The Momentum of Lies
Headline in the FT “Spain to force banks to set aside €30bn.” This is a bad joke. One which ordinary Spanish people are going to pay for in blood.
First, €30bn is a joke because it is not enough and the Spanish central bank and the government know it.
Second, 30bn of what? The Spanish banks don’t have 30bn of anything worth setting aside.
According to a Bank of Spain presentation quoted in an article by Bloomberg, the bad debt provisions of Spanish banks so far
would cover losses of between 53 percent and 80 percent on loans for land, housing under construction and finished developments.
The additional €30B announced today
would increase coverage to 56 percent of such loans,..
The tiny little problem here, as Bloomberg points out, is that this additional sum is still ONLY for covering losses on land construction and finished developments. Which means even this ‘new’ rescue, like those before it, has no provision in it ,
… to absorb losses on 650 billion euros of home mortgages held by Spanish banks or 800 billion euros of company loans.
That’s €1.4 trillion in residential mortgages and business loans for which the Spanish banks have made….no provision.
Now it is true that default rates have been lower in Spain than in Ireland for example. But while Ireland has unemployment of about 14% Spain’s unemployment is 24%. Very nearly 1 in every four of the workforce has no official job. Even if they are working in the black economy that still leaves the state with a vast shortfall in tax revenue. No matter which way you look at it it is impossible that Spain’s Caja’s are not going to find huge ‘suprise’ losses on their residential and business loans. Of course those losses are already there but being held off the books with central bank complicity. Why else would the central bank and government simply not make provision for such losses unless they knew they were hidden? The problem is how much longer they can be hidden.
Full must read article here.