Paramedic No. 1: You have no pulse, your blood pressure's zero-over-zero, you have no pupillary response, no reflexes and your temperature is 70 degrees.
Freddy: Well, what does that mean?
Paramedic No. 1: Well, it's a puzzle because, technically, you're not alive. Except you're conscious, so we don't know what it means.
Freddy: Are you saying we're dead?
Paramedic No. 2: Well, let's not jump to conclusions.
Freddy: Are you saying we're dead?
Paramedic No. 2: No conclusions.
Paramedic No. 1: Obviously I didn't mean you were really dead. Dead people don't move around and talk.

-- Return of the Living Dead

Dead people don't move around and talk -- OK, that assumption can be a big mistake in zombie movie lore. "Dead-ish" companies shouldn't move around with stocks that get so actively traded, either, but they do in our current climate. I talked about the possibility of a zombie apocalypse in January, and the situation seems to be worsening.

"Bill, just because your father tried to eat you, does that mean we all have to be unhappy ... forever?"
Many investors are full of blind optimism right now, judging by the way bank stocks like Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), and Citigroup (NYSE:C) have all rallied on earnings "beats" -- even though there are plenty of questions as to whether they're really out of the woods. It's kind of like the movie Zombie Honeymoon, where the protagonist realizes her new hubby has become a zombie and tries to "work through" that relationship. That may sound ridiculous, but clearly investors -- speculators, rather -- are going through a similar faulty rationalization.

As many have pointed out around Fooldom, the fact that the big banks are basically borrowing money at 0% and lending it at 5% is a pretty good deal, while woefully artificial in any normal market sense. But come on, these banks' convoluted balance sheets still include the toxic garbage that hasn't been written down to realistic levels, and the recent relaxation of mark-to-market accounting rules allows what many dub mark-to-fantasy. I'm sorry, but that's a joke and certainly not a sign of health.

Meanwhile, Capital One Financial (NYSE:COF) recently reported an increase in credit card losses, and Discover Financial Services (NYSE:DFS) announced plans to lay off workers, citing consumers with too much debt, much of which was taken on via MasterCard (NYSE:MA) and Visa (NYSE:V) cards. Hello: Many people can't pay their credit card bills in the current climate, and that's another problem that seems bound to worsen.

And in case you missed it, mall operator General Growth Properties filed the largest real estate bankruptcy in the U.S. ever, which seems like a good sign that the commercial real estate market is having its own Dawn of the Dead moment, as many of these concerns basically took on a ton of debt to embark on aggressive overexpansion that was fed by, yes, our nation's debt-laden spending and unreal economic growth.

What's not fantasy is that unemployment is still extremely high at the official 8.5% number; layoffs are still taking place, so the rate is destined to increase; foreclosures continue to increase; and home prices have further to fall. There are few signs of real recovery, as far as I can tell.

"Zombies, man. They creep me out."
Meanwhile, our government's -- and the Federal Reserve's -- zeal to prop up our sick, overleveraged economy keeps revealing major conflicts and problems. For example, some are concerned that TARPed companies that want to repay the money may not be allowed to because then that might cause the public to think banks that can't are unhealthy. Um, never mind that this would mean they are unhealthy.

And of course, there are plenty of rumblings that the bank "stress tests" aren't really meant to be particularly stressful.

Meanwhile, they're all too big to fail, all right. The Fed is considering regearing the TALF to try to support commercial real estate for a longer period of time. Life insurance companies were recently added to the companies that qualify for TARP assistance (although MetLife and Genworth Financial came out and said they don't need the help).

Granted, the economic powers that be are trying to forestall a massive, ugly correction as the ripple effects spread, but where does the zombiefication end? Many of us have argued that a massive correction is exactly what we need to get things back on track.

Economists are questioning, too. In a recent speech, former St. Louis Fed president William Poole pointed out the faultiness of the bailouts, calling them a huge transfer of wealth to banks and bank executives, and arguing that sick banks should be allowed to fail. Nobel-winning economist Joseph Stiglitz pointed out another bothersome idea that has probably occurred to many of us: that the designers of the bailouts are "either in the pocket of the banks or they're incompetent" (although he recommends receivership). Whatever your opinion for a fix, it's clear we're headed straight for zombie malaise.

This bailout is a disaster. We can't recover until the massive, spreading unhealthiness works its way out of the economy, and we certainly can't recover when capital is continuously diverted from healthy enterprise to unhealthy companies. We're on the path to fail like Japan.

We're on a path where the zombies always have the upper hand -- and that's not a sustainable recipe for long-term economic health.

Discover Financial Services is a Motley Fool Inside Value recommendation.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.