Crisis in Iceland

Iceland’s Financial Crisis

By: Jacob karas ID 321419194

Jonathan Shtofman ID 011964129

Alon Ostrovizky ID 035675826

Table of Contents

* Introduction

* Background

* Recession

* Iceland

* Economic Down Turn

* Effects

* Conclusion

* Comparison

Crisis in Iceland

Introduction

The Financial crisis that took place in 2007 was considered by many analysts as one of the worst crashes in the economy since the Great Depression in the 1930’s. Careful analysis has shown that it was triggered by a lack of solvency in large corporate securities that caused a significant downturn in economic activity and causing billions of dollars in consumer wealth. Such events resulted in an enormous crash in stock markets around the world; the collapse of large financial institutions such as AIG that required government intervention in the form of bailouts; as well as government bankruptcy in countries whose finances were heavily invested in the financial markets. A great example of this is the collapse and bankruptcy of Iceland’s economy who invested a significant portion of their finances in the stock market and foreign currencies, only to be bankrupted by such investments.

Iceland’s economy is small and subject to high volatility.  It has a mixed economy where there are high levels of free trade and government intervention. Before the 1990’s, Iceland’s main source of income and largest export revolved around the fishing industry. Fish and fish products constitute more than 70% of Iceland's exports of goods and it was by far the most important industry until the twentieth century. It employs 6% of the workforce and the state of the economy remains sensitive to the world prices for fish products. During the 1990’s, Iceland’s economy started to diversify into the services and manufacturing industry. During that period, new developments in software production, biotechnology were taking place within the...