Iceland Freezes Up

Nigel Holmes and Megan McArdle prepared a graphic overview of Iceland's financial crisis for the Atlantic : Iceland's Meltdown. 

Here are some more detailed reports:

Some people raised warning flags.  In March 2006, analysts at Danske Bank pointed to problems in the working paper Iceland: Geyser crisis. 

In early 2008, Willem Buiter and Anne Sibert also saw the potential for unpleasantness: The Icelandic banking crisis and what to do about it.  The Buiter/Sibert paper was originally kept confidential at the request of the Icelandic Bank that sponsored their research.  They released it in October.  It doesn't cover the end-game in September-October, but is the best thing I've read on the reasons for the collapse.  Here's the short version of the Buiter and Sibert paper: The collapse of Iceland's banks: the predictable end of a non-viable business model.  In June 2008, Robert Aliber pointed to three Icelandic "financial anomalies or imbalances" (Monetary Turbulence and the Icelandic Economy):

Subsequently three financial anomalies or imbalances in Iceland are identified--the
first is the ratio of the Iceland’s current account deficit to its GDP, and the second is
the ratio of asset prices in Iceland to its GDP. The third is the ratio of the assets of the
Icelandic banks to the country’s GDP;

Other appraisals, prepared for Iceland's Chamber of Commerce, were more upbeat.  In May 2006 Frederic Mishkin and Tryggvi Herbertsson were optimistic: Financial Stability in Iceland.  Richard Portes, Fridrik Mar Baldursson, and Frosti Olafsson were also optimistic as late as November 2007: The Internationalisation of Iceland's Financial Sector.

Charles Forelle provides a blow-by-blow of the last days: The Isle That Rattled the World.  Bad policy actions made things worse: The shocking errors behind Iceland's meltdown. The Economist's overview of post-crisis Iceland: Cracks in the crust.

Jon Danielsson and Gylfi Zoega tell the whole story:

Iceland underwent a systemic crisis in October last year, the only developed economy to do so in recent decades. The fate of Iceland is sometimes taken as an indication of what might happen to other countries with an outsized financial sector, such as the UK. However, the main factors in Iceland’s downfall can be explained by its unique history, inappropriate policy responses, and weaknesses in EU banking regulations, conspiring to make a perfect storm, unlikely to happen elsewhere.

Here's their short version: Entranced by banking; here's the long one: The Collapse of a Country.

In early October, Iceland indicated that it might get financial assistance from Russia: Iceland seeks Russian comfort.  This did not ultimately pan out.  Assistance from the IMF was blocked for a time, as other countries sought leverage for Icelandic concessions:Concession by Iceland Clears Path for I.M.F. Aid. 

Iceland said Sunday that it had agreed to cover European depositors at failed banks, breaking an impasse that had held up the dispersal of billions of dollars in international aid.

On November 19, the IMF Executive Board approved a $2.1 billion rescue package: Iceland Gets Help to Recover From Historic Crisis.  Nordic countries built on the IMF program:  $2.5 Billion Is Added to Bailout for Iceland.  Here is the IFM staff analysis:  Iceland: Request for Stand-By Arrangement—Staff Report; Staff Supplement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Iceland.

Substantially expanded on December 26, 2008, title changed; edit Dec 30.  IMF stories on Jan 6.; added three papers February 9, 2009.  NASA photo via Wikipedia: Iceland from space, edits on January 29, 2004.  IMF report Feb 13.  I'll continue to revise and update this.