Sweden’s Fix for Banks: Nationalize Them

[Rosa Luxemburg]

Source: NY TImes

The Swedes have a simple message to the Americans: Bite the bullet and nationalize.

Officials in Washington are trying to figure out how to shore up American banks that once ruled the financial world but now seem to weaken by the day, despite receiving hundreds of billions of dollars in government aid.

With Sweden’s banks effectively bankrupt in the early 1990s, a center-right government pulled off a rapid recovery that led to taxpayers making money in the long run.

Former government officials in Sweden, many of whom come from the market-oriented end of the political spectrum, say the only way to solve the crisis in the United States is for the government to be prepared to temporarily take full ownership of the banks.

Sweden placed its banks with troubled assets into a so-called bad bank, where they could be held and then sold over time when market and economic conditions improved. In the meantime, it used taxpayer money to provide enough capital to allow banks to resume normal lending.

In the process, Sweden wiped out existing shareholders.

By contrast, the United States government, so far, has bailed out banks without receiving large equity stakes in return, said Bo Lundgren, Sweden’s minister of fiscal and financial affairs during the Swedish bank takeover.

“For me, that is a problem,” said Mr. Lundgren, who called himself more of a free marketer than some Republicans. “If you go in with capital, you should have full voting rights.”




Read more: http://www.nytimes.com/2009/01/23/business/worldbusiness/23sweden.html?_r=8&th=&emc=th&pagewanted=print

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Do We have a BAD BANK in the USA?

[FarCenter]

1. But the big US banks are global. Would taxpayers be on the hook for their foreign subs?

The big US banks are global institutions with substantial foreign subsidiaries.

Would the nationalization result in the US taxpayers being on the hook for the obligations of their London, Cayman Island, etc., operations?

Bear in mind that the thing that almost sunk AIG was the Credit Default Swaps written by a London subsidiary.

[Skink]

2. Good point.

Still shateholders should be the biggest concern.

[DCKit]

3. "In the process, Sweden wiped out existing shareholders."

Which is exactly why I don't think that bank stocks - even at an 80% "discount" - are an opportunity.

We need to prosecute the SOBs who destroyed the banks, then take all their money.

[Waiting For Everyman]

4. Yup, nationalize and let Sheila Bair sort them out.

She's the only who seems to have any sense.

It's inevitable anyway. The longer it takes, the more it'll cost. We should never re-privatize the Federal Reserve or the GSAs.