Iceland's Economic Changes and Financial Crisis

Overview

• Iceland: Stable democracy with high standard of living.
• Clean energy, food production, healthcare, education, and low crime.
• Policy changes in 2000 led to environmental and economic issues.

Deregulation and Economic Impact

• 2000: Iceland's government began deregulation.
  • Allowed multinational corporations like Alcoa to exploit geothermal and hydroelectric energy.
  • Privatized Iceland's three largest banks.
• Consequences:
  • Banks borrowed $120 billion, 10 times the size of Iceland's economy.
  • Massive financial bubble: house and stock prices soared.
  • Bankers indulged in luxury spending.
• Financial institutions borrowed heavily, leading to unsustainable leverage.

Collapse of Icelandic Banks

• 2008: Iceland's banks collapsed, unemployment tripled.
  • Citizens lost savings.
  • Government regulators ineffective.
• Global financial crisis exacerbated by U.S. investment bank bankruptcy.

Global Financial Crisis

• 2008: Lehman Brothers bankruptcy, AIG collapse led to global recession.
  • Tens of trillions lost, millions unemployed.
  • U.S. national debt doubled.

History of Financial Regulations

• Post-Great Depression: 40 years of economic growth without crisis.
  • Banks tightly regulated.
• 1980s: Deregulation began under Reagan.
  • Savings-and-loan crisis cost taxpayers $124 billion.
• Clinton administration continued deregulation.
  • 1999: Overturning of Glass-Steagall Act.

Role of Financial Innovations

• Rise of derivatives in the 1990s.
• Unregulated derivatives market led to instability.
• Brooksley Born's attempt to regulate derivatives thwarted.
• 2000: Commodity Futures Modernization Act passed, banning regulation of derivatives.

Securitization and Subprime Mortgages

• Securitization disconnected lenders from the risk of loan repayment.
• Subprime lending grew massively.
  • Led to housing bubble and financial instability.

Financial Industry's Compensation and Influence

• Wall Street compensation soared during the housing bubble.
• Financial industry's political influence through lobbying and contributions.
• Deregulation and lack of accountability criticized.

Aftermath and Recovery Efforts

• 2008-2009: Bailouts and emergency measures to stabilize economy.
• Obama administration's weak financial reforms criticized.
  • Continuation of deregulation policies and financial executive impunity.

Conclusion

• The crisis highlighted the risks of financial deregulation and lack of accountability.
• Call for stronger regulations and ethical accountability in the financial industry.