The Icelandic Financial Crisis: A Study into the World ́s Smallest Currency Area and its Recovery from Total Banking Collapse

This book presents a detailed account of Iceland’s recovery from the tumultuous banking collapse that overturned its financial industry in 2008. Early chapters recount how Iceland’s central bank was unable to follow the quantitative easing policies of the time to print money and save the banks, while serving the world ́s smallest currency area. The book goes on to explore how the government exercised force majeure rights to implement emergency legislation aimed at preventing the “socialization of losses”. Later chapters investigate how, eight years later, these policies have yielded renewed growth and reinvigorated liquidity streams for the financial system. The authors argue that Iceland, long-called the ‘canary in the coal mine’ of the developed world, offers important lessons for the future. This book will be useful to all readers interested in better understanding the unique history of Iceland’s banking crisis and the phenomena of its recovery. "Contents"--"List of Figures"--"List of Tables" -- "1: Introduction" -- "1.1 Gala at Harpa" -- "1.2 One Letter and Six Months?" -- "1.3 The Unfinished Business of 2011" -- "1.4 Lessons Learned?" -- "1.4.1 Lessons in Banking" -- "1.4.2 Lessons in International Finance" -- "1.5 The ``Appalling BlankÂþÂþ" -- "2: The Worst Case Scenario" -- "2.1 Midnight at the Mansion" -- "2.2 The Botched Bailout" -- "2.3 A Rejection from the US Fed" -- "2.4 The WaMu Way?" -- "2.5 The Geyser Warning" -- "2.6 A Force Majeure Action" -- "2.7 God Bless Iceland" -- "3: Reykjavik on the Thames" -- "3.1 The Problem with the BanksÂþ Owners" -- "3.2 An Act of Terrorism?" -- "3.3 Will the Payment System Collapse?" -- "3.4 Reykjavik on the Thames" -- "3.5 Sound and Fury" -- "4: Day Zero" -- "4.1 When the Phones Went Silent" -- "4.2 How to Value Assets?" -- "4.3 How to Partition the Banks?" -- "4.4 A Troubled Childhood: The Operation of the New Banks" -- "4.5 Dealing with Blame, Shame and Punishment" -- "5: Worthless Currency?" -- "5.1 The Transfer Problem" -- "5.2 The Icesave Debacle" -- "5.3 The Carry Trade Hangover" -- "5.4 The Current Account and the Capital Controls" -- "5.5 The Currency Auctions" -- "5.6 The Political Fallout" -- "6: Meet the Hedge Funds" -- "6.1 The Sir Philip Moment" -- "6.2 Business at the Old Banks" -- "6.3 The Asset Base of the Estates" -- "6.4 Hedge Funds as Bank Owners" -- "6.5 What Kind of Resolution?" -- "6.6 Asset Return at Composition" -- "6.7 Sharing the Profitswith the Public" -- "7: The Faustian Bargain of Capital Controls" -- "7.1 Would You Like to Own a Stake in Deutsche Bank AG?" -- "7.2 The Operation of the Controls" -- "7.3 The Capital Controls as a Bargaining Tool" -- "7.4 The Carrot and Stick Approach" -- "7.5 The Stability Contributions" -- "7.6 The Textbook Case?" -- "8: Dealing with Monetary Pollution." Front Matter....Pages i-xvi Introduction....Pages 1-33 The Worst Case Scenario....Pages 35-66 Reykjavik on the Thames....Pages 67-101 Day Zero....Pages 103-138 Worthless Currency?....Pages 139-171 Meet the Hedge Funds....Pages 173-208 The Faustian Bargain of Capital Controls....Pages 209-249 Dealing with Monetary Pollution....Pages 251-287 A Full Recovery: Fiscal Cost of the Crisis....Pages 289-316 Back Matter....Pages 317-349