Sunday, September 28, 2008

The Swedish way of solving the bank crisis.

Photo: http://en.wikipedia.org/wiki/Image:Stockholm_old_town_2002.jpg

Liam Halligan, at The Sunday Telegraph, 28 September 2008, writes:

I’m in shock. Can this crisis get any worse? My instinct is it can and will .

According to Halligan: "My biggest problem isn’t that the Paulson plan is too vague (inevitable, given the political stakes) or that US house prices will keep falling (a fact of life). My problem is that this bail-out is utterly misconceived.

"The idea of buying bank’s illiquid assets sounds good in theory. But it won’t solve the main issue – namely, the banks have very little capital to lend anyway, even if their sub-prime losses disappear.

"Congress should be approving a direct recapitalisation of US banks – as the Swedish government was forced to back in the mid-1990s – rather than messing about with TARP. I fear that’s eventually what will happen. So this bailout is only round one."

CARTER DOUGHERTY, at The New York Times, September 22, 2008, tells us:

How Sweden Solved Its Bank Crisis - NYTimes.com

Sweden's government took over the banks' bad debts.

But the banks's shareholders had to suffer.

Banks had to write down losses and issue warrants (shares) to the government, making the government an owner.

When assets were sold, the profits went to taxpayers.

And the government was later able to sell its shares in the banks.

Sweden spent 4 % of its gross domestic product to rescue ailing banks.

That is slightly less than the roughly 5% of gross domestic product, that the Bush administration estimates its own move will cost in the United States.

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