Paul Krugman came out today for the Swedish plan. Earlier, Brad DeLong had come out for the Swedish Plan.
I did a Diary earlier this week on the Daily Kos about this plan, and have been arguing for it all week on liberal and libertarian blogs, including my own little blog.
If Krugman had come out for this plan earlier, and blogs such as this one had backed this plan, we might have gotten it.
I'm not even that exited at a bailout, being more libertarian and free market than most in my party. However, if we are going to do this bailout, the Swedish Plan has the advantage of having worked and being understandable. I believe that the fear of nationalization, Sweden, and Socialism kept people from considering this plan, which was foolish.
So, I'm giving this one more try. Please consider this plan.
Here's Paul Krugman this morning on his blog:
http://krugman.blogs.nytimes.com/...
Brad DeLong says that Swedish-style temporary nationalization is the right answer to a financial crisis; he’s right. I haven’t been clear enough about this, it seems, but it’s where my basic diagnosis leads: the problem is insufficient capital, you want to inject capital, but you don’t want it to be a windfall to existing stockholders — hence, take over and recapitalize the failing firms. By the way, that’s what we did with AIG 10 years days ago.
So that’s the good solution. The Paulson plan, which is some combination of sheer giveaway and mystic faith that a slap in the market’s face will make everything OK, is a bad solution (and probably no solution at all.)
But nationalization doesn’t seem like a politically realistic answer now."
Here's Brad DeLong:
http://delong.typepad.com/...
"If the House Republicans won't vote for the Paulson-Dodd-Frank plan, then the Democrats should not either. They should write the best bill possible--which I think is the Swedish model--pass it, and send it to Bush to sign.
Josh Micah Marshall wants to know what Paul Krugman thinks of this plan:
Talking Points Memo | Is Nationalization The Answer?: Brad DeLong says it's a better option than the Paulson model bailout. (And it did seem to work out pretty well for the Swedes when they got into a somewhat similar situation.) I'm curious what Krugman thinks."
This is from my earlier diary:
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."
It's never too late. Also, we need to learn from this bailout. We need to understand what's being presented and what works. If I, a libertarian Democrat, can back the Swedish Plan, surely others can.