Fox Newser Kondracke Touts GOP "Sweden" Plan

By Big Tent Democrat, Section Economy
Posted on Fri Mar 20, 2009 at 08:43:18 AM EST
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At RCP, Mort Kondracke touts Republican House member Paul Ryan's (R-WI) "Sweden" plan for addressing the financial crisis:

In the case of the bank crisis -- and other areas of economic policy, too -- Obama and his top advisers ought to mix it up regularly with conservative Rep. Paul Ryan (R-Wis.), who, they would discover, has some constructive ideas that Obama might adopt. Such as: Instead of injecting vast new cash into the banks, institute a system of government insurance guarantees to protect asset-holders against losses. Also, triage the banks and commence a Resolution Trust Corporation-style liquidation of those that can't be saved.

(Emphasis supplied.) This is in essence, the Sweden plan. There is a hitch however. Ryan proposes:

Ryan also has long advocated partly suspending the mark-to-market rule for valuing bank assets. The current accounting rule pegs securities at zero if no one will buy them, even though, since most people pay their mortgages on time, the assets actually have value.

In principle, abandoning mark to market can make sense. In practice, it is likely to be a "backdoor free lunch bailout" for the financial institutions. Because it is so vulnerable to abuse, I think it is a bad idea for today's circumstances. The reality is saving current financials stakeholders (shareholders and debt holders) has to be a very back end concern. Finding a solution to the country's concerns must trump all concern for our "Masters of the Universe."

Speaking for me only

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Fox Newser Kondracke Touts GOP "Sweden" Plan | 14 comments (14 topical)

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Aren't the Swedish (5.00 / 1) (#3)
by Radiowalla on Fri Mar 20, 2009 at 09:25:28 AM EST

SOCIALISTS?

Someone tell Mort quick before he suffocates.

Pipe dream (none / 0) (#1)
by jbindc on Fri Mar 20, 2009 at 08:46:53 AM EST

Finding a solution to the country's concerns must trump all concern for our "Masters of the Universe."

Sound great, but let's face it. Wall St got the Obama kids in the WH, and guess who will be the first priority above all else?

So interesting really that (none / 0) (#2)
by inclusiveheart on Fri Mar 20, 2009 at 09:07:06 AM EST

every time anyone in Congress is discussing "the rules" these days most are still talking about eliminating them rather than re-instating them.

As the mark to market rule has been explained to me, it seems like repealing it would just be yet another way for these institutions to pretend that they have more value than they do. And since we have done NOTHING to stop the practice of over-leveraging beyond anyone's wildest dreams I'm thinking that ending/suspending mark to market would only get us into more trouble.

I used to think that the worst thing that could happen is if all the banks closed their doors, but now after seeing Congress do nothing about regulation and pouring in good money after bad for all these months, I am begining to wonder if I was wrong about what the "worst thing" really would be.

There's some contradictions in your paragraphs: (none / 0) (#4)
by steviez314 on Fri Mar 20, 2009 at 09:46:26 AM EST

The Swedish Plan DID guarantee 100% the banks' bondholders. I assume that Ryan wants to do the same thing. You and I have gone around a bit about the insolvency question, but if that's what you believe, you can't a priori give the bondholders any guarantee. They might need to take a haircut.

Re mark-to-market. There needs to be a relaxation of the m-t-m rules for assets that are performing. It is insanity that if Bank A holds an asset that is performing and current, it nonetheless must mark it down in value if Bank B (for some liquidity reason) is forced to sell it at some absurd value. especially into a marketplace that does not really exist, in the sense that you and I think of the stock market.

Sweden guaranteed 100% of the bondholders? (none / 0) (#5)
by Big Tent Democrat on Fri Mar 20, 2009 at 09:51:45 AM EST

Then I stand corrected.

I thought the percentage was lower than that. I take it Sweden took 100% of the shares of the banks then right?


That is my understanding of what happened in (none / 0) (#7)
by steviez314 on Fri Mar 20, 2009 at 10:06:37 AM EST

Sweden. All bank creditors except for equity holders. Of course, in the 2 banks Sweden took over, the shareholders were wiped out.

As to your mark to market issue, it's kind of a darned if you do, darned if you don't. There's room for shenanigans on what's performing, but also the need for relaxation on performing assets. But "one rule to rule them all" just doesn't seem to work in this case, where capital ratios are so vital to the perception of a bank's viability.


Who can we trust? (5.00 / 1) (#9)
by Big Tent Democrat on Fri Mar 20, 2009 at 10:18:55 AM EST

: That question brings up, what is to me, one (none / 0) (#10)
by steviez314 on Fri Mar 20, 2009 at 10:29:02 AM EST

of the most pernicious side effects of 8 years of Bush.
I suspect the American people are in no mood to trust anyone anymore, except maybe Obama, and that won't last unless his policies show positive results within the next year.
At least most polls show the American people still trust the military, but I'm not sure how applicable that would be to the banking crisis (hmm..there's an idea).

On mark to market (none / 0) (#6)
by Big Tent Democrat on Fri Mar 20, 2009 at 09:52:27 AM EST

The problem is the likely corruption of the valuation process.

What do you suggest for that?


Using Sweden or any country (none / 0) (#8)
by samtaylor2 on Fri Mar 20, 2009 at 10:14:11 AM EST

That small and homogeneous as a model for us makes absolutely zero sense. Of course we can learn stuff from other countries experiences, but we should look at it as an answer to our problems.

If Tiger Woods can have a Swedish model, so can I. (5.00 / 3) (#11)
by steviez314 on Fri Mar 20, 2009 at 10:29:42 AM EST

: Okay- good point :) (5.00 / 1) (#12)
by samtaylor2 on Fri Mar 20, 2009 at 10:46:29 AM EST

Are you saying (none / 0) (#13)
by Steve M on Fri Mar 20, 2009 at 10:50:09 AM EST

that other than the mark-to-market issue, Paul Ryan has the right plan? Because I think mark-to-market is already being relaxed whether we like it or not.

: Ryan is (none / 0) (#14)
by Big Tent Democrat on Fri Mar 20, 2009 at 11:05:07 AM EST

in essence, arguing for temporary takeover of insolvent financial institutions.
Yes, I think that is the right prescription.