Now that Helicopter Ben has taken nationalization off the table, the Federal Reserve and Treasury are still left with a pretty big zombie problem, and not the type with an appetite for brains that chase hapless teenagers through empty malls -- these zombies eat up billions in bailout money.
After talking to Congress Wednesday, Federal Reserve Chairman Ben Bernanke is headed back to the office to
talk to Citigroup Inc. (NYSE:C) and American International Group Inc.
(NYSE:AIG) about how much more they'll need to keep afloat and not
bring the system down with them.
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But as of yet, the Fed,
Treasury and the management of AIG or Citi have not come forward with
anything to convince markets that this is the last bailout, barring divine intervention. In fact, Bernanke's reference
to preserving the "franchise value" of nationalization candidates like
Citi only clues private capital into how little of a plan there really
is.
In an excellent post on why its better to just
kill
nationalize the zombie banks, Wall Street blog "Jeff
Matthews Is Not Making This Up"
writes:
CitiSmorgasbord is in its current form little more than a zombie
bank -- the kind of lifeless, destructive financial force U.S. wonks used
to make fun of when they roamed Japan years ago ... everybody from bond
traders to hedge funds to plain old checking account holders are
wondering about "just in case," and acting accordingly.
With investors having no idea what else lurks on the books, the
private capital that is continually hoped for is kept under the mattress
or some other safe place. The market caps of their companies clearly spell out
how much faith investors have in Citi CEO Vikram Pandit, Bank of America Corp. (NYSE:BAC) CEO Ken Lewis or AIG's Edward
Liddy, so could some bureaucrat be that much worse?
Again Jeff Matthews
writes:
The notion that Citigroup and any other zombie bank could be less badly
run under a Government shareholder than they have been under ownership
by the Fidelitys and Vanguards of the world, is hard to fathom. So why
not get it over with already? Wipe out the shareholders whose job it
was to hire managers to run the business effectively. ... Knowing the U.S.
Government backing is not only implied but tangible, depositors would
feel better about their deposits and creditors would feel better about
their credits.
And Bernanke's argument that "the counterparties and others don't want
to deal with you because they don't know your future," would evaporate,
because right now those counterparties don't have a clue what
Citigroup's future is. Markets could focus on rebuilding--not on
speculating about what-more-bad-news-might-happen-tomorrow.
With pretty much everyone, including the strong banks, getting tired of
all the hassles associated with yet another bailout for the same
institutions, the time has long passed for some other solution rather than simply throwing more money at the problem. Sometimes you just have to blow up the mall with the zombies in it to save the town. -
George White
See Jeff Matthews postSee The Deal magazine feature on TARP
