April 30, 2009

The acknowledged masters of bank rescues say the Obama administration plan for saving the U.S. banking industry may be doomed.While the U.S. has funneled tens of billions of dollars to embattled banks such as Citigroup, Sweden temporarily took over two banks late last year and then sold them back to private investors at a roughly 50% profit three months later, says Swedish Finance Minister Anders Borg.U.S. officials should confront the financial industry's political power and seize temporary ownership of troubled banks, Borg says. Otherwise, error-prone bankers will be bailed out at taxpayer expense.

"We can't let them get away with the fact that they've been reckless," Borg told a group of economists while attending the recent International Monetary Fund and World Bank meetings here.During a crisis in the early 1990s, Sweden successfully rehabilitated its banking system via temporary nationalization. The government divided the industry into healthy banks and troubled institutions. It pumped capital into the healthy ones, while punishing their shareholders, and held onto the troubled assets until their values recovered.Borg says that approach better protected taxpayers than the current U.S. strategy.