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Zombie Banks Are Devouring Our Public Money with No End in Sight

What needs to be done to protect the American taxpayer from the next round of multi-hundred billion dollar layoffs.

The following is a transcript from the Feb. 27 edition of Bill Moyers Journal.

Remember when economists poked fun at Ronald Reagan's voodoo economics? Well, now they are dead serious about so-called "zombie banks" - financial giants like Citigroup and Bank of America whose debts are greater than their assets, with stock worth less than zero, and they're only able to stay alive by devouring federal bailout bucks. Those banks, in turn, are terrified by talk that the government might come in and nationalize them. Well, some critics ask, why not? Given all this, I wanted to talk to a man with a clear-eyed perspective on the worldwide economic impact of this banking crisis.

Robert Johnson was once the Chief Economist of the Senate Banking Committee under the chairmanship of that fiercest of budget pit-bulls, the late Wisconsin Senator William Proxmire. Johnson became a Managing Director at Soros Fund Management, and now serves on a United Nations Commission recommending reforms of the international monetary and financial system. ...

Given what we know is happening around the world, are you scared?

Johnson: Yes I am.

Moyers: What scares you the most?

Johnson: That everybody will stand and watch and cater to past patterns of power. The banking system has been the dominant sector in our society and in our politics, which is heavily money driven, for a very long time. As they falter, we could stagnate, catering to their needs disproportionately while the system sinks.

Moyers: This week, a term came into play that I hadn't heard before. People refer to Citibank, Citigroup, as zombie banks. What's a zombie bank?

Johnson: A zombie bank is a bank that's insolvent that's allowed to continue its activity. It's allowed to go on living as a dead financial entity.

Moyers: And what's the threat to the financial system of a zombie bank?

Johnson: That the zombie will continue to lose more, and the taxpayer, kind of off the government's budget, will continue to experience larger and larger burden of future losses.

Moyers: So are these negotiations going on this week between Treasury and Citigroup crucial to this process?

Johnson: I think they're crucial to the process. I also think, if you're going to allow them to act as zombies, then the regulators need to be really fierce. To curtail the activities within the bank while it's motoring along, hoping for a rebound.

Moyers: This is what puzzles me. I mean, Citigroup executives who got that bank into this ditch, seem to have as much authority in dealing with the government, the Treasury, as the Treasury has in dealing with them. Does that seem right to you?

Johnson: It doesn't seem right, but it does seem real. When one looks at websites, like, and looks at the scale of campaign contributions that come from Wall Street, one understands why Wall Street, how do I say -- when they talk, people listen.

On the other side of that issue, the flood lights are so bright now we're talking about $700 billion for TARP. Obama has asked for another $750 billion in the budget this week for the banks.

We're talking a trillion and a half dollars. People can't do sneaky things on the side as easily. Because the scrutiny, the watchdogs have now arrived. They understand this is a colossal problem. So I do think there's more scope for good public policy because it's such a large and deep crisis.

Moyers: What have you learned this week about the Obama plan that encourages you?

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