Markets call time on Iceland
The best way of seeing Iceland is as a country that turned itself into a giant hedge fund.
For years it paid higher interest rates than in many parts of the world, so its financial institutions borrowed a ton of hot money from abroad, which they then re-cycled into investments all over northern Europe, including the UK.
The Icelandic banking boom was an economic phenomenon created by what's known as the carry trade - whereby colossal sums of money were borrowed in places like Japan, where interest rates were effectively zero, for lending to institutions in high-interest-paying economies, such as Iceland.
This, for years, seemed to be a no-lose arbitrage on differential interest rates in a globalised economy.
But it was just another manifestation of the pumping up of the credit bubble, which is now deflating and hurting us all.
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.
It's a proper old mess.
Of course I'm being a tad unfair, in that the banks that have foolishly borrowed all this wonga have invested in tanker-loads of offshore assets.
Much of the British high street, a load of property and the Hammers have been financed or are owned by Icelandic banks and financiers.
And those that have borrowed from Icelandic banks have frequently borrowed too much. Which means they will have to start looking for alternative sources of working capital and debt at a time when over-leveraged outfits aren't flavour of the month with our banks. Ouch.
So Iceland's problems have a direct knock-on for the British economy - and goodness alone knows how exposed our banks are to Icelandic ones through the interbank market or derivatives market. One British bank with a reasonable name and a long history, Singer & Friedlander, is owned by the Icelandic bank, Kaupthing.
That'll be making the City watchdog, the Financial Services Authority, a tad uncomfortable, because Kaupthing - 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.
Which is simply to say that Kaupthing couldn't issue new debt, even if it wanted to.
And even the Icelandic government is classed by the markets as a lousy credit risk. On Friday, the cost of insuring $10m of Icelandic debt was $1.5m up front and $500,000 a year - a cripplingly large premium.
So what'll happen to poor indebted Iceland?
Well, although its central bank has fairly substantial reserves - enough according to the central bank governor to cover imports for eight to nine months - it's difficult to see how it can re-float without international help.