Iceland: Fish and Investment Banking

In 2003, Iceland's three biggest banks had assets of only a few billion dollars, about 100% of the nation's GDP. By the mid of 2006, the banking assets grew over USD 140 billion and were so much greater than Iceland's GDP, that there was no purpose in calculating the percentage. Many bankers, economists and authors believe that this was a phase when the banking system achieved rapid expansion. The harsh truth is that Iceland was no more a country, but a hedge fund.
The three major banks were pumping money into the Icelandic economy, driving the value of stocks and real estate crazy. Students in universities were fleeing from the economics of fishing to the economics of money.

This materialistic ambition turned out to have a downside. The collapse of the three major banks resulted in banking losses of more than USD 100 billion. For a country with a population of 300,000 the losses per person works out to around USD 330,000. The losses do not end here. Moreover, there were personal losses incurred through foreign currency speculation and collapses in the stock market. In 2011, the public debt per person stood at USD 42,714 more than USA's USD 33,555.

Learning points:

- Too much banking not good for the economic health. Do not create fake capital by trading in assets at inflated values. For example, I own apples and you own oranges. We agree that each fruit is worth millions. You sell me oranges and I sell you apples for millions. Now, we are no more fruitsellers but banks with assets worth millions.

- Give fish a chance. It will work again!

- Do not buy a Range Rover or Bentley if you cannot afford it. In the end, you are left with two options, either you burn it to get insurance money or ship it to a customer to earn in foreign currency.