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This article explains how and why the collapse occured. The parallels to other countries is easy to see. Iceland is only saved from itself by loans that are currently strangling their economy, much like the situation in Greece and in reality the US.

The Collapse And Beyond

“Iceland is the only debt-ridden nation that has had an answer to the question: why did the banks fail? This impertinent question was answered quite thoroughly in a 2,600 page report published in April 2010 by the Special Investigative Commission (SIC) set up by Alþingi, the Icelandic Parliament.
In clear, jargon-free language, the SIC report tells the story of failed economic policy in the decade or so before the collapse in 2008. The varying governments, which always included the Independence Party (in most governments since 1944), celebrated the growth of the banking sector which, like the UK banking sector, sucked talent from other sectors by offering salaries only banks could offer. In addition, the government added fuel to the booming economy with public spending.
With low interest rates in international markets, the Icelandic banks behaved like drunkards at a free bar. The three largest banks concentrated their lending on the banks’ largest shareholders and their business partners, in many cases lending them, their employees and other clients money beyond the legal limits to buy shares in the banks, thereby artificially inflating their value.”