How are the Icelanders doing?

January 27, 2009 9:24 PM

So, what does the financial and political collapse in Iceland mean for the average citizen? Can anyone give me some anecdotes about how daily life has changed in the past few months?

Are people struggling with basic things like food, rent and utilities? Are middle class families being forced onto the street?

Here in the US, it doesn't seem like life has really changed that much. I know people are losing their jobs and houses, but all I see on the street is everyone spending a little less money and bitching about how poor they are. Iceland is a small, homogeneous country, so are the consequences are more widespread?

posted by borkingchikapa to society & culture (14 comments total)

I don't know that I'd agree with your assessment of the US but there was a post that touched on this a few months ago. It pointed to this article. I'd be interested to find out if there are any MeFites native to Iceland (surely there must be one or two) but they did not turn up in the earlier thread. I'd hazard a guess that your best source is going to be Icelandic media. Best I can come up with after a bit of googling is Iceland Review.
posted by Deathalicious at 11:05 PM on January 27

The Iceland Weather Report is a fantastic and regularly updated blog that, at the moment, is focusing on politics and demonstrations, but has talked quite a bit about everyday life as well. I know that the author is happy to answer questions like yours in the comments or her forum as well.
posted by adrianhon at 1:13 AM on January 28 [1 favorite]

Here's an interesting video on what life has been like lately...

It's about 45% unemployment right now, and apparently only getting worse... with increased crime and alcoholism... which is kind of bad, considering how many bars there are.
posted by markkraft at 3:33 AM on January 28

maybe you should MeMail Katallus? I think he maybe lives in the US now but still has strong links with Iceland.

I would link to his profile but the search feature is taking forever!
posted by ClanvidHorse at 3:38 AM on January 28

Here's his profile here.
posted by ClanvidHorse at 3:40 AM on January 28

My mistake. It's not a 45% unemployment rate, as I previously heard. It's a jobless rate up by 45 percent in December from the previous month. The government -- that just fell -- was predicting about 8.6% unemployment for the upcoming year, but that's viewed as incredibly rosy, given that many of the Icelandic businesses are technically bankrupt.

That said, it's ultimately a very rich country with lots of natural resources, so it's unlikely that anyone will starve or freeze to death... even those who have lost their life's savings and are hopelessly in debt.
posted by markkraft at 3:57 AM on January 28

Here in the US, it doesn't seem like life has really changed that much. I know people are losing their jobs and houses, but all I see on the street is everyone spending a little less money and bitching about how poor they are. Iceland is a small, homogeneous country, so are the consequences are more widespread?

I don't know that I'd agree with your assessment of the US[...]

I agree with both of you- in my work, I see a fairly wide swath of the population. The unemployment offices are busting at their seams, as well as the public aid types of offices. There are a LOT of people out of work. The workers in these offices are overworked and putting a lot of overtime. They may not be having fun, but they are making a lot of money. I just heard that departments have instituted mandatory overtime- they HAVE to work and get paid for 10 extra hours a week at one. Great for the employees, not so good for the state budget.

And there are quite a few people who maintain their employment, but have been cut back on hours or salary or perks.

But overall, that's a small percentage of the workforce. A huge majority of the population in the US is actually doing quite well. Gas prices are half what they were last year, retail prices are at rock-bottom, housing is way cheap, cars are way cheap, food prices have stopped rising. Retail food (restaurants) is way down- McDonald's, for example, just reported something like an 80% profit growth. (Just heard a commercial for Lexus, I think, where they are advertising that their MSRPs are lower than they were in 1999.) We all spent less at Christmas, we are actually reducing the gross consumer debt for the first time since the 50's.

We are in the middle of a reset of sorts. We are paying the price for a lot of the "excess" growth we've had really since the 90s. I think this is unintentional fallout from how the tech bubble was handled. (If you believe in the Austrian business cycle and how manipulated interest rates affect that, which I mostly do.) Basically, as the tech bubble popped, the Fed reduced interest rates too much, for too long. This "seeded" the credit markets with cheap money, and freed up a lot of people with money craving investment, doubly so because they had suffered so many losses. Unfortunately, after the tech bubble popped, the only industries that had any attractive investment opportunities was real estate. All the other industries were licking their wounds from either being burnt on the tech bubble, or because they had just spent too much on IT infrastructure in the late 90s. So anyway, cheap money and motivated investors flood the real estate market. Which is demand. When demand outpaces supply, prices go up. When prices go up, there is always someone who benefits. The holder of inventory purchased at lower prices, and the people who finance the purchases in this case. After all, I'd rather get 4% of a $400,000 house than 6% of a $200,000 house. So, anyone with a house to sell, either sold or refinanced. This increased the demand for credit. BUT, since the supply was not properly limited, the price did NOT go up. Which means volume goes up. So now everyone is refinancing and buying and leveraging* their asses off. One reality of that situation is that when a market gets choppy like that, the only people who actually make money are the ones that handle the transactions, who take their cut off the top. The investors- the people who sell their money to the banks ion order to make a profit- started noticing that their returns were like, uh, nothing. They pull their money out, and since the whole credit bubble was dependent on new money coming in, the credit bubble burst.

Meanwhile, as the credit bubble is expanding and the "hot" market starts to look less hot, money seeks other investment opportunities. Companies start borrowing to pay for stupid stuff.

Then, in October, it all popped. The housing market, the credit market, the stupid companies investing in stupid things market. WHAM!

(Look at this graph of the S&P500. If you assume that the fairly gentle logarithmic curve upward is desirable, EVEN if you completely ignore the 90s boom, the 2000s was still just slightly higher than the trend. That's a financial disaster waiting to happen. Not because I believe in magic lines, but because the fundamentals of the economy can't support it. Then you put the 90s boom back in? We had a giant boom like that with NO rebound? Huge problem.)

*Even the humble, Main Street homebuyer was over leveraged. Buying houses for too much, more than they could afford; depending on the hope that the street price for the house would go up.

(Despite the wailing of the media, credit is plenty available. It's just not available the way it was. It has reset to a more 1980s level of availability. You know, to get a house you have to have a job, and income, and probably a down payment. Like how it's supposed to be. We just got spoiled by the credit bubble, we forgot that borrowing money is costly.)

It sucks hard for those who are out of work, or looking. But for the rest of us who aren't, things are actually pretty good compared to the last couple of years. Single data point- I haven't gotten a raise in a long while, and just in the last few months, I've noticed that my monthly expenses are going down, without really even trying.
posted by gjc at 4:33 AM on January 28 [12 favorites]

gjc, my perspective may be colored by being currently out of work, but lest you or anyone else forget, the economy shed almost 60,000 jobs on Monday. There were over 10 million Americans looking for work before that, and another 7.5 million employed part-time involuntarily. So while I may not be seeing the bright side of things, my views are currently shared by far more people than they were six months ago.

Yeah, yeah, I largely agree with you about deleveraging and returning to sane credit practices, but what I and about 18 million other Americans are wondering at the moment is more along the lines of will someone give me a damn job?! Etc.

Deflation is actually bad right now. Since we're so far in debt as a culture, if nominal wages start to go down--and they will, if you're right about any of this--what was already an unmanageable debt load will become downright oppressive.
posted by valkyryn at 5:08 AM on January 28

Planet Money just did a segment on Iceland. What I got from it is people are becoming increasingly dissatisfied, inflation is skyrocketing, and there's rioting in the streets.

Check it out for yourself here.
posted by jourman2 at 6:57 AM on January 28

My friends were in the middle of building a house on the outskirts of Reyjavík and trying to sell their condo in the 107 district when this all started to go down. With the banking collapse, they now have responsibility for (but not ownership of) a half-built house that no one can work on anymore and a small two-bedroom condo being used as a home for five.

They're not out on the streets and they still have their jobs for now. But their money, which was trading at 65 krónur for every American dollar a year ago, has basically lost half its value and now trading at 120 krónur per dollar. They're half as wealthy as they were last month, with all the same responsibilities and expenses. It's not good.
posted by jesourie at 10:57 AM on January 28

BBC Radio 4 had a recent "Crossing Continents" episode that covered this subject.

They're in the same boat as all of us I think. Lots of families losing one or both jobs and wondering how they are going to survive.
posted by arcticseal at 11:12 AM on January 28

Planet Money
posted by jckll at 11:31 AM on January 28

jourman2: There isn't, and never has been rioting in the streets here. There was a protest in front of the house of parliament, and one night there was a clash between drunken revellers and the police, but that's it. Appart from that the protests have been pretty peaceful, albeit noisy and theatrical sometimes.

I think the street level situation has been blown out of proportion in the media.

That doesn't mean we aren't totally screwed, though.

Oh, and food prices have risen 10% since before the crash. the rent seems to be coming down slightly, wich is a plus. but if you have a house with a mortgage, you're screwed.
posted by svenni at 8:22 PM on January 28

Oh, and food prices have risen 10% since before the crash. the rent seems to be coming down slightly, wich is a plus. but if you have a house with a mortgage, you're screwed.

This is because of the insane inflation-indexed mortgages people in Iceland have. Ordinarily, inflation erases debt, when your wealth halves, so does your debt. So people with more debt then capital are actually better off.

But in Iceland mortgages are indexed to inflation.
posted by delmoi at 8:26 PM on January 28