The mid to late 1990s saw the development of the Icelandic housing bond market. Some very good early investment opportunities in these bonds and the currency. Brokerage firms then became more heavily involved and wrote numerous research reports touting the benefits of the bonds. The Icelandic Kroner became one of the darlings of the emerging market carry currencies. Icelandic banks become more heavily involved, balance sheets exploded, the local population benefited, etc. Macro-economic imbalances continued to grow through the millennium and the end result was becoming all too familiar. Like many trades, though, the imbalances persisted for much longer than expected. In all too familiar fashion markets also unraveled much faster than anticipated.

Secondly, when a butterfly flapped its wings in Iceland reverberations occurred on a global scale given the increasing interrelatedness of markets.

I would encourage a visit to Iceland. It is a short trip from the US east coast and the UK. I spent some time there prior to 2008 and enjoyed the hospitality of a local surf crew.





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