How Sweden Saved Their Economy And its Taxpayers
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Lessons from Sweden: How They Saved Their Economy and Paid Back Taxpayers


In 1992, the banking system was dangling in despair and its citizens were losing jobs by the thousands. Their market-oriented government was trying to calm the panic--but to little avail.

The Swedish economic collapse was largely due to financial deregulation and "short-sided economic policy at the end of its property boom," according to the New York Times.

Hmmm... economic decline after a housing-bubble burst? High numbers of citizens in foreclosure? Large-scale loss of jobs?

Sounds like history may be repeating itself nearly 16 years later and about 4,000 miles away in the United States.

But that's about where the similarities between Sweden's crisis and the current U.S. situation end.

Sweden went a different route than the U.S. government in attempting to tackle its economic crisis-and their route wound up rewarding its taxpayers.

It has yet to be determined how the U.S. government bailout plan will affect the economy and taxpayers; however, one thing is certain-taxpayers are footing most of the risk, with seemingly little reward.

According to the New York Times article, some U.S. commentators have proposed that the United States government follow Sweden's tactics, but there was little recognition from legislators and the Bush administration.

This left some financial experts scratching their heads.

After you read about the success of Sweden's economic plan, you may be too.

Sweden's Plan

Sweden didn't just bail out its banks by simply having the government take over the "bad" debt; instead, it required banks to count their losses and issue warrants to the Swedish government before it received recapitalization.

All money and assets were to be accounted for to make sure all of the "fat" was trimmed.

The government also formed two new agencies. The first was an agency that supervised institutions that needed recapitalization and the second agency sold the assets the banks held as collateral.

The government then "bled" shareholders and allowed for "no sacred cows," according the article.

In a short time, the government had seized a large part of the Swedish banking industry and the new agencies drained most of the banks' share capital before it decided to put cash into the economy.

When the markets eventually stabilized, the government took the banks public again.

Money Back to Taxpayers

Under the Swedish plan, when the "bad" assets were sold, profits went to the taxpayers so they had an equity share. In addition, the government was able to recover more money later by also selling its shares in the companies.

"If I go into a bank I'd rather get equity so that there is some upside for the taxpayer," Sweden's deputy minister of finance said at the time, according to the article.

The government made out too. Sweden went in spending 4 percent of its gross domestic product (GDP) at the time, and in the end, the final cost of the bailout plan ended up being less than 2 percent of the GDP, said the Times.

In fact, more money may still be pumped into the Swedish government, as it still owns 19.9 percent of one of the largest banks in the Baltic Sea region.

Compare that to the United States' spending about 5 percent of its GDP, with very little taxpayer rewards.

Urban Backstrom, a senior Swedish finance ministry official at the time, told The New York Times that putting taxpayers on the hook without anything in return could be a mistake because "the public will not support a plan if you leave the former shareholders with anything."

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