Financial crises - the Swedish solution
From the
New York Times:
Stopping a Financial Crisis, the Swedish Way
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's problems were quite different than the ones we are facing now but still, the hardline treatment of the lending institutions is something we really need to look at.
If we bail them out, pat them on the back and tell them not to do that any more, we are in essence, rewarding them for their behavior and telling them that: (nudge nudge wink wink) don't do that again/way to go dude!
Posted by DaveH at September 27, 2008 7:30 AM
| TrackBack