Five Months after US Treasury Sec. Paulson asked for TARP Funds (and at this writing not having used not a dime to buy toxic assets), he now proposes yet another solution — A new US Government Owned “Aggregator Bank.”  While this idea comes not from the RTC but from the Swedish Banking Crisis of 1990–1993, it has the potential to go far afield of its stated purpose.
Sweden’s bank crisis began with Swedish bank deregulation in the late 1980s. Deregulation rapidly eased credit. Easy credit allowed intensive investment in Swedish real estate. Like our (US) recent housing bubble, Swedish real estate prices soared in the late 1980s. As easy credit pushed prices higher Swedish banks loaned more krona against quickly appreciating hard Swedish real estate assets. When the Swedish real estate market collapsed the asset “values” deflated quickly. Swedish borrowers and their creditors, the Swedish banks, found themselves suddenly illiquid.… Read the rest