This is a bitter pill for me to swallow, because I'm not really in favor of a bailout. But, if we need one, I'm in favor of a version of the Swedish Plan.
This would entail the government getting ownership or equity in return for a bailout.
I'm no expert, especially on the Credit Default Swaps that are described below, which we all really need to understand better, but the Swedish Plan makes sense to me.
I could use any comments or instruction.
Here's a description of the Swedish Plan from the NY Times:
http://www.nytimes.com/...
"Stopping a Financial Crisis, the Swedish Way
By CARTER DOUGHERTY
A banking system in crisis after the collapse of a housing bubble. An economy hemorrhaging jobs. A market-oriented government struggling to stem the panic. Sound familiar?
It does to Sweden. The country was so far in the hole in 1992 — after years of imprudent regulation, short-sighted economic policy and the end of its property boom — that its banking system was, for all practical purposes, insolvent.
But Sweden took a different course than the one now being proposed by the United States Treasury. And Swedish officials say there are lessons from their own nightmare that Washington may be missing.
Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.
That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well."
Now read this article about Credit Default Swaps and this current crisis, and what it recommends:
http://www.globalresearch.ca/...
"The banks will therefore no doubt be looking for one bailout after another from the only pocket deeper than their own, the U.S. government's. But if the federal government acquiesces, it too could be dragged into the voracious debt cyclone of the mortgage mess. The federal government's triple A rating is already in jeopardy, due to its gargantuan $9 trillion debt. Before the government agrees to bail out the banks, it should insist on some adequate quid pro quo. In England, the government agreed to bail out bankrupt mortgage bank Northern Rock, but only in return for the bank's stock. On March 31, 2008, The London Daily Telegraph reported that Federal Reserve strategists were eyeing the nationalizations that saved Norway, Sweden and Finland from a banking crisis from 1991 to 1993. In Norway, according to one Norwegian adviser, "The law was amended so that we could take 100 percent control of any bank where its equity had fallen below zero."6 If their assets were "marked to market," some major Wall Street banks could already be in that category.
Benjamin Franklin's Solution
Nationalization has traditionally had a bad name in the United States, but it could be an attractive alternative for the American people and our representative government as well. Turning bankrupt Wall Street banks into public institutions might allow the government to get out of the debt cyclone by undoing what got us into it. Instead of robbing Peter to pay Paul, flapping around in a sea of debt trying to stay afloat by creating more debt, the government could address the problem at its source: it could restore the right to create money to Congress, the public body to which that solemn duty was delegated under the Constitution."
I'm no expert. I'm simply proposing this idea in order to see how others feel about it.
As Paul Krugman says:
http://krugman.blogs.nytimes.com/...
"What possible justification can there be for doing this without acquiring an equity stake?
No equity stake, no deal."
And as Henry Blodget says:
http://www.huffingtonpost.com/...
"The government has already headed off the immediate crisis by announcing that it intends to help. Now, it should use that assurance to play more of a backstop-of-last-resort sort of a role, where it only helps companies that are truly in trouble and gets a significant equity stake for doing so. Anything less will bail out idiot banks and their shareholders at the expense of taxpayers."
Again, I'm no expert, but this seems to make sense to me.