Just like the crisis keeps coming back , the comparison to Sweden crisis of 1992 also keeps coming back. One keeps coming across the need to draw lessons from the crisis. I had posted about lessons from Sweden crisis of 1992 and realised how bad a job Fed/Treasury have been doing. I came across this post from Baseline Scenario where some research material is provided and also points a new article at NYT.
However, I also realised the crisis wasn’t just limited to Sweden but also engulfed Finland and Norway (Denmark avoided the crisis as the regulators tightened screws early on) . It is referred in crisis literature as Nordic Crisis of 1990s but somehow the focus is always on Sweden. Actually it is much more useful to study the Nordic crisis in totality.
- It is always useful to study different approaches for crisis management
- We need to look for situations where number of economies are facing the crisis as is the case now. Thew Nordic economies though smaller compared to US/UK etc would have faced similar constraints (as mentioned in the paper; though am yet to see any political economy literature of Nordic crisis management )
I came across this excellent speech (also as a working paper; check references as well) from Seppo Honkapohja, Bank of Finland Board Member (who is on sick leave now). The speech summarises in nut shell how the crisis started (it was financial deregulation, just like in this crisis) and how each country tried to resolve the crisis. He has some excellent graphs to show the impact of crisis on growth, employment, inflation, share prices, housing prices, credit markets etc.
Norges Bank also released a superb publication (check references) in 2004 on the crisis. The report focuses on Norway but its chapter 3 focuses on the Nordic Crisis. Check out Table 1 for the impact of crisis on 3 countries (Finland worst effected) .
Table 2 has an excellent summary of the policy responses. There is quite a bit of similarity on the policy responses except Norway not introducing asset management companies (bad banks/aggregator banks) and also issuing a blanket creditor guarnatee.
I don’t know whether the similarity in policy responses is because of countries imitating each other or coordinating with each other (coordination could be bothe xplicit and implicit). However, as they are quite similar I would believe what would work for Global distressed financial system is some kind of global coordination on bailouts and restructuring packages.
We can’t have a situation where one country promises much more and other simply bites time. This way the financial system in second would not be happy and would want a package similar to first one. This has indeed been the case as we have only seen TARP, auto sector plan etc starting from US to be applied elsewhere as well. Some economies like UK got first on a capital infusion plan which was praised and copied by US etc. However, as crisis got worse, UK also had to launch its own version of TARP. All this is also leading to a rise in protectionism. However, if we have some kind of coordination may be we see private sector getting its act together. Till then expect more lobbying (for bailouts) and indirect protectionism rising and crisis simply going on and on.
Mostly Economics 
