Stanislaus County's 9 percent foreclosure rate brings joy, fear...J.N. Sbranti
A staggering 10,700 Stanislaus County homes were lost to foreclosure during 2007 and 2008. That's nearly 9 percent of all houses and condos in the county.
Losses have been far greater in some communities. In Patterson, about 1,200 homes - almost one in five - have defaulted mortgages and have been repossessed by lenders.
Modesto also has been overwhelmed with about 5,200 foreclosed homes, more than 8 percent of its total.
The new foreclosure statistics, provided exclusively to The Bee by MDA DataQuick, show how widespread the crisis has become. Every ZIP code in the region has been hit, from rural hamlets such as Keyes (14 percent) to commuter meccas like Lathrop (21 percent).
Homeowners defaulted on nearly $3.9 billion worth of mortgages in Stanislaus since 2007, plus $6.7 billion in San Joaquin County and more than $2.4 billion in Merced County, according to ForeclosureRadar statistics.
Most streets have at least one foreclosed house, and many neighborhoods are littered with them. Most bank-owned properties are put on sale at discount prices, and many of them have become investor-owned rentals.
"Every morning I walk around the neighborhood and notice houses up for sale," said Glenn Ditman, who lives in central Modesto. Nine homes near his either are on the market or have recently become rentals.
Ditman is depressed that so many lawns, bushes and trees have died from neglect: "If I were more superstitious, I would think a ghost, werewolf or zombie would come walking out of these places, considering everything else about them appears dead."
Living with lower values
Beyond being eyesores, foreclosed houses have drastically driven down home values for homeowners who remain.
Mark Pensa said he paid $494,000 for a new Patterson home in 2006, and now it's worth less than half that.
"Most of the original (owners) on my street have walked away. But in the last few months, houses have started to sell. That's the problem: $450,000 homes now (sell for) $150,000," Pensa lamented. "What should a person do? I put $100,000 down, got a fixed-rate loan, and I'm now upside down $300,000."
Home values in many Northern San Joaquin Valley communities have declined more than 60 percent since the housing boom peaked three years ago.
"This has been very, very difficult on our residents," said Rick Robinson, Stanislaus County's chief executive officer. "We were not a wealthy community to begin with."
Robinson recalled how Stanislaus enjoyed unprecedented growth before 2006, "then our world collapsed."
When homeowners started getting into mortgage trouble because of rising adjustable-rate loans, new home sales plummeted. Construction now is nearly at a standstill: About one-tenth as many Stanislaus homes were built in 2008 as during 2005, according to building permit records.
"Many of our jobs were tied to the construction industry," said Robinson, noting how unemployment has soared to a decade-high 12.4 percent. "Now we are losing houses to foreclosure because people have lost their jobs."
Even those who remain employed have been hurt by falling home values and the spread of foreclosures, said Judith Ray, Modesto's deputy city manager.
"It puts doubt in your mind about whether you should make a purchase. There's really a loss of consumer confidence," Ray said. "The silver lining is that (falling home prices) are providing homeownership opportunities for people who before couldn't afford homes."
1st-time home buyer's dream
Alex Goodrich is among those who have benefited. The 29-year-old Navy veteran had rented a one-bedroom Sunnyvale apartment for $1,700 per month before buying his first home in Riverbank last June.
"I found a really good deal," said Goodrich, whose wife, Rose Kapp, gave birth in August to their first child, Owen.
The three-bedroom house with "a gorgeous back yard and long pool" cost $235,000. Now his monthly payments, including mortgage, taxes and insurance, are less than what he used to pay in rent.
"Even when you factor in the cost of gas," Goodrich said, his expenses are lower. The only down side, he said, is commuting 90 minutes each way to work. But Goodrich said it's worth it to live in a home he and his wife love.
Judi Alves hears lots of good news stories like that. The PMZ Real Estate agent in Modesto sold more than 150 bank-owned houses in 2008, and she said there are still great deals and sales remain brisk.
"People are able to buy a lot of square footage for a very good value," Alves said. She listed three foreclosed houses last week, and "we instantly sold all three."
Alves cited a 4-year-old Modesto house with 2,800 square feet that sold for $249,000. She said another fairly new 3,300-square-foot home in Modesto's Village I neighborhood listed at $289,000 and quickly got three purchase offers.
Besides first-time buyers taking advantage of bargain prices and near-record low interest rates, Alves said, investors are scooping up foreclosures.
"The average Joe now has an opportunity to become an investor and to add a rental home to their retirement portfolio," Alves said.
But lower home prices and the sheer volume of foreclosures has thrown local governments into a budgeting nightmare.
"It has created a hardship on us financially," said Newman City Manager Michael Holland, explaining how all kinds of revenues have fallen, from sales and property taxes to water and building fees.
More than 13 percent of Newman's homes have been foreclosed on in the last two years.
"Every neighborhood is affected, predominately the new ones," Holland said. Empty houses are causing problems for the century-old West Side city. "We have to do more code enforcement, and we're having to keep an eye out for squatters (including those who use vacant homes for parties or drug activities)."
Petty thefts also have risen in Newman's foreclosure-racked neighborhoods. Holland warned: "If it's in your front yard and not tied down, it could run off."
'Markets are bouncing back'
Stanislaus residents are hurting for money, judging by the dramatic increase in welfare rolls.
"About 25 percent of people living in this county are receiving some type of aid now," Robinson said. Food stamps, for instance, were distributed to 54,000 people during December, a 69 percent increase from six years ago.
Robinson said the county is trying to attract more jobs to turn around the economy, but "it's a daunting challenge."
State and federal lawmakers also have been trying to stop foreclosures and revive the economy, but they haven't had much success.
"The effort by the California Legislature to reduce foreclosures has now clearly failed," said Sean O'Toole, founder of ForeclosureRadar, which tracks defaults statewide. "While state Senate Bill 1137 was well-intentioned, forcing lenders to talk to homeowners won't fix this problem."
O'Toole said even though numerous lenders have loan modification programs to reduce payments to affordable levels, the plans don't counter the fact a foreclosed home in California is on average worth $180,000 less than its mortgage.
"Lowering (monthly) payments may provide a temporary fix, but lenders simply don't have sufficient reserves to lower principal balances enough to help homeowners in foreclosure escape the prison of debt their home now represents," O'Toole said.
In December, the average estimated value of a California home sold at a foreclosure auction was $283,624, but the average total loan balance was $464,270, according to ForeclosureRadar.
Statewide during 2008, O'Toole's company calculated that 251,102 homes were lost to foreclosure, costing lenders more than $108.1 billion in unpaid mortgages.
Nationwide, an estimated 1 million homes were repossessed last year, according to Foreclosures.com.
"But there is good news - a variety of indicators show that some housing markets are bouncing back, and we should see substantial improvement in 2009," predicted Alexis McGee, president of Foreclosures.com.
"In some areas like California, the housing recovery already has begun," McGee said. "Inventories of unsold homes will drop quickly this year as people realize today's deals on homes are the best they'll likely see in their lifetimes, both in terms of affordable prices and low interest rates."
Wal-Mart fight wears on residents...Daniel Thigpen
LODI - Conventional wisdom aside, there are more than two groups in the seemingly endless dispute over whether mega-retailer Wal-Mart should be allowed to build one of its giant Supercenters in Lodi.
Naturally, there are those who want it and those who don't.
There also is another camp: those saying "enough already."
"I'm getting tired of it," longtime resident Mert Sterrett said, standing outside of west Lodi's existing, regular-sized Wal-Mart store after a brief shopping trip. "Get it over with. If it's going to be, it's going to be. If it's not, it's not."
Resolution is nowhere near close. Already more than six years into it, the Supercenter ordeal has consumed not only the community but a growing mass of public resources, from drawn-out city meetings to stacks of court filings.
Even as the project is volleyed among decision-makers in the coming months, many agree Wal-Mart's fate may ultimately be decided by a judge through anticipated appeals and lawsuits. In a sense, the ongoing approval process is turning into case-building for a possible court showdown.
Wal-Mart spokesman Aaron Rios blames opponents whose legal challenges have delayed the 216,710-square-foot Supercenter project. And the costs extend beyond City Hall, he said: the worsening economy is making development more difficult, construction costs are fluctuating and job opportunities are in limbo.
"There's a lot of folks that are being negatively impacted by these delays," Rios said.
His most recent frustration: The City Council earlier this month decided to re-do a key December vote in Wal-Mart's favor after opponents alleged city leaders broke open meetings laws and restricted public comment.
"Not to delay the process, but (our) concern is about the process being fair and open to everybody," said Donald Mooney, an attorney for Citizens for Open Government, one of two groups fighting the retailer's Supercenter bid. "It's an important process, and I understand there are financial costs to the city."
The Supercenter skirmish has a long history. Developer Darryl Browman in 2002 proposed a new 40-acre shopping center at Lower Sacramento Road and Kettleman Lane, later learned to be anchored by a newer, bigger Wal-Mart store.
Three years later, city leaders approved it. Opponents sued and won on grounds a key environmental study was flawed.
Planners revised the study, Browman re-applied for the project, and, after a Planning Commission rejection of the new study and a Wal-Mart appeal, the matter is back in the hands of the City Council - for now. There are several more steps remaining before the retailer is considered for final approval.
Not all of the costs associated with running Wal-Mart through the bureaucratic maze directly impact taxpayers. But they require a growing mountain of public resources.
About $187,000 has been spent on environmental and economic studies since 2007, for instance. City planning time has cost an additional $21,000. Wal-Mart, not taxpayers, will pick up the tab. Legal expenses, which Wal-Mart also is covering, so far have exceeded $163,000.
Then there are the lengthy public meetings. A December City Council hearing lasted more than six hours, drew about 200 people and required two police officers on overtime for security.
Mayor Larry Hansen acknow-ledged the process is tedious. But there's no way around it.
"The applicant has the right to have this fully examined and decisions made," he said.
Council members soon will schedule a re-do of that December meeting. Officials say it likely won't be held until March.
The Supercenter saga
• September 2002: Developer Darryl Browman submits plans to Lodi for a new shopping center at Lower Sacramento Road and Kettleman Lane, later learned to be anchored by a Wal-Mart Supercenter.
• November 2004: Voters defeat a grass-roots group's anti-big-box ballot initiative, Measure R, which would have limited the size of retail stores to 125,000 square feet.
• February 2005: Lodi's City Council approves the Supercenter project on a 3-1 vote.
• March 2005: Stockton attorney Steve Herum, on behalf of the group Lodi First, sues the city, Wal-Mart and Browman to stop the project.
• December 2005: San Joaquin County Superior Court Judge Elizabeth Humphreys overturns Lodi's approval of the Supercenter, calling a study of the shopping center's environmental effects "legally defective."
• May 2006: The City Council rescinds its first approval of the Supercenter and calls for a new environmental impact report on the project.
• October 2007: A revised environmental analysis is released, providing a mixed assessment of Wal-Mart's predicted impact on Lodi's economy and urban decay. It concluded a Supercenter might stunt the growth and rehabilitation of business downtown and that other local retailers could lose sales or close.
• August 2008: After months of uncertainty, Wal-Mart announces it will continue pursuing a Supercenter in Lodi.
• December 2008: The City Council votes 3-2 to overturn its own Planning Commission's rejection of the new environmental analysis, keeping the Supercenter project alive.
• January 2009: The City Council decides in closed session it will rescind that key vote and re-do the meeting after opponents threatened to sue over alleged violations of open meetings laws.
Port traffic slows
Decline in demand for construction materials a factor...Reed Fujii
STOCKTON - Port of Stockton ship traffic fell in 2008, particularly due to a decline in demand for construction materials, such as cement and steel. But some other commodities showed gains, and the port, with land available for commercial and industrial development, continues to attract new projects, officials said.
"When you look at the vessel traffic, you can point to nearly all of this (drop) as steel or cement," Port Director Richard Aschieris said. "When you back out those commodities, you see a tonnage decline of just under 3 percent. We're holding steady."
Overall, ship traffic fell about 14 percent, with 149 bulk-material ships visiting the inland port last year, compared with 174 vessel stops in 2007.
In terms of cargo volume, inbound shipments in 2008 totaled nearly 3.7 million metric tons, down 23 percent from 4.8 million metric tons the year before. A metric ton is 1,000 kilograms, or a little more than 2,200 pounds.
With the building boom earlier this decade, cement imports soared, reaching nearly 2.2 million metric tons in 2006, the Stockton port's busiest year ever.
That dropped to about 1 million metric tons in 2007 and plummeted further to just under 300,000 metric tons last year, Aschieris said. That was close to, although somewhat less than, cement imports of roughly 400,000 to 450,000 metric tons annually before the building boom.
Helping offset the decline in construction materials were small gains in imports of dry and liquid fertilizers and a big jump in electric-generating windmill parts produced in Asia and bound for wind power projects in the Midwest.
The port, with two miles of rail line along the Rough and Ready Island wharf, offers the largest direct ship-to-train offloading facility on the West Coast, Aschieris said. That has helped draw a surge in windmill imports, almost an 80 percent increase in 2008 from the year before.
And the cargo is certainly welcomed by Stockton dock workers, said Gene Davenport, secretary/treasurer of International Longshore and Warehouse Union Local 54.
"In all honestly, 2007 and 2008 were almost equal," he said.
"We lost a lot of cement. The cement completely stopped just about, but we did pick it up with the windmills," Davenport said.
So of overall needs for dock workers, he said, "They're not good; they're steady. They're not bad; they're steady."
For this year, despite this month's start of seasonal rice shipments to Asia, Davenport sounded a note of caution.
"This year, with the late start on the rice, it should go longer, so we're anticipating a decent first half. But for the second half, I'm not making any predictions, because this economy just scares everybody."
Port activity waxes and wanes with economic trends, Aschieris said.
"The shipping side is volatile; it is historically volatile where you have huge swings," he said. "And we're obviously not immune to the economy."
But despite the recession, interest remains strong in development of new commercial and industrial projects on agency property, particularly on the former Rough and Ready Island Navy base that was turned over to the port in 2000.
"It looks like private sector investment overall of approximately a little more than $1 billion in the next five years," Aschieris said.
That includes plans by USG Corp. to build a $300 million wallboard plant. Although its construction has been delayed due to the construction downturn, Aschieris said company officials are still committed to its completion.
"They are still there. They are still looking at coming," he said.
"I know that what is said out there and what you generally hear is, rightfully so, a lot of doom and gloom," Aschieris said. "But when you look at what's coming forward over the next few years, I think it's flat-out exciting."
Jeff Michael, director of the Business Forecasting Center at University of the Pacific, said he expects cargo volume at the port, particularly for construction materials, to remain at low levels in 2009 and remain modest into 2010.
Despite that, he agreed with Aschieris. "The port is the center for a lot of future development in Stockton.
"Even if traffic is down a little bit this year, it's a very important part of the economy, and we expect it to grow over the long term and become increasingly important economically."
San Francisco Chronicle
Big changes ahead as state agencies brace for budget battering...Tom Stienstra, Chronicle Outdoors Writer
If you think your bank account looks bad, take a peek at Gov. Schwarzenegger's ledgers. Try to imagine what the state's looming deficit could mean for the resources agency and its parks, fish and wildlife programs.
The latest projection for the state budget, you probably heard, shows a $41 billion deficit in the next 18 months. This is Titanic vs. iceberg. In the resources agency, where most departments are already underfunded, it's King Kong vs. Bambi.
For example, last year the Governator proposed what he believed was a measly $9 million cut to state parks, and another $4 million cut for lifeguards at state beaches. That was equivalent to one-tenth of 1 percent of the state budget, or two cents per month for each state resident for one year. Yet that tiny cut would have closed 48 state park units, including 17 state parks, 17 state historic parks, three state beaches, nine state recreation areas and two state reserves, plus lifeguard services at state beaches. When public outrage quashed this proposal, State Parks Director Ruth Coleman said that by keeping the blacklisted parks open, 6.5 million people would be served.
Even less money, about $8 million, is what Fish and Game has spent the past few years to stock trout in about 350 lakes you can drive to. This year that list will roughly be cut in half by the trout v. frogs lawsuit. You'd think that would mean double the stocks at the lakes still getting fish, right? Nope, according to DFG Deputy Director Sonke Mastrup.
This past week, I spent a few days in Sacramento and another day on the phone trying to get specifics on possible cuts. Guess what? Everybody's petrified all right, but not about programs and services. From top to bottom, they're scared that they'll lose their jobs and their sweetheart retirement deals. The dreaded buzz line: "You've been terminated."
Best as I can put together, here is what they're looking at:
The governor's wife, Maria Shriver, likes parks, and that seems to count for more than you might think, but Schwarzenegger's advisers see the state park system as an endless money drain. Some of them believe the department should become self-sufficient with a budget based on user fees.
Every state parks director in history would tell you that's impossible. Fees for entrance, camping and boat launches will never cover the bill, and the prices are already high - in some cases, outrageous: A $10 entrance fee to park at Point Lobos State Reserve? $39 to camp in my pick-up truck at Seacliff? $9 to launch a boat at a lake with hardly any water, Oroville? In addition, searching for the funds to pay for the $1 billion backlog in deferred maintenance is like trying to find Pluto in the night sky.
Unless the state grants a waiver to the department of parks, state parks will be shut down on the first and third Fridays each month starting in February. That will shorten the typical weekend that starts with a Friday night arrival, and create a financial mess as campers seek refunds for dates already booked.
Over the next two years, one nightmare scenario is that the department is ordered to cut their budget proportionate to that of other state departments and agencies. If so, you'd see a meltdown of the state parks system that would resemble the end of a Terminator movie.
"First in hearts, last in wallets." I'll never forget Coleman telling me that on a hike at Mount Diablo State Park.
Fish and Game
You talk about a screwed-up mess. Fish and Game is basically funded to pay for fishing and hunting, but it is required to provide oversight for natural resources, endangered species, even potentially toxic spills on highways, plus enforcement, permits, and all kinds of stuff that has nothing to do with fishing and hunting.
Some numbers: 61 percent of anglers fish for trout, but only 7 percent of the license money goes to trout (hatcheries). About 41 percent of the DFG budget goes to biodiversity, for things like studying the mating habits of sea otters, frogs or an endangered sucker fish.
From inside the DFG, the dedicated accounts are just too tempting not to raid, such as the Bay-Delta Enhancement stamp and hatchery fund (one-third of license money is earmarked for trout by law). Jeff Shellito of California Trout, looking at the governor's budget proposal, found a $30 million "loan" from the Fish and Game Preservation Fund made to the state's General Fund. But there are no details about the impact or when (or if) the loan would ever be repaid. This is roughly equivalent to one-third of the revenue DFG projects to collect for the Fish and Game Preservation Fund in the current fiscal year.
This year's fishing license costs $60.95 with Bay-Delta and Two Rod stamps. They've finally hit a price where many seniors, those under 30, and the once-a-year angler simply will not buy it.
The best solution is to split off the DFG into a Department of Fish and Hunting that is self-funding, move all environmental work to the Department of Conservation, and shift game wardens into the California Highway Patrol.
The Department of Boating and Waterways is the one of the few departments largely insulated from cuts, because boater registration provides a perpetual income stream that is required to fund only the department. What Boating has to defend is a raid on these earmarked funds.
During a similar budget crisis in the early 1990s, then-governor Pete Wilson "diverted" $20 million from Boating and gave it to state parks, but was caught, and after a lawsuit, had to pay it back. Then, the next year, he tried to merge Boating with Parks to use boat money to solve the perpetual parks deficit, and was rebuffed there, too. Some of Gov. Wilson's henchmen now work for Schwarzenegger, so this scheme might get revived.
For now, what boaters need is not more money, but water.
One Idea for Bank Crisis: Quarantine the Bad Assets
U.S. Officials Look To Solution Used By Sweden in '91...Binyamin Appelbaum and David Cho. Staff writer Heather Landy contributed to this report.
A housing bubble bursting, banks faltering toward failure, a nation plunging into recession.
The year was 1991, and the Swedish government responded with a dramatic plan: Unpaid loans and other troubled assets would be dumped into new state-owned banks, scrubbing the banking industry of problems in the hope of sparking a lending revival.
U.S. government officials now are considering a similar plan to address the simmering financial crisis, part of a broader discussion about ways to revamp a federal rescue effort that has helped curb panic but failed to slow bank losses or increase lending.
The idea of creating a "bad bank" to quarantine troubled assets is one of several approaches being considered, but it has gained momentum among President-elect Barack Obama's economic advisers and banking regulators. With all of the approaches, there could be hitches: Several senior officials suggested that the government is likely to need more than the roughly $320 billion remaining in the financial rescue program.
The renewed focus on toxic assets completes a trip around the block for the government's rescue efforts. In October, Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry M. Paulson Jr. persuaded Congress to allocate $700 billion toward a financial rescue by describing a plan in which the government would buy troubled assets from banks. Instead, they chose to focus on direct capital investments.
The investments helped some banks endure through autumn, but bank losses have continued to grow, threatening to overwhelm the government's support and preventing the banks from finding private investors. The government was forced to fashion a pair of ad-hoc bailouts for Citigroup in November and Bank of America on Friday.
"A continuing barrier to private investment in financial institutions is the large quantity of troubled, hard-to-value assets that remain on institutions' balance sheets," Bernanke said last week. "The presence of these assets significantly increases uncertainty about the underlying value of these institutions and may inhibit both new private investment and new lending."
The government could engage in direct purchases of troubled assets, but doing so would require an enormous amount of money to buy a meaningful volume. Another option under consideration is guaranteeing to limit losses on portfolios of troubled loans, as the government has done for Bank of America and Citigroup. But officials are loath to hammer out deals with one bank after another.
Creating a bad bank is viewed as the most comprehensive approach. It is also a simple, understandable solution to a complicated problem, an important consideration in confronting what is ultimately a crisis of confidence.
But a bad bank has never been tried on this scale, nor with assets as complicated as those held by U.S. banks. Bad banks are generally formed to deal with failed banks. And in almost every prior case, the cost to the government has been significant.
The idea has generated interest among key Democrats. "It's something I am very interested in, but I'd have to see the cost," said Sen. Charles Schumer (D-N.Y.), chairman of the joint economic committee.
One precedent for the discussions is the Resolution Trust Corp., created by the government in 1989 to dispose of assets from the savings and loan industry. The RTC eventually liquidated about $400 billion in assets, at an estimated cost to the government of about $125 billion. The RTC is widely viewed as successful because it helped curb the crisis.
But it was in the business of liquidating failed banks. A new aggregator bank would have the very different mission of trying to keep banks alive.
Even if it pursues the idea of a bad bank, the Obama administration is likely to pursue other strategies, too. It has committed to investing as much as $100 billion in a program to limit foreclosures by restructuring mortgage loans, something most experts view as critical to stabilizing housing prices. The government also is embarking on efforts, mostly through the Fed, to make mortgage loans cheaper and easier to get. That would benefit banks by limiting losses and increasing demand for loans.
At the same time, experts agree that many banks will need additional capital before they can expand lending. Obama's advisers are considering a program that would require banks to match government investments with money from private investors.
For years, banks funded mortgages by packaging them into securities and selling them to investors. But when the debt bubble burst, investors stopped buying these assets because their values were tied to falling home prices.
As a result, banks had to continually mark down the assets' value. Investors who normally would have lent money to these institutions closed their wallets, fearing their money would vanish in the next round of markdowns.
Perhaps the key question for the Obama administration is how to buy these troubled assets, and how much to pay. The government cannot reasonably buy all the troubled assets in the marketplace. Instead, officials hope to restore a market for them by setting a minimum value -- the price that the government is willing to pay.
The difficulty is that banks think their assets are worth more than investors are willing to pay. If the government sides with investors, the banks will be forced to swallow the difference as a loss. If the government pays what the banks regard as a fair price, however, the markets may ignore the transactions as a bailout by another name.
Most economists favor an approach in which the government would pay market prices, and then help the banks cover the losses through a program of capital injections.
A second issue is the financial relationship between the government bank and the private banks. Bernanke described a model in which the banks would transfer their assets to the government for a combination of cash and equity in the new national bank, limiting the cost to the government.
Some financial experts, however, say investors won't be happy if the banks still have lingering ties to the bad assets.
"You really want to free the banks completely of all this toxic stuff, put it behind them and make sure they have no exposure. We're trying to resolve uncertainty here," said Simon Johnson, a professor at the Massachusetts Institute of Technology and a former chief economist at the International Monetary Fund who has advocated for months that the government create a bad bank.
At the same time, Johnson and other are increasingly critical of the government for failing to demand substantial equity stakes in the banks that it rescues, limiting the benefit to taxpayers as the private companies recover. As part of any bad bank program, they say, the government should require banks that participate to surrender to it a considerable ownership stake.
In Sweden, which experienced its own real estate bubble, help came at a heavy price. Banks had to sell the assets at a loss and surrender stock to the government. Bondholders were protected, but shareholders lost all of their money.
The government, meanwhile, was forced to nationalize two of the largest banks. It then split each of those banks into two pieces, creating a pair of bad banks to hold troubled loans. The remnant "good" banks were then merged into a single company, which was privatized.
In all, Sweden spent about $4.5 billion on the bailout and eventually recovered about $1.7 billion from asset sales, or about 38 percent of the original cost, according to a 2007 paper by O. Emre Ergungor, an economist at the Federal Reserve Bank of Cleveland.
Several U.S. economists have urged the government since last fall to consider the Sweden approach. They also find support in the example of Japan, where regulators allowed banks to struggle under piles of bad debt for years, which curtailed new lending and allowed the economy to stagnate.
The government eventually moved to clean up troubled assets, but the intervention came only after a recession that lasted through most of the 1990s, a period now commonly referred to as "the lost decade."