Never in the last fifty years were the financial markets shocked as in the Global Financial Crisis of 2008 and 2009. And worse, the repercussions hit the real economy and even shock the foundations of institutions like the EU and laid the basis for the populism of today.

Image of Svein Harald Øygard
Svein Harald Øygard

It all started with too much debt, placed wrongly. Since then, however, global debt levels have risen by more than 50%.

One case and one country give us a case to learn from. It shows it all in its most extreme form. It tells the story from the one country where all banks collapsed, and where the country was shocked with half its companies and half its households in red. The collapse was partly due to its own faults, partly du to what happened far, far away.

Author Svein Harald Øygard, a Norwegian and a McKinsey-partner, was appointed interim Governor of the Central Bank of Iceland, Seðlabanki Íslands, after everything had collapsed. He was parachuted into a crisis-ridden country, becoming one of a handful of non-citizens ever to head an independent Central Bank. 

An important book about all that happened. Øygard writes prose that is as clear and economical as in an Icelandic saga, and the story he tells is no less dramatic.

Eva Joly, French magistrate, advisor to the Icelandic special investigator, member of the European Parliament, French Presidential Candidate

Øygard´s role gave him a unique vantage point from which to observe Iceland, its people and its institutions, as well as the forces of global banking, finance and economics. He saw how institutions and leaders behaved, from inside the system, during one of the world’s worst crises. In this book he shares his observations and tell the stories.

Of the 47 bankers jailed worldwide for crimes contributing to the global crisis, 25 were Icelanders. 

Imagine if, out of the blue, you were asked to be the Governor of the Central Bank of Iceland. Many would consider this strange, especially at a time when the country was bankrupt, the people had taken to the streets and everything appeared hopeless. Even stranger would be to accept the job. That is precisely what Svein Harald Øygard did, and he has written an exceptionally good book about this experience.

Tom Staavi, Head of Information, Finans Norge and former editor, Dine Penger

The US, the birthplace of the crisis, jailed only one. The UK, Japan and Korea jailed none. Most countries prioritized stability, calm and an illusion of normalcy. In Iceland, there was nothing left to lose, leading all to be revealed. Hence, it became the only country where all could be seen.

Iceland had become the symbol of the Global Financial crisis. It fell the furthest. Amazingly, it also recovered the fastest. Iceland defied the perceived rules of finance and became the only country where the banks weren´t bailed out, the currency adjusted freely, capital controls were imposed (as now in Argentina), the bankers were fought, and the creditors forced to shoulder the burden.

Imagine a medical experiment. One hundred patients are offered different treatments. One recovers quicker and becomes healthier than any, the patient that by some measures initially suffered the most. The only one that took the completely opposite cure. Such a case clearly warrants a closer look. 

The book In the Combat Zone of Finance tells the story all the way up to 2019. It makes a comparison to other crisis. It tells the story of the root causes, the mechanics and the consequences. With these learnings in mind, the book reviews the global imbalances  as of early 2020, and it summarizes the learnings and warning signals to observe.

Beautiful Iceland became a combat zone of global finance, an arena where all the games of the global gladiators could be seen. The book takes you behind the scenes in the lead up to the crisis and its aftermath, as the worldwide forces of finance and politics converged in tiny Iceland. The German, Japanese, British and American banks were the most active. The ones farthest away lost the most, with a small Pacific island becoming the largest loser. One Japanese bank became an innocent victim as it passed its money through Iceland, exactly when all tumbled. 

The story is incredible (no dry economics!), with sharp observations and exceptionally precise sarcasm. It’s simply fun reading. And, of course, important. And with lots to learn!

Harald Magnus Andreassen, Norway’s highest ranked chief economist

Towards Iceland, the British and the Dutch, backed by the EU, behaved like a pack of wolves. The UK put Icelandic institutions on its official list of terrorist organizations. The Dutch and the UK took Iceland to court to force draconian terms, though they were forced to retreat after a four-year battle. German and Japanese banks sued Icelandic authorities (and the author). As systemic interests were threatened, American and European institutions took massive executive action. With the interventionism and speed of a military operation. But, the US placed Iceland and all but Japan and 11 other currency areas outside the perimeters of its defendable fortress of money. 

Russia’s Vladimir Putin was launched as a would-be savior. China earned itself a stepping-stone into the global financial system. Sweden, Denmark, Norway, Finland and Poland provided support for Iceland—and booked a profit in the end. 

The IMF eagerly built a showcase, paradoxically, with delayed fiscal austerity, and without a bank bailout or structural reforms. But, with capital controls, that were formalized, made part of the IMF program, and eventually included in the IMF toolbox for ailing nations. The European Central Bank (ECB) and Seðlabanki became the Icelandic banks´ main sources of cash in their final days. ECB got its money back. Seðlabanki suffered losses. Seven years later, it clawed back those losses. 

Twenty of the 50 largest US hedge funds came to Iceland in search of profit. Some made billions. Others got burned. Quite remarkably, they made concessions, zeroing out the losses of the Republic. Here, even the superpowers of finance were forced to concede. Amazingly, in the end, the post-crisis debt levels of the country’s households, its companies and of the state itself ended up far below pre-crisis levels. 

Few sagas offer as many insights about the nature of financial catastrophes, from their origin, through the inevitable crash, and into the recovery, as the Iceland story. As large accumulations of debt remain a cornerstone of global economies, these lessons are destined to remain relevant.

This story from a country as transparent as Iceland provides unique insights. Iceland is a small, open, market-oriented economy with its own currency and economic policy institutions. The identities of most players active in Iceland have been revealed. The connections between the destinies of households and companies and the workings of the economy and the global forces were readily visible. The book benefits from the most accessible and detailed economic data on debt, income and living conditions that the world can offer. 

Iceland, with its thousand-year history, its stunning natural beauty and its Viking heritage forms a dramatic backdrop for the events depicted. The Icelandic character saw the country through.  In the Combat Zone is a gripping account of crisis and recovery, filled with anecdotes, and real-life histories, informed by the first-hand experience of the author.  

Øygard interviewed some 90 people in Iceland and abroad as he researched this book: Government ministers, governors and central bankers, top level Fed and IMF employees, former and active, prosecuted and jailed bankers, investigators, leaders of grass-roots movements, hedge fund managers, debt dealers and debt negotiators. Many are leading global characters in their fields. Many have never spoken out before.