"“We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.” "

Chinese premier Wen Jiabao 12th March 2009

""We have a financial system that is run by private shareholders, managed by private institutions, and we'd like to do our best to preserve that system."

Timothy Geithner US Secretary of the Treasury, previously President of the Federal Reserve Bank of New York.1/3/2009

Thursday, March 27, 2008

Iceland - funds freezing up.

It was 3 years ago when we first posted about Iceland's extravagant economy Wednesday, April 05, 2006 Arctic warms ? Iceland market cools down ?It was the year during which Miss Iceland , Unnur Birna Vilhjalmsdottir reigned as Miss World.

What are the effects .... ?

Iceland, has a freely floating currency, and like the UK and US it's 300,000 folks have borrowed heavily to buy houses. Inward investment has been high as has outward investment (Baugur etc.,) The Icelandic economy expanded a hefty 8% in 2004 and 5.5% in 2005, inflation doubled to 4.5% (ish ... they fiddle their Retail Price Index as much as the US Fed and the UK Treasury does) double their "target" of 2.5%.

Result ? The central bank slams on the brakes, interest rates now a heart stopping 11.5%...other rises rumoured.

Result ? The Icelandic krona has declined 10% ( and falling) and import prices are rising.

Now the Daily Telegraph tells us ...

"As Iceland goes, so go the Baltics, the Balkans, Hungary, Turkey, and perhaps South Africa. All are living far beyond their means, plugging the gaping holes in their accounts with fickle flows of foreign finance. All have let credit grow far above the safe "speed limit", some exceeding 50pc a year."

Iceland's risky high-wire act of the last 5 years has run our of road. Interest rates went up to 15% this week and the krona, has fallen 18pc since mid-March.

The country's all-conquering banks - led by Kaupthing, Glitnir, and Landsbanki - have pushed the asset base of the Icelandic banking system to a world record 8 times GDP, tapping the global capital markets to launch "Viking raids" across Britain, Scandinavia and beyond.

This spigot of easy credit has now been turned off.

The Telegraph lists these Icelandic holdings in the UK...

Icelandic stakes in UK Plc
Baugur (investment company)
Mosaic Fashions, Coast, Karen Millen, Oasis, Odille, Principles, Shoe Studio Group, Warehouse, Whistles, Jane Norman, MK One, All Saints, House of Fraser, Booker, Iceland, Woodward Foodservice, Julian Graves and Whittard of Chelsea, Hamleys, Aurum, Goldsmiths, Mappin & Webb, Wyevale Garden Centres, Watches of Switzerland, Debenhams, Woolworths, French Connection, Moss Bros

Arev (investment company)
Aspinal of London, Blooming Marvellous, Cruise, Duchamp, Hardy Amies, GHOST, Jones Bootmaker, Limeys, Linens 'n Things, Mountain Warehouse, Unisport

Kaupthing (investment bank)
Singer & Friedlander, Somerfield

FL Group (investment company)
Inspired Gaming Group, House of Fraser (they once owned 30% of Easyjet)

Landsbanki (investment bank)
On February 28th Moody's Investors Service downgraded the long-term foreign and local currency deposit ratings of Landsbanki Islands hf ("Landsbanki") to A2 from Aa3 and its bank financial strength rating ("BFSR") to C- from C.

Bjorgolfur Gudmundsson (Icelandic billionaire)
West Ham Football Club Box Label DT

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