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"America in the 1930s, or Sweden in the 1990s"

Ben S. Bernanke and Henry Paulson are under pressure to embrace the big-government policies of America in the 1930s, or Sweden in the 1990s, to contain the conflagration engulfing the U.S. housing and financial markets.
Among the ideas: Using taxpayer money to shore up the capital of loss-ridden Fannie Mae and Freddie Mac
Bloomberg 21/7 2008

Trying to envision what steps Washington might have to take, economists hearken back to the last time the country faced a nationwide decline in house prices, during the Great Depression.

Alan Blinder, a former Fed vice chairman who is now a professor at Princeton University in New Jersey, calls for the return of what he's dubbed ``The Incredible HOLC'' -- the Home Owners Loan Corp. Set up in 1933, the HOLC acquired defaulted residential mortgages from lenders and investors and then refinanced the loans on more favorable terms for the borrowers.

Sweden followed some of the same principles in dealing with its banking crisis in the early 1990s. The government was forced to take over several failing financial institutions and ended up owning about 22 percent of the country's banking-system assets.
The cost to taxpayers was close to 4 percent of Sweden's gross domestic product, according to Nicola Mai of JPMorgan Chase & Co. in London. In the U.S., that would be equivalent to more than $400 billion today.

Hans Soderstrom, a professor at the Stockholm School of Economics, isn't convinced the U.S. needs to go that far.

``Our whole banking system was collapsing,'' he says.
``I don't think the U.S. banking system is.
It's best, then, to let the private sector take the losses.''

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