With Spain dominating the news these days, let us dig deeper into the political elite running the show. Many have heard of the new president, Mr Rajoy, Bankia and Mr Rato, but what have these gentlemen produced prior to leading the country and forming Bankia? Simply must read by Golem on Spanish conquistadores in modern times.
Let me make it clear straight away – the lies, corruption, cowardice and greed of Spanish bankers and government officials is nothing special. What is happening in Spain now, reminds me of Northern Rock in the UK, Hypo in Germany and CountryWide in the US. So please do not think that I dislike Spain or of the ordinary people of Spain. The people I detest in Spain are the same people I detest in Britain and every country: The Cabal of corrupt Bankers and Political parasites.
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.
If a Spanish woman writes a check to her therapist, the money comes out of her account and goes into the therapist’s account. So long as both accounts are at Spanish banks, this is just a transfer from one bank to another, and the Target2 balance at the Banco de España is unchanged. But let’s say our Spanish depositor decides to move €1,000 from Banco Santander to an account at Deutsche Bank. In that case, the balance on her Santander account will go down by €1,000, and the Banco de España will likewise deduct €1,000 from Santander’s account at the central bank. In Germany, €1,000 appears in the Deutsche Bank account, and in the first instance Deutsche Bank will keep that money in its account at the Bundesbank, so the Bundesbank adds €1,000 to Deutsche Bank’s balance.
Some market reflections by Peter Tchir of TF Market Advisors.
Credit Markets Mixed: Spitaly vs Corporates
The first thing most people are noticing today is the weakness in Spanish and Italian bond yields. Spanish and Italian CDS are both wider as well. There is a lot of talk about what it means to hit 7% on 10 year bond yields. For Portugal, Ireland, and Greece that was more or less a trigger of worse to come. Ireland actually crossed 7% again in May having been below that since January. Since it spiked above 7% on the 15th it has been stable. Italy, last year’s poster child, went above 7% are returned below multiple times. Yes, 7% does make a nice headline, and it is the pre-fee return a hedge fund has to make before the investor starts earning more than the fund, but it is far from clear that it is the point of no return for bondholders, especially after the EU and ECB apparently learned their lesson last year.
With the new normal world where investors experience larger volatility shocks, it is time to start thinking about those unwelcome downside moves. Some good points on volatility and how to structure the portfolio. By PIMCO.
- In addition to muted economic growth, record low interest rates, and sustained high unemployment, extraordinary equity market volatility has been a repeated feature of the past three years.
- As heightened volatility persists, many equity investors remain on the sidelines. We think a better investment approach is to invest globally, across asset classes, reflecting the likelihood of the various outcomes.
- We believe managing against downside shocks is enormously beneficial to compounding attractive returns over the long term. Equity investors should continue to focus on
higher-quality companies with strong balance sheets that are selling into higher-growth markets, including those that pay healthy dividends.
As our readers know, we have been writing about the Spanish collapse for over a year prior to mainstream media discovered Spain. The Spanish bank bail out will not be sufficient to fix the rotten property sector. Spain will ultimately need much more money to shore up the banks, and even more to “fix” the economy. Unemployment is still rising. These are all structural issues, that can’t be bailed out. Meanwhile, the Spanish 10 year yield is hitting 7%….From El Pais on what brought the first bail out. Expect more to come.
Just two years after it was born out of the merger of seven of the country’s biggest savings banks, among them Caja Madrid and Bancaja, Banco Financiero y de Ahorros (BFA) was taken over by the Bank of Spain at the end of May after posting a record 3.3-billion-euro loss. The thinking behind BFA was to use it to store the seven lenders’ toxic assets, while Bankia would hold the supposedly healthy assets. With 11.5 million customers, 4,000 branches nationwide and a 10-percent share of the market, what could go wrong? Last July, 48 percent of Bankia was floated on the stock exchange at 3.75 euro a share. That price has plummeted to around a euro.
It was the Socialist Party, backed by the Bank of Spain along with the approval of the Popular Party-run regional governments of Valencia and Madrid, as well as that of the respective boards of the cajas in question, who decided that merging savings banks left crippled by years of property market speculation was better than letting them sink under the weight of their toxic assets.
France is pressing the EU to adopt a financial stability package to stem the eurozone crisis, believing negative market reaction to the €100bn bailout of Spain’s banks shows the need for more comprehensive action. Ahead of the EU summit due on June 28, Paris is set to propose a package of measures to put the European Central Bank in charge of bank supervision and to use the European Stability Mechanism, the new €500bn eurozone rescue fund due to come into force next month, to recapitalise banks directly. http://www.ft.com/intl/cms/s/0/a732fdbe-b553-11e1-ad93-00144feabdc0.html#axzz1xe4lV9a0
Bankers’ bonuses across the European Union are set to be limited by law, with many bank lobbyists admitting in private that they have lost the fight against a European Parliament initiative to limit the size of bonuses relative to salary. Some banks still hope to increase the proposed ratio from 1:1 to 2:1 or beyond, while others are trying to limit the restriction to upfront cash bonuses, excluding deferred payouts. But many bankers now accept the principle of a ratio as inevitable. http://www.ft.com/intl/cms/s/0/9b023d40-b57e-11e1-b8d0-00144feabdc0.html#axzz1xe4lV9a0
Moscow forcefully rejected on Wednesday Hillary Clinton’s accusation that Russia was supplying Syria with helicopter gunships that could be used against civilians, as Syria announced it had “cleansed” the rebel town of Haffa of armed fighters. Speaking in Tehran, Sergei Lavrov, Russia’s foreign minister, said Moscow was instead “completing contracts that were signed and paid for a long time ago. All of them are contracts for what are solely air defence systems.” http://www.ft.com/intl/cms/s/0/5f277e60-b561-11e1-ad93-00144feabdc0.html#axzz1xe4lV9a0
Guest post by Gresham’s Law.
Several months ago we brought you a history of the Federal Reserve’s assets in charts — here we complete the story by presenting the evolution of its liabilities from 1915 to 2012.
As mentioned when we examined the assets side of the Fed’s balance sheet:
…the Fed has degenerated from a by and large passive institution (dealing only in high-quality self-liquidating commercial paper and gold) to an active pursuant of junk, an enabler of wars, a ‘benevolent’ combatant of the depressions of its own creation, a central planner of employment & prices and of course a forgiving friend to inconvenient market follies.
Must see charts below.