Andri Magnason, author of "Dreamland: A Self-Help Manual for a Frightened Nation."
Andri Magnason, author of "Dreamland: A Self-Help Manual for a Frightened Nation." - 
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Kai Ryssdal: Just last year Iceland was officially the happiest place on the planet. That's how one survey in London described it. A high standard of living with among the best health care and education systems anywhere. Of course, that was before anybody figured out how to say subprime in Icelandic I think.

The global financial crisis crashed onto the island last fall. Its three largest banks collapsed, owing more than 10 times what the whole economy was worth. So Iceland became the first developed country to ask for help from the International Monetary Fund in 30 years. We sent Stephen Beard to the capital, Reykjavik, to see how things are going six months later.


STEPHEN BEARD: Icelandic tour guides usually take you to see volcanos and geysers. But local author Andri Magnason is showing me Borgatun Street, the site of a man-made disaster.

ANDRI MAGNASON: Yeah, we could call this street the "Boulevard of Broken Dreams."

The street runs through the heart of Reykjavik's stricken financial district. It's lined with Iceland's busted banks.

MAGNASON: Just here in front of us is the headquarters of Kaupthing, where capitalism fell in Iceland.

Iceland's three biggest banks borrowed and lent billions overseas, but when the credit-crunch struck, the tiny Icelandic economy just wasn't big enough to bail them out. The crash hit the wider economy hard. The local currency fell 50 percent against the dollar. Unemployment has soared, and pretty soon one in 10 will be out of a job.

TEITUR THORKELLSON: Like Icelanders were all crazy about flat screens one year ago. They're now all crazy about going fishing , making a living, survival.

Teitur Thorkellson runs an energy consultancy called FTO. His firm's income has been cut in half. Everywhere, he says, there are signs of a new austerity.

THORKELLSON: If you travel the country now -- six months after the crash -- you will stop at a gas station, and the girl who's attending the gas station, she will be knitting socks. People are not spending. They're not eating as much out. So we're adjusting pretty fast.

It's not surprising that Icelanders feel poor. Thousands of Icelandic families now owe more than their assets are worth.

Four-year-old Regina Dagbjorg is cycling back from playschool with her dad, Einarr. Cheerfully, she chants: "We're going home." Einarr is less enthusiastic about their two-bedroom apartment. He bought it three years ago with a loan worth $100,000. But Icelandic loans are tied to the inflation rate: his mortgage is now $126,000. The crash of the currency last year pushed up the inflation rate sharply, pushing thousands of people into negative equity.

EINARR: It's pure robbery because people that maybe owned 40 percent of their home. That percentage is gone now.

BEARD: The bank is getting the equity in your home?

EINARR: The bank always wins, that's the name of the game.

Having nationalized the banks the government is now spending billions stabilizing the currency and subsidizing wages. Six months ago Iceland had no national debt. Now it's expected to be proportionally even more indebted than the United States. Einarr blames Icelandic financiers.

EINARR: They were praised in the media of being "The New Vikings". They go abroad and conquered the world. But they just raped and pillaged their own people.

In the satirical T.V. show "Comedy Room," this spoof version of "Candle in the Wind" laments the passing of a nation. Sunk under a tidal wave of corruption and greed. The crash is causing acute financial distress. But writer Andri Magnason says he's glad that Iceland's career as an international financial center is over.

MAGNASON: What kind of an island will we become if everybody's working all day thinking of money, getting lots of money paid for thinking about money, spending their spare time wasting that money? We would not have become a very nice place, I think.

But will Icelanders really be content to return to being nice, knitting socks and swapping recipes for blood sausage? The search is now on for a business to replace high finance.

In Reykjavik, this is Stephen Beard for Marketplace.

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