How Iceland's Financial Vikings Ran Aground

REYKJEVIK, Iceland, June 19, 2009 -- For centuries, Iceland was a simple fishing society, largely shut off from mainland Europe. The people survived off the sheep in the meadows and the fish in the sea. For cultural sustenance they had elaborate sagas -- intricate tales of fairies and goblins, heroes and ghosts -- that would inspire J.R.R. Tolkien and other fantasy writers.

Then a modern saga began to unfold -- that of a nation of fishermen who became millionaires, only to lose it all and return to the seas.

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In the early 21st century, Iceland experienced one of the most spectacular cycles of boom and bust in history.

"I don't think it happened overnight, that suddenly somebody woke up and said, 'Here's an idea,'" said Olafur Arnarson, who wrote a best-selling book on the meltdown. "It didn't happen that way."

Instead, the saga began gradually. In 2002, the government decided to take the state-owned banks public and list them on the Icelandic stock exchange. Foreign investors swooped in and bought big stakes in the banks, flooding the country with capital.

"The buyers, they were not bankers," Arnarson said. "They did not have any experience in the world of banking. They were investors. And you could argue that they were speculative investors."

Iceland never had seen anything like it before.

"Greed came into the back door, and when that happened, people started to lose control," said Bubbi Morthens, one of Iceland's most prominent folk singers.