[gwsaines]

I couldn't get a handle on what assets were falling away from the Icelandic banks. The article says that they weren't mixed up in the now toxic subprime assets, so is it just the credit crunch that is inhibiting Iceland banks from making short run payments, or are their assets crumbling in other ways? Anyone care to explain?

When I was in school taking econ courses every day I was always so informed about this stuff. I feel so ignorant now!

[gills]

I have heard they have too much debt denominated in foreign currencies. Their recently-deregulated banking has been a major economic growth area for Iceland (read: levered to their eyeballs). The global instabilities pretty much pulled the rug from under their feet, and their productive economy is not large enough to be likely to pay off the debts; so their currency gets dumped. That makes it harder to pay the foreign debts, and each failure to pay further damages the currency.

I think they will almost certainly have to default.