Have you heard the one where a Swedish model walks into a bar with Hank Paulson under one arm and a poodle under the other? We haven’t either, but it should probably involve Tiger Woods in it somewhere. (That’s his wife pictured on the right.)
But that’s not the kind of Swedish model we’re supposed talking about. Instead, we started thinking about Swedish models today because of a note from Merrill Lynch chief equity strategist Michael Hartnett.
Like Nouriel Roubini figures we’d be better off scrapping the Hank-Panke Tarp and making direct injections of public capital into troubled banks, as Sweden did in the 1990s. Hartnett thinks that by taking an aggressive and creative approach to the banking crisis, we may be able to avoid a prolonged bear market.
“The failure of TARP legislation worsens the short-term credit situation,” Hartnett says. “But in so doing it increases the likelihood of a Swedish-style recapitalization of the banking sector in the US. This chemotherapeutic event marked the September 1992 equity low in Sweden. In stark contrast, the Japanese preference for the morphine of a ‘Price Keeping Operation (PKO)’ at exactly the same time condemned Japanese equities to a multi-year bearish trading range.”
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