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Beware of Zombie Banks!

Posted Dec 23, 2008 08:30am EST by Sarah Lacy in Investing, Recession, Banking
Related: RKH, KBE, IAT, ^gspc, ^dji

What's keeping blogger and investor Paul Kedrosky up late at night? It's a Fear of what he calls "Zombie Banks,' or the next ticking time bomb in the world of finance.

The collapse of money markets and equities has unleashed a torrent of cash looking for new places to go. Big recipients have been certificates of desposit offered by small and regional banks. These banks have the same issues with real estate exposure of the big banks, but they're not getting any bailout money. So instead, they've been shoring up deposits by offering better CD rates than the big guys. And investors have been scouring the Web for the highest rates and snapping them up with little regard to the banks’ health. That's what FDIC insurance is for, right?

The danger is nothing less than a redux of the Savings and Loan crisis of the 1980s, Kedrosky says. Where are the regulators?

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