[quote=TheBreeze]For those of you who like to rely on experts, Bill Black is an expert from the S&L scandal and he disagrees with the policy of bank zombification:
It’s a half-hour interview, but there’s so much good stuff in there it’s well worth listening to. His comments on zombification start at about the 20-minute mark.
You also have this article from a fomer chief economist of the International Monetary Fund:
It appears that the good regulators are against zombification whereas most banking insiders and politicians are for it.
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Eh, I like Bill Black and the interview was ok. Basically he’s pointing out things that are obvious, however. Regarding his thoughts on Zombie banks he – like many others – trots out the “Japan Argument” without also noting the MANY ways in which our situation is much different than Japan’s. For just one example, we have already charged off almost $800 billion in loans in our domestic financial system. It took Japan almost 8 years to address its bank losses and start recapitalizing. Also, Japan’s loan losses ultimately ended up amounting to almost 22% of its pre-crisis GDP. If we end up at $1.5 trillion in realized losses (domestic alone – which would translate into maybe $3 trillion in global credit losses), we’ll be at around 10% of (reduced) GDP. Finally, Japan’s bubble was 2.5x the size of our bubble relative to GDP and almost all domestic, while over a quarter of our “losses” will be realized by foreigners. I could go on.
It’s funny, it seems like a lot of folks think that if we don’t shut down every bank tomorrow then “we’re going down the same path as Japan.” We’ve been far more proactive with respect to realizing losses, using fiscal policy, and easing monetary policy than Japan was. BUT… clearly the Officialdom doesn’t want to take all of the medicine at once. So, while we’re not exactly racing down the “clean out the dreck” track, we’re FAR ahead of where Japan was at the same point in their crisis. There is a middle ground, after all.
Regarding Black’s interview, I don’t like to pit “expert against expert” in these discussions because it’s pointless – you can always find someone smart who’s on the other side of an argument. That’s what makes a market.
Your final statement – “It appears that the good regulators are against zombification whereas most banking insiders and politicians are for it” – is kind of absurd. Who is defining “good regulators”? You? And I know “banking insiders” that would be happy to see Citi and BofA disappear. So, this is pure conjecture on your part. A more defensible statement would be that “some” or “many” are against zombification, etc. I would agree with that. Reasonable people can disagree.
