This whole story is just bizarre. Iceland nationalized the banks but now the UK wants their money that is in them.
Iceland debts are 12 times their total GDP. They Nationalized the banks because they are trying to stop bank runs.
It seems Iceland had high inflation as well as interest rates and all of Europe decided to go banking there as a result.
It's not quite clear how Iceland managed to end up with a host of bad debt but we certainly know the bad asset ponzi scheme was shuffled around the globe. I doubt the fishing shacks of Iceland were subprime.
RGE Monitor gives us the details on how such a situation arose:
An exceptional situation, but not an exceptional way of banking. In Europe many foreign banks attract deposits through branches. These deposits fall under the deposit guarantee scheme of the home country. Although the Dutch (and UK) authorities are now quite angry at Iceland, some Dutch banks operate in the same way as Icesave.
Ah, so when the bank fails it falls under the national law unless those branches are subsidiaries in those other countries where it would fall on that other countries regulations and guarantees.
I see, so while the world used Iceland as it's bank, the guarantees in the event of failure are dumped on the people of Iceland and now these other nations want the people to pony up for foreign bank deposits instead of the countries where they originated from.
Lovely since many multinational corporations are much larger than country GDPs.
An American of Icelandic heritage writes Go Fish Novus Ordo Seclorum