Sweden may not be a model - by Leif Pagrotsky
"The idea of a Bad Bank appears to get more and more popular day by day as a solution to all kinds of problems in countries suffering from banks paralyzed by toxic assets. Often the Swedish experience of bad banks in the early 1990’s is used as an example of how great this idea is. Some times the lessons derived from our experience are based on misunderstandings of what we actually did, and how our system worked. The initiative to set up a bad bank in Sweden was taken not by politicians, but by the management of Nordbanken. In contrast to today’s situation, the assets were not bonds, but usually entire companies. But like today’s toxic assets, there was no market and a rapid disinvestment would have triggered dramatically low prices that would have sent values of all assets in the economy tumbling, with more bank failures as a result. Furthermore, this was not a way to help private banks get rid of their troubled assets, although it is obvious that it had enormous positive side-effects on all banks. My view is that this solution was only possible because the Government was already in possession of all the assets."
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