Iceland subprime?

August 13, 2007 6:32 AM

On Friday on NPR a European banker was talking about "sub-prime countries" and mentioned Iceland in a list that included, for instance, the countries of E. Europe. I wasn't surprised about the latter, but thought it was interesting that Iceland got this designation. Can anyone explain to me the Iceland economy (in broad strokes) and why it might be considered "sub-prime"?

(I understood "subprime" in this context to not be a technical but a rhetorical designation echoing the mortgage market issues, hence the scare quotes.)

posted by OmieWise to Work & Money (4 answers total)

Iceland's bond rating has been downgraded in recent months due to an unsustainable trade deficit and the debt taken on to finance that deficit.
posted by backupjesus at 6:56 AM on August 13, 2007

I'm no banker, but my guess is that one of Icelands biggest banks - Kauphting - has been on a lending/buying spree in the eastern block and subsequently is associaded with the general downfall.

My 2 cents.
posted by Rabarberofficer at 8:40 AM on August 13, 2007

backupjesus is correct. This article mentions those reasons and also goes into the "carry trade" collapse last year.
posted by horsemuth at 10:39 AM on August 13, 2007

I don't have a source for this, but I recall reading an article about the unusually large percentage of Iceland's banks which were relying so heavily on government policy that requires their government to support banks that got in trouble doing the loans that are mentioned above, that if even a small portion of these banks were to get into trouble the government support required to save the few banks would put the rest (who are all still sitting on risky loans that are going to go south as this scenario unwinds) would be left completely uncovered by any safety net.
posted by iurodivii at 2:46 PM on August 13, 2007