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`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, t

`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. ` Hrmm...so let's see...4% of $14.14T = $565B. TARP alone was 700B - i.e. approximately 5% and that seems to not have been enough - because the Fed spent an additional $1.4T. How much more money did you want the US to spend? Obviously if it was as simple as nationalizing every single bank, they would have done that. But the US banking industry is much more complicated than any other country - much less Sweden's (with all due respect). To whit, so far this year the FDIC has 'nationalized' more banks than they did 2009. https://www.fdic.gov/bank/individual/failed/banklist.html https://www.fdic.gov/bank/individual/failed/banklist.html So they are kinda doing what you suggest, but just to show you how difficult such a task really is, they are still winding them down almost 2 years later.

pedrocr 16y ago
>How much more money did you want the US to spend? Obviously if it was as simple as nationalizing every single bank, they would have done that. But the US banking industry is much more complicated than any other country - much less Sweden's (with all due respect). If the banks had not been bailed out by TARP they could have been nationalized cheaply, restructured and relaunched. The equity holders would have been wiped out, as they should have been since their banks were broke, and the employees at these banks would not have extracted even more obscene amounts of money. By now you'd have functional banks driving the economy again. The amount of money isn't the issue here, it's the fact that it was used to prop up a failed system instead of used to restructure it. >To whit, so far this year the FDIC has 'nationalized' more banks than they did 2009. All of these banks are the small insignificant ones. None of the big ones have been restructured and most are still technically insolvent.
- marcamillion 16y ago
  TARP was a form of nationalization. It wasn't complete nationalization in EVERY case, but the government did buy bank common & preferred stocks. In AIG's case, they bought 80% of all outstanding stock - essentially nationalizing them. Everybody else, it was pittances - a few % here and there. So that goes to show the amount of money needed. If they spent so much money and only got a few % of each bank, how much more money would be needed to purchase the entire banks altogether. Not all of the banks the FDIC has nationalized are insignificant ones. It started with IndyMac which is no small bank. The notion that the banks are still technically insolvent - says who? I think the markets are the best indicator as to the health of the banks. As far as I can see, their bond spreads over Treasuries have fallen significantly in the last few months and their stocks have been rallying. So are you telling me that the markets (who are extremely sophisticated and thoroughly understand the banking industry) are being fooled by these banks? I hardly think so. BOA is up from it's low of $3, to $11.70. Citigroup (the most damaged of them all) is up to $4.17 from a low of $1.xx - the gov't owns the biggest stake in Citi than most other banks. Yes, their prices aren't as high as it used to be, but these things take time.
  - pedrocr 16y ago
    >So that goes to show the amount of money needed. If they spent so much money and only got a few % of each bank, how much more money would be needed to purchase the entire banks altogether. The banks were propped up by TARP and so their market value remained high. Without it they were probably all insolvent and so the cost of owning them would be basically zero. Otherwise the market would have been able to finance the banks. TARP was designed to feed money into banks in a very cheap way, the size of the wealth transfer from the taxpayer to Wall Street is staggering. Buffet himself got much better conditions than the Federal Government. >The notion that the banks are still technically insolvent - says who? I think the markets are the best indicator as to the health of the banks. As far as I can see, their bond spreads over Treasuries have fallen significantly in the last few months and their stocks have been rallying. There is now a quite explicit assumption that the federal government won't let the banks fail. With that and the Fed helping there's plenty of reason to think banks will continue to make money. That doesn't mean the crap on (and off) their balance sheets has stopped being crap. >So are you telling me that the markets (who are extremely sophisticated and thoroughly understand the banking industry) are being fooled by these banks? I'm saying the markets are now useless to value the banks because the value being judged includes the federal government as a crutch. There is no market pricing for the value of the banks on their own.
cynicalkane 16y ago
The fed did not "spend" anything. There are three things to remember here: * The Fed creates money * The money supply has shrunk greatly, so the Fed needs to create money anyway * The money is not given out, but traded for Treasury securities Saying the Fed spent money on banks suggests a fundamental ignorance on how these things work. If anything, the Fed spent money of the government, but that viewpoint is not accurate either, only less ignorant.
- marcamillion 16y ago
  Hrmm...so when the Fed creates money, is it not 'spent' ? Yes. Why? Because there is a bill somewhere. It might be directly on the taxpayer like when the Treasury spends it, but it is on everybody else that holds and uses US Dollar assets - by way of inflation. So yes, they did "spend". The money was technically given out - because they essentially purchased securities (not just Treasuries, but commercial paper, Mortgaged Backed paper, Gold, etc.) at significant losses to themselves in the short term - so that the banks can shore up their balance sheets. My broader point was that the US Treasury could spend only $700B, because the Fed was there to further capitalize the banks. If you want to go ahead and be a grammar natzi, then feel free. But at the end of the day, the financial institutions were given approx $2.5T cash - in exchange for a variety of things (some securities on their balance sheets, to warrants for their own common & preferred stocks). Although the Fed can create money out of thin air, the notion that it isn't spent (i.e. it has no cost to anyone) is a misguided notion because it typically has a greater cost to everyone than the Treasury doing so.

pedrocr 16y ago

>How much more money did you want the US to spend? Obviously if it was as simple as nationalizing every single bank, they would have done that. But the US banking industry is much more complicated than any other country - much less Sweden's (with all due respect). If the banks had not been bailed out by TARP they could have been nationalized cheaply, restructured and relaunched. The equity holders would have been wiped out, as they should have been since their banks were broke, and the employees at these banks would not have extracted even more obscene amounts of money. By now you'd have functional banks driving the economy again. The amount of money isn't the issue here, it's the fact that it was used to prop up a failed system instead of used to restructure it. >To whit, so far this year the FDIC has 'nationalized' more banks than they did 2009. All of these banks are the small insignificant ones. None of the big ones have been restructured and most are still technically insolvent.

marcamillion 16y ago
TARP was a form of nationalization. It wasn't complete nationalization in EVERY case, but the government did buy bank common & preferred stocks. In AIG's case, they bought 80% of all outstanding stock - essentially nationalizing them. Everybody else, it was pittances - a few % here and there. So that goes to show the amount of money needed. If they spent so much money and only got a few % of each bank, how much more money would be needed to purchase the entire banks altogether. Not all of the banks the FDIC has nationalized are insignificant ones. It started with IndyMac which is no small bank. The notion that the banks are still technically insolvent - says who? I think the markets are the best indicator as to the health of the banks. As far as I can see, their bond spreads over Treasuries have fallen significantly in the last few months and their stocks have been rallying. So are you telling me that the markets (who are extremely sophisticated and thoroughly understand the banking industry) are being fooled by these banks? I hardly think so. BOA is up from it's low of $3, to $11.70. Citigroup (the most damaged of them all) is up to $4.17 from a low of $1.xx - the gov't owns the biggest stake in Citi than most other banks. Yes, their prices aren't as high as it used to be, but these things take time.
- pedrocr 16y ago
  >So that goes to show the amount of money needed. If they spent so much money and only got a few % of each bank, how much more money would be needed to purchase the entire banks altogether. The banks were propped up by TARP and so their market value remained high. Without it they were probably all insolvent and so the cost of owning them would be basically zero. Otherwise the market would have been able to finance the banks. TARP was designed to feed money into banks in a very cheap way, the size of the wealth transfer from the taxpayer to Wall Street is staggering. Buffet himself got much better conditions than the Federal Government. >The notion that the banks are still technically insolvent - says who? I think the markets are the best indicator as to the health of the banks. As far as I can see, their bond spreads over Treasuries have fallen significantly in the last few months and their stocks have been rallying. There is now a quite explicit assumption that the federal government won't let the banks fail. With that and the Fed helping there's plenty of reason to think banks will continue to make money. That doesn't mean the crap on (and off) their balance sheets has stopped being crap. >So are you telling me that the markets (who are extremely sophisticated and thoroughly understand the banking industry) are being fooled by these banks? I'm saying the markets are now useless to value the banks because the value being judged includes the federal government as a crutch. There is no market pricing for the value of the banks on their own.

cynicalkane 16y ago

The fed did not "spend" anything. There are three things to remember here: * The Fed creates money * The money supply has shrunk greatly, so the Fed needs to create money anyway * The money is not given out, but traded for Treasury securities Saying the Fed spent money on banks suggests a fundamental ignorance on how these things work. If anything, the Fed spent money of the government, but that viewpoint is not accurate either, only less ignorant.

marcamillion 16y ago
Hrmm...so when the Fed creates money, is it not 'spent' ? Yes. Why? Because there is a bill somewhere. It might be directly on the taxpayer like when the Treasury spends it, but it is on everybody else that holds and uses US Dollar assets - by way of inflation. So yes, they did "spend". The money was technically given out - because they essentially purchased securities (not just Treasuries, but commercial paper, Mortgaged Backed paper, Gold, etc.) at significant losses to themselves in the short term - so that the banks can shore up their balance sheets. My broader point was that the US Treasury could spend only $700B, because the Fed was there to further capitalize the banks. If you want to go ahead and be a grammar natzi, then feel free. But at the end of the day, the financial institutions were given approx $2.5T cash - in exchange for a variety of things (some securities on their balance sheets, to warrants for their own common & preferred stocks). Although the Fed can create money out of thin air, the notion that it isn't spent (i.e. it has no cost to anyone) is a misguided notion because it typically has a greater cost to everyone than the Treasury doing so.