Saturday, April 11, 2009

Zombie banks invade America

Original Link:

By Drew Voros

The modern-day zombie, as portrayed in movie classics like George Romero's "Night of the Living Dead," is driven to eat human flesh, can survive incredible physical damage and can be "killed" only by a gunshot to the head.

The banking world has its own species of zombies, made famous during Japan's devastating banking crisis of the early 1990s.

These banks have no market value, do no lending and exist solely on government aid, done to give the appearance of stability during the day while they devour taxpayers at night.

Some of our own banks are starring in a sequel invasion of the zombies, starring Bank of America and Citigroup, to name the A-listers.

The plot is the same: These banks feast on taxpayer dollars at an incredible rate until we level them with a financial gunshot to the head, or nationalization as it is called.

The Obama administration's announcement Monday that it stood ready to provide more aid to the zombie banks reaffirmed the game plan that has been at work since the fall: Protect failing banks from dying, when in fact they have been dead since October's market meltdown, and maybe even long before that.

Both the Bush and Obama administrations have heavily pushed the idea that we must not allow the BofAs and Citigroups of this country to fail. Permitting it, the mantra goes, would cause more harm to the rest of the country than to anyone responsible for running or investing in those banks. That guarantee against failure sure sounds a lot like a country with bank nationalization as a Plan B.

But at the end of the day, all you hear from the White House is that it will not nationalize any part of this country's banking industry, when in fact, we have been doing that all along. Why our leaders won't fess up to what they are actually doing is as strange as Hollywood zombie creator Romero.

Consider these facts:

The American taxpayer is the largest shareholder of BofA and Citigroup, but we have no voting shares.

Americans have poured more than $40 billion each into BofA and Citigroup, despite BofA's market capitalization of $20 billion and Citigroup's market cap of $11 billion.

Nearly half the country's mortgage market is controlled by Fannie Mae and Freddie Mac, the two mortgage giants the feds took over last year and recapitalized with $200 billion in taxpayer money.

The Federal Reserve is the largest buyer of commercial paper, the short-term loans that keep small and large businesses running now that banks have abandoned this credit market.

"Bank nationalization" really is about focusing on singular, zombie banks that are insolvent in the light of day. No one advocates complete nationalization of our banking system. There is no need for that.

Healthy banks of the country and world would enjoy feasting on the leftover parts of the BofAs and Citigroups, and taxpayers would see return on their investment.

No comments: