Sweden offers a lesson for U.S. banking bailout

[FUCK THE POLICE]

http://www.guardian.co.uk/business/feedarticle/7820460


By Simon Johnson
STOCKHOLM, Sept 22 (Reuters) - A bailout of the U.S. financial system looks likely to follow a model adopted by Sweden in the 1990s -- and if history is anything to go by that suggests high costs and a painful recovery process.
Sweden's tough action got its banks through the crisis and avoided the worst of the later sub-prime shock and credit crunch. A simultaneous overhaul of fiscal and monetary policy helped stifle inflation and foster economic stability.
"In the U.S. they have been influenced quite a bit by how we handled the banking crisis," said Lars Calmfors, professor of international economics at the University of Stockholm.
"The way I interpret it, the way Sweden did it stands as a model for the ideas that are being put forward in the United States."
In the early 1990s Swedish banks were riding high after deregulation. But a huge surge in lending, mainly for property, poisoned the financial system when the real estate bubble burst.
Loan losses for banks mounted, asset prices slumped and a liquidity crunch forced Sweden to nationalise parts of the financial sector, guarantee deposits and bail out shaky lenders.
Similar programmes were undertaken by other Nordic states.
The policy did not come cheap. Analysts estimate the cost was about 2.1 percent of Sweden's gross domestic product. Sweden's economy went into recession for three years. Bank shareholders lost almost all their money.
Yet it could have been worse had the government not acted.
"The Scandinavian experience shows that, when financial markets become highly dysfunctional, traditional policy measures such as monetary and fiscal easing are not sufficient to turn the situation around," JP Morgan said in a note.
State-run institutions set up to deal with Swedish banks' unwanted assets were able take a long-term view, avoiding a fire-sale that would have added to the taxpayers' bill.
POLICY FRAMEWORK
Of the 70 billion crowns ($10.7 billion) the government pumped into the banking system, it recovered about half from asset sales. The state still holds a $7 billion stake in Nordea , the Nordic region's biggest bank.
The economy rebounded relatively quickly and entered the current downturn in better shape than many European peers.
In a move similar to that taken in Sweden, U.S. authorities have put forward legislation that would authorise the Treasury to buy as much as $700 billion in bad assets to be sold later.
This comes on top of a rescue of American International Group and the takeover of housing finance firms Fannie Mae and Freddie Mac.
But a bailout may not be enough.
U.S. policy makers might also have to pay more attention in future to the country's fiscal and monetary framework. Sweden's focus there was seen as a vital part of its success story.
Spurred by the crisis and rising debts, the Swedish government embarked on a policy of fiscal stringency, with the goal of a budget surplus over the business cycle. The central bank was given more independence and set a specific inflation target.
"It was quite important to create this kind of economic policy framework to regain credibility for fiscal and monetary policy and I think that is quite important for the United States," said Robert Bergqvist, chief economist at Swedish banking group SEB.
Sweden's government now runs a healthy surplus and has the ammunition for pump-priming to counter the effects of the global downturn. Inflation, in double digits through much of the 1980s, has been kept under tight control.
The banks also appear to have taken the lessons of the early 1990s to heart and emerged relatively unscathed from the subprime crisis and the following credit crunch.
NO MIRACLE
While Sweden can provide a roadmap, the scale and complexity of the problems faced across the Atlantic complicate the U.S. rescue plan.
Sweden has a long tradition of central control, while U.S. politicians are likely to find agreement more difficult.
Assets taken over by Swedish government were relatively easy to administer and sell, while a devaluation and a recovery in the global economy helped the country return to growth.
The financial instruments at the heart of the U.S. problems are far more complex and the consequences of authorities' actions likely to shape the global economy.
One lesson the Nordic banking crisis can impart is that rapid, comprehensive and prudent action can mitigate the effects of a crisis in the longer term. But it has a more gloomy point to make about short-term developments.
"The other striking lesson is that despite extensive policy support, all three (Nordic) economies experienced deep recessions," JP Morgan added. (Editing by David Holmes)

[Blackwater Lunchbreak]

The bailout is still a bad idea. Sorry chimpy.

[FUCK THE POLICE]

The bailout is still a bad idea. Sorry chimpy.

Why is it a national bailout? Can you offer me a single logical, non emotional response? Or will you be like 'WAH THIS IS UNAMERICAN!'

:tantrum:

[Blackwater Lunchbreak]

Why is it a national bailout? Can you offer me a single logical, non emotional response? Or will you be like 'WAH THIS IS UNAMERICAN!'

:tantrum:

It's a bailout because irresponsible shitheads are being bailed out. It's a bailout because of what words means.

[FUCK THE POLICE]

It's a bailout because irresponsible shitheads are being bailed out. It's a bailout because of what words means.

The fault was with no one but irresponsible shithead conservative laissez-faire deregulators who now call for a 20's style do-nothing attitude towards the situation.

[Blackwater Lunchbreak]

The fault was with no one but irresponsible shithead conservative laissez-faire deregulators who now call for a 20's style do-nothing attitude towards the situation.

Right, and they shouldn't be rewarded for their efforts. Actually the deregulators who now want the bailout.

All americans should lose confidence in this system, fearmongering aside. We will be fine.

[FUCK THE POLICE]

Right, and they shouldn't be rewarded for their efforts.

Who is being rewarded?

The only people that lose if we do nothing are average Americans who will lose their jobs and houses.

[Blackwater Lunchbreak]

Who is being rewarded?

The only people that lose if we do nothing are average Americans who will lose their jobs and houses.

The business people who want taxpayers saddled with their bad decisions are being rewarded.

Stop fearmongering. Long term, a full correction is just what the doctor orderd.

Think of all the americans who will be able afford housing if the market bottoms out.

No credit available? We can return to the barter system. Fiat currency dependance is simply a control mechanism. We don;t need it.

[FUCK THE POLICE]

Stop fearmongering. Long term, a full correction is just what the doctor orderd.

"Everything will be fine. Let's do nothing and wait for the inevitable correction." - Herbert Hoover, 1930

[Blackwater Lunchbreak]

"Everything will be fine. Let's do nothing and wait for the inevitable correction." - Herbert Hoover, 1930

We are nowhere close to that. Stop fearmongering, before I force feed you dog shit.

[FUCK THE POLICE]

I don't give a fuck about the CEO's. They are not being "rewarded". If they have to be removed from power and given nothing, I wouldn't care. We shouldn't allow our entire financial system to crumble as we sit by and watch this mutually destructive situation unfold on our economy. We need direct government action to stop a depression.

[Topspin]

they are saying its going to fail to scare pussies like you waterturd.
Azzhat is right (wtf), don't reward them
they fucking gambled now let them fail, it's not the first time you diper wearer.

[FUCK THE POLICE]

they are saying its going to fail to scare pussies like you waterturd.
Azzhat is right (wtf), don't reward them
they fucking gambled now let them fail, it's not the first time you diper wearer.

Our economy is not a gambling chip.

[Blackwater Lunchbreak]

I don't give a fuck about the CEO's. They are not being "rewarded". If they have to be removed from power and given nothing, I wouldn't care. We shouldn't allow our entire financial system to crumble as we sit by and watch this mutually destructive situation unfold on our economy. We need direct government action to stop a depression.

OMGZERRRRS!

[FUCK THE POLICE]

OMGZERRRRS!

Exactly.

Well fuck you guys with your irrational emotional arguments. Both obama and mccain support the right plan, it will get passed, and I won't have to worry about growing up in an economically depressed America due to your "let it fail" do nothing attitude.