Can Iceland's Financial Crisis Be Attributed to a Single Key Factor?

Iceland is an isolated small country with only 3000,000 population .People started knowing this country from 2008 crisis—the greatest financial crisis ever.(krugman,2010)Iceland became the world's first nation to succumb to the financial crisis.This essay will attempt to demonstrate that Iceland Financial Crisis (IFC) cannot be attributed to a single key factor.It will argue that many factors to IFC.

One of the main reasons cause IFC is that the banking and financial system are not yet functional.The three largest banks in Iceland expanded directly following the deregualtion in the late 90s.(Helgi Gunnlaugzsen,2012).These institutions after many years as small local banks are extended easy credit to international markets and excessive risk behavior.The expansion was mostly financed by interbank loans from abroad, as well as deposits from their newly opened branches in European countries.At the same time the crisis, began their foreign  debt was 10 times the Icelandic GDP.These three banks were effectively captured by some of their main shareholders ,and their financial vulnerability was deliberately masked.For example ,Icelandic banks raised its interest rates as high as fifteen percent and began aggressively offering consumers exotic products such as car loans in foreign currencies.(Roger Boyes , 2009). However, the business model for Iceland was not viable.This international active banking sector that was fast related to the size of its very small economy .Iceland also has its own currency(Willem Buiter and Anne Sibert , 2008).The liabilities of the banking system  been induced to make a shift from domestic to foreign assets ,which bred detrimental misallocations in the real economy.Such mismatch results in the banks owing huge foreign debates and was subsequently system lost the solvency end up in collapse.

Another reason why IFC so serious that the government did the wrong policy.The government chose neoliberalism to shape Icelandic politics ,but they're not fully understand the implications for finance and economy (Ólafsson ,S. 2011).The uncritical faith in the virtues of the free market.The policy make the authority take series action including :marketization , privatization, tax privileges to firms and financiers and so on. For example ,full privatization of banks by 2003 resulted in Icelanders' debt running to roughly 85 percent of country's GDP-a startlingly high proportion of the small states economy.Although many experts warned Iceland that it had a problem ,the warnings were ignored by the government(Heather Horn,2012).The uncritical faith in the virtues of the free market.Such policy mistakes make world's biggest bubble economy come true.

Icelandic history and weak business culture have far-reaching influence on IFC.Iceland looted by other countries before the republic.Icelanders fight for independence shaping their characteristics:egalitarianism and reaction to adverse nature.The former one closely related low power distance, high individualism, and high femininity.In the world of business ,these values might be exemplified in Icelanders by being consensus seekers.In addition to that ,icelandic business people can be characterized as somewhat courageous, original ,resourceful ,ambitious, and confident. This translated into strong optimism, excessive risk taking, and even adventurism among Icelandic business people, as well as the lack of self-discipline.All these cultural traits play a role in the business culture and indirectly cause less regulatory supervision  by the government.