A number of times throughout the bailout debate, we’ve suggested that the Swedish banking crisis and its recovery model might be a useful template for us to follow. The basic idea is to move big — take on bad assets, force major writedowns, nationalize some banks, and just get it all out of the way.
The Swedish model gets another plug in The Journal today, as it is presented alongside the Japanese recovery model (which didn’t work out so well). Unlike the Swedish shock and awe, the Japanese did it piecemeal, letting zombie banks live on for too long (sounds familiar already). The following chart is instructive, as it suggests the Japanese’ intolerance for pain caused the problem to linger, whereas the Swedes benefitted from the short, sharp, severe, rip-the-bandaid-off-all-at-once approach: