Steve Waldman's talking tough over at Interfluidity. He's not afraid to use the 'I' word - insolvency.
What to do about zombie banks, the B of As and Citicorps that are now, for all intents and purposes, penny stocks? Are they really too big to allow them to fail, or do we just continue to let them suck the life blood out of our financial system?
I spoke with a Wells Fargo official this week who informed me that they didn't need the TARP money, and that they were pretty much pressured into taking it so as not to make B of A and Citi look bad. And he mentioned pointedly that they're loaning money big time.
But, back to the zombies. A stake through the heart? A silver bullet? Or should we go organic and sustainable and use a bulb of garlic?
Here's Steve's take. Maybe he's being a trifle harsh. Many, will recognize that he's an advocate of the Nancy Reagan method - just say no! Hat tip to Yves Smith, who mentioned Steve's excellent post on her blog, Naked Capitalism.
"Zombie banks beg for money. They are very clever. They come up with ways you can give them money while pretending not to give them money, such as guaranteeing their assets, guaranteeing new debt issues, or buying up assets at "hold to maturity" values. Just say no! A healthy financial system cannot be run by zombies. "Rescuing" insolvent banks makes about as much sense as tying string to the arms of a loved one's corpse so it can come to the dinner table as a marionette. For a while that may be comforting (or not), but pretty soon it's sure to smell really bad, and it's gonna ooze. If you think you have engineered a miraculous turnaround, you have only made matters worse. An undead bank is an abomination. It will pretend good health but hide a rot. It will afflict you, over and over and over again, with harrowing near insolvencies (cf Citibank). Dead banks must be allowed to die."