Banks’ true colors will show once safety net’s gone

February 7th, 2009 at 06:36pm Annette LaCross

In one of the biggest I-could’ve-told-you-that moments of an otherwise busy week on Capitol Hill, a government oversight panel reported that we don’t seem to be getting a good return for our bailout money.

Was there ever any doubt?

For example, the Treasury Department secured assets valued at $14.8 billion from wheezing insurance giant American International Group in November. Unfortunately, it had given AIG $40 billion for those assets.

For those of you keeping score, that’s a loss of more than $25 billion — so far. AIG since has received an additional $110 billion from the Troubled Asset Relief Program.

Expect to take a bath on that money, too. Obviously, the federal government isn’t any better than Wall Street bankers when it comes to pricing the bad assets weighing down surviving banks.

But I don’t think the TARP money is the issue — I’ve already written most of that money off, anyway. The program has been poorly administered from the beginning, and recovery of even those funds not tied to toxic assets (is it really fair to keep calling them “assets” at this point?) is a long shot.

The bigger question for me is what happens when the zombies are off the government leash.

These aren’t the mindless, murderous, befouled creatures that lurch across movie screens. These zombies are the corporate kind. They’re lurching, to be sure, and arguably mindless, although the only thing they’ve murdered so far is the economy.

Killing zombies is a fairly straightforward process in the movies — or so the Register Star’s resident movie expert tells me. Separate the zombie’s brain from the rest of its body, Will Pfeifer says, and it’s been disabled, conveniently freeing Our Hero to move on to the next zombie.

But the new world order created by the mortgage meltdown has spawned a whole new class of zombies, and I’m afraid they’re going to be much harder to kill. Or keep alive. Whichever is worse.

As you probably could guess, a zombie company is essentially the same as a human one: It’s a dead body regenerated through mystical (or in this case governmental) means.

Such is the case with the companies floundering under crushing debt and the federal government’s largesse. They’ve been given new “life” through TARP funds, but whether that new life is warranted remains to be seen.

For the most part, corporate zombies tend to die off when the rest of the world grasps the depth of their insolvency.

But I’m not sure the feds will be able to pull the plug, particularly with companies like AIG — you remember, the one the government deemed too big to fail the day after it allowed Lehman Brothers to fall into bankruptcy and accelerate the crisis?

So the question is whether these companies are the “victims” of extraordinary circumstances — which they created — or whether flaws in their business model are finally coming due.

We might not know until it’s all over. And at least in AIG’s case, it may not ever be over.

Entry Filed under: Bailout money, Banks