Financial Crisis in Iceland Essay Example

Financial Crisis in Iceland Paper This assignment is part of ECM04 Economics of Capital Markets module on phase 2 in MSc. Finance and Investment at University of Brighton 2008-2009. The assignment is to analyze the Icelandic financial crisis which eventually led to the collapse of the Icelandic banking system and the economy as a whole. In order to analyse the Icelandic financial crisis we will begin to look at the background and what we regard as the causes, look at the consequences and future prospects. In the end we compare the Icelandic financial crisis to a model which Kindleberger covers in his book Manias, Panics and Crashes. Kindleberger (1978) describes financial crisis in the following way: What happens, basically, is that some event changes the economic outlook. New opportunities for profits are seized, and overdone, in ways so closely resembling irrationality as to constitute a mania. Once the excessive character of the upswing is realized, the financial system experiences a sort of distress, in the course of which the rush to reverse the expansion process may become so precipitous as to resemble panic. In the manic phase, people of wealth or credit switch out of money or borrow to buy real or illiquid financial assets. In panic, the reverse movement takes place, from real or financial assets to money, or repayment of debt, with a crash in the prices of commodities, houses buildings, land, stocks, and bonds in short, in whatever has been the subject of the mania. Background Causes European Economic Area Icelandic government control over the economy has reduced over time. The most dominant decision was when Iceland entered the European Economic Area (EEA) in 1994. When Iceland joined the EEA it got access to European markets and adopted European regulations. We will write a custom essay sample on Financial Crisis in Iceland specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Financial Crisis in Iceland specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Financial Crisis in Iceland specifically for you FOR ONLY $16.38 $13.9/page Hire Writer Joining the EEA had a positive impact on the economy, however opening an insular economy to the EEA without significant institutional reforms carried with it dangers. Neither the Icelandic authorities nor private firms were prepared to operate in such an environment. This is especially relevant in the case of banking where the aim of Icelandic government was to build up financial centre in Iceland. To be able to build up financial centre it was very important to join EES in order to have access to European markets and adopt European regulations. This was new experience for Iceland to have the access to foreign capital because for most of the 20th century the economy was heavily regulated. (Dani elsson Zoega, 2009) Free Capital Transfer and Privatization of the Banks In continuance of EEA agreement, Icelandic government decided to privatize the three biggest banks which started 1997 and was fully completed in 2003. The new owners of the banks had little or no experience of international banking, the same applied for the Icelandic government. When Iceland accessed EEA, it faced full freedom in export and import of capital transfer among other things and the new owners of the banks began to expand the old commercial banks into investment banking. The new investment banks could get cheap capital which was easy at that time. Figure 1 shows how foreign debts have increased since Iceland got independent and it is interesting to see how the foreign debts increased dramatically when the banks had been fully privatized in 2003. (i lafssson, 2008) Figure 1: Shows foreign debts of the Icelandic economy gross dept, long term debts and net foreign debts, in proportion of GDP. Source: i lafsson, 2008 Figure 1 illustrates how easy it was to get capital at that time and the new owners of the banks forced ahead on the capital markets to finance their investments abroad. Foreign debts of the Icelandic economy were seven times GDP just four years after privatization of the banks. The study of financial economics teach us that when foreign debts increase enormously, real estate and stock price rise, there is obvious signs of increasing risk of financial crisis. (Kindleberger, 1978) Figure 2: Shows net debts of the national economy year 2005, in multi-national comparison foreign and domestic debts in proportion of GDP. Source: i lafsson, 2008 Immediately in 2005, two years after the privatization of the banks, Iceland had become most indebted OECD country in the world, as can be seen from figure 2 (i lafsson, 2008). According to the picture the situation in Iceland was already worth of criticism in 2005, with net foreign debts around 125% of GDP. (Siguri sson Svavarsson, 2007) The banking expansion was the source of the rapid economic growth that took place between 2003 and 2007. It enabled households and firms to take advantage of the abundance of low-interest funds in international capital markets to finance domestic investment and consumption, as well as the acquisition of domestic and foreign firms. Because the banks got fund in the international wholesale market this was an externally financed boom. The inflow of capital had a predictable effect on the exchange rate, the stock market and the current account as can be seen in table 1 in Appendix B. (Dani elsson Zoega, 2009) Speculation Capitalism in Iceland The objects of speculation will differ from boom to boom and crisis to crisis. The alternative explanation of the un-sober upswing goes back to Irving Fisher, which emphasizes that the real rate of interest was too low. Prices rise on the upswing, while interest rates lag. This implies a fall in the real rate of interest. With real interest rates falling, and profit prospects either rising or steady, rational investors expand. Speculation often develops in two stages. In the first, sober stage of investment, households, firms, investors, or other actors respond to a displacement in a limited and rational way. In the second, capital gains play a dominating role. The first taste is for high interest, but that taste soon becomes secondary. There is a second appetite for large gains to make by selling the principal (Kindleberger, 1978). The Icelandic bubble fits well within the framework of Kindleberger regarding the destabilizing effects of speculative finance. The Icelandic bubble started with the excitement generated by the privatization and deregulation of financial institutions, and appear unlimited access to foreign capital markets at low interest rates. The capital inflows stimulated economic growth, the outlook brightened, further increasing the willingness to borrow. Asset prices started to rise. Euphoria developed, increasingly high-risk borrowers found easy access to capital, risk appetites increased, and firms and individuals started to borrow for speculative reasons. Borrowing on the margin to buy equities became a popular activity. Banks competition for market share intensified and they lent to increasingly high-risk borrowers. A real estate bubble ensued, fuelled by seemingly unlimited bank lending. Many of the largest asset shareholders of the Icelandic banks, was highly leveraged, were facing difficulties. Investigations has detected that largest shareholders resorted to borrowing from their own banks to buy bank stock, with a view to prop up the price. The collateral behind the loans was only the bought bank stocks. In the end, of course, the entire structure collapsed. (Dani elsson Zoega, 2007).

Poetry Coursework Essays

Poetry Coursework Essays Poetry Coursework Essay Poetry Coursework Essay Love is an important literary tradition, in that it, it has been written about by poets down the ages. Choose at least three love poems you have studied and comment on the different ways in which, the subject has been dealt with.Out of the poems I have studied, I have decided to choose His Coy Mistress written by Andrew Marvell, My Last Duchess written by Robert Browning and finally The Flea written by John Donne. In my essay I will explain what is going on in the poem, what relevance it has to the poet etc. The way the poem is structured and how it is written.Finally I will compare the poems and link them using similar things involved with love etc. Then I will write a final conclusion to the comparisons.The first poem that I am going to discuss is To His Coy Mistress by Andrew Marvell. This is a poem of seduction; the man is trying to persuade his mistress to have sex with him. He starts off by saying how he would treat her if he had all the time in the world. In the first stanza, there is even reference to Noahs Ark, in the line Love you ten years before the Flood. He uses the idea of waiting by saying, Till the conversion of the Jews, my vegetable love shall grow. To people in those times this would be extremely humorous. The man says he would do anything in the world to gain her love. From our point of view it seems the man does not love her, but it is rather a case of lust. He also describes it as being a race to be run or a hard fought battle, giving a more dramatic view on him trying to seduce her. He then praises her in the lines Thine eyes, and on thy forehead gaze, two hundred to adore each breast, and thirty thousand to the rest. This is a show of praise from the man that is clearly an attempt to impress her by using such adoring phrases.Moving on to the second stanza, he is trying to get the message across to her that they dont have all the time in the world to do these things and that they must do them right at that instant or else time will run out and no one shall experience the mistresss true beauty. At the start of the second verse the lines read And yonder all before us lie, deserts of vast eternity. This stanza includes mostly words that look to the future and what lies ahead for them (the man and his mistress). He gives the indication there is no hope for either of them if they do not have sex. Included in the next few lines of the verse is the image of death. The man is trying to almost frighten the woman by using adjectives or phrases to do with death. This is contained in lines twenty-five to thirty two. An extract from lines twenty-five to twenty six, in which the man says, My echoing song; then worms shall try, that long preserved virginity.This is the strangest thing suggested by the man. He is saying that the woman would lose her virginity to the worms when she is buried after death. This would obviously occur if she did not have sex with him or so the man insists. All in all the man is trying in a way to pers uade her to have sex with him but in a strange way, by trying to frighten her.Moving on to the third stanza, the man is indicating to his mistress that because of all the things he has explained, that they should do what he says. He is telling his mistress in many ways that they should give into their desires and have sex. However later on in the verse he mentions the iron gates of life, this is seen to many of us as the gates of heaven and hell of morality on whether to have sex or not.. Then in the last two lines of the poem he is stating that you cannot stop time, but if you enjoy it goes quicker, another indication to give into their supposed desires.The second poem that Im going to talk about is The Flea which was written by John Donne. This is another poem that is to do with a man wanting to have sex with a woman. In this poem however the couple are soon to be married. He is again trying to persuade his future wife whenever he spots a flea.In the first stanza the man spots th e flea and makes a point that the flea has his blood and her blood in it after biting them and sucking it out. He is making the point that they are one in this flea, so why cant they have sex. He tells her that it is no sin to lose your virginity before marriage. He makes the point that the flea has had more freedom on her body than he has. This is the clear point he is trying to make in the first verse, that they should have sex. He repeats his theory of using the flea to try and persuade her still.He is trying to use the idea of the flea again in the second stanza, he says in the first line of this stanza Oh stay, three lives in one flea spare. What this means is that if she kills the flea it is like killing not only the flea but also both of them. He then continues this theory by saying the flea is a temple of their marriage. We then understand that the womans parents dont approve of the man marrying their daughter. He still goes on about his theory of killing the flea; we begin to think that the woman is getting annoyed with him being so supposedly stupid. We suspect she is going to kill the flea to end this annoying and silly episode. He now starts pleading with her not to kill the flea. He starts off jokingly saying he could kill him by killing the flea and then goes on to say that not only will she be killing the flea and himself but her as well. He says this as if she is really going to kill herself, he also demands that it would be sacrilege to kill this flea for it would kill all three, the flea, him and her.The woman now at the start of the third stanza has actually killed the flea. The man begs the question why have you killed innocent living things meaning the flea, himself and her. He then accuses her of being cruel. He criticises her by saying she is weaker than he is by killing the flea. The man says his hope is pointless as she has now killed him in killing the flea and to some extent that she has broken his spirit.In comparison with the first poem His Coy Mistress it is a similar poem to that, with the men in both poems trying to persuade the woman to have sex with them. Also in both, the man uses things or ways to try and seduce the woman. In His Coy Mistress the man uses many different ways to try and seduce her while in The Flea the man uses a only one way which is plainly and simply the flea. Both poems last word of each line rhymes with the previous line. Most of the lines are also the same length so both poems contain rhyming couplets. We think that in both poems the men are more for lust than love. They are both using strange ways to seduce their woman. Using an unusual object to signify something else, for example the flea used in the poem was known as conceut.The third poem Im going to discuss is called My Last Duchess. Robert Browning wrote this. This poem is an example of a Dramatic monologue. This is a poem about a man who tells woman what to do and when he wants her to do it. This is an example of how socie ty was when this poem was set; the man had a massive empowerment over his wife.At the start it seems that someone is looking at a painting of a duchess. He then starts talking to him about the painting. We guess that this man knows a lot about that duchess that is depicted in the painting. He says it looks as if she where alive, this makes us think that this woman is now dead. This man who is talked about is clearly proud of the painting in what is said in the first few lines.We then begin to learn of the story of an arrogant duke who knows what he likes and gets what he wants, this is down to the fact that he does not admire the beauty of the woman no more but the work of Fra Pandolph who painted the picture. The way the poem is written (involving the poems rhyme scheme) suits the dukes arrogance. The duke talks about how beautiful she looked, wearing one of his many gifts to her. The gift, a broach shows how much affection the duke has for the woman. We learn that the duke is unim pressed with the duchess reaction to the gift he has bought for her. The duchess does not rank his gift.This is the part of the poem where the duke changes his complexion and becomes angry and frustrated with the duchess. He is annoyed with her response to the gift he has given her. The duke says she is cruel to his familys name, he says it is a gift. This is because his family name is well known name in the aristocracy. He continues talking about this by saying his family name is a 900 years old and is a great legacy. The duke is becoming more and more frustrated. The duke now seems to have control of her and almost owns her. This was a common situation for the time the poem was written in as in that society a man controlled what his wife did or didnt do. The duchess again goes against the dukes wishes.The duke now decides to execute the woman as he claims she has no respect for him or his family name. To us this seems cruel and harsh on the lady because all of this has been done a gainst her own will and her right to live. The duke is making a point in executing her by saying you dont cross him or he will punish you severely. The duke is in effect dehumanising her. We learn then that the duke is about to get married again and has added her to his list of possessions etc. He treats her like an object not a human. We then realise what the moral too the poem is. It is that the duke collects his wives like he collects his paintings and makes the point again that the woman is simply just an object and one of the mans possessions.Unlike the other poems the duke demands rather than trying to persuade or seduce the woman like in The Flea or His Coy Mistress. The woman pays the ultimate price for this and is executed. This poem was written more than two centuries later than the other two poems. It also has a rhyme scheme that suits the dukes arrogance because the poem is presented in one big block, with assertive full stops and dominance unlike the other two poems in which the poem is split up into a few stanzas. In My Last Duchess the poem is written as one big verse. But similar to the other two poems it contains rhyming couplets.In conclusion all the poems deal with the situation of a man wanting to have sex with a woman, in all the poems we think the man was more for lust than true love. Some poems describe how society was in the time the poem was written. This is especially so in My Last Duchess. Since these poems were written there is now a better attitude to women than there was a long time ago as depicted in these poems. Women now have greater rights than they used to and when they are married they are not owned by their husband. They have the free right to do what they want. Finally, I think that all these three poems show clearly how much mans attitude to woman has changed over the past centuries. They are no longer married because of money etc. but for love.