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.
Iceland: The Boom
Suddenly, in a modest land that had never known truly rich people, some Icelandic bankers were pulling in $1 million a month.
During the high times, the streets of Reykjevik were packed with Range Rovers and expensive German sports cars. The bars were filled with fashionable people, and movie stars and pop icons flocked to the capital. Someone paid Elton John $1 million to sing two songs at a party.
"I kind of felt like I had arrived in Pottersville in the movie 'It's a Wonderful Life,'" said Arnarson. "Everything had changed so much, so fast. ... It had become one of the destinations of the jet set, and, well, it was a lot of fun in Iceland."
Even the fishermen got in on the action. Stefan Alfsson left his fishing boat and started trading commodities for an investment bank.
"We could do more. I got a bigger house, bigger and more cars, better snowmobiles," said Alfsson.
Some fishermen even sold off their seasonal quotas -- their livelihoods, which propped up the economies of small villages -- in order to have cash to invest.
While Reykjevik was booming, the Icelandic bankers went forth into the world, a generation of financial Vikings searching for plunder.
Some call it an "outvasion." Icelandic investors bought shares in foreign companies, supermarket chains and soccer teams. Money was no object and they overpaid for most of their assets, as the bubble grew larger.
Iceland: The Beginning of the End
Back home, prices were going up. The government raised interest rates in an attempt to control inflation, but it didn't work. People realized that they could borrow Japanese yen or Swiss francs, put them in an Icelandic bank and make 10 percent without even trying.
Geir Haarde, prime minister at the time, could only watch as his nation grew fabulously, if dangerously, wealthy.
"The situation with the international financial markets was extremely unusual," said Haarde. "Money was very cheap and easily available everywhere."
Inga Jessen Petursdottir and her husband, Einar Balduinsson, bought a new house during the boom and began spending less time with their kids and more time at their bank jobs.
"Everyone had to have the largest cars, the biggest houses, and people our age, around 30, they were just floating in money," Inga Petursdottir said.
Even Morthens, the folk singer, cashed in. He became a judge on "Icelandic Idol" and began hanging out with the financial Vikings.
Iceland: The Bust
Nobody seemed concerned that Iceland's three biggest banks had borrowed six times more than the entire nation produces in a year. Or that they invested much of it in something from America called mortgage-backed securities.
After all, big American banks had done the same. But when Lehman Brothers came crashing down, Iceland's economy followed almost overnight.
"I lost a lot of money," said Alfsson. "I lost my job."
The same thing happened to Morthens.
"I lost millions and, for about three weeks, I was really shocked," he said.
Petursdottir and Balduinsson said their lives were turned upside down.
"It just really changed," Petursdottir recalled. "I lost my job, we didn't have money to buy anything like we were used to, and our apartment and our cars, we don't own anything in them. We just, we owe them, instead of owning them."
They are now bankrupt, and they rent their home from the government.
People looked to the government for help, but the government itself seemed confused, paralyzed.
"Definitely, these were the most difficult months of my life," Haarde said.
The economy started turning for the worse in September 2008. By December, protesters in this placid nation began showing up at the parliament building. The crowds got larger and angrier by the day, burning effigies and banging on kitchen utensils. It was enough to bring down the government.
What became known as "the pots and pans revolution" ended peacefully. There were no injuries, few arrests and the streets ran with thrown food instead of blood. But the prime minister was replaced, and two protesters were voted into parliament.
Birgitta Jonsdottir is one of them.
"We wanted a new government," she said. "We wanted the central bank manager to be fired, and we wanted a few other things. And we got them all."
Iceland: Lessons Learned
Some think testosterone was to blame for the turbulence. It was mostly men who ran the banks and took the risk. Now, two of the three biggest banks are run by women, and a female prime minister replaced Haarde.
There is a lot to be done. Unemployment is high, malls are empty, grand projects are silent and unfinished.
Stefan Alfsson has returned to the sea.
"Maybe you fish a little longer than you should and on your way home, you hit a storm," he mused. "You still have to sail the ship home. ... I mean through the hard times, it's through them that we become who we become."
Morthens is singing protest songs again and said the nation is once again finding solace in simple pleasures.
"I got a newborn baby. I got a beautiful wife. I have friends, I have family, I have my guitar, and that's all I need," he said. "Life goes on."
Petursdottir and Balduinsson are slowly rebuilding their lives and their bank accounts. They say the Kreppa, as Iceland's financial crisis is known, helped them rediscover each other.
Petursdottir now writes an advice blog for other unemployed moms. She said they spend more time together as a family.
"After this, we have learned to focus on the real things in life. And I think this was ... a good kick in the butt," she said. "Even though we don't have any money right now, it got us closer together."