26 sep 2008

Kathleen Parker: How to solve this Palin problem?


If at one time women were considered heretical for swimming upstream against feminist orthodoxy, they now face condemnation for swimming downstream – away from Sarah Palin.
To express reservations about her qualifications to be vice president – and possibly president – is to risk being labeled anti-woman.
Or, as I am guilty of charging her early critics, supporting only a certain kind of woman.
Some of the passionately feminist critics of Ms. Palin who attacked her personally deserved some of the backlash they received. But circumstances have changed since Ms. Palin was introduced as just a hockey mom with lipstick – what a difference a financial crisis makes – and a more complicated picture has emerged.
As we've seen and heard more from John McCain's running mate, it is increasingly clear that she is a problem. Quick study or not, she doesn't know enough about economics and foreign policy to make Americans comfortable with a President Palin should conditions warrant her promotion.
Yes, she recently met several heads of state as the U.N. General Assembly convened in New York. She was gracious, charming and disarming. Men swooned. Pakistan's president wanted to hug her. (Perhaps Osama bin Laden is dying to meet her?)
And, yes, she has common sense, something we value. And she's had executive experience as a mayor and a governor, though of relatively small constituencies (about 6,000 and 680,000, respectively).
Finally, Ms. Palin's narrative is fun, inspiring and all-American in that frontier way we seem to admire. When Ms. Palin first emerged as Mr. McCain's running mate, I confess I was delighted. She was the antithesis and nemesis of the hirsute, Birkenstock-wearing sisterhood – a refreshing feminist of a different order who personified the modern successful working mother.
Ms. Palin didn't make a mess cracking the glass ceiling. She simply glided through it.

It was fun while it lasted.

Ms. Palin's recent interviews with Charles Gibson, Sean Hannity and now Katie Couric have all revealed an attractive, earnest, confident candidate. Who Is Clearly Out Of Her League.
No one hates saying that more than I do. Like so many women, I've been pulling for Ms. Palin, wishing her the best, hoping she will perform brilliantly. I've also noticed that I watch her interviews with the held breath of an anxious parent, my finger poised over the mute button in case it gets too painful. Unfortunately, it often does. My cringe reflex is exhausted.
Ms. Palin filibusters. She repeats words, filling space with deadwood. Cut the verbiage, and there's not much content there. Here's but one example from her interview with Mr. Hannity:
"Well, there is a danger in allowing some obsessive partisanship to get into the issue that we're talking about today. And that's something that John McCain, too, his track record, proving that he can work both sides of the aisle, he can surpass the partisanship that must be surpassed to deal with an issue like this."
When Ms. Couric pointed to polls showing that the financial crisis had boosted Barack Obama's numbers, Ms. Palin blustered wordily: "I'm not looking at poll numbers. What I think Americans at the end of the day are going to be able to go back and look at track records and see who's more apt to be talking about solutions and wishing for and hoping for solutions for some opportunity to change, and who's actually done it?"

If b*ll-sh*t were currency, Ms. Palin could bail out Wall Street herself.

If Ms. Palin were a man, we'd all be guffawing, just as we do every time Joe Biden tickles the back of his throat with his toes. But because she's a woman – and the first on a Republican presidential ticket – we are reluctant to say what is painfully true.

What to do?

Mr. McCain can't repudiate his choice for running mate. He not only risks the wrath of the GOP's unforgiving base, but he invites others to second-guess his executive decision-making ability. Mr. Obama faces the same problem with Mr. Biden.
Only Ms. Palin can save Mr. McCain, her party and the country she loves. She can bow out for personal reasons, perhaps because she wants to spend more time with her newborn. No one would criticize a mother who puts her family first.

Do it for your country.
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‘The market tried to tell us something and no one listened’


Mohamed A. El-Erian is the co-ceo of the world's largest asset management company Pimco. An interview about the ins and outs of the credit crunch.
Mohamed El-Erian has worked through the weekend again, just like he has every other weekend over the past weeks. When the American government announced the comprehensive bail out plan for banks, he wrote a ten page investment instruction for his employees at Pimco, the largest asset manager in the world.
During an interview with El-Erian on the 49th floor of the Allianz Tower, with a view on Central Park, he looks exhausted. As Pimco’s co-ceo is responsible for Pimco’s 830 billion dollars in assets.
He says the American bailout plan is “a necessary step because the situation had to be stabilized”. But he doubts it will be sufficient. “My sense is you need to do more. We are going to look back and 700 billion will not be the final number.”
He tells how he and his people at Pimco saw the markets stumble.
"Last week the only market that still functioned was that of short term US treasuries. Suddenly the money market funds were contaminated. So something that was viewed as a very arcane Wall Street matter suddenly became a Main Street problem. Losses were imposed on the biggest money market fund, a 62 billion dollar fund. As people realized that they started pulling their money out. For the fund to get liquidity, it had to sell. But the market was dislocated. Had the authorities not acted on Friday, you would have had a very big run on the money market funds and on the banks. You would have had cascading gates where those investors would have been told: come back tomorrow, or next week, to get your money out.”
In a crisis, when one is infected anyone can get infected?
"In August last year I was trying to take a holiday, I was back in the office - at Harvard at the time - the first day, because we started sensing difficulties. I asked our people: where is our cash? And they answered by telling me how much cash we had. But that wasn’t the answer to my question. ’It is in money market funds, with the best counter parties on Wall Street', they said, after I asked again. I asked what was in the money market funds, but they didn’t know. I told them at the time: take the money out and put it in treasuries and then let’s see. That was the reaction you saw last week, multiplied a million times. That made people question the integrity of the money market segment.”
The authorities have been trying to calm down the markets for a year now. But they haven’t succeeded.
"After Lehman and AIG, the US authorities shifted from targeting institutions to targeting the system as a whole. The authorities moved from piece meal measures to a package deal. If you go back to remarks of officials you find the words 'comprehensive package' only to appear last week. Before that it was like fighting isolated fires. The next step is happening very quietly, but I think it will accelerate. We are moving from a domestic response to an international response. The ban on short selling in different countries is a first example of that.”
Did the authorities worsen the situation?
"I worked at the IMF for fifteen years, so I’ve seen crises. This is exactly what happened in the Asian crisis [in the 1990s]. The first reaction is either policymakers do not recognize the crisis, or they do not believe there is a crisis. The US is not used to crisis management, particularly in what is seen as the most sophisticated financial system in the world. There is not enough information about the crisis. And when the authorities do have information, they realize their instruments are blunt. That they are creating collateral damage. This let to rational paralysis. The central question is: how are we going to get this stabilized? Gordon Brown gave the answer this weekend: 'Three words. Whatever it takes.' And that will lead to overreaction.”
But do the authorities know what they are doing?
"They are not doing it according to some master plan. Nobody decided at the beginning of the year that investment banks would no longer exist, that they were going to nationalize Fanny and Freddy. Nobody decided that they were going to intervene in an insurance company [AIG]. But it all happened. There is a reason for this. The system was undertaking activities that the infrastructure on the policy side and on the market side could not support. The amount of activities taking place in global finance far exceeded the capability of the system. I use the metaphor of the plumbing system where you are forcing very strong new flows into a plumbing system that is too old. So it is going to blow up and then you have to clean it up. And it is not going to be nice.”
What needs to be done?
"The authorities have tried to take three steps. The first is to reliquify the system, to get things flowing again, I suspect they have to cut interest rates in a globally coordinated fashion in order to make that happen. The second is this indiscriminate selling of assets. So they provided a balance sheet which is up to 700 billion to buy assets. I suspect they have to put capital directly into some of the institutions. The third step, which is causing the biggest anxiety in the markets, is a regulatory response. It is to try and enforce circuit breakers to the system. One of course is the banning of short selling. It was necessary, but not elegant.”
Regulators did not see this crisis coming?
"The blame game has yet to begin. The government, the regulators, the credit raters, the private sector, they were all at fault at some point. The central question will be: who lost the American financial system? If you want hear a big mistake that was made on the government side, look at the off balance activities, the conduits and the SIVs [structured investment vehicles], that were completely unregulated. There were no capital requirements. Those activities were the first to go down in the crisis. And they contaminated everything else.”
Will this crisis be a turning point for regulators?
"We are going to overreact on the regulatory part now. When this is all finished, we are going to end up with a much smaller, slimmer and less risky financial system. The good news is that the likelihood of a future crisis can be reduced. The bad news is that we are going to lower the speed limit for the growth of the economy. That is a cold shower for people in this country.
"A very well-paid industry, which is what finance is, was living in a system that privatized the gains and socialized the losses. Society will not accept that. Keep in mind, the 700 billion is more than the whole social service budget of the United States."
Who, after the investment banks, are going to be the next victims?
"The fall of the investment banks was inevitable after the Fed opened up the liquidity window, with the rescue of Bear Stearns. That dissolved the difference between commercial banks and investment banks. It was only a matter of time before the other investment banks would disappear, either through bankruptcy, acquisition or a change in their business model. The next businesses under pressure are the hedge funds.
"The keyword here is leverage. Investment banks used a leverage over 30. On every dollar they owned, they borrowed over 30 to invest. When the market goes up, the profits are enormous, but the losses are as big when markets come down. The market for investing with borrowed money has dried up completely. Hedge funds work the same way, with a little less leverage.
"Further down the line you have the non-financial institutions, the AIGs of this world,. And the commercial banks, which have a 10 to 1 leverage. And there is us, without any leverage. Last year everyone said we were boring. We avoided risks, so we didn’t have high returns. But now the fact that we’re not levered is really important.”
Is this the end for leverage?
"No, the system cannot handle that. If you deleverage too quickly, you’ll shock the real economy. The 700 billion help deleverage investment banks and investors. I think the line will be drawn at the commercial banks. They invest every dollar they have ten times, but that is an acceptable risk.”
After the 1929 Great Depression it was decided to separate commercial banks and investment banks. Clinton changed that. What will happen next?
"Creative destruction is part of capitalism. Capitalism destroys parts of itself and recreates itself stronger. By its very nature has a tendency to run ahead of what the system can accommodate. But it is very significant when this happens in the financial system, because that ties everything together. We will go through this cycle again every 30 or 40 years.
"Politicians will have to make the decisions. Do we want a Wild West financial system? One that innovates, produces many things, allows homeownership to go up - which is good for society, but that will fall down once in a while. Or do we want a very regulated system? One that is safer, but doesn’t allow all these innovations. The economist [Hyman P.] Minsky wrote: stability leads to instability in a capitalistic system. And instability leads to stability.
How do you see the role of the sovereign wealth funds. They can offer the liquidity the West needs. Do you feel SWFs can balance the system?
"SWFs have what is most needed right now, and that is pure capital. They are long term investors. The bulk of them are only interested in ownership, not control. They stepped up in the last quarter of 2007 and put 60 billion dollars of pure capital in the western financial system. And they got criticized for it. Now they are sitting on losses.
"They are on the sidelines, watching the game. They don’t quite understand the rules anymore, nobody does. They won’t get involved again until the air clears. They will be part of the solution, but they are not going to be the leaders of the solution, they are going to be reactive. The speed with which the original credit crunch has changed into a global confidence crisis was unthinkable. But all the unthinkable has become thinkable in the last few months.”
What is the main characteristic of this crisis?
"The main characteristic is what you don’t see. It is happening behind the scenes: the confidence crisis between banks, the end of the market for loans, the disappearance of liquidity."
Did central banks created too much liquidity, did they over-fuel the system?
"I think that is unfair. Greenspan [Former Fed chairman] first, and after him Bernanke raised interest rates from 1 percent to 5.25. As they were raising short term interest rates, long term interest rates where coming down. This is one of the many signals that the system was sending out. But the marketplace said: these are not signals, this is noise. The market tried to tell us something and no one listened.”.
How big will the damage be?
"Let me leave you with a thought that scares me the most. So far the world is deleveraging three balance sheets. First that of US housing, which peaked in the summer of 2006. Secondly the financial sector, which peaked in the summer of 2007. The third one , which peaked this summer and now starts to deleverage, is the US consumer. The good news about all of these three things is there is a stock of wealth underneath them, to dampen the consequences.
"But there is one balance sheet out there that so far has avoided all this, but is now coming under pressure. That is the growth in emerging markets. It is slowing down. If that balance sheet is forced in contraction, the welfare implications are huge. Because those markets do not have a wealth cushion. It will mean poverty, much more pain, and much more human suffering. That’s my major concern: if this doesn’t get stopped and the tidal wave is going to hit people that are least able to survive it."
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Zbigniew Brzezinski The Grand Chess-board

The_Shah_with_Atherton,_Sullivan,_Vance,_Carter_and_Brzezinski,_1977
American Primacy And It's Geostrategic Imperatives

Key Quotes From Zbigniew Brzezinksi's Seminal Book

• "Ever since the continents started interacting politically, some five hundred years ago, Eurasia has been the center of world power."- (p. xiii)
• "... But in the meantime, it is imperative that no Eurasian challenger emerges, capable of dominating Eurasia and thus of also challenging America. The formulation of a comprehensive and integrated Eurasian geostrategy is therefore the purpose of this book.” (p. xiv)
• "In that context, how America 'manages' Eurasia is critical. A power that dominates Eurasia would control two of the world's three most advanced and economically productive regions. A mere glance at the map also suggests that control over Eurasia would almost automatically entail Africa's subordination, rendering the Western Hemisphere and Oceania geopolitically peripheral to the world's central continent. About 75 per cent of the world's people live in Eurasia, and most of the world's physical wealth is there as well, both in its enterprises and underneath its soil. Eurasia accounts for about three-fourths of the world's known energy resources." (p.31)
• “Never before has a populist democracy attained international supremacy. But the pursuit of power is not a goal that commands popular passion, except in conditions of a sudden threat or challenge to the public's sense of domestic well-being. The economic self-denial (that is, defense spending) and the human sacrifice (casualties, even among professional soldiers) required in the effort are uncongenial to democratic instincts. Democracy is inimical to imperial mobilization." (p.35)
• “The momentum of Asia's economic development is already generating massive pressures for the exploration and exploitation of new sources of energy and the Central Asian region and the Caspian Sea basin are known to contain reserves of natural gas and oil that dwarf those of Kuwait, the Gulf of Mexico, or the North Sea." (p.125)
• "In the long run, global politics are bound to become increasingly uncongenial to the concentration of hegemonic power in the hands of a single state. Hence, America is not only the first, as well as the only, truly global superpower, but it is also likely to be the very last." (p.209)
• "Moreover, as America becomes an increasingly multi-cultural society, it may find it more difficult to fashion a consensus on foreign policy issues, except in the circumstance of a truly massive and widely perceived direct external threat." (p. 211)
More Quotes
• "...The last decade of the twentieth century has witnessed a tectonic shift in world affairs. For the first time ever, a non-Eurasian power has emerged not only as a key arbiter of Eurasian power relations but also as the world's paramount power. The defeat and collapse of the Soviet Union was the final step in the rapid ascendance of a Western Hemisphere power, the United States, as the sole and, indeed, the first truly global power...” (p. xiii)
• "... But in the meantime, it is imperative that no Eurasian challenger emerges, capable of dominating Eurasia and thus of also challenging America. The formulation of a comprehensive and integrated Eurasian geostrategy is therefore the purpose of this book.” (p. xiv)
• "The attitude of the American public toward the external projection of American power has been much more ambivalent. The public supported America's engagement in World War II largely because of the shock effect of the Japanese attack on Pearl Harbor.” (pp 24-5)
• "For America, the chief geopolitical prize is Eurasia... Now a non-Eurasian power is preeminent in Eurasia - and America's global primacy is directly dependent on how long and how effectively its preponderance on the Eurasian continent is sustained.” (p.30)
• "America's withdrawal from the world or because of the sudden emergence of a successful rival - would produce massive international instability. It would prompt global anarchy." (p. 30)
• "In that context, how America 'manages' Eurasia is critical. Eurasia is the globe's largest continent and is geopolitically axial. A power that dominates Eurasia would control two of the world's three most advanced and economically productive regions. A mere glance at the map also suggests that control over Eurasia would almost automatically entail Africa's subordination, rendering the Western Hemisphere and Oceania geopolitically peripheral to the world's central continent. About 75 per cent of the world's people live in Eurasia, and most of the world's physical wealth is there as well, both in its enterprises and underneath its soil. Eurasia accounts for 60 per cent of the world's GNP and about three-fourths of the world's known energy resources." (p.31)
• “It is also a fact that America is too democratic at home to be autocratic abroad. This limits the use of America's power, especially its capacity for military intimidation. Never before has a populist democracy attained international supremacy. But the pursuit of power is not a goal that commands popular passion, except in conditions of a sudden threat or challenge to the public's sense of domestic well-being. The economic self-denial (that is, defense spending) and the human sacrifice (casualties, even among professional soldiers) required in the effort are uncongenial to democratic instincts. Democracy is inimical to imperial mobilization." (p.35)
• "Two basic steps are thus required: first, to identify the geostrategically dynamic Eurasian states that have the power to cause a potentially important shift in the international distribution of power and to decipher the central external goals of their respective political elites and the likely consequences of their seeking to attain them;... second, to formulate specific U.S. policies to offset, co-opt, and/or control the above..." (p. 40)
• "...To put it in a terminology that harkens back to the more brutal age of ancient empires, the three grand imperatives of imperial geostrategy are to prevent collusion and maintain security dependence among the vassals, to keep tributaries pliant and protected, and to keep the barbarians from coming together." (p.40)
• "Henceforth, the United States may have to determine how to cope with regional coalitions that seek to push America out of Eurasia, thereby threatening America's status as a global power." (p.55)
• "Uzbekistan, nationally the most vital and the most populous of the central Asian states, represents the major obstacle to any renewed Russian control over the region. Its independence is critical to the survival of the other Central Asian states, and it is the least vulnerable to Russian pressures." (p. 121)
• [Referring to an area he calls the "Eurasian Balkans" and a 1997 map in which he has circled the exact location of the current conflict - describing it as the central region of pending conflict for world dominance] "Moreover, they [the Central Asian Republics] are of importance from the standpoint of security and historical ambitions to at least three of their most immediate and more powerful neighbors, namely Russia, Turkey and Iran, with China also signaling an increasing political interest in the region. But the Eurasian Balkans are infinitely more important as a potential economic prize: an enormous concentration of natural gas and oil reserves is located in the region, in addition to important minerals, including gold." (p.124)
• "The world's energy consumption is bound to vastly increase over the next two or three decades. Estimates by the U.S. Department of energy anticipate that world demand will rise by more than 50 percent between 1993 and 2015, with the most significant increase in consumption occurring in the Far East. The momentum of Asia's economic development is already generating massive pressures for the exploration and exploitation of new sources of energy and the Central Asian region and the Caspian Sea basin are known to contain reserves of natural gas and oil that dwarf those of Kuwait, the Gulf of Mexico, or the North Sea." (p.125)
• "Uzbekistan is, in fact, the prime candidate for regional leadership in Central Asia." (p.130)
• "Once pipelines to the area have been developed, Turkmenistan's truly vast natural gas reserves augur a prosperous future for the country's people.” (p.132)
• "In fact, an Islamic revival - already abetted from the outside not only by Iran but also by Saudi Arabia - is likely to become the mobilizing impulse for the increasingly pervasive new nationalisms, determined to oppose any reintegration under Russian - and hence infidel - control." (p. 133).
• "For Pakistan, the primary interest is to gain Geostrategic depth through political influence in Afghanistan - and to deny to Iran the exercise of such influence in Afghanistan and Tajikistan - and to benefit eventually from any pipeline construction linking Central Asia with the Arabian Sea." (p.139)
• "Turkmenistan... has been actively exploring the construction of a new pipeline through Afghanistan and Pakistan to the Arabian Sea..." (p.145)
• "It follows that America's primary interest is to help ensure that no single power comes to control this geopolitical space and that the global community has unhindered financial and economic access to it." (p148)
• "China's growing economic presence in the region and its political stake in the area's independence are also congruent with America's interests." (p.149)
• "America is now the only global superpower, and Eurasia is the globe's central arena. Hence, what happens to the distribution of power on the Eurasian continent will be of decisive importance to America's global primacy and to America's historical legacy." (p.194)
• "Without sustained and directed American involvement, before long the forces of global disorder could come to dominate the world scene. And the possibility of such a fragmentation is inherent in the geopolitical tensions not only of today's Eurasia but of the world more generally." (p.194)
• "With warning signs on the horizon across Europe and Asia, any successful American policy must focus on Eurasia as a whole and be guided by a Geostrategic design." (p.197)
• "That puts a premium on maneuver and manipulation in order to prevent the emergence of a hostile coalition that could eventually seek to challenge America's primacy..." (p. 198)
• "The most immediate task is to make certain that no state or combination of states gains the capacity to expel the United States from Eurasia or even to diminish significantly its decisive arbitration role." (p. 198)
• "In the long run, global politics are bound to become increasingly uncongenial to the concentration of hegemonic power in the hands of a single state. Hence, America is not only the first, as well as the only, truly global superpower, but it is also likely to be the very last." (p.209)
• "Moreover, as America becomes an increasingly multi-cultural society, it may find it more difficult to fashion a consensus on foreign policy issues, except in the circumstance of a truly massive and widely perceived direct external threat." (p. 211)

FactCheck Week 43 - - 38 Days To Go


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Stopping a Financial Crisis Swedish Way


By CARTER DOUGHERTY
A banking system in crisis after the collapse of a housing bubble. An economy hemorrhaging jobs. A market-oriented government struggling to stem the panic. Sound familiar?
It does to Sweden. The country was so far in the hole in 1992 — after years of imprudent regulation, short-sighted economic policy and the end of its property boom — that its banking system was, for all practical purposes, insolvent.
But Sweden took a different course than the one now being proposed by the United States Treasury. And Swedish officials say there are lessons from their own nightmare that Washington may be missing.
Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.
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.
“If I go into a bank,” said Bo Lundgren, who was Sweden’s finance minister at the time, “I’d rather get equity so that there is some upside for the taxpayer.”
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.
But the final cost to Sweden ended up being less than 2 percent of its G.D.P. Some officials say they believe it was closer to zero, depending on how certain rates of return are calculated.
The tumultuous events of the last few weeks have produced a lot of tight-lipped nods in Stockholm. Mr. Lundgren even made the rounds in New York in early September, explaining what the country did in the early 1990s.
A few American commentators have proposed that the United States government extract equity from banks as a price for their rescue. But it does not seem to be under serious consideration yet in the Bush administration or Congress.
The reason is not quite clear. The government has already swapped its sovereign guarantee for equity in Fannie Mae and Freddie Mac, the mortgage finance institutions, and the American International Group, the global insurance giant.
Putting taxpayers on the hook without anything in return could be a mistake, said Urban Backstrom, a senior Swedish finance ministry official at the time. “The public will not support a plan if you leave the former shareholders with anything,” he said.
The Swedish crisis had strikingly similar origins to the American one, and its neighbors, Norway and Finland, were hobbled to the point of needing a government bailout to escape the morass as well.
Financial deregulation in the 1980s fed a frenzy of real estate lending by Sweden’s banks, which did not worry enough about whether the value of their collateral might evaporate in tougher times.
Property prices imploded. The bubble deflated fast in 1991 and 1992. A vain effort to defend Sweden’s currency, the krona, caused overnight interest rates to spike at one point to 500 percent. The Swedish economy contracted for two consecutive years after a long expansion, and unemployment, at 3 percent in 1990, quadrupled in three years.
After a series of bank failures and ad hoc solutions, the moment of truth arrived in September 1992, when the government of Prime Minister Carl Bildt decided it was time to clear the decks.
Standing shoulder-to-shoulder with the opposition center-left, Mr. Bildt’s conservative government announced that the Swedish state would guarantee all bank deposits and creditors of the nation’s 114 banks. Sweden formed a new agency to supervise institutions that needed recapitalization, and another that sold off the assets, mainly real estate, that the banks held as collateral. Sweden told its banks to write down their losses promptly before coming to the state for recapitalization. Facing its own problem later in the decade, Japan made the mistake of dragging this process out, delaying a solution for years.
Then came the imperative to bleed shareholders. Mr. Lundgren recalls a conversation with Peter Wallenberg, at the time chairman of SEB, Sweden’s largest bank. Mr. Wallenberg, the scion of the country’s most famous family and steward of large chunks of its economy, heard that there would be no sacred cows.
The Wallenbergs turned around and arranged a recapitalization on their own, obviating the need for a bailout. SEB turned a profit the following year, 1993.
“For every krona we put into the bank, we wanted the same influence,” Mr. Lundgren said. “That ensured that we did not have to go into certain banks at all.”
By the end of the crisis, the Swedish government had seized a vast portion of the banking sector, and the agency had mostly fulfilled its hard-nosed mandate to drain share capital before injecting cash. When markets stabilized, the Swedish state then reaped the benefits by taking the banks public again.

More money may yet come into official coffers. The government still owns 19.9 percent of Nordea, a Stockholm bank that was fully nationalized and is now a highly regarded giant in Scandinavia and the Baltic Sea region.
The politics of Sweden’s crisis management were similarly tough-minded, though much quieter. Soon after the plan was announced, the Swedish government found that international confidence returned more quickly than expected, easing pressure on its currency and bringing money back into the country. The center-left opposition, while wary that the government might yet let the banks off the hook, made its points about penalizing shareholders privately.
“The only thing that held back an avalanche was the hope that the system was holding,” said Leif Pagrotzky, a senior member of the opposition at the time. “In public we stuck together 100 percent, but we fought behind the scenes.”