A zombie is an aberration, something that should not exist in the real world. Yet in modern economies, such creatures do exist...

Authored by Tuomas Malinen: Zombies were introduced to the economic jargon by Ricardo Caballero, Takeo Hoshi, and Anil Kashyap in their article, “Zombie lending and depressed restructuring in Japan” in 2008, where they named the unprofitable and indebted yet still operating firms in Japan as “zombie companies.” They found that, after the financial crash of the early 1990s, large Japanese banks kept money flowing to otherwise insolvent borrowers, aka zombies. The reason for this was that these large banks themselves were in dire straits.
The financial crisis of the early 1990s had its roots in the deregulation of the financial sector in the early 1980s, and the extensive efforts of the Bank of Japan to limit the appreciation of the Yen with low-interest rates. These actions led to massive stock and real estate bubbles. At its peak, the value of Japanese equities was twice the market value of U.S. equities. It was also said that the market value of land under the Imperial Palace in Tokyo was greater than the market value of all real estate in California.
Many Japanese banks and corporations had invested heavily into the stock and real estate markets, and when the bubble imploded in 1990/1991, they suffered crippling losses hurling them into insolvency. The government allowed and, in some cases even encouraged, banks to extend loans to ailing businesses and allowed banks to downplay their loan losses and overstate their capital. While these measures saved the financial sector, the banking sector was not restructured.




