While the word nationalization seems to be terrifying many observers, another technical financial term is gaining acceptability: Zombie Banks.
NYT columnist Paul Krugman used the term in a recent column; Fed Chair Ben Bernanke said in Congressional testimony that there was “no such thing as a US zombie bank.” The term even has its own wikipedia entry.
Why are even discussing what sounds like a b-grade horror flick? What is a Zombie bank?
A Zombie Bank is a financial institution whose liabilities outweighs it assets, making its net worth “less than zero.” ZBs continue to operate because of the implicit or explicit government guarantee — along with truckloads of taxpayer monies.
Consider the two biggest Zombie banks — Citigroup, and Bank of America.They have each received $45 billion in capital from the US government — far more than either bank is worth. Additionally, the US had guaranteed up to 90% of the bad assets each zombie is holding — $250 billion and $306 billion respectively.
The term comes from Japan’s lost decade following their real estate bubble. The Japanese kept their zombie banks alive, delaying the eventual recovery by a decade.
The reason I favor nationalization is that I hope we here in the US avoid a lost Japan-like decade from September 08 forward. Keeping these banks propped up with more and more taxpayer monies — the Obama Administration has proposed another $750 billion more in bank-rescue aid — is not the way out of this mess.
via WSJ Marketbeat
The New N Word: Nationalization (February 25th, 2009)
Curse of the Zombie Banks Haunts Fed
WSJ, FEBRUARY 26, 2009
There are no zombie banks, Bernanke says
MarketWatchLast update: 4:05 p.m. EST Feb. 24, 2009
Zombies Must Die
Jeff Matthews Is Not Making This Up, February 25, 2009
Obama’s Budget Proposes Up to $750 Billion More Bank-Rescue Aid
Roger Runningen and Brian Faler
Bloomberg, Feb. 26 2009
Zombie Banks Feed Off Bailout Money
NPR, February 17, 2009