Sweden really does rule. What Mervyn King and Gordon Brown have agreed today is, essentially, the Swedish 1992 bank bailout plan, (NYT write-up here). It was authored by the same conservative government which introduced the voucher school model that the Tories are proposing to replicate. While the UK bailout is comparable to the Paulson plan in the US (adjusting for the size of the respective economies) in terms of scale, it is a far better plan. And this is where Gordon Brown does deserve some credit. Instead of buying toxic waste, as Paulson proposes, the UK taxpayer is injecting capital and taking preference shares. This means that if the economy turns around, the UK shareholder will be first in line for the dividends. If the banks go bust, we’ll be first in line for asset sales upon liquidation. The US taxpayer, by contrast, can kiss goodbye to that $700bn because I suspect that toxic waste will just be buried somewhere. The UK/Swedish plan is, of course, part-nationalisation. But this is only because the taxpayer would have equity for their money – and quite right too.
In the US, Paulson just wants to do corporate liposuction, hoovering up the gunk. The Swedes didn’t make a profit on their bailout, but reduced the loss from 5 percent to 2 percent of GDP. They also had a global economic upswing to help them – and this is a huge difference. We could be looking at a L-shaped downturn.
Like the Paulson Plan there is just so, so much to this plan that we don’t know. How many banks will take the £50bn Tier 1 Capital pot, whether it will become £100bn or £200bn pot and who will pay for it. Sorry, we do know: we will all pay for it. Darling’s Mais lecture tonight should, I hope, level with the British public and let us know we’ll all be getting the bill.
Hat tip: Johan Norberg
PS I know the phrase “in fairness to Brown” will jar with some CoffeeHousers. After the stunt Brown and Darling pulled taking false credit for the Special Liquidity Scheme, I’ll reserve the right o revise my opinion on who authored today’s bailout plan. But for now, I’ll take Brown at his word.
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