Posts Tagged ‘zombie banks’

It’s a depression. You heard it here first.

7 March 2009

I’m not being alarmist.  It’s worth noting that before the 1930s “depression” was the standard term for a substantial economic contraction, what would now be called a recession.  The 1930s depression was termed “great” because it was indeed the worst ever, so bad that it became a proper noun, the Great Depression.  Some are calling today’s slump the Great Recession, which is a waste of keystrokes.

I remember my father calling the 1982 recession a depression, and I think he was right:  the worst slump since World War II, 10% unemployment (peaking at 10.8%), including the permanent loss of millions of industrial jobs.

Now consider the evidence for the current one:



Much ado about nationalization

25 February 2009

The word “nationalize” has at least one great use, in the punchline of a hilarious Winston Churchill story.

But in the current media firestorm over bank nationalization, maybe it’s time to abolish the word as harmful to thought.  (David Paul seems to agree.)

I’ve used the term myself and like the idea of the government temporarily seizing control of the big zombie banks, but “nationalization” has been bandied about so loosely that it’s lost its meaning.  Many people described the Bush-Paulson capital injections (via purchases of preferred stock that gave the government small nonvoting stakes in some banks) as nationalization, when they were really just crude subsidies (as Willem Buiter pointed out).  And if it’s nationalization for the government to temporarily take over a failing bank so as to help depositors and creditors,  avoid systemic risk and arrange for the orderly sale of its assets, then we’ve been doing it for over 75 years, ever since the creation of the FDIC.  In fact, by some compelling accounts, Sheila Bair’s FDIC has been the one shining light in this crisis.


Big zombies

12 February 2009

Must . . . eat . . . money

(hat tip: Julia)

Many economists have been warning that the net-worth problems of the banks are a lot bigger than the $700 billion that’s been allocated to deal with them.  Some have said a TARP II, TARP III, etc., to the tune of $2 trillion or so may be necessary to fix the banks once and for all.  Now Dr. Doom himself, Nouriel Roubini, says the banking system is just plain insolvent, and by about $3.6 trillion.  The specter of 1990s-Japan-style zombie banks in the U.S. is no longer a specter but a reality, it seems.