Jonas Moody, who has lived on Iceland for the past seven years, takes Michael Lewis to task for some inaccuracies and other odd things in his Vanity Fair piece about the country's economic crisis.
5. "Icelanders are among the most inbred human beings on earth -- geneticists often use them for research."
Now this is insulting. Icelanders' DNA shows their roots to be a healthy mix between Nordic Y chromosomes and X chromosomes from the British Isles. The reason genetic-research company deCODE uses Icelandic genes for its research is not because the codes are so homogeneous, but because the population has kept excellent genealogical records dating back thousands of years.
I sort of shrugged my shoulders at this stuff when I read the piece and forged ahead for the financial meat and potatoes, but it doesn't read so well when collected all in one place like this. Was the piece supposed to be a farce? If not, it doesn't reflect well on Lewis or his editors at VF. (thx, micah)
Michael Lewis, who is seemingly cranking out 10,000 words a day about finance and sports these days, writes in the pages of Vanity Fair about the Icelandic financial collapse. It's an amazing story.
That was the biggest American financial lesson the Icelanders took to heart: the importance of buying as many assets as possible with borrowed money, as asset prices only rose. By 2007, Icelanders owned roughly 50 times more foreign assets than they had in 2002. They bought private jets and third homes in London and Copenhagen. They paid vast sums of money for services no one in Iceland had theretofore ever imagined wanting. "A guy had a birthday party, and he flew in Elton John for a million dollars to sing two songs," the head of the Left-Green Movement, Steingrimur Sigfusson, tells me with fresh incredulity. "And apparently not very well." They bought stakes in businesses they knew nothing about and told the people running them what to do -- just like real American investment bankers!
But it was all essentially make-believe.
A handful of guys in Iceland, who had no experience of finance, were taking out tens of billions of dollars in short-term loans from abroad. They were then re-lending this money to themselves and their friends to buy assets -- the banks, soccer teams, etc. Since the entire world's assets were rising -- thanks in part to people like these Icelandic lunatics paying crazy prices for them -- they appeared to be making money. Yet another hedge-fund manager explained Icelandic banking to me this way: You have a dog, and I have a cat. We agree that they are each worth a billion dollars. You sell me the dog for a billion, and I sell you the cat for a billion. Now we are no longer pet owners, but Icelandic banks, with a billion dollars in new assets. "They created fake capital by trading assets amongst themselves at inflated values," says a London hedge-fund manager. "This was how the banks and investment companies grew and grew. But they were lightweights in the international markets."
The story is a bit out-of-date, but this overview of the cause and effects of the Icelandic financial crisis is still worth a read.
Picture a pig trying to balance on a mouse's back and you'll get some idea of the scale of the problem. In a mere seven years since bank deregulation and privatisation, Iceland's financial institutions had managed to rack up $75bn of foreign debt. In his address to the nation, Haarde put the problem in perspective by referring to the $700bn financial rescue package in America: "The huge measures introduced by the US authorities to rescue their banking system represent just under 5 per cent of the US GDP. The total economic debt of the Icelandic banks, however, is many times the GDP of Iceland."
Nathan Myhrvold, billionaire polymath, recently wrote a series of three posts for the Freakonomics blog about his trips to Iceland and Greenland.
I'd like to say that global warming was evident during my visit, but that is not really the case. Indeed, [my guide] Salik tells me that he and most Greenlanders are pretty skeptical about it. The local fishing industry used to be based on arctic prawns, but the sea temperature has changed just enough that the prawns are much further north, so now they fish for cod.
But, as Salik points out, this cycle has happened several times in living memory. The same with the glaciers: yes they are retreating, but at least in his area, they have yet to reach the limits that the locals remember them. Objective measurements do show that climate change is happening. Nevertheless I was amused that the locals don't seem to think it is such a big deal.
The photos are worth a look by themselves.
Tim Gasperak was recently in Iceland and took some gorgeous photos. More at his site, Big Empty.
