For you bailout lovers

An interesting editorial from the Charleston Daily Mail


...."Zombies," writer Peter Coy explains, "are debtors that have little hope of recovery but manage to avoid being wiped out thanks to support from their lenders or the government. ...

"Zombies suck life out of an economy by consuming tax money, capital and labor that would be better deployed in growing companies and sectors. Meanwhile, by slashing prices to generate sales, zombie companies can drag healthier rivals into insolvency," he said. ...

Sound familier, it should, GM, Ford, Crysler, AIG, Citi, Bank America, the list goes on and on. You can read the rest of the editorial in today's (January 22, 2009) Charleston Daily Mail.

Cato

I read the editioral Cato and I agree with it but not all the companies you listed are "zombie" corporations.

Ford refused any government money as they started the process to rid themselves of excess waste before this crises hit and as a result, post profits of over $100 million dollars in the first quarter of 2008.

Bank of America's troubles can be traced to their government mandated takeover of Country Wide and Merril Lynch and their toxic assets.

That's the problem with government mandates. They take the good down with the bad.

Ford - Opps, my bad, sorry!!

With regard to Bank America, didn't they change their charter so they would be considered a bank and thus eligable for TARP Funds, or do I have the wrong institution. I followed this ont he news and remember that one of the credit card companies changed their charter to make themselves eligable for the funding. I thought I remembered it as Bank of America, but I maybe wrong.

Yes, you are right to a good degree. The problem began with government mandates, like the Community Investment Act. Additionaly, the toxic loans on the banks books aren't as toxic as one is lead to believe. Even though Generally Accepted Accounting Practices devalue them far below thier true value, these assets still have value. Again, we can thank the good ol' government for that in a little item called Mark to Market.

However, even with all of this, that doesn't excuse the actions and policies of these mega banks. I find it interesting that a majority of community banks and the conventional loan market are in good shape.