Posted on 09/20/2008 10:57:31 AM PDT by WesternCulture
The US debt rescue plan has sought inspiration from the work to tackle the Swedish banking crisis at the beginning of the 1990s.
"I have been in the USA several times this year to explain what we did," said Bo Lundgren at the Swedish National Debt Office.
"There can be significant similarities," Lundgren added.
Lundgren was finance minister in the 1991 right-wing government and, together with current and former Riksbank heads Stefan Ingves and Urban Bäckström, was the architect behind the bank support committee (Bankstödsnämnden or Bankakuten) which did much to alleviate the crisis that raged in the Swedish banking system from 1990-94.
Several years of hysterical property and commodity speculation in the 1980s plunged Sweden into its worst financial crisis since the 1930s.
"There are significant similarities between the current American financial crisis and our own financial crisis at the beginning of the 1990s. It concerns a finance and property bubble that has lead to large losses in the the banking sector."
Lundgren argues, like the US president George Bush, that governments have a major part to play in such exceptional situations, adding that there is a good chance of reclaiming the money.
"The sums that we had to cover amounted to 60 billion kronor ($9.83 billion). But together with the resurrection of Nordbanken meant that by 1997 the outlay had been more than halved by reclamations," said Lundgren.
"And since then the state has probably been reimbursed all of the money. The money went primarily to Nordbanken and Gota Bank, which later merged, and to the liquidation firms Securum and Retriva.
Securum and Retriva's task was to take care of all the bad debt held by Nordbanken and Gota Bank.
The US treasury is reported by the BBC to be preparing a $800 billion fund to buy back a large proportion of US mortgage market debt. The intention is to store the debt in one organisation on behalf of the taxpayer until such time as they can be sold off.
Good post!
Nothing is exactly the same but there are definitely similarities between the Swedish crisis of the 90s and the present financial turmoil.
Useful article and it is good to see that it can work.
Essentially The Govt becomes a holding Co.
The living standard of Scandinavia outperforms everything ANY other country could come up with.
For instance, a car like the Volvo V70 or the SAAB 9-5 is an AVERAGE car in Sweden and whether it's because of high taxes and “Socialism” or not, poverty is extinct in all of the Nordic countries.
Personally, I'm Swedish and hate traditional Swedish Socialism, but have run several businesses of my own (although none of them were especially successful:D)
Scandinavia is a blessing to the spirit of entrepreneurship and Capitalist endeavor and that's EXACTLY why we tower above most other nations in terms of GDP/capita.
I hate taxes and I admit we Northmen overtax ourselves, but taxes hasn't exactly prevented a man like Kamprad (founder and sole owner of IKEA) from becoming one of the richest guys on Earth.
Viking culture is alive and kicking.
That's the best part.
Except for the extremely high suicide rate and the hourglass shape of the economy (many very small businesses and large businesses, no middle-sized ones).
At any rate, while Sweden’s example is nice, it is only a nation of 8 million people and like every other place in the world absorbs most of its productivity gains from technology developed in the US.
That being said, we do have something to learn not only from the swedes but from the S&L crisis of the late 80’s.
The government should recoup a great deal of the estimated 700 billion dollar bailout by auctioning off assets just like it did during the S&L crisis.
How much they lose though will depend on the value of those bad loans, something which noone seems to have a good grip on yet.
What did we learn? NOT A DAMN THING!
If we had learned anything we never would have gotten into the same situation.
- So, we are friends now?:D
Seriously speaking, Lundgren isn't that very charismatic perhaps, but my impression is that he is rather competent in the area of economics.
There, certainly, are major differences in the respective economic systems/financial models of countries like Sweden, USA, France, Russia etc, but blind staring at cold numbers à la Bo Lundgren perhaps is the cure to the problems all of them are facing.
Again, the financial strength of the Nordic countries of today isn't sheer coincidence.
People from our corner of the world have, more or less always, been competent businessmen.
We can not instruct large nations like the US on what to do, but we could inspire them and enjoy fruitful interaction with the Germans, Britons and Americans.
“What did we learn? NOT A DAMN THING!
If we had learned anything we never would have gotten into the same situation.”
- Much to be said here.
Recessions seem unavoidable.
The point here is that a (small) country like Sweden has been a world leader in terms of economic growth ever since the 1870’s and that this, at least to some extent, is dependent on the fact that Sweden always has employed the competence of its most qualified economists in the area of national economic policy.
In many other countries, politicians have been making decisions in these areas..
As long as a property in a formerly "hot" market is not in need of being condemed and torn down, I suspect something around 25 cents on the dollar but that's just for an individual property within a bundle of mortgage backed securities.
I say this because if Lehman is holding a particular mortgage backed security they cannot get off their books, they probably purchased it from Fannie/Freddie circa 2006, Fannie/Freddie purchased it from a bank circa 2005 which is generally when a lot of "hot" real estate markets were peaking.
When you look into those "hot" markets most saw appreciations from 2000 to 2005 of about 200% so, in determining "true" value, look at year 2000 prices for a particular area that was formerly classified as a "hot" market.
That having been said, consider a hypothetical bundle of mortgage backed securities consisting of just two mortgages, one mortgage being a $250K home in Orlando, Florida and the other being a $250 home in Rapid City, South Dakota. The Orlando market was certainly "hot" but the Rapid City, SD market did not participate in the great real estate party. In determining a value for the security, the Orlando property may need to be discounted by 75% but the Rapid City property may be close to the real value for homes in Rapid City causing the security to have a true value of something in the range of 60 cents on the dollar. Simplistic but I think you can get the point.
>Recessions seem unavoidable.
The point here is that a (small) country like Sweden has been a world leader in terms of economic growth ever since the 1870’s and that this, at least to some extent, is dependent on the fact that Sweden always has employed the competence of its most qualified economists in the area of national economic policy.<
What percentage of Swiss people live off a government housing, food, medical, whatever social program?
“What percentage of Swiss people live off a government housing, food, medical, whatever social program?”
- The explanation behind Swiss/Swedish/American prosperity is not our respective governments or different welfare programs in the first place.
Sweden, Switzerland and the US are nations where Capitalism is the name of the game and there is a widespread belief in hard work as well as a widespread interest for economic issues at large.
Countries like Norway, USA and Ireland deserve to be rich, primarily because these nations dare to compete and house inhabitants who wish to know what reality is like.
>there is a widespread belief in hard work<
Those days are gone.
Correction: there was a widespread belief in hard work .....
>as well as a widespread interest for economic issues at large.<
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I think half of our subprime bubble collapse was caused by whichever group determined that importing 30 million illegal aliens into America was an absolute necessity for our economy.
To keep them here, these corrupt legislators (from BOTH parties) approved more idiotic social engineering programs than ever before. Just three of these programs was the (1)liars loans which qualified waiters and waitresses for 3000 square foot homes using (2)ARM loans and a (3)prepaid downpayment by Fannie Mae.
The new home construction industry took off like a rocket and it didn’t stop until we ran out of easy credit.
As long as a property in a formerly "hot" market is not in need of being condemed and torn down, I suspect something around 25 cents on the dollar. . ."
I suppose Treasury is paying about 30 cents on the dollar for all this stuff. So there is lots of room for profit on resale. We're talking good mortgages as well as maybe 20-30% default rate when it's over?
yitbos
There was an interesting paper that compared Western European living standards with those of the US and came to the conclusion most Western European nations would rank about with Mississippi when purchasing and living standards were considered.
“There was an interesting paper that compared Western European living standards with those of the US and came to the conclusion most Western European nations would rank about with Mississippi when purchasing and living standards were considered.”
- Large parts of Europe are poorer than the US.
On the other hand, the kind of poverty that exists in most parts of America does not exist in Western Europe.
You don’t find people living in trailer parks in Western Europe.
On the other hand, average American families live in nicer houses and own more and bigger cars than their Western European counterparts.
There are certain European countries that are richer than the US, but most European countries are not.
The European countries that actually are richer than the US (measured in nominal GDP/capita according to the IMF) are:
Norway
Switzerland
Finland
Luxembourg
Sweden
Denmark
The Netherlands
Iceland
Ireland
Comparing GDP figures is easy, while comparing things like standards of living is trifle more difficult.
- Do we Swedes enjoy a higher standard of living than the Americans because we drive more expensive cars than the Americans do, or does the US win that particular race because Americans drive larger vehicles than we do?
- Is it correct to say Danes and Norwegians enjoy a higher standard of living than we Swedes do because their salaries are higher or does our superior building standards and all of our nice summer houses in the countryside mean Swedes live better than our Scandinavian neighbors do?
...and the US will learn all the wrong lessons from the previous crisis.
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