Here are the lethal statistics about Iceland: the value of its economic output, its GDP, is about $20bn; but its big banks have borrowed some $120bn in foreign currencies.
Now that's what I call leverage - and remember that's just the overseas liabilities of its commercial banks.
If this were a business, and if it had no other borrowings (which of course Iceland does have), this would be a debt-to-ebitda ratio of 6.
Or to put it another way, Iceland simply doesn't have the domestic earnings to service this kind of debt.
Which is why if the Icelandic Government were to formally underwrite all these liabilities - which it might just have to do, given that other banks and financial institutions no longer want to touch Iceland with the longest barge-pole ever constructed - well its national-debt-to-GDP ratio would be at a level that make the UK in the 1970s look like a model of prudence.
And if Icelandic taxpayers actually had to service all that debt, well there wouldn't be a lot left over for even the basics of life.
Emphasis added by me.
More:
[. . .] Kaupthing [Iceland's largest bank] - which is no minnow, with gross assets of $73bn - has the worst case of financial BO I've encountered in some time.
On Friday, had anyone wished to take out insurance in the credit default swaps market to guarantee repayment of debt issued by Kaupthing, he or she would have had to pay a premium of £625,000 to guarantee the return of £1m.
Emphasis added by me.
So to guarantee 100%, you have to pay an insurance premium equal to 62%!!
If Iceland sinks, will it take the rest of the global financial system with it?
I can tell you this: If it doesn't, it will lead to a domino effect as smaller nations look at their spreadsheets and similarly find them bleeding red pixels as a consequence!
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