Worrying himself sick every night over the household’s finances, he decided that the correct and responsible thing to do would be to talk to his bank.
The bank’s friendly customer representative brought out a spreadsheet and started entering information about his earnings and spending.
“This is what you have to do”, she said. “You have to stop taking the kids to movies, start bring lunch to work, wear out those shoes you’ve got on and I would recommend you to get rid of the car and start walking or taking the bus.” That way she estimated that he would be in good shape in five years or so, depending on course on the economy.
His correct reply would have been, “What I need to stop doing is paying 12-25% interest on everything from my mortgage to my overdraft. The consumer price indexing of everything is costing me several times more than occasional movie trips with the kids and new shoes once in a while. It basically has meant that everything I have worked for in the last 10-15 years has only left me with more debt”.
Instead he sat silent. The customer representative continued, “Well, we’ll arrange this for you with our great selection of financial products. Tell me, isn’t it time you saw one of our insurance and pension advisors?”.
Related posts:
icelandbob
7 months ago
Icelandic humour. It´s the best!
Boggi
7 months ago
“This is what you have to do”, she said. “You have to stop taking the kids to movies, start bring lunch to work, wear out those shoes you’ve got on and I would recommend you to get rid of the car and start walking or taking the bus.”
Well, I acctually think this is the right normal thing to do, the problem is that we don´t want to accept that we have to change our live styles, and that things that we think are a God given right to have, are acctually luxories, and that having a loan, a car, a flat screen, a credit card, trips abroad, clothes and whatever food we want to buy, braodband intrnet, a Pc a lap top, a smartphone, a bottle of wine with dinner, an iPod, all the TV channels; are not basic things that we should have, this are thing that we should have ONLY and WHEN and IF we can afford them based on our salaries and our reallity today. So YES people have to start adjusting their economies and cutting back in expenses, thats the solution.
Blubber
7 months ago
Boggi:
I agree that there is nothing wrong with putting a cap on ones spending.
However, nowhere in the world, apart from one or two other countries, does the entire risk of housing loans fall on the loan taker.
Nowhere.
It is considered unethical and unsound business practice.
Yet we happily eat it with a side of bullshit and sprinkled with crappy financial policies.
Boggi
7 months ago
Blibber:
“However, nowhere in the world, apart from one or two other countries, does the entire risk of housing loans fall on the loan taker.
Nowhere.
It is considered unethical and unsound business practice.”
I totally agree with you, but thats not my point in my post, my point is that the facts are that they screwed us and escrewed us real good, and the situation and reallity now is this, we are broke, our purcheseing power has been cut to half, our loans have been dubled, our salaries(if we still have a job) have been also cut down, so guess what? we HAVE TO cut back in our expenses and our life style, and the sooner the better, because people are still waiting for a miracle to happen, and it´s NOT going to happen. As long as we sit in our conffy chairs infront of our top noch PC or lap top, with our broadband internet conecction and just chat and blogg about it, nothing but absolutelly nothing is going to happen, people have to protest and protest untill, wait,….nahh…. “we just want to get on with our lifes”, “and forget about this nightmare”.
Blubber
7 months ago
Even if they wanted to sell their car to save money, they probably can’t. Even if they wanted to sell their apartment, they can’t. Even if they declare bankruptcy, they still have to keep paying for everything. Unlike for example the US, where, once you foreclose, you just hand the keys to the bank and walk away at with no money and no debt.
Our system, is “damned if you do, damned if you don’t”.
So you can preach to them to stop spending all you want. However, the effect if they stop spending, or keep spending, will be pretty much the same because the system is so deeply flawed.*
In a situation like that there is no incentive to take fiscal responsibility. Add to that the complete lack of responsibility shown by our business elite, MPs and local governments and you have a perfect storm.
We did take to the streets to protest and it had little effect.
So what exactly would that give us? Another Borgarahreyfingin? More Sigmundur Davið?
*Actually, if we stop spending altogether even more people will lose their jobs, but that is a different discussion.
Dadi
7 months ago
Boggi, you missed the point of my post. Regular people are losing an incredible amount of money every year to pay off price indexed mortgages.
I borrowed 16 million in 2006, as of now I have paid the bank an amount of 4 million onto the loan but its capital is now close to 20 million. That is a lot more money that has been taken away by me having to take full responsibility for inflation than I could ever spend on movies, television sets (mine is from 1998) and shoes.
The Chosan
7 months ago
The price index is the single most important issue that needs resolving. All else fails in comparison to that monstrosity.
There is no political will, and the unions who really should be fighting for their people, have their heads in the money pile.
Boggi
7 months ago
The chossen said:
“The price index is the single most important issue that needs resolving. All else fails in comparison to that monstrosity”.
And I totally agree with him, and also with you Dadi, but Maybe I didnt explain my self very well, the ponit is that the situation is like it is now and cuting expenses is the only solution now, and people have to get to the street and protest and protest, and keep on doing it utill they take this indexation away, and NO OTHER solution will work, the problem is that people get very mad and frustrated, and the goberment come up with some stupid idea and solution, like freezing lonas, or “you will pay what you were paying before the devaluation, and then we´ll see what we do” and people get calmed and happy with this riduculos temporary patches that they give as solutions, insted of keep on protesting untill the indexation is taken away, because there is no other solution that will work, and untill we decided that they can roll up any other solution and stick it where the sun doesnt shine, and accept notghing less that the indexation to be removed, untill then we can only cut back and accept the situation unless…., but I can promise you, If you are waiting for them(the gob) to fix this, they will not do it, people have to get to the streets, and do it untill we get what we want. But like I said it too many times before… “maaan, we just want to get on with our lives” and complait from time to time on the web.
Dadi
7 months ago
Boggi, I think we are in agreement
Besides..I think something is brewing… there have been too many things building up…
Mike (UK Nordic analyst)
7 months ago
I’m just passing by and don’t want to get too tied up in the discussion about the index-linked loans, but there seems to be a good deal of misunderstanding about how the alternatives work – the grass may not be greener than you think.
The first thing to note is that in principle the idea of index-linking the loans is sensible, many countries do it either explicitly or implicitly. (Look at the web page for Barclays Bank and you will see mortgages linked to LIBOR – the interbank interest rate. That rate is basically “inflation+some return”, so it includes inflation in it.) How many banks would lend money to buy houses if they knew that their capital was going to erode, eventually becoming worthless? Put this personally, if you lent 1000 USD to a neighbour to help him buy a car, would you be happy to be given the 1000 USD back at a later time when that amount of money would buy, say, a DVD? (The purchasing value of 1000 having been so reduced by inflation.) Yu simply wouldn’t do it.
So how is that capital normally protected? It is through the interest rate mechanism – in which case the nominal rate of return (i.e. the advertised interest rate) is normally priced WITH INFLATION INCLUDED (as I indicated in the LIBOR case). So in other countries you pay the “going rate” of interest. In the past mortgages in the UK hit the wonderful number of 20% interest.
Yet in Iceland you have a fixed rate of interest, and what is more it is fixed at a very low number (typically in the range 4-7%).
So let’s turn things around. Let’s assume in Iceland you worked on mortgages that were NOT index linked and you paid the Central Bank interest rate plus a few percent for “defaults” and a commercial rate of return. Let’s put that figure at +3%. Now look at the Sedlabanki interest rates (I’ll use the general non-indexed loan figure accourding to the law set in 2001).
So if you had been any of the other countries where you claim that things are better the typical mortgage interest rates would have been like this:
2001 17%
2002 14%
2003 11%
2004 11%
2005 14%
2006 16%
2007 19%
2008 21%
I’ll let you come to any conclusions about how people would have objected to such rates during that period. They would have been clamouring for a return to the “fair and balanced” indexed linked loans.
How should someone have behaved during the period 2001-8? Simply, you should have looked at the ludicrously small amount of money you were paying and saved the difference between that amount and a commercial rate. Within five years you would have been able to buy your house outright. How can I make such a claim? Because I know of four cases where that happened. Revealingly three of those cases were foreigners living in Iceland (each from a different country, namely a North American, a west European and an east European) who understood that the very cheap mortgage repayments were giving “false” signals. They _knew_ it should have been more so they saved the difference knowing that at some point in the future it would need to be paid back. (Money always has a time-value to it – sometimes it “leads” sometimes it “lags”.)
What did the Icelanders do during the period 2001-8? They spent that money.
Dadi
7 months ago
Thanks for that input Mike. It is good to get that point into the conversation.
You are a financial analyst, right? Because we are continuing this conversation from the Iceland Weather Report, I would like to restate my point which was that most people aren’t. And most aren’t even reasonably financially literate.
The reasons for this might involve many factors, cultural(Iceland’s history as a developed country is relatively short), class(Most modern Icelanders did not have investment banking or financial analyst fathers or mothers) and historic(US influence). As you yourself pointed out in a previous post, it is debatable whether the universities here actually teach MBA’s, economists and bookkeepers to do insightful calculations.
“Put this personally, if you lent 1000 USD to a neighbour to help him buy a car, would you be happy to be given the 1000 USD back at a later time when that amount of money would buy, say, a DVD? (The purchasing value of 1000 having been so reduced by inflation.) Yu simply wouldn’t do it.”
This seems straightforward, but what if the bank which lent you the 1000 USD hits dire straits because of dangerous mismanagement. Its creditors from which it borrowed the money in the first place are probably not going to get their full 1.000 USD. Someone buys the bank’s assets (outstanding loans) on a cut price, say 20 cents on the dollar. And the difference is usually left with the taxpayers(in the case of governments stepping in which they are usually eager to).
That would be my argument number one for why ordinary people should also be given a break. They aren’t financial experts, but have been encouraged by society to dive into debt by financially malicious institutions where few of the agitators have to answer for the collapse, even benefiting from it. If I am supposed to pay my 1000 USD back with interest + inflation it should be only fair that my creditor does too, and if he doesn’t there seems to be someone benefiting by discrepancies in the system right in the middle between the individual and his society.
Argument number two regarding the price indexation cannot be discussed without mentioning the currency. I myself can definitely see the value of indexation (as in your LIBOR case) but it has to work both ways and it is unlikely to be successful with a volatile currency like the Icelandic krona.
When the loan indexation started, wages were also indexed but that was abolished because of pressure from the industries. They claimed that the wage-indexation was putting too much pressure on them as wage-payers. I totally agree with them and I think the loan-indexation is putting too much pressure on myself as a loan-payer.
Consumer Price Indexation is massively unfair in an import reliant economy using a tiny roller-coaster currency. But you would really love it if you were a bank or a fishing magnate.
You should notice that it is not just those who went overboard in spending and borrowing who are hurting in Iceland today… most people who have been careful with their money and making considered decisions are too. And it would be terrible if they were thrown to the wolves because of the people who would have gone bankrupt anyways.
Mike (UK Nordic analyst)
7 months ago
Dadi – good points but your arguments break down at a couple of points.
You imply that the banks assets are sold at a “cut price” of 20 cents in the dollar. Well, that isn’t a “cut price” – the selling of assets in the Icelandic banks reflect their true value. So who has carried that “loss”? The very creditors you claim who should carry some of the burden. They HAVE carried the burden – now it must be shared. The reality is that the creditors of the three Icelandic banks have lost enormous amounts. The way that has worked out has been that the banks – and thus their assets – have been handed over to their creditors, i.e. Icelandic assets have been rendered up to foreign investors – investors who have lost far more than the average Icelandic householder. The value of the assets was established by the resolution committees working in conjunction with the creditors so we have a fairly good idea of how much the assets are really worth. (Because the creditors would never have agreed to the value of the bond between the old and new banks if they felt they were being “diddled”.)
I totally accept your point about the ISK – it has been always been a disaster waiting to happen, and it will happen again in the future. I would take issue with your analysis about why that matters. The point I would make is not so much a financial one as an economic-political point: namely small currencies work well when they are controlled and operate within a self-contained economic system. Hence there is nothing inherently wrong with the ISK if it operated in way such that its exchange rate was controlled, and the amounts exchanged were rationed. This is exactly what you witness today. The problem comes from opening up the economic system and allowing free convertability. At that point – as you say – the ISK becomes volatile.
I do understand that most people are hurting in Iceland today – but the time to complain about financial situations is when it is clear that it is being manipulated against the good of the country. So if you asked me to name a time when pots-n-pans should have been banged and the government overthrown it was in 2003 when Landsbanki was privatised. That process was so obviously corrupt it was amazing that the streets weren’t flooded with demonstrators. I told the members of my team at that point that “This is going to end in tears, and we need to watch out for the signs of unravelling” We bailed out of Iceland in mid 2006.
Dadi
7 months ago
Mike, we are in agreement on the ISK. It can be useful when used in a tightly controlled economy. Iceland in the past years has been anything but. Then it becomes a question of what you as a nation want. Remember that Iceland was hardly a model society regarding corruption before the nineties or the noughties. Better or worse, I don’t know. The effects were dumped on the locals only before.
You are also right about the privatization in 2002-03 having been the right time to protest. But Icelandic society had been mostly dormant as far as public protests go for decades by then. Do you remember the mood back then? David Oddson was revered and he said that the banks needed to be privatized for the benefit of us all. Of course many of us were not keen on the way privatization was done. But remember that Iceland’s collapse now is not only interesting economically but sociologically as well.
Regarding the first point. What are your thoughts on the following?
Are ordinary customers whose largest financial transaction ever is a mortgage supposed to be told that they “should have known better” and left to hang when they were dealing with financial experts, backed by strong sales and marketing + government approval. Meanwhile the same PRIVATE institutions are bailed out by their governments.
Yes, the largest financial institutions in the world have lost a lot of money in the last couple of years, but many of them have also been offered a lot of support from their society.
Speculators who lend billions to the Icelandic banks are hardly comparable to auntie Margaret and her mortgage when counting their losses are they? On one side there is supposed to be a whole machinery of risk-management taking deliberate risk, while on the other side there is a person, usually trying to minimize her risk based on advise from others,in some cases the bank itself.
Also, why has the IMF stated that there is an opportunity for up to 40% write offs in the Icelandic economy?
And why should anyone in Iceland ever borrow money from Icelandic banks ever again?
Boggi
7 months ago
@Mike:
“Well, that isn’t a “cut price” – the selling of assets in the Icelandic banks reflect their true value. So who has carried that “loss”? The very creditors you claim who should carry some of the burden.”
But isn´t it that the considered lost of the creditors, is according to the inflated value of assets, so at the end they didn´t losse that much if nothing at all.
An example, I know a woman that was allways crying abou having lost like 15 million in kaupthing, when I asked her , it was not that she lost 15 million, she bought shares in the bank between 2000 and 2003 for like a million, when everything went to hell these shares were worth like 15 million and she only manage to get like 1 million back, which in fact is the million she acctually invested, somebody can argue about inflation or other things but the fact of the matter is that she didn´t loose 15 Million, because that money never existed, she ended up getting the “true value” of her money.
But people that are having to pay mortages and loans indexed to the inflation, are doing it with their own REALL money. they are not doing it with inflated money anymore, I guess what I´m trying to say is that when the bubble is inflated we all benefit from it in one way or another, but when the bubble bursts the ones that relly loose are the people, not the creditors, because the only reall lost they suffer is the inflated value over the reall value of the assets they recover, and whatever losse they suffer if there is any, will be covered 100 times for the next 50 years by the money of people that will be paying interest link to inflation for about the rest of their lifes since most of the assets they recover are the very things on which we are paying interests link to inflation. well I hope that I made sense. So the pont is that in a situation like this everybody should lose, but this indexation is perfectly designed so creditors dont lose, I belive that in the other systems you mention creditors are not so hemetically protected.
Bromley86
7 months ago
Can’t answer for Mike (who, AFAIK, isn’t Michael Lewis), but I can help with Boggi’s point.
“But isn´t it that the considered lost of the creditors, is according to the inflated value of assets, so at the end they didn´t losse that much if nothing at all.”
I believe that those creditors were entirely debt rather than equity. So they didn’t have the chance to participate in the massive share price rise. They simply lent money and so lost the lot, less whatever they could recover. In the case of those that got out before the equity swap by selling the loans for 20% (actually, I seem to remember seeing that it was more like 3-8%, but I may be wrong) lost 80% of real money that they’d provided, rather than 80% of an unrealised peak share price.
hmmmm
7 months ago
Mike´s telling “Within five years you would have been able to buy your house outright”
Tell that to a young man in 2003-6 and even 2007 when real estate prices were bubbling, making saving a stupid idea.
The real issue was/is extra high and chronic inflation Iceland experiences and house price bubble.
Blubber
6 months ago
@Mike:
The main difference from a consumer POV is namely that interest rates fluctuate, meaning they can at some point go down. I borrow a set sum, and can shop around for a better interest rate, such as one would and can in a real market say in the US.
In Iceland I’m looking at an irreversible increase of nearly 50% that has been added to the initial sum. No matter what happens now, that will never decrease.
Of course the public is not made up of financial analysts, much like most people aren’t electrical engineers or doctors. We all use electricity and have bodies, but it doesn’t mean that we can explain exactly how the electricity in our house works or that we should fix our own broken leg. Which is why we trusted the banks.
I think in your analysis, your forget that most people when faced with an “expert”, be it a financial, medical or otherwise, will not argue. Or if they try, they are made to feel stupid.
I’d venture to say that this is especially true in Iceland. In some cultures there is a tradition of getting a second opinion, something which is considered nearly subversive here.
Absolutely, there should have been massive protests regarding how the privatization of the banks were handled. But again, this is more of a cultural / sociological problem.
Bromley86
6 months ago
In Iceland I’m looking at an irreversible increase of nearly 50% that has been added to the initial sum.
Assuming you’re talking about indexation and not foreign curreny loans, you’d still be looking at an irreversible increase if indexation hadn’t been used in Iceland. As Mike said, the rates would have been much higher than ~5%. If they fall in the future, it doesn’t mean that the cumulative debt is reduced. Just that the annual addition to that debt is reduced.
Blubber
6 months ago
@Bromley
Can you explain that a little bit further?
I have compared my housing loan with that of others in both the Nordic countries and the US, and they seem wildly dissimilar.
Bromley86
6 months ago
I can’t help feeling that I’m being set up Blubber
.
It’s quite possible that I’m missing something obvious, but Icelandic inflation is far higher than that in the US & Norway. So if the average mortgage rate in the US/UK, for example, has been 4-7%, and if the average unindexed rate in Iceland would have been 15%, then you’d still have suffered compared to people in the US/UK. I assume it’d be a similar story comparing to Norway.
That 50% increase presumably wasn’t just in the past year, so I assume that you are referring largely to indexation that occurred pre-kreppa.
If the principal has increased, then that’s because people were only paying the annual interest and repayment elements and not the annual indexation increase.
As I said, maybe I’m missing something though.
Blubber
6 months ago
@Bromley
No, not setting you up,honest
Just trying to wrap my head around how it.
The indexation increase is paid along with everything else.
In super basic terms; you know those calculations you get with a fixed rate mortgage that show you how much you will pay in, say, June 2017?
Those don’t apply here.
What am I missing?
(seriously, not being a jerk, trying to understand)
Bromley86
6 months ago
>The indexation increase is paid along with everything else.
I suspect that this is where the problem is. It seems unlikely to me that the indexation increase *is* paid as it falls due. Far more likely is that it’s added onto the lump remaining and that amount (plus expected interest) is divided by the remaining term to give a smoothed payment.
As you say, in Iceland the effective interest rate can *never* be fixed. Sure, the headline interest component can be fixed at ~5%. But the there will always be a variable indexation amount added.
If it was fixed though, it would be fixed at the average of Mike’s figures (15% over that period) with an additional premium for risk. Fixed rates are a gamble and the banks are the house. Sure, they might lose in a particular case, but they’ll win more often than they lose. So, on average, people would be better off going for varaible rates. Of course, everyone won’t be average, so people often choose to insure against risk by paying that little bit more for a fixed rate. Given Iceland’s volatility, I would expect that premium to be much higher than in other countries.
Anyway, back to the original point. Say I borrowed ISK 100 in 2000. At 5%. Doing rough calcs, and on a 25 year repayment basis:
(100) Opening balance 01.01.2000
(5) Interest for 2001
7 My payments in 2001 (interest plus a part of the principal)
(9) Indexation (@9%, per Statistics.is)
—–
(107) Opening balance 01.01.2001
(5) Interest 2002
8 My payments for 2002
(2) Indexation @2%
—-
(106) Opening balance 01.01.2002
Having done that calc, it seems likely that an allowance for indexation is added to the balance at the beginning of the year and then corrected when the real figures are released. But, even then, if the indexation is higher than expected (and given that the Central bank consistently missed its inflation targets, that seems likely), it’s possible for the loan to grow consistently.
It’s important to note that this outcome is not remarkably different if Mike’s figures are instead used (bearing in mind that the repayments above should have been inflated by the expected indexation to, say, 14 in 2001 and 10 in 2002). Indexation does seem to likely to end-load a lot of the payments, especially as it’s generally human nature to not overpay loans in the early years.
(100) Opening balance 01.01.2000
(17) Interest @17%
17 Repayments
—-
(100) Opening balance 01.01.2001
(14) Interest @14%
15 Repayments
—-
(99) Opening balance 01.01.2002
If you want to play around with it yourself, the indexation rates from 2001 are roughly: 9%/2%/3%/4%/4%/7%/6%/16%/9%
(Actually, those are calculated Jan – Jan, rather than Dec – Dec, but it should be pretty similar).
Bottom line is that, for whatever reason, it seems that people don’t pay off all of the indexation in the year that it is incurred. This is effectively the same as only paying 12% of a 17% mortgage – the amount owed increases.
Bromley86
6 months ago
Just noticed that my dates are off, which won’t help my example
.
I should have written that I borrowed ISK 100 on 01.01.2001, and all the opening balances need to be advanced by one year to make sense.
Blubber
6 months ago
Thanks, looking at this, I think I see what you mean.
If I understand you correctly, you are saying that due to the volatility of the Icelandic economy there could have never been a housing market w/ loans similar to that of other countries?
Or am I still missing something?
Bromley86
6 months ago
That’s my take on it. Mind you, as you can see from those schoolboy errors, I’m no expert
.
hmmmm
6 months ago
looks like most of you got lost in math instead of looking at how the market works.
for a long time annuitet loans were the only loans available. Of course you were allowed to make payments in advance but I was not even sure how those payments affected the principal ammount.
Anyway majority accepted the basic payment scheme offered by then the only lender – the housing fund. Then banks came into arena but for a long time the offered annuited, i.e. equal monthly payments. Folks got used to it and stayed happy. Later on a “normal” schema was made available meaning one had to pay much more at the beginning but the payments would decrease with time.
If my mind serves me right this method ment about twice as higher starting payments as annuitet.
Now comes the tricky part – who in his clear mind would choose to pay say 1000 euros instead of only 500 per month for the same house? Add the hefty Icelandic prices on commodity goods and you’ll see that Icelanders were in fact unable to sustain other payments than annuitet. Or real estate prices had to go down. But the housing fund and then banks maintained loans repayment schema which favoured higher than normal house prices.
Bromley86
6 months ago
I’ve never heard of a normal scheme like you mention hmmmm. In the UK, everything is annuity-based (or, at least, everything that I’ve seen). I couldn’t find any mention of a front-loaded mortgage on Wiki, so it might just be a peculiarity to Iceland.
From what I’ve read, the key contributors to the Icelandic housing bubble were (a) high central bank rates , leading to carry trade and therefore excess supply of credit and (b) the market-leading Housing fund maintaining below-market rates, leading to excess demand for credit.
hmmmm
6 months ago
Broomley86 “In the UK, everything is annuity-based”
that’s funny how different the world can be. Over there in eastern Baltic States “normal loans” were/are usual form for loans. You pay by simple formula: equal parts of installment plus percents. The higher the remaining installment – the higher sum for percents you have to pay. as the installment is payed off – you pay less for percents naturally.
anyway you mentioned a and b as reasons for housing bubble. Actually the housing bubble started with banks entering real estate market.
As for the rest it was the wide spread and the only schema to repay a loan. Namely you had to pay only some ridiculous amount per month which was raising very gradually as the installment was rising due to the indexation. As it was pointed out many times with regard to icelandic CPI indexation of loans, under that schema a regular person was never able to reduce the installment unless after some 10-15 or even 25 years when monthly payment would finally rise to some amount capable of covering the indexation.
Now ask how many peoples are going to divert from the schema proposed by lender by their own will? And if they would then you are probably asking for a trouble. That would mean people do not trust the financial institution of a state. It is not surprising that some foreigners capable analyzing Icelandic situation diverted from the schema. After all very few of them think they are going to stay in Iceland forever and therefor they tried to get away from Icelandic slave-like loans as soon as possible. For an ordinary Icelander the way they live, smile and pay is just a matter of fact. C’est la vie
Now some Icelandic people are rightfully asking good questions what the hell is going on. Why they live in a financial system which by default does not allow them to pay off credit.
The fact is that Icelandic krona was never something of stable value. The indexation tried to put at least some stability in the system but it did not solve the higher than elsewhere CPI. The uncontrolled CPI, as well as uncontrolled bank system growth we witnessed recently, is largely the responsibility of Icelandic Central Bank. Despite the bank building looking cool the institution did nothing over the years. The fact it employed a former drama writer David Odsson as a chairman is just ok because this institution was a right place for people like he. It was doing just nothing anyway.
If you look more closely then Icelandic government was always a funny place. The rumours of Cod War about drunken Icelandic PM asking american NATO commander to attack British speak for themselfs.
Only this time some kind of(kind of!) ordinary Dutch and English savers were affected hence the whole issue with Icesave. I bet Gordon Browns grandma in law lost some value there.