In Iceland, economic globalization has been seen as a hindrance to the country. There was an incident in 2002 with the Icelandic banking system that ruined the citizen’s view on globalization. What happened was that Iceland began to free its banks from state ownership. The three banks that made up Iceland and its banking system grew quickly on easy credit. Icelandic banks began borrowing and lending money on their own and wooing savers across Europe with a good interest savings account. Deposits poured in from Britain when the word got out. But when the global credit markets closed up the Icelandic banks were unable to finance their depts., many of which were denominated in foreign countries. When depositors rushed to get their money out, the Icelandic banking system had too little reserves to cover withdrawals, so all three banks melted down and were nationalized. In this way globalization is good because it was this democratization of finance that helped to power the global growth that lifted so many in India, China and Brazil out of poverty in recent decades. But globalization is bad because it was the same democratization of finance that enabled some mortgage broker in Los Angeles gives subprime “liar loans” to people who have no credit ratings so they can buy homes in Southern California. Those flimsy mortgages get globalized through the global banking system and, when they go sour, they eventually prompt banks to stop lending, fearful that every other bank’s assets are toxic, too. The credit crunch hits Iceland, which went on its own binge. (The Great Iceland Meltdown, Thomas L. Friedman)
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I just added a report on the status of education in Iceland on my Political and Economics page. Please read it and post your thoughts in a comment! (:
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April 2015
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