Matthew Richardson and Nouriel Roubini repeat their call for nationalizing banks in a Washington Post op-ed today: Nationalize the Banks! We Are All Swedes Now. 

Nationalizing banks is not without precedent. In 1992, the Swedish government took over its insolvent banks, cleaned them up and reprivatized them. Obviously, the Swedish banking system was much smaller than the U.S. system. Moreover, some of the current U.S. financial institutions are much larger and more complex, making analysis difficult. And today's global capital markets make gaming the system easier than in 1992. But we believe that, if applied correctly, the Swedish solution will work here.

So what about the Swedish model?  In the early 1990s, following German reunification, interest rates soared and a massive credit bubble burst.  O. Emre Ergungor and Kent Cherny of the Cleveland Fed describe the collapse and how the Swedish government responded. Bottom line: the government took over some of the nation's largest banks--something the Secretary Geithner said the Treasury would not do here.  Ergungor and Cherny chart housing price to rent ratio from the buildup of the 1980s bubble through the recession.

Note: Shaded bar indicates a recession.
Source: Statistics Sweden.

With conditions so dire, and with Swedish banks so heavily exposed to the real estate market, the banking system began to disintegrate. In 1991, two of Sweden’s largest banks, Föreningsbanken and Nordbanken, fell below their required capital levels. Afraid of a meltdown, the government guaranteed all of Nordbanken’s liabilities and took ownership of the bank, while at the same time arranging a guarantee for Förenings. When a third large institution, Gota Bank, was taken over shortly thereafter, the government was left holding 22 percent of the nation’s banking assets. Policymakers acted quickly to separate the good from the bad. Government-held assets that were deemed viable were merged under one name, Nordbanken, and permitted to continue operating. Bad assets were transferred to two asset management companies (AMCs)—Securum for Nordbanken’s assets and Retrieva for Gota’s.

The commentary is an update of some of Ergungor's past research.  For a more complete resource on understanding Sweden's approach, read his comprehensive 2007 paper here.   

Also, watch Roubini address how long he thinks this recession will last at this Bloomberg interview (during which he also makes his case for nationalizing banks).