Swedish bailout

Sweden has experience in financial rescue plans (bailouts).

Sweden, which created a model for rescuing troubled financial systems in the early 1990s, became the latest European economy to introduce a sweeping bailout plan to support its banks. Under the Swedish plan, the state could guarantee some $200 billion in bank debt – half the nation's gross domestic product. It also will create a facility to inject capital into banks that get into trouble. Finance Minister Anders Borg said in an interview that he expects all of Sweden's banks to take advantage of the guarantee, though bankers said it was too early to say what they would do.

50% of GDP is a staggering figure, at first.

The CIA World Factbook has Swedish GDP as $338.5 Billion for 2007 (purchasing power parity; $455.3 billion in official exchange rate). The figures for the US are $13.78 trillion and $13.84 trillion.

On reflection, though, 50% of the US's GDP would be about $6.5 trillion. Begin with the monies used to rescue Fannie Mae and Freddie Mac (over a trillion, one and a half?), add $130-plus billion for AIG, $700 billion for the bank bailout, and that adds up to 2.3 trillion. That would seem just the beginning. Indeed, add $540 billion of aid to the mutual fund industry.

There are uh-ohs all over the map here. In Sweden, the first uh-oh is that pony tail on Minister Borg. What is up with that?

Swedish Finance Minister Anders Borg, left, and Swedish Capital Market Minister Mats Odell speak at a press conference. Mr. Borg said he expects all of Sweden's banks to take advantage of the bailout plan.

Interestingly, Sweden has both a Finance Minister and a Capital Markets Minister.

Mr. Borg and other Swedish officials said the measures aimed to restore confidence, and weren't a reflection that any institution was in immediate peril. There was also an element of peer pressure, the officials said; they didn't want to leave the Swedish banks without government support while competitors in other nations accepted helping hands.

"Everybody should be doing this," said Mr. Borg, urging other countries to stand behind banks because the more they did so, the more credible Europe's determination to stanch the financial crisis would be.

Bush and Paulson and Bernanke were too late in acting. Better to act early.

Sweden has faced financial crisis before. After a long period of low interest rates and lax supervision led to a surfeit of questionable loans, Swedish property prices plunged in the early 1990s and five of its seven biggest banks sought capital injections. Sweden guaranteed its entire banking system, insuring creditors and depositors – but not shareholders – against losses and eventually doled out state aid then equivalent to 4% of the nation's GDP.

Swedish authorities used the old laws from its 1990s financial crisis as a template for Monday's plan. "We learned then that the pillars of any solution are, first, to restore confidence in the financial sector, and second, to recapitalize the banks, if needed, to minimize the credit crunch," says Bo Lundgren, who now manages Sweden's debt agency, which will administer several portions of the new bailout package. Mr. Lundgren was minister for fiscal and financial affairs during the prior crisis. "These two things you have to do if you want to minimize the eventual cost to the taxpayers."

Of course, they're socialists, no? Utter nonsense.

Analysts and officials argue that Sweden's 1990s plan made the country's economy and banking system more resilient. Swedish banks, for instance, largely skirted the U.S. subprime-related investments that started the current turmoil, thanks to stricter in-house management and supervisors' sensitivity to portfolios that were heavy on risky bets.

Strict management and supervision: what magnificent ideas. Practical, too.

The crisis is redefining our leaders

This from the Financial Times of London: a month and a half ago Gordon Brown looked as if would go up in flames, now he is the rock that not only steadid Britain's economy, but prodded, and gave a role model to, Europe; while McCain flails and Bush drowns, Obama remians calm and presidential.

If Monday’s market rally really does signal a turning point in the global financial crisis, the world will hail an improbable saviour. Step forward Gordon Brown, Britain’s gloomy prime minister. Until the crisis struck, the conventional wisdom was that Mr Brown was a tragic-comic figure: a man who had desperately wanted to be prime minister, but had proved hopelessly unfitted to the task.

Europeans bourses (stock markets for the bitter, uninformed ones) rallied strongly; the Dow Jones average is up 707 points as of 3.30pm. So, yes, thus far the markets are voting with a sigh of relief and a dash of optimism that the authorities have finally braked the nosedive and righted the ship's course (to mix metaphors).

The emergency European summit in Paris over the weekend saw the 15 members of the European single currency area adopt bank rescue plans that look strikingly like the British initiative. British officials, who have often been told that in a big economic crisis they would be tugged along hopelessly in the wake of the eurozone, are enjoying their moment of vindication.

And the US is about to act as well. It seems that the Brown model might well be the American plan as well.

Crises define politicians. The contrasting fortunes of Mr Brown and President George W. Bush illustrate the point. In normal times, Mr Brown often seems indecisive, gloomy and robotic. In normal times, Mr Bush seems chipper, decisive and a regular guy. But, in a crisis, both men’s manners are transformed – one for the better and one for the worse. Mr Brown suddenly looks calm, determined and in control. Mr Bush has an unfortunate tendency to look panicky and out of his depth.

W looks as if he'd rather be at the ranch. His pronouncements are laughable and irrelevant. When it came to posturing, W was ready; but in crises, he stumbles: witness Katrina, and now the financial panic.

The current financial crisis seems to have actually cheered Mr Brown up. When a mobile phone rang during a speech he was giving late last week, the prime minister made a rare spontaneous joke, speculating about whether this was news of yet another collapsing bank. This kind of joke sounds like the height of bad taste. But somehow it worked. Gallows humour becomes Mr Brown. And besides, his audience had some confidence that he had a handle on the situation.

That's a good one. Brown was Chancellor of the Exchequer. In contrast, W was a governor and part owner of a baseball team, neither of which roles did anything to prepare him for the presidency, clearly.

Mr Bush’s presidency may also be defined by his reaction to crises – but in a bad way. In the immediate aftermath of the terrorist attacks on New York and Washington, he disappeared, albeit on secret service advice. He later recovered and gave some fine speeches. But Mr Bush’s hopelessly out-of-touch performance during hurricane Katrina cemented his reputation for incompetence. “Brownie, you’re doing a heck of a job” – the remark he directed to the hapless head of the federal government’s disaster relief effort – looked like it might be the defining remark of his time in office.

What a putz.

But it now has a close competitor. The president’s reported comment that “this sucker could go down” was the only memorable thing he has said throughout the entire financial crisis. Unfortunately, it made him sound like a Texan on the bridge of the Titanic. Compare and contrast with Roosevelt’s: “The only thing we have to fear is fear itself.”

He looks as if he doesn't know what he's doing, and, worse, doesn't much care. Same snide look, same stupid grin. And: what are the preliminary verdicts on the other political actors?

Peer Steinbrück, the German finance minister, wins a special booby prize for premature triumphalism. Suggesting last month that “the crisis originated in the US and is mainly hitting the US” was tempting fate. Angela Merkel, the German chancellor, has also not covered herself in glory. Appealing for a European response and then announcing unilateral German measures made her look inconsistent – to put it politely. By contrast, Nicolas Sarkozy has done well. “Reassuring” is not a word that generally applies to the hyperactive French president. But Mr Sarkozy has looked energetic and determined.

The Germans, particularly Steinbrück, have come off as selfish. Sarko has acquitted himself very well: he has looked decisive, determined, in control.

Paulson Doctrine will save economy - for Obama

One piece of good news amidst an avalanche of bad news.

Two words for anybody who criticizes Treasury Secretary Henry "Hank" Paulson's handling of the great Wall Street massacre this week: Paul O'Neill. Or how about: John Snow.

For all his flip-flopping between bailing out Bear Stearns, letting Lehman Brothers collapse, then seizing control of American International Group two days later, there is nobody better equipped right now to save Wall Street from itself than the former head of Goldman Sachs .

And that certainly includes the two former Treasury secretaries, who there but for the grace of the bumbling Bush administration might still be presiding over this mess instead of Paulson, who understands how banks and investment banks are supposed to work.

Like with the infamous Bush Doctrine before it, there are several ways to describe what is emerging as the Paulson Doctrine for rescuing the global financial industry, which is good news for Sarah Palin.

If either of those two bozos was in charge, o, boy!

...two things that are certain. Paulson is slowly but surely pulling Wall Street from the burning house. And the chaos, which the American public finally woke up to this week, will help usher Barack Obama into the White House come January.

What a wakeup call, too.

Because this crisis – the death knell for the idea that markets and Wall Street can police themselves – is more closely connected to the current administration and John McCain's party than Obama's Democrats. A new order is shaping up in financial services, and it will require an entirely new regulatory structure.

That's not new. What's new is that suddenly people are paying attention. It's not about lipstick and pigs and swift boats anymore.

Obama, who Democrats were wailing about just last week for having dropped into a tie with McCain, is suddenly back up a few points, courtesy of a McCain gaffe on the economy on just about the worst possible day to do it. Obama has been handed a gift in this crisis – a lead in the homestretch – and now needs to really start refining his message to address the details of this crisis.

No, the economy does not look fundamentally sound.

Is the United States no longer the global beacon of unfettered, free-market capitalism?

The ironies are rich.

In extending a last-minute $85 billion lifeline to American International Group, the troubled insurer, Washington has not only turned away from decades of rhetoric about the virtues of the free market and the dangers of government intervention, but it has also probably undercut future American efforts to promote such policies abroad.

The failures here in the US are huge.

“I fear the government has passed the point of no return,” said Ron Chernow, a leading American financial historian. “We have the irony of a free-market administration doing things that the most liberal Democratic administration would never have been doing in its wildest dreams.”

Bush makes Clinton look conservative, no?

“For opponents of free markets in Europe and elsewhere, this is a wonderful opportunity to invoke the American example,” said Mario Monti, the former antitrust chief at the European Commission. “They will say that even the standard-bearer of the market economy, the United States, negates its fundamental principles in its behavior.”

And they will be right, won't we?

Mr. Monti said that past financial crises in Asia, Russia and Mexico brought government to the fore, “but this is the first time it’s in the heart of capitalism, which is enormously more damaging in terms of the credibility of the market economy.”


Credibility? Any left?

In France, where the government has long supported the creation of “national champions” and worked actively to protect select companies from the threat of foreign takeover, politicians were quick to point out the paradox of what is essentially the nationalization of the largest American insurance company.

Essentially? Why quibble? Call a nationalization by its proper name.

“Today the actions of American policy makers illustrate the need for economic patriotism,” said Bernard Carayon, a lawmaker of President Nicolas Sarkozy’s center-right governing party, UMP. “I congratulate them.”

I can hear the gloating.

For the “evangelists of the market, this is a painful lesson,” he added.

Words well chosen.

In parts of Asia, the bailouts stirred bitter memories of the different approach the United States and the International Monetary Fund adopted during the economic crises there a decade ago. When the I.M.F. pledged $20 billion to help South Korea survive the Asian financial crisis of the late 1990s, one of the conditions it imposed was that the Korean government allow ailing banks and other companies to collapse rather than bail them out, recalled Yung Chul Park, a professor of economics at Korea University in Seoul, who was deeply involved in the negotiations with the I.M.F.

So why did the US treat itself different?

While Mr. Park says the current crisis is different — it is global rather than limited to one region — “Washington is following a different script this time.” “I understand why they do it,” he added. “But they’ve lost credibility to some extent in pushing for opening up overseas markets to foreign competition and liberalizing economies.”

More lost credibility. Great work, W.

The ramifications of the rescue of A.I.G. will be felt for years within the United States, too. While the company, based in New York, is better known for selling conventional products like insurance policies and annuities overseen by state regulators in the United States, it is also deeply involved in the risky, opaque market for derivatives and other complicated financial instruments that operate largely outside regulation.

Outside regulation, key words.

“It’s pure crisis management,” Mr. Chernow said. “It’s the Treasury and the Federal Reserve lurching from crisis to crisis without a clear statement on how financial failures will be handled in the future. They’re afraid to articulate such a policy. The safety net they are spreading seems to widen every day with no end in sight.”

Improvising economic policy while the President remains silent.

One By One

This is sickening.


A post in Gawker: Latest by overunderover: After looking at these graphs, how can one NOT be in favor of privatizing social security? I mean come on!

Stock prices over the last year of Morgan Stanley, Lehman Brothers, AIG, Merrill Lynch and Goldman Sachs.

Bush Below The Radar As Markets Decipher Govt Moves

I thought of him earlier, wondering what he's doing. Now we have a clue.

As markets look for guidance on the federal government's role in the crises roiling Wall Street, President George W. Bush has maintained a notably low-key public presence.

For two days, the president has kept his thoughts on the financial sector's woes largely to himself, canceling one public event and declining to discuss the economy at others.

"There are times, believe it or not, when policymakers actually need to, like, work on making some policy," White House spokeswoman Dana Perino in defense of Bush's decision to stay below the radar.

In two public appearances Wednesday, Bush avoided any discussion of the profound changes sweeping through the world financial system. A day earlier, he canceled a planned media appearance following a meeting with his Working Group on Financial Markets.

Like, nice.

Oy, Cristina

Seems La Presidenta Cristina Fernández can't get her agrarian law passed no which way : her vice president, Julian Cobos, who is also head of the Senate, voted against it. Not difficult to imagine, is it, just how pissed off the Kirchners are right about now.

El País.es has a story on it: Argentine Senate knocks down the tariff law is the headline; the subhead reads the chamber president and VP of the nation breaks the technical tie in favor of "no" after a debate of more than 17 hours. Peronism receives a hard knock. "It doesn't cross my mind to resign," affirms veep.
La Nación, Buenos Aires, has many a commentary. I took one.

This is a major defeat. Cristina put on a full-court press to get it passed, including making a major speech in the main plaza. Nestor did not hide he was twisting arms and knocking heads to get it done. Not only was the bill defeated, not only did it not pass, but the one vote that defeated it is Cristina's VP.
Argentinian blogs are buzzing, of course. This picture has Cobos as San Martín. Another shows Cristina at Nestor's funeral: notice the other military, on the right, placing the wreath of honor on the casket.