Returning to the New York Times, this story in the business section tells us how Sweden managed to recover from their financial turmoil in the prior decade that bears a striking resemblance to what we currently face (that is, “after years of imprudent regulation, short-sighted economic policy and the end of its property boom… its banking system was, for all practical purposes, insolvent,” according to the story).
But in response…
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,” Bo Lundgren, who was Sweden’s finance minister at the time, told The Times, “I’d rather get equity so that there is some upside for the taxpayer.”
Sweden told its banks to write down their losses promptly before coming to the state for recapitalization. Facing its own problem later in the decade, Japan made the mistake of dragging this process out, delaying a solution for years.
Then came the imperative to bleed shareholders first. Mr. Lundgren recalls a conversation with Peter Wallenberg, at the time chairman of SEB, Sweden’s largest bank. Mr. Wallenberg, the scion of the country’s most famous family and steward of large chunks of its economy, heard that there would be no sacred cows.
The Wallenbergs turned around and arranged a recapitalization on their own, obviating the need for a bailout. SEB turned a profit the following year, 1993.
“For every krona we put into the bank, we wanted the same influence,” Mr. Lundgren told The Times. “That ensured that we did not have to go into certain banks at all.”
By the end of the crisis, the Swedish government had seized a vast portion of the banking sector, and the agency had mostly fulfilled its hard-nosed mandate to drain share capital before injecting cash. When markets stabilized, the Swedish state then reaped the benefits by taking the banks public again.
I hope at least some (or, dare I imagine – all?) of these ideas are being discussed within Congress, though, given the fact that moonbats such as this gentleman are given credence on this matter, I hope you’ll forgive me for my cynicism.
And in other indebtedness news, a full-page ad in the Times today reminded us that the U.S. currently owes the U.N. approximately $1.2 billion (actually, it’s closer to $1.3), though this Wikipedia article tells us that the so-called Helms-Biden legislation of 1999 (now there’s a combination!) was able to reduce our payments to the U.N. and related agencies based on negotiated reforms.
It should be noted that, of the $1.3 billion, according to the article, “$612 million is payable under Helms-Biden. The remaining $700 million result from various legislative and policy withholdings; at present, there are no plans to pay these amounts.”
O to be governed by adults again (118 days and counting, people).
(And by the way, what Bowers sez here – h/t Atrios.)
Update: In a related vein, here’s “some straight talk you can believe in, my friends”; ka-chiiing! (and please don’t try to argue that Obama’s $126K of contributions from the employees is somehow worse).