Merrill Lynch analysts seem to know which they’d prefer. In a rare glimpse of optimism this morning, analyst Michael Hartnett sees the failure of Congress to approve the Tarp/EESA yesterday as potentially clearing the way for a much-improved bailout plan – something along the lines of the Swedish model. Could this be the source of some of the mysterious market optimism we’re seeing today? The promise of new medicine for banks?
The failure of TARP legislation worsens the short-term credit situation. But in so doing it increases the likelihood of a Swedish-style recapitalization of the banking sector in the US. This chemotherapeutic event marked the September 1992 equity low in Sweden. In stark contrast, the Japanese preference for the morphine of a ‘Price Keeping Operation (PKO)’ at exactly the same time condemned Japanese equities to a multi-year bearish trading range.
Note: 100 = peak in each market. Swedish data lagged 6 months to make peak coincide with
Japanese peak. Swedish Peak = July 1990. Japanese Peak = Dec 1989.
Related links
Around the world in bailout parellels – FT Alphaville
27 things you may not have known about banking crises – FT Alphaville