What the Swedes did and did not do

by on January 18, 2009 at 7:40 am in History | Permalink

Kevin Drum reports:

First off, here's what they didn't do:
  • They didn't act all that quickly. The real
    estate crash and the resulting credit losses began in late 1990,
    solvency problems started to become acute in late 1991, and a variety
    of treasury guarantees and capital injections were tried for another
    year after that. (Sound familiar?) It wasn't until late 1992 that the
    Swedish government finally took serious, systemic action.

  • They didn't nationalize the banking system.
    Only one bank, Gota, was taken over, and that happened only after it
    had collapsed. And aside from Gota, only one bank received a
    substantial amount of capital injection: the state bank, Nordbanken,
    which had much bigger problems than most of the private banks.

  • Generally speaking, they didn't fire existing bank management.

So what did the Swedes do? The main thing was
simple: in late 1992 the Swedish government guaranteed all bank
obligations throughout the system. They did this immediately for Gota
after its collapse, and two weeks later for everyone else.

What else? Not too much, actually. An agency was formed to dig into
the portfolios of nearly every major bank, and this resulted in a
capital requirement guarantee for one bank that was never used. In
addition, the shareholders of Gota and Nordbanken were mostly wiped out.

Keep that all in mind the next time it is recommended that we mimic the Swedish model.

Addendum: Interfluidity comments and in part dissents.  And Kevin replies.

aaron January 18, 2009 at 12:02 pm

Wow. Down right sane.

fs January 18, 2009 at 2:25 pm

I think that also the relatively recently incorporated (from the earlier trustee type of management) ex-savings banks were saved. As is happening again – It’s called Swedbank these days.

A beautiful irony – the head of that bank, a former politician cum official, wrote a book about the un-led (master-less, literlly) industrial society. He shoudl’ve worried about the bank, instead.

Barry Kelly January 18, 2009 at 5:59 pm

Beware of bias confirmation, Tyler. You run the risk of only looking for evidence that backs up your assumptions and accepting them on face value – a symptom of shoddy thinking that seems to have been far too prevalent for the past few years in people thinking about the economy.

Did you honestly think that people pointing to the Nordic approach had the wrong idea about it the moment you saw someone voice your preconceptions?

For example, Kevin’s post is debunked on Interfluidity by Steve Waldman.

Tyler Cowen January 18, 2009 at 7:00 pm
Massimo GIANNINI - M.G. in Progress January 21, 2009 at 6:01 am

I know that most people do not like him, but…
Read the 10 Planks of The Communist Manifesto written by Karl Marx in 1848 and forget about Swedish model…

Plank N° 5. Centralization of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly.

Perhaps we can discuss centralization and exclusive monopoly levels…but it appears that Marx was eventually right…
M.G. in Progress

Comments on this entry are closed.

Previous post:

Next post: