It is my very broad understanding, from exchanges here by Sven, that the Swedish government forced certain banks into Ch. 11, of which the conservator was a government operated, special purpose entity (SPE or GSE). Details of the disposition of these banks' --the number of which-- obligations and subsequent impairment to the SEK --not a reserve currency-- haven't been discussed here.
In any case, the nearest facsimile of conservancy that the Emergency Economic Stabilization Act of 2008 comes to is discrimination among securities (warrants), where provisions requiring purchase of non-voting preferred stocks or conversion of non-voting common stocks to preferred stocks (or bonds if existing shareholders reject additional issue of preferreds) in the event the financial institution is delisted; it's stocks are not marketable. Such an event, insolvency, may then place the Treasury in the unenviable role, being perhaps the majority stockholder by volume, of "owner" or conservator or, practicably speaking, receivor of the book and shareholders' equity, if any.
That situation exemplifies the result of advancing poorly managed firms $700B that does not in itself exist to simulate income that does not in itself exist. Meanwhile, Citibank purchased Wachovia Bank for $43B ($1.9B in cash).
With that kind of leverage, the US Treasury could purchase a lot of viable banks and brokerages for $700B. Then, because the Treasury brain-trust is so, so financially smart, invent some structured ABS to sell US households that doesn't (much) dilute everyone's "equity" and positions "our" banks for more regular, stringent management review. Unless of course Obama renews Paulson's contract as promised.
Where's that plan? Diversity is the key to economic and political evolution.
The IMF published a pamphlet: "The Nordic Banking Crises: Pitfalls in Financial Liberalization?" By Burkhard Drees, Ceyla Pazarbaşioğlu, 1998 ISBN 1557757003, 9781557757005. If you go to Google Books, move to the next page (Table of Contents), you can click on "The Swedish Experience" and that will take you directly to the relevant pages (29 - 31).
The solution applied in Sweden consisted of three main parts (from the IMF pamphlet):
It is to be noted the Swedish plan was directed at the Banking system NOT the "Financial Sector" -- which was the thrust of Bush administration, as I analyze it.
I read the speech and ordered the publication (GOOG cookies are prohibited on my machine). It took me a while to stop laughing when I read this.
[W]e started to study historical and international records of financial crises...
Irving Fisher (1, 2) and an anthology edited by Martin Tradeable-Gas-Rights Feldstein, The Risk of Economic Crisis, including Benjamin Friedman, Paul Putz Krugman, Lawrence Summers [who needs no introduction], and E. Gerald Corrigan: The Counter-intuitive Who's Who of Fiscal Policy Gurus.
Happily, I persevered as did Mr Backstrom and colleagues. For the Swedish authorities had only seven banks, dominating 90% of the financial sector, to "restructure." I noted with interest the Riksbank's (FRB equivalent?) material demonstration of full faith in these banks' directors, hand in hand with daily auditors of the Bank Support Authority.
Collateral was not required for the loans to banks, neither intraday nor overnight. The banking system was free to obtain unlimited liquidity by drawing on its accounts with the central bank.
Arguably the conformation of monetary policy from fixed to float up to the Maastricht Treaty catalyzed the greatest challenge of re-coupling financial and economic incentives domestically. So his analysis implies.
Rescuing the banking sector was necessary to avoid a collapse of the real economy. There is no evidence that a credit crunch developed, though anecdotal information did suggest that creditors became more restrictive.
But what I found most interesting in Mr Backstrom's remarks is the consensus on organizing principles of an RFC-type strategy, according to him one or the other.
Anyway, thank you for that information. Diversity is the key to economic and political evolution.
