2008 Financial Crisis: Iceland's Then & Now Essay examples

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I) Causes of the Crisis

On September 15, 2008, the American bank Lehman Brothers, with holdings over 600 billion USD, filed bankruptcy. This was by far the biggest bankruptcy in U.S history and it marked the beginning and the largest financial crisis ever. How can one of the biggest banks in the world fail? How can a bankruptcy in US make someone on the other side of the world unemployed? The answer is Collateralized Debt Obligations (CDOs) and it all started by new innovations in the financial sector combined with deregulations on the financial market.
Many mathematicians and physicists started to work in the financial market and created new financial products called derivatives after the Cold War. These products made it possible for
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could not afford their loans anymore. Thus, they started to sell their houses. The housing prices went down and when the value of the houses were lower than the value of the initial loan, people left the houses to the banks. Instead of owning CDOs consisting with positive cash flows, the banks now owned CDOs consisting of houses with decreasing values (See appendix). The CDOs sold all over the world and combined in both banks and private peoples investments were now almost worthless. Lehman Brothers had an immense amount of investments in CDOs, and as they went bankrupt, one of the world’s worst financial meltdown had thus begun.

II) Critical Examination on How the Crisis Affected Iceland Before the financial crisis in 2008, Iceland’s stock market had increased with over 900 percent since the middle of the 90th century (Graph 3). During 2000-2008, unemployment rate remained between 2-4% and Iceland had grown from one of Europe’s poorest country to one of the wealthiest during the last decades. The Guardian wrote an article, “No wonder Iceland has the happiest people on earth” in May 2008. However, on October 10, 2008 the headlines had changed - Bloomberg Businessweek announced that “Iceland goes bankrupt” was a catastrophic fact.

Concrete definition of bankruptcy for a country is both hard to define and explain, but simply put, it means that a country is not able to pay back its external/foreign debts. Iceland’s government debt increased
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