Iceland preparing to declare bankruptcy

If Iceland were an ocean, it would be dried up. If Iceland were a grass lawn it would be all dead crab grass. If Iceland were a fire, it wouldn’t have enough energy to smoke. Fortunately for Iceland, they are only failing in the financial market and not truly a dried up ocean.

Icelandic banks are unable to finance about $61 billion of debt, 12 times the size of the economy. That’s pretty impressive. Imagine that you made $30,000 a year and owed $360,000 on something like a mortgage. Huh? What?? Oh… sorry, so you do make $30,000 a year and owe $360,000 on a mortgage. Hmm…

Iceland, officially the Republic of Iceland, is an island country in Northern Europe, located in the North Atlantic Ocean between mainland Europe and Greenland. It is the least populous of the Nordic countries and the second smallest; it has a population of about 320,000 and a total area of 103,000 km². Its capital and largest city is Reykjavík.

Officials and lawyers from the Treasury, the Bank of England and the Financial Services Authority will work with the Icelandic government over the weekend “to find a solution to the current situation,” a Treasury spokesman said in an emailed statement.

The pound dropped against the dollar to the lowest level in almost five years on concern the dispute may escalate after Prime Minister Gordon Brown yesterday threatened to freeze the assets of Icelandic companies in Britain, which employ 100,000 people.

The spat over money trapped in accounts of Kaupthing Bank hf and Landsbanki Islands hf has plunged relations between the two countries to the lowest since a 1970s dispute over North Atlantic fishing rights, known as the Cod Wars.

Brown and his Icelandic counterpart Geir Haarde yesterday traded recriminations, with Brown accusing Iceland of failing to honor its guarantee to compensate savers up to 20,887 euros ($28,400), leaving Britain to pick up the tab.

U.K. taxpayers will probably face a bill of at least 2.4 billion pounds to compensate about 300,000 British holders of accounts at Icesave, the online banking unit of Landsbanki, the Financial Times reported yesterday, citing unidentified British officials.

If you have been saving up your money to buy a piece of Iceland, just wait a little longer as there’s great potential for a firesale!