Zombies are the monster du jour in America right now, their popularity reflected in everything from movies and TV series to Homeland Security training exercises. Even major stars such as Brad Pitt are being featured in zombie-themed movies. Even programming on Montana ABC affiliate KRTV and its CW station was interrupted by news of a zombie apocalypse today:
Zombies, with their lurching gaits and brain-craving mindlessness, are fun, lending themselves easily to ironic black humor and camp—lots more fun than those moony, overexposed vampire kids.
But real-life zombies, in the form of zombie banks, zombie corporations, zombie government agencies and zombie markets, are truly scary and life-threatening. Zombie institutions are those companies that should be dead but instead are kept alive only by the artificial life support of taxpayer-funded subsidies. The very real damage these zombies wreak on economies struggling to correct and rebound, and the life-draining, one-sided competition they inflict upon newly emerging companies is a killer.
WealthCycles wrote back in 2010 about the parallels between the United States’ bailouts of failing mega-corporations and Japan’s “Lost Decades” of propping up zombie institutions:
During the January 2013 World Economic Forum in Davos, Switzerland, Nouriel Roubini, a New York University economist, evoking zombies once again, commented on the impact of quantitative easing on the economy.
“Over time, you get zombie banking, zombie corporates, zombie households, which is damaging in the long term.”
Zombie banks and zombie corporations are organizations that continue to operate even though they are, by all objective evidence, insolvent. Their costs exceed their revenues, or they have sacrificed long-term financial solvency for short-term windfalls; or they bet client fortunes on losing propositions. The periodic bailouts of allegedly “too big to fail” (TBTF) banks, insurers and carmakers leaves in its wake bloated, impotent institutions with little or no incentive to improve efficiency, slash runaway expenses or provide better stewardship of client assets: Their leaders know that, once the clamor of public criticism has died down, politicians and central bankers won’t dare leave them to live or die by their own devices. Rather world leaders will strap on the electrodes and crank up the juice—to the political and banking establishment, a zombie economy that continues lurching along for another year or three is immensely preferable to letting the sick and ailing sectors fail and die off, making space for green shoots of new, healthy growth.
Not for us to worry, though: the Federal Deposit Insurance Corp. (FDIC) insures consumer bank deposits, so even if the bank does ultimately fail the depositors’ funds are safe. Or maybe not. In our article, How to Protect Your Family – QE3 Proves Zombie TBTF Banks are Getting Sick,we demonstrated that counting on the FDIC to save your wealth is a faulty assumption.
As recently as 2009, the FDIC’s Deposit Insurance Fund (DIF) was suffering from a $20.9 billion dollar deficit. In the last three years the DIF has taken steps to resolve the deficit, current estimates are that the reserve ratio of 1.15%, which is legally mandated, will not be reached until sometime in 2018. Five years is a long time in an era when the towering global monetary and banking pyramid scheme grows more wobbly at its top with every passing day. Do we have five years before depositors become anxious enough about bank solvency and the purchasing power of their paper currency that they demand their money? And how many more banks by then will have joined the zombie ranks?