Attack of the Zombies !

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 truckloadsof taxpayer monies.

Consider the two biggest Zombie banks — Citigroup, and Bank of America.They have each recieved $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 respetively.

The term comes from Japan’s lost decade following their real estate bubble. The Japanese kept their zombie banks alive, delaying the eventuasl 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.

Curse of the Zombies bank-zombies.png

via WSJ Marketbeat

Previously: The New N Word: Nationalization (February 25th, 2009)

Sources: Curse of the Zombie Banks Haunts Fed Justin Scheck WSJ, FEBRUARY 26, 2009

There are no zombie banks, Bernanke says Greg Robb MarketWatchLast update: 4:05 p.m. EST Feb. 24, 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 Chris Arnold NPR, February 17, 2009

Originally published at The Big Picture blog and reproduced here with the author’s permission.