May 292012
 
 May 29, 2012  Posted by at 1:59 pm Finance
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madrid

Puerta del Sol- Madrid (Spain) c.1908

What’s really left to say about Spain, anymore? This 12th largest economy in the world now finds itself as close to financial meltdown as a country (other than Greece) can get, and it has gotten there by taking the most twisted and shady path that it could find. Ilargi wrote about this shadiness back on April 18 in his article, Spain, Land of Magical Financial Realism. In it, he discussed how the bank bailout fund in Spain was being funded by… the Spanish banks themselves, so as to allow the Spanish government to under-state its actual deficit/GDP ratio. Most of that “money”, in turn, came from the ECB LTRO Part Dos, which gave out billions worth of 3-year loans to these banks and, in exchange, encumbered just about ALL of the (already toxic) collateral available in the Spanish banking system.

Oh lordy. The Spanish sovereign is being propped up by its own defunct banks. Which get the money to do the propping up from the ECB (re: Germany). That’ll go over well in Berlin once it’s fully understood.

 

 

Bank saves sovereign saves bank saves sovereign. Bank saves sovereign with ECB money, and sovereigns rescue their lenders with funds borrowed from the European Union. The Spanish zombie stalks the Madrid and Barcelona midnight streets bleeding German euro’s. Magical realism at its best.

 

One more thing: most of what I see floating by in the news when it comes to Spain’s real estate talks about the cajas, the small banks. But I don’t believe for a moment that the big banks, like Santander and BBvA, were not involved in creating that behemoth bubble. Well over 10% of Spanish homes are reported to be empty. The country built more homes prior to the crisis than Germany, France and Britain did combined.

 

Santander then went on to acquire Alliance & Leicester, Bradford & Bingley and Abbey’s in Britain, as well as Sovereign Bancorp in the US and many other banks internationally. So I wonder sometimes if perhaps anyone in those countries ever asks themselves how safe those operations are today. If these guys can transfer overvalued bad loans and securities around between their Spanish affiliations, can they also do the same in their international branches?

 

 

It should have been clear that all of this blatantly circular credit creation wouldn’t do a damn thing to ease the underlying solvency issues in Spain’s banks, and would perhaps only make those problems much worse. Sure enough, it only took about a month from Ilargi’s article until Bankia went down in flames and the financial situation for Spain became exponentially worse. In a commentary from April 11, Spain WILL Need a Bailout Soon, I shot down Mariana Rajoy’s (Spanish PM) hard-headed assertions that Spain will not need an EU bailout:

If the recent history of the unfolding Eurozone crisis is instructive, Spanish PM Mariano Rajoy’s unconditional statement today that his country will not need an EU bailout signifies that a bailout is exactly what it will need before the year is up. This fact is obvious to anyone who has the slightest idea of how bad Spain’s economy is right now, with an extremely weak housing/banking sector and unemployment that is upwards of 23% and rising. It is, of course, always the banks that get the lion’s share of any bailout money, and Spain’s banks are falling apart quickly.

 

Part of the problem for the Spanish banks now, in addition to their extensive exposure to troubled sovereign bonds and mortgage-related assets, is the fact that the EU’s prior “rescue” efforts have only made things much worse for the entire Eurozone periphery in the short, medium and long-term. As referenced here many times, the ECB’s LTRO programs have simply propped up the banks temporarily, while draining the peripheral economies of available credit and hastening the flight of private (now subordinated) investors from their troubled banking sectors. What else would one expect when trying to solve a debt problem by piling on more layers of unproductive debt?

Earlier this month, I had also pointed out that, while Rajoy was claiming his country would never need a bailout, he was also telling the Parliament that Spanish households, businesses and regional governments had been effectively shut out of the private credit markets, which would include, of course, the Spanish banks themselves (Spain Has Been Shut Out). And THAT would include, by implication, the Spanish Treasury. I made it clear that Bankia’s downfall would not bode well for the finances of the Spanish government:

 

 

Without the pillars of austerity and “structural adjustment”, there is very little justification for the ECB or Germany to continue backstopping the peripheral finances of the Eurozone. It’s not as if the consumers or businesses in these countries can even afford to buy Germany’s exports anymore, as made all too clear by Rajoy’s comments, and the failure of peripheral banks is all but guaranteed. When a financial institution such as Bankia is bailed out, make no mistake – there will be no one able or willing to bail out the Spanish Treasury.

Sure enough, Bankia was immediately nationalized by the Spanish government and, after the phony accounting and the REAL losses were gradually revealed to the public, it has proven itself to be the largest bank failure in Spanish history, and could easily become worse after more accounting falsifications are  brought to light (but none of that criminal activity is stopping one of Bankia’s directors from leaving the firm with a €13.8 million termination package). It wasn’t long before Rajoy was clamoring for the Eurozone Stability Mechanism (ESM) to “lend” directly European (Spanish) banks as well as the ECB to resume purchases of Spanish sovereign debt, in direct contradiction to his earlier “no bailout” proclamations.

The man has lost all credibility, as reported by Louise Armitstead and Fiona Govan for the Telegraph:

Mariano Rajoy says Spain is ‘finding it very difficult to finance itself’ but insists there will be no bail-outs

 

At a press conference designed to reassure markets after the €19bn nationalisation of Bankia, the prime minister admitted that Spain was “finding it very difficult to finance itself”.

 

But Mr Rajoy blamed the soaring borrowing costs on advancing debt crisis across the eurozone, and tried to dismiss fears that Madrid will be crushed by the debts of its banks.

 

Shares in Bankia, which were suspended on Friday as the government unveiled its largest ever recapitalisation plan, plunged 27pc before recovering.

 

The Spanish newspaper, El Mundo fanned the fear by claiming that a further €30bn was required to rescue four other banks, CatalunyaCaixa, Novagalicia, Banco de Valencia.

 

Officials claimed Madrid was already working on complex plans to use the European Central Bank to help recapitalise Bankia, but Mr Rajoy said Spain would stand by its banks by itself. “There will be no rescue of Spanish banks,” he said.

 

He said he wanted the bail-out fund, the European Stability Mechanism, to be allowed to lend directly to banks – but argued this would be for the sake of banks across the eurozone, not just Spain. “The [Spanish] government is doing what it should be doing,” said Mr Rajoy, who rarely speaks publicly on the debt crisis. “Europe must dissipate any doubts over the euro, affirm that the euro is an irreversible project and act in consequence.”

 

Spain’s Ibex fell 2.17pc, dragging other bourses down, although trading was low due to US and European holidays. The yield on Spain’s benchmark 10 year bonds plunged deeper into the danger zone, rising to 6.48pc. The spread between German and Spanish debt yields to the widest spread since the euro was launched.

 

“Spain is finding it very difficult to finance itself with sovereign debt risk premium so high,” said Mr Rajoy. “With [the spread over bunds] reaching 500 basis points it is very difficult to raise finances.”

 

 

Nicholas Spiro, at Spiro Sovereign Strategy: “The Spanish crisis has reached a tipping point. Investors have lost confidence in Spain. The botched bail-out of Bankia was the trigger for the abrupt sell-off – a sell-off that threatens to turn into a rout unless bold and decisive measures are swiftly taken by eurozone policymakers to shore up the bloc’s endangered sovereigns and their banks.”

So Rajoy definitely has good reason to be concerned – Spanish 10Y bond yields are hovering around an entirely unsustainable 6.5% and are at a 500bp+ spread from German 10Y debt, while Spanish government liabilities to its banking sector are only going up. It is predictable, yet extremely saddening and maddening that the mainstream always focuses on how best to bailout the large banks, while the people are left to suffer under mountains of private and public debt (Spain’s Unbearable Pain). Spain’s unemployment rate is at 25% and rising, while retail sales just posted a record-breaking year-over-year decline in April (9.8%), which makes it all too clear that many Spanish people don’t even have a penny left to spend.

These people are losing their jobs, savings, homes, investments, families and their will to live with every passing day. Perhaps “losing” isn’t the right word, because it’s not as if they just misplaced all of these things. Instead, these things have been forecefully stripped from the people, who are LOSING their patience for financial oppression. It is times like these when you root for the system to quickly collapse into a heap of rubble through mass protest and unstoppable financial contagion, because the alternative is to watch it burn down slowly by the filthy hands of the corporate elites, as the smoke suffocates the life out of everyone else who is trapped within it.

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May 29, 2012 at 1:59 pm #8515

ashvin

Puerta del Sol- Madrid (Spain) c.1908 What’s really left to say about Spain, anymore? This 12th largest economy in the world now finds itself as close
[See the full post at: Espana en Fuego]

May 30, 2012 at 12:11 am #3624

jal

What’s really left to say about Spain, anymore?

Its sad to see a community that is dying.
Many a community has had to re-invent itself after the main driver of its economy had been closed/wound down/depleted.
I’m thinking of mining towns. It starts with the discovery, then it goes into exploration and evaluation, setting up exploitation, peak production followed by winding down of the operation.
Eventually, everyone that was associated with the mining has moved on to other operations and the remaining community has been downsized to a sustainable level based upon a variety of other re-invented enterprises.

A comparison with the winding down of a mining community is only a small picture of what will happen when a whole country must re-invent because of a winding down of its economy.
This requires a culling and a “leaving dodge city” that is not manageable.
Why!
We cannot even handle the present problems of “illegal immigrants” that are leaving their “dodge city”/country.

In the past cullings, (french revolutions, WWII, etc.), many of the 0.01% managed to escape to another country and lived another day as “illegal immigrants” with their bag of gold in their possession. Therefore, they probably expect to escape this time.

This time its going to be different. There will be no place to escape.

There isn’t a mechanism, that will not affect the 0.01% which can be used to cull the extra mouths to feed and to handle the “illegal immigrants” when the whole world economy needs to wind down and reset?
Nobody will be able to sit back eating popcorn and watch it happen.
We are entering uncharted economic and social territory.

May 30, 2012 at 1:27 am #3626

Golden Oxen

@jai There are still hiding places for the 1%. Switzerland, Germany Norway, etc. South America not in too bad a shape yet either. Brazil, Chile, Ecuador, Canada in North America has it’s quiet spots. Don’t get me wrong, things are real bad, but not for the mega rich. You will notice the politicians are still doing well for themselves also. Plenty of chauffeur driven meetings in the fancy hotels with great wines and chateaubriand. They decree Austerity for others but are much too important and special to engage in it themselves.

May 30, 2012 at 2:03 am #3627

Reverse Engineer

Ashvin wrote: When a financial institution such as Bankia is bailed out, make no mistake – there will be no one able or willing to bail out the Spanish Treasury.

Are you SURE about that Ashvin? I think Helicopter Ben could Swap out $1T with Super Mario Dragon in a nanosecond, and then SMD could go ahead and create the Spain Healthy Investment Tool (S.H.I.T.) to float his Krony Kapitalista Spic Buddies a microsecond after that.

Are these boys really going to let a piddling $50B Bank Failure pull down the whole Ball of Wax so easy? They are all TERRIFIED of the cascade and counterparty risk here involved.

Maybe this one is the one finally Too Big to Save, but I am not yet convinced of this. If the Spanish Banks and their Goobermint can Circle Jerk money creation to paper this over for a year, on a yet bigger scale so can the CBs.

This sucker doesn’t come down until the CBs themselves capitulate, and its not all that clear they are ready to do that yet. This may not be under control of the Krauts either. I think it is a canard to see the Krauts as controllers of the ECB. They are a big player to be sure, but they are not the ones in real control over this. A political decision here to Print or Not Print is supranational, and its occuring not in the Bundesbank, but in the back room of the BIS.

RE

May 30, 2012 at 2:45 am #3628

draego454

>> bold and decisive measures

Funny – earlier in this macro-fiasco (maybe a year ago), someone called for “bold and decisive”. It didn’t happen then and it won’t happen now. The reason is that oddly enough, there are still people who are making money off of the status quo (see US Banking Profits); and those are the people who are in a position to implement “bold and decisive” reform. That, or they OWN the people who are in a position to implement bold/decisive. When anyone in this layer of “the system” loses the ability to profit then they have also lost the ability to make changes.

So this is why things don’t change – the only ones who can, won’t, and the ones who would, can’t. As “short-bus” as the whole occupy movement was, it was THIS hard to describe THING that they were protesting.

Steven in Dallas

May 30, 2012 at 2:49 am #3629

Golden Oxen

@ RE Superb post RE. It is obvious that the Germans are being coerced IMHO. To be a fly on the wall at the REAL meeting would sure be something. You can bet the generals are there. No doubt Dr Fu Manchu has a seat at the table. That bank does not figure in this; it is a penny candy store. We are talking about a world wide financial collapse and panic here gentleman. These few half assed countries in Europe and their banks are some sort of distraction, the MSM spouts that nonsense all day; we are supposed to know better than to listen to their propaganda.

May 30, 2012 at 3:31 am #3631

ashvin

Reverse Engineer post=3246 wrote: Are you SURE about that Ashvin? I think Helicopter Ben could Swap out $1T with Super Mario Dragon in a nanosecond, and then SMD could go ahead and create the Spain Healthy Investment Tool (S.H.I.T.) to float his Krony Kapitalista Spic Buddies a microsecond after that.

Are these boys really going to let a piddling $50B Bank Failure pull down the whole Ball of Wax so easy? They are all TERRIFIED of the cascade and counterparty risk here involved.

Oh, no doubt they are terrified. And no doubt there will be immense pressure by US/EU/IMF officials on Germany to let the ECB monetize, even more than there has been already. But I don’t see how unilateral monetization could either a) happen or b) make any sense without that consent.

If Germany isn’t on board for the EFSF/ESM (a Spanish bailout would probably require at least half of funds pledged), and/or ECB monetization, then you are going against one of your biggest (and most credible) sources of capital, who may just choose to leave. What sense does the Eurozone make without Germany behind it?

That’s not say Merkel’s government will not cave in to the pressure – they might. But that itself raises other political/legal issues with the German people and the German Parliament, which the German Const. Court has said must be involved in all such decisions. Then you also have countries like the Netherlands who may resist, but I am less hopeful that they will hold out.

Maybe this one is the one finally Too Big to Save, but I am not yet convinced of this. If the Spanish Banks and their Goobermint can Circle Jerk money creation to paper this over for a year, on a yet bigger scale so can the CBs.

They have been papering it over, but the real economy has been deteriorating the whole time. Now Spain looks a lot like Greece in that regard, and the Eurocrats are having a hard time keeping GREECE within the bailout/austerity paradigm. If Greece ends up leaving, then the surplus countries have just thrown a lot of money down a black hole. What are the chances that they will agree to do the same for Spain, which is many times bigger?

This sucker doesn’t come down until the CBs themselves capitulate, and its not all that clear they are ready to do that yet. This may not be under control of the Krauts either. I think it is a canard to see the Krauts as controllers of the ECB. They are a big player to be sure, but they are not the ones in real control over this. A political decision here to Print or Not Print is supranational, and its occuring not in the Bundesbank, but in the back room of the BIS.

If financial/monetary officials of the $IMFS decide to unilaterally set up ECB monetization facilities for Eurozone peripheral countries, then I think they will need to make damn sure they have control of national military forces that are ready and willing to launch coups and suppress sociopolitical dissent. The only other way is do it all in secret, but I don’t see how that’s possible.

Of course, the Fed can beef up its currency swap operations with the ECB, and the ECB can launch another LTRO, and they can keep floating rumors about printing and/or Euro bonds, and countries can try to insulate their own national banking systems from contagion, but all of those things are unlikely to have much effect. We must also consider the possibility that the IMFS Owners actually want the Eurozone to break up, because they rightly or wrongly believe it will benefit them in terms of consolidating wealth/control in the medium to long-term.

May 30, 2012 at 4:28 am #3632

Reverse Engineer

ashvin post=3250 wrote:

Oh, no doubt they are terrified. And no doubt there will be immense pressure by US/EU/IMF officials on Germany to let the ECB monetize, even more than there has been already. But I don’t see how unilateral monetization could either a) happen or b) make any sense without that consent.

If Germany isn’t on board for the EFSF/ESM (a Spanish bailout would probably require at least half of funds pledged), and/or ECB monetization, then you are going against one of your biggest (and most credible) sources of capital, who may just choose to leave. What sense does the Eurozone make without Germany behind it?

I have a hard time envisioning how this could happen either, and unless the Krauts in some way acquiese to a monetization it seems impossible as well. However, I DO think it is still possible for large scale transfer payments to be done back door through proxies. I could see a methodology where Swap funds are pushed through the ECB and into the hands of Kraut Banksters at say Deutche Bank, with the proviso they support the Spanish Bond market a while longer. This could be done without the direct consent of Kraut Parliament, as it likely would take a bit of time for them to find out about what was being done here. Remember, ECB transactions are pretty much as opaque as Da Fed’s are.

That’s not say Merkel’s government will not cave in to the pressure – they might. But that itself raises other political/legal issues with the German people and the German Parliament, which the German Const. Court has said must be involved in all such decisions. Then you also have countries like the Netherlands who may resist, but I am less hopeful that they will hold out.

Merkel is on the ropes already, and she likely has little choice here but to cave, and same for the smaller Goobermints like Netherlands who easily can be pushed around with money threats. The Kraut Parliament then gets to debate the issue, dragging it out some more, but do you really think Kraut Pols are any better than their compadres down in Greece. Thumbscrews will be twisted, and if monetization is what the BIS wants, that is what they will get.

They have been papering it over, but the real economy has been deteriorating the whole time. Now Spain looks a lot like Greece in that regard, and the Eurocrats are having a hard time keeping GREECE within the bailout/austerity paradigm. If Greece ends up leaving, then the surplus countries have just thrown a lot of money down a black hole. What are the chances that they will agree to do the same for Spain, which is many times bigger?

No doubt, the continuing downward spiral of the Real Economy and the political issues pursuant to that play heavily into this equation. However, not being “on the ground” inside Spain right now I cannot make a determination just how BAD it really is for them yet. When I look at the FSofA Economy just by the Numbers, I say to myself “SHIT! How come there aren’t RIOTS everywhere already?” On the other hand, when I periodically hop a jet down to the lower 48, most of the cities I visit seem on the surface to be operating fairly normally. I suspect this is similar in Spain, in the sense if I flew into Madrid this week, the city would appear fairly normal to me most of the time. Systemically, they have not broken down yet completely. Probably see more Strikers and trai schedules might be messed up, but that has been the case in Spain always.

I still do not know what the TIPPING POINT is for a general population, how many and how far off the economic cliff do they have to fall before you get a real Political Firestorm, complete with the Coup d’Etat etc? Plitically, i do not know where Spain is for this, and I can’t make a good determination for it either just based on Numbers. Based on that, they should have gone Ballistic a year ago at least.

If financial/monetary officials of the $IMFS decide to unilaterally set up ECB monetization facilities for Eurozone peripheral countries, then I think they will need to make damn sure they have control of national military forces that are ready and willing to launch coups and suppress sociopolitical dissent. The only other way is do it all in secret, but I don’t see how that’s possible.

Of course, the Fed can beef up its currency swap operations with the ECB, and the ECB can launch another LTRO, and they can keep floating rumors about printing and/or Euro bonds, and countries can try to insulate their own national banking systems from contagion, but all of those things are unlikely to have much effect. We must also consider the possibility that the IMFS Owners actually want the Eurozone to break up, because they rightly or wrongly believe it will benefit them in terms of consolidating wealth/control in the medium to long-term.

I reviewed how I think it could be done “secretly” at least for a short time, but certainly it is true that in order to aintain Civil Order here as it spins down worse, they will need to play the military card.

I don’t know for sure what the “Plan” is, it may very well be to force the breakup of the EU. its quite possible those at the top see just what I see, which is that the only way to retain some power is to break up the conglomerate. Its quite reasonable to assume the NWO crowd has given up on a One World Goobermint and is now just in the process of carving it up to hand off the fiefdoms.

Regardless of whether it is planned or not, to me it is clear that this is not salvageable by any means, and the EU will fracture. What results from that is an open question.

RE

May 30, 2012 at 6:56 am #3633

steve from virginia

There is no credible lender remaining in Europe. All loans made are bad loans: there is effectively no collateral so any loans made from this point forward by ECB of the national central banks are unsecured. What this means is there is no real lender of last resort … and bank runs.

People are removing their euros from banks: the act of removing the euros erodes their worth. Enough removed and there is no euro. Left in the accounts and there are effectively no euros.

The answer to every question posed before 2008 was ‘jump in the car’. The answer to every question now is ‘no euros’.

The Europeans have brought this upon themselves by not closing insolvent banks and restructuring. Now, the countries themselves are insolvent and there is no entity able to provide capital. Who is going to make a good loan?

Norway.

It is too late for the sovereigns themselves to issue currency as the collateral is simply more empty promises. The stage after bankruptcy and ruin is not ‘Iceland 2.0′ for these energy deadbeats, it is complete collapse. Not even dictatorship can save them.

The European inter-temporal balance sheet is a mess. On the resource balance sheet, there is nothing but expanding liabilities as resources are ‘used’. Meanwhile, the asset side of the socio-economic balance sheet is eroded. A trillion barrels of fuel gone and a half-trillion tons of coal have produced nothing of lasting value, just some used cars and smog.

May 30, 2012 at 9:33 am #3635

Reverse Engineer

steve from virginia post=3252 wrote:
The Europeans have brought this upon themselves by not closing insolvent banks and restructuring. Now, the countries themselves are insolvent and there is no entity able to provide capital. Who is going to make a good loan?

Norway.

It is too late for the sovereigns themselves to issue currency as the collateral is simply more empty promises. The stage after bankruptcy and ruin is not ‘Iceland 2.0′ for these energy deadbeats, it is complete collapse. Not even dictatorship can save them.

If a Dictator can’t save the Eurotrash, why would a 3rd Party be able to Save Amerika? For those who haven’t been there yet, review the Topic for Discussion commentary on Economic Undertow.

The collateral here in the FSofA isn’t any better than in Eurotrashland, just the Circle Jerk between Treasury and Da Fed here makes it more possible to paper over the problems a while longer and outlast them.

The pace at which the Euro is imploding now though is pretty impressive. We’re not even getting the Daily Briefings from the latest round of FinMin meetings in Brussel Sprouts. You get the feeling here the Euroclowns have already capitulated and they are just running for cover. No more Merkozy Kissy Kissy, now its Merkollande Divorce Bickering.

Just waiting for the next shoe to drop and Societe Generale to go Belly Up. if they don’t pump in liquidity soon, its going to cascade quickly. What is Libor at now anyhow? Is there any interbank lending going on at all?

Anyhow, this should be pretty good by the time the Conventions start now to Crown Obama-sama and Catcher’s Mitt Romney as the respective Champions of the 1%. I am breathless with anticipation to see how that campaign develops. Not.

BAU. Until its not.

RE

May 30, 2012 at 10:40 am #3636

davefairtex

Just for fun I looked up Bankia’s balance sheet. The most recent quarter I could find was March 2011. At that time, they had 190 billion euros in loans outstanding (138B in mortgages, 51B in MBS), against 150 billion euros in depositor money (15B in senior debt) and another 58B in debt securities.

I’m just gonna guess that the 19B in losses is just the down payment. NAMA, the Irish “bad bank” had all in losses for their mortgage portfolio somewhere around 40%, so call the total cost perhaps 76B euros if we assume the losses in Spain will rival that of Ireland.

Bankia has 10% of Spain’s deposits. Rough back of the envelope – there are perhaps 750B in losses yet to be taken in the Spanish banking system assuming Spain = Ireland in terms of bubble expansion (and now contraction). Spanish sovereign debt is 1T.

It would appear that there isn’t enough senior (risk) debt out there to resolve this sucker without immense loss to the depositors. Roughly 60B of depositors are insured. The rest are not.

http://www.bankia.com/Ficheros/CMA/ficheros/Cuentas_definitivas_firmadas_en.PDF

May 30, 2012 at 11:32 am #3637

Reverse Engineer

davefairtex post=3255 wrote:
It would appear that there isn’t enough senior (risk) debt out there to resolve this sucker without immense loss to the depositors. Roughly 60B of depositors are insured. The rest are not.

Meanwhile, the ECB and the PBoC say they are not gonna print.

This should get interesting.

RE

May 30, 2012 at 12:04 pm #3638

NZSanctuary

Meanwhile . . . side-show politics, news stories and pop-idol shows mask the continued selling of the world by corporate-beholden governments: http://www.organicconsumers.org/articles/article_25508.cfm

May 30, 2012 at 12:31 pm #3639

davefairtex

FT had an article which suggested repossessed homes were selling for 52 cents on the dollar in Spain. I read elsewhere that Spanish banks had written down about 10% of their loan book to date.

24% of Bankia’s origination was to the construction & development industry. From what I understand, these loans are the most toxic and will likely have the highest losses. Given a repossessed property sells for 52 cents on the dollar with a whole lot of shadow inventory yet to be sold, how much do you think you can get for land, and/or unfinished houses today? 15 cents on the buck? Less?

Watch Spanish 10 year bond yields. Above 6.5% is bad news, above 6.8% (the high reached last November, prior to the ECB’s LTRO) is extremely bad news.

http://www.marketwatch.com/investing/bond/10YR_ESP?countrycode=ES

May 30, 2012 at 1:42 pm #3640

Golden Oxen

No one is discussing the gold they have in their possession, Is not the current state of affairs the reason they own it. The asset of last resort. It is my humble opinion that their pile of the shiny metal will start to grow brighter and brighter as the clouds darken.

May 30, 2012 at 1:50 pm #3641

Karpatok

I fail to understand the true gist of your thrust in this discussion, Dave. Since you are so very liquid as you described, and so eager to work at making the world into what you envision as a better place, are you so closely following the misfortunes of Spain’s developers through your own personal schadenfreude, or do you intend to make a smart killing/investment on those 52cents on the dollar unfinished projects. What is it I detect in your avid analysis following Market watch and all? Are there better buys in Spain than the US. Would that be a good place to buy a second home like the English and others are thinking? Are you a real afficionado of Spanish culture? Would you have ridden to Spain’s rescue during the Civil War as did so many brave Americans helping to resist Franco? Or is this a new interest, following the misfortunes of other countries so closely in the early twenty first century.

May 30, 2012 at 3:43 pm #3642

davefairtex

Karpatok -

I’m not interested in trading Spanish bonds or the Spanish stock market either long, or short. I use the bond yields as a rough market-derived thermometer on how bad “the experts” think trouble their banking system is; the higher the yield, the worse the problem is. I am not planning on buying a home in Spain. I would guess property prices will be lower than they are now once the banking issues get resolved. I have visited the country, but by no means am I an expert.

By using the price of repo-ed homes, and multiplying by the number of loans on the books of a company, you can get a rough estimate of how bad the losses are likely to be when the bad bank eventually gets resolved. So when the Spanish government says “23 billion will fix the problem”, I like to check their math myself. My (very rough) math says they’re probably off by a factor of 3 – it will likely end up costing $60-$70 billion euros.

May 30, 2012 at 8:59 pm #3644

Golden Oxen

From: GoldMoney – Gold Research
http://www.goldmoney.com
Gold reserves as collateral
http://www.goldmoney.com/gold-research/newsdesk/gold-reserves-as-collateral.html

London Good Delivery gold bars Yesterday’s big news as far as gold was concerned was a Telegraph report stating that Germany could be about to get into the “cash for gold” business in a big way. Angela Merkel is said to be increasingly favourable to the idea of countries pooling a portion of their sovereign debt into a redemption fund, with the eurozone then taking on a collective obligation to honour this debt. Member states would be obliged to pledge gold and currency reserves as collateral in case they are unable to make good on their obligations.

This so-called “European Redemption Pact” gets around German courts’ constitutional objections to “Eurobonds”. It would also allow PIIGS governments to in effect share “Germany’s credit card”, thus lowering borrowing costs in the eurozone periphery and so taking the pressure off of embattled governments in Spain, Greece, Italy and elsewhere. And a big plus point as far as Germany is concerned is that this is no free lunch: if countries cannot honour their commitments, then they will lose their collateral.

But of course, things are never as simple as that. The fly in the ointment here is the always-emotive subject of gold, with many in southern Europe sure to object to the idea of pledging their gold to such a venture. Italy’s sovereign gold reserves stand at 2,451 tonnes – worth €98 billion as of March – while France sits on a hoard of 2,435 tonnes, and Portugal 383 tonnes (Portugal actually owns around 72 tonnes more then the European Union’s second largest economy, the United Kingdom). Having thus far resisted pressure to sell gold in order to shore up state finances, many in these countries will no doubt be wary of this EU take on a “cash for gold” shopping mall kiosk.

This idea bears close attention. If it looks like taking off, it will be yet another indicator that gold is slowly but surely re-entering the financial calculations of governments around the world.

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