Bo Lundgren, ex Swedish Finance Minister, knows how to fix economic problems. And now he's teaching the US government how to fix its current crisis. Lundgren was Finance Minister during the Swedish banking crisis of the early 1990's and the solution, at the time, was easy: big government intervention in the form of cash and (part) government ownership of ailing banks. Call it fiscal socialism or whatever you'd like, but the policy worked and the same sort of intervention is needed in the US.
So if government intervention is a strong given in the current US environment (as Fed Reserve Chairman Ben Bernanke stated), then the real question on the table is the level of help or involvement. Here's what Sweden did during their crisis:
Sweden spent 4 percent of its gross domestic product, or 65 billion kronor, the equivalent of $11.7 billion at the time, or $18.3 billion in today's dollars, to rescue ailing banks. That is slightly less, proportionate to the national economy, than the $700 billion, or roughly 5 percent of gross domestic product, that the Bush administration estimates its own move will cost in the United States.
US Senators, from both parties however, are hesitant to give Bush's administration the $700 billion needed to rescue the banking sector - reasoning more along political lines then economic lines (that's a problem). Stay tuned to see how the bailout unfolds...
The current political and financial scene in Washington and New York could not be unfolding in a more dramatic fashion. Key congressional leaders, the President, McCain, Obama, and Secretary Paulson met late into the evening yesterday only to walk away with no deal to rescue US banks and the ailing markets. Click here for a brilliant account of the events via Stolberg of the New York Times.
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