⌐ AV8OR WANNABE

This 'bailout' is very important to our profession (and the entire country) and therefore I'm replying to this 'political' thread.

W0xOFF - I followed your advice, called the number and left a voice mail telling them the bail out is a MUST!

It's not perfect but it's much better than the alternative which is a total collapse of our banking system. You think we have problems now? Yeah, just imagine how fast this country would come to its knees if all our banks were to default.

Besides, I don't think 'government bailout' is the appropriate name for this program. I think temporary government assistance program is a more appropriate term. Why? Because just like a 401K – they will not lose any money until they actually sell off the assets they’re about to purchase at a huge discount and they won’t sell off those assets for some time. This program will simply buy out bad loans from banks and will then 'keep' them until the economy improves, probably for years.

Once the economy improves the loans will be auctioned off and we, yes the tax payers, might actually make some good money on this deal. There's a good precedence to this package - please read the article below.

In a nutshell in the early 90’s the Swedish government was forced to buy out over 20 billion dollars worth of 'junk loans" from many Swedish banks and institutions that were collapsing left and right - the economy improved within a year or so after this 'bailout' and once the loans were eventually auctioned off the Swedish government ended up making very healthy profits on those ‘junk loans’.

(Note - the article below mentions 67 billion Swedish crowns which at the time was equivalent to some 11 billion US dollars [rate of 5.5 SEK to 1 US$ at the beginning of the crisis]. However it leaves out the price the government paid for buying out several major financial institutions before this bailout was put in effect which was close to 10 billion US dollars. That's why I use a total price tag of 20 billion US dollars for their program)

If you say that 20 billion is nothing compared to 700 billion you need to remember that the US has over 300 million citizens while Sweden has 9 million so percentage-wise it’s about the same. $2,300 per citizen here (700,000,000,000/300,000,000) while Sweden was about $2,200 per citizen (20,000,000,000/9,000,000) - additionally Sweden had to lay off thousands and thousands of public sector workers which I hope will happen here too (for the sake of trimming our budget). Hope I didn’t screw up my math here…

So the very same scenario could play out here - and if we (tax payers) end up make zero dollars in profits (which personally I don’t believe will happen) it's still a much better deal than the severe economic depression that would hit our country without this bailout.

The main reason, not the only reason but the reason #1 to this crisis in my view was the political correctness in our country which was forcing banks and financial institutions to give out loans and mortgages to people with very shady credit histories. It's so easy to get sued for discrimination nowadays and now we are paying the price for political correctness running amok.

Here's the FT article...


Policy chiefs have an eye on ‘Swedish model’
By Christopher Brown-Humes
Published: September 21 2008 22:36 | Last updated: September 21 2008 22:36

When people talk about the “Swedish model”, they are not usually referring to the way that Sweden resolved its acute banking crisis in the early 1990s.

But the way Sweden acted – and in particular its adoption of the good bank/bad bank model – is highly relevant to the financial system bail-out now being implemented in the US. “Hank and Ben learning Swedish” was how Lombard Street Research headlined its latest piece of research on Friday.

Like the current US financial crisis, the origins of the Swedish banking crisis lay in the credit markets – which were deregulated in 1985 – and in a finance and real estate bubble that eventually collapsed.

The chickens came home to roost in the early 1990s after a massive pile-up of non-performing loans across the Swedish banking system.

Five of the country’s seven biggest banks required state support or huge injections of capital from their own shareholders. Two banks – Nordbanken and Göta Bank – were taken over by the state and eventually merged.

Crucial to maintaining confidence was the blanket guarantee for creditors – not shareholders – that Sweden put under the whole banking market in late 1992 and kept in place for nearly four years.

After taking over Nordbanken, the state dumped SKr67bn of non-performing loans into a bad bank called Securum. After taking over the collateral behind them, Securum eventually found itself with an extraordinary portfolio of assets – they included the British Embassy building in Burma, an air charter operation in Zimbabwe and a skiing lodge in the US – as well as European property and Swedish industrial operations.

Securum was given a SKr24bn equity injection and 15 years to dispose of its assets. In fact, helped by a recovery in property and stock markets in the mid-1990s, it ended up being wound down after just five years. By that time it had recouped nearly SKr13bn.

More important, however, Sweden’s response to the crisis meant it cost the taxpayer very little, if anything – another reason why US policymakers have been keen to talk to some of the decision-makers who were directly involved in clearing up the Swedish mess.

Although Sweden originally spent about SKr65bn to shore up the system, it got most of the money back. Much of this came from dividends and the eventual re-privatisation of Nordbanken. The government still holds a 19.9 per cent stake in Nordea, the bank that Nordbanken is now part of following a series of pan-Nordic mergers.

One secret to Securum’s success was that it took an activist approach to its investments to maximise value rather than just seeing itself as a liquidating company.

Jan Kvarnström, a former chief executive of Securum, always felt other countries could learn from the Swedish experience. “You have to get your hands on the underlying assets quickly, get control over the cash flow and manage the assets to add value to them. It is very important to prove your professional credentials to the market and not to be seen simply as an asset dump,” he once said.

FT.com / In depth - Policy chiefs have an eye on Swedish model?