The sup-prime fallout and global credit crunch is hitting hard in Iceland, as I've been keeping tabs on in this space. The latest news is that Björn Gudmundsson, an economist at Landsbanki, said the Bank of England might need to join the Nordic front to stop the crisis spreading. This would be on top of an emergency credit facility put in place this past week by Norway, Sweden and Denmark of 1.5 billion Euros to support the Icelandic Krona from an attack by hedge funds. These hedge funds are wielding what Warren Buffet calls 'Weapons of Mass Financial Destruction' (a.k.a. derivatives), who have targeted the country with short-selling 'bear raids' to try and drive the 300,000 people living in Iceland and their economy into bankruptcy for a quick buck.
The connection to Britain is that Icelanders have become big investors in Britain by borrowing billions on the Sterling market and then using the money to take over lots of British companies. Many of the shops one sees on Britain's 'high streets' are in fact owned by Icelandic investors.
In the global daisy chain that is the world financial markets we should be mindful that an attack on Iceland means an attack on Britain, who is already suffering a real estate crash and economic contraction similar to the one in 1990. (I remember getting calls from friends in London selling their 'rollies' (Rolls Royces) for $10,000, the equivalent, I suppose, of the famous photos of men selling apples in the street on Wall Street after the crash of 1929). And of course, Memories still burn of Georoge Soro's 'bear raid' of the British Pound Sterling in 1993 when he made a quick 1 billion dollars and forced the Pound out of the Exchange Rate Mechanism. An event that squashed support for the Tories and gave rise to Blair and New Labor.
The Telegraph in London reports that people are referring to Iceland as the first possible 'offshore Northern Rock,' implying that a major run on the banking system is possible. Gordon Brown, Britain's beleaguered Prime Minister seems utterly flummoxed and out of his depth since taking over from Tony Blair and his Chancellor of Exchequer Alistair Darling has lost all credibility. There does not appear to be any guidance coming out of No. 10 at all.
For Americans this may seem far away from their own financial concerns, especially now since the talk in the financial press in the U.S. is of a 'shallow' recession and we hear of a rebound on Wall Street and a 'bottoming' of the real estate collapse. However, since the globe's finances are interconnected in highly leveraged ways where the 'butterfly principle' of chaos theory is made manifest through the multi-hundred trillion derivative-o-sphere, one cannot forget that the U.S. dollar, a butterfly of a fiat currency with very little in the way of tangible assets supporting it, can get caught up in the global maelstrom in ways that Americans will find nasty.
I will continue to keep an eye on this Iceland story and possible do a follow film to the one I already made that was broadcast on Al Jazeera a couple of months ago.