![]() After all, slicing your labor costs in half should, in the short-run, be a big boost to exports and tourism. If anything, the real surprise is that Iceland hasn't done even better. What he found convinced him, as Michael Lewis tells us, to start writing about Iceland's crash even before it happened. That's what Bob Aliber, a professor emeritus at the University of Chicago, did in 2006 after he heard a talk about Iceland that might as well have been a neon sign flashing financial crisis. All you had to do was look for five minutes. The problem, in other words, was that Iceland's banks were not only paying high prices for questionable assets, but also promising to pay their depositors high interest rates. This was about as unsustainable as business models get, and it wasn't that hard to tell. They bought foreign companies, they bought foreign real estate, they even bought foreign soccer teams. Then, armed with this cash, Iceland's bankers went on a historically ill-advised buying spree. Iceland's three biggest banks grew to 10 times the size of their economy by offering people overseas, especially in the Netherlands and Britain, higher interest rates than they could get at home. During the mid-2000s, it went from being an Arctic backwater that specialized in fishing and aluminum smelting to an Arctic backwater that specialized in global finance. Iceland might have been the most obvious bubble ever.
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