This paper attempts an explanation of Iceland’s financial rise and fall, during the last decade. It shows how special conditions in the Icelandic society paved the way for unrestrained speculation capitalism and draws special attention to the roles of financial globalization, neoliberal politics and power distribution as explanatory factors in creating what has been described as the biggest speculation bubble in history. The development in Iceland is related to the general global policy shift towards increased neoliberalism and increased financialization from the 1980s onwards (Reinhardt and Rogoff 2009; Kindleberger and Aliber 2005; Posner 2009 and Gamble 2009). In addition to this shift a total opening of Iceland to the global financial markets (from 1995 onwards) laid the ground for a new environment. What followed was a growing emphasis on privatization and tax cuts for firms, investors and high income groups and a policy of laissez-faire prevailed in the regulatory environment. An idea of turning Iceland into an international financial center was outlined at the highest level. This new policy environment and intimate links between politics, finance and media, facilitated further power concentration within the Icelandic society. That practically ruled out any chance of an effective countervailing power that might have resisted excessive speculation based on debt accumulation and toxic cross-cutting ties within the business, financial and political community. Growing income inequality set in as the bubble expanded.
