When it comes to life’s lessons, markets and exchange traded funds (ETFs) in the United States may have a lot to learn from Sweden.
The parallels are uncanny: a banking system in crisis after a housing bubble collapse, job losses, a government struggling to keep its country’s inhabitants strong while working to ease the crisis. Sweden had it all, and so do we.
In fact, in 1992, Sweden’s economy was so far down a hole that the banking system was almost obsolete. Short-sighted economic policy mixed with a property boom were to blame. Sweden did something differently than what Washington is gearing up to do, though, and experts warn we may have a lot of lessons to learn from Sweden.
Sweden did not have the government bail out banks, bad debts or financial institutions. Shareholders suffered a bit and banks wrote down losses while issuing warrants to the government, reports Carter Dougherty for the New York Times.
That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well. Sweden ended up spending 4% of its GDP on bailing out banks, equal to about $18.3 billion. The final cost to the country was actually 2% of its GDP.
A few American industry experts have proposed that the United States government extract equity from banks as a price for their rescue, like Sweden did. But it does not seem to be under serious consideration yet in the Bush administration or Congress.
Will our country be a success story or a cautionary tale?
- iShares MSCI Sweden (EWD), down 21.4% year-to-date
- CurrencyShares Swedish Krona Trust (FXS), down 1.5% year-to-date
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.