Fed eyes Nordic-style nationalisation of US banks

The US Federal Reserve is examining the Nordic bank nationalisations of the 1990s as a possible interim solution to the US financial crisis.
The Fed has been criticised for its rescue of Bear Stearns, which critics say has degenerated into a taxpayer gift to rich bankers

The Fed has been criticised for its rescue of Bear Stearns, which critics say has degenerated into a taxpayer gift to rich bankers.

A senior official at one of the Scandinavian central banks told The Daily Telegraph that Fed strategists had stepped up contacts to learn how Norway, Sweden and Finland managed their traumatic crisis from 1991 to 1993, which brought the region's economy to its knees.

It is understood that Fed vice-chairman Don Kohn remains very concerned by the depth of the US crisis and is eyeing the Nordic approach for contingency options.

Scandinavia's bank rescue proved successful and is now a model for central bankers, unlike Japan's drawn-out response, where ailing banks were propped up in a half-public limbo for years.

While the responses varied in each Nordic country, there a was major effort to avoid the sort of "moral hazard" that has bedevilled efforts by the Fed and the Bank of England in trying to stabilise their banking systems.

Norway ensured that shareholders of insolvent lenders received nothing and the senior management was entirely purged. Two of the country's top four banks - Christiania Bank and Fokus - were seized by force majeure.

"We were determined not to get caught in the game we've seen with Bear Stearns where shareholders make money out of the rescue," said one Norwegian adviser.

"The law was amended so that we could take 100pc control of any bank where its equity had fallen below zero. Shareholders were left with nothing. It was very controversial," he said.

Stefan Ingves, governor of Sweden's Riksbank, said his country passed an act so it could seize banks where the capital adequacy ratio had fallen below 2pc. Efforts were also made to protect against "blackmail" by shareholders.

Mr Ingves said there were parallels with the US crisis, citing the use of off-balance sheet vehicles to speculate on property. All the Nordic banks were nursed back to health and refloated or merged.

The tough policies contrast with the Fed's bail-out of Bear Stearns, where shareholders forced JP Morgan to increase its Fed-led rescue offer from $2 to $10 a share. Christopher Wood, chief strategist at brokers CLSA, says the Fed's piecemeal approach has led to "appalling moral hazard".

"Shareholders have been able to lobby for a higher share price only because the Fed took over the credit risk on $30bn of the investment bank's dubious paper. The whole affair also amounts to a colossal subsidy for JP Morgan," he said.

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Companies go 'topless' at meetings

SAN FRANCISCO, March 31 (UPI) -- Distractions from laptops and other devices are causing many San Francisco companies to say they are going "topless" -- no electronic devices at meetings.

Many companies are banning electronics during meetings after getting increasing complaints of sidetracked workers slowing down productivity, the Los Angeles Times reported Monday.

"Laptops, Blackberries, Sidekicks, iPhones and the like keep people from being fully present. Aside from just being rude, partial attention generally leads to partial results," said Todd Wilkens of Adaptive Path, a San Francisco design firm

Wilkens said since his company has banned laptops from meetings they have been "a lot more productive."

Some companies argue that meetings in general are simply unproductive and should be tossed out altogether.

"No laptop meetings make sense. No meetings make even more sense," said Joe Lazarus, former director of marketing for Yahoo.

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In Wal-Mart We Trust

Scott Morgan/Getty ImagesA woman crosses a flooded Bourbon Street in the French Quarter in August, 2005 in New Orleans.

Shortly before Hurricane Katrina made landfall on the U.S. Gulf Coast on the morning of Aug. 29, 2005, the chief executive officer of Wal-Mart, Lee Scott, gathered his subordinates and ordered a memorandum sent to every single regional and store manager in the imperiled area. His words were not especially exalted, but they ought to be mounted and framed on the wall of every chain retailer -- and remembered as American business's answer to the pre-battle oratory of George S. Patton or Henry V.

"A lot of you are going to have to make decisions above your level," was Scott's message to his people. "Make the best decision that you can with the information that's available to you at the time, and above all, do the right thing."

This extraordinary delegation of authority -- essentially promising unlimited support for the decision-making of employees who were earning, in many cases, less than $100,000 a year -- saved countless lives in the ensuing chaos. The results are recounted in a new paper on the disaster written by Steven Horwitz, an Austrian-school economist at St. Lawrence University in New York. While the Federal Emergency Management Agency fumbled about, doing almost as much to prevent essential supplies from reaching Louisiana and Mississippi as it could to facilitate it, Wal-Mart managers performed feats of heroism. In Kenner, La., an employee crashed a forklift through a warehouse door to get water for a nursing home. A Marrero, La., store served as a barracks for cops whose homes had been submerged. In Waveland, Miss., an assistant manager who could not reach her superiors had a bulldozer driven through the store to retrieve disaster necessities for community use, and broke into a locked pharmacy closet to obtain medicine for the local hospital.

Meanwhile, Wal-Mart trucks pre-loaded with emergency supplies at regional depots were among the first on the scene wherever refugees were being gathered by officialdom. Their main challenge, in many cases, was running a gauntlet of FEMA officials who didn't want to let them through. As the president of the brutalized Jefferson Parish put it in a Sept. 4 Meet the Press interview, speaking at the height of nationwide despair over FEMA's confused response: "If [the U.S.] government would have responded like Wal-Mart has responded, we wouldn't be in this crisis."

This benevolent improvisation contradicts everything we have been taught about Wal-Mart by labour unions and the "small-is-beautiful" left. We are told that the company thinks of its store management as a collection of cheap, brainwash-able replacement parts; that its homogenizing culture makes it incapable of serving local communities; that a sparrow cannot fall in Wal-Mart parking lot without orders from Arkansas; that the chain puts profits over people. The actual view of the company, verifiable from its disaster-response procedures, is that you can't make profits without people living in healthy communities. And it's not alone: As Horwitz points out, other big-box companies such as Home Depot and Lowe's set aside the short-term balance sheet when Katrina hit and acted to save homes and lives, handing out millions of dollars' worth of inventory for free.

No one who is familiar with economic thought since the Second World War will be surprised at this. Scholars such as F. A. von Hayek, James Buchanan and Gordon Tullock have taught us that it is really nothing more than a terminological error to label governments "public" and corporations "private" when it is the latter that often have the strongest incentives to respond to social needs. A company that alienates a community will soon be forced to retreat from it, but the government is always there. Companies must, to survive, create economic value one way or another; government employees can increase their budgets and their personal power by destroying or wasting wealth, and most may do little else. Companies have price signals to guide their productive efforts; governments obfuscate those signals.

Aside from the public vs. private issue, Horwitz suggests, decentralized disaster relief is likely to be more timely and appropriate than the centralized kind, which explains why the U.S. Coast Guard performed so much better during the disaster than FEMA. The Coast Guard, like all marine forces, necessarily leaves a great deal of authority in the hands of individual commanders, and like Wal-Mart, it benefited during and after the hurricane from having plenty of personnel who were familiar with the Gulf Coast geography and economy.

There is no substitute for local knowledge -- an ancient lesson of which Katrina merely provided the latest reminder.

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