Nationalization Nation: Washington Goes for the Stockholm Solution

Uncle Sam may quasi nationalize our banking system, then, come mortgages.

By SHARE

This is no surprise to loyal Capital Commerce readers: The Bush administration is considering taking ownership stakes in certain U.S. banks as one option for dealing with the credit crisis. In return for fresh capital, Uncle Sam gets a piece of the action. As superanalyst Dan Clifton of Strategas puts it: "We believe this step is inevitable and will occur sooner rather than later, with the U.S. following England's move earlier this week."

See, in the end, banking bailouts are kind of like what Tolstoy said about happy families: They are "all alike." One way or another, the government steps in. Big time. It's just a matter of how soon the action is taken and how dramatic it is. One of the most frequently cited examples is the so-called Stockholm solution, undertaken by Sweden's government after a real estate boom led to a banking crisis in the early 1990s. In fairly short order, the government extended massive loan guarantees and nationalized faltering institutions. In the end, nearly a quarter of all banking assets fell under state control at a cost equal to around 4 percent of that nation's gross domestic product.

Now, economists consider that government's actions are a big success, crediting, in particular, its rapid response to the crisis. (By comparison, Japan took nearly a decade to come to the same policy conclusion during its 1990s banking crisis.)

Up next, my friends, is mortgages. Clifton's two cents: "The political climate in Washington (i.e. Congress, candidates) has shifted to direct housing assistance. Congress returns November 17 for a short lame-duck session and may possibly return again in December. This could provide an opening for a housing bill, with the money already appropriated, as most of the proposals call for using the back end of $350 billion from TARP."