The 2008 crash: Causes.

Cheap money, house price bubbles, financial deregulation, September 2008, later comments.
Clippings from the internet and print media, 1999 to 2015.

Cheap money.

1. Samuel Brittan, Financial Times, 6 June 2002.

A serious difficulty about zero inflation is that it puts a floor under how far the real rate of interest – that is, the rate corrected for inflation – can fall.

2. Samuel Brittan, Financial Times, 14 October 1999.

. . . during the oil shocks of the 1970s, world economic activity was cushioned by the fact that prices continued to rise. This allowed US real interest rates to drop to nearly minus 5 per cent, and in the UK lower still. It is quite likely that if all industrial countries had followed a policy of trying to offset the rise in oil prices by reductions in other prices straight away, the recession of that period would have been worse than it actually was.

. . . The main emphasis of the IMF Outlook is . . . that if governments and central banks follow stable and responsible policies there would rarely be the type of recession which would need to be offset by negative real interest rates. The temptation is to respond: tell that to the marines. To put it more politely: boom and bust are most unlikely to be banished even though good policies may help to moderate them.

3. George Soros, Financial Times, 15 December 2009.

The efficient market hypothesis holds that financial markets tend towards equilibrium and accurately reflect all available information about the future.

. . . Instead of a tendency towards equilibrium, financial markets have a tendency to develop bubbles. Bubbles are not irrational: it pays to join the crowd, at least for a while. So regulators cannot rely on the market to correct its excesses.

The crash of 2008 was caused by the collapse of a super-bubble that has been growing since 1980. This was composed of smaller bubbles. Each time a financial crisis occurred the authorities intervened, took care of the failing institutions, and applied monetary and fiscal stimulus, inflating the super-bubble even further.

4. Charlie Robertson, The Times, 18 December 2014.

Twenty years ago, emerging markets were a brand new asset class that attracted hefty inflows of western capital. They offered no currency risk, because of fixed currency pegs, and they delivered high growth. However . . . growth came at the expense of rising import bills.

Eventually, as these economies overheated, global investors began to question this model. Capital was withdrawn. Current account deficits could not be financed. Fixed currency pegs were attacked and then toppled like dominos, from Thailand in 1997 to Russia in 1998 and eventually Argentina in 2001.

. . . The 1990s emerging markets crash saw the US Federal Reserve loosen monetary policy, fuelling a tech bubble that eventually blew up in 2000.

5. Jane Padgham, 21 March 2007,

The Bank of England deliberately stoked the consumer boom that has led to record house prices and personal debt in order to avert a recession, the former Bank Governor Eddie George admitted yesterday.

Lord George said he and his colleagues on the Monetary Policy Committee “did not have much of a choice” as they battled to prevent the UK being dragged into a worldwide economic slump by slashing interest rates. . .

Lord George, who headed the Bank for a decade from 1993, revealed to MPs on the Treasury Select Committee that he knew the approach was not sustainable. “In the environment of global economic weakness at the beginning of this decade. . . external demand was declining and related to that, business investment was declining,” he said.

6. Larry Elliott, The Guardian, 1 July 2004.

America’s central bank, the Federal Reserve, served notice last night that rock-bottom interest rates in the world’s biggest economy were a thing of the past when it raised the cost of borrowing for the first time in four years.

. . . The widely anticipated move followed a year in which the fed funds rate had been left at a 40-year-low of 1% in order to guarantee that the US economy would enjoy a sustained recovery from the slowdown that followed the collapse of the dotcom bubble and the terrorist attacks on September 11 2001.

. . . the Fed, led by chairman Alan Greenspan, . . . made it clear that further rate increases were in the pipeline . . . even after last night’s modest move, interest rates were still at a low enough level to stimulate the economy. “The evidence accumulated . . . indicates that output is continuing to expand at a solid pace and labour market conditions have improved,” it said.

With oil prices lower than they were at their peak in May, the Fed shrugged off signs of mounting inflationary pressure. The data were “somewhat elevated” but part of the increase was due to “transitory factors”.

7. US housing crisis led to meltdown.
The Scotsman, 22 November 2010.

The origins of the banking crisis date back to between 2004 and 2006 in the United States, when interest rates rose from 1 per cent to 5.35 percent, triggering a slowdown in the housing market.

Homeowners began to default on their mortgages. The impact was felt across the financial system as many of the mortgages had been bundled up and sold on to banks and investors.

House price bubbles.

8., November 2001.

At present the main cause of inflation is the reductions in interest rates because of the fear of recession, which enable higher mortgages, which cause higher land prices.

9., 2004.

In this latest land price bubble in the UK there has been an increase of 130 percent in the average house price since 1997. That’s an annual increase of 12.6 percent, about 10 percent more than inflation. Ten percent of the average house price is approximately equal to the average annual wage.

This crazy redistribution of wealth to landowners from everyone else wouldn’t have been so extreme if land was taxed realistically. The purpose of land tax is the prevention of bubbles and speculation, and the collection of some of the unearned rent, and I don’t think a logical fair economy can be achieved without it.

10. The Economist, 5 March 2005.

Over the past seven years, average house prices in America have risen by 65%, those in Britain, Spain, Australia and Ireland have more than doubled.

11. Alison Marshall, March 2008.
Data from Kaletsky, A. ‘Black clouds loom on horizon after years of plenty’, The Times, 22 October 2007.

. . . in a comparison of data from 18 countries from 1997 to 2006, house price inflation relative to disposable incomes was lowest and negative in Japan, Germany, and Korea. It was positive and close to the median value in the US, and highest in Ireland, the Netherlands, the UK, and France.

12. Credit Crisis Interview: Susan Wachter on Securitizations and Deregulation. 20 June 2008.

This is the first time in U.S. history since the Great Depression that we have had a national decline in home prices. So it is exceptional. And part of the story of the extraordinary collapse of 2007 –and current 2008 continuing — is the 2006 explosion of credit.

13. Michael Robinson, 29 July 2008.

With the American housing market in its worst crisis since the Great Depression of the 1930s . . . a little known quirk of US law threatens to drive down house prices even faster. Faced with seemingly never-ending falls in the value of their properties, some American home-owners are taking radical action; they are choosing to walk away from homes and their mortgages.

. . . In California and much of the rest of America, there is a powerful incentive for homeowners . . . to walk away from their mortgage obligations. Though banks can repossess and sell the homes of borrowers who stop paying their mortgages, under a legal quirk originating in the Great Depression of the 1930s, banks cannot easily pursue borrowers for any balance outstanding on the main mortgage on their homes.

. . . Traditionally in America there is a social stigma attached to those who default on their debts, which should be a deterrent to walking away from your home. But according to Susan Wachter, professor of real estate and finance at Wharton School of Business, in the depth of this crisis the social attitudes to such actions are changing. . . . Professor Wachter believes that, to date, most people have had their homes repossessed because they could not manage the repayments. The trend of people now positively choosing to walk away because it makes financial sense to do so is a worrying new development. “The dangers are extraordinary,” Professor Wachter says. “If all that is needed is that the house value is less than the mortgage value, there is a large number of homeowners in the United States who are in that situation”.

. . . In the city of Stockton – the foreclosure, or repossession, capital of the US for 2007 – estate agent Kevin Morgan sells repossessed houses on behalf of the banks that now own them. According to him, walking away has become commonplace. “I would say it’s probably 70% of the volume of our foreclosures right now,” he says. “It’s a business decision for their family that the smartest thing they can do is walk away from their home.” As a sign of the changing times, some 60% of borrowers do not even bother to contact their banks to attempt a renegotiation of their loan, Mr Moran explains. “They stop paying and they stop talking,” he says. “They just plain walk away.”

It is impossible to know for sure how many of the people who are now walking away from their homes could have gone on paying their mortgages. But Professor Nouriel Roubini of New York University, one of the first economists to warn of the dangers of the American house price boom, believes the number of people positively choosing to walk away is growing rapidly. “This is becoming a tsunami of voluntary defaults,” Professor Roubini says. “The losses for the financial system from people walking away could be of the order of one trillion dollars when the entire capital of the US banking system is only $1.3 trillion. “You could have most of the US banking system wiped out, so this is a total disaster.”

Financial deregulation.

14. The Economist, 2 August 2008.

Mortgage approvals for home purchases in June fell to 36,000, according to the Bank of England – a third of what they were a year ago . . . most banks are desperately short of cash, and those that are not have become desperately discriminating.

Until global credit markets froze late last year, Britain’s banks were great fans of mortgage-backed securities. Gone were the days of taking in £1 of deposits to extend £1 in loans. Instead, banks funded some 40% of new mortgages . . . by bundling up loans and selling the securities they backed. In 2000 around £13 billion-worth of mortgages were securitised in this way; by 2006 the figure had jumped to £257 billion and was growing at a pace of £78 billion a year. The easy credit that resulted fuelled both the boom in house prices and the consumer spending that helped Britain’s economy grow.

15. Current global banking crisis was predicted by 1993 academic study.
30 September 2008

. . . the current international turmoil in banking was accurately predicted some fifteen years ago in a study by an eminent Southampton economist and lawyer.

In his book ‘International banking deregulation: the great banking experiment’ published in 1993, Professor Richard Dale, Emeritus Professor of International Banking in the University of Southampton’s School of Management, considered the possible consequences of banks’ increasing involvement in securities markets world-wide, particularly in the light of the US banking collapse of 1929.

This detailed study, based on historical evidence as well as legal and economic analysis, concluded that, by permitting banks to engage freely in securities markets, policy-makers were engaging in a vast banking experiment whose outcome would be “increasing potential for a self-feeding and large-scale crisis engulfing both banks and securities markets internationally”.

Professor Dale specifically warned against repeal of the US Glass-Steagall Act that separated banking from securities business: “The Act was repealed in 1999 and eight years later the banking industry is facing a meltdown due to its risk exposures in securities markets,” he comments.

September 2008.

16. James Buchan, 25 September 2008.
The Great Crash of 2008.

Of all the phantoms conjured from the financial depths in the past ten days, the most ghastly appeared on . . . 17 September, when interest on the short-term obligations of the United States government, the one-month Treasury bill, turned negative and became a penalty. Such terror had overtaken the markets that they were willing to suffer a loss on their money in the hope that, in the deep bosom of the US Treasury, some of it would be kept safe. . . . It was a recognition that the world is . . . held together only by instances of agreement between two or more people. It is an education that everybody should pass through, and my generation has done so twice, in 1987 and 2008.

. . . Like generals fighting their grandfathers’ wars, policymakers are haunted by the Depression of the 1930s, where a crash in financial markets was transformed by selfish national policies into a collapse in world trade.

. . . What are we to make of a banking business that must be recapitalised by the public every generation? . . . And in the intervening periods treats the public like poor relations?

. . . Even the most prudent banks borrow ten times their own capital, while investment banks (who do not take deposits from the public) borrow very much more: Lehman Brothers 30 times, and even the respectable Goldman Sachs 22 times. At that extent of what is known in the US as leverage, a small fall in values wipes out the bank’s capital, leaving its lenders exposed to loss, and their lenders likewise in a daisy chain of failure. . . . An unsupervised trader can wipe out a bank’s entire capital, as in 1995 at Baring Brothers, or so terrify management that they reverse his trades at fire-sale prices, as at Société Générale last February.

Even at that level of leverage . . . banks have sought ways to expand their lending through various legal and quasi-legal means. . . In a regulatory filing, AIG made no secret that some of its credit insurance instruments were designed to help banks evade restrictions on their lending. Another tactic was to combine packets of loans into interest-bearing securities and sell them on to other investors. This allowed banks to replenish their funds and originate more loans, but at the risk of spreading the default far and wide – which is why bad debts in run-down cities in the Midwest affected investors in London, Frankfurt and Tokyo.

. . . Paulson’s attempt to maintain the banking system at the extent . . . of 2005 or 2006 may not be successful. . . . As industrial companies fall into loss and individuals lose their jobs, debts of a more solid character than 110 per cent loan-to-value mortgages will fall into arrears. Unable to raise capital in the markets, banks will once more need public support, or will fail.

. . . poorer or less sophisticated countries . . . are . . . unable to borrow. . . While all eyes have been on London and New York, the Russian stock market has halved. This is the nightmare of the 1930s where the engine of world trade simply peters out.

. . . In Britain, New Labour . . . must recall in hot flushes its excruciating naivety. . . In the US, both presidential candidates Barack Obama and John McCain are mining a popular hatred of the East Coast money men that goes back deep into the 19th century. They will place restrictions on bank lending and securities underwriting just at the point where there is no lending or underwriting of securities.

17. Joyce McMillan, The Scotsman, 27 September 2008.
Troubled times require more respect for the state.

. . . this week has seen one of those historic moments when western politics undergoes a major ideological paradigm-shift, on a scale not seen since the collapse of the post-war consensus 35 years ago. . .

. . . in Toulon on Thursday . . . the French president, Nicolas Sarkozy . . . seized the moment . . . “The idea of an all-powerful market without any rules or political intervention is mad,” he thundered. “Self-regulation is finished. The all-powerful market that is always right is finished.” And he added . . . that in his view this was not a crisis of capitalism, but a crisis of a system which had betrayed the true values of capitalism, which should be based on an ethic of effort, and fair rewards. What Sarkozy has done, in other words, is to announce the end of the age of market fundamentalism, and the beginning of a new deal between governments and markets; a new age, ideally, in which both would treat the other with respect, as an essential player in delivering freedom, peace and prosperity.

Of course, it is shocking that it has taken a crisis on the scale of the events of the last two weeks to provoke any world leader into clearly articulating what has been obvious to many ordinary people for decades. But now, the shift has happened, and, in theory, this moment presents an obvious opportunity for leaders on the centre left, some of whom have been muttering for months about the need for a new balance between governments and markets. . .

But . . . so far, only a recently-elected leader from the right . . . President Sarkozy, has had the confidence, and the political leeway, to cut through the ideological fudge that has become second nature to the current generation of centre-left leaders, and to make, in clear and explicit terms, the leftward move towards a greater respect for the role of the state that the times obviously demand.

Later comments, 2008.

18. Martin Crutsinger, AP Economics Writer, 23 October 2008

WASHINGTON (AP) — Lawmakers have called key players from the past and present to congressional hearings in an effort to find out what caused the biggest financial crisis since the 1930s and determine how the government plans to get the nation out of the mess. . . . Alan Greenspan, the chairman of the Federal Reserve for 18.5 years . . . faces questions about actions the government took or didn’t take that might have contributed to the boom . . . and the subsequent housing market collapse . . .

While conducting major hearings so close to an election is unusual, House Oversight Committee Chairman Henry Waxman, D-Calif., said the current crisis was so serious that Congress could not wait until a new administration arrives in January to find out “what went wrong and who should be held accountable”.

. . . Once praised as the “maestro” of the U.S. financial system during the 1990s economic boom, Greenspan, who was succeeded in 2006 by Ben Bernanke, was likely to find himself defending actions he took that are being blamed for contributing to the current crisis. Critics charge that he left interest rates too low in the early part of this decade, spurring an unsustainable housing boom, while also refusing to exercise the Fed’s powers to impose greater regulations on the issuance of new types of mortgages . . . Greenspan, true to his Republican free-market principles, successfully opposed . . . controls on complex financial contracts known as derivatives . . . He said they were useful in helping to spread risks.

19. Tom Utley, 7 November 2008.
The Queen has missed her vocation. She’d be wonderful as a polite Paxman asking the questions we ALL want the answers to.

At the age of 82, the Queen broke the habit of . . . small-talk this week when she turned up for the official opening of the . . . New Academic Building at the London School of Economics.

Shown round by Professor Luis Garicano, head of research at the LSE’s management department, she . . . put into words the question that has been puzzling . . . her subjects in Britain and around the world for many months . . . since the scale of the credit crisis is so enormous, why . . . didn’t anybody see it coming?

I can’t help feeling a stab of sympathy for Professor Garicano.

. . . According to his own account, he told the Queen: “At every stage, someone was relying on somebody else and everyone thought they were doing the right thing.“

. . . Her majesty could have a new role as . . . a polite version of Jeremy Paxman. . . With her interest in economics, she might start by asking the Prime Minister: “If we got into this mess by spending and borrowing too much, why do you suppose that we’ll get out of it by spending and borrowing more?“

. . . Only last week . . . Chancellor Alistair Darling officially tore up the Prime Minister’s precious Golden Rule, which stated that over the course of an economic cycle the Government should borrow only in order to invest.

That rule was no mere, minor detail of Mr Brown’s economic policy. Along with his Sustainable Investment Rule (which said that borrowing should remain below 40 per cent of national output), it was the very foundation of Gordonomics, which underpinned every decision he took at the Treasury. . .

20. Stephen Foley, 12 November 2008.
G20 summit: New world order?

. . . there is little agreement yet on . . . what type of financial architecture, if it had been in place, would have prevented a housing downturn in the US from becoming a credit crisis that engulfed the world. . .

. . . Economists identify big capital flows and leverage as two major contributors to the credit crisis, the first for pumping giant surpluses from China into the US and inflating a housing market bubble . . . the second for allowing banks to make bets many times the size of their underlying assets.

. . . what to do about international capital flows could emerge as an important philosophical discussion in the Administration of President Barack Obama, and Washington insiders and economists are already searching for clues among his economic advisers whether they will lean towards the continental European inclination to regulate these flows, or to the British view of laissez-faire – and what sort of accommodations can be struck with a Chinese Government that firmly controls capital flows and has kept its currency stubbornly low to stimulate its export-driven economy.

Later comments, 2009-2010.

21. Peter Jones, The Scotsman, 10 July 2009.

. . . pretty much everyone thought that the widespread securitisation of loans had reduced the risk by distributing it throughout the financial system, when in fact the reverse was true.

. . . there was far too much credit available . . . it caused a property price bubble . . . too much credit card and other personal debt . . . disastrous takeovers such as the RBS purchase of ABN Amro.

22. Liam Dann, 14 August 2010

This week marked the third anniversary of the credit crunch. Not the market crash itself but the sudden spike in interbank lending rates that caused it.

It started with French Bank BNP Paribas freezing three hedge funds on August 9, 2007, and sparking a panic which temporarily froze short-term lending and sent rates soaring . . . British bank Northern Rock was bailed out in September, United States investment bank Bear Stearns collapsed in March 2008, in September 2008 Lehman Brothers collapsed . . .

. . . Three years on from the crunch – and almost two years on from the crash . . . this recovery is turning into an endurance race. Sadly the longer it runs the more we see good businesses which have done all they could start to falter and fall short of the finish line. . . the domestic economies of the West are still . . . deleveraging. That is to say . . . paying down debt rather than spending on shiny new gadgets or investing in property.

23. Joshua Chambers, Sept 2010.

Overconfidence among politicians led to the deficit in the public finances, former cabinet secretary Lord Turnbull has told Civil Service World.

Speaking last month, the retired civil service chief said . . . that the Treasury was prone to “wishful thinking” and that “the politics” of the time had prevented civil servants from speaking more openly about the increasing level of debt.

. . . Turnbull – who was permanent secretary at the Treasury from 1998 to 2002 . . . said “. . . it’s quite difficult when your minister is proclaiming that we have transformed the propects of the UK economy. . . The politics was that we had put an end to boom and bust. . . We had a sense of overconfidence; it happened all around the world, but it was a rather extreme form of it in the UK.”

. . . excessive borrowing started to be a problem from 2005. “It kind of crept up on us in 2005, 2006, 2007, and we were still expanding public spending at 4.5 percent a year,” he said, arguing that the Treasury should have been putting more money aside.

Later comments, 2011.

24. IMF admits wilting under Brown Treasury.
Chris Giles, Financial Times, 11 February 2011.

The Treasury, Bank of England and Financial Services Authority concealed important information from the International Monetary Fund and put pressure on it to tone down warnings before the financial crisis, the fund’s independent watchdog has concluded.

The IMF’s main problem in failing to spot the vulnerability of the UK economy . . . in the years 2005 to 2007 was that fund officials were too soft on British officials, willingly participating in “groupthink”. However, their work of supervising the economy was also hindered by an aggressive attitude from British officials.

In particular, the constant sparring over the public finances between the IMF and Gordon Brown’s Treasury, when Ed Balls, now shadow chancellor, was a key figure, contributed to fund officials being insufficiently robust . . .

The report from the IMF’s Independent Evaluation Office . . . confirms contemporary briefings from IMF and the Organisation for Economic Co-operation and Development officials that the UK, along with Australia, were the most adept countries at modifying reports from international organisations.

The report blames fund officials for wilting in the face of Treasury demands to water down criticisms over Britain’s public finances. “There is some written and interview evidence of pressure of this kind to tone down specific recommendations on fiscal policy issues,” the report says.

So intimidated were IMF staff, the report says, that they did not challenge the Bank sufficiently on the credit boom.

. . . The FSA, too, rejected IMF advice to collect more data on off-balance sheet banking vehicles after a “lively discussion”.

The big problem, the IEO says, was that fund staff “were influenced by the authorities’ own analysis and strong reputation”.

25. Spanish activists find new target.
Giles Tremlett, The Guardian, 17 June 2011.

Spain’s peaceful “indignant” protest movement, which saw its image tarnished by outbursts of violence in Barcelona this week, has turned its attention to stopping banks from repossessing people’s homes.

. . . Plummeting house prices have left some Spanish property owners with negative equity . . . At the height of Spain’s decade-long property boom banks were handing out loans of up to 100% on the value of homes. But a crash that hit in 2008 has left more than 700,000 newly built homes unsold. . . banks have become major residential property owners, mostly because of unpaid loans by developers.

The number of house repossessions is swelling as unemployment hits 21% and eurozone interest rates rise. . . Immigrant labourers flocked to Spain during the construction boom but are now among those most likely to lose their homes. Campaigners want Spanish law changed so mortgage debts can be cleared simply by giving banks the keys to the property – as they are in the US.

26. Michael Burke, The Guardian, 18 July 2011.

The European Banking Association’s stress tests have been designed to provide reassurance to the financial markets . . . Last year’s exercise gave the all-clear to Europe’s banks. All the Irish banks collapsed just months later . . . this time the banks’ holdings of government debt are included, having previously been regarded as 100% safe.

. . . Stress-testing does, however, highlight the real source of weakness for Europe’s banks. . . Unlike US banks, EU bank weakness is not primarily driven by the souring of domestic property loans. Instead, it was their exposure to falling US markets that caused the first real problems . . . this was exacerbated by the US dollar losing a quarter of its value from 2006 to mid-2008.

. . . the national and international authorities have been unwilling to let the burden of bank failure fall . . . on the banks’ shareholders and bondholders. . . So the government’s and the European Central Bank’s finances have substituted for failed banks. This has reached scandalous lengths in Ireland, where the government’s bailout of mainly overseas creditors threatens to bankrupt taxpayers.

Later comments, 2012-2015.

27. Back in the downwave. January 2012.

A k-wave downturn, driven by demographic change, may be a factor in the global financial crisis. Other factors are Chinese exports, American mortgage law, and financial deregulation.

The Chinese problem is part of a long term transition away from the dominance of Europe and the US. The other three are related to the longwave crises which tend to occur once in every 1.7 generations.

The US mortgage law was a response to the crisis of the 1930s, the dominance of the New Right deregulators came after the crisis of the 1970s, and now in the 2010s, here we are again, in another longwave downturn.

28. Larry Elliott, The Guardian, 2 May 2012.
Sir Mervyn King admits: we did too little to warn of economic crisis.

Sir Mervyn King . . . the Bank of England . . . governor . . . said that . . . “. . . the power to regulate banks had been taken away from us in 1997. Our power was limited to that of publishing reports and preaching sermons. . . ”

Looking back at the events since global financial markets froze up in August 2007, King said the Bank had not imagined the scale of the disaster that would occur when the risks it had identified crystallised . . . there seemed no reason in this case to expect the worst recession since the 1930s.

“In the five years before the onset of the crisis, across the industrialised world growth was steady and both unemployment and inflation were low and stable. Whether in this country, the United States or Europe, there was no unsustainable boom like that seen in the 1980s; this was a bust without a boom.”

. . . The governor’s critics say that he should have done more . . . in the years leading up to the start of the financial crisis in August 2007 . . . to prick the bubbles in the City and the housing market . . .

29. Financial Times, 13 December 2012.

In the early half of the past decade, inflation targeting made central banks reluctant to accommodate the deflationary effects of China’s entry into the world trading system. The excessive liquidity they created fed the credit bubble.

30. Saga of the Viking who lost £3bn overnight.
John Arlidge, Sunday Times, 4 January 2015.

Thor Bjorgolfsson . . . on Friday, October 3, 2008 . . . was worth £3bn. By Monday night . . . everything was gone.

. . . Bjorgolfsson was the biggest investor in Iceland’s banks when the banking system and, swiftly afterwards, the country itself went bust . . . Bjorgolfsson made billions in Russia and other emerging markets . . . before returning to Iceland in 2002 to buy 45.8% of Landsbanki for $140m.

. . . He describes how, during the boom years, rival Icelandic entrepreneurs were locked in a testosterone-fuelled competition to see who could get richest the quickest. . . the main players all knew each other . . . “We were all born between 1966 and 1970. Most of us went to the same school . . . We were young alpha males, competing hard and partying hard.”

The entrepreneurs’ initial success did not simply fuel greater risk-taking among themselves . . . Icelanders cast aside the traditional social democratic Scandinavian business and political model in favour of American winner-takes-all capitalism. . . With money so cheap . . . people were seduced into thinking that they could become overnight millionaires.

Further reading.

The search for a stable economy.


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