the swedish solution

fandlilFebruary 21, 2009

This morning's NY Times has a column by Gail Collins in which she describes what the Swedes did with their banks' toxic assets, the so-called collateralized debt obligations that Alan Greenspan admits he does not understand.

First, they nationalized the banks that own them. Then they hired unemployed bond brokers and charged them with reviewing these toxic assets, figuring out what they were worth, if anything, and selling them on the open market. Problem solved, or at least a giant step toward solution.

There are all kinds of Wall Street types walking the pavement these days, and they could be employed for a fraction of the excessive salaries they used to earn.

So why don't we follow their example?

Answers: (1) We never do what they do in Sweden. (2) There is a deep fear that the size of the CDO debacle is so huge it would have even more destructive effects on the markets worldwide if the extent of the problem were verified and made public. (3) Winston Churchill was right when he said that Americans can be counted on to do the right thing, after they've tried everything else.

We may be coming close to another big crumble. So keep your seatbelts on.

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We don't follow this example because Sweden has a handful of banks and we have thousands. The numbers simply don't work - there is no comparison.

    Bookmark   February 21, 2009 at 6:15PM
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I agree that the comparison, for this or for anything else, is not entirely appropriate because Sweden is a much smaller country and of course it's traditions differ from ours in many ways and its population is much more homogeneous.

But the approach that they used might still be worth considering here, if we astutely select, say, the ten biggest banks, or whatever number that the numbers crunchers say will "save" our financial system if they are fixed, and let the other fail, merge, or whatever.

    Bookmark   February 22, 2009 at 10:20AM
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Take a look at the top common stockholders in the banks you want to consider nationalizing. If you nationalize, you wipe out the stockholders forever. Yes, stock values are down but if nationalization is avoided, then the various retirement plans, governments etc have a chance to recoup some of the losses.

See Bloomberg this morning for discussion of what might happen.

    Bookmark   February 23, 2009 at 7:17AM
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