The "Swedish Model": How to Fix the Economy

"As respected economist, Nouriel Roubini pointed out, in almost every case of recent banking crises in which emergency action was needed to save the financial system, the most economical (to taxpayers) method was to have the Government, as in Sweden or Finland in the early 1990’s, nationalize the troubled banks, take over their management and assets, and inject public capital to recapitalize the banks to allow them to continue doing business, lending to normal clients. In the Swedish case, the Government held the assets, mostly real estate, for several years until the economy again improved at which point they could sell them onto the market and the banks could gradually buy the state ownership shares back into private hands. In the Swedish case the end cost to taxpayers was estimated to have been almost nil. The state never did as Paulson proposed, to buy the toxic waste of the banks, leaving them to get off free from their follies of securitization and speculation abuses.

Serious bankers I know who went through the Scandinavian crisis of the 1990’s are scratching their head trying to imagine how crass the Paulson TARP scheme is, an obvious bailout of Wall Street by the taxpayers, what some refer to as ‘Bankers’ Socialism: socialize the costs of failure onto the public, and privatize the profits to the bankers.

‘The Paulson plan is unworkable,’ noted Stephen Lewis, chief economist with the London-based Monument Securities. ‘No one has an idea how to set a price on these toxic securities held by the banks, and in the present market a lot of them likely would be marked to zero.’ Lewis like many others who have examined the example of the temporary Swedish bank nationalization, called Securum, during their real estate collapse in the early 1990’s, stresses that ultimately only a similar solution would be able to resolve the crisis with a minimum of taxpayer cost. ‘The US authorities know very well the Swedish model, but it seems in the US nationalization is a dirty word.’

Power and greed are the only visible juice driving the decision-makers in Washington today. Acting in the long-range US national interest seems to have gotten lost in the scramble. It is what happens when elected Governments abandon their public trust or responsibility to a cabal of private financial interests. It will be interesting to see if anyone in Washington realizes that lesson. Whatever next comes out of Washington, however, one thing is clear, as reflected in what German Finance Minister Peer Steinbrück told the Bundestag. This is the end of the world as we knew it. The American financial Superpower is gone. The only important question will be what and how will the alternative be.”

- http://www.engdahl.oilgeopolitics.net

This, of course, means nationalization of the privately owned Federal Reserve System...