I don't mean to pick on Kevin Drum, whom I really admire (and who offered a very nice response to my previous piece). But in the post I already picked on, he wrote this...

So what are the lessons [of the Swedish experience] for us? ...[W]e could consider a systemwide guarantee of all bank obligations, instead of the one-offs we've (partially) applied to Citi and BofA.

And then I read this (ht Felix Salmon):

Another top option under discussion would be to broaden a technique the government has already used in its rescue of Citigroup and Bank of America. In both instances, the government agreed to share losses with the banks on a certain group of assets. The banks agreed to take the first hit, and taxpayers are on the hook for much of the rest. In the case of Citigroup, the total amount of assets protected is more than $300 billion. This loss-insuring plan under discussion would be available to banks large and small. Ms. Bair said she and other regulators are keen to provide sweeping solutions instead of the ad hoc approaches of last year. Officials don't agree, though, on whether guarantees could be offered broadly, given the complexity and variety of instruments held by many institutions.

I think it is very important to point out that what we have done as "one-offs" for Citi and Bank of America bears absolutely no resemblance, and is quite opposed in spirit, to what the Nordics did during their banking crisis. Yes, Sweden issued a blanket guarantee of bank obligations. That was a bail-out to customers and creditors of Swedish banks, who otherwise might have seen deposits lost or loans defaulted.

What the US has done for Citi and Bank of America is put a floor under the value of the particular "toxic" assets. That means the government takes the loss before shareholders do. In Sweden they bailed out the creditors, but insisted that the stockholders, and at least in the case of Nordbanken the management, take losses before taxpayers. In the hypercapitalist US of A, we prefer to bail out creditors, stockholders, and management, full stop.

Guaranteeing obligations is arguably necessary as a means of protecting the financial system and the economy at large. Guaranteeing assets is a means of protecting incumbent institutions that might otherwise participate in the miracle of creative destruction.

If I had any more capacity for apoplexy, I would go totally apoplectic about a proposal to institutionalize transfers targeted at the most negligent and devious stakeholders in the banking crisis. Fortunately, my brain exploded months ago.