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Friday, March 13, 2009

 

congress talking to sweden


gillian tett in the ft -- a piece more interesting for the views of some swedish officials who participated in the resolution of that country's banking crisis in the 1990s than for the appeal of the model. this is the congressional oversight panel inviting in the swedes, after all, and not tim geithner or larry summers.

... [T]he more serious criticism lies with what is not being done. While Stockholm was nationalising two banks in the early 1990s, it also offered a blanket guarantee to any investor holding any Swedish bank liabilities (except for shares or subordinated debt). These days, that measure is not well known outside Sweden. But many Swedish officials and bankers consider that guarantee to have been the most crucial decision of all.

“To restore confidence it is very important to extend a guarantee to bank creditors,” says Mr Lundgren. “Even if you don’t issue a blanket guarantee, there have to be measures that assure creditors that they will not have to take losses, otherwise you just get more uncertainty . . . and it is very hard to get confidence back and to get stability.”

Thus far, that part of the Swedish package has been shunned. The UK and US have introduced schemes to guarantee some new bank debt, for a fee. But outstanding debt is being treated in a variety of ways. At Bear, creditors were saved, at Lehman Brothers, they were wiped out, while at WaMu the fate of covered bonds was initially unclear. Even today the fate of some Northern Rock debt remains contested. No wonder investors are nervous.

The Americans and British seem unlikely to change this situation soon, since they fear that extending a Swedish-style blanket guarantee would cost too much (or look too “socialist”). That is not surprising. Whereas Sweden had just five banks holding easy-to-analyse toxic property loans, the US has hundreds of banks, with complex, opaque products.

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Again they fail to recognise the main difference, it's not in the size or content of the bad banks but in the political structure supposedly in charge. That's the real reason why uk, us will never walk down the swedish path unless forced to do so. There's a lot of things wrong in my country but we would never have allowed someone like paulson or geithner (spelling?) to play a role in a crisis such as this one.

 
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i have to say, b, the persistent and ongoing scandalous hubris with which the likes of AIG, merrill/BoA and others are continuing to operate with -- and with the complicity of first paulson and then geithner and summers -- lends much weight to the argument that american democracy has devolved into a predator state. i was interested to see finally the emergence of some reckoning with this reality -- a reality a great many americans would attack someone for daring even to suggest, and many more view warily -- in the new york times.

 
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