FUCK THE POLICE
911 EVERY DAY
http://www.guardian.co.uk/business/feedarticle/7820460
By Simon Johnson
STOCKHOLM, Sept 22 (Reuters) - A bailout of the U.S. financial system looks likely to follow a model adopted by Sweden in the 1990s -- and if history is anything to go by that suggests high costs and a painful recovery process.
Sweden's tough action got its banks through the crisis and avoided the worst of the later sub-prime shock and credit crunch. A simultaneous overhaul of fiscal and monetary policy helped stifle inflation and foster economic stability.
"In the U.S. they have been influenced quite a bit by how we handled the banking crisis," said Lars Calmfors, professor of international economics at the University of Stockholm.
"The way I interpret it, the way Sweden did it stands as a model for the ideas that are being put forward in the United States."
In the early 1990s Swedish banks were riding high after deregulation. But a huge surge in lending, mainly for property, poisoned the financial system when the real estate bubble burst.
Loan losses for banks mounted, asset prices slumped and a liquidity crunch forced Sweden to nationalise parts of the financial sector, guarantee deposits and bail out shaky lenders.
Similar programmes were undertaken by other Nordic states.
The policy did not come cheap. Analysts estimate the cost was about 2.1 percent of Sweden's gross domestic product. Sweden's economy went into recession for three years. Bank shareholders lost almost all their money.
Yet it could have been worse had the government not acted.
"The Scandinavian experience shows that, when financial markets become highly dysfunctional, traditional policy measures such as monetary and fiscal easing are not sufficient to turn the situation around," JP Morgan said in a note.
State-run institutions set up to deal with Swedish banks' unwanted assets were able take a long-term view, avoiding a fire-sale that would have added to the taxpayers' bill.
POLICY FRAMEWORK
Of the 70 billion crowns ($10.7 billion) the government pumped into the banking system, it recovered about half from asset sales. The state still holds a $7 billion stake in Nordea , the Nordic region's biggest bank.
The economy rebounded relatively quickly and entered the current downturn in better shape than many European peers.
In a move similar to that taken in Sweden, U.S. authorities have put forward legislation that would authorise the Treasury to buy as much as $700 billion in bad assets to be sold later.
This comes on top of a rescue of American International Group and the takeover of housing finance firms Fannie Mae and Freddie Mac.
But a bailout may not be enough.
U.S. policy makers might also have to pay more attention in future to the country's fiscal and monetary framework. Sweden's focus there was seen as a vital part of its success story.
Spurred by the crisis and rising debts, the Swedish government embarked on a policy of fiscal stringency, with the goal of a budget surplus over the business cycle. The central bank was given more independence and set a specific inflation target.
"It was quite important to create this kind of economic policy framework to regain credibility for fiscal and monetary policy and I think that is quite important for the United States," said Robert Bergqvist, chief economist at Swedish banking group SEB.
Sweden's government now runs a healthy surplus and has the ammunition for pump-priming to counter the effects of the global downturn. Inflation, in double digits through much of the 1980s, has been kept under tight control.
The banks also appear to have taken the lessons of the early 1990s to heart and emerged relatively unscathed from the subprime crisis and the following credit crunch.
NO MIRACLE
While Sweden can provide a roadmap, the scale and complexity of the problems faced across the Atlantic complicate the U.S. rescue plan.
Sweden has a long tradition of central control, while U.S. politicians are likely to find agreement more difficult.
Assets taken over by Swedish government were relatively easy to administer and sell, while a devaluation and a recovery in the global economy helped the country return to growth.
The financial instruments at the heart of the U.S. problems are far more complex and the consequences of authorities' actions likely to shape the global economy.
One lesson the Nordic banking crisis can impart is that rapid, comprehensive and prudent action can mitigate the effects of a crisis in the longer term. But it has a more gloomy point to make about short-term developments.
"The other striking lesson is that despite extensive policy support, all three (Nordic) economies experienced deep recessions," JP Morgan added. (Editing by David Holmes)
By Simon Johnson
STOCKHOLM, Sept 22 (Reuters) - A bailout of the U.S. financial system looks likely to follow a model adopted by Sweden in the 1990s -- and if history is anything to go by that suggests high costs and a painful recovery process.
Sweden's tough action got its banks through the crisis and avoided the worst of the later sub-prime shock and credit crunch. A simultaneous overhaul of fiscal and monetary policy helped stifle inflation and foster economic stability.
"In the U.S. they have been influenced quite a bit by how we handled the banking crisis," said Lars Calmfors, professor of international economics at the University of Stockholm.
"The way I interpret it, the way Sweden did it stands as a model for the ideas that are being put forward in the United States."
In the early 1990s Swedish banks were riding high after deregulation. But a huge surge in lending, mainly for property, poisoned the financial system when the real estate bubble burst.
Loan losses for banks mounted, asset prices slumped and a liquidity crunch forced Sweden to nationalise parts of the financial sector, guarantee deposits and bail out shaky lenders.
Similar programmes were undertaken by other Nordic states.
The policy did not come cheap. Analysts estimate the cost was about 2.1 percent of Sweden's gross domestic product. Sweden's economy went into recession for three years. Bank shareholders lost almost all their money.
Yet it could have been worse had the government not acted.
"The Scandinavian experience shows that, when financial markets become highly dysfunctional, traditional policy measures such as monetary and fiscal easing are not sufficient to turn the situation around," JP Morgan said in a note.
State-run institutions set up to deal with Swedish banks' unwanted assets were able take a long-term view, avoiding a fire-sale that would have added to the taxpayers' bill.
POLICY FRAMEWORK
Of the 70 billion crowns ($10.7 billion) the government pumped into the banking system, it recovered about half from asset sales. The state still holds a $7 billion stake in Nordea , the Nordic region's biggest bank.
The economy rebounded relatively quickly and entered the current downturn in better shape than many European peers.
In a move similar to that taken in Sweden, U.S. authorities have put forward legislation that would authorise the Treasury to buy as much as $700 billion in bad assets to be sold later.
This comes on top of a rescue of American International Group and the takeover of housing finance firms Fannie Mae and Freddie Mac.
But a bailout may not be enough.
U.S. policy makers might also have to pay more attention in future to the country's fiscal and monetary framework. Sweden's focus there was seen as a vital part of its success story.
Spurred by the crisis and rising debts, the Swedish government embarked on a policy of fiscal stringency, with the goal of a budget surplus over the business cycle. The central bank was given more independence and set a specific inflation target.
"It was quite important to create this kind of economic policy framework to regain credibility for fiscal and monetary policy and I think that is quite important for the United States," said Robert Bergqvist, chief economist at Swedish banking group SEB.
Sweden's government now runs a healthy surplus and has the ammunition for pump-priming to counter the effects of the global downturn. Inflation, in double digits through much of the 1980s, has been kept under tight control.
The banks also appear to have taken the lessons of the early 1990s to heart and emerged relatively unscathed from the subprime crisis and the following credit crunch.
NO MIRACLE
While Sweden can provide a roadmap, the scale and complexity of the problems faced across the Atlantic complicate the U.S. rescue plan.
Sweden has a long tradition of central control, while U.S. politicians are likely to find agreement more difficult.
Assets taken over by Swedish government were relatively easy to administer and sell, while a devaluation and a recovery in the global economy helped the country return to growth.
The financial instruments at the heart of the U.S. problems are far more complex and the consequences of authorities' actions likely to shape the global economy.
One lesson the Nordic banking crisis can impart is that rapid, comprehensive and prudent action can mitigate the effects of a crisis in the longer term. But it has a more gloomy point to make about short-term developments.
"The other striking lesson is that despite extensive policy support, all three (Nordic) economies experienced deep recessions," JP Morgan added. (Editing by David Holmes)
