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Monday, March 31, 2008

History...will teach us nothing

If one were to look at what happened in Sweden in the early 1990's one might find a mirror up against what America is dealing with right now. Both followed through periods of financial crisis and deregulation. Both then experienced the deregulation to find new financial institutions who rely on bookkeeping and other financial manipulation techniques which help drive the real estate market soaring. Thus allowing the banking institutions and its borrowers to take on huge amounts of debt soon to become unsustainable. One a good note though, despite economic conditions that were far worse then than what the US is currently experiencing, Sweden pulled through and recovered quickly.

How did they do it? They taxed the people heavily. This wouldn't go over well in the US as people tend to not want taxes, however, they wish to have a country with all of the perks and running well. In essence, the Swedish government ended up recapitalizing the system. Similar to the Bear-Sterns takeover. But, not for the average guy...

All in all the clean up in Sweden cost the public the equivalent of 6% of annual economic output. In real dollar terms that would be approx. $850 Billion today for our debacle.

The Bear-Sterns move mimics what Sweden did for their fix. The Fed's come in and rescue big corporation, although there is only a meager handout coming to the public thus far.

It we were to move some war money to this problem we could get things solved. With more breakdowns in the negotiations for a fix, and more neighborhoods going vacant we will find the problem running away from us soon.

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