to a loss of confidence in the financial system and a sharp decline in economic activity.

The crisis had significant consequences for Iceland's economy and people, including high levels of unemployment and a decline in living standards. The country's GDP fell by over 10% in 2009, making it one of the worst-performing economies in the world.

The crisis led to a significant increase in Iceland's national debt, which rose from around 25% of GDP in 2007 to over 100% by 2011. This made it difficult for the country to access international credit markets and made its economic recovery more challenging.

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The crisis also led to a significant decline in Iceland's standard of living, with many people struggling to make ends meet. The country's housing market was particularly affected, with property prices falling by over 50% between 2007 and 2009.

Here are some key statistics from Rok Spruk's 2010 publication:

Overall, Iceland's financial crisis was a severe and complex event that had significant consequences for the country's economy and people.

The Special Investigation Commission was established on December 12, 2008, to investigate the causes and lessons of the crisis, releasing its report on April 12, 2010.

The Commission's findings were significant, but it's worth noting that the investigations were just the beginning. The Office of the Special Prosecutor was founded in December 2008 to investigate suspected criminal conduct related to the banking crisis.

Ólafur Hauksson was appointed as the Special Prosecutor in February 2009 and had a team of four staff members, which grew to 109 by September 2013. By that time, the top managers of all three Icelandic banks that collapsed during the crisis had been charged.

Here's a breakdown of the court cases related to the financial crisis:

The Special Investigation Commission was established on December 12, 2008, by the Althing to investigate the causes and lessons of the Icelandic financial crisis. This commission was a crucial step in getting to the bottom of what went wrong.

Supreme Court Justice Páll Hreinsson served as chairman, along with Parliamentary Ombudsman Tryggvi Gunnarsson and Sigríður Benediktsdóttir, who was associate chair at Yale University. The commission released its report on April 12, 2010, after a thorough investigation.

The commission's findings were an important part of the ongoing investigation into the financial crisis.

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By January 2018, 13 of the court cases ended with guilty verdicts.

The slow pace of the investigations was evident in the time it took to reach verdicts. 202 cases had been investigated in total over the period.

Of the 23 court cases that ended in verdicts, 13 resulted in guilty verdicts. This is a significant number, considering the complexity of the cases.

Four cases ended with not guilty verdicts.

The Icelandic government faced intense scrutiny and criticism during the financial crisis. Protests against the Central Bank, Parliament, and government's alleged lack of responsibility drew between 3000 and 6000 people on Saturdays.

The President of Iceland, Ólafur Ragnar Grímsson, publicly criticized Iceland's traditional friends, including Britain, Sweden, and Denmark, as well as the International Monetary Fund. He even suggested that the Russians might want to use the Keflavík Air Base, but the Russian ambassador replied that they had no need for it.

A significant portion of the Icelandic public demanded early elections, with 64% in favor and only 29.3% opposed. A poll taken in late November 2008 showed the Social Democratic Alliance leading with 33.6%, followed by the Left-Green Alliance at 27.8%, and the Independence Party at 24.8%.

The government's relationship with the UK worsened significantly, particularly after the UK Prime Minister, Gordon Brown, used anti-terrorism laws to freeze Landsbanki holdings in the United Kingdom. This decision was met with anger from the Icelandic government and public, with over 80,000 Icelanders signing an online petition calling it "a completely unfriendly act".

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The government's response to the crisis was met with widespread protests.

By early November 2008, thousands of Icelanders had taken to the streets to express their dissatisfaction with the government's handling of the situation.

Protests attracted between 3000 and 6000 people, which is roughly 1-2% of Iceland's population.

The President of Iceland, Ólafur Ragnar Grímsson, even weighed in on the situation, criticizing Iceland's traditional friends, including Britain, Sweden, and Denmark.

The UK Prime Minister, Gordon Brown, responded by freezing Landsbanki holdings in the United Kingdom, which was met with anger from the Icelandic government.

Iceland's prime minister, Geir Haarde, described the British decision as "a completely unfriendly act".

The situation escalated further when the UK cancelled its scheduled patrol of the Icelandic airspace in December 2008.

As a result, a poll from late November 2008 found that 64% of Icelanders were in favour of early elections.

In fact, the Social Democratic Alliance was leading in the polls, with 33.6% support, followed by the Left-Green Alliance at 27.8%.

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Former politicians have spoken out about the need for investigation into unusual loans given to them by banks before the crisis.

Former Prime Minister Davíð Oddsson has claimed that Iceland needs to investigate these loans.

Björn Bjarnson, the former Minister for Justice and Ecclesiastical Affairs, has written extensively about problems in the business sector over the last 14 years.

He has compared some parts of it to Enron, stating that companies have been playing a game to make themselves look good.

We can learn from Björn's experiences and observations, as he has been vocal about the need for transparency and accountability in the business sector.

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The Icelandic public was not happy about the government's handling of the crisis, with protests against the Central Bank, Parliament, and government attracting between 3000 and 6000 people, or 1-2% of the population, on Saturdays.

These protests were a clear indication of the public's dissatisfaction with the government's response.

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The President of Iceland, Ólafur Ragnar Grímsson, even criticized Iceland's traditional friends, including Britain, Sweden, and Denmark, as well as the International Monetary Fund, suggesting that the Russians might want to use the Keflavík Air Base.

This move was met with a strong reaction from the UK, which froze Landsbanki holdings in the United Kingdom using provisions in the Anti-Terrorism, Crime and Security Act 2001.

Iceland's prime minister Geir Haarde protested against this decision, calling it "a completely unfriendly act".

The situation escalated when the UK cancelled its scheduled patrol of the Icelandic airspace in December 2008, leaving Iceland with no standing army of its own.

Polls showed that 64% of Icelanders were in favour of early elections, with only 29.3% opposed.

Here's a breakdown of the polls taken in late November 2008:

The 2008-2011 Icelandic financial crisis was a major turning point in the country's economic history. Many business leaders, once hailed as financial gurus, are now under intense public scrutiny for their roles in causing the crisis.

Jón Ásgeir Jóhannesson, known as the "popstar businessman", has become a symbol of excess, with a satirical video on YouTube portraying him as a ruthless businessman. His Baugur Group retail empire, which includes Hamleys and House of Fraser, has relocated to the UK due to his guilty verdict on false accounting charges.

Lýður Guðmundsson and Águst Guðmundsson, the owners of Kaupthing, are also under the spotlight. The frozen food entrepreneurs were in charge of Kaupthing, one of the banks that collapsed during the crisis.

Björgólfur Thor Björgólfsson and Björgólfur Guðmundsson, the shipping and brewing moguls, owned Landsbanki, another bank that failed. They are also being investigated for their business practices.

The crisis led to the collapse of three major banks: Glitnir, Kaupthing, and Landsbanki. The government of Iceland did not have the means to save them, so they were put into receivership with their boards replaced.

Here's a brief overview of the new state-owned banks that were set up:

The new banks were recapitalized by the government, with a capital ratio of 16% of all assets. Trading in shares of the six financial companies on the OMXNordic Iceland Exchange was suspended on October 6, and all trading on the exchange was frozen for two days to prevent further panic.

The market reopened on October 14, with the main index, the OMX Iceland 15, at 678.4, a plunge of about 77% compared to its previous value. Trading in shares of Exista, SPRON, and Straumur-Burðarás remains suspended, while the values of other equities varied from +8% to -15%.

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The 2008-2011 Icelandic financial crisis was a trying time for the country and its people. The crisis was triggered by the collapse of the Icelandic banking system, which was heavily dependent on foreign credit.

The three main banks, Glitnir, Kaupthing, and Landsbanki, had grown rapidly in the years leading up to the crisis, but their assets were largely worthless. This led to a massive loss of confidence in the banks and a subsequent collapse.

The government's initial response to the crisis was to provide emergency loans to the banks, but this only delayed the inevitable. The government eventually nationalized the banks and implemented capital controls to prevent a complete collapse of the financial system.

The crisis had a devastating impact on the Icelandic economy, with GDP falling by over 10% in 2009. The country's currency, the krona, also plummeted in value, making imports more expensive and further exacerbating the economic downturn.

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The crisis led to a significant increase in unemployment, with levels rising to over 10% in 2009. Many Icelanders were forced to rely on government support, including food and heating subsidies, to get by.

The crisis also had a profound impact on the country's politics, leading to the resignation of the government and the formation of a new one. The new government implemented a range of austerity measures to try and restore the country's economy to health.

The crisis was eventually brought under control through a combination of government intervention and the implementation of economic reforms. The country's economy began to recover, albeit slowly, and the krona stabilized in value.