Banks: the Good, the Bad, and the Zombie

As the recession worsens, we're all learning far more than we ever wanted to know about the ins and outs of the banking industry, ground zero of the financial meltdown. And we're learning new lingo too: the news these days brings word of good banks, bad banks, zombie banks, and even banksters.

What should the government do when a major bank is failing? One solution is to create what's known as a bad bank, a federally insured operation that takes over the private bank's bad debt. When the bad (or even "toxic") assets have been unloaded onto the Federal Deposit Insurance Corporation (FDIC), the remaining good bank can have a tidy balance sheet and stay afloat.

The idea isn't a new one: in a 1956 paper optimistically entitled "Why the American Economy is Depression-Proof," famed economist Milton Friedman wrote: "The FDIC takes over its bad assets, or assumes responsibility for them, and arranges a merger of the 'bad' bank with a 'good' bank." But the first high-profile good bank/bad bank arrangement didn't happen until 1984, when Continental Illinois became insolvent. This was the first bank that was considered "too big to fail," so the FDIC bought up its bad loans and infused billions of dollars in new capital. Unfortunately, it turned out that wasn't enough to save Continental Illinois.

This time around, a modified "bad bank" structure is being proposed to help salvage Citigroup and other troubled banks. Some in the federal government would prefer using a different term, however: aggregator bank or collector bank are seen as more benign designations. New York Times columnist Gail Collins likes aggregator bank, since "it sounds like a kind of Transformer": "In a crisis, Treasury Secretary Timothy Geithner could just yell 'Aggregator, we need help!'"

Should the government be propping up banks that should have gone bust already? Many observers see these artificially resuscitated banks as nothing more than zombie banks. Just as zombies are soulless corpses brought back from the dead, "zombie banks" should by all rights have gone under. Instead, government guarantees keep the banks in their zombified state. Similar critiques have been made about zombie corporations that have avoided insolvency by taking government bailout money.

Zombie was apparently first applied to banks during the Japanese financial crisis of the 1990s. That deep long-term recession has come to be called Japan's "lost decade." Some doomsayers fear that the United States is entering its own "lost decade." We might not know what to call this period until we have some distance on it, but the current front-runner appears to be the Great Recession.

Who's at fault for this mess? Let's blame the banksters, a handy epithet that has recently emerged — or rather re-emerged, since this combination of bank(er) and gangster dates back to the early years of the Great Depression. The first known appearance is in a Sep. 5, 1932 article in Time, a magazine that has long been a fertile source of coinages. (In its neologizing heyday, Time writers concocted such terms as socialite, televangelist, and cinemactor, as well as reviving obscure words like tycoon and pundit.) Time described a disgraced banker named John Bain as a bankster, and the term spread as more banking shenanigans came to light thanks to the Pecora Commission, a Senate panel whose chief counsel was the hard-nosed assistant district attorney from New York, Ferdinand Pecora.

In 1932 the target of the bankster tag was Bain, but in 2009 it's Thain — as in former Merrill Lynch CEO John Thain, who notoriously furnished his office with, among other pricey accoutrements, a $35,000 "commode on legs." And a recent cartoon puts a modern spin on bankster, with a plutocrat rapping, "Damn It Feels Good To Be a Banksta." (That's a takeoff of the Geto Boys' hiphop anthem, "Damn It Feels Good To Be a Gangsta," memorably used in the 1999 movie Office Space.)

Want to hear more about recession-ese? Check out my recent radio appearances on Wisconsin Public Radio and Voice of America. Also be sure to read this ABC News piece featuring Visual Thesaurus contributor Nancy Friedman. As Nancy observes, the burgeoning new language of the financial crisis illustrates how "we attempt to define and control and make sense of the world." Well put.