How Zombie Banks Can Consume Your Financial Future
Zombie banks, those no longer able to perform as banks in any meaningful sense of the word without government intervention, have the power to consume your financial future. The debt incurred in pumping up these failing banks will cost taxpayers greatly and may also lead to inflation, further dragging down the purchasing power of the dollar, causing still more harm to the taxpayer and the economy.
The language of finance is becoming as colorful as the economic crisis is broad, with such horror story inspired terms as zombie banks becoming a part of daily fiscal news and conversation. As amusing and descriptive as that particular linguistic picture may be, however, zombie banks are not a topic to be taken lightly, as these dangerous fiscal entities have the power to consume your financial future.
Zombie Banks Defined
The web of deregulation, fractional reserve banking, and creative, ever less based in tangible reality financial instruments has allowed the banking and financial services sectors numerous opportunities to monetize and leverage debt to unbelievable heights. Zombie banks, then, are those that are, by the numbers, insolvent. Their obligations outweigh their assets and the only way they are able to maintain the appearance of functionality in the world of finance is through government intervention, such as a government guarantee or, as we have seen, government bailout money.
Zombie Banks Threaten The Future
One of the problems with zombie banks, according to a February 24, 2009, article written by Drew Voros for MercuryNews.com , is that they are not functioning as banks, in the sense of making loans, making the bailout funds ineffective, as the whole point - as presented to the American people - of the bailout money is to get the banks lending and the economy moving again.
In the most obvious and short-term sense, zombie banks damage your financial future by not holding up their end of the bailout bargain. When business owners struggle to get the loans they need to continue doing business, it adversely affects our already struggling economy. Unemployment numbers are rising rapidly as businesses throughout the nation are forced to lay-off employees to stay afloat or even to close their doors completely.
However, there is a more insidious way that zombie banks affect your fiscal future. As we all well know, the government money these banks are getting is taxpayer money. Furthermore, the government didn’t just happen to have the astounding $700 billion or so used for the bailout laying around in cash, nor does it have the next round of bailout monies that are being promised. Borrowing or printing - those are the options.
Increasing the money supply via printing will lead to increased inflation, the reduction of the dollar’s purchasing power, often called the hidden tax. Thus, money saved for the future, such as for retirement will be worth less when it comes time to pay for the stuff of life. When we have inflation and low interest rates, often the minimal gains of interest accrued in a savings account are eaten up by inflation, and the account holder actually loses money by having it in the bank.
Racking up additional costs by borrowing to finance bailouts hurts the taxpayer while protecting the banks from the consequences of their actions. It is the taxpayer who will be additionally burdened with still more of his money being forcibly extracted from his budget. Odds are that today’s taxpayer’s children and grandchildren will still be paying the debts incurred for these bailouts. It is the taxpayer who will endure a reduction in essential government services, while paying more money to the government, as funds are diverted to propping up zombie banks. Children may go without textbooks, but the big names in banking won’t miss a meal.
While zombie banks do make for the sort of window dressing that may possibly convince the nations throughout the world that continuously lend America the money it needs to make it through the day to ignore their gut feelings about our solvency and continue financing us, it seems safer to just allow these slightly gruesome caricatures to die the death that they have earned. Allowing these zombie banks to continue to consume what should be regarded as finite resources is a waste of money that could be better used elsewhere to promote economic recovery and is rife with unnecessary risk to the financial future of the taxpayers who are forced to fund it.
Zombie Banks Defined
The web of deregulation, fractional reserve banking, and creative, ever less based in tangible reality financial instruments has allowed the banking and financial services sectors numerous opportunities to monetize and leverage debt to unbelievable heights. Zombie banks, then, are those that are, by the numbers, insolvent. Their obligations outweigh their assets and the only way they are able to maintain the appearance of functionality in the world of finance is through government intervention, such as a government guarantee or, as we have seen, government bailout money.
Zombie Banks Threaten The Future
One of the problems with zombie banks, according to a February 24, 2009, article written by Drew Voros for MercuryNews.com , is that they are not functioning as banks, in the sense of making loans, making the bailout funds ineffective, as the whole point - as presented to the American people - of the bailout money is to get the banks lending and the economy moving again.
In the most obvious and short-term sense, zombie banks damage your financial future by not holding up their end of the bailout bargain. When business owners struggle to get the loans they need to continue doing business, it adversely affects our already struggling economy. Unemployment numbers are rising rapidly as businesses throughout the nation are forced to lay-off employees to stay afloat or even to close their doors completely.
However, there is a more insidious way that zombie banks affect your fiscal future. As we all well know, the government money these banks are getting is taxpayer money. Furthermore, the government didn’t just happen to have the astounding $700 billion or so used for the bailout laying around in cash, nor does it have the next round of bailout monies that are being promised. Borrowing or printing - those are the options.
Increasing the money supply via printing will lead to increased inflation, the reduction of the dollar’s purchasing power, often called the hidden tax. Thus, money saved for the future, such as for retirement will be worth less when it comes time to pay for the stuff of life. When we have inflation and low interest rates, often the minimal gains of interest accrued in a savings account are eaten up by inflation, and the account holder actually loses money by having it in the bank.
Racking up additional costs by borrowing to finance bailouts hurts the taxpayer while protecting the banks from the consequences of their actions. It is the taxpayer who will be additionally burdened with still more of his money being forcibly extracted from his budget. Odds are that today’s taxpayer’s children and grandchildren will still be paying the debts incurred for these bailouts. It is the taxpayer who will endure a reduction in essential government services, while paying more money to the government, as funds are diverted to propping up zombie banks. Children may go without textbooks, but the big names in banking won’t miss a meal.
While zombie banks do make for the sort of window dressing that may possibly convince the nations throughout the world that continuously lend America the money it needs to make it through the day to ignore their gut feelings about our solvency and continue financing us, it seems safer to just allow these slightly gruesome caricatures to die the death that they have earned. Allowing these zombie banks to continue to consume what should be regarded as finite resources is a waste of money that could be better used elsewhere to promote economic recovery and is rife with unnecessary risk to the financial future of the taxpayers who are forced to fund it.
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