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Thursday: Japan or Sweden?

Planet Money discusses the Swedish model of bank nationalization in its latest podcast.  In 1994, Sweden went through its own financial meltdown.  In some ways, it sounds similar to what is happening here in the US.  The economy heated up and people borrowed and spent like there was no tomorrow.  That short term thinking turned out to be a big part of the problem.  Banks took a lot of risks and found themselves on the brink of insolvency.  In the end, Sweden nationalized its biggest bank.  It was very painful for taxpayers but in the end, the bank was restructured and everthing is hunky dory.

It sounds like Sweden got a grip on their problem and correctly diagnosed it more quickly than Japan did.  As you may recall, Japan tinkered around the edges, stimulated the economy but didn’t nationalize the banks.  The banks held onto their toxic assets hoping that they would be worth something someday.  It wasn’t until the crisis had dragged on for almost a decade before Japan got tough with the banks and the economy started to turn around.  But Japan has been in the news again recently.  Their economy is suffering once again because there has been a drop in exports.  That’s to be expected in a global economic crisis but I’m getting the impression that Japan is a little more vulnerable because of its lost decade.  There is something intrinsically not quite right.

Our present course seems to be dangerously close to the Japanese model than the Swedish model.  Tim Geithner has been painfully vague about how much control of the banks the public will have.  Maybe that’s to keep the stock market from tanking. It’s also true that Sweden didn’t try to nationalize so many banks.  Our problem is on  a much bigger scale.  But it is disturbing that the Obama administration came into office with so much confidence and so little advanced planning.

The second part of the podcast features Paul Krugman taking reader questions.   Finally, Paul is asked what his favorite blogs are.  Alas, The Confluence is not among them.  I know, I know, it was probably just an oversight but I was hurt nonetheless.  Paul, Paul, what do we have to do to get your attention?

{{sigh}}