And you think that we have it bad - Iceland is bankrupt

From the International Herald Tribune:

Iceland is all but officially bankrupt
People go bankrupt all the time. Companies do, too. But countries?

Iceland was on the verge of doing exactly that on Thursday as the government shut down the stock market and seized control of its last major independent bank. That brought trading in the country's currency to a halt, with foreign banks no longer willing to take Icelandic krona, even at fire-sale rates.

As the meltdown in the Icelandic financial system quickened, with the government seemingly powerless to do anything about it, analysts said there was probably only one realistic option left: for Iceland to be bailed out by the International Monetary Fund.

"Iceland is bankrupt," said Arsaell Valfells, a professor at the University of Iceland. "The Icelandic krona is history. The IMF has to come and rescue us."

Prime Minister Geir Haarde, who had warned this week of the threat of "national bankruptcy," said Thursday that Iceland's finance minister, Arni Mathiesen, would be in Washington this weekend for the autumn IMF/World Bank meetings. He declined to say whether Iceland was seeking a rescue package from the international lender.

"We will certainly keep this option open, but we have not yet made a decision," Haarde said Thursday at a news conference.

I had the great pleasure to visit there about 30 years ago and loved the place and her people. The nation was a bit more socialist than I liked (even then) with taxation in the 50% on up range for everyone. You got free medical and education and there was a tremendous support for the arts but still, when there is that stiff a tax, creativity is going to be stifled. The fishing industry was the primary source of income and it was a real moneymaker. I do not know what conditions are like now but the article is pretty grim:

An IMF intervention in Iceland, which would necessarily involve accepting a series of harsh measures to restore fiscal and monetary stability, would underline the extraordinary reversal in the country's fortunes after a decade-long, debt-fueled binge by the country's banks, businesses and some private citizens. The banks, while avoiding the toxic mortgage securities that have humbled Wall Street, expanded aggressively at home and abroad. When credit tightened and the krona fell this year, they were unable to finance their debts.

And:

There is also no way to bring down inflation or interest rates, both already in double digits before the crisis intensified in recent days.

Yikes! A shame -- a wonderful nation, seat of the oldest continuously running democratic process in the world (since the 900's). Let us hope they recover and learn something about financial irresponsibility...