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?