Learn From Mistakes

Image via WikipediaSwedish Financial Crisis (1990-1994)

Cause: In 1985, Sweden deregulated its credit market, leading to a commercial property speculation bubble. Between 1990-94, the bubble burst, leaving 90% of the banking sector with massive losses, including all of Sweden’s largest banks.

Action: The government bailed out banks that looked like they could eventually survive the crisis, nationalizing two of them. It also extended a guarantee to those banks’ creditors, which kept consumer confidence up.

It let the banks destroyed by the crisis fail. Though the government took on bad assets worth about $9.9 billion, it was eventually able to recoup the losses through dividends and reselling assets from the nationalized banks. Stockholders were left empty-handed, but taxpayers didn’t have to foot the bailout bill.

Hear that, United States?

Moral of the story: Don’t save stockholders if you can save taxpayers. Investors, who take calculated risks by investing in the stock market, are in a position to bear losses with partial responsibility. Taxpayers, meanwhile, should not be punished for someone else’s oversights.