A couple of weeks ago, the Prof and I discussed the “Swedish option,” with respect to the bailouts. When Sweden faced a similar banking crisis over a decade ago, it nationalized its banks and saved its economy. The US plan was different. Instead of nationalizing the banks, we’d just buy up their bad assets and give them some breathing room.

Taking an ownership stake is better for a lot of reasons, which is why it’s interesting to see that Paulson seems to be coming around to exactly that solution:

Treasury officials say the just-passed $700 billion bailout bill gives them the authority to inject cash directly into banks that request it. Such a move would quickly strengthen banks’ balance sheets and, officials hope, persuade them to resume lending. In return, the law gives the Treasury the right to take ownership positions in banks, including healthy ones.

Will this work? I have no idea, but it seems like owning stock in a bank is a better deal for the government than owning a whole bunch of mortgage-backed securities that no one wants.

* go see the film Be Kind, Rewind