Fallout: The Financial Crisis

Iceland warms up to frugality

Stephen Beard Apr 3, 2009
Fallout: The Financial Crisis

Iceland warms up to frugality

Stephen Beard Apr 3, 2009


TESS VIGELAND: Remember back when this whole financial crisis was just a faint puff of smoke on the horizon? When it was just the subprime housing market? And then huge investment banks started toppling over. Markets swooned. Then we started hearing about an entire country on the brink — and it was not us. . . . [News reports montage.]

Yes, after years riding the crest of international finance, Iceland went into economic freefall last year.

If you haven’t read Michael Lewis’s ripping yarn about the country’s unraveling in this month’s Vanity Fair, go and do so.

Meanwhile, our own Stephen Beard recently returned from Rekyavik. Today he provides some perspective on this notion of a return to frugality. It’s way more than cutting out the daily Starbucks run.

Stephen Beard: GDP is falling fast. Unemployment is soaring. But, says Bjarni Brynjolfsson, the best way to gauge Iceland’s shrinking economic status is through food.

Bjarni Brynjolfsson: Many of us thought that money sort of grew on trees. This has now changed dramatically. And the whole country is like turning to porridge.

Yes, porridge. He says that during the boom his fellow citizens went on a binge. Since the bust, they’ve been belt-tightening like crazy.

Brynjolfsson: We are fond of manias. And I think that porridge is now the preferred breakfast of the Icelandic nation, because it’s cheap and it stands with you through the day.

Porridge mania has swept the country. Kitchens in cafeterias and private homes across Iceland are churning out tons of the stuff everyday. People now shun expensive, imported cereals. And Icelanders have rediscovered a taste for slowter, a kind of haggis.

Teitur Thorkellsson: It’s made from intestines and blood and fat of the sheep, meaning everything but the meat.

Teitur Thorkellsson says that during the boom no one bothered with slowter. Now, it’s become almost chic.

Thorkellsson: Right after the economic crash, then this became the most fashionable thing ever. You know, families were getting together and friends were invited to stand with their hands bloody in the kitchen making this slowter food, because it’s extremely cheap.

Icelanders need to economize. Their currency has collapsed, making imports a lot more expensive. Many are saddled with debt. Many like Stefan Alfsson, a 34-year-old unemployed currency trader, lived well beyond their means during the boom.

Stefan Alfsson: I had two expensive jeeps, I had motorcycle, I had snowmobile. All on borrowed money. And a house. I have to downsize. I mean there is no other way to survive this.

But downsizing isn’t easy when everyone else is trying to do the same.

BEARD: Have you sold the jeeps?

ALFSSON: I’m trying. Everything is for sale but the market is not very good.

House prices have plummeted. Thousands of people are reckoned to be in negative equity. Sissa Olafsdottir and her husband are professional photographers. Like many Icelanders they bought their home with a foreign currency mortgage. When the krona collapsed, their loan doubled in size. They can’t keep up the payments. Their home is about to be taken by the bank.

Sissa Olafsdottir: It is hard that you’ve been working all your life for it and now it’s all been taken away from me. I thought as I became older I will sell my house and get a smaller place and just live on that but that’s been, like, taken away from me.

BEARD: The house was your pension?

Olafsdottir: Yes. That was my nest and it’s been taken away from me.

Sissa is angry at her financial loss. And yet, like many Icelanders I met, she also seems to welcome the country’s swift decline into bankruptcy.

Olafsdottir: It has been good for Iceland.

Beard: The collapse?

Olafsdottir: Yes, in a way. Because the greed of the people. There was so much greed. But now people are more caring. We’re becoming more human again. And that’s what I like. And if I lose my house for that, that’s a good cause.

Many Icelanders seem to relish the new austerity: the return to the old virtues of saving up for the hard winter and living a stoical life. But Iceland’s collapse is only six months old. As time goes on austerity may seem less appealing.

In Reykjavic, this is Stephen Beard for Marketplace Money.

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