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HenryTo
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 Posted: Wed Mar 26, 2008 7:32 am Post subject: Iceland |
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Aside from Eastern European countries such as Latvia and Hungary, Iceland is also a country to watch, even though its population is a mere 300,000:
http://www.ft.com/cms/s/0/86390a7a-faa1-11dc-aa46-000077b07658.html
| Quote: | | The Central Bank of Iceland on Tuesday raised its benchmark rate by 125 basis points to 15 per cent because of persistent inflation. The consumer price index has averaged more than 4 per cent in recent years – far above a 2.5 per cent target – and the central bank has failed to curb inflationary expectations. Iceland is also suffering speculation about its banks and a rapid decline in its currency. The risk is that foreign investors will rush to withdraw, the Icelandic krona will collapse and the economy will contract sharply. |
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HenryTo
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diesel
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Location: Australia & New Zealand
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| Posted: Fri Feb 06, 2009 1:43 am Post subject: |
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Postmortem via the Guardian
http://www.guardian.co.uk/world/2009/jan/26/iceland-hedge-fund
| Quote: | | The financial crash has put paid to Iceland's get rich quick scheme – known as the yen carry trade – and left Iceland saddled with debts it has no hope of paying without impoverishing its people for decades to come. Given its pariah status in the global markets, the country was forced to turn to the International Monetary Fund for a loan earlier this month, but faces years of austerity. |
Its funny in hindsight to examine the games that were played to keep the credit bubble going. The fractional reserves of many of the largest banking international banking houses were reduced to less than 0.1% as they combined this crazy Japanese wild lending with derivative swaps that would take care of several issues:
1. In case interest rate hikes killed the Japanese carry trade i.e. if Japan raised rates to over 1%
2. Insurance swaps for guaranteeing the loans of corporations.
3. Credit default swaps in case bankers using this system were to default.
This meant there was no more risk.  And since there was no risk, there was no need for reserves. So, Japan had a zero interest rate in a system with one of the worlds biggest forex reserves while the US bankers had zero reserves with the worlds biggest exposure to the derivative swaps market. Isnt that a fantastic way to have complete destruction! Nothing but a giant ponzi bubble...
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