Brad Setser claims to be surprised at this statement from a Merrill Lynch analyst:

“The failure of TARP legislation worsens the short-term credit situation. But in so doing it increases the likelihood of a Swedish-style recapitalisation of the banking sector in the U.S,’ says Merrill Lynch emerging equities strategist Michael Hartnett. The Swedish government in Sept 1992 decided to guarantee the whole banking system and transfer bad debt to state ownership. ‘This chemotherapeutic event marked the beginning of a multi-year bull market in Swedish equities,’ Hartnett says.”

Setser says:

This crisis has produced a lot of surprises.

I never thought I would see the Wall Street that pitched privatization as the solution to most of the emerging world’s problems in the 1990s enthusiastically welcome (partial) state ownership through sovereign wealth funds. That though may have reflected my own naivete. Fees talk; many large fund managers have been close to the big sovereign funds for some time.

Yes, Brad that is naivete. Wall Street is always bullish. Setser also seems surprised at faux conservative David Brooks:

I never thought David Brooks would channel Dani Rodrik and warn of the danger of too much capital sloshing around – and imply that financial liberalization had gone too far. That concern presumably extends to too much Chinese central bank money sloshing around; China after all was the ultimate source of a lot of the money sloshing through the US housing market.

Brooks is a fan of big government conservatism and no one should be surprised that he supports more government. The only thing that surprises me is that last sentence by Setser:

That concern presumably extends to too much Chinese central bank money sloshing around; China after all was the ultimate source of a lot of the money sloshing through the US housing market. (emphasis added)

I didn’t know the Chinese had the authority to manufacture dollars. I have read Setser’s site for a long time because he is good at tracking down money flows, but this statement really makes me wonder whether I’m wasting my time there. If the Chinese had converted their surplus dollars to another currency and invested elsewhere, those dollars would have still found their way back  to the US. The dollars would exist even if they were transferred to a third party. The source of the dollars is the Fed; you can’t blame the Chinese for our monetary policy mistakes.