The writer, the witch, and the board head.

EURO NO
US DOLLAR YES
KRONA R.I.P.

Iceland's finances imploded in the manner of a dying star. To beef up its tiny economy, financiers had set up seductive online-banking systems, vacuuming in cash and loans from the world's powerhouse economies and then lending against this capital. Everything ballooned. One hundred percent mortgages were commonplace, and because Icelandic mortgages are keyed to inflation (debt rises as inflation goes up), locals found themselves dealing with, and owing, larger sums. Many took loans in foreign currency, planning to shuttle advantageously between that currency and króna. This was the burning ball of gas. As market concern spread this year, foreigners realized Icelandic banks were sitting on more capital than its government could ever insure. The market panicked. The fuel dried up. And Iceland's economic star began collapsing on itself.

These days, all that is back story. Iceland's more recent trials come from European circumspection, bad luck, and internal reticence. In October, Britain used anti-terrorism laws to freeze the British assets in one bank and seized the U.K. outpost of another. Meanwhile, the prime minister refused a call for parliamentary elections, saying the turnover could subvert Iceland's interception of its $2.1 billion IMF loan. Icelanders are upset about these things. They are unsettled by the cryptic management, and by the terrorist accusation, and by the IMF loan—or the idea of the IMF loan—and even by the prospect of joining the euro, which, some say, would straitjacket their work force. Their raw-goods market is in trouble, too: The price of aluminum, Iceland's biggest industry as of this year, has more than halved over the past five months. Fishing profits are down, in part thanks to a parasite infecting $20 million worth of exportable herring. Local sales of horse meat are, reportedly, way up.

In other words, to visit Iceland now, especially if you've been before, feels something like joy riding in the Maserati of a hospitalized friend. In 2006, when I first came to Reykjavík, a hamburger to go (squished-bun kind) cost something like $15. Restaurant entrées could easily set you back $60 each. Bound by a research stipend, I spent nearly a month that autumn, often hungry, based at the Salvation Army hostel, where the shower flooded daily by 11 and each Sunday, people (who were they?) would gather in some back room, thrum guitars, and sing spiritual songs. Still, I was in love: the cool, gray hills descending to the harbor; the oddly blue sunlight; the fervor of the clubs that sent licentious, dancing people out into the streets and home across the wee hours of the night. Iceland seemed to me then—it seems to me now—a place where the world can't wholly catch up with you.

What catches up instead, these days, is a peculiar, spent-too-long-in-art-school brand of grass-roots action. Just as the Austurvöllur rally ends, a string of firecrackers shoots above the parliament house, bursting like small flares. People huddle to the scene, and as they do, a vandal in a cheap Santa suit and gremlin mask ('tis the season) runs up and dumps a sack of potatoes on the parliament-house steps. They bounce and roll. The Santa gremlin disappears. An army of photographers kneels, essaying the potato-on-the-ground art shot. Iceland has become a "potato country," a woman says by way of explanation, so poor its people can subsist solely on tubers. "And also the leaders are, like, stupid, like a potato."

"Ah, I see," I say. I don't.