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Lydia Fisher Headshot

Frankenstein, Return of the Zombies: The Sequel

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Frankenstein was a "failed artificial life experiment" that went badly wrong. Ours incubated in financial laboratories -- the result of complex "innovative" financial engineering. It manifested itself in the bank credit crisis of 2008, never left us, merely moved on to manifest itself in the ongoing US/Eurozone government debt crisis.

It continues to wreak havoc -- hard to control this one. The latest visual reminder -- riots in London. Here at home -- the devouring of lives, homes, dreams, jobs, not to mention damage to municipal finances, investment and pension portfolios.

Doesn't seem like this Frankenstein is going away anytime soon. The stock market continues to swoon (post S&P US debt downgrade) and now France is up for a possible downgrade from triple-A status. Meanwhile investors are flocking to the US Treasury market as the yield curve continues to flatten. Without meaningful fiscal reform, it's a matter of time before rates tick up on increased risk perception.

It doesn't seem like things are going to get better anytime soon.

The Federal Reserve made a rare promise on Tuesday to hold short-term interest rates near zero through at least the middle of 2013, in a sign that it has all but written off the chances of an expansion strong enough to drive up wages and prices.

A slew of adjustable rate mortgages reset in 2011 and onward ($400 billion issued at the height of the market in 2006). Here's the really tough part though. The article goes on to note that, "Millions of Americans will not find work. Wages will not rise substantially."

What a coda -- for many the Great Recession never left.

Create a highly leveraged interconnected global multi-trillion financial bubble (fraught with experimental securities with faulty underpinnings) around an asset widely owned and deeply personal, it's going to "hit home" (no pun intended). Half of US home mortgages remain underwater. The home used to be the traditional capital cushion for an individual or family before the cash extraction boom of the last decade fueled the economy.

No wonder "zombies" are back, a term bandied about in the heat of the bank credit crisis of 2008.

The top US financial institutions have become zombie banks that will need a decade to adjust their businesses to the new realities in the industry, analyst Meredith Whitney told CNBC.

In banking parlance, zombies have little net worth but are backed by the government and continue to meet their obligations.

Why have them in the first place? Now here's the clincher. The "Too Big To Fail" marvels continue to dominate "most of the lending," the article goes on to note.

"Dominating most of the lending" in a free market enterprise system -- "zombies" too -- what are we to make of all this?

Before I close, here's something else to think about within our fragile world that seems to unravel by the day -- the credit default swappers, betters (call them what you will). Like vultures, at the whiff of any credit and/or sovereign debt problem, they're swoopin' down, which may make a bad situation even worse.

Little wonder that my cup of coffee wasn't smooth this morning. I mused about all this, the "Scales of Justice" included.

Who's keepin' it real?

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