America: zombie nation

If you read the newspaper these days, which is probably a mistake, you cannot help but be struck by the increasing verbal intimacy between the business section and the Kingdom of Night. Is this just an accident of terminology, do you think? Or does it indicate something more sinister?

For example, everyone knows what a zombie bank is these days. They have also heard of the shadow banking system, which the Obama administration is doing its best to resurrect. And speaking of the Obama administration, UR readers will recall that our dear President got his start as an acolyte of a philosopher who dedicated his most famous book to Lucifer, Prince of Night¹—which by my calculations gives us two degrees of separation between Barack Hussein Obama and Satan himself. Not that any of this bothers anyone, of course. Why should it?

And are we dealing with one dark force, or many? For example, is a zombie bank the same thing as a shadow bank? Not at all. They are entirely different species of monster—no more alike than an orc and a troll. Indeed, we certainly have or at least had a shadow banking system, but it is not even clear that there was every any such thing as a shadow bank. Such deviltry will shock no student of the Hadean realms.

For today, let us confine ourselves to the subject of zombie finance. It may not be the only dark force in the underworld, but there is certainly enough to go around.

To put it succinctly, America is a zombie nation because it is no longer possible to imagine her without zombie finance. It was quite some time ago that we stepped across that black stream, from whose far bank none return. No, landscaping did not just put those asphodels in.

What is zombie finance? Zombie finance is the financing of zombies. To be more exact: you commit an act of zombie finance when you lend money to a zombie.

A zombie is an insolvent institution that continues to operate. An institution is insolvent if it is clearly unable to meet its present or future obligations. This definition is slightly trickier than it looks. The devil is seldom absent from the details, and we will indeed grapple with him there. But basically, the analogy of the living dead is quite accurate.

For example, a zombie bank is a zombie because the total market price of its assets is less than the sum of its promises to pay. Thus, it has no way to meet its obligations, even by selling all the things it owns. The zombie’s creditors must therefore meet, divide up its assets pro rata, and sell its executives as white slaves to the salt-pans of Tangier.

The law of bankruptcy, as handed down by sages of old, abhors the zombie. If the obligations of a zombie can be restructured, handing its bondholders a haircut but converting the result into a profitable operation, the majesty of the law is there with its machete. If the zombie is an inherently unprofitable institution, the majesty brings its axe instead, and has a grave handy.

I think most intelligent people understand this. They understand, generally, that this state of affairs is right and true, that it will hold in America in 2500 AD as it held in Sumer in 2500 BC, that not merely the whims of random, dead white men, but nature herself, abhors the zombie. The principles of accounting are not arbitrary. They are natural law.

But what I don’t think most people understand is what happens when we break this law. Opening a direct shaft between the vaults of the Federal Reserve Bank of New York and the Balrog-ridden mines of Moria. Which skip day and night with lithe, spidery orcs.

So let me explain what happens. But first, here is the main thing: your awareness of this issue may date to 2007 or 2008, but the black tunnel itself is far older. Zombies have walked the streets of Manhattan, rotting and unashamed, for decades at least—possibly even centuries. There is no past golden age in which our financial system was good and sweet and true, although this does not mean no financial system can ever be good and sweet and true.

The Anglo-American financial system is a lot like a New York State cabernet. I was once caught in NY on a Sunday before the laws changed and was compelled, quite unconstitutionally, to purchase a bottle of this material. So far as I can tell, a $20 North Fork claret has all the flavors that a ten-dollar red should have. It also has a number of other flavors, that it shouldn’t. Similarly, Anglo-American finance (which is far older than the 20th century) provides all the services that a financial system should provide, and more. Namely: it feeds the zombies.

Let’s take a closer look at these zombie loans.

Again, a zombie loan is a loan to an institution which is unable to pay its obligations. Because, after the loan, the zombie’s equity (assets minus liabilities) is exactly as negative as it was before the loan, no loan can restore the true warmth of life to the dead flesh of a zombie. Moreover, since a loan to a zombie cannot trade at par (someone has to take the haircut), the lender has lost money as soon as the loan is made.

So who would make a zombie loan? The answer is simple: only another zombie. But why would even a zombie loan money to a zombie?

Fool! The dead are beyond reason. This is what makes them zombies. Zombie finance is a money-losing proposition; zombies are money-losing institutions. The symmetry is striking and perfect. Of course zombies lend to zombies. This is one of the best ways to lose money.

The essential question about zombies is: what makes zombies so evil? The essential answer is: everything. But let’s pick a couple of salient points.

The first fact to understand about zombies is that zombies lie. There is no such thing as a truthful zombie. No zombie will come up to you and tell you that it’s a zombie. In the zombie’s opinion, its balance sheet is perfectly sound. After all, who knows what those assets are worth, until we sell them? A liability is a fact. An asset price is an opinion.

And therefore, in the view of both the zombie borrower and the zombie lender—both of whom are zombies—the borrower is just engaging in the natural practice of refinancing its debt. Of course, refinancing is indistinguishable from taking out a new loan to pay off an old loan. But if the zombie was not a zombie, it might have a perfectly good reason for doing this.

More generally, zombies act with ulterior motives. In reality, a zombie lender may have a perfectly good reason for lending to a zombie borrower. It’s just that this cannot be a financial reason. It must be some other kind of reason—generally an aromatic one.

For example, a common zombie structure is that of patronage. In a patronage hierarchy, money flows downward and power flows upward. A stream of uneconomic loans is an excellent way to cement a patronage structure, perhaps the best there is. While it is going too far to say that all zombies represent cases of patronage, it is certainly the structure to expect.

To count the mass of the client as part of his pyramid of power, the patron must own him body and soul, heart and mind. Gifts will win your client’s heart, but loans will win his mind as well. In a word, uneconomic loans create systematic dependency. When the client is an individual, this relationship is sometimes described as debt slavery. While one may disapprove of debt slavery for moral reasons (I do), there is no denying that it works like a charm.

Another common zombie structure is that of bureaucracy. Bureaucracy can be seen as a form of patronage in which the commodity distributed is not money, but power—personal importance. A bureaucracy adapts to maximize the number of “stakeholders” who influence each decision. Typically, it does so by eliminating formal personal authority, and replacing it with a structure of rules to which all may contribute. This approach of process-oriented decision-making is the best that bureaucracy can do; in a more degraded bureaucracy, power is also distributed through cliques and mafias which make decisions informally, using the process as camouflage.

But we have followed the chain of zombie finance only one step. Zombie X may lend to zombie Y, but who is lending to zombie X? If the answer is “no one,” zombie X will dry up and fail to meet its payments. And zombie Y will follow it.

You probably know the answer to this question. However, let us postpone it for a minute. We will ask it again when the awful consequences of the answer are fully clear.

The truth about zombies is that zombies act differently. Again, they have ulterior motives, and they are fundamentally dishonest. These corruptions originate in the financial structure of the zombie. However, they do not stay there. We are now in a position to see how zombie finance eats away at the structure of society.

Suppose A pays B. There are three good reasons for A to pay B. All others are zombie reasons, and the payment can be classified as a zombie payment. Otherwise, it is a live payment.

The first good reason for a live payment is that A owes the money to B. B is receiving the payment as part of a right. This is very well and good; we note, however, that this right itself is an asset, and must have been acquired through some means itself. Even if the right is ancient and the means was unwholesome, the unwholesomeness is in the past and not the present. Moreover, since this transaction is not voluntary, it is in a sense not a transaction at all.

The second good reason for a live payment is that A is purchasing some good from B. In the special case in which the good is B’s promise of a future payment, this is a loan. But whether the good is a loan, a house or a goose, A is giving up good money. If he did not prefer the good received to the money relinquished, he would not have made the exchange. While time may prove him incorrect in his appraisal, we know at least that he tried—and tried hard. We can thus describe this as a profitable transaction.

The third good reason for a live payment is that A is the benefactor of B. A intends the payment to benefit B, not to benefit A. This implies that A has some personal relationship with B, and gains emotionally from the act of improving B’s lot—a charitable transaction.

What we observe about the two voluntary forms of live transaction, profitable and charitable, is that both impose some discipline on B. It is this discipline that zombie finance destroys.

Profitability is a cold master. If B is a vendor of goods—loans to himself included—he must produce goods that appeal to A. He is presumably competing with many other such vendors. If he becomes ineffective or inefficient, he will not survive.

As a reactionary, this discipline is rose-sweet to me. For every productive activity in which humans engage, for every good way in which to get the job done, there are a thousand incompetent, wasteful, or otherwise dunderheaded ways. Like happy families, effective businesses are all alike. Every incompetent business is its own unique, special snowflake.

Consider a restaurant. I will grant that there are a million ways to run a good restaurant. Nonetheless, every good restaurant has good food and good service at a good price. For each such restaurant, there are a thousand ways in which, if its good management were replaced by bad management, it could be converted into a bad restaurant.

Order is order because it is easier to be disorderly than orderly. The tension of profitability is a divine weapon for the reactionary ideal of order. The reactionary state is orderly at the sovereign level, of course, but it is happy to maintain private corporations within itself—each of which must be profitable or at least solvent. And each of which therefore creates its own internal order, typically with an effective hierarchical command structure and a single leader who governs by personal authority.

It is not at all surprising that progressives hate corporations and the profit system. It is a natural consequence of the antipathy to order, the anarchism, the lust for entropic destruction, which is the foundation of their creed.

Moreover, where the discipline of profit leaves off, the discipline of charity takes over. Charity is the principle of the family and the church, both ancient pillars of order. Charity—true charity—produces discipline because true charity is in all cases a paternal relationship. In exchange for the gift of charity, the recipient surrenders his independence to the benefactor.

Charity is an asymmetric relationship of dependence, but it is not at all without structure. In true charity, affection is always matched by obedience. If B surrenders himself to the care of A, he becomes a ward of A. A, his sponsor, assumes the obligation to support him, and also takes responsibility for any misdeeds B may commit while under his sponsorship. In return, B gives up his freedom, or at least his freedom to disregard the wishes of A.

So in both cases, the cords of finance are taut. The stiff cytoskeleton of society is intact. The strong are disciplined by profit, the weak by charity. And money itself produces this discipline—no Order Castles, Spartan crypteia or Eton fagging are required, just the cold weight of gold in a man’s hand. (Have you ever held a gold coin? Bounced it off a table? It rings like a bell.)

Zombie finance enters this elegant structure of spontaneous order as carbonic acid enters a coral reef. The beautiful creatures of the reef, exquisitely adapted, are also exquisitely sensitive. They are not exquisitely adapted to carbonic acid, anyway. They die, and their bleached bones remain, perhaps with a coat of brown slime.

While there are only two types of voluntary transaction—profitable and charitable—the profitable transaction of lending, i.e., the purchase of a promise of future money, almost deserves its own category. The loan is a ballet of such exquisite natural beauty that the mating fights of the Hawaiian monk seal, the stately, swirling parade of the hammerhead school, and the love song of the trilobite pale in comparison.

Consider the trust it takes, for instance, for A to say to B: I will give you money now, in exchange for your promise to pay me ten years from now. A ten-year loan! We think of this as an entirely normal transaction; in fact, it is remarkable. Think of how much order, sanity, and decency must exist in a society for A to have any confidence that ten years later, B will be good for it.

Indeed this transaction is remarkable in our society—for it is practically nonexistent. We do not have true ten-year loans. We have ten-year (nay, thirty-year) zombie loans.

From the borrower’s point of view, a loan is a loan. But a zombie loan is a zombie loan because no one, other than a zombie, would make it. It is made not for profitable or charitable reasons, but for zombie reasons. Instead of the discipline of the real world, it imbues the borrower with the dark ulterior motives of the zombie world.

To finance anything is to control it, and to accept zombie finance is to dip at least one toe in the waters of the Styx. Freed from the discipline of profit or charity, the zombie lender becomes a free radical, an agent of destruction. There is no bound on the strangeness of the motives under which the lender may be operating, or the hoops through which the borrower must jump.

We see this most clearly when we look at the ultimate zombie nation: the Soviet Union.

Obviously, Russia has not come close to recovering from the Soviet period. Russia was a cultural paradise; it became a tomb; it remains a graveyard. But I mean Russia in the late Brezhnev period, not Russia today (kleptocracy is no great improvement on bureaucracy).

When most people think of the difficulty of life in the Brezhnev era, I think they tend to think of either poverty in a strictly material sense—e.g., sawdust in the bogroll—or, of course, the travails of the dissidents. However, as a student of history, the point that impresses me most is the great pointlessness of most peoples’ lives. (And no, most people were not dissidents.)

There exists a great film portrait of life in Poland in the ’80s, a primary source in some sense because it was actually filmed in Communist Poland—Krzysztof Kieślowski’s Blind Chance. The common thread in all three episodes is a feeling of general personal futility. The late Communist world was a world in which it was often your job to do strange, useless things badly, all day, for no good reason at all.

There is another world in which it is often your job to do strange, useless things badly, all day, for no good reason at all. This is the world of Dilbert. Many of us have experienced it.

My theory is that Dilbert and Brezhnev are the same thing. I call it Dilbert–Brezhnev syndrome, or DBS. While we are certainly not the Soviet Union, my theory is that America has contracted a rather serious case of DBS.

The Soviet Union was a world in which business bore no relation to profit. People did strange, useless things badly because, lacking the discipline of profit that enforces efficiency, they succumbed to ulterior motives. Their unprofitable enterprises, purportedly businesses, were in fact patronage structures.

America is a much more interesting case, because (aside from its endlessly burgeoning political system, including its grant-funded “nongovernmental” periphery), the industries in which we see Dilbert syndrome are private, profitable. Nothing in America today is Brezhnev-bad, but it is getting there. Furthermore, we cannot compare the America of 2009 to itself—we must compare it to the America of 2009 that should exist. Where is the iron broom of competitive discipline? How can pointy-haired managers, HR red tape and sensitivity seminars survive it?

The answer, I think, is our friend zombie finance. We do not have Gosplan, but we have Wall Street. America is Dilbertized to the extent that Wall Street is zombified.

Let’s take the loans that created the housing bubble. These were zombie loans to a T. So, for example, Steve Sailer asks: where was capitalism? Why wasn’t anyone betting against these loans, and driving them down to their true value?

The answer is that the free market bears very little relationship to the process that distributed these loans. The loans were made because they could be securitized and given AAA ratings. Their AAA ratings were assigned by Moody’s, S&P, and Fitch, the three major NRSROs, which are not in any sense private corporations. They might as well be a Department of Ratings. Their operation is entirely bureaucratic. “It could be structured by cows and we would rate it.” This bureaucratic seal of approval was created for the banking industry, in which these ratings were presumed to correspond to default rates—not through anyone’s wise judgment, but as a matter of regulatory fiat. They were also adopted by the unregulated shadow-banking industry (which incurred short-term liabilities to buy long-term loans, without the formal protection of official banking status), again not as a matter of prudence but as a bureaucratic assumption. The shadow bankers saw themselves as living in a world in which the banks would not be permitted to fail. Besides, if they had any doubts, they could buy insurance from AAA-rated AIG.

And look at the houses these loans created! Millions of soulless, cookie-cutter, jerry-built McMansions in the middle of nowhere. If this isn’t the residential-construction version of the Virgin Lands Campaign, what is?

The Soviet system is sometimes described as state capitalism. But it was not the sovereign nature of the Soviet state that made its apartments ugly and its waitresses surly. Nor, I think, was it even the size of this gigantic, unicellular organism—plenty of large private companies (don’t miss this look inside Wal-Mart) can delegate considerable decision-making power, and even financial independence, to their lowest layers.

Rather, the Soviet system is an example of zombie capitalism. When resource allocation is not subject to the discipline of profitable exchange, everything decays and becomes foul. The coral bleaches, the slime burgeons.

My feeling is that American zombie finance is largely responsible for the appearance of DBS in the New World. Why is the country covered with hideous developments, strip-malls and chain stores? Because it has, or had, a financial system designed to finance these things. Many of us would prefer a Ritual to a Starbucks and a Joe’s Diner to a Burger King, but the chains have an unbeatable advantage: it is much easier for them to get a loan.

In the Soviet system, everything was one chain. You ate at Restaurant #26,719. You will note that every Starbucks store has a number as well, although for some reason they do not put it on the marquee. Starbucks is subject to the discipline of profit—but it is not as subject as it should be, because its sheer size gives it access to zombie money. Thus the generic can defeat the specific, blandness outcompetes character, and we drink charred cat hair rather than coffee.

But we are attributing quite a few disasters to this phenomenon, which we have not yet examined in detail. What is American zombie finance, anyway? Besides the late, distressing intrusion of acronyms, how can the undead escape the discipline of profit in our system?

First, let’s assign credit where credit belongs: our old friend, USG. Since only a zombie will lend to a zombie, and USG certainly lends to plenty of zombies, it must be a zombie itself. And indeed, we are unsurprised to discover that USG operates under neither the discipline of profit nor that of charity. (It does suffer the discipline of democracy, or at least “right-wing populism.” But this is an awfully frail thread with which to leash so big a dog.)

Thus, all zombie loans are ultimately government loans. A profitable government would make profitable loans; an unprofitable government is perfectly positioned to be the root of a patronage tree, regulated by bureaucracy. Understandably, Americans have a traditional dislike for the idea of government lending, so the process must be disguised. Fortunately or unfortunately, depending on your point of view, it is becoming less disguised.

The typical way in which government loans are disguised is to structure them as loan guarantees. Consider, for instance, the 30-year zombie loan with which you buy a house. This loan is a zombie loan because, in order to receive it, you did not have to find a private party who was willing to lend you money for a 30-year term. Nor did the bank who lent you the money. Nor did anyone.

The traditional banking structure which creates these loans works as follows: someone lent a bank money with a continuously-revolving term of 0, i.e., made a “deposit.” The bank took that money and lent it to you with a term of 30 years. This is our old friend, maturity transformation.

Maturity transformation is zombie finance, plain and simple. If this transaction were complete as described, it simply would not happen, because no one would “deposit” in this bank. Reason: the bank cannot fulfill its present obligations without selling its loan, which equates to finding a new lender. Recall that this meets our definition of insolvency.

And this is true even if the market price of the bank’s assets exceeds the sum of its liabilities. Reason: an asset price is an opinion, a liability is a fact. If your bank is the only bank practicing MT, it can sell its assets and is perfectly safe. If your pyramid scheme is the only pyramid scheme in the world and you are at the top, you are just as happy a camper.

Systemic maturity transformation is not a free-market phenomenon because, in a free market, interest rates are not fixed. They are set by supply and demand at every maturity. If you transform demand for 2009 money into demand for 2039 money, you are driving the price of 2039 money in 2009 money up, and interest rates down.

But if those who demanded 2009 money had actually wanted 2039 money, they would have said so. Since they demand 2009 money, they are apt to demand it back in 2009. When they do, the price of the 2039 money that backs these loans will fall back again, and banks that back 2009 obligations with 2039 assets will find themselves insolvent.

Essentially, the depositor in a free-market maturity-transforming bank has bought into the loan-market equivalent of a market-manipulation scheme. You can make the price of anything go up by buying more of it, creating a paper profit in which your assets are “worth” more than you paid for them. But in order to actually turn less money into more money, you have to sell as well. This is the “burying the corpse” problem. A bank run is the banking equivalent of burying the corpse.

Enter USG. USG, via FDIC, “insures” (another Orwellian misnomer, as there is no insurable risk here) the “depositor’s” loan to the bank. In return, it “regulates” the bank by requiring it to follow its official lending criteria, NRSROs and all.

Any such loan guarantee is equivalent to a triangular structure of loans. Thus, what is really happening is that the “depositor” is lending to USG, and USG is lending to the bank. Because USG will not default to the depositor, the depositor does not care if the bank defaults to USG. Moreover, since USG only loans to banks that follow its lending practices, it might as well be USG making your home loan as well. (This, too, has had several layers of veil stripped away.)

This entire structure is dependent on that wonderful modern innovation, fiat currency. Fiat currency allows USG’s guarantees to be watertight. USG can never default, because all of its “liabilities” are defined in its own scrip. Thus it can loan as much money as it wants, to anyone, for any reason. All of America’s money in the old sense of the word has fallen, somehow, into USG’s vaults. Fancy that!

By the standards of 1909, Americans have no money at all. Rather, a dollar is a sort of loyalty point, frequent-flier mile or stick-on gold star. Thus, behind the increasingly threadbare Potemkin capitalism, we see much the same financial system as in the Soviet Union. To get a loan is to ask the State for some of its brownie points, which must be repaid not because the State needs the brownie points back, but simply because it (a) wants to maintain some level of demand for its rubles, and (b) would hate to forfeit the opportunity to compel you to serve it.

This is the basic problem with fiat currency. It can be used, in almost arbitrarily subtle and fiendish ways, to fill holes in balance sheets, making insolvent institutions look solvent and unprofitable ones look profitable. Paper money is embalming fluid—zombie juice. It can raise the dead from their graves, but it cannot bring them back to life.

Moreover, before the fiat age, governments performed the same trick, by protecting their favorite banks (i.e., all of them) from the rigors of bankruptcy. To suspend the liquidation of a bank is to lend to it—effectively, to convert its liabilities into legal tender. The so-called “classical gold standard” of the 19th century was not a true hard currency, but a mixture of gold and paper. Gold convertibility provided some discipline, but still allowed for considerable monetary dilution—and, hence, zombie finance.

And note that our theory of the corrosive effects of monetary dilution is not at all original:

There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

You have probably heard this quote before. This is because the author is Darth Keynes, albeit in his Anakin phase. He would later practice what he preached.

And, as usual here at UR, we have saved the worst for last. We are not just afflicted by zombies. We are utterly in their hands. No mere twist of financial regulations can save us. We cannot simply cut off the embalming fluid. Charon provides no reverse commute across the Styx.

Think, for a moment, about balance sheets. A balance sheet lists what an institution owns, and what it owes—assets on the left, promises on the right. The conventional way to tell whether the institution is solvent or not is to total \( A \), the market’s bid price for the assets, and \( B \), the institution’s cost of fulfilling all its promises. If \( A > B \), the institution can trivially fulfill its promises by shutting down and selling its assets. It is therefore solvent. Otherwise, it is not.

(As we’ve seen, this solvency logic can be gamed—it does not take into account the effect of asset sales on market prices, instead effectively assuming a sort of just-price theory for interest rates. However, the balance sheet itself contains all the information we could want. For an accurate calculation of solvency that prevents maturity transformation, we need only treat assets and liabilities of different maturities as qualitatively distinct, like dollars and euros.)

Note that balance sheets display a pleasant associative quality. Acting purely in our heads, we can combine two institutions, X and Y, by merging their balance sheets. All promises from X to Y or Y to X are thus moot, and we can ask: is XY solvent?

We can use this property to theoretically consolidate an arbitrary number of balance sheets. In this way, we can go from the microeconomic level to the macroeconomic level. However, game-theoretic effects on asset prices become increasingly important as we aggregate all possible buyers for an asset into one entity. Again, you cannot make money by bidding up the price of a good which you sell only to yourself.

Often, when evaluating the solvency of an institution, no reliable accounting exists. Opaque balance sheets and asset valuations are not a novelty to the intrepid financial spelunker. Therefore, it is often useful to find other criteria. For example, one simple criterion is to ask: is money flowing into this thing, or out of this thing? If money is flowing out, it may be solvent and profitable. If money is flowing in, it may still be solvent, but it is probably not profitable—and it may well be neither.

So let’s consolidate America onto two separate balance sheets. Balance sheet A: USG and the banks. Balance sheet B: households and all other businesses.

What we notice is that, in what are supposedly normal economic circumstances, we see a continuous flow of money from A to B. In exchange, naturally, for promises of future repayment. Except when the credit markets break down, B takes a couple trillion dollars of A’s money every year.

Now, again, there are multiple explanations for this. If we look at B’s claimed balance sheet, it appears to be solvent. On the other hand, it includes many assets for which the only buyer is B itself. What can we say of these valuations? If B is insolvent, they are probably bogus, and if they are bogus B may well be insolvent. Otherwise, not. This tells us very little.

We note, however, the money flow. The money flow is negative. Money is flowing into B. This is consistent with the hypothesis that B is an insolvent and unprofitable operation. It is also consistent with the hypothesis that B is investing this money, i.e., using it to produce capital—farms and factories and patents—which will or at least could, in future, result in money flowing in the other direction. Sure. All I can say is: I’ll believe it when I see it.

So when you hear Obama or Geithner or any other luminary talk about “restoring the flow of credit,” you now know how to translate this. It translates as “restoring the flow of embalming fluid.” We are all zombies, and we must be fed.

The most plausible explanation of an economy that is continually borrowing more money, and taking on more debt, is that the entire economy, as a whole, is a money-losing operation.

Its addiction to borrowing is an addiction to zombie finance. A profitable lender would not be sending good money after bad. A profitable lender would cut the whole system off, cold turkey, and see which of its debts it can repay when it no longer has new loans to repay them with.

And this is what I mean by a “zombie nation.” It is not just the banks that need restructuring. It is the entire economy, because the entire economy is dependent on the continuous generation of new debt. This is the hallmark of the zombie. Beneath this soothing curtain of formaldehyde, it is not just Citibank that is insolvent and unprofitable; it is not even just GM; it may even be most American companies. Nobody’s profit margin is that wide.

America! Hail, chief of the dead. Alive you were the greatest, and death has barely touched you. You strode the world; you stride it still. Rule it, even—for of all dead things, you are the least dead. That furrowed brow is almost fresh. The frost upon it might well be sweat. That tan and bony fist still clasps its notchless sword.

But the scent is unmistakable. The beetles are already at work. Grosser fauna lurk. And what do we do? We do nothing. We serve a straw-packed corpse, nailed to a tall and ancient throne. Dead, festering, and nowhere near ready for the grave. And we smile as we go about our duties.