Wednesday, March 11, 2009

The Swedes Didn't Use Receivership

Paul Krugman has been pushing the Swedish model hard, so it's more than a little troubling that to discover that he doesn't understand what Sweden actually did:

I was not saying “nationalize all the banks”; I was saying do what the Swedes did — in tandem with a guarantee on bank liabilities, take the banks with zero or negative capital into receivership.
Yikes. Sweden never put its banks in receivership. It nationalized the banks by becoming the majority owner of each bank—that is, the government bought well over 50% of the banks' equity. Further proof that "academic economist" isn't the same thing as "banking/financial markets expert." Journalists be advised.

4 comments:

UrbanDigs said...

yes, but isn't receivership just a temporary form of nationalization? Don't they accomplish the same goal and are applied for the same reasons?

I get the feeling that nationalization is perceived by masses/media as a very 'bad' thing, and who wants more bad right?

So, call it something else? What is fundamental difference between the two? Thanks

Ritholtz said...

You may be overlooking the main point --

The Swedes did not reward poor management and bad investors by pouring billions of dollars in bailout money down a black hole -- what they did was close enough to receivership for govt purposes -- wiped out most of the S/H, gave bondholders a haircut, and cleaned up the books of bad assets and debt, and recapitalized.

It may as well have been recievership . . .

William said...

Swedes did not haircut the bondholders only equity holders.

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