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The bubble having happened, the assets obviously need to be reassessed with an eye towards finding a sustainable price level.

But ex ante it is not obvious that inflating a housing bubble and then popping it is less painful for the common Spaniard than selling bogus Spanish government bonds to German banks and then telling them to fuck off and die when they come to collect.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Feb 17th, 2012 at 03:10:57 PM EST
[ Parent ]
If most of the holders of MBSs written around the inflated real estate are foreign, especially is many of them were involved in creating the MBSs and/or the bubble, I think I know which I would choose were I a Spaniard. By writing down the value of the asset it becomes liquid again. Life can resume. Better yet if the financial sector took the hit. The part of the hit that is to pension firms and/or small holders could be partly compensated, though writing down the value to something close to actual market value would certainly help all Spanish holders of underwater mortgages.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Feb 17th, 2012 at 09:39:54 PM EST
[ Parent ]
That's all true, but doesn't speak to the point I was making at all.

My point was that if you had been Senate and People of Spain in 2001 and, for some reason that defies rational comprehension, decided to hitch your wagon to the Eurozone, would it be better for the Spanish people to accommodate German mercantilism by blowing a real estate bubble (as they in fact did) or by selling bogus government bonds (as Greece did)?

My point is that that choice is far from clear-cut in 2001.

In 2012, after the fact, it's obvious what should be done. But also totally irrelevant to the discussion I was commenting on.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 18th, 2012 at 04:29:01 AM EST
[ Parent ]
My point was that if you had been Senate and People of Spain in 2001 and, for some reason that defies rational comprehension, decided to hitch your wagon to the Eurozone, would it be better for the Spanish people to accommodate German mercantilism by blowing a real estate bubble (as they in fact did) or by selling bogus government bonds (as Greece did)?

Incidentally, there was a recent op-ed in El Pais that's related to that: La gente que pagará esta reforma laboral (XAVIER VIDAL-FOLCH 16 FEB 2012)

Desde hace decenios existía en España un consenso básico, casi tácito, en que había que superar el modelo económico basado en salarios bajos y mediocre tecnología, que se reputaba propio de los países menos desarrollados. Pero la Agenda 2010 del canciller Schröder reverdeció una competitividad alemana basada en reducir costes al factor trabajo. De forma que si los vecinos, y entre ellos los más exitosos, optaban por ello, quizá había que volver a las (cutres) andadas del modelo español.

No es así: con esta reforma estamos tomando solo en parte, en la parte más dura para los trabajadores (la reducción del coste del despido, por ejemplo), las recetas alemanas. Pero no las partes más blandas: allá se exige el permiso de la autoridad a los despidos colectivos; prosiguen intactos los mecanismos de cogestión en la empresa; existe una auténtica política activa de empleo / recolocación.

Y sobre todo, se emplea a mansalva el kurzarbeit, o reducción temporal de la jornada laboral cuando disminuyen los pedidos, copagada por la empresa y el Estado: este es el mecanismo que salva a Alemania del paro --más que los minijobs-- y del que el decreto-ley realiza una ruda caricatura: descuento de la cuota de la Seguridad Social y pequeña compensación del seguro de desempleo, no real copago.

The people who will pay this labour reform (XAVIER VIDAL-FOLCH 16 FEB 2012)
For decades there was in Spain a basic, almost tacit, consensus, that the economic model based on low wages and mediocre technology had to be overcome, as it was reputed to be characteristic of less developed countries. But Chancellor Schroeder's Agenda 2010 gave new life to a German competitiveness based on reducing the cost of the labour factor. Thus if our neighbours, and among them the most successful, took that option, maybe it was time to go back to the (shoddy) old ways of the Spanish model.
Let's recall the Agenda 2010 was adopted by the EU Council as "Agenda 2010 for Growth and Jobs".
That's not the case: with this reform we're taking only in part, in the part that's harder on the workers (the reduction of the cost of layoffs, for instance), the German recipes. But not the softer parts: there, the authorisation of the authorities is required for collective layoffs [no longer the case in Spain]; the co-management mechanisms [union involvement] remain untouched; there is a true active employment/retraining policy.

And, above all, there is massive use of the kurzarbeit, or temporary reduction of the workday when orders fall, copayed by the firm and the State: this is the mechanism that saves Germany from unemployment --more so than the minijobs-- and which the [labour reform] legislative decree roughly caricatures: a discount on the Social Security contributions and a small compensation from unemployment insurance, not a real copayment.



tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Sat Feb 18th, 2012 at 05:04:44 AM EST
[ Parent ]
But the shoddy economic model based on low wages and mediocre technology was never abandoned, as the real-estate bubble shows. The Spanish political economy is unable to conceive of other activities than bricklaying.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Sat Feb 18th, 2012 at 05:05:59 AM EST
[ Parent ]
Oh, and this is what adjustment looks like: (year-on-year change in wages and company profits

Purple: company profits
Orange: wages of salaried workers

That's not going to improve "competitiveness" but it's definitely not the fault of the wages as the aggregate wage bill has dropped maybe 2% per annum over the past 3 years.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Sat Feb 18th, 2012 at 05:30:58 AM EST
[ Parent ]
And while, as you note, 'the assets obviously need to be reassessed' we have spent the last three years avoiding doing so, mostly in order to save financial institutions that would better be/have been liquidated. Neutralize the toxins in the system. Substitute 'Recognize and reorganize' for 'Extend and Pretend'. All would be better off a few years later that way. The current path will make everyone worse off a few years later.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Feb 17th, 2012 at 09:44:15 PM EST
[ Parent ]

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