Editors in the financial press need a lot of imagination to describe the distressed world around us. Cutting jobs, slashing dividends and reducing estimates are the most common lines on the front page and hardly leave any room for poetic creativity. Enter the zombie banks. The term financial “Zombies” has been coined by economist Edward Kane to describe the problems of Japan’s lost decade. Zombies have been Big in Japan for two decades now.
Big in Japan
According to Douglas Diamond and Raghuram Rajan of the University of Chicago the Curse of the Zombie Banks Haunts Fed was published this week.In short, the weak banks can’t sell their assets at current market prices as it would put them out of business. These zombie banks can only survive by soaking money from the government. The money flowing into the crappy bank doesn’t find its way back to the society in the form of profitable loans, it just disappears in the ever-growing black hole. The zombies won’t add any value to the economy and block the way to revitalizing the financial system. A natural solution would be the zombies banks to fail, selling their toxic assets in a fire sale into stronger hands.
As happens with most of our problems, closing your eyes won’t make zombies disappear. The best advice for Obama and his economic team is get out their shotguns and aim for the head. It’s not painless, as the zombies will remind you of former respected friends – just keep in mind they are already dead. Apart from the final scene in Shawn of the Dead, no zombie will ever make it back to a useful life. And the toxic debts aren’t a comedy.
The zombie metaphor sounds too good to be true, and it is. In reality the zombie banks are hard to kill without massive collateral damage, where George A. Romero’s undeads can be gunned down with a single shot between the eyes. His zombie’s are scary because of they are with many, financial undead’s aren’t that numerous. They are just… massive.