What the Icelandic collapse taught us

As the current financial crisis rumbles on and its deleterious effect on growth and unemployment becomes painfully evident, many observers have concluded that the decision to let Lehman Brothers go under on 15 September 2008 was a grave mistake. Yet, the decision by various participants in the international financial system to starve Iceland of funding in the immediate aftermath of the Lehman collapse should be regarded as a mistake of similar magnitude. In this brutal aftermath, almost all t