How Iceland went mad (...or not)
Michael Lewis has an amazing story in Vanity Fair about how the tiny country of Iceland essentially turned itself into a hedge fund, with disastrous results:
Highly recommended and very funny.
Update: Gregory A. Burris offers a pointed rebuttal to Lewis in Counterpunch. Thanks to commenter Hildur for recommending the piece It's a useful counterweight.
However, unlike Burris, I didn't think Lewis was scapegoating Iceland for the global financial crisis. In fact, Lewis stressed repeatedly that Iceland was just a bit player in a much larger and more nefarious economic system. Iceland is a tiny country that turned itself into a hedge fund. Compared to AIG, the entire Icelandic debacle is scarcely background noise. Iceland didn't break capitalism. Capitalism broke Iceland.
I thought Lewis was saying that Iceland the nation is an example of the devastation that unregulated global capitalism can wreak on an entire society. Big countries like the U.S. and the China are rich enough to weather the demise of many banks and hedge funds, whereas smaller countries like Iceland can be totally wiped out by much smaller failures. For me, the key point was that global capitalism is a lot more diverse than it used to be: The players aren't just the biggest companies in the richest countries in the world, and the regulatory framework must take that into account. We can't afford to let booms and busts destroy nation states.
Update 2: Jonas Moody of New York Magazine fact-checks Lewis's account and finds it wanting--nobody's hoarding food, or blowing up Range Rovers en masse. Lewis understated the number of surnames in Iceland and overstated both impact of elf mythology on daily life and the ease with which cults can obtain federal subsidies. However, Vanity Fair stands by Lewis's source's assertion that Icelanders are hoarding foreign currency. Converting krona into foreign cash would certainly have been a smart move for those who realized that the banking system was unsound and the Icelandic currency was on the brink of collapse. (Thanks, HG.)
So far, the critiques of Lewis's article have centered on his snarkily hyperbolic Icelandic travellogue, as opposed to the financial details that are the meat of the story. The author consistently exaggerates for effect, sometimes to the deteriment of his overall credibility. But Lewis's hokey speculations about Icelanders as the risk-taking sons and daughters of fishers and smelters aside, I'd be curious to know what people think about his economic arguments.