Over the months of these tough economic times, the government has been providing a stimulus for major U.S. companies, such as AIG, Citigroup, etc. Now this may seem like an obvious way to start rebuilding the economy, but the problem is that these companies don’t know how to manage themselves. In other words, they have corrupt and terrible management. For example, recently the government had injected into AIG some 20 billion dollars. Next thing you know, the executives are off spending that money in some fancy resort. Even Citigroup was granted a bailout, and then attempted to purchase a 50 million dollar private jet for the top executives. In my eyes, these people are sick and corrupt. How can one even think about spending a single dollar when they’re in the situation that they are in? Anyhow, besides the terrible managing skills, my next question is: If you are the government, why are you still injecting more money into these companies and banks? The other day, the government injected another $26 billion into AIG. Honestly, the same people that can’t get them out of this situation are the same people that got them in. It’s clear that these companies are not responsible. And essentially, it’s only wasting our taxpayer’s money.
Now this is what Baker means when he say’s “let’s kill all the Zombies.” The zombies are the banks that are in the same position as AIG is in. No matter how much money we keep injecting into the banks, they’re eventually going to still have problems and it will never end or it will take a really long time. In other words, they are HOPELESS. Smith believes that we should organize the banks into three groups: the healthy, the needy, and the hopeless.
As he states, “Next, we should divide the banks into three groups: the healthy, the hopeless and the needy. Leave the healthy alone and quickly close the hopeless. The needy should be reorganised and recapitalised, preferably through private investment or debt-to-equity swaps but, if necessary, through public funds. It is time for triage.”
To clarify it, there are the healthy banks, the ones who can still manage themselves right now without the government’s health. Then there are the needy banks, which are the ones that aren’t too deep and can still revive themselves with a little help by the government. Finally, there are the hopeless banks, which are the ones what are going to fail no matter how much stimulus there is. They practically are the living dead aka zombies. They are pretty much useless. However, Baker does not mean to literally get rid of these hopeless banks. Instead, he means that the government has to get rid of the current management and take over. A good example of this would be what the government did with Citigroup last week. I believed that Citigroup was hopeless, until the government came in and took over. Maybe now they might have a chance, but it will be a long process. As for AIG, even though it is not a bank, I would consider it a hopeless company. What the government did with these two companies are two different things.
And in my personal opinion, I believe that Bank of America is a hopeless bank. I think that they’re debt is too large and essentially, it will take too long for them to come back. Realistically, injecting more money into the company is no use.
Anyways, the government needs to stop injecting money because honestly it just doesn’t work. If we keep doing so, eventually after the economy gets better, the government is going to be low on money and eventually raise the taxes. This is what happened in Japan 10 years ago. The same scenario happened to the Japanese and the country’s economy collapsed. America even advised Japan to stop stimulating the banks because it’s going to damage their economy more in the long run. And now we look like hypocrites by doing the same thing. Smith even says “the US is on its way to repeating the Japanese error of propping up dud banks and creating a moribund economy as a resuly.” We should stop now before it gets worse. And even if it does get worse, it’s better than being viewed as a fool.
