Endnotes

¹This report is based on Jonung (2008; 2009) and Jonung et al. (2009). The views expressed are those of the author.

²The “It” metaphor for the Great Depression of the 1930s in the United States is taken from Chapter 1 in Minsky (1982).

³This section builds upon Chapter 2 in Jonung, Kiander, and Vartia (2009). See also Drees and Pazarbasioglu (1998) and Englund (1999) on the Swedish financial crisis.

⁴On Swedish economic polices in the post-World War II period see also Henrekson, Jonung, and Stymne (1996).

⁵For a survey of the post-World War II performance of the Swedish economy prior to the financial crisis, see Henrekson, Jonung, and Stymne (1996).

⁶Lindberg and Söderlind (1991) demonstrate that expectations of a future devaluation of the krona were well developed in the financial markets throughout the 1980s—a sign that the pegged exchange rate for the krona was not credible.

⁷The collapse of Nyckeln came as a complete surprise to the public. According to Jennergren (2002), there was no publicly available information that flagged the problems facing this company in advance.

⁸The real rate of interest determines the value of existing assets (capital stocks) as well as the value of planned investments (flow of new capital).

⁹The size of the real rate shock within the private sector can be estimated in various ways depending on the choice of period, the real rate of interest used (ex ante or ex post) and choice of taxable entity. Söderström (1996: 176) set the real rate shock as an increase from minus 3% to plus 8%, i.e. a total increase of 11 percentage points.

¹⁰See Jonung, Kiander and Vartia (2008).

¹¹See Chapter 2 in Jonung, Kiander and Vartia (2009).

¹²On this point, see Fregert and Jonung (2008) demonstrating that the inflation targeting regime after 1993 is associated with less macroeconomic uncertainty than any other policy regime since 1908.

¹³It is an open question to what extent the fiscal policy tightening contributed to or dampened the recovery.

¹⁴This section is taken and adapted from Jonung (2009), which condenses the Swedish lessons from the bank resolution of the early 1990s. In a related study, Chen et al. (2009) bring out the lessons for China today from the Nordic experience of financial liberalization in the 1980s.

¹⁵The following account is based on among others Andersson and Viotti (1999), Berg (1998), Bäckström (1997), Dennis (1998), Englund (1999), Englund and Vihriälä (2009), Heikensten (1998a and b), Ingves and Lind (1996, 1998 and 2008) and Lundgren (1998).

¹⁶See the press release given in extenso in Appendix 1 in Jonung (2009).

¹⁷The government, through the National Debt Office, was prohibited from carrying out any foreign net borrowing. This policy (valutalånenormen), launched in 1984, contributed to the private sector entering rapidly into foreign debt after the financial liberalization during the second half of the 1980s.

¹⁸The Swedish experience of blanket guarantees ranks favorably in an international context. See Laeven and Valencia (2008b) for a survey of blanket guarantees in banking crisis.

¹⁹In this case the experience of Finland served as a warning. The Finnish parliament had first settled for a limit to its bank support, which subsequently had to be revised - at considerable political cost.

²⁰Foreign firms like Arthur Andersen, McKinsey and Credit Suisse First Boston served as advisers to the Ministry of Finance and the Bankstödsnämnd. See Ingves and Lind (1998).

²¹See Ingves and Lind (2008).

²²See Bergström, Englund and Thorell (2002) and Heikensten (1998a and b).

²³This is in sharp contrast to the Japanese policy of setting high values for "bad" assets, thus freezing the real estate market for about a decade.

²⁴See Englund and Vihriälä (2009).

²⁵For positive assessments of the Swedish bank resolution approach, see among others Ergungor (2008). See also Calomiris, Klingebiel, and Laeven (2004) for a survey of alternative crisis resolution policies, although these authors draw no firm conclusions about the optimum design of resolution policies.

²⁶The Swedish record looks attractive compared to that of Japan, where the banking system remained in distress for a much longer period than in Sweden.

²⁷The cost to society in terms of lost output, industrial production foregone and loss of employment was huge. See the summary in Jonung and Hagberg (2009).

²⁸Data on gross and net fiscal costs are taken from Laeven and Valencia (2008a).

²⁹The most complete and updated attempt to evaluate the cost and returns to the taxpayers is presented by Christner and Hagbjer (2007). Building on the work by Jennergren and Näslund (1998), they take the support paid by the government during the acute phase of the crisis as a starting point and then estimate the revenues from the selling of the "bad" assets taken over by the government. They conclude that "the Swedish government has neither lost nor gained any significant amount from the subsidies" once given to the banking system.

³⁰The IMF indirectly took a part in the policy of defending the peg for the krona in 1992 by recommending budget consolidation. See Dennis (1998: 64) and Jonung (2008).

³¹See Urwitz (1998: 63). The changes in the rules were reasonable per se. The problem was that the evaluation methods should have been changed prior to, not during, the crisis.

³²Representatives from small business also complained that commercial banks unduly cut off credit to viable firms forcing unnecessary bankruptcies and forced sales.

³³Wages and bonuses paid to bankers created a public outcry in Sweden as well in the 1990s, thus becoming a problem for policymakers during the management of the financial crisis. Several attempts were made by the government to recover remuneration paid out by Nordbanken, but failed. See Lundgren (1998: 11).

³⁴The strong role of public trust in Sweden compared to the case of East Asia during the banking crises of the 1990s is highlighted by Kokko and Suzuki (2009).

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