Every so often a city or location jumps out at me as getting a lot of coverage in the news. Sort of the Six Degrees of Kevin Bacon versus Credit Meets The Housing Market.
I was reading the review of the new blues rock album by one of my favorite bands The Black Keys. They are based in Akron and apparently love it there, despite its deep economic problems including unemployment and foreclosures. Home to Goodyear, Akron has fallen behind other metro areas (incidentally, Rubber Factory is TBK’s best work IMHO).
The following day I read the New York Times article Don’t Hate Me Because I’m Solvent which chronicled an Akron couple who own:
an exquisitely renovated 1913 Tudor house, with six fireplaces, a solarium and a billiards room, which is well within their means, in part because they paid $65,000 (12 years ago).
They have no mortgage and more importantly, the husband is a part time rock musician.
He is 44, the son of an engineer, married for 19 years, and a lifelong resident of Akron. He may also be the only person in the known universe who has both written for “Beavis and Butt-Head” and names “It’s A Wonderful Life” as his favorite movie. Mr. Giffels identifies with the film’s hero, George Bailey.
And what does this have to do with Iceland?
Insofar as Americans think about Iceland at all, it’s as a land whose remoteness belies a vibrant cultural scene featuring hipster titans, like BjÃ¶rk and Sigur RÃ³s, and exceptional social conditions—it’s the top-rated country in the U.N.’s most recent human-development index. But in the financial world Iceland is now a hot topic of discussion for a different reason: many people suggest that it could become the “first national casualty” of the ongoing credit crunch.
Besides the musician reference, Iceland has represented the bright end of the economic spectrum, the opposite of Akron, whose economic problems were in play well before the recent housing boom not unlike it’s rustbelt neighbors, whom the boom largely passed by.
Now analysts are wondering whether the new Nordic Tiger will end up, instead, as “the Bear Stearns of the North Atlantic.”
Although Iceland’s banks avoided subprime mortgages, most of the capital it raised came from foreign investors. With the credit markets drying up, many investors are unwilling to invest in Iceland and the crunch has begun.
Iceland has been swamped by that tsunami because it trusted in the availability of global credit in time for that credit to evaporate. And the fact that Iceland has been so dependent on foreign investors makes those investors even more skittish about investing there: in markets, weakness often begets weakness.
In other words, the global credit crisis is not just about subprime lending. It is about the lack of availability of credit for investment (in Iceland) and an increase in foreclosures (in Akron).
No matter how loud the music was played in either place, everyone’s ears are still ringing.
Tags: Bear Stearns, Sub-Prime
Iceland’s credit problems hit Boston, this week, in fact. We have two daily newspapers*, The Globe and The Herald, and two daily giveaway papers, the Metro and Boston Now.
Boston Now was funded by a group of Iceland investors. Last week, they announced they wouldn’t be financing the newspaper any longer, and it closed down, just shy of its one year anniversary.