Thursday, April 16, 2009
Michael Lewis on Iceland's follies
In the April issue of Vanity Fair, Michael Lewis has authored a fascinating, funny and lengthy piece on the financial meltdown that occurred in Iceland. The article is not anti-capitalist per se, but it is certainly mocking of the rampant speculation for speculation's sake that happens on occasion in a relatively free economy. Knowing Michael slightly, I think he is mocking aspects of human nature -- in this case, specifically of male Icelanders, and providing a great deal of anthropological and cultural color.
It is one thing to "speculate" by buying common or convertible preferred stock in a private company start-up -- that is absolutely necessary to the essence of capitalism. You are investing in what you believe is a good idea for a new product or service, and if your judgment is correct (including, importantly, your judgment about the company's management), you reap some financial reward. If not, you get nothing, and you know going in that such a possibility exists.
It is another thing for a bunch of former fishermen to engage in currency speculation by borrowing yen or Swiss francs at 3% and then buying stuff in a rising krona market with interest rates at 15.5%. An excerpt:
"Global financial ambition turned out to have a downside. When their three brand-new global-size banks collapsed, last October, Iceland’s 300,000 citizens found that they bore some kind of responsibility for $100 billion of banking losses—which works out to roughly $330,000 for every Icelandic man, woman, and child. On top of that they had tens of billions of dollars in personal losses from their own bizarre private foreign-currency speculations, and even more from the 85 percent collapse in the Icelandic stock market. The exact dollar amount of Iceland’s financial hole was essentially unknowable, as it depended on the value of the generally stable Icelandic krona, which had also crashed and was removed from the market by the Icelandic government. But it was a lot.It is worth reading the whole thing. And don't be distracted by the photo shoot of Gisele Bundchen on the sidebar.
"Iceland instantly became the only nation on earth that Americans could point to and say, 'Well, at least we didn't do that.'"
CWCID: SportsProf
1 Comments:
By 
Georg Felis, at
Thu Apr 16, 03:46:00 PM:
And I thought the Tulip mania was bad. At least we got the Wamego Tulip Festival out of it, all Iceland is getting would be a Black Hole festival.
