Decade of the Living Dead

By Nomi Prins

“Zombie Banks: How Broken Banks and Debtor Nations Are Crippling the Global Economy”

A book by Yalman Onaran

http://www.truthdig.com/arts_culture/print/decade_of_the_living_dead_20120315/

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After reading “Zombie Banks,” I interviewed Onaran. His responses underscore the importance of his book and the ongoing fallout of the widespread governmental subsidizing of zombie banks.

Nomi Prins: How would you rank the top U.S. banks from worst to least in terms of “zombieness”?

Yalman Onaran: No. 1 Bank of America, 2 Citigroup, 3 Morgan Stanley, 4 Goldman Sachs, 5 JPMorgan.

Prins: How does their zombie status hurt ordinary Americans?

Onaran: The zombieness of some of the largest banks hurts our economy because the zombies cannot fulfill their most important role of lending to consumers and companies. They try to use the money they get from the government to patch up their consistently bleeding wounds. They also make riskier bets with their money—such as writing complicated derivatives connected to the debt of troubled countries in Europe—which increases the likelihood that their final blowup will be even costlier to society than if they were stopped right now. That’s what happened in the past when zombie banks weren’t stopped in time. Taxpayers end up paying for the final mess every time and they will this time too.

Prins: Do you see us getting to a point where the zombie status is turned around?

Onaran: If the politicians wanted to kill the zombies, they could. The U.S. and many other countries have passed laws that allow them to wind down troubled banks. Even before the last crisis though, they could have done it. Politicians typically choose to muddle through though, which means letting the zombies live. If Obama finally decided to replace Geithner with a Treasury secretary more independent of the big banks, he could use Dodd-Frank reform’s resolution powers to take over and shut down the worst zombies. As presidential elections get closer and the economy refuses to improve, Obama might be tempted to go that route. Alternatively, if he loses the elections and the incoming Republican president decides to get tough on the banks, it could be done. I’m not very hopeful on either possibility though. Unfortunately, we’ll probably keep muddling through.

Prins: The OWS movement has demonstrated understandable, palpable anger toward the big banks—how can reading your book help them?

Onaran: OWS is reflecting the widespread anger throughout society toward the big banks because as unemployment lingers around 9 percent, the economy is stuck in an almost no growth zone, and bankers are back to paying themselves big bonuses and taking big risks while taking comfort from the government’s implicit guarantee to save them if their bets go sour, like in 2008. My book will give the OWS supporters a much better understanding of all the forces in finance and politics that play into this dirty game, help connect the dots between what’s happening here and in Europe. It will also help the OWS movement formulate concrete demands from our politicians so we can fix this mess. I lay out various steps the government can take to end the zombieness of the system, so the economy can move on.
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If our leaders don’t adopt any of Onaran’s suggestions, the resulting blowup will be more horrific the next time around. Patching financial injuries by printing money doesn’t make the bleeding wounds go away. Onaran tells us we have to fix the problems or suffer the devastating consequences of zombie banks eating our economic flesh for years to come.