Wall Street on the Tundra, by Michael Lewis, Vanity Fair, April 2009 describes amazing recklessness by high rolling Icelanders during the so-called "Viking outvasion" period:

... Icelanders are among the most inbred human beings on earth—geneticists often use them for research. They inhabited their remote island for 1,100 years without so much as dabbling in leveraged buyouts, hostile takeovers, derivatives trading, or even small-scale financial fraud. When, in 2003, they sat down at the same table with Goldman Sachs and Morgan Stanley, they had only the roughest idea of what an investment banker did and how he behaved—most of it gleaned from young Icelanders’ experiences at various American business schools. And so what they did with money probably says as much about the American soul, circa 2003, as it does about Icelanders. They understood instantly, for instance, that finance had less to do with productive enterprise than trading bits of paper among themselves. And when they lent money they didn’t simply facilitate enterprise but bankrolled friends and family, so that they might buy and own things, like real investment bankers: Beverly Hills condos, British soccer teams and department stores, Danish airlines and media companies, Norwegian banks, Indian power plants.
That was the biggest American financial lesson the Icelanders took to heart: the importance of buying as many assets as possible with borrowed money, as asset prices only rose. By 2007, Icelanders owned roughly 50 times more foreign assets than they had in 2002. They bought private jets and third homes in London and Copenhagen. They paid vast sums of money for services no one in Iceland had theretofore ever imagined wanting. “A guy had a birthday party, and he flew in Elton John for a million dollars to sing two songs,” the head of the Left-Green Movement, Steingrimur Sigfusson, tells me with fresh incredulity. “And apparently not very well.” They bought stakes in businesses they knew nothing about and told the people running them what to do—just like real American investment bankers! For instance, an investment company called FL Group—a major shareholder in Glitnir bank—bought an 8.25 percent stake in American Airlines’ parent corporation. No one inside FL Group had ever actually run an airline; no one in FL Group even had meaningful work experience at an airline. That didn’t stop FL Group from telling American Airlines how to run an airline. “After taking a close look at the company over an extended period of time,” FL Group C.E.O. Hannes Smarason, graduate of M.I.T.’s Sloan School, got himself quoted saying, in his press release, not long after he bought his shares, “our suggestions include monetizing assets … that can be used to reduce debt or return capital to shareholders.”
Nor were the Icelanders particularly choosy about what they bought. I spoke with a hedge fund in New York that, in late 2006, spotted what it took to be an easy mark: a weak Scandinavian bank getting weaker. It established a short position, and then, out of nowhere, came Kaupthing to take a 10 percent stake in this soon-to-be defunct enterprise—driving up the share price to absurd levels. I spoke to another hedge fund in London so perplexed by the many bad LBOs Icelandic banks were financing that it hired private investigators to figure out what was going on in the Icelandic financial system. The investigators produced a chart detailing a byzantine web of interlinked entities that boiled down to this: A handful of guys in Iceland, who had no experience of finance, were taking out tens of billions of dollars in short-term loans from abroad. They were then re-lending this money to themselves and their friends to buy assets—the banks, soccer teams, etc. Since the entire world’s assets were rising—thanks in part to people like these Icelandic lunatics paying crazy prices for them—they appeared to be making money . Yet another hedge-fund manager explained Icelandic banking to me this way : You have a dog, and I have a cat. We agree that they are each worth a billion dollars. You sell me the dog for a billion, and I sell you the cat for a billion. Now we are no longer pet owners, but Icelandic banks, with a billion dollars in new assets. “They created fake capital by trading assets amongst themselves at inflated values,” say s a London hedge-fund manager. “This was how the banks and investment companies grew and grew. But they were lightweights in the international markets.”

In all probability, these Icelanders were pumped up by brokers who saw them as fresh meat for juicy commissions and fat merger and acquisition (M & A) fees. They were also exploited by academics willing to tell them what they wanted to hear for hefty consulting engagement payments. The article "Mishkin for sale, Nov 23, 2008 comments:

Frederic Mishkin is a professor at Columbia Business School. In the world of economics Mishkin has enjoyed a distinguished career and when he speaks, people listen.
In 2006, Mishkin co-authored a report called “Financial Stability in Iceland”. The report was commissioned by the Icelandic Chamber of Commerce as a way to respond to massive critical coverage of the Icelandic economy and Icelandic companies in the international business media. The report put forth that Iceland’s economic fundamentals were strong. Mishkin was reportedly paid $160,000 for his troubles."

There was a glaring lack of regulatory oversight during this period. "The failed state of Iceland," by Elliot Wilson Friday, Euromoney (PDF), 5 March 2010, commented on why the "FME" (Iceland's regulatory agency) was completely ineffective:

Who, then, was regulating Iceland’s out-of-control banks? Simply put, the answer is no one – or at least, no one worth mentioning. By late 2007 Iceland had essentially become a financial banana republic. The FME had long been a cipher, offering empty platitudes about financial supervision. Its offices sit in the distant outskirts of Iceland’s capital, anonymously nestled at the back of a ramshackle office building and above a Chinese noodle shop. They could not be farther – literally or metaphorically – from the gleaming steel-and-glass waterfront real estate chosen by leading local banks, most based a stone’s throw from government offices and Reykjavik’s retail centres.

Usually the most sane time to go on a buying spree is after markets have been severely pummeled by a prolonged bear market and valuation metrics such as price to earnings and price to cash flow ratios are at 20 to 50 year inflation-adjusted lows. Under ideal bottom fishing conditions, bearish sentiment is usually at all time highs (a contrarian indicator), and strong economic fundamentals are growing on the horizon.
A good example took place in the early 1980's after Fed Chairman Paul Volcker made it clear he was serious about cutting inflation. Long term bond rates had soared over 20% after nearly a decade of double digit rates. Bond yields would now start coming down. The price of gold, which had enjoyed a speculative spike over $800 an ounce as a barometer of inflation fears, would also start a long decline. Average common stock P/E multiples and prices had nowhere to go up.
This is where ace investors like James Sinclair bailed out of gold, Mike Milken started gobbling up undervalued Real Estate Investment Trusts, and Warren Buffet became extremely aggressive on common stocks in general. Sir John Templeton declared on the PBS show Wall Street Week that never again in ones lifetime would one see such a common stock buying opportunity. Many other savvy investment managers with proven track records said the same thing.
Flash forward to 2003 and the exact opposite market conditions prevailed everywhere. I can prove this point with my own writings, which in turn show how many leading financial professionals held the same viewpoint. Therefore, it is highly likely that financial professionals from major New York and UK firms who advised the Icelanders deliberately set them up for their fall.
By 2003, I was publishing articles at leading online financial sties that are listed in my online author archive in the "Business and Technology-Related Articles " section. They correctly warned about underlying realities. I drew upon my experience as a stockbroker since 1995 as well as my close attention to financial media since I started taking business courses at the University of Hawaii in 1980 and at Harvard in 1982. The following are some key articles that have proven prescient:
28 Jan 2003 A Bear Case Overview. All my section headings regarding market and economic fundamentals have proven correct, namely, "Numerous key macroeconomic indicators look bad with no near term recovery in sight," "Policies on a government, corporate, Wall Street, and national media level may still be adding fuel to the fire, driving us deeper into crisis," and "Certain overall patterns may suggest something more serious than a relatively short, self-correcting recession."
This was true back then, and even more true today.
20 July 2003 Amidst Bullish Hoopla: A "Behind the Curtain" Look at Fed Desperation and Intervention Wizardry. I explain the danger of unchecked derivatives growth, and how the markets are heavily manipulated by the "Plunge Protection Team" and other entities sponsored by an alliance of the Fed, U.S. Treasury (typically run by ex-Goldman Sachs executives), and major Wall Street firms. I also explained how long term bond rates had been artificially forced down by the Fed into the low single digit area despite money supply growth (M3) of around 10% a year over the prior decade.
In the long run, inflation is a function of money supply growth, (adjusted for productivity gains and the ability of a dominant economy to get foreign central banks to absorb excess money creation, if you want to get technical). Typically long term bond yields should exceed money supply growth and inflation rates to at least preserve purchasing power. I explained in this article how the Fed could not keep long term bond rates artificially suppressed forever. Worse yet, America has lost the structural ability to reign in its money and credit growth. Therefore, stock market investors are headed into a trap. At some point artificially suppressed long term interest rates must rise, and the artificially elevated stock market must plummet. It will not be pretty once the final shoe drops, as recently noted by Dr. Marc Faber.
Another important topic area I covered is why the Fed is unwilling to regulate the exponential growth of dangerous derivatives. There are at least three reasons for the deliberate lack of regulation:
(a) Derivatives are extremely profitable for hedge funds that work closely with both major Wall Street firms and the Fed;
(b) The Fed can set short term rates on its own, but it does not directly control long term rates. It needs hedge funds that use sophisticated financial tools like derivatives to transmit short term rate changes out the long term bond yield curve; and
(c) America created strong demand for speculative financial instruments like derivatives once it delinked the dollar from gold in the early 1970's. At the same time, the U.S. continued to demand that the world use the dollar as a global currency. Before long, as Ferdinand Lips observed in his book The Gold Wars, all the major nations of the world were delinked from gold and were "floating on nothing but a sea of paper.". In the contrast, in the 19th century when countries used a gold standard for international trade, they simply repegged their currencies to precious metals whenever the inflation of their paper money supply required adjustments. This was a much simpler, less volatile, and more robust system, without any need for such sophisticated financial instruments as derivatives.
29 Oct 2003 Templeton Trepidations, Buffett Battle Stations I explain and correctly predict the continuing bear market in the dollar. The key to this prediction was understanding how Robert Rubin, as former co-Chairman of Goldman Sachs and head of the U.S. Treasury, was able to artificially manipulate the value of the dollar upward against other currencies in the late 1990's to the point that the government finally lost traction. An important reason for this eventual turnaround was the fact that central banks started running low enough on their gold reserves that they could no afford to keep gold suppressed at a particular price, but instead had to switch into a "rearguard" mode where they manage a steady up trend in gold prices to prevent them from exploding too far upward in any given time period. According to a 22 April 2010 3rd hour interview by Alex Jones with Bill Murphy of GATA (Gold Anti-Trust Action Committee) the central bankers have been showing a steady pattern of knocking the gold price back down every time it achieves a certain percentage level of appreciation. Gold prices and the strength of currencies like the dollar are inversely correlated as historical barometers, and the Fed has had a longstanding policy of manipulating both the strength of the dollar and gold prices in ways that serve the social, political, and economic objectives of America's "hidden rulers," as discussed in Chapter 33 of my Trilogy.

21 March 2004 Back of the Envelope Analysis for $1,000 Gold in Five Years Everything I said in this prediction when gold was $400 an ounce proved correct as a long term forecast, to include not only the expected price level, but also the way gold achieved my $1,000 price target over a five year time horizon. The rise in gold prices shows how market manipulators have been "running out of ammo" with the gold reserves necessary to keep gold prices artificially suppressed. All of this in turn reflects their increasingly inability to manage the extreme distortions that they have created in the economy from such factors as exploding debt, the loss in manufacturing competitiveness, the chronic trade deficits, and the housing bubble. All of this in turn implies periodic market dislocations of the type that brought down Lehman Brothers and Iceland.
As previously mentioned, I have to believe that Icelanders were deliberately misled into their predicament by international bankers who needed "fresh meat" for commissions, advisory fees, and false front operations, much like the way heroin pushers need a steady supply of fresh new addicts with money whose physical health and whose financial situations have not yet broken down from their drug habits.
Even more alarming is the uniquely criminal way in which global financial conditions have steadily gone from bad to worse to even worse since 2004. Take for example derivatives, which Warren Buffett once warned are "weapons of mass financial destruction." According to my 21 March 2004 gold prediction article:

Robert Moriarity of 321gold.com commented in his March 13th Korelin interview that global debt now stands at $100 trillion, more than twice the world economy of $45 trillion. Even worse, the Bank of International Settlements (BIS) reports total derivatives at $207 trillion, or a little under five times the global economy. They have grown from zero in 1971 when Nixon completely de-linked the dollar from gold.

Now flash forward to Wayne Madsen's 2009 report about where derivatives stand today, to include their connection with Mossad-CIA global operations. (I reproduce his full report below. The details provide important background on the depth, breadth, and level of ultra high level international organized crime).

2010-02-09 -- "Forget trillions at stake globally, try quadrillions and . . ."
WMR has learned from sources inside "The Temple," otherwise known as the Federal Reserve Bank, that the amount of money that is at risk worldwide is not in the trillions but the quadrillions.
WMR has learned from informed sources that French President Nicolas Sarkozy will soon face renewed charges that he received illegal foreign funds through the Luxembourg banking company Clearstream. Luxembourg is a well-known tax haven that maintains strict confidentiality over banking and corporate records.
Then-French Foreign Minister Dominique de Villepin met with the recently-retired head of French military intelligence Philippe Rondot and EADS deputy director Jean Louis Gergorin. Gergorin told de Villepin that two names on the secret list of French politicians who had Clearstream accounts -- Paul de Nagy and Stéphane Bosca -- were pseudonyms for Sarkozy. It was believed by French intelligence that the names came from Sarkozy's father's full name, Nicolas Paul Stéphane Sarkösy de Nagy-Bosca.
Clearstream reportedly represented a massive money laundering operation that financed political and other operations around the world. Banks and companies with Clearstream accounts included the Bank of Credit and Commerce International (BCCI), Bank Menatep of jailed Russian oligarch Mikhail Khodorkovsky, Banco Ambrosiano (also known as the Vatican Bank), Bahrain International Bank (with reported links to Osama Bin Laden), and The Carlyle Group.
Sarkozy was Interior and, for a short time, Finance Minister in the Union pour un Mouvement Populaire (UMP) government in which De Villepin served as Foreign Minister and Prime Minister.
Sarkozy's camp denounced the Clearstream list as a forgery and, as President, Sarkozy has put de Villepin under a criminal investigation. However, WMR has learned from sources close to France's General Directorate for External Security (DGSE) that Sarkozy's removal of Pierre Brochand, a Jacques Chirac appointee, as the head of DGSE in October will soon have unpleasant consequences for the mercurial Sarkozy.
DGSE classified documents could soon appear that will re-ignite the Clearstream affair and prove that Sarkozy's political career was financed by foreign funds. The revelations will reportedly exonerate de Villepin and Chirac, who have been charged by pro-Sarkozy elements in France of a criminal conspiracy to defame Sarkozy.
Sarkozy and his neocon allies were able to kill the story of Clearstream by lawsuits against journalists and criminal charges against French officials who were aware of the details of the case. An Excel spreadsheet of Clearstream accounts was removed from several web sites under threat of legal action. WMR obtained a copy of the 2002 spreadsheet.
The release of classified information on Clearstream may have repercussions far beyond France and shed light on an international quadrillion dollar scheme involving Israeli-connected gangsters to line the pockets of billionaires, launder cash, defraud banks, and loot national treasuries."
The neocons and their allies in the corporate media have labeled the Clearstream documents as forgeries. However, neocons, who favor using forgeries to push their own agenda, are also apt to label as "forgeries" any document that threatens their continued grip on power. Because of what Clearstream represents, Sarkozy has also sought to abolish the posts of independent investigative judges in France so they are not prompted to dig further into the world's shadow economy.
The term quadrillion in relation to worldwide derivatives was also cited in Len Bracken's guest editorial in WMR on October 9, 2009: "The worldwide notional value of outstanding derivatives is now estimated to be $1.405 quadrillion, up 22 percent from the 2008 level. DK Matai of the Asymmetric Threats Contingency Alliance notes that a conservative 10 percent default or decline could result in $100 trillion of payouts. Financial institutions, nation states, even blocs such as the European Union will be unable to fund these obligations, often owed to speculators by bankers that grossly mispriced risk . . . The Soviet Union, by the most reliable accounts, imploded in large part because of its Afghan war. While the United States and its allies now have their crippling campaign in that unforgiving country, the weakest links to the empire controlled by Wall Street and The Square Mile are formed by a quadrillion dollars in derivatives and a hundred trillion dollars of securitized debt."
If deVillepin succeeds against the hordes of financial marauders in France as a modern-day Charles Martel and begins to unravel the global financial shysters and fraudsters who have, like locusts and rats, decimated the economies of Iceland, Ireland, Greece, Spain, Portugal, and, soon, possibly bring the United States and France to economic collapse, it may be an issue of being too little and too late.

It is worth noting that markets heavily entangled with derivatives are always dangerous. One of the ever-present great dangers of any highly leveraged arbitrage activities on Wall Street are called "rogue wave effects." (Please see the "Rogue Wave"-related articles published online in 2000 by James Puplava as part of his famous "Perfect Storm" series at financialsense.com). Once in a while market behavior will change radically, just like freak waves that come out of nowhere in the ocean. As one example, some major news event can cause investors to suddenly freeze up in fear. Markets suddenly become illiquid. Computer models which assume that sophisticated financial instruments can hedge risk (such as hundreds of trillions of dollars worth of derivatives that nobody really understands) suddenly no longer work because there are no longer any buyers (or "counter parties to a transaction") around that enable risk managers to unwind or clear their positions.

Ignoring Recent Lessons

In addition to all the "red flag" areas that I have just mentioned, namely (a) peak-market conditions (b) global banking establishment corruption and (c) ever present "rogue wave" vulnerability, there is one other very important red flag area that deserves elaboration.
For the prior two decades, Wall Street was repeatedly scandalized by outbursts of major fraud and market malfunctions. Furthermore, there was no indication that Wall Street was seriously mending its ways to prevent reoccurrences.
Four of the most glaring examples included the $1.4 billion Securities industry Global Settlement of 2003, the bursting of the Internet bubble in 2000, the Long Term Capital Management disaster of 1998, and the Robert Citron-Merrill Lynch scandal of 1994.
The Global Settlement of 2003 resulted in a record fine for leading securities firms. This made it clear how the much of the much-touted "Chinese Wall" that allegedly existed between securities analysts and investment bankers who conducted Initial Public Offerings (IPO's), Secondary offerings, and Mergers and Acquisitions (M & A) was a complete fiction. Securities analysts like Henry Blodget for Merrill Lynch and Mary Meeker with Morgan Stanley were hyping stocks to help fuel IPO and M & A business for their investment banking departments. They were not warning retail investors about underlying realities, which was supposed to be their real job.
Creating hyped-up research reports to run up stocks is called "pump and dump" in Wall Street jargon. The Global Settlement of 2003 suggested that major Wall Street firms function on the moral and ethical level of sleazy, fly-by-night "boiler room" operations.
By the year 2000, the financial press commented extensively on how distorted the American economy had become with the run-up of the Internet and telecom stock bubbles. The S&P 500 financial sector had grown from 5% to 25% of total market capitalization. Many market professionals commented on this distortion, and accurately predicted that it would eventually regress to the mean. Sure enough, this regression took place after the market bubbles finally popped. .

I specifically identified the new housing bubble problem on 28 Jan 2003 when I published A Bear Case Overview at Financial Sense University and other leading financial web sites. This was the first key macroeconomic indicator that I covered in this article. I stated:

Debt is at historic highs and keeps growing while credit quality is deteriorating.
According to Doug Noland, author of "Credit Bubble Bulletin," Total indebtedness (corporate, personal, and government) is currently about three times GDP compared to 2.6 times during the Great Depression. Corporate and individual bankruptcies are at record highs. Consumer spending, which comprises about 75% of GDP, now appears to be slowing down as a result of higher debt levels eating into discretionary funds, while credit creation by Government Supported Enterprises such as Fannie Mae, GNMA, and Freddie Mac outside the banking system continues to grow by as much as 20% a year. The national strategy of outsourcing manufacturing and emphasizing services through a very liberal approach to "free trade" has distorted our economy in both directions. The mortgage refinance boom has been an important element to provide consumers with liquidity and keep the economy going, but this can not last forever. (cf. Noland interview).

The "The Isle That Rattled the World," Wall Street Journal, December 27, 2008, observed how Icelandic banks acted oblivious to these warnings as they leveraged themselves to the hilt in this bubble environment. "By earlier this year, the three main banks had grown so much that they accounted for around three-quarters of Iceland's stock-market value. Their loans and other assets totaled about 10 times Iceland's gross domestic product."
"Moral Hazard in Iceland" by Iris Erlingsdottir, Huffington Post, February 10, 2010 notes that "Of course, gravity never goes away, and, as Daníelsson has noted, `If the banks become too big to save, their failure becomes a self-fulfilling prophecy.'" The banks' sheer size relative to Iceland's economy and Central Bank inevitably pulled them down to size."
There were other major malfunctions in recent history that should have served as warning to Icelandic bankers. The Long Term Capital Management (LTCM) fiasco of 1998 illustrated how sophisticated trading models created by two Nobel prize winners could suddenly become inverted under freakish, market melt-down situations.
LTCM was an extremely leveraged hedge fund that had become "too big to fail" on Wall Street. Rather than allow LTCM to go belly up, the Fed stepped in and orchestrated a bailout by leading banks.
The article "Who bombed Iceland? by Uwe E. Reinhardt, the Daily Princetonian, November 3, 2008, describes how Icelandic banks jumped into the carry trade just like LTCM right in the middle of a market that was dangerously inflated by the housing bubble, central bank manipulation, and toxic derivatives growth:

Though Iceland’s economy basically relies on a few staples, its bankers discovered during the ’90s that the island of some 300,000 inhabitants could be converted into the analogue of a highly leveraged hedge fund. Such funds scour the earth for low-cost credit – usually available in Asia – and then scour the world for investments with higher yields. They live on the spread between the higher returns on their assets and the lower interest rates they pay on debt. In the jargon of finance, this was called the “carry trade.” Eventually, Iceland’s bankers pushed the carry trade to a point where the amount of money they owed mainly to foreign lenders and depositors amounted to almost 10 times Iceland’s gross domestic product (GDP). And unlike the legendary prudent banker, they had only skimpy equity cushions to absorb any decline in the value of the assets they bought.
It appears that, unlike their colleagues on Wall Street, Iceland’s bankers did not invest heavily in the dodgy mortgage-backed securities based on subprime mortgages, which have brought down so many banks in the United States. Instead, they were heavily involved in financing entrepreneurs in Europe and elsewhere. But caught in the global credit squeeze, they found it impossible to roll over their huge short-term debt, while the looming recession impairs the value of the loans made to enterprises...

Only four years before the LTCM blow-up, Wall Street witnessed the Robert L. Citron-Merrill Lynch scandal of 1994. As a pension fund bond portfolio manager for Orange County, California, Robert Citron used complex derivatives he did not understand to goose up his rate of return -- in all probability just like the above market rates of return offered by Icesave Internet savings accounts that became focus of Iceland's crash in October 2008. Citron wound up bankrupting Orange County when interest rates rose and he got caught in a liquidity squeeze --just like Icesave.
Retired accounting professor Bob Jensen of Trinity University, author of the web page "History of Fraud in America," reviewed the book FIASCO by Frank Partnoy, which analyzed not only the Citron debacle, but also the culture of infectious greed on Wall Street that provided an important backdrop to this scandal. In professor Jensen's review below, those readers with a macabre sense of humor may consider substituting the term "bunnies" with "Icelandic bankers."

Frank Partnoy, FIASCO: The Inside Story of a Wall Street Trader (Penguin, 1999, ISBN 0140278796, 283 pages).
This is a blistering indictment of the unregulated OTC market for derivative financial instruments and the million and billion dollar deals conceived in investment banking. Among other things, Partnoy describes Morgan Stanley’s annual drunken skeet-shooting competition organized by a “gun-toting strip-joint connoisseur” former combat officer (fanatic) who loved the motto: “When derivatives are outlawed only outlaws will have derivatives.” At that event, derivatives salesmen were forced to shoot entrapped bunnies between the eyes on the pretense that the bunnies were just like “defenseless animals” that were Morgan Stanley’s customers to be shot down even if they might eventually “lose a billion dollars on derivatives.”
This book has one of the best accounts of the “fiasco” caused almost entirely by the duping of Orange County ’s Treasurer (Robert Citron) by the unscrupulous Merrill Lynch derivatives salesman named Michael Stamenson. Orange County eventually lost over a billion dollars and was forced into bankruptcy. Much of this was later recovered in court from Merrill Lynch. Partnoy calls Citron and Stamenson “The Odd Couple,” which is also the title of Chapter 8 in the book. Frank Partnoy, Infectious Greed: How Deceit and Risk Corrupted the Financial Markets (Henry Holt & Company, Incorporated, 2003, ISBN: 080507510-0, 477 pages) Frank Partnoy, Infectious Greed: How Deceit and Risk Corrupted the Financial Markets (Henry Holt & Company, Incorporated, 2003, ISBN: 080507510-0, 477 pages)
Partnoy shows how corporations gradually increased financial risk and lost control over overly complex structured financing deals that obscured the losses and disguised frauds pushed corporate officers and their boards into successive and ingenious deceptions." Major corporations such as Enron, Global Crossing, and WorldCom entered into enormous illegal corporate finance and accounting. Partnoy documents the spread of this epidemic stage and provides some suggestions for restraining the disease.

The book Big Bets Gone Bad: Derivatives and Bankruptcy in Orange County. The Largest Municipal Failure in U.S. History, by Philippe Jorion reinforced important points also made by Frank Partnoy about the Citron affair:

[We learn that neither] Citron (nor the people above him and his investment participants), who had no real background in finance, did not know the difference between market price and face value, nor did he know the difference between an option on an asset and the outright ownership of an asset. Based on one very bad bet on the movement of interest rates, Citron fully invested Orange County's finances in derivative securities that he did not understand at all, and compounded the problem by leveraging his position (basically using a little money to borrow a lot of money) to the extreme.

This also sounds like widespread criticism of David Oddsson's lack of financial experience before he took over Iceland's central bank.
To provide some important additional historical perspective, we can learn not only from the Robert Citron-Merrill Lynch affair of 1994, but also go back even further to the "Golden Rule of Banking" described by Ludwig Von Mises in a paper written in 1912, as explained in the article "Iceland's Banking Crisis: The Meltdown of an Interventionist Financial System" by Philipp Bagus and David Howden, Mises Daily, 9 June 2009:

Maturity Mismatching and Artificial Booms

Iceland's crisis shares a common bond with those that have infected other developed economies recently: all have banking systems heavily engaged in the practice of maturity mismatching. In other words, Icelandic banks issued short-term liabilities in order to invest in long-term assets, as can be seen in figure 1, which presents the funding gaps (i.e., liabilities less assets) of a given maturity for the three largest Icelandic banks — Kaupthing, Glitnir, and Landsbanki.
Thus, the banking system had to continuously roll over (renew) their short-term liabilities until their long-term assets fully matured. If an event arose whereby Icelandic banks failed to find new borrowers to continue rolling over their liabilities, they could face a liquidity crisis and, more importantly, spark the collapse of the Icelandic financial system; recent events have borne out this exact scenario...
...Unfortunately, most policy recommendations to Iceland have been undertaken with little to no knowledge as to the true source of the bust. Willem Buiter and Anne Sibert (2008) have completed the most complete analysis of the Icelandic crisis to date. By only dealing with the evident issues, they deem the real downfall of Iceland to have been a central bank unable to issue the necessary credit when the need arose. Hence, as a recommendation, they believe Iceland should look towards joining the European Monetary Union in order to gain a central bank credible as a lender of last resort. What they fail to realize, unfortunately for those who will listen to their prescription, is that the boom was unsustainable from the start; prolonging it will only offer temporary relief, if any at all. The misallocations of capital disrupted the productive portion of the economy in ways that could not prevail indefinitely, given the preferences of Icelanders as well as foreigners. The moral hazard created by the diminutive Icelandic central bank has already provided us with a spectacular blowup; are we to believe that the moral hazard guaranteed by the European Central Bank will be any less malign?
Instead, we find that the solution is not a central bank as a lender or roller-over of last resort, but, as Ludwig von Mises had already stated in 1912, the solution is rather that banks conform to the golden rule of banking:
For the activity of the banks as negotiators of credit the golden rule holds, that an organic connection must be created between the credit transactions and the debit transactions. The credit that the bank grants must correspond quantitatively and qualitatively to the credit that it takes up. More exactly expressed, "The date on which the bank's obligations fall due must not precede the date on which its corresponding claims can be realized." Only thus can the danger of insolvency be avoided. (The Theory of Money and Credit)

In summary, I believe that key Icelanders were so massively misled for so long with such incredible blindness to historical lessons and ongoing red flags that the problem has to be much bigger and more sinister than their own greed, naivety, or hubris. I believe it highly likely that Alex Jones is correct, namely that Icelanders were deliberately subverted by globalist bankers.
Therefore, when we "rewind the tape" and try to figure out how the financial sectors of Scandinavian countries --or for that matter America-- can try to prevent these kinds of tragedies from ever repeating themselves, we are presented with broad social and political issues. These problems are certainly much broader and deeper than any thing one would ordinarily find within today's "politically correct" and "highly sanitized" business school text books or financial sector trade publications alone. To find real answers, one requires free alternative media.
More on all this later in my alternative media and nationalist analysis sections.

I deliberately named this section to resemble Chapter 37 titled "`Operation Blackjack,' The Kansas City, KS Nuke, and the Zombie March Towards `Stalingrad II'" of my Mission of Conscience series because I perceive many disturbing parallels between Iceland's misguided establishment and the Obama Nation's "Road to Armageddon" handlers at the Pentagon.
Regarding the Obama Nation, Zionist neo-con "High Priests of War" not only keep saber-rattling at Iran, but have built up more troops in Afghanistan than Iraq. They have done this despite the strong evidence that the American approach to conducting the war in Afghanistan is unwinnable, and the country can become a logistical death trap for U.S. forces if the American economy collapses.
In both cases, as warning signals gained in strength, major leadership elements of both Iceland and America have proven themselves incapable of engaging in any kind of meaningful damage control or course correction change to avert disaster. What they also share in common is that they are both heavily influenced behind the scenes by Bilderburgers, Trilateralists, and other elite bankers and Zionist globalist oligarchs.
The Isle That Rattled the World," Wall Street Journal, 27 Dec 2008, describes how serious warning signals appeared in 2006.

What makes Iceland different: It tried to build a global banking center on top of a tiny currency. So when foreign investors tried to pull out -- converting kronur back into dollars or euros en masse -- its currency fell like a rock, spurring more withdrawals.
Amid Iceland's euphoria, there were warnings. In 2006, analysts at Danske Bank wrote a paper titled "Geyser Crisis" saying that Iceland's banks had grown too much, and the country was dangerously reliant on the willingness of foreigners to keep sending money.
Hedge funds attacked the Icelandic krona. The banks weathered the assault, and the krona bounced back. Fatally, Iceland viewed its successful defense as proof of the banks' resilience.
But the Danske Bank team wasn't wrong, just early.

According to the Forbes article "Icelandic Meltdown", "In January [2008], rating agency Moody's had said that the [three leading Icelandic] banks' fragility was putting the country's Aaa sovereign rating at risk."
The following are examples of other warning signs reported by Bob Chapman's International Forecaster newsletter beginning in March 2008, seven months before the October 2008 collapse:

22 March 2008 International Forecaster, p. 14 "The cost of [credit default swap] protection for two banks in Iceland, one its biggest bank, rose 22 BPS to 855. That is an average of seven times more than banks in Europe."

2 April 2008 International Forecaster p. 16 "...Word is that German bank write downs on US subprime debt could hit $110billion. The risk of Iceland’s biggest bank defaulting rose above 49% as contagion from the US subprime crisis spreads, default swaps show. This is the early stage of the banking crisis....Hungary’s central bank increased interest rates by 50 BPS to 8%. Inflation is 6.9% in February and 7.1% yoy in January. The fear is that Iceland will implode, then Hungary and other Eastern European nations."

5 April 2008 International Forecaster p. 17 "The Bank of Finland might bail out Icelandic banks. The central banks of the Nordic countries agreed four years ago to maintain the stability of the banking system in the region by bailing out banks that operate in at least two of these countries. Glitnir, Kaupthing and Landsbanki are Icelandic banks that operate in Finland."

12 April 2008 International Forecaster p. 17 "Iceland’s central bank raised its interest rate for the second time in three weeks from 15% to 15.5%. Rates were raised 1-1/4% on 3/25. Thursday’s rate increase failed to halt a further decline in the Krona because it was not accompanied by measures to boost foreign currency reserves. The bank needs to raise its reserves to reassure investors it can act as a lender of last resort to banks that own more foreign assets than Iceland’s GDP. The Krona has lost 21% of its value versus the euro this year. Inflation has exceeded the bank’s 2.5% target every month since 4/04. Inflation should average 9.3% this year and 5.9% in 2009.

On April 21, 2008, T-minus six months before the October collapse, Khaleej Times Online published the article "Iceland: Hot money, debt and sovereign meltdown," by Matein Khalid which provided the following "situation report."

Iceland’s FSA [Financial Supervisory Authority] alleges that a handful of international hedge funds conspired to initiate a speculate attack on Iceland’s currency, banking system and stock market. After all, Iceland bank credit default swaps surged from only 50 last August to 1000 basis points at the height of the speculative attack. The credit default swaps crisis led to a global run on the Icelandic kroner, forcing the central bank to hike interest rates to 15 per cent even as the national currency collapsed from 90 to 120 against the Euro. Icelandic politicians, central bank governors and politicians accused foreign hedge funds of malign intentions in a manner reminiscent of Malaysian Prime Minister Mahathir accusations against billionaire foreign exchange speculator George Soros. Iceland’s economy, once dominated by fishing and tourism, has been turbo charged by the spectacular growth of its international banking assets. Iceland is clearly not out of danger yet. The Icelandic kroner has lost one fifth of its value against the Euro in the foreign exchange market, meaning the inflation rate can only rise. The Reykjavik stock exchange is in a vicious bear market. Icelandic banks still are high risk borrowers in the international money markets. While the speculative crisis has abated since early April, international confidence in Iceland is still fragile.
Iceland’s woes reflect a broader rise in investor risk aversion against countries with high external deficits that are serial borrowers in the international loan and capital markets. The South African Rand, the Romanian Leu, the Kazakh Tenge and the Turkish Lira have also been victims of the post - bubble rise in risk aversion in the capital markets. A hot money attack can do lasting damage to a target country’s financial market or banking system. Iceland, for instance, has the highest interest rates in Europe to defend the kroner. Yet high interest rates are a disaster for Icelandic banks and borrowers. Iceland’s central bank must also boost its foreign exchange reserve and risk additional downgrades on its sovereign ratings by Moodys, Fitch and S&P.
The economic imbalances and banking excesses of Iceland have been exposed and the Icelandic kroner has now lost one fourth of its value against the Euro. It is now evident that highly leveraged banks will be blackballed from the international money markets.

Returning back to Bob Chapman's International Forecaster:

30 April 2008 International Forecaster p. 18 "Icelandic inflation for March reached its highest level since 1990 at 11.8%."

The 26 June 2008 issue of Forbes magazine article "Icelandic Meltdown" by Paul Maidment commented:

...But dependence on financial services renders the economy susceptible to severe shocks to the banks' operations. The country's economic situation, whose dash for growth has made its citizens among the world's richest but also created systemic imbalances, has deteriorated sharply in the wake of the credit crunch.
Icelanders are used to volcanic eruptions, but their geographic isolation hasn't kept the fallout from the global credit crisis from their banks' doors.
Those doors were fragile to start with. Heavy borrowing from capital markets, particularly via krona-denominated "glacier bonds," to fuel a spectacular run of acquisitions in the Nordic countries and the U.K., had started long before credit conditions tightened, worsening the effects.
But now, credit default swap spreads--a rough and ready measure of a bank's likelihood of default--have widened to more than 1,000 basis points from 50 basis points last August. CDS spreads for the country's three largest banks-- Kaupthing, Glitnir and Landsbanki, which account for 88% of industry assets and 50% of the Reykjavik bourse's capitalization--are among the highest in the world.
In January, rating agency Moody's had said that the banks' fragility was putting the country's Aaa sovereign rating at risk. In April, it cut Icelandic banks' financial strength ratings, placing them on negative watch.
The vultures sense carrion. Earlier this year, central bank governor and former prime minister David Oddsson accused "unscrupulous dealers" of putting undue pressure on the Icelandic economy, by pushing Icelandic banks to fail.
The fear was that self-fulfilling market speculation only possible in a country of such small size, openness and imbalances, would lead to financial crisis unjustified by the economic fundamentals.

Back to Bob Chapman's International Forecaster again:

28 June 2008 International Forecaster p. 21 "Iceland’s inflation rate rose to 12.7% in June, more than five times the central bank's target, after a slump in the krona sent import prices surging, maintaining pressure on the central bank to raise interest rates. Inflation accelerated from 12.3% the month before."

A significant article to wrap up this section is "Everyone saw the Icelandic crash coming, except the Icelanders" by Robert Boyes, IceNews, 7 Dec 2009, which commented:

Robert Boyes, Times correspondent and author of the new book Meltdown Iceland, says that everyone except Icelanders knew the Icelandic economic collapse was approaching as early as 2006.
In an extended interview on RUV’s Silfur Egils political talk show, Boyes said Iceland had been poorly governed by the Independence Party and that they had betrayed the nation.
Boyes said David Oddsson’s Independence Party had tried to implement a Margaret Thatcher-style economic revolution without putting the necessary strong state infrastructure in place to regulate it. Iceland is, he said, a great nation, but a weak state.
Boyes also criticised the fact that Icelanders allowed Geir Haarde to act as crisis manager for three months despite being ineffective and “David Oddsson’s lapdog”, although he later rephrased it to “very loyal”.

That "everyone" referred to by Robert Boyes above includes the "Circle Z" malefactors described in Act II, who knowingly pumped up false pride and self-destructive greed in their Icelandic clients and colleagues, and setting them up for a fall that we will witness in the next Act.