Iceland May be First Nation to go Bankrupt on Heels of Financial Crisis

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Iceland is home to 320,000 people living in an area the size of Kentucky.

Because of their Viking heritages the people of Iceland do things in a big way. That resulted in the world's highest per capita incomes. Now the population can only watch as their currency is half of its value. Their banks are collapsing and closed. No money is going out and the people are unable to sell their stocks.

Yahoo reports:

The government had earlier announced it had nationalized the bank under emergency laws enacted to deal with the crisis.

"We have been forced to take decisive action to save the country," Prime Minister Geir H. Haarde said of those sweeping new powers that allow the government to take over companies, limit the authority of boards, and call shareholder meetings.

Europe would see the shock waves if Iceland's banks completely go under. Bauger, one of Iceland's largest companies, owns or has stakes in dozens of European retailers. It is the largest private company in Britain.

Last week share trading was suspended at Kaupthing, the largest bank of the nation.

Perhaps Iceland will be back where it was before the 1990's when it was considered a poor European cousin. The largest four banks now have foreign liabilities in excess of $100 billion. Those debts don't have a chance considering the gross national product is $14 billion.

Iceland is unique "because the sheer size of its financial sector puts it in a vulnerable situation, and its currency has always been seen as a high risk and high yield," said Venla Sipila, a senior economist at Global Insight in London.

This is one nation though that can't blame the banks for having toxic debts. The banks were well-capitalized.

"I believe it is absolutely wrong to say these banks were reckless," Richard Portes of the London Business School said. "Quite the contrary. They were hugely unlucky."