Welcome to the United States of Iceland
By Paul Smalera, March 10, 2010: 1:19 PM ET
NEW YORK (Fortune) -- It's time to start paying attention to the financial sinkhole that Iceland is trying to climb out of -- the view from inside of it is eerily similar to our own.
An Icelandic savings bank, Icesave, had attracted billions in deposits from hundreds of thousands of British and Dutch citizens, due to the phenomenally high interest rates it offered. Icesave collapsed in 2008, for much the same reason Lehman Brothers, WaMu, and hundreds of local savings banks did: its bankers used their cash to make complicated, bad, leveraged investments, mostly on real estate.
The British and Dutch have made their citizens whole, bailing out Icesave after it became clear the Icelandic government didn't have the resources to do the same.
Now, they expect to be repaid. But in a referendum there this past weekend,only 1.8% of votersfavored a plan to pay back the $5.3 billion Iceland owes. It would have worked like this: the International Monetary Fund would loan Iceland the cash to pay back the British and Dutch. Iceland, then, would repay the IMF.
To call the rejected terms loan-sharking would be a disservice to usury. (my emphasis) They called for every Icelandic family to essentially throw a quarter of its income towards servicing the loan for the next eight years. But this isn't the end: one way or another, the bill will come due, and Iceland's 320,000 citizens will be paying for the hubris of a few hundred of their own, who dubbed themselves "investment bankers." more