CAMPBELL: It’s a small country that thinks big. For centuries, Icelanders have been inspired by their heroic sagas – tales of kings and Vikings who set forth to conquer the world – and until recently, it seemed there was nothing this tiny community couldn’t do.

A nation of just 300,000 people has produced superstars like Bjork and no less than three Miss Worlds. It had even become a global banking centre, churning out homegrown billionaires. Educated, smart and very rich, Icelanders were the envy of the rest of Europe. But a year ago they woke up to a very different world.

GUNNAR SIGURDSSON: “Can you imagine that you have your house living in Australia or wherever you live, and suddenly your mortgage has doubled, just over one night. You know, we were doing okay. We were doing fine. Why be so greedy?”

CAMPBELL: The global financial crisis hit Iceland first and hardest. In just a few days it suffered the biggest banking collapse in history. Within months, a stunned and enraged public rose up and toppled the government. We’ve come here to see what lessons have been learned, not just by Icelanders, but by the rest of the world.

ROBERT WADE: [London School of Economics] “Very little has been done to address the deeper causes of the crisis in Iceland and I think, unfortunately, that is a microcosm of what’s happening elsewhere. We are moving back quite rapidly, in the United States and Britain, Wall Street and the City of London towards something like business as usual.”

CAMPBELL: The capital, Reykjavik still has the trappings of the boom that briefly made Iceland the richest little country in the world. But the good days are well and truly over. It’s a broke nation full of people going bankrupt - like Gunnar Sigurdsson, who at fifty years of age has to start all over again.

GUNNAR SIGURDSSON: “I’m living a very insecure life at the moment. I’m going to lose my flat, which is not a very big flat. I’m going to lose my car. I’m going to get bankrupt. Not because I was a stupid guy and I wasn’t trying to do my deeds, because of the way things were handled in Iceland. So excuse me!”

CAMPBELL: And the people they blame most have fled with their millions, leaving others to clean up the mess. The bankers’ Iceland homes are regularly splattered with red paint. Sigurdur Hreidarsson looks after the house of his son who’s now consulting in Luxembourg.

SIGURDUR HREIDARSSON: “It’s a horrible thing to do. I can’t know what reason people are doing things like that [shakes head]. I can’t understand.”

CAMPBELL: “And this is the second time it’s happened?”

SIGURDUR HREIDARSSON: “The second time, yes.”

GUNNAR SIGURDSSON: [Filmmaker] “When it comes to a crisis, what does these people do? They vanish. They go [clicks fingers] like this. None of these people are in Iceland at the moment, the people who are getting a lot of money paid to take a big responsibility, they just vanished.”

[Talking to colleague]: “So we’ve drawn up the introduction to the documentary.”

CAMPBELL: Gunnar Sigurdsson isn’t just angry, he wants to get even. This apolitical theatre director who’d never been to a protest in his life has morphed into Iceland’s Michael Moore, using a camera to bring the people he blames to account.

GUNNAR SIGURDSSON: “Nobody was telling us anything. We had to read foreign newspapers to find out what was going on in Iceland and that got people very angry. They wanted to know what was going on, why this was happening.”

CAMPBELL: He started by organising televised public meetings where politicians were forced to face the people. It was an uncomfortable experience for a government that just weeks earlier had promised everything was fine.

FOREIGN MINISTER: (Speaking at public meeting) “Many people sitting here in this room want us out, but I’m not sure if everyone in this room is necessarily in a position to speak on behalf of the nation.” [crowd booing hissing]

GUNNAR SIGURDSSON: “Mm that’s what you call you know making a political suicide, you know in direct television, straight out you know?”

CAMPBELL: “Right. So they weren’t use to this kind of confrontation from the public.”

GUNNAR SIGURDSSON: “No, there was a kind of you know new thing for them and also it was a new thing for us also as the common people.”

CAMPBELL: Sigurdsson has also been tracking down the failed bankers, like the 42-year-old billionaire Thor Bjorgolfsson now living in London.

GUNNAR SIGURDSSON: “So what would you like to say to those Icelanders who see you as criminals – they call you criminals?”

THOR BJORGOLFSSON: “Of course I have nothing to say.”

GUNNAR SIGURDSSON: “So you cannot answer it?”

THOR BJORGOLFSSON: “I have nothing to say. I’m not a criminal. I’ve never been one. There’s nothing to say. Right, I’m late – I have to run.” [Abruptly leaves interview]

CAMPBELL: “Can you put in one sentence what went wrong?”

GUNNAR SIGURDSSON: “I think it’s the corruption. We gave a couple of guys the permission to use all the force of Iceland to sell actually Iceland, to sell it. To make a fortune out of it.”

CAMPBELL: “And leave the bill to the Icelanders?”

GUNNAR SIGURDSSON: “And leave the bill with the common public.”

CAMPBELL: Iceland used to make its money from its natural resources, particularly its vast stocks of fish. The fishing village of Dalvik, near the Arctic Circle, is typical of the hard-working communities that once provided half the country’s wealth.

SINGING SONG: “When the hull is getting full and my ship is loaded, as more and more nets are coming in, then I off-load the herring both in Dalvik and Dagverdareyri.”

CAMPBELL: Here, fishing isn’t just an industry it’s a way of life. Once a year the people of Dalvik invite their countrymen to sample home-cooked fish soup.

MAN TOASTING CROWD: “Long live the great soup night! And bon appetit!”

CAMPBELL: This year free food was an irresistible lure for Icelanders, who might previously have holidayed in Paris or New York. Thirty thousand people turned up, swamping the two thousand locals. The sad irony is that this highly regulated fishing industry had made Iceland prosperous before the boom, but about ten years ago, the right-wing government invited the powerful global free market into their tiny nation, privatising the three main banks.

Gudni Johannesson is a political historian who’s just written a book chronicling his country’s fall.

GUDNI JOHANNESSON: [Author, “The Collapse”] “There was money floating around. They could ask for money everywhere and they got it and before we knew it, we had banks which were about ten, eleven times the GDP of the country.”

CAMPBELL: Banks like Kaupthing were given carte blanche to expand and indulge in delusions of grandeur.

CORPORATE VIDEO, KAUPTHING: We thought we could double in size, and we did – every year for eight years. We thought we could increase our balance sheet – and we did. Kaupthinking is beyond normal thinking.

CAMPBELL: Others were thinking it was completely insane.

ROBERT WADE: “The average income of Iceland was something like 170%, that’s almost twice the average income of the United States.”

CAMPBELL: “That’s extraordinary.”

Robert Wade is a well-known British economist who studied the Asian financial crisis of 1997. It’s not his first visit to Iceland. Two years ago, after seeing the huge building boom here, he tried to convince Iceland’s authorities that they were facing a similar debt-fuelled disaster.

ROBERT WADE: “They just politely dismissed what I was saying. They had the line that they had these young Vikings, they were operating fully in line with European regulations and they had just discovered some secret, these young Vikings, which the rest of the world didn’t know about.”

CAMPBELL: Icelanders pride themselves on their Viking heritage, brave mavericks who fought above their weight. Unfortunately this myth really is a myth.

GUDNI JOHANNESSON: “When you actually look at it, when you become the boring historian, the Vikings they were not the people settling in Iceland in the old days. That was a bit before. The people arriving from the Scandinavian countries and the British Isles to Iceland were mostly farmers who were not raping and pillaging and having glorious stories written about them.”

CAMPBELL: But the media told glorious stories about the bankers, dubbing them the new Vikings, as though men in suits were bold warriors taking on the world.

GUDNI JOHANNESSON: “Not arriving in longships but flying over in private jets and not you know raping and pillaging but buying assets wherever they could see them.”

CAMPBELL: When the banks collapsed a year ago, Icelanders discovered it had all been fiction, but it’s only now that they’re realising their Viking heroes had actually plundered them.

Documents that have mysteriously made their way onto the internet give a sense of how that might have happened. You see, the Kaupthing bank loaned billions of dollars to some of its main shareholders, often without collateral and sometimes just to buy shares in the bank. In other words, the bankers were shovelling up the public’s money and spreading it around themselves. It was like a giant piggy bank!

For a time it seemed the bankers were creating fortunes. In fact, they were simply spending other people’s money.

BIRGITTA JONSDOTTIR: “It’s one of the greatest sort of Ponzi schemes in history.”

CAMPBELL: “You’d go that far, it was like a Ponzi scheme?”

BIRGITTA JONSDOTTIR: “Absolutely!”

CAMPBELL: Birgitta Jonsdottir was one of the leaders of the winter protests that toppled the government.

BIRGITTA JONSDOTTIR: “On Saturdays we had the van over there with the speaker system and we always got more and more people. It was completely packed everywhere.”

CAMPBELL: Now this former anarchist is an opposition member of parliament. She believes, along with many other Icelanders, that the government wasn’t just incompetent – it was corrupt.

BIRGITTA JONSDOTTIR: [Opposition MP] “Some of the ministers from the government when it collapsed, had very close ties with these companies and the banks and this was never really revealed properly. I mean it’s so huge. I mean, how is it possible that they allowed the Icelandic banking system to grow ten times the size of our GDP. I mean how is that possible unless you have somebody looking the other way and wanting to make money out of it?”

CAMPBELL: The banks became so big they effectively took over the country.

GUDNI JOHANNESSON: “They were the guys in power. They were like the government within, a state within a state. Yeah, definitely.”

CAMPBELL: Iceland is not just a tiny community, thanks to centuries of isolation it’s one of the few societies in the world where almost everyone is related.

GUDNI JOHANNESSON: “It created a cosy world for the politicians. It created a world where you could put your friends in positions you wanted… sort of silent agreement between at least some of the parties that this is how we run things.”

CAMPBELL: The old government claimed it was simply overwhelmed by the force of the global financial crisis. Robert Wade doesn’t buy that.

ROBERT WADE: “The IMF’s report on Iceland in 2006 rang the alarm bell as loudly as the IMF ever rings the alarm bell. There was plenty of time in which the government could have begun to restrain these banks but the point is the government bought into it and probably government ministers had lots of money invested in these ventures as well.”

CAMPBELL: But it would be wrong to see this debacle as uniquely Icelandic, because right up until their collapse, the bankers were fooling the rest of the world as well.

Now because Iceland is so small, it wasn’t long before the banks had sucked in all the money they could from the island. So the new Vikings turned to another ancient tradition – raiding England.

From 2005 the cashed-up Vikings hit London like a financial invasion, snapping up prestige businesses as if money were no object. One bank, Landsbanki, even bought a premier league football club and nobody stopped to ask where all the money was coming from. Well, almost nobody.

Four years ago Kaupthing approached Tony Shearer to buy the 100-year-old bank he ran called Singer and Friedlander.

“So it was a fairly conservative established merchant bank?”

TONY SHEARER: “It was a boringly conservative establishment merchant bank, that’s exactly right.”

CAMPBELL: In Icelandic tradition, they wooed him over a fishing trip.

TONY SHEARER: “There were about 16 of us there, of the 16 there were about 9 billionaires and we had a very enjoyable two days fishing.”

CAMPBELL: “But did you form the impression they were people you’d like to do business with?”

TONY SHEARER: “I formed the impression they were people I was quite happy to go fishing with, but I wouldn’t want to do business.”

CAMPBELL: After a cursory reading of their accounts, Shearer made an astonishing discovery that highly paid British officials and international ratings agencies appeared to have missed. It wasn’t a proper bank at all.

TONY SHEARER: “Less than 10% of their profits came from either you know lending money or managing other people’s investments.”

CAMPBELL: “So only 10% of their profits were coming from actual banking, the rest was just funny money?”

TONY SHEARER: “Yes, yeah. And that was all apparent from the accounts. I also went to the regulator, the Financial Services Authority and told them that I thought there were reasons, very good reasons why they should not approve them as fit and proper people to own a UK bank, and so did some of my colleagues as well.”

CAMPBELL: “And what happened?”

TONY SHEARER: “They approved it.”

CAMPBELL: What’s more, British and Dutch authorities allowed another bank, Landsbanki to set up an internet deposit scheme. Called Icesave, it offered suspiciously high interest rates and attracted billions of pounds.

But it’s here that the Viking longship finally ran aground. When the Prime Minister, Gordon Brown heard of the bank’s troubles, he decided to freeze their British assets. But how can a government lawfully seize billions of pounds from a peaceful ally’s banks? Simple. In the post 9/11 world, you treat them as terrorists!

In the most extraordinary chapter of this sordid saga, Britain invoked its national security legislation against Iceland.

GUDNI JOHANNESSON: “The bank and for a short while the Central Bank of Iceland and the Icelandic finance ministry was put on a list of terrorist organisations, alongside the Taliban, the al Qaeda, North Korea etcetera.”

CAMPBELL: And a year later, Icelanders are as angry as ever. Great Britain was able to bail out its own citizens for their losses in Icesave but now it’s demanding tiny Iceland pay it all back.

PROTEST MAN SINGING: “You should count your fingers, one, two, three. Those smiles of the wolves can be very expensive.”

CAMPBELL: The six billion dollar debt works out to $20,000 for every man, woman and child.

PROTEST MAN SINGING: “Count your fingers – all five are missing. This world of business is way too grim.”

MAN ADDRESSING PROTEST: “I don’t want to use bad language here in front of the parliament. The reason the public is meant to pay all this money is so they don’t have to chase the rich ones – and that’s intolerable!”

CAMPBELL: And the pain is only just beginning. In the next few weeks, the government will bring in a budget that’s expected to slash spending by 30%. They could spend the next decade paying for a system that let banks run wild.

“Do you think the lessons are being learnt and the system’s being changed?”

TONY SHEARER: “No. No.”

CAMPBELL: “Really?”

TONY SHEARER: “Yeah.”

CAMPBELL: “Despite all the billions of dollars that have been lost.”

TONY SHEARER: “Well I think in the UK it was something like a trillion pounds which is gone into back the banks. No I don’t think, I don’t think the lessons have been learned.”

CAMPBELL: Many Icelanders say they have learned a lesson.

BIRGITTA JONSDOTTIR: “I’m hoping that people will sort of get back into the values of what’s real in life. I mean material things are nice but they’re not real.”

GUNNAR SIGURDSSON: “There’s a lot of good sides of this. We have started to talk, we have faced the problem, we are trying to fight it… we are trying to change things.”

GUDNI JOHANNESSON: “If anything good comes out of this crash it might be that people will appreciate that you do not need the second car, not to mention the third car, or a new flat screen TV.”

CAMPBELL: “Because there’s a lot to enjoy in Iceland that doesn’t cost money isn’t there?”

GUDNI JOHANNESSON: “Yeah go to the beach, go sea swimming in Iceland instead of Majorca. It’s way more fun. There’s hiking trails and magnificent mountains to climb, waterfalls to observe. You don’t need all the nonsense. Just you know go back to basics.”