tag:blogger.com,1999:blog-25064447.post4874048702760301388..comments2013-09-12T06:30:06.298+02:00Comments on Spain Economy Watch: And So It Begins, The Bank Of Spain "Intervenes" In A Spanish Savings BankUnknownnoreply@blogger.comBlogger14125tag:blogger.com,1999:blog-25064447.post-25350872792648446092009-04-01T10:41:00.000+02:002009-04-01T10:41:00.000+02:00Returning to the title of the original post ("And ...Returning to the title of the original post ("And so it begins ..."), the governor of the Bank of Spain intervened tuesday in the economic debate with new proposals far far away from Zapatero´s ones:<BR/><BR/>- descentralized salaries barganing.<BR/>- new crisis contracts for workers.<BR/>- improving housing rental.<BR/>- freeing energy and transport sectors.<BR/>- etc.<BR/><BR/>Implicitly Miguen A. Fernández Ordóñez is saying Zapatero isn´t doing anything for reestructuring spanish economy. He added that spanish rates of debt are just reaching its limits now.<BR/><BR/>Meanwhile Zapatero is only waiting for San Obama and his miracles.José Luisnoreply@blogger.comtag:blogger.com,1999:blog-25064447.post-31312226282105607632009-03-31T16:12:00.000+02:002009-03-31T16:12:00.000+02:00Hynek,I think Eddy's point is valid. "The unemploy...Hynek,<BR/><BR/>I think Eddy's point is valid. <BR/><BR/>"The unemployed do not get mortgages very often, and if there are no mortgages, there will be few houses sold and few developers left standing..."<BR/><BR/>Quite, and that is the situation we have now. That is why the developers are trying to kick the can along the road, and when they finally give in, not only will there be few developers left, there will be few banks left standing.<BR/><BR/>There is no recovery in 2011. As I keep saying, Japan land prices are now at 1984 levels, which mean in Spain 2025 land prices can be around 1998 levels. I really don't see why people imagine Spain will be better than Japan. Japan at least had its own savings, and could export.<BR/><BR/>Of course unemployment will be a key issue, and it doesn't matter whether we hit 20% in October (quite possible), December, or next March, it is going up fast, and it won't stop (for some magic reason) at 20%, it will keep going up and up till Spain recovers export competitiveness and until all that debt is restructured.<BR/><BR/>So at the end of the day, you are right, it is the unemployment which will matter, and the banks are simply "dead men walking".Edward Hughhttps://www.blogger.com/profile/10384039867580949531noreply@blogger.comtag:blogger.com,1999:blog-25064447.post-42905052226389738122009-03-31T13:54:00.000+02:002009-03-31T13:54:00.000+02:00By the way, the developers will not be helped by r...By the way, the developers will not be helped by rising unemployment either. The unemployed do not get mortgages very often, and if there are no mortgages, there will be few houses sold and few developers left standing...Hynek Filipnoreply@blogger.comtag:blogger.com,1999:blog-25064447.post-24712002179539978262009-03-31T13:45:00.000+02:002009-03-31T13:45:00.000+02:00Point noted. I did not mean that the unemployed ar...Point noted. I did not mean that the unemployed are the key issue of today, they will not bring the banks down now, but may well do so in the very short term.<BR/><BR/>Actually, the situation in Spain is very, very similar to our own. We are beginning to see major developers fail (ORCO being the most recent example), but the local banks can cope with that. <BR/><BR/>However, unemployment is on the rise and the retail loan defaults dutifully follow. The impact of retail loan defaults caused by rising unemployment will be very significant especially in 2010/2011. <BR/><BR/>Mind you, we are talking of expected unemployment rates of maybe 12-14%, not the Spanish 25% (or whatever we will finally get).Hynek Filipnoreply@blogger.comtag:blogger.com,1999:blog-25064447.post-64764312885774730782009-03-31T12:21:00.000+02:002009-03-31T12:21:00.000+02:00Hynek: the root of the problems for the bankig sys...Hynek: the root of the problems for the bankig system are not the unemployed (yet) but land developers and r.e. firms.<BR/><BR/>Bancos and Cajas are trying to "kick the can along the road" by refinancing the onerous debts of this guys...in the vain hope that re. prices will recover back again in 2010/11.<BR/><BR/>The problem is that the value of the collateral of the tottering r.e. firms is sinking VERY fast (especially land in development)Eddyhttps://www.blogger.com/profile/02784479449460931133noreply@blogger.comtag:blogger.com,1999:blog-25064447.post-27999242939586521852009-03-31T10:50:00.000+02:002009-03-31T10:50:00.000+02:00"But if we fight with the same weapons, then we wi..."But if we fight with the same weapons, then we will lose the next round too."<BR/><BR/>I would rather say, if we keep on shooting at false targets, it does not really matter what weapons we use. <BR/><BR/>In my opinion, it is fundamentally wrong to give top priority to the saving of the banking system. As far as I can see, the Spanish banks (as well as our own banks) are largely exposed to local (Spanish, Czech) businesses and, especially, households. <BR/><BR/>Now, what is the key driver of defaults on retail loans (mortgages, credit cards, etc)? Assuming stable interest rates, it is unemployment. If the number of jobless people in Spain goes up at the current rate of 150 000 every month, default rates will soar. With unemployment exceeding 20, or rather 25%, default rates may well reach levels that simply can not be borne by most of the banks. Given that 20% unemployment is likely to arrive no later than this coming October, I can see the first wave of banking collapses coming before the year is out.<BR/><BR/>Which brings me to the point: instead of pouring billions into the banking system (which is about as useful as hunting deer with the good old 88mm flak gun), the billions should be invested to keep people employed. As every businessman knows all too well, the line between success and failure is often very thin, and the capital necessary to make the difference may be relatively small. <BR/><BR/>In other words, it is necessary to invest possibly limited, but well targeted amounts of money to keep businesses afloat and the would-be jobless employed.<BR/><BR/>I am fairly convinced that if the unemployment rate keeps on rising at the current rate, there is no way most of the banks can be saved, and that, at the end of the day, they may even require more EU billions than the EU will be ready to spend.Hynek Filipnoreply@blogger.comtag:blogger.com,1999:blog-25064447.post-56764537306984375262009-03-30T22:48:00.000+02:002009-03-30T22:48:00.000+02:00Hello Hynek,"Let us say, it would take many months...Hello Hynek,<BR/><BR/>"Let us say, it would take many months. However, if the Spanish banking system starts collapsing on a large scale, and that may happen any time now, you would need remedies that work more or less immediately."<BR/><BR/>Well look. My opinion is that even though this bank problem is now inevitable - neither monetary nor fiscal policy are working, both the steering and the brakes on the car are broken - we won't hit the buffers at the end of the track tomorrow.<BR/><BR/>My best guess is still 2011, although that doesn't mean something shouldn't be done tomorrow. Although, like you say, we don't seem to have the political will to do anything at the moment. We are like Ulysees in the land of the Lotus Eaters.<BR/><BR/>However, I want to stress: this won't blow up tomorrow (although it will blow up). There is fire power left in the banking system.<BR/><BR/>The problem has simply broken through the first line of defence, that is all. So now we move to the second line of defence, and ask all women and children to seek safety in the church (just in case).<BR/><BR/>But if we fight with the same weapons, then we will lose the next round too.<BR/><BR/>So then we will have to regroup in the old part of the city, and fight a last ditch stand, and there we will somewhat resemble John Wayne and his friends in that old film that so fascinated me as a child, now what was it called?<BR/><BR/>Oh yes, The Alamo.Edward Hughhttps://www.blogger.com/profile/10384039867580949531noreply@blogger.comtag:blogger.com,1999:blog-25064447.post-43794305072042313172009-03-30T21:13:00.000+02:002009-03-30T21:13:00.000+02:00Edward, you mentioned earlier that EU bonds may be...Edward, you mentioned earlier that EU bonds may be the only way out of this mess. <BR/><BR/>Now, it appears that even if there indeed was the political will to enable the EU to issue its own bonds (which I do not think there is, at least at the moment), it may take quite some time to establish the institutional/legal framework.<BR/><BR/>Let us say, it would take many months. However, if the Spanish banking system starts collapsing on a large scale, and that may happen any time now, you would need remedies that work more or less immediately.<BR/><BR/>One, Spain could try to sell a lot more of its own bonds for real money. Could work for a while, but I am afraid that the yields would soon reach the stratosphere. <BR/><BR/>Two, new Spanish bonds could possibly be sold to the ECB in exchange for freshly printed cash. I have no idea whether anything like that could work (and would be allowed by the Germans). <BR/><BR/>Three, the Spanish government would stick to the October Paris manifesto. It would only support the systemically important banks and would let the small ones die. The banking system should be able to bear at least a certain amount of losses, and the government should act only as the lender of last resort. <BR/><BR/>Obviously, the small bank depositors would suffer as well. However, I am afraid that the Spaniards will pay the price of the saving of the nations banks anyway. If no deposits are lost, then the price will be paid in the form of (much) higher taxes, or higher inflation, or Italian-style over-indebtedness and prolonged economic slump, or all of the above and then some.Hynek Filipnoreply@blogger.comtag:blogger.com,1999:blog-25064447.post-2886003108043369752009-03-30T03:55:00.000+02:002009-03-30T03:55:00.000+02:00The final two sentences in the George Soros interv...The final two sentences in the George Soros interview are rather haunting.<BR/><BR/>"Look, we are not going back to where we came from. In that sense it (economic decline) is going to last for ever."Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-25064447.post-13413495362564954882009-03-30T03:45:00.000+02:002009-03-30T03:45:00.000+02:00George Soros isn't worried by the failed gilt (sov...George Soros isn't worried by the failed gilt (sovereign debt) auction in Britain last week. He calls it "a blip". He would still buy UK bonds, saying: "it depends on the price". I’m not so sure. First, international bond markets are about to run into a big bad brick wall. Sovereign, municipal and corporate debt will be unleashed in such amounts that portions of it are certain to fall by the wayside. This risk will prod many issuers to try and sell their debt sooner rather than later. Ironically, they'll do so partly because they fear it will be more expensive to issue their bonds as time goes by. If enough parties follow this logic, it will get more expensive sooner. With interest rates close to 0%, yields of 5% or more start to look attractive, if you can finance the purchases with borrowed money. Who has access to such credit? Large financials, through central banks. Thus, wealth gets more concentrated by the day. Nice world if you can get it to live in. Still, even the big boys will only buy if they know they can easily get rid of the paper when they want or need to.<BR/><BR/>As for Britain, its financial situation, coupled with the plummeting status of Gordon Brown, could indeed give it a label of "not sufficiently attractive", or "too risky", for a bond market that can pick and choose at will. And, again given the surplus of bonds about to be issued, it is entirely possible that market will freeze, or rates go up so much that it becomes fiscally irresponsible to offer sovereign debt for sale. Of course, if Britain can't do it, it won't be alone among countries. And it makes you shudder to think what will happen to towns and companies that will for all intents and purposes lose the sole remaining vehicle to finance their operations. I know I'm -partly- speculating here, but then, so is anyone thinking it'll all be a smooth ride. There is less investment money available for a fast growing amount of debt. The outcome is obvious.<BR/><BR/>And while Britain may be the weakest of the strong, the weaker among the weak can be sure they will be pushed aside by the traditionally strong countries, kind of like we're watching the markets according to Darwin. They may be "interesting", pretty they won't be. The biggest theme coming out of this week's G20 could be that developing countries turn their backs on the rich and formerly rich parts of the world, if only to protect themselves from more blood riddled exploitation. What do they have to lose but shackles?<BR/><BR/>IlargiAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-25064447.post-80460639813395792162009-03-30T02:32:00.000+02:002009-03-30T02:32:00.000+02:00We are getting closer to UK and USA. This is good,...We are getting closer to UK and USA. This is good, isn't it?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-25064447.post-2815635026698753282009-03-29T21:15:00.000+02:002009-03-29T21:15:00.000+02:00Hi Eddy,"Only if there is a proper "liquidation" t...Hi Eddy,<BR/><BR/>"Only if there is a proper "liquidation" the Treasury can recover the funds from the FGD."<BR/><BR/>Thanks.<BR/><BR/>Jaime,<BR/><BR/>"or that is otherwise backed by any means (faith in goverment)?"<BR/><BR/>Well obviously this is the case, otherwise this<BR/><BR/>"another bust and the spared money in the FGD will be exhausted...."<BR/><BR/>So, like I have been saying, the Spanish banks stay solvent as long as the Spanish government remains solvent. After the Paris decisions of October 12 2008 (that no systemic bank would be allowed to fail), we have moved from a banking crisis, to a fiscal crisis of the state.<BR/><BR/>It is just that this isn't clear yet, since 3 billion euros here, or 5 billion euros there is no big deal. It is when we move up a level, that things start to get tricky, since this should coincide (2010/2011) with confidence that all the deficit spending on "stimulus programmes" is worth a light, and the patience of the EU Commission and the ratings agencies will start to wear thin as deficits continue, and debt to GDP starts to surge.<BR/><BR/>Would quickly happen.Edward Hughhttps://www.blogger.com/profile/10384039867580949531noreply@blogger.comtag:blogger.com,1999:blog-25064447.post-4728518108226700072009-03-29T20:33:00.000+02:002009-03-29T20:33:00.000+02:00In order to avoid draining the FGD the money initi...In order to avoid draining the FGD the money initially comes from the Treasury.... Only if there is a proper "liquidation" the Treasury can recover the funds from the FGD.<BR/><BR/>For now, there is no liquidation, only a line of credit and removal of present managers.Eddyhttps://www.blogger.com/profile/02784479449460931133noreply@blogger.comtag:blogger.com,1999:blog-25064447.post-28470139150421501802009-03-29T19:50:00.000+02:002009-03-29T19:50:00.000+02:00Hi Edward, one question.The goberment garanteed 10...Hi Edward, <BR/>one question.<BR/>The goberment garanteed 100K of any deposits some months back(backed by FDG). Does that mean that is garanteed as long as there is money left in the Fondo de Garantia, or that is otherwise backed by any means (faith in goverment)? I mean, another bust and the spared money in the FGD will be exhausted....<BR/><BR/>Good Sunday evening!<BR/>JaimeAnonymousnoreply@blogger.com