“Why are the banks considered to be the holy churches of the modern economy? Why are private banks not like airlines and telecommunication companies and allowed to go bankrupt if they have been run in an irresponsible way? The theory that you have to bail out banks is a theory that you allow bankers enjoy for their own profit, their success, and then let ordinary people bear their failure through taxes and austerity.
People in enlightened democracies are not going to accept that in the long run.” -Icelandic President Ólafur Ragnar Grímsson
In 2008 when the United States and most of Europe decided to bail out the banks instead of allowing them to fail, Iceland chose a different path. As their entire banking system collapsed, the small nation of 320,000 opted to forgive mortgage debt, and began rebuilding from scratch. The country isn’t out of the woods yet, but today they are politically and financially stable. The current unemployment rate is down to 5%–better than in Great Britain or the United States (both 6%), and much lower than Spain (26%), Ireland (11%), and Greece (30%). Clearly this is a multi-layered issue, and what works in one small, largely homogeneous nation might not work in a large, diverse one like the United States, but perhaps punishing–not rewarding–the people responsible for the collapse was the correct course of action after all.