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Almost exactly two years ago I spent a weird couple of days up in Reykjavik, Iceland, investigating the mystery of the Icelandic miracle. At about two in the morning, I found myself in Café Oliver just off the main drag in the capital with the staff of the leading bank Landsbanki, who were vigorously celebrating getting away a $2.25 billion bond issue. The lager and shots were flowing faster than a burst pipe. Landsbanki has today been nationalised, the revellers are now civil servants and Iceland is facing economic collapse.

At the time Iceland’s economy had grown by 50% over ten years. It was in the world’s top ten richest countries, with a GDP per capita of £30,000, and about 75% of the revenue made by the 22 firms listed on the country's stock exchange was generated abroad. This tiny nation of 300,000 souls was busy taking over large chunks of the UK high street and even lowly West Ham football club (I can say that – I’m a long-suffering fan). Three hundred thousand Brits now have money on deposit with Iceland’s banks; Landsbanki’s UK Icesave online account, for example, was an overnight sensation when it was launched offering amazing interest rates - this morning they've all been frozen.  

For such a small nation, it wasn’t surprising that a complex web of cross-ownership existed with companies all holding stakes in each other. I wrote then that: 'This set-up is a classic precursor to a house-of-cards collapse' - although I felt slightly guilty for being such a party-pooper in the face of such a buccaneering sense of enterprise. But I wasn’t alone. Plenty of people smelled a rat. There was dark talk of dirty Russian money being laundered through the system. Some of that cash, however filthy, would be more than welcome now (Update: the Russians may have just promised to loan the Iceland central bank €4bn to save it from bankruptcy - a friend in need is a friend indeed).

Amid all the exuberance I met Professor Tryggvi Thor Herbertsson, an economist from the University of Iceland. He was a sober, thoughtful academic who although optimistic seemed a realist about the limits of his country’s capabilities. He acknowledged the wealth but remembered how things had been: 'At the turn of the 20th century we were the poorest country in Europe. We were worse off than Albania'.

With his nation teetering on the edge of bankruptcy, I phoned the Professor this morning to see how things were going. 'He’s not here any more', said a colleague, 'he now works in the Prime Minister’s office'. Professor Herbertsson has been busy nationalising banks and no doubt struggling to ensure that, as the long, dark Winter nights draw in, he and his fellow country folk don’t return to Albanian standards of living.  I wish him luck.

In today's bulletin:
RBS sinks amid funding fears
Green defends BHS battering
Editor's blog: Iceland fears perma-frost as Landsbanki falls
Fuld gets Congress reality check
Workers get thanks for nothing