Part one was the Bad Bank. Part two was, what might be in the BB courtesy of Bankia and the other Caja. Part three…
Part two of this series ended talking about Recourse and Non-recourse loans. Noting that Spanish mortgages are recourse. Meaning that if the borrower defaults the lender/bank has recourse to not only the collateral on the loan, i.e. the house, but also all the borrower’s other assets as well. From this one fact I think we can glean a little clarity.
Unlike the situation in America, for example, you cannot walk away form a mortgage in Spain. Thus people haven’t. The Spanish will do almost anything to not default on their mortgage because they fear losing all their assets not just their house.
But at the same time Spain has and has had HUGE unemployment. At present the unemployment rate is a socially destructive 25%. That is 4,630,000 people not earning any money, not paying any taxes. It has been over 20% for a couple of years now. Youth unemployment is over 50%!
How are those 4.63 million Spanish people paying their debts? If many of them have a mortgage, how have they been paying it?
Well we might note that capital has been leaving the Spanish bank at an alarming and accelerating rate.
An article at Zerohedge notes,
Spanish financial institutions suffered the largest deposit outflow on record in the month of July when a whopping EUR74 billion, or 5% of the country’s entire asset base, picked up and left
This is a huge acceleration. In the first three months of the year the outflow was already alarming but was ‘only’ €97 billion or 10% of the nations GDP. Predictably, it gets worse. CNBC today reports,
On a three-month rolling basis, portfolio and investment outflows from Spain totaled 52.3 percent of the country’s gross domestic product (GDP)
So when we take in to account all kinds of assets, we find capital flight of pretty serious proportions. The article quoting Bank of Spain figures breaks this flow down to find that,
…foreigners were large sellers of Spanish securities in the latest quarter, which generated an outflow of 19.4 percent of GDP.
While a further 16.7% of GDP was Spaniards pulling their money from Spanish Banks and putting it in foreign banks. Pure capital flight. But those figures do not account for all the money being pulled from Spanish banks. Nor for the money that was pulled before. I have a feeling – its just a feeling, I have no figures – that many, many Spaniards have been pulling money from the banks, from their savings in order t pay off their recourse mortgage. I wonder if many of them are now coming to the end of that road?
You see I think the financial world and our rather wealthy and privileged leaders take so little notice of the lives of ordinary people that they think that ‘people will manage’ without ever wondering ‘how?’ If people have ‘managed’ so far, our leaders cease to think about them – it’s a strain to think about people you never meet, and frankly don’t care to meet – and assume they will continue to ‘manage’ for as long as they are required to. Much like grass is green and will continue to be green so ‘The People’ in the minds of those who rule over us, are just another part of the natural world to be taken for granted and used for profit.
But people cannot ‘manage’ indefinitely. At some point, like over fished seas, polluted rivers and melting ice-caps there comes a point where something gives. I wonder if we are now at that point in Spain. I think an increasing number of people in Spain, but elsewhere across Europe as well, are simply beginning to run out of the savings with which they have been keeping their families afloat. Don’t forget money taken from saving to pay for mortgages won’t re-appear back on the bank’s books because the banks did not hold the mortgages. They were securitized and sold on.
If I’m right then capital will leave the banks not just from capital flight but simply as accounts run dry. Is this not inevitable when unemployment runs at 20%+ for year after year? Regardless of my speculation, what is not speculation is that the Spanish Banks are running our of money. And this has rather profound knock on effects for the government. To wit, Spanish banks, which the Spanish government has relied upon to buy Spanish debt/bonds are now not buying but actually selling Spanish sovereign debt/bonds.
As reported in International Financing Review, (IFR)
Spain is beginning to lose the support of its banks as last-resort buyers of government debt, with lenders selling out of their holdings at the fastest pace in more than two years in July….The sales are a blow to Madrid, which was increasingly reliant on domestic banks to buy its debt after an exodus of foreign investors.
Since just March this year Spanish banks have sold €17 billion of Spanish government bonds.
In July alone, domestic lenders reduced their holdings by €9.3bn, in part to meet an outflow of deposits, signalling that money is now too tight to support the sovereign. (My emphasis)
Banks are running out of money. They have no more assets to pledge to the ECB. The Caja’s assets are too rotten for a dung beetle to bid for, capital is leaving by every door, ordinary people are out of work and have been told they are unlikely to find any this year or next (unemployment is projected to go up in Spain in 2013, not down) and other banks will not lend to Spanish banks at all.
Translate the capital flow from percentage of GDP in to a percentage of bank assets and,
Since June last year, clients have withdrawn €233bn or 13% of the total….
Or in graph form,
That isn’t good.As the IFR piece says,
A need to raise cash to meet those withdrawals may have prompted the recent bond sales, as other assets owned by banks – mainly loans and mortgages – are far less liquid.
Spain’s banks have long since been the buyer of last resort for Spain’s sovereign debt. The same is true in Italy and many other nations. When no on else will buy your debt you can still get your banks to dig their hole a little deeper. Till the day they say no. In Spain it is that day. Then you’re stuffed.
Spanish mortgages are turning bad at a faster rate than ever. The Caja have been retaining and hiding the worst of those non-paying loans. The caja and other banks are finding people, foreigners and Spaniards alike pulling what money they have left, out of Spain’s banks. Without those deposits the banks just don’t have the cash to pay their day to day costs let alone have money left over to keep Spain afloat by buying its debt/bonds. In fact the banks are in such a state that they are now selling those bonds for cash, making it even harder and more expensive for Spain to sell more debt. And sadly Spain has a LOT more debt it has to sell.
Spain’s official ‘plan’, I use the word very lightly indeed, is to sell €6 billion a month every month. €3 billion of which will be old debt re-issued/rolled over and €3 billion of new, extra debt. (These figure are from a UBS note published over at Zerohedge.) Then, in 2013, if all goes according to that famous plan, Spain will, when you add in Regional debts that are crashing and burning, need to issue up to and possibly in excess of €120 billion.
YEAH…RIGHT! Phone call for Mr Draghi!
So what will our lords and masters do about this riot of failure and incompetent neglect? Will they think that possibly they should draw a line under ‘saving’ insolvent banks and corrupt developers? Will they close the banks, sell their assets and recapitalize some clean banks? No of course not. Will they make those who made the stupid loans and who own the losses take them? Never. Will any of those who have ruined a nation ever be made to face a court? No of course not. Don’t be silly.
What they are planning is what they have done so far. Pump more and more money in to failed banks, create new bad banks so they too can be given public money that disappears when they too fail, and then turn around and tell the tax payer that the nation has spent too much and the government will, with crocodile tears in their eyes, have to close some hospitals, cut wages, ‘liberalize’ the work place, fire thousands of lazy, good for nothing public service workers, and then wonder why tax revenues are going down and banks are seeing money leave.
They will pump money in to the one sector of the economy which is NOT going to help any sort of recovery, and absolutely refuse to spend money on any sector that might, and then when all fails they will proceed to sell off the sovereign assets of the nation that are not theirs to sell.
Greece is already planning to sell national assets and now so is Italy. Both governments intend to sell-off businesses particularly utilities. Privatization is about selling stuff that WILL make a profit. The argument is always that the business is ‘badly run’ when in the public sector but will be ‘reformed’ and ‘rationalized’ when taken private. No one ever asks why things were been badly run or sets about reforming and rationalizing them while retaining them IN the public sector. It can be done. The NHS in the UK delivers very good health care for far less per capita than Private health care in the US for example. It is a very efficient system despite its many faults.
But all such arguments are denied and ignored in favour of the chance to asset strip a nation. And that is where we have arrived.
Privatization targets utilities because they are monopoly businesses whose services people cannot do without. If you sell water you are the only supplier and no one can say no. Same with electricity (the grid that is) and the roads, the trains, the ports etc. All built up over decades with tax payers money. Now those assets and the profits they can generate will be privatized. Of course it is quite true that in the case of Spain and Greece much of the rot was not only in private banks, but in regional and even national government. But does that make the looting of a nation somehow better? So the ordinary people were betrayed by a small subset of wealthy and powerful people who ran local banks and local government. Certainly the ordinary people are guilty of laziness and a willingness to believe the vapid blather of the bankers and the politicians. But even so, does that justify stripping the assets owned and paid for by the citizens of a nation and selling them at recessionary prices to the wealthy few, in order to better bail out those same wealthy few?
The whole rationale for the bail-outs is that the banks need cash but should not , must not be forced to sell-off their own ‘assets’ to raise that cash. And why not? Because in a recesssion they would not get a good price for them. But the assets of the people, apparently, MUST be sold now, right now, in the recession at recessionary prices. And who advises this so adamantly? The banks.
And then there is the land of the nations itself. I find it sad that wars have been fought to protect it, but now the traitorous few are simply going to sell it to their friends. Who needs tanks when you have banks? Greece will sell or long lease islands. Italy will sell beaches and historical landmarks.
And the people, us, what will we do?