In late April/early May my wife and I had a short vacation (five days including travel days) to Cabo San Lucas. We had beautiful weather, not much to do except lay in the sun, drink margaritas, go to dinner and repeat. In other words, boring.
In July we took another short vacation, this time to Iceland. Iceland is known as the land of fire and ice, although I found it to be more the land of lava rocks and water. In 2008, Iceland essentially went bankrupt as a country. Part of my interest in visiting Iceland was curiosity about how it is possible for an entire country to go bankrupt.
Some Background
Iceland is an island in the northern Atlantic, about the same latitude is Alaska. It’s much larger neighbor, Greenland, was named by a real estate promoter (Greenland is bigly!). Iceland was named by a realist. There are about 334,000 people (less than half the population of Seattle) in a space of 40,000 square miles. It is one of the most sparsely populated places on Earth. It is also one of the newest land masses on Earth, formed at the rupture between the American and European tectonic plates. This hot spot allows magma to flow from the center of the Earth, creating this place.
Iceland was settled in a short period of only 60 years from 870 to 930; previously it was uninhabited. By 930, all the arable land (there isn’t much) was taken. The entire population is remarkably homogeneous. Traditionally, Icelanders do not have surnames but use patronymics.
This results in a very egalitarian system since even the President of the country is called by his first name. Iceland has one of the oldest parliaments in the world and forty percent of the elected officials are female.
Natural Resources
Iceland traditionally has had two natural resources: heat and fish. The heat is not like we think of heat, such as from burning wood, coal, oil or natural gas. It is geothermal heat from the center of the Earth simply directed to whatever air or water needs to be heated. Thus, it is not exportable.
The fishery is one of the best in the world but there is still the danger of overfishing. So the government limits the harvest to a sustainable amount. Quotas were allotted based on traditional catches and fishermen (they’re all men) were given rights in perpetuity. These rights can also be sold, used as collateral and securitized.
Enter Wall Street
Thus, Iceland was introduced to Wall Street. Fishing had taught Icelandic men that risk taking is rewarded. These lessons were applied to their newfound profession.
Icelandic men are sort of like Garrison Keeler’s children of Lake Wobegon—all above average. For some reason, Icelandic men decided they had a natural superiority in investment banking, despite no experience. For a time, they could borrow foreign currency—yen or Swiss francs– at 3.0 percent, invest in krona (the Icelandic currency) or assets appreciating at 15% and get rich just trading assets and buying things they knew nothing about. The wolves of Wall Street made sure Iceland was overrepresented in every failing company and every over-leveraged buyout deal.
How It Ended
When it all came to an end, Iceland had piled up debt that amounted to 850 percent of GDP. (The U.S. has reached 350 percent.) All the major banks went out of business, the currency collapsed, virtually all real estate was underwater and collectively there was $330,000 of debt for every Icelandic man, woman and child. For perspective, Puerto Rico recently declared bankruptcy while its debt is $34,000 for every person.
The result is that the investment bankers of Iceland have gone back to fishing or the selling of the country via tourism. The tourism business has been very successful and the great deals there once were have disappeared. Iceland has about one million visitors each year, about triple the permanent population. Iceland is now an expensive place to visit (at least during the three-month high season). Plus, the fragile ecosystem of the place is imperiled by the hordes of tourists during summer.
My Recommendation
The natural beauty of the place is its calling card but really, there are other places that are more beautiful and the climate is better. In mid-July it was in the 50s, mostly overcast, often rainy and blustery. Like an October day in Seattle but this is as good as it gets in Iceland. This probably explains the hardy people this desolate land holds and how they have made their way back from financial ruin.
Should you visit? No, we were disappointed. There are places of far more natural beauty in North America. In terms of cost, it is considerably less expensive to visit London or Paris than Reykjavik.
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