Equity in “bailed-out” banks should be granted to taxpayers as part of the plan to rescue America’s banking system from itself. Write, fax, or e-mail your U.S. Representative to urge them to for fight for bank equity to be part of the bailout, and for four other important improvements over H.R. 3997.
Sweden made bank equity part of the solution to its 1992 financial crisis when, according to The New York Times article, “Stopping a Financial Crisis, the Swedish Way,” by Carter Dougherty (September 22, 2008), Sweden was faced with an insolvent banking system “after years of imprudent regulation, short-sighted economic policy and the end of its property boom.” As Dougherty’s article elaborated:
Sweden did not just bail out its financial institutions by having the government take over the bad debts…. Banks had to write down losses and issue warrants to the government.
That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well.
“If I go into a bank,” said Bo Lundgren, who was Sweden’s deputy minister of finance at the time, “I’d rather get equity so that there is some upside for the taxpayer.”
The rather welcome failure of H.R. 3997 provides an opportunity for a similar strategy to be applied to the United States’ crisis, and for these four additional improvements over H.R. 3997, as outlined by a front-pager at Daily Kos:
1. Add bankruptcy judges’ ability to review and adjust first mortgages so that ordinary Americans stand a better chance of staying in their homes.
2. Put some real teeth in the caps on pay and bonuses so that Americans don't see this money as patching in the holes on executive's golden parachutes.
3. Bind the continuation of payments on this plan to Congressional approval after annual review, rather than having payments continue by default, so we—the taxpayers—only pay if the plan proves to be effective and continues to be needed.
4. Limit even further the Treasury Secretary’s power. It is paramount that the bailout provides for both review and revision.