The Swedish Method?

I am on the record stating if and when the Government comes to their senses, the market will have a brief furious rally, without BOFA, Wells, & Citi of course. Those are the major banks that I think will be nationalized or recapitalized. The smaller regional banks will fail their Stress Tests and trade much lower if not go bankrupt.

But what about Sweden's Nationalization Efforts in the Early 90's?

In 1992, The Swedish Government took over its insolvent banks, wiped out the equity shareholders, cleaned them up, re privatized them. The problems in Sweden are small compared to the scope of our problems, but this type of solution could work here, as we are still the USA.

The Swedish Method started out badly managed, with out of control bureaucracy, but what they did do was delegate all of the details of the clean up to private bankers hired by the government. This process eventually was applied correctly and the results were smooth, although it took some time to stabilize the system.

Geithners Stress Test goes into effect Feb 25Th. This is the first important step in calculating which banks are insolvent. After figuring out who fails the test, immediately nationalize or put into receivership the insolvent banks. This will wipe out the equity shareholder, but keep the debt shareholder (Most Important) whole until depositors and short term creditors are paid. Once an institution is taken down, separate the assets into good and bad assets, The good assets can either be re floated to the public or sold to private equity. The bad assets cant be marked down to where they should be marked to, and sold off to again Private Equity.

This is not revolutionary stuff. The simplest plan is usually the easiest plan. Stop listening to the talking heads on TV, they over complicate and over analyze the situation because they want to feel important while really not knowing what they are talking about. Why in the world are we so worried about the potential losses and the subsequent chaos that would ensue in the event of nationalization, when guess what? There won't be an economy or banking system left after all is said and done. Its like Abraham Lincoln suspending Habeas Corpus during the Civil War. He took a lot of flack for it, but his reasoning was sound, "Why worry about the State of The Union, when the very loss of the Union is Inevitable"!

The government can actually break even here if they do this the right way before there is a total complete meltdown which is inevitable in the current environment.

The eventual outcomes are:

Short & Mid Term: Tremendous Pain, Chaos, and an out of control spiraling deficit that will kill any type of economic expansion, but the market will stop going down!!!! They can save the economy, the banking system, and the country long term.

Long Term: A healthy Financial System to hand over to our kids.

Bush, Paulson, Obama, and Geithner have used up all of their bullets, there are no more guns or cannons left. There are no more alternatives.

That's it....I cant make it sound any better then that.