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03/13/2012

Book Review: Zombie Banks


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Zombie-Banks

Zombies are most commonly known as undead, lifeless creatures that usually take hold of a living being through some type of supernatural force. However, as Yalman Onaran graphically illustrates in his new book, zombies can also inhabit the inanimate objects—in this case, banks. “Zombie Banks” are described as “insolvent financial institutions whose equity capital has been wiped out so that the value of their obligations is greater than their assets.” These are banks that have bankrupt balance sheets, and are kept alive by governments in the hope of avoiding financial and economic collapse.

Zombie Banks: How Broken Banks and Debtor Nations Are Crippling the Global Economy (Bloomberg) presents an in-depth overview on what a zombie banks is, why they are allowed to operate, and why the approach will inevitably fail. Through the use of exclusive reports from bank executives, regulators, politicians, and policymakers, Onaran takes the reader on a global tour of these banks—which are being kept alive in countries from the United States to Germany, Spain, and Japan. Two of the largest, Bank of America and Citibank, are in the United States.

There are costs to this government life support. One of them is very low interest rates. As Onaran concludes, "Savers are being ripped off as interest rates are being kept at zero. The hard working and thrifty are being forced to finance the reckless and foolish. The good and true support the wicked and the profligate.” Another cost the author notes is that zombie banks will gamble to quickly regain profits, rather than invest in sound economic recovery.

Clearly the author favors letting these banks fail and having them restructured; he sees this as the essential start of true economic recovery. Saving these banks, Onaran describes, will continue to fail repeatedly. There will be a lot of disagreement on this conclusion. For example, many experts who have studied the Federal Reserve's allowance of Lehman to fail see that as a major factor in the financial crisis’ severity. Worse might have followed if the Fed let some of the largest US banks fail.

This new book is the best account of the bankrupt banks kept alive by governments. Onaran details a thorough plan to eliminate these failed practices, in an effort to rebuild our economic state. It is a serious analysis of the financial crisis, and brings zombie banking, which Onaran claims is standard operating procedure for big debtor nations, to light. Although these banks are often hidden from public view and awareness, like science fiction zombies, they are lurking around us, and without a sufficient cure they will pounce again.

Yalman Onaran will be presenting his book at the New York Society of Security Analysts April 12, 2012 at 6 p.m. To register , or for more information, click here.

–Bill Hayes

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