Comments on: Did Sweden really nationalize its banks?

By: Russ

Russ — Thu, 26 Feb 2009 17:41:41 +0000

Wondering how much CDS exposure the Swedish banks had at the time of their crisis.

By: Edward Harrison

Edward Harrison — Thu, 26 Feb 2009 17:11:27 +0000

thanks for all of your comments. Just to be clear, we are all pointing out that Sweden did not nationalize its entire banking system but rather forced banks to write down assets and stick them in a bad bank. As a few of these banks were so undercapitalized due to the writedowns, they were forced into the hands of the state.

In my view, some variant of this type of exercise needs to occur in the U.S. – the key being writing the assets down and separating them from the remaining asset base. I would even see a capital injection instead of pre-privatization or liquidation as warranted — as long as it comes after a quid pro quo of writedowns and separation of assets is met.

Ultimately the purpose is to have well-capitalized financial institutions which can lend with confidence.

I have argued this line for many months (http://www.creditwritedowns.com/2008/09/i-was-wrong-heres-my-new-plan.html). Clearly, the U.S. government wants to head down a different path. In my view, the Swedish solution works even if the assets are artificially depressed in price as the Peterson article demonstrates.

By: Anonymous

Anonymous — Thu, 26 Feb 2009 16:58:09 +0000

Nationalization did occur, just not of the whole sector. There was a state-owned bank called Post- och Kreditbanken. PK Banken took over two large private banks, Nordbanken and Götabanken. PK Banken changed its name to Nordbanken. The bad assets that the PK banken absorbed were eventually spun off in a bad bank called Securum. Nordbanken changed its name to Nordea when it gobbled up the biggest bank in Finland, Merita bank (itself a merger of troubled Finnish banks). At that point the Swedish government’s stake was diluted to the point privatization occurred by default, though even after selling stock over the years the Swedish state still retains 20% of the stocks.

By: aitrader

aitrader — Thu, 26 Feb 2009 11:41:43 +0000

Sweden did not nationalize its banks. It nationalized *one bank* and this only as a knee-jerk reaction after shopping it around and no buyers appeared. The single nationalized bank was the old Nordbanken bank. None of the other several dozen odd banks were nationalized, though several went bust.

Leif Pagrotsky, a Swedish politician, wrote this piece describing what actually did happen http://www.eurointelligence.com/article.581+M5b55b38d58a.0.html .

Finally someone is outing the real story and killing the urban legend that is getting so much airtime in the MSM.

By: Swedish Lex

Swedish Lex — Thu, 26 Feb 2009 08:10:09 +0000

I spent two years of my early professional life working 24/7 on the bailuot as an associate with a law firm, however in the phase preceding the one discussed by Anders Åslund. For two years, we tried to fix the holes in the dikes with ad hoc and tailor-made solutions for each corporate crisis. Despite all the efforts, there were more holes in the dikes all the time and they were getting bigger and bigger.

The regulatory framework to deal with these situations was non-existent. Once the systemic meltdown was staring everybody in the face, the Government stepped in with wholly new legislation and a new, comprehensive, approach. Nationalisation was one tool in the box. But the most important achievement was that the state intervention created a coherent approach and clear rules for the markets.

Trying to sell big assets in a falling market, AIG style, is just silly.

By: greenlander1

greenlander1 — Thu, 26 Feb 2009 07:33:15 +0000

“It had outside, mainly foreign, consultants to scrutinize all bank debts and establish objectively which were nonperforming. The banks were forced to write off their bad debts and transfer them to bad banks.”

I wonder, although I like the directness of the Swedish solution, how applicable it is. I dont think they had nearly a severe situation as the one here in the States or for that matter, around the world. There are a lot of banks that if forced to write off their bad loans, would be effectively bankrupt bc so much of their equity had been swallowed by these bad loans. If they dont, bc of the bad loans they could go bankrupt as their equity gets eaten away. Writing off bad loans doesnt remove the fact a bank could have negative equity. Lending money has to come from somewhere.