Without them, it would have been impossible to make sense of the chaotic dynamics of global economies and financial systems at the time. In other words, nothing could have provided a better case study of the importance of Max’s work than the crisis. And it is lessons from the global financial crisis with which I want to begin. These are of course many and varied. But among the most important is also perhaps the simplest: to safeguard against systemic risk, the financial system needs to be managed as a system (Haldane (2009)). As put, this statement seems rather obvious, perhaps even tautological. Yet, pre-crisis, it was far from obvious. The orthodoxy then was that safeguarding individual financial firms was a necessary and sufficient condition for system-wide stability. This was the financial stability equivalent of the English aphorism: “look after the pennies and the pounds will look after themselves”. And so it appeared during the long pre-crisis period of stable growth and stable banks – the “Great Moderation” (Bernanke (2004)). The crisis has rewritten that orthodoxy. It revealed that the safety of individual banks was neither a necessary nor sufficient condition for systemic stability. Not necessary because, in any well-functioning system, individual banks can and should fail. Not sufficient because, in an integrated web, the chain is only as strong as its weakest link. In focussing on individual banks, policymakers had been, to coin another English aphorism, “penny-wise but pound-foolish”. That is why Great Moderation gave way to Great Recession (Gai and Kapadia (2010)).
The importance of fisheries as a generator of foreign exchange revenue has diminished in relative terms - to less than a half of the total - while the importance of other sectors has risen, such as manufacturing industry, information technology and tourism. In these developments, Iceland is among other things drawing benefits from globalisation to strengthen the foundations of the economy. Foreign direct investment regulations are liberal with the exception that such investment is not permitted in the fishing sector. Foreign direct investment is most noticeable in power intensive industry, such as the production of aluminium, which is based on Iceland’s abundance of untapped renewable energy resources. Recent changes in corporate taxation in Iceland, lowering corporate taxes to among the lowest to be found, serve to attract foreign business to Iceland and encourage Icelandic companies with international operations to favour Iceland as the base of their operations. 2  BIS Review 51/2002  Direct investment by Icelandic companies abroad has risen rapidly in recent years and in a variety of areas, such as fisheries and fish processing, pharmaceuticals, retail commerce and financial services. These developments also benefit the Icelandic economy in the long run as they integrate Iceland further into the global economy, allow Iceland to draw more easily on the experience of others and bring in dividends.