Stopping a Financial Crisis, the Swedish Way - Why didn't we do it this way?

[EV_Ares]

Correction Appended

A banking system in crisis after the collapse of a housing bubble. An economy hemorrhaging jobs. A market-oriented government struggling to stem the panic. Sound familiar? It does to Sweden. The country was so far in the hole in 1992 — after years of imprudent regulation, short-sighted economic policy and the end of its property boom — that its banking system was, for all practical purposes, insolvent.

But Sweden took a different course than the one now being proposed by the United States Treasury. And Swedish officials say there are lessons from their own nightmare that Washington may be missing.

Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government. That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well.

“If I go into a bank,” said Bo Lundgren, who was Sweden’s deputy minister of finance at the time, “I’d rather get equity so that there is some upside for the taxpayer.”

Sweden spent 4 percent of its gross domestic product, or 65 billion kronor, the equivalent of $11.7 billion at the time, or $18.3 billion in today’s dollars, to rescue ailing banks. That is slightly less, proportionate to the national economy, than the $700 billion, or roughly 5 percent of gross domestic product, that the Bush administration estimates its own move will cost in the United States.

But the final cost to Sweden ended up being less than 2 percent of its G.D.P. Some officials say they believe it was closer to zero, depending on how certain rates of return are calculated.

rest of the article: http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html?_r=1&oref=slogin

[glowing]

1. It may still be similar.. this bailout is something no one wanted this early on..

and its something they went with when Bush asked.. they don't want to tie the next person down with their own plans or directions.. the dems threw the piggies hush money.

[Skink]

2. We sort of did that.

Sweden wasn't looking at the possibility of a worldwide contagion. We might get there still but not under W.

[depakid]

4. I think we many still have some similar equity sharing before all is said and done

As to worldwide contagion- most Americans of late (on either side of the aisle) don't care too much about that happens to the rest of the world- on this issue, it seems like most don't even care about their own neighbors when it interferes with their anger or their ideology.

[MannyGoldstein]

3. Eactly What I Asked Barney Frank

Who did not answer directly - he simply said "don't worry, be happy" (he's my rep, so he had to answer...).

Of course, the answer is that the pols don't want to harm the bankers - just ask "Hedge Fund Chuckie" Schumer.

Even the Left is corporatist these days.

[Davis_X_Machina]

5. The votes weren't there.

Blue Dogs would have sunk it -- they're true believers in the Magic of Markets.