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Iceland Melts Down

Michael Lewis on the great Nordic screw-up.

Vanity Fair, April 2009 Michael Lewis reports from Iceland, whose banks recently committed “one of the single greatest acts of madness in financial history,” racking up losses average to “roughly $330,000” per Icelander. In the pantheon of textbook bubbles, an economist places Iceland’s financial saga, in which ever-rising asset prices encouraged overleveraging, alongside the Dutch tulip craze. Some foresaw the subsequent crash, but few spoke up. “The people who saw it coming had more to gain from it by taking short positions than they did by trying to publicize the problem.” Pop-anthropological explanations include Iceland’s prior reliance on fishing and the bizarre relationship between the sexes there. An author reconsiders the American Dream, concluding, “Our expectation of what the dream promises” must become more “egalitarian.” In the past half-century, the dream morphed from solidly middle-class and attainable to increasingly reliant on credit, until, aided by Reagan-era deregulation, it turned “immature, individualistic.”

New York Times Magazine, March 8 The cover story views Cleveland as a leading indicator for the housing crash: “Cities, old and new, are looking at what’s occurring in Cleveland with some trepidation—and also looking for guidance.” What’s occurring is 10,000 foreclosures in two years and one vacant house for every 13 houses. Many homes are “O.V.V.”—“Open, Vacant and Vandalized”—yet they remain because demolition is too expensive. Some speculators believe there’s still money to be made: One California couple plans to buy 1,000 Cleveland houses. One author defends President Obama’s continued effort at “postpartisanship” in the wake of near-uniform Republican shunning of his stimulus package. Citing the personal friendship between political foes Ronald Reagan and Tip O’Neill, the author reports that Obama will “keep Republican leaders on speed dial, even if they vote against him.” Furthermore, a closer look reveals that “Obama’s efforts haven’t been the failure that some think them to be.”

Economist, March 5 The cover story calls for an end to the “illiberal, murderous and pointless” global war on drugs. Governments should “transform drugs from a law-and-order problem into a public-health problem” and stop punishing otherwise law-abiding citizens for recreational use. (“[T]he current American president could easily have ended up in prison for his youthful experiments with ‘blow.’ “) Legalization is the “least bad” option, the magazine says: If accomplished, “many vulnerable drug-takers would suffer. But in our view, more would gain.” An article explores how the United States will supply forces in Afghanistan after it vacates Manas Airbase, which Kyrgyzstan recently closed after Russian coaxing. An alternative is a base in Uzbekistan, which is ruled by a nasty authoritarian. America may face “an awkward decision about what it cares about more: the logistics of its Afghan war or the state of human rights in other parts of Central Asia.”

Time, March 16 Joe Klein reports on the Obama administration’s scramble to formulate a new plan for the Afghanistan war, which President Obama has staked much on. A forthcoming official policy review will likely advocate “comprehensive diplomacy” aimed at tamping down Pakistan-India tensions plus “lots of money” (one bill already circulating would send $1.5 billion to Pakistan every year). “Afghanistan pales in comparison to the problems in Pakistan,” says one official. Klein also quotes a young Winston Churchill remarking, a century ago, on the impossibility of fully controlling the areas where al-Qaida and the Taliban now operate. A dispatch examines how committed government aid dating back to the 1973 oil crisis has helped make Denmark the “world’s leader in wind power.” “Denmark’s example couldn’t be more timely” as a global recession hits and the world readies for climate-change talks scheduled for December in, yes, Copenhagen.

New York Review of Books, March 29 Cass Sunstein defends the Federalist Papers’ then-radical argument that a large government with a vigorous executive branch “would serve republican goals better than the traditional republican solution of small republics.” The founders’ “novel conception of republicanism provides a clue to the longevity and genius of the U.S. Constitution,” even as “[a]n immensely powerful executive branch and the growth of the administrative state have raised especially serious questions” about it. Nobel Prize-winning economist Amartya Sen argues that capitalism’s “usefulness may well be fairly exhausted” because, for all markets can accomplish, “nevertheless an economy can operate effectively only on the basis of trust among different parties,” which recent deregulatory trends and “the rapid development of secondary markets involving derivatives” have allowed to lapse. He adds: “The present economic crisis is partly generated by a huge overestimation of the wisdom of market processes” and is “many times magnified by a psychological collapse.”

Must Read
“Of course they’ve met Björk; who hasn’t met Björk?” Do yourself a favor this weekend and savor Michael Lewis on Iceland.

Must Skip
The uncertain future of Citibank and its CEO, Vikram Pandit, gives New York’s profile of Pandit an in medias res quality that makes it feel incomplete.

Best Politics Piece
A New Republic article on the “decline of the angry Republican everyman” contains a priceless video re-enactment by author Jonathan Chait of CNBC anchor Rick Santelli’s now-famous rant.

Best Culture Piece
TheNew Yorker’s look back at the life and work of David Foster Wallace is almost unreadable because of the tragedy it describes, but that doesn’t mean you shouldn’t try.

Iceland’s Charms
Michael Lewis reports that Alcoa had to receive government certification that an aluminum smelter it was constructing in Iceland would not kill or destroy the habitats of any “hidden people,” aka elves. “It was a delicate corporate situation, an Alcoa spokesman told me, because they had to pay hard cash to declare the site elf-free but, as he put it, ‘we couldn’t as a company be in a position of acknowledging the existence of hidden people.’ “