Friday, 13 February 2009

Expensive Medicine Won`t Work if the Diagnosis is Wrong

Financial Times

Sir, Martin Wolf is absolutely right that Barack Obama`s plans are addressed to solve the wrong problem. They plan to resolve illiquidity when the problem is insolvency. Wrong diagnosis cannot lead to effective cure, no matter how expensive the prescribed medicine.

Avoiding nationalisation of the banking system while putting taxpayers` funds at risk is just incomprehensible. There is a huge difference between nationalisation as a freely chosen political doctrine and nationalisation as a rescue operation to restore confidence, re-sanitise and recapitalise the banks and as soon as possible return them to private ownership when they are perceived to be shiny enough to attract private capital.

No matter how undesirable, and although not without risks, the latter remains the fairer and more effective solution to get out if this mess as painlessly and as quickly as possible. Nationalisation would address the conundrum of what value to give to the toxic assets to hive them off to a bad bank. The transaction becomes an internal transfer between two entities owned by the taxpayer so ultimately the price is next to irrelevant. Once this is solved then we can truly proceed with the job.

Alfred Mifsud Balzan Malta

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