Iceland Economic Crisis Essay

In 2008, the world experienced a tremendous financial crisis which rooted from the U.S housing market; moreover, it is considered by many economists as one of the worst recession since the Great Depression in 1930s. After posing a huge effect on the U.S economy, the financial crisis expanded to Europe and the rest of the world. It brought governments down, ruined economies, crumble financial corporations and impoverish individual lives. For example, the financial crisis has resulted in the collapse of massive financial institutions such as Fannie Mae, Freddie Mac, Lehman Brother and AIG. These collapses not only influence own countries but also international area. Hence, the intervention of governments by changing and

Having said that, there was an even bigger surprise. Economists and regulators, who are supposed to understand and use history, also did not learn from these experiences. Perhaps they were blinded by the political climate of the time. It is always hard to disagree with the “established science” of the time. After all, there was a time when everybody “knew” the world was flat. Only the “insane” thought otherwise.

The financial crisis of 2007 arose when banks, such as HSBC announced losses due to mortgages in the US housing market (BBC News - Global recession timeline, 2016). The crisis had a global impact as financial systems are interconnected. This crisis had huge impacts in many countries. In fact, in 2009, the UK Chancellor, Alistair Darling announced that the UK had a record debt of £175 billion (BBC NEWS | UK | UK Politics | Tax rise as UK debt hits record, 2016).

The Federal Reserve acted in reaction to the financial crisis in many ways. First, the Federal reserve decreased the federal funds rate to near zero to encourage inter bank lending. The Federal reserve then performed perhaps one of its most important functions. It acted as the lender of last resort to banks, including numerous innovative lending facilities. Through 2010 into 2014, the federal reserve did something it hadn’t done before. It enacted a quantitative easing program, in which they made additional purchases into mortgage backed securities (since there were fewer private buyers) and into government bonds (long term) in order to lower long term rates. That was because at the time the economy was caught in a liquidity trap. Money

The Global Financial Crisis of 2007-2008 has been studied by several economists, and different causes have been identified, both primary and secondary, which intensified the overall impact of the crisis. In my view, the Global Financial Crisis resulted due to a culmination of several policies that interplayed with each other, and significantly influenced all sectors of the economy, from consumers to the government. In this essay, I will be addressing the main underlying causes of the crisis, how they originated, the extent of their impact, and how they compare with other financial crises. I will conclude with an analysis of policies that have been undertaken, and initiatives which should be implemented to prevent future crises.

Banking crises in Iceland and Ireland came to a head at the height of the financial crisis in September and October 2008. These countries took quite different approaches in dealing with these difficulties. Ireland and Iceland are small island countries with many

❖ 2008, Iceland‘s international banking system collapsed following the collapse of the US financial sector

The 2008 financial crisis is notably one of the worst financial disasters in American history. It began with a large financial bubble, in which many investment, real estate, and insurance companies made millions. When the bubble burst, stock markets fell, these companies collapsed, and economies of supposedly strong nations were brought to their knees. Not only did the financial crisis severely affect the economy of the United States, but the international markets as well. At the time of the burst, many international stock markets fell, making this US financial crisis become a global financial crisis. A global recession took place, and the US national debt doubled. Unemployment rose by ten percent. While the peak of the crisis was during the years of 2007 and 2008, the drastic effect on the economy the crisis caused is still recovering.

In 2008 Greece was not influenced by the crisis but later in 2009 the country fell into recession and the financial markets exerted pressure, which made the economy being vulnerable. At the beginning of the sovereign debt crisis, the budget deficit of Greece was erected at 13.6% from 12.7% (Eurostat, Euroindicators, 22/2010, 22 April 2010) and the external debt at 127% of the GDP (Eurostat, Euroindicators, 60/2011, 26 April 2011). In order to to deter a default on its sovereign debts, the government of Greece agreed on a loan by Eurozone states and the International Monetary Fund (IMF). The loan agreement was 80 billion € from Eurozone states and 30 billion € from IMF. The agreement was between the Greek government and the European Commission (EC), the European Central Bank (ECB) and IMF (the ‘Troika’), in which they agreed that the EC, ECB and IMF had to prepare a program for Greek economy. The Ministry of Finance in cooperation with the ‘Troika’ prepared a program called ‘Memorandum of economic Policy and Financial Policies; (MEFP) and the ‘Memorandum on Specific Economic Policy Conditionality’ (MSEPC)(The Memoranda). The MEFP had to do with the fiscal reformations and income policies that Greece had to undertake. The Memoranda was connected with the Act 3845/2010 on ‘Measures for the Implementation of the support mechanism for the Greek economy by the Eurozone Member states and the International Monetary Fund’ and the Greek Parliament enacted into law on 5 May 2010. The

The effects of this bill were extreme in the financial industry. By June of 2008 the global derivatives market was worth $530 trillion while credit default swaps had grown to $55 billion. Before the financial crisis in 2007 the top banks in the credit default market were JP Morgan, Citibank, Bank of America, and Wachovia. Wachovia was purchased after it collapsed. Bank of American was

The United States has the biggest financial crisis ever since WWII. Which lasted from September 1, 1939, through September 2, 1945. It was a six-year and one-day battle. Whether or not the seventy-eight trend is strictly reminding us that revanchism (the political manifestation of the will to reverse territorial losses incurred by a country) hasn't changed. I recall my economics professor warning his class at the time that, another crisis will happen soon. So he asked the class, what do we fear more, inflation or recession? Many answered recession, because if the number of jobs decreases we will be in trouble and health insurance will be taken away. Most employers are now seeking for more qualities, and it is just getting harder to get

Even if the Icelandic government wanted, it did not have the means to save its banks like the US did. During the period when FME took over the banks, it separated domestic loans and financial products from those overseas. Icelandic depositor claims were guaranteed and were given priority over unsecured financing.

In 2008, the world experienced a tremendous financial crisis which rooted from the U.S housing market; moreover, it is considered by many economists as one of the worst recession since the Great Depression in 1930s. After posing a huge effect on the U.S economy, the financial crisis expanded to Europe and the rest of the world. It brought governments down, ruined economies, crumble financial corporations and impoverish individual lives. For example, the financial crisis has resulted in the collapse of massive financial institutions such as Fannie Mae, Freddie Mac, Lehman Brother and AIG. These collapses not only influence own countries but also international area. Hence, the intervention of governments by changing and expanding the monetary and fiscal policy or giving bailout is needed in order to eliminate and control enormous effects of the financial crisis.

The first time that the European debt crisis washed up on Italy’s shores was in November 2010. That was the first time when we really saw the spreads between Italian bonds and their German equivalents soar.

Most developed countries have suffered through at least one financial crisis. The term financial crisis is in itself very broad and applies to a various number of situations in which financial institutions or financial assets rapidly decrease in value. In the late 1980’s and early 1990’s, the Scandinavian countries – along with Finland – all faced rather serious financial crises, but the outcomes differed vastly among the nations as Denmark and Sweden pushed through to fairly satisfactory results, but Norway and Finland suffered greater complications. No nation’s crisis was identical to another’s and perhaps thereof the different outcomes, but what other factors played a role in deciding a nation’s fate. To better compare and analyze, the focus of this paper will be placed on simply two of the nations involved – Sweden and Finland -, two nations bordering each other, with a great many similarities but two very different outcomes from respective crisis and how they handled their respective issues, and what can be used for future reference.