Learning From Others: The Swedish Experience

If you aren't crazy about the proposed bailout of Wall Street (you'd be in the majority, by the way), then learn how Sweden recovered from a similar housing-related financial crisis in 1992.

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.

Yes, Sweden is smaller than the US, but the relative sizes are complementary. Sweden invested 4% of its gross domestic product (GDP); the final cost was half that (or less, depending on who's doing the counting). The Bush Bailout, at $700 trillion, is about 5% of our GDP.

On Monday, Rasmussen reported that only 28% of us supported the Bush Bailout. We'll see if the President's address last night boosted those numbers; my gut feeling is "no" -- I didn't think he was particularly persuasive, although he did mention executive pay caps, quite a concession.

The speech was full of euphemisms -- "America could slip into a financial panic and a distressing scenario would unfold." "Distressing scenario" -- who came up with that one? No plain talk, give 'em hell Harry here.

In some markets, home value depreciation began in 2005. The response from the mortgage sector: qualify more questionable loans. Those decisions weren't made by the people applying for loans, but by the people handing them out like cupcakes and then reselling them to the rapacious maw called Wall Street.

The seeds of this problem were sown in the early part of the decade, right after Bush took office. Notice no one in the Administration is talking about the 2003 accounting scandal at Freddie Mac or the 2004 scandal at Fannie Mae that led to record fines and sacked executives. Or bipartisan 2002 effort to require Freddie Mac and Fannie Mae to meet the same reporting requirements (disclosure) as other Fortune 500 companies. That's because the Republican-run Congress and White House ignored those neon yellow flags.

I still don't understand why it took Bush so long to actually speak on the record. Or why he did so from Texas.

But it sure would have been nice for Treasury to explore "lessons learned" and "best practices" from other economies in similar bind. (Those are industry buzz words, by the way.) I mean, it's not as though they whipped up their plan overnight. From Tuesday's Roll Call: White House Deputy Press Secretary Tony Fratto "insisted that the plan was not slapped together and had been drawn up as a contingency over previous months and weeks by administration officials. He acknowledged lawmakers were getting only days to peruse it, but he said this should be enough."

After all, Bo Lundgren, who was Sweden’s finance minister during their crisis, was making the rounds in New York earlier this month.