Questions on Iceland's Bank Default is not connected to the housing bubble

The credit crisis of '08 is really a "HOUSING AND CREDIT BUBBLE". The two are interconnected: Because there was a credit bubble, there was a housing bubble.

Recently, 3 of Iceland's biggest banks had to be rescued by their central government. People are tying this to the housing bubble of the USA. However, I don't see the connection here. I beleive what has happened to Iceland is a consequence of their overly-ambitious and risk-taking entrepreneurials in the banking sector.

As a background - this is what had happened in Iceland: Their 3 big banks started doing leveraged buyouts (LBO) on many international businesses. They bought out a portion of Saks Fifth Avenue, from what I understand, as well as a manufacturer of generic drugs. To fund these LBOs, foreign depositor's/investor's money was used.

Here are my questions:

1. Were the Icelandic investments unprofitable?
2. How did the *BANKS* suffer, but not the *INVESTORS*? I would have thought that only the investors/depositors should have suffered, but I don't see how the banks suffered. After all, they didn't lend money to subprime borrowers.
3. Were these investors buying Icelandic governmental securities, CDs, or were they simply interest-bearing bank accounts?

Irrelevant.

Usual problem with banks that borrow short and lend long.

When there is a crisis of confidence, it isnt possible to allow their depositors to withdraw their money because they arent liquid enough to allow that.

Then you dont understand how banks work.

They didnt need to. Once liquidity drys up, banks have one hell of a problem.

In spades when they reside in some tiny little pimple on the world where the govt cant possibly guarantee all deposits in their banks.

Nope, its too small a place for that.

Yep.