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?

Here’s why.

On Friday (31st Aug) the Spanish Government passed what it said would be Spain’s definitive banking reform. This is actually the third such ‘definitive’ reform. The previous two were more blather than action. All the talk in this reform centres around the creation of a so called ‘bad bank’. Which, it is being claimed, will sort Spain’s ailing banking system once and for all. This despite the fact that Spain already has a bad bank, a really bad one, Bankia. I say this only half in jest. I’ll come back to Bankia.

First let’s deal with what a  bad bank actually is and does.

Bad Bank

A ‘bad bank’ isn’t a bank. It’s an ‘Asset Management’ company. A company is created, which buys all the rotten, failed, toxic, non-performing loans which Spain’s banks and it’s Caja’s have on their books. The company then ‘manages’ these assets. There, all better now?

Of course you might have a couple of questions. Like, who set’s up this company? With whose money? What does ‘manage’ mean? And if the company can make a profit from ‘managing’ the assets it buys from the banks, then why couldn’t the banks ‘manage’ them?

So how is it going to work, exactly? Well according to Spains Minister for the Economy,Minister Luis de Guindos, speaking at a news conference  last Friday,

The aim is for private investors to take a majority stake in the bad bank .

He went on,

“The asset-management company should be viable and not generate losses and in the end not have any impact on the taxpayer,…”

Gosh, why didn’t we think of this before?  Private investors are going to pay for the whole thing, and then it will make oodles of money and cost the taxpayer nothing.  Oh really?

Before we go on with this fiction lets just stop to mention how the company makes money. The ONLY way it makes any money is if it pays a realistic market price for the assets it buys them. At the moment those ‘assets’/loans and repossessed properties are being held by the banks at mark-to-model,not mark-to-market values. Which mean if the new company/bad bank buys them at a market price then the banks will take a considerable loss. The amount of the loss will be the difference between what the bank originally loaned out/expected to get back during the bubble years and what it now selling that loan for in a deep recession. The size of that difference will be the loss taken by the banks, which will be the size of their next bail out. There is no way around the fact that the assets being sold have lost value. Setting up an ‘Asset Management company’ doesn’t magically get rid of that loss. The only question is who takes it.

Now, the company, if it is a real company set up to make a profit,  will only buy the bad assets if it thinks that it can get them for a price that is in line with their actual worth today AND has a prospect of making money with them going forward. You don’t make a profit just by acquiring ‘assets’. You have to make money with them. So how will it make a profit?. First, even from really rotten assets – in this case securities backed by mortgages and loans to developers and builders – there will be some income from the fraction of the loans still being repaid. Second the company will attempt to sell the securities and loans to third parties who think they will be able to squeeze more repayments  from the loans or who think they  can sell the underlying land, property for a profit no one else has seen.

The obvious question is why doesn’t the  bank write off the loss but then keep the marked down assets and make the residual profit themselves? The answer is time.  Time is money. Spain’s banks, its Cajas in particular, have neither. It will take time to eventually see a profit from rotten loans. Spain’s banks need to be seen to be clear of debts soon.

The whole rational for a bad bank is to transfer the loss making ‘assets’ out of the banks because they need to borrow and do banking right now, while the Asset Management Company, does not. . The Asset Management company buys everyone time. The official plan is for the Bad Bank to,

…try to sell the assets over 10 to 15 years.

Who will remember in 10 15 years?  The toxic loans will be safely hidden away, out of the politically sensitive banks and in company that will be less familiar and, even more importantly, rarely, if ever, reported upon.

How many people have heard of the ‘Asset Management companies which the Chinese government set up the last time it had to bail out all of its major banks? Anyone? We’ve all heard of the banks. They made massive losses on bad loans at the end of the 90’s. They would have all died except that  bad banks were set up, one for each of them – to manage those bad assets.  They too were going to cost the tax payer nothing and make money. None of them have made money from the rotten assets they bought from the banks. In fact after 10 years when they were supposed to pay back money loaned to them, they coudn’t. They were bankrupt and were only saved, themselves, by the government footing another bill in order to extend their loans for another ten years. Even today those companies have only recovered 20% of the value of what they bought. To add insult to injury, the FT reported last year, that those companies are now thought to be making stupid and toxic loans to businesses that can’t get loans from any of China’s other fine banks.

Bad Banks don’t make money. They just get the cost and embarrassment of a crisis off the front pages. The sorry saga of China’s bad banks will prove to be, I think, the blue-print for how Spain’s will unfold. The Spanish Government, however, all our governments in fact, would tell you I’m wrong and that bad banks are like a good fairies. They sprinkle fairy dust on disasters and turn them to gold. So, back to the fiction.

The Spanish government’s ‘aim’ is for private investors to take a majority stake. Well they are only going to if they see a profit. So how will they get a profit from assets that the bank can’t profit from? The key, of course, is the price the asset management company pays for the assets. The bad bank can only work if it pays a low price. A low price, however, would leave the banks with a large loss. Those banks would then not have bad assets on their books but would have a huge hole in their finances. Who will pay?

According to the Spanish government, as reported by Reuters,

Private investors in rescued banks will bear some of the cost of the clean-up. Holders of complex instruments known as preference shares will take a major hit, as the prices for those securities have fallen steeply.

Which sound like the Spanish government making ‘the bond holders’ and the financial world pay its share of the losses. Actually not quite. The government says it will make some junior bond holders and well as share holders take losses.   I think the junior bond holders will challenge this and I wouldn’t be surprised to see Madrid trying to back out. The EU and IMF will try to force them to hold the line.  

More importantly, much more importantly, however, are these ‘Preference shares’, described as ‘complex instruments’. Describing them as such makes you think they must be the sort of thing major financial institutions hold. And they should be. But sadly they are not – not in Spain. The Preference shares were  offered to professional investors who largely refused to buy them. The government decided if the professional market wouldn’t buy them, then they would just have to be flogged to the ever trusting voters. The shares the professionals wouldn’t touch were sold to ordinary Spanish savers by ‘local banks’ as the article coyly puts it. Which ‘local banks’? Well Bankia for one. Bankia and the other Cajas, whose ‘rescue’ depended on the sale of these oh-so-safe shares, sold €22 billion of them to their own depositors and other small investors.  

As recently as this May an article in Bloomberg – which I recommewnd you take a look at so you can verify that I am not making this stuff up – quoted  Arturo Bris, a professor of finance at IMD business school in Laussanne, Switzerland, who said,

“A writedown of preferred shares placed with depositors would cause a social problem. It’s not really a feasible alternative.”

The article went on to note,

A spokeswoman for the Spanish economy ministry had no immediate comment. A Bankia spokesman, who declined to be identified, wouldn’t comment.

They knew then the unfeasable, unthinkable was probably what they were going to do all along. The government’s plan means that the up-coming losses in Spain’s banks are going to be heaped upon ordinary Spaniards, NOT their wealthier ruling class. As The Wall Street Journal reported,

The potential move would affect around 120,000 retail customers who poured their savings into these instruments. The products were sold by local banks as a low-risk, higher-yielding alternative to regular deposits, but have since plunged in value as Spain’s economic crisis has worsened.

So if the  government makes the bank sell their assets at a market price – very little – then ordinary Spaniards who were sold preference shares as a ‘low-risk’ way to protect their savings – those savings will be lost. And then those same ordinary people will be forced to pay for whatever further part of the bank losses gets covered by another cash injection/bail-out.

Of course the government could avoid some of the political fallout from all this by insisting/agreeing that the Asset Management Company pay the banks way over the market price for the assets, nearer to what the banks should have got if the bubble had never popped. The banks would then lose very little on the deal. The loss wouldn’t go away, it would be rolled off the banks and on to the asset management company.  The new company would have bought assets far above what they were really worth.

This second option would save the massive anger that will surely come when all those people who were sold preference shares see their nest egg for the future taken from them , but would make the Asset management company non-viable from the start. So it helps with one political nightmare but creates another. Because no private investors will buy in to that.  Unless… the government sets up the company in a sly way so that the private investors are guaranteed to be first in line for whatever profits are made. In other words cheat the profit structure.

That is what I think will happen. The banks will be paid inflated prices. Not high enough to protect the small, Preference  share holders. They are little people. They will get shit on.  But the senior bond holders – the ones who have friends in government – who often ARE in government  – the banks, the wealthy and the powerful – the big investors – the price set will be high enough to protect them. This will leave  the bulk of the losses to be rolled in to the new company. Of course the government is still spending tax payer money. But it will be ‘hidden’.  People understand a bank bail out enough to make them angry. So replace a feel-bad story with a fiction that hides the truth. In this new fiction there are no bank bail outs or are at least smaller. Instead there is the creation of a ‘bad bank’ which will make money and cost nothing.  In place of a bail out we now have a wise investment. Oh joy!

By the time it is clear that private investors are not going to take the lead – and /or that to encourage them the eventual profits will go to them while the government will get very little, and that the investment was not at all wise and was never going to make a profit –  by the time anyone hears any of this,  those responsible will be retired and immune from prosecution.

In short, bad banks are rarely a real solution. They roll losses out of the public eye and in to the future. The loss is still as real as ever and it is still the tax payer who will foot the bill.

OK that is bad banks in general. Next question is what might actually be in this Bad Bank? Normally we would have trouble knowing. We are forced to buy the stuff but not allowed to know what it is because it’s ‘commercially confidential’ don’t you know.

In this case, however, we might be able to get a glimpse of the ugly truth, thanks to Bankia. 

So that people don’t lose the will to live reading all this, I will break here and continue in a second part.

Every country will have its moment in the spotlight. Italy is preparing in the wings as we speak. But today, on the Eurofiscal Corruption Contest, Spain is on stage.

It is the mantra of the main political parties and media across Europe, that the present crisis is the result of too many people taking on loans they could not afford. Neither the bankers nor the politicians, according to the accepted story, saw the crisis coming or could have seen it coming but have been engaged in heroic attempts to rescue us from a crisis of our own making.  THIS IS NOT TRUE.

First, people did not ‘take’ loans they could not afford. The loans were ‘offered’  by bankers whose job it should have been to advise their clients on whether the loan was wise and sustainable. The bankers offered no such advice but instead pocketed the bonuses which came from selling as many loans as possible to all and sundry. So a more accurate summary of who is morally guilty, is that people accepted loans they should have known they would not be able to afford if ever the market turned down, but which were offered to them by professional bankers who assured them they would be fools not to get on the property ladder. Second, a vast number of the loans which have gone bad in Spain were not in fact ever made to ordinary people. They were made to developers and construction companies. It is those companies which have defaulted.

I am not saying ordinary citizens bear no responsibility. My concern is to stick a knife into the diseased carcas of Spanish Politics and bring to the surface the parasites who have gorged themselves on the flesh of Spain for decades and insist that their blame be recognized.

Let us start with the men who can be said to have built and profited from the disaster which is now engulfing the Spanish people. Four of Spain’s ugliest parasites are Rodrigo Rato the former head of Bankia, Prime Minister Mariano Rajoy , Miguel Ángel Fernandez Ordóñez the Head of the Central Bank of Spain and Jaime Caruana former head of the Bank of Spain. These men form a tight and incestuous group who have promoted and appointed each other to positions of power. They were at the helm during the whole bubble period and they can be said to be the men who caused the present crisis. They, as I hope to show, are at least some of Spain’s guilty men.

Rodrigo Rato become known to the outside world as the Head of the now notorious Bankia. It has been Bankia’s collapse which triggered the current round of Europe’s on-going bank debt crisis. The Bankia collapse has angered the rest of Europe’s elite. Just when they thought they had succeeded in convincing people to forget that this was a crisis of private bank debts and insolvency, caused by bankers, and to think instead that the whole problem was a Sovereign debt crisis caused by greedy citizens,  along comes Bankia to remind people, in a most unhelpful fashion, that, at root, this is a PRIVATE BANK CRISIS. A crisis of private loans and private debts, created by bankers at private banks for their private clients. Particularly in Spain this crisis is not one of Public debt.

As the BBC pointed out,

The Spanish government’s debts were a mere 36% of its gross domestic product (GDP) (the output of its economy) in 2007, while the German government’s were 65%.

And what is more Spain was living well within its means, spending less than it was taking in. Those are facts.

BUT, once Spain entered the Euro interest rates fell dramatically. The result was that borrowing grew and grew. Those who borrowed first and biggest were the developers, construction companies and banks. The ordinary Spaniard followed their lead, and was encouraged to do so because those who had borrowed first, the builders, developers, speculators and banks, urgently needed customers.  The big players led the market. They did not respond to demand they created and fostered it.

But back to Señor Rato. His role in Spain’s agony goes back long before Bankia. Señor Rato was, in fact, Spain’s Minister of the Economy from 1996 until 2000 and Vice President from 2000-2004 when the PP was previously in power. This means he was at the helm of the economy during the bubble years when property prices tripled.

Of course he wasn’t alone. Here enters our story another of our villains, Señor Jaime Caruana who was Governor of The Bank of Spain from 2000 – 06, the exact time Rato was Minister of the Economy. He too was a PP nomination. As Governor of the Bank of Spain, Señor
Caruana shared with Rato oversight and regulation of the banks. Neither of them did or said anything to warn of the growing dangers from bank lending and debts. There is nothing I am aware of on record anywhere. Señor Caruana smiled, waved and drew his salary. He was also appointed, again with Señor Rato’s support, to be the Chairman of the Basel Committee for Bank regulation.

So here was Caruana, the Governor of the Bank of Spain, who we now know was asleep at the wheel, while every Caja in Spain was gorging itself on rancid, stupid and outright fraudulent loans, now appointed to the pivotal European Committee charged with regulating Europe’s banks and saving them from themselves. Irony? The word isn’t big enough.

So Señor Caruana was Govenor of The Bank of Spain while also enjoying the power and prestige, of the  Basel Committee, and from neither vantage saw anything to worry about in the hugely inflating property and debt bubble at all, and made sure nobody investigated the Cajas. While Caruana had Bank of Spain and Basel Señor Rato too found higher office beckon.

As minister of the Economy, Rato was a rising star in the Parido Popular government, but so was another man, Señor Mariano Rajoy. It was Rajoy not Rato who, in 2004 ascended to become head of the PP. and later Prime Minister. What happend to Rato? As Rajoy ascended to the leadership of the PP, he and the outgoing PP head Señor José María Aznar, lobbied for Señor Rato to become Managing Director of the IMF.  Getting their man to head the IMF was virtually the last act of the PP leadership before they lost the 2004 election. Señor Rato was MD of the IMF from 2004 till he resigned suddenly in 2007. 2007…Hmm. During the time he was there, the IMF said nothing unkind about Spain’s property bubble nor its banks.  Caruana was at The Bank of Spain and the Basel Committee where he saw no evil, while Rato was at the IMF where he spoke no evil.

Of course Rato left the IMF in a hurry in 2007 while Caruana had been replaced in 2006 at the Bank of Spain by the new governor, Señor Ordóñez, who was appointed by the new socialist government. You might think the loss of IMF and Bank of Spain positions for thePP boys would upset things for Rato et al. But no. While Rato was still at the IMF in 2006 he plucked Caruana, even as he left the Bank of Spain job and installed him at the IMF as Director of the new financial, capital and regulatory operation called the Monetary and Capital Markets Department. Where he could see no evil even more comprehensively than before. Rato was out of the IMF, but his man was newly in. Rato was not done yet.

But before finding out what Rato did next it is important to remind ourselves of the saga of the Spanish regional banks, the Cajas. The first Caja to collapse was Caja Castilla La Mancha in July ’09 . As I wrote back in May 2010 in The Ugly Truth everyone expected others to follow. Even a year later none had. Then David Watts at CreditSights wrote a piece which ZeroHedge picked up and about which I wrote in The Stink is Out. The Caja’s and other Spanish banks had been quietly and selectively buying back the worst performing loans out of the securities they had sold. This meant when people looked at Spanish securities they looked impressively healthy and seemed to speak of a well run and surprisingly resilient Spanish banking sector. A fiction which suited Rato and Caruana.

But this fiction came at an appaling cost. By buying back those bad loans the Spanish Caja and banks were managing to hide the real extent of their losses and insolvency but only by keeping the worst loans and the losses they created, on their own books. While other banks in other nations were off-loading whatever they could on to any idiot who they could cheat, the Spanish banks were shovelling their mess down their own throats.

Of course for this to work the bank regulators had to be either unaware or complicit. This is where the new Govenor of the Bank of Spain, Señor Ordóñez comes in. He was not PP but appointed by the new ‘socialist’ government. You might have thought he would have blown the whistle, but he didn’t. Rajoy, Rato and Carauna who were all either out of power or out of the country after 04 -06 were all so well connected it beggars belief that they would not have known what was going on in the Cajas, but they didn’t blow any whistles either. Why would they? They would be exposing their own complicity and guilt. In fact Caruana is even more guilty than the others, if that’s possible, For in ’09, just when Caja Castilla La Mancha became the first to choke upon and then violently vomit up all of its own shit that it had been shovelling into itself, Señor Caruana had become General Manager of the Bank of International Settlement, the BIS.  He was the Central Banker’s banker and guardian of their secrets. He still said nothing.

Now let us return again to Caruana’s benfactor, Signor Rato.

Whatever caused Señor Rato to resign so suddenly from the IMF it did not end his career. Far from it. By now we are in 2011 and Señor Rajoy is now Spanish Prime Minister. He was determined to hear no evil. To help him do this Señor Rajoy turned once again to Señor Rato, now ex of the IMF, and this time he appointed him to be head of Caja Madrid.

Madrid also happened to be where Signor Rato’s family, who are very wealthy and who have been involved at the heart of Spain’s politics since Ratos’ Grandfather was Mayor of Madrid and a minister in successive governments, happen to have deep business interests. Caja Madrid gave out a huge number of loans to… construction and development companies. It is the construction and development companies, such as Begar and Ploder Uicesa or Metrovacesa which have defaulted on their loans and gone bankrupt.

But remember many of those worst loans are the ones the Caja’s had been hiding away by buying them back and swallowing them. There is zero reason for believing that Caja Madrid, at the epicentre of the banking and property bubble, would not have been playing this fraud. When Señor Rato took the helm he would have been quickly aware of the explosively awful situation. No sooner had he and Rajoy got back together than the Caja implosion engulfed them both. Rajoy and Rato’s answer was to merge 7 dying Caja, including Caja Madrid, into Bankia.

In their minds somehow sewing together 7 dying men into one many limbed monster was going to make them all much healtheir. Maybe they believed their own bullshit. They had, after all been swallowing it for some time. Perhaps they had aquired a taste. Who knows. But on the 31st of January 2011 one of Spain’s more shameful events began. Señor Rato annouced that Bankia would go public and they would offer Spanish investors, ordinary people, pension funds etc, the chance to buy into this new bank which Rato said, and I quote from the official press release, was,

 “solid, healthy and with a vast capacity for generating resources, a factor that has already proven its values on the market”.

On July 15th Rato’s version of reality was endorsed when Bankia passed what the European Banking Authoritiy’s called its definitlive and completely transparent stress test.  The finest financial experts of the EBA and The Bank of Spain working, as they said, hand in hand with Bankia’s own overseers, found nothing amiss in Bankia. And the bank even declared a profit of €44 million.

Those who believed all the bankers and their expert friends and bought Bankia shares at the offer price of €3.75 have now lost over 60% of the money they invested. Bankia shares are today worth 1 euro. Bankia is now so close to death, the death it was in actual fact always close to, that  the Spanish people are once again being forced to bail it out.

Mr Rato was forced to resign. No sooner had he gone but Signor Ordóñez, Govenor of The Bank of Spain has also said he will resign too.

The rats are leaving the ship in Spain. A right leaning pressure group, Manos Limpias, founded and led by a lawyer, recently filed suit against both Ordonez and Rato. The suit which has been admitted to court by a judge in Madrid accuses Señor Ordonez of mismanagement of the banking sector particularly during the Bankia bailout and accuses Señor Rato of falsifying financial statements. Señor Caruana is so far safe at the BIS. He should not be. While Señor Rajoy is protected by still being in power. And he too should be made to answer.

Rato, Rajoy, Caruana and  Ordóñez all saw no evil, heard no evil and spoke no evil. Together, however, they profited personally from destroying the lives of their countrymen and women. That, to my mind, is evil.