IHT: Swedish crisis advice: Bite the bullet on banks

[KAOSkins]

Interesting proposition and it seemed to work. It doesn't seem like our money is being used in our best interest. In my entirely non-economist opinion when the fools failed, the banks should belong to us (to be sold for profit when they are worth something again). People who bought stock in every other industry take a hit when the company is mismanaged as badly as the banks were.

http://www.iht.com/articles/2009/01/21/business/sweden.4-412796.php

The Swedes, who pulled off a rapid recovery from their own banking crisis in the early 1990s, have a simple message for their American colleagues: Bite the bullet on nationalization.

With the new administration of Barack Obama pondering what the U.S. government can do to deal with the wasted assets that are crippling a hobbled banking system, officials in Washington are grappling with a conundrum: How do you heal the banks without wounding the taxpayer?

Former Swedish officials, many of them from the more conservative, market-oriented side of the political spectrum there, say the only way to avoid that conundrum is for the U.S. government to be prepared to take full ownership - temporarily - of some big banks that once defined excellence in global finance.

Sweden did just that, carving off all the banking industry's troubled assets into a so-called bad bank, where they could be sold off over time. With the banks effectively bankrupt, the government wiped out existing shareholders, but then instead of shutting the banks down it used the taxpayers' funds to provide enough capital to allow the banks to resume normal lending.

By contrast, the U.S. government, in its actions so far, "did bail out shareholders" by providing funds for banks without receiving large equity stakes in return, said Bo Lundgren, Sweden's minister of fiscal and financial affairs at the time.

"For me, that is a problem," Lundgren said, "and I am a market liberal, more than some Republicans in the U.S. If you go in with capital, you should have full voting rights."

-continued at link

edit: Funny how their definition of liberal is still the old one.

[techboy]

Former Swedish officials, many of them from the more conservative, market-oriented side of the political spectrum there.

That's not really saying much. Howard Dean would probably be in that group, if he were in Sweden.

[Peeping Wizard]

Exactly what, in the entire history of the world, would lead you to believe that the Government could run the banks any better than the banks could?

The Government couldn't run a birthday party with Martha Stuart as a consultant.

[KAOSkins]

That's not really saying much. Howard Dean would probably be in that group, if he were in Sweden.

I was waiting for someone to post this exact comment and I agree for the most part. The issue of giving tax money to investor's rather than keeping it for ourselves is not very conservative though, is it?

[KAOSkins]

Exactly what, in the entire history of the world, would lead you to believe that the Government could run the banks any better than the banks could?

The Government couldn't run a birthday party with Martha Stuart as a consultant.

Not run it, just own it.

[SkinsTerps26]

Not run it, just own it.

obviously this point just flew by him

[Tulane Skins Fan]

Exactly what, in the entire history of the world, would lead you to believe that the Government could run the banks any better than the banks could?

The Government couldn't run a birthday party with Martha Stuart as a consultant.

How about Sweden?

[techboy]

I was waiting for someone to post this exact comment and I agree for the most part. The issue of giving tax money to investor's rather than keeping it for ourselves is not very conservative though, is it?

No, it really isn't.

[techboy]

How about Sweden?

I haven't been there myself, but I hear that Scandanavia as a whole is very expensive, especially for tourists.

[Mark The Homer]

How do the Swedes know that the US solution won't work? Just because their solution worked their way doesn't mean our solution won't work our way.

I'm wary of the Swedes and their socialist ways.

[KAOSkins]

How do the Swedes know that the US solution won't work? Just because their solution worked their way doesn't mean our solution won't work our way.

I'm wary of the Swedes and their socialist ways.

Seems to me that owning what you paid for transcends Swedes and their socialist ways. We, the taxpayers, are players in the market too. On a whole bunch of different levels.

[Prosperity]

Exactly what, in the entire history of the world, would lead you to believe that the Government could run the banks any better than the banks could?

The Government couldn't run a birthday party with Martha Stuart as a consultant.

did you read the article?

though I would be skeptical too, Sweden functions much better than the US and probably has a much more competent government so they may be an exception. Still, all of this bank bailouts reek of something fishy.

[zoony]

Terrible idea. first and foremost, when the government owns something stock just goes away. So the billions that shareholders have invested in these banks just dissapears instantly.

That would send the Dow into a whirlpool of death, moreso than we've already seen.



The best idea I've heard so far is for the government to set up a bank that buys up all of the crappy assets from private banks.

[KAOSkins]

Terrible idea. first and foremost, when the government owns something stock just goes away. So the billions that shareholders have invested in these banks just dissapears instantly.

That would send the Dow into a whirlpool of death, moreso than we've already seen.



The best idea I've heard so far is for the government to set up a bank that buys up all of the crappy assets from private banks.

Wrong. My government retirement fund owns all kinds of stock. So does my county's investment pool. If we had a manager that did so, we could theoretically purchase enough stock to own a company. Why would the concept of investing mean something different at the national level than the local?

[zoony]

Wrong. My government retirement fund owns all kinds of stock. So does my county's investment pool. If we had a manager that did so, we could theoretically purchase enough stock to own a company. Why would the concept of investing mean something different at the national level than the local?

I'm not sure that you're following.

Stocks represent ownership in a company. Equity. So when the government nationalizes something, the stock goes away. Because the company is no longer privately owned.

So today, the Doe family has $5000 worth of Citibank stock in little Johnny's 529A account, and $40,000 worth of various bank stocks in their 401k.

Tomorrow, they have nothing. They no longer own it, the government does.


What you're referring to in your gov retirement fund is something else entirely. It's an entirely different conversation.

.....

[KAOSkins]

I'm not sure that you're following.

Stocks represent ownership in a company. Equity. So when the government nationalizes something, the stock goes away. Because the company is no longer privately owned.

So today, the Doe family has $5000 worth of Citibank stock in little Johnny's 529A account, and $40,000 worth of various bank stocks in their 401k.

Tomorrow, they have nothing. They no longer own it, the government does.


What you're referring to in your gov retirement fund is something else entirely. It's an entirely different conversation.

.....

Full ownership, ie owning enough stock to have a majority, does not equate to nationalization. The rest of your post was backing up that incorrect assumption. Our bailout money could have been used to recapitalize the banks to OUR benefit as national investors, rather than t the benefit of the investors who put in money and lost. THinking about that a little more, the Doe families stock, without the bailout, would have been worthless. That sometimes happens when you invest, doesn't it?

And my reference to my retirement fund was simply to show that government can own stock in things without their being nationalized.

[zoony]

Full ownership, ie owning enough stock to have a majority, does not equate to nationalization. The rest of your post was backing up that incorrect assumption. Our bailout money could have been used to recapitalize the banks to OUR benefit as national investors, rather than t the benefit of the investors who put in money and lost.

And my reference to my retirement fund was simply to show that government can own stock in things without their being nationalized.



From your article.



Former Swedish officials, many of them from the more conservative, market-oriented side of the political spectrum there, say the only way to avoid that conundrum is for the U.S. government to be prepared to take full ownership - temporarily - of some big banks that once defined excellence in global finance.

Sweden did just that, carving off all the banking industry's troubled assets into a so-called bad bank, where they could be sold off over time. With the banks effectively bankrupt, the government wiped out existing shareholders, but then instead of shutting the banks down it used the taxpayers' funds to provide enough capital to allow the banks to resume normal lending.



(and I think you need to brush up on your definition of "full ownership".)

But going back to my original post, a better option would be for the government to set up a bank that buys troubled assets, not nationalize the banks that already exist. Of course, thats just my opinion.


And yes, I'm aware that the government can buy stocks for folks retirement plans without buying the entire company. :dunce: But thanks :silly:

[zoony]

If I've owned CITI stock since 2006 the worst thing that could happen is for the government to come in and buy out my stock before its had the chance to go back up and me recoup my losses.

[HOF44]

Terrible idea. first and foremost, when the government owns something stock just goes away. So the billions that shareholders have invested in these banks just dissapears instantly.


I think in some cases the billions have already disappeared due to mis-management of the banks. I think the Gov. should have a stake in the bank equal to the investment they put into it. That way if this all works we can later sell that investment and recoup taxpayer dollars.

[KAOSkins]

From your article.




(and I think you need to brush up on your definition of "full ownership".)

But going back to my original post, a better option would be for the government to set up a bank that buys troubled assets, not nationalize the banks that already exist. Of course, thats just my opinion.


And yes, I'm aware that the government can buy stocks for folks retirement plans without buying the entire company. :dunce: But thanks :silly:

You're making fun while your saying the exact thing I did. Let me put it more simply for you, to join you in being a smartass. Without the bailout the Doe family's stock would have been worthless. Instead we've invested tax payer money (a really big investment pool so to speak) to an individuals (the Doe family) benefit. Not ours. In other the words give it back to the folks who made bad investments. That's how the stock market is supposed to work, right?

The Swedes were suggesting that if your going to buy the bank you should own it. Not manage it, own it. And then sell the stocks when you can. This really is not all that different from the intial plan Paulsen espoused, at least to my understanding. It's just that it's not what they wound up doing.

And no, I was suggesting the government can buy stocks for folks retirement plan and theoretically COULD have full ownership without nationalization or countiazation(?). How are taxpayer funded stock purchases somehow different than privately held stock in that respect?

Furthermore, can't companies that are fully owned by an entity sell stock when the choose to? I'll admit the vageries of ownership, i.e. private vs. public aren't my speciality. But I believe that companies that are privately held (if that's the definition of full ownership) go public all the time. If we are going to be such a big player in the markets, then should our funds be managed the same as a private fund? At least with respect to having any proceeds return to the investor?

[KAOSkins]

If I've owned CITI stock since 2006 the worst thing that could happen is for the government to come in and buy out my stock before its had the chance to go back up and me recoup my losses.

And without the govornment coming in and buying you out, you'd have no stock at all because the bank would've failed. Seems to me the folks who held finanicial stock are in NO position to be dictating or expecting anything. They made a losing bet and they're going to get something - which is better than nothing.

[Vicious]

Oh no, you guys would have to actually suffer a little bit. Lets just add more to the debt and get nothing in return. Been doing it for years, we'll be dead before we have to pay it off emirite guys.

[Prosperity]

Terrible idea. first and foremost, when the government owns something stock just goes away. So the billions that shareholders have invested in these banks just dissapears instantly.

That would send the Dow into a whirlpool of death, moreso than we've already seen.



The best idea I've heard so far is for the government to set up a bank that buys up all of the crappy assets from private banks.

I think the main reason that all the other stocks are down is because of the frozen up financial market, not just low bank stocks. So if some bank stocks were wiped out I don't think that by itself would "Send the Dow into a whirlpool of death." If the options are 1) nationalize the company and do what the article says and 2) allow the bank to fail or rebound on their own then the stocks would stil be 0 PLUS there would not be anyone to lend money. The other option is to bail them out in the effort to get them back on their feet faster and prevent failure. Of course, bailing them out may cost as much as the loss of value in stocks but in that case investors will be saved (though the fate of the tax payers is less certain)

I think the way we are going is as good as anything I have to offer, but I don't think the loss of Bank stocks would be detrimental since they're pretty close to worthless now anyway