DealZone

Everyone’s a zombie now

November 17, 2008

The term “zombie” has been bandied about by commentators at distressed companies with growing frequency lately, at the risk of becoming the latest cliché in the business world’s vernacular.

So what exactly is a zombie?

According to Forbes Digital’s online financial dictionary Investopedia, Zombies are companies that:

“continue to operate even though they are insolvent or near bankruptcy. Most analysts expect zombie companies to be unable to meet their financial obligations.”

Sound familiar? It should, given how many formerly blue chip companies from AIG and General Motors, have been acting like the Walking Dead, turning to the government, tin cup in hand, and asking whether it can spare tens a few trillion dimes to help them stay afloat. That has prompted more and more commentators to wonder whether these supplicants can or should be saved at all.

A quick scan of the Factiva news article database shows how quickly the term has found traction in our lexicon, particularly since mid September when the financial crisis exploded.
Here are some examples of where the term has popped up lately:

In Monday’s “Heard on the Street” in the Wall Street Journal:
“If the government fails to address oversupply, the result could be zombie companies — or even a zombie economy along the lines of Japan during the 1990s.”

In today’s Lex column in the Financial Times:
“Detroit is burning cash in the belief Washington will ply it with more. Sustaining zombies on life support is no way to build a healthy economy or promote free trade in a recession.”

In an October blog by Harvard economics prof and former chairman of President Bush’s Council of Economic Advisers Greg Mankiw :
“The government does not want to put taxpayer money into “zombie” firms that are in fact deeply insolvent but have not yet recognized it.”

Comments
6 comments so far | RSS Comments RSS

All blue chips older more than 30 years should be considered “scratch”, in the sense You need to scratch their balance sheets to find real figures. Again, using the definition suggested by reuters editors, zombie too can be applied to all blue chips older than 30 years, they need new directions, but there is no time left

Posted by riccardo scaglia | Report as abusive
 

No bailouts by criminals (fed gov) for criminals.

Posted by NO | Report as abusive
 

Another term that should become popular is “morphing” .

Life insurance companies, American Express and others in order to get bail out money are buying banks and “reinventing” themselves for the bucks. Congress and the Feds need to put a stop to this MORPHING practice immediately. With these kind of shenanigans going on, imaging what they’ll do if they’re allowed to receive these billions of $$ . Enough is enough.

 

Damn it Damn it Damn it. Why is the government giving money to companies like GM who are going to change their ways and burn away the money.

I like the word Zombies for these companies

Posted by Mike | Report as abusive
 

A lot of people invested in annuities (especially Ben Burnake, the FedChair). Surrender fees & taxes on annuities are outrageous as they are taxed as income not cap gains. Given this info don’t you think there’s a better than average chance The Hartford, Lincoln, Genworth, et al are going to get TARP money? If the billions invested in annuities is allowed to vaporize then retirees will rely more on the federal & state governments. Either way it costs. Maybe better to “loan” than just accept costs.

 

I want to make sure this horrific situation is never repeated, since the point of origin for most of this mess was bad mortgages, their securitization & bundling, how about congress tweak the Community Reinvestment Act or better yet repeal CRA altogether. I’d like to say we should reinstate the Glass-Steagal Act but due to all these mergers that now seems impossible

 

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