Thomas Friedman has a piece in today’s NYTimes that explains some of the adverse consequences of globalized banking. He relates the story of Iceland (“The Great Iceland Meltdown”), whose banks (see Kaupthing Bank as an example), freed from state ownership, attracted deposits through high interest rates and subsequently went on a lending binge. When those loans curdled — Icelandic banks apparently did not involve themselves in the U.S. subprime mortgage market — the banks couldn’t finance their debts, and depositors panicked. Those depositors, many of them British universities, hospitals, police departments, and municipal governments, to the tune of $1.8 billion, could not get their money out. As Friedman points out, the effect is global, but global has local consequences. British police departments, for example, may have to be curtail patrols in their communities because they’re frozen out of their deposits in Icelandic banks. “And therein,” says Friedman, “lies the central truth of globalization today: We’re all connected and nobody is in charge.”
Image from 1541′s photostream at Flickr and used under Creative Commons license.
Posted by soberingnews 
