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Saturday, 3 November 2012

Spain Offers Yet Another Impossible Solution to Its Problems

By Graham Summers
Spain continues to heap one impossible idea on top of another.
The latest "plan" consists of Spain creating a bad bank called SAREB that will buy up bad assets in Spain in an effort to clean up the country's finances.
SAREB was part of the €100 billion Spanish bailout plan which was set forth in June. Once again, none of it makes any sense.
Spain's Bad Bank to Buy Up Assets
SAREB, which is set to begin operations on Dec. 1, will absorb soured investments that have dragged down the balance sheets of Spanish banks since the collapse of the country's housing market four years ago.
Fernando Restoy, head of Spain's bank-bailout fund, said SAREB will likely purchase about €60 billion of toxic assets using Spanish resources and some of the funds allocated under the bank-bailout agreement.
It will apply an average 63% discount on land and housing units and an average 46% discount on real estate loans, he said, and will aim to sell the assets to investors over the next 15 years, with a return on investment of at least 14% for any investors in the bad bank.
Wait a second... isn't Spain bankrupt?
After all, their regional bailout fund has used up all of its funds, the country has only received €30 billion of the original €100 billion bailout, and Spanish banks are now beyond broke, selling even Spanish sovereign bonds to free up cash to face a systemic bank run (18% of deposits have fled Spain this year alone).
So where exactly is the €60 billion going to come from? Even if Spain uses all of the €30 billion it's received in bailout funds so far, it's still €30 billion short. 
Even if Spain were to get the funds together to do this... this move is still not big enough. Spanish Prime Minister Rajoy admitted in private that Spain's real funding needs are in the ballpark of €500 billion. And that's assuming he knows the true state of Spain's finances (unlikely given that he's a career politician with no financial background).
Folks, we've been through this whole mess before with Bankia.
For those who have forgotten, Bankia was planning on issuing a dividend just one month before it was nationalized. Then, within the span of a few weeks, it:
1)   Requested a bailout for €4.5 billion which eventually rose to €19 billion.
2)   Revised its 2011 profits to a €3.3 billion loss.
3)   Had to be nationalized.
This is what all of us should keep in mind as a true representation of Spain's financial system: a completely artificial appearance that comes crashing down in a matter of days.
A few final thoughts on Spain:
1)   In June, Spanish banks were drawing €300 billion or so from the ECB, today that number is north of €400 billion. If things were improving it should be shrinking.
2)   As mentioned earlier, Spanish banks which were essentially the only buyers of Spanish sovereign bonds are now selling them to meet funding needs due to the country's bank run. So who is going to buy Spanish sovereign bonds? The ECB? How and when?
3)   Spain's unemployment just topped 25% (again the wrong direction for things to be moving).
At the end of the day, you can announce all the fancy sounding programs you like. But unless someone comes up with actual cash none of it announces to much other than political posturing.
With that in mind, Spain remains the primary issue for Europe. I cannot say when this house of cards will come crashing down, but crash it will. It's only a matter of time.
Comment:
Comrades, Mr. Summers is the ONLY financial analyst who doesn't spew BS every time he opens his mouth.  He doesn't sugar-coat anything.  He is NOT afraid to give the people the straight truth about the state of the economy.  
Like I said, he often uses technical jargon and can be difficult to understand at times but since none of you are idiots, you should be able to get most of it.
First of all, I should remind you that Greece and Spain are the two most worse-off countries in the EU.  They are BOTH bankrupt.
To help solve this problem Spain has created a special bank to buy up bad debt?  Now if a country is healthy and solvent, that makes a certain amount of sense.  But a bankrupt country?  That's either crazy or stupid or both. 
Look at it in these simpler terms.  There is a man who has several credit cards maxed out.  He cannot afford to make all of the payments.  Someone offers him yet another credit card (my analogy of Spain's new SAREB "Bad Bank") to solve his troubles.  But he can only make interest only payments on his other debts, so the amount on the cards never goes down.  Now the new card will run dry sooner or later (SAREB will run out of money sooner or later) and he's stuck with yet another debt he cannot afford.  What sense does that make?
"When you find yourself in a hole - stop digging!" - Will Rogers, American Humorist.  
If Spain became National Socialist, here's how they could solve their financial woes.
1.  Leave the European Union.
2.  Nationalize their Bankia Centrale, their stock market, and all Spanish international corporations.
3.  Return to the peseta (not the peso - that's Mexico).
4.  Require ALL Spanish industry to stay within Spain.
5.  Place strict controls on all foreign imports.  Use tariffs to make them less attractive than domestic products, which would also raise some much needed money for the government.
6.  Establish price freezes to keep companies from gouging the consumers.
7.  Exempt the poor from ALL taxation except maybe sales tax on non-essential items.
8.  Establish moderate taxation for the middle class.
9.  Establish high taxes on the wealthy and take away their loopholes and tax shelters.
10. End all ILLEGAL immigration and temporarily suspend legal immigration until the above measures can take effect.  It should take about five years to make a reasonable recovery.
11.  Allow absolutely NO outside interference with their recovery measures.
When this has been done and things start to improve, then proper services can be restored such as healthcare, education, and social programs.  Oh, and let's not forget building an effective military because you know as well as I that the Judeo-Capitalists won't want to stand for this.
Dan 88!

1 comMENTS:

10. End all ILLEGAL immigration and temporarily suspend legal immigration until the above measures can take effect. It should take about five years to make a reasonable recovery
I'm Spanish and i agree with that point completeley. Only in 2006 about 86% of the employements was absorbed by immigrants. Companies believe this is renable as they are paid way less then they'd pay a Spanish cititzen, but they don't realise immigrants send all the money to their countries, plus they ask for better services, facilities, and most of them don't have ot pay taxes. Indignating.

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