Swedish Finance Minister Slams Geithner Plan
Via Noam Scheiber, Swedish Finance Minister Anders Borg doesn’t think much of the Geithner plan for the banking sector:
While the U.S. has funneled tens of billions of dollars to embattled banks such as Citigroup, Sweden temporarily took over two banks late last year and then sold them back to private investors at a roughly 50% profit three months later, says Swedish Finance Minister Anders Borg.
U.S. officials should confront the financial industry’s political power and seize temporary ownership of troubled banks, Borg says. Otherwise, error-prone bankers will be bailed out at taxpayer expense.
“We can’t let them get away with the fact that they’ve been reckless,” Borg told a group of economists while attending the recent International Monetary Fund and World Bank meetings here.
This isn’t a painless or cost-free solution, but it still looks to me to be the right one. I’ve come to appreciate over the past several months that there are legitimate issues of complexity, logistics, and legal authority that separate our situation from Sweden’s. But it seems to me that these are issues the administration should be working on, not just issues the administration should be raising as reasons not to act.
It’s worth noting that Borg is not one of those Swedish socialists you’ve heard about. He’s the finance minister in a center-right government and he’s been spearheading their charge for tax cuts and rollbacks in the welfare state. “This is not about the market economy,” he says. “We don’t believe in the state running the banking sector.” It’s just that he recognizes that there is no real “market” solution to a banking crisis, there are just different forms of government intervention available.
36 Responses to “Swedish Finance Minister Slams Geithner Plan”
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April 30th, 2009 at 5:48 pm
I’m unqualified to debate the merits of his position, but if my last name happened to be “Borg,” I’d probably try and avoid advocating policies of assimilation.
April 30th, 2009 at 5:51 pm
Avoidance is futile!
April 30th, 2009 at 5:51 pm
Borg says “Resistance to nationalization is futile.”
April 30th, 2009 at 5:59 pm
Does that guy have a mullett or a ponytail?
April 30th, 2009 at 6:17 pm
Borg says:
I’ve said it before and I’ll say it again:
This WH has decided to sell out the public treasury and sacrifice future economic growth in order to have GE’s message machine behind them for the next 24 months.
Anyway you slice it, this really isn’t a wise bargain.
And the sad thing is that the administration currently has the ability to confront the financial industry’s political power. The opposition party isn’t going to be able to regroup before the midterm elections. The administration just doesn’t have the will or the courage to do so.
The benefits from doing the right thing wouldn’t become glaringly obvious until the out years. And the detriments of having GE turn on the administration would be felt immediately. Short-term political gain, long-term political and policy loss.
April 30th, 2009 at 6:18 pm
Where does that 50% profit number fit in? Isn’t that a major worry – that the government will seize a solvent bank and then sell it at a profit? Shouldn’t that be regarded as bad behavior?
April 30th, 2009 at 6:26 pm
I’ve come to appreciate over the past several months that there are legitimate issues of complexity, logistics, and legal authority that separate our situation from Sweden’s.
And COST! It is great for them that they took over two banks and sold them quickly for a profit (although I have the same question as minderbender). But look at what happened to the FDIC when it took over IndyMac–the FDIC’s DIF took a huge loss.
April 30th, 2009 at 6:28 pm
The FDIC is taking over multiple banks a week, many of which are sold to healthier banks during the same weekend. The issue is one of SCALE, not will. The issue with the largest financial institutions are that they are not PURELY banks. Citi’s banking operations has under $300B in deposits. It’s the other $1.4T in liabilities that are at issue. The administration has asked for additional powers to deal with this issue, but so far Congress hasn’t made a significant move on passing the necessary legislation. At the end of the day, this is a lot harder than many seem to understand. Including, apparently, the Borg.
April 30th, 2009 at 6:34 pm
Let the Swedish politicians deal with Swedish issues and American politicians deal with American issues. What’s politically possible in one country is not necessarily possible in another country. It is possible that there is more than one acceptable solution to a problem. I’m not aware of any fundamental law of the universe saying that there is one and only one correct solution to every problem.
April 30th, 2009 at 6:50 pm
“The administration has asked for additional powers to deal with this issue, but so far Congress hasn’t made a significant move on passing the necessary legislation. At the end of the day, this is a lot harder than many seem to understand. Including, apparently, the Borg.”
I’m not sure you quite get the gist of Borg’s point. He says:
The Geithner plan is designed precisely to avoid confronting the financial industry, in great part because the largest US financial company happens to owns the largest US news reporting organization.
And, of course, the administration hasn’t “asked for additional powers to deal with this issue” in anything even vaguely close to the manner sane economists recommend. And the reason they haven’t asked for those powers are precisely because of the point Borg raises – they are unwilling to have a fight with GE.
April 30th, 2009 at 7:10 pm
Is it bad behavior for a hedge fund to do it? Why is it bad behavior for government to do it in order to save taxpayers money? This is one of the most idiotic things written on this blog on this topic.
April 30th, 2009 at 7:31 pm
Why would Obama appoint as Treasury Secretary a multiple tax-cheat who is obviously in over his head?
Why would he appoint as his chief economic advisor a serial fuckup who had a large roll in creating this mess and who just got paid $5 million by a hedge fund for one year of parttime “work”?
Why doesn’t MattY do an investigative piece on Obama’s early backers?
He could start with Pritzker.
April 30th, 2009 at 7:32 pm
…there is no real “market” solution to a banking crisis, there are just different forms of government intervention available.
Well-put, Matt. I’ll have to remember that when discussing this matter with right-wing friends.
April 30th, 2009 at 7:59 pm
@Blah
It’s a ponytail.
April 30th, 2009 at 8:02 pm
@11: I don’t follow you, but maybe I was unclear initially (this happens a lot with me, because I am an idiot). The idea of nationalization is for the government to seize a bank and pay off some of its creditors (possibly requiring them to take a haircut – speaking of which, I hope the Swedish bankers agreed to nationalization on the condition that Borg take a haircut). The original shareholders are wiped out. The bank keeps its good assets and some of its debt and reemerges as a going concern (or, if it has been split up, as several going concerns). The government disposes of the toxic assets over time, possibly holding some until maturity.
The government loses money when it pays off debt, and it makes money when it (i) sells the cleaned-up bank; and (ii) sells the toxic assets (or holds them to maturity). There’s nothing the matter with working hard to minimize the loss to the government.
But the thing is, for the government to make a 50% profit within 3 months implies strongly that the seized bank was solvent in the first place. This means that the government wiped out a bunch of shareholders who otherwise would have owned a valuable company. Basically, the government just confiscated a bunch of private property.
Hedge funds are not (yet) allowed to take people’s property from them at gunpoint. The government should not be doing it either.
We all know this. We all recognize that it would be troubling for the government to seize Google, wipe out its shareholders, and then re-sell it at huge profit. For some reason people get confused when it comes to banks and decide that it must be okay somehow. But actually, limiting the government’s intervention to truly insolvent institutions is important and not easy.
April 30th, 2009 at 8:03 pm
Why is it the “Geithner” plan, and not the “Obama” plan?
April 30th, 2009 at 8:26 pm
Exactly how many posts by MY are going to legitimate a viewpoint, be it on finance or Cass Sustein’s regulatory chops (earlier today), by saying how conservative they are.
Note to liberal bloggers: the reflexive “and he’s no DFH” modifier subtly reinforces the frame that Very Serious People always huddle on the right side of the political line. Unless your really a Bush I conservative, this is a bad habit.
April 30th, 2009 at 8:28 pm
If you care that I wrote “your” when I meant “you’re” in the last sentence: I hate you.
That is all.
April 30th, 2009 at 9:18 pm
b9in10nt,
Close the first complete clause at “…sentence:” with a question mark. Ur use of the colon is incorrect: Jai Bhagwan.
April 30th, 2009 at 9:20 pm
It’s just that he recognizes that there is no real “market” solution to a banking crisis, there are just different forms of government intervention available.
That’s what happens when you give the people subsidized FDIC insurance. The government guarantees deposits, people quit caring about the solvency of their banks at all, and when banks screw up en mass, it’s impossible to go into clean bankruptcy. Another thing for which we can thank FDR. Thanks Frank!
April 30th, 2009 at 9:24 pm
The absolute worst possible outcome of this financial crisis is that we come out of it with exactly the same financial industry that we started out with.
April 30th, 2009 at 9:52 pm
Obviously Sweden’s banks had problems of a different sort, if the government was able to take them over and quickly sell them at a profit without eating huge liabilities. Right now you couldn’t give our insolvent banks away, which is the essence of being insolvent.
April 30th, 2009 at 10:42 pm
That’s what happens when you give the people subsidized FDIC insurance. The government guarantees deposits, people quit caring about the solvency of their banks at all, and when banks screw up en mass, it’s impossible to go into clean bankruptcy. Another thing for which we can thank FDR. Thanks Frank!
(1) Deposit insurance helps protect against bank runs that make solvency problems even worse.
(2) Almost every major economy in the world has deposit insurance in one form or another for precisely this reason.
April 30th, 2009 at 10:45 pm
I grew up in Sweden and I like Borg, even if he belongs to the most conservative party available, mainly because he is defending social welfare, a self described feminist, and dramatically CUTTING pointless defense expenses, under loud protests from the ones in uniform. It takes someone from the right to cut defense and someone from the left to cut welfare.
I hear he had an episode of libertarianism but he grew up…
That said, Borg, ponytail, ear rings an’ all is a well educated modern young mensch.
BTW, not even one party in Sweden is against tax funded: healtcare, education incl college, paternity leave for 18 months with pay for every child, 5 weeks paid vacations, secure pensions etc etc
April 30th, 2009 at 10:51 pm
(1) Deposit insurance helps protect against bank runs that make solvency problems even worse.
We’re skipping the idea of free market money here, of course, but the only reason banks need that protection is because their reserve requirements are incredibly low.
(2) Almost every major economy in the world has deposit insurance in one form or another for precisely this reason.
I know. They copied us. And many major economies still treat ours as the reserve currency, even though the initial reason for that, our gold reserves, quit being a factor in 1971. Now, everyone has an assed-out backed-by-nothing fiat currency that our governments can inflate whenever they want, and the inflation of both the Chinese and our currency were two principal factors in the hideous bubble.
April 30th, 2009 at 10:59 pm
Not necessarily. If the bank could not maintain its reserve requirements, even by short term loans, they are insolvent. They may have assets that really are good enough to use as collateral, but if know one believes it, the bank sinks. The government takes it over, according to rules that the bank accepted, demonstrates the true worth of the undervalued assets, and sells it at a profit.
Nothing nefarious happens. It just sucks. It’s like having a really great 1970 Ford Pinto that will run another 300,000 miles without repairs. Everyone thinks it’s worthless, so it is.
April 30th, 2009 at 10:59 pm
BTW, not even one party in Sweden is against tax funded: healtcare, education incl college, paternity leave for 18 months with pay for every child, 5 weeks paid vacations, secure pensions etc etc
Sounds like a fascist nightmare. I wonder if the government wipes them, too? Well, at least the median income is almost high enough to match Mississippi’s, the US’s poorest state.
April 30th, 2009 at 11:06 pm
Oh man! The game ended. I thought it might go on all night.
April 30th, 2009 at 11:15 pm
Wow, Sweden is poorer than Mississippi and still maintains such a high standard of living?! I am impressed.
April 30th, 2009 at 11:24 pm
Wow, I remember Healthy Moron’s idiotic argument from uber-hack Glenn Reynolds nearly a decade ago. Like fresh milk it has improved with the years.
Jesus dimwits, get some new fucking material.
April 30th, 2009 at 11:32 pm
Wow, I remember Healthy Moron’s idiotic argument from uber-hack Glenn Reynolds nearly a decade ago. Like fresh milk it has improved with the years.
Jesus dimwits, get some new fucking material.
Doesn’t change the fact. The median, not the mean wage is less in Sweden than it is in Mississippi. Which is weird, because you’re guys’ faces turn red and you breathe funny every time you say “Sweden.” One would think they were all wealthy or something when instead they just have across-the-board low standards of living with a government there to coo when they trip and fall.
April 30th, 2009 at 11:52 pm
@26: “The government takes it over, according to rules that the bank accepted, demonstrates the true worth of the undervalued assets, and sells it at a profit.”
I believe the bolded text is the key point. But is it true? My understanding is that standard commercial banks operate in this way, and so we don’t cry when the FDIC takes them over. But is Citibank subject to FDIC takeover? I think not (though I admit, I don’t really know). Certainly I don’t think large investment banks and hedge funds operate under these rules.
As a secondary point, I think even if you could take over a mega-bank in these circumstances, it would be far better to give it a last-resort loan or something. There is simply no need to cause the disruption that nationalization would entail. A bank that can be saved at a 50% profit is not really a problem bank.
May 1st, 2009 at 12:29 am
tao9:
Your wisdom is a rock that stands along the rushing rivers of springtime.
Namaste.
May 1st, 2009 at 5:00 am
First, although it may have already been mentioned, his name in Swedish is pronounced “bory”. Second, and more importantly, he is a part of the conservative Swedish government. True, conservatism in Sweden is markedly different that in the U.S., but this man is no socialist. He has been working to move Sweden TOWARD U.S. economic policy, not AWAY from it.
May 1st, 2009 at 9:09 am
[...] bank blogging is undoubtedly the new craze on the interweb. I enjoyed this story of the poney-tailed Swedish finance minister scolding Geithner for his plan and the linked-to [...]
May 1st, 2009 at 12:21 pm
What the Swedish finance minister doesn’t realize is that accountability and sensibility are not America’s strongest suit.
Look who Obama has surrounded himself … Geithner, Larry Summers, etc. These are the people who brought the financial mayham in the first place.
FAIL!