Wednesday, February 11, 2009

Sweden looks like a good model.

From Tyler Cowen:

"
Barack Obama on Sweden

Read this post; here is Obama speaking:

Sweden, on the other hand, had a problem like this. They took over the banks, nationalized them, got rid of the bad assets, resold the banks and, a couple years later, they were going again. So you'd think looking at it, Sweden looks like a good model. Here's the problem; Sweden had like five banks. [LAUGHS] We've got thousands of banks. You know, the scale of the U.S. economy and the capital markets are so vast and the problems in terms of managing and overseeing anything of that scale, I think, would -- our assessment was that it wouldn't make sense. And we also have different traditions in this country.

Here is a short movie by Ingmar Bergman. Here is a Carl Milles sculpture. Here is some cabbage with your pizza.

Posted by Tyler Cowen on February 11, 2009 at 07:41 AM in Political Science | Permalink"

Me:

"Sweden looks like a good model"

Here's the deal: It's a model. That means:

1) It worked
2) It can be assessed as you're implementing it
3) It's harder to lobby against
4) It's moral hazard that the bankers fear
5) It will be easier to get out of

TARP is a hybrid. The interests of the banks and taxpayers are not the same. The GAO couldn't even assess it. You can believe that this mess and expense is worth it to avoid actually taking over a few banks, but you're fooling yourself. These banks are wards of the state, and the money we're spending is taxpayer money. We were talking recently about using the stimulus to fool people into thinking things are better than they are or that government is on the case. TARP is fooling everyone into believing that we're preserving some sacred free market principles. Maybe the stimulus will work, even if it is a placebo.

Posted by: Don the libertarian Democrat at Feb 11, 2009 9:52:49 AM

Hybrid example for today:

http://www.nytimes.com/2009/02/11/business/economy/11react.html?hp

"Washington Hopes ‘Vulture’ Investors Will Buy Bad Assets"

"Another big issue is the price at which the troubled assets would be valued by the banks. While potential investors want to buy as cheaply as possible, the banks might have to take debilitating write-downs if they sold at fire-sale prices. Such an outcome might not be in the government’s — or taxpayers’ — interests.

But competing interests are bound to bedevil this kind of deal, said Campbell R. Harvey, a professor at the Fuqua School of Business at Duke University.

“Given the conflicting objectives, I’m not sure I’d be interested in this kind of altruistic investing,” he said.

And the potential political costs, money managers said, are real. Some managers said that if they did their job well, they could earn double-digit returns and, with them, public scorn.

“We can’t really win,” one private equity executive said. “When we made money, people criticized us. This year, we lost money, and people are criticizing us.”

Posted by: Don the libertarian Democrat at Feb 11, 2009 10:37:36 AM

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