On Mon, 23 Mar 2009, Doug Henwood wrote:
> In his interview with ABC News, Obama conceded that Sweden's
> approach was sensible.
Is it, though, for us? The FT had a long article on the Swedish solution last week that you quoted from:
http://www.ft.com/cms/s/0/b21adb4a-132e-11de-a170-0000779fd2ac.html
(only available to subscribers, but I'll be glad to send it offline to interested non-subscribers)
and I was kind of stunned at the details. To start with Sweden only nationalized 1 -- count 'em 1 -- bank. There was another it already owned (which turned out to be the worst of the bunch, oddly). But the remaining 3 banks remained entirely private. And the first step Sweden did -- and everyone agrees this was absolutely key -- was *guarantee all the liabilities for all Swedish banks -- including all the ones in private hands.* And on this basis, the private banks could then raise private capital, all of which was pre-guaranteed by the state.
If someone proposed this in America today, it would be called the mother of all no-strings bailouts, hand-outs and moral hazards. I certainly can't imagine anyone on the left thinking they want to do that here.
The more I read, the more the more it seemed like a post hoc propter hoc kind of thing -- the Swedish economy picked up a year and a half after they did what they did. But it seemed very probable that most of that pick up was due to an extreme devaluation of the currency in a very export oriented economy -- things we don't have in the US case.
Another aspect I didn't quite understand is that all the non-nationalized set up their own individual bad banks. The impression was that they weren't forced to, they were just persuaded it was a good idea. Investors were given the choice to invest in the good or bad bank, but not forced to invest in both. And somehow it all worked. I'd love to know more how that was accomplished. That seems like the real heart of the plan -- and on the face of it, it's got nothing to do with nationalization.
Michael