« American dream, American nightmare | Main | A stopper of traffic »

Ah, Sweden

By Owen Paine on Friday February 20, 2009 10:44 AM

Okay, so there's lots to be said for Sweden as a producer of models. But as a model for our economic crisis -- Miss Sweden is, well, a miss.

Nationalizing a couple of banks never solved Sweden's real problems back then, and nationalizing 12 or 17 of our fattest banks now won't solve our problems either.

Fact: Sweden ultimately dug her way out of her economic hole in the early 90's by devaluing her currency and conducting a nice export-led recovery.

Fact: Sweden is a lovely but tiny piece of the global economy. If big Uncle Hegemon tried -- right now -- to pull off such a rapid dollar devalue, the whole global trade system and financial system would react and react badly.

So enough of this Sweden model nonsense.

We need to focus for now on an internal recovery. This spells one thing and one thing only: a huge huge huge string of fiscal deficits.and credit swaps. So huge in fact must this be that all the ridiculous either-or'ing chitter over tax cuts vs spending, buying poison or purging poison, has one and only one obvious answer: We damn well better do all of the above, plus more, and fast.

This is in fact the lesson out of Japan -- go full-throttle on all fronts, or you're in for ten years of damnable dorkdom.

Even infamous bloviator Martin Wolf has a few sound words on this score....

"Those who argue that the Japanese government’s fiscal expansion failed are... mistaken. Despite a loss in wealth of three times GDP and a shift of 20 per cent of GDP in the financial balance of the corporate sector, from deficits into surpluses, Japan did not suffer a depression.... The explanation was the big fiscal deficits."
But not big enough, Marty allows:
"When, in 1997, the Hashimoto government tried to reduce the fiscal deficits, the economy collapsed...."
As to balance-sheet shuffles,
"The Japanese lived with zombie banks for nearly a decade. The explanation was a political stand-off: public hostility to bankers rendered it impossible to inject government money on a large scale, and the power of bankers made it impossible to nationalise insolvent institutions."
Perhaps a more concise statement of the dilemma: it proved politically impossible to kill or bypass the zombies.

Returning for a moment to the land of the ice and snow -- are they nicely chastened and prudent non-plungers?

Well, nope -- seems they got into the post-Soviet lot-and-loot bubble big time for such a small player:

"Fears of a full-blown economic crash in Eastern Europe shook the region's currencies and the share prices of Western banks doing big business there, helping to spur a new shock to financial confidence around the globe.

Some market analysts warned of a regional economic collapse on the scale of the Asian crisis in the late 1990s, as a report by the Moody's ratings agency warned it may downgrade banks active in Eastern Europe.

The cost of insuring government debt from Poland to Russia rose further, while currencies fell. The Hungarian forint slid to an all-time low Tuesday against the euro. Poland's zloty fell to a near-low against the euro."

"A "special comment" published Tuesday by Moody's Investors Service Inc. warned that euro-zone banks... with significant exposure to East European economies may be downgraded."


On that hot list of blasted banks -- why, Swedish banks, and they're in for $140 billion. For a scale-up, thats like chancing $4.2 trillion here in good ole Sweden x 30, DBA the SS America.

Comments (3)


"nationalizing 12 or 17 of our fattest banks now won't solve our problems either." (OP)

But it would be fun to wipe out all the shareholders and fire all the top managers.

Of course, this won't happen, so don't worry, OP.

Nationalization, if ever, is reserved for medium-sized banks, after the majors have bought up any healthy parts for cheap.


a link from Moon of Alabama today seems to bear on this topic:


scroll down past the graphs, unless you like disaster movies, and read the main comment about the CDS issue which makes the major banks basically insolvent already.


Friday's Financial Times reports that nationalization is near awnd inevitable for Citibank and BofA, despite what the President is saying.

Both are holding amounts of toxic debt that make them technically insolvent already, and in fear of that their share prices have collapsed.

So I was wrong in my first comment above.

Post a comment

Note also that comments with three or more links may be held for "moderation" -- a strange term to apply to the ghost in this blog's machine. Seems to be a hard-coded limitation of the blog software, unfortunately.


This page contains a single entry from the blog posted on Friday February 20, 2009 10:44 AM.

The previous post in this blog was American dream, American nightmare.

The next post in this blog is A stopper of traffic.

Many more can be found on the main index page or by looking through the archives.

Creative Commons License

This weblog is licensed under a Creative Commons License.
Powered by
Movable Type 3.31