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Bitter Bailout Pill

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BailoutLate last year, a friend was diagnosed with triple-negative breast cancer, which is very aggressive. She went under the knife, but instead of standard therapy, she opted to undergo an alternative on the advise of friends. She did this despite research that suggested standard therapy.

The cancer then metastasized to the spine and my friend was finally convinced to undergo the standard treatment, regardless of side effects, lest the cancer spread further.

In the same way, economies that have been exposed to malignant subprime mortgages have since displayed metastasis into broader economies. The illness spread via cancerous toxic assets.

Financial instruments—with fancy acronyms derived from subprime—have proven to be the cancer of the financial system. A simple, passive remedy will not solve a virulent disease. It may just require the bitterest of pills to stop the enemy dead on its tracks.

So, for now, we won’t worry about the side effects of treatment. What matters most is to stop the disease from spreading. Buy some time, regroup, live to fight another day.

Bailout
Only in the direst of circumstances will we discover the world of difference between what we want and what we need. During times of crisis, we may not have the luxury of being choosy.

President Obama’s bailout-cum-stimulus package may not be a palatable treatment. It comes with so many seemingly unfair and painful side effects. But without it, the subprime crisis may metastasize into something worse.

The plan of using taxpayers’ money to buy toxic assets from bankers with their gold-plated begging bowls seems grossly unfair. Why must bailout funds be used to pay fat bonuses that, basically, reward failure? The wildfire of outrage that followed was understandable.

But consider this: The disease has spread so far, wide, and deep into the broader economy that consequences will be felt even more so if companies deemed “too big to fail” are allowed to do so.

Recovery
Hoping for a quick, painless recovery for the global economy is foolish. Never make any investment decision on wishful thinking rather than cold, hard facts. Know that it will take years for the damage to be reversed; years for the financial cancer cells in toxic assets to be cleansed from the system.

I, for one, will not hold my breath waiting for good news. Instead, I’m bracing myself for a torrent of bad news and resolving to face the painful symptoms of recession.

But I’m also focused on solving sundry problems that have cropped up, while keeping an eye out for glints of golden opportunities among the economic rubble. After all, there’s no harm in drafting a bottom fishing plan to scoop up bargains before others do.

Print ed: 05/09

 

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