IT'S A LOAN, VIOLET:

US learns lessons from Swedish banking crisis (Bo Lundgren, 20 Sep 08)

[Bo Lundgren at the Swedish National Debt Office] 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. "

Shock Forced Paulson's Hand: A Black Wednesday on Credit Markets; 'Heaven Help Us All' (DEBORAH SOLOMON, LIZ RAPPAPORT, DAMIAN PALETTA and JON HILSENRATH, 9/20/08, Wall Street Journal)
Huddled in his office Wednesday with top advisers, Treasury Secretary Henry Paulson watched his financial-data terminal with alarm as one market after another began go haywire. Investors were fleeing money-market mutual funds, long considered ultra-safe. The market froze for the short-term loans that banks rely on to fund their day-to-day business. Without such mechanisms, the economy would grind to a halt. Companies would be unable to fund their daily operations. Soon, consumers would panic.

For at least a month, Mr. Paulson and Treasury officials had discussed the option of jump-starting markets by having the government absorb the rotten assets -- mainly financial instruments tied to subprime mortgages -- at the heart of the crisis. The concept, dubbed Balance Sheet Relief, was seen at Treasury as a blunt instrument, something to be used in only the direst of circumstances.
If markets were rational a sharp instrument might work, though it's doubtful even rational bureaucrats could figure out how to use it effectively.

MORE:
WWRD... What Would Roosevelt Do? (Richard Reeves, 9/20/08, Real Clear Politics)

When the capitalists go too far, the government, at least in the most capitalist of countries, the United States, bails them out and tells them not to do it that way again.

Then whoever is in charge of the government looks for a bracelet with the letters "WWRD." "What Would Roosevelt Do?"

Hopefully not, since FDR exacerbated and prolonged the Depression, which is only known as "Great" here.

Posted by Orrin Judd at September 20, 2008 8:26 AM