Wed Oct 8th, 2008 at 11:26:13 AM EST
Things are getting interesting in Spain... with the most conservative (in the good old sense of the word) and sound banking system the government has made a huge move to compensate for the lack of foreign liquidity and, if I may say so, has also done a preventive bail-out... and guaranteed all but the takeover of any foreign bank in trouble we Spaniards wish to control.
The news is below... and I need input from people who know more... but my rule of thumb has always been that Spanish banks are in trouble if around 25 % of people stop paying mortgages... and right now Spanish banks are increasing profitability at ratios of 10% above pre-bubble huge incomes.
[editor's note, by Migeru] Mortgage delinquencies have doubled in a year, and were up from 1.6% to 2.15% between June and July. This worries Solbes and the Bank of Spain says "there is no reason for unjustified worries [LOL!] because Spanish [financial] institutions are adequately prepared to face these challenges". (links in Spanish)
|La Vanguardia: El Gobierno creará un fondo de 30.000 millones ampliable a 50.000 para dar liquidez a las empresas (07/10/2008)||The Government will create a €30bn fund, expandable to €50bn, to provide liquidity to businesses.|
|Zapatero confirma que la garantía mínima de los depósitos se elevará desde los 20.000 euros actuales hasta 100.000 euros por titular y entidad||Zapatero confirms that the minimum guarantee of deposits will be raised from the current €20k to €100k per beneficiary and institution|
|La segunda iniciativa anunciada hoy es el fondo con cargo al Tesoro de 30.000 millones de euros para comprar activos "de máxima calidad" de las entidades financieras y con ello facilitar el crédito a empresas y ciudadanos, con el fin de dinamizar la economía. "Se trata de un gran préstamo temporal y lo podemos realizar porque tenemos una deuda (pública) en unos niveles muy razonables", recalcó Zapatero, quien dejó claro que el Tesoro no asumirá "activos tóxicos", porque el objetivo no es resolver un problema de solvencia de las entidades financieras, sino propiciar el buen funcionamiento del mercado crediticio. ||The second initiative announced today is the Treasury's fund of €30bn to purchase "highest quality" assets from the financial institutions and so ease credit to individuals and businesses, with the goal of stimulating the economy. "It is a temporary loan and we can carry it our because we have the (public) debt at very reasonable levels.", stressed Zapatero, who clarified that the Treasury will not take on "toxic assets", because the goal is not to resolve a solvency problem of the financial institutions, but to foster the good functioning of the credit market. |
|El fondo estará vigente hasta que los mercados recuperen su funcionamiento normal y a podrán acceder todas las entidades financieras residentes en España, cuando los activos que se refinancien sean españoles. Entres dichos activos, según fuentes del Ejecutivo, podrá haber desde préstamos hipotecarios hasta créditos a pequeñas y medianas empresas, que las entidades financieras agruparán en fondos de titulización que serán valorados por agencias de calificación crediticia. ||The fund will be in force until the markets recover their normal function and will be accessible to any financial instituions domiciled in Spain, as long as the refinanced assets are Spanish. Among these assets, according to government sources, there may be from mortgage loans to loans to small and medium enterprises, which the financial institutions will group into securitised funds which will be valued by credit rating agencies. |
|Para comprar los activos de "máxima calidad", el Tesoro tendrá que emitir deuda del Estado que colocará al mejor precio entre inversores mediante una subasta. Si el fondo llegase hasta 50.000 millones de euros, la deuda del Estado se incrementaría en 5 puntos hasta llegar al 41% del PIB, aún lejos de la media europea, añadieron las fuentes. El objetivo del fondo, insistió Zapatero, es "prevenir riesgos" e "inyectar financiación en el mercado", ya que en estos momentos consideró que es la falta de crédito la que paraliza la actividad. ||To purchase these "highest quality" assets, the Treasury will have to issue debt which will be auctioned to investors [editor's note, by Migeru La Vanguardia omits that this is standard operating procedure for debt issues ]. If the fund reached €50bn, the public debt would rise by 5% to 41% of GDP, still far from the European average according to sources. The goal of the fund, Zapatero insisted, is to "prevent risks" and "inject financing into the market" [editor's note, by Migeru what does he mean by "inject financing"?], given that at this time it is the lack of credit that is paralysing [economic] activity. |
Two final comments... I am glad I was right.. Spain is looking for money from Asia for the liquidity that does not come from the US... so in case the US collapses.... we have the money we need.
A further note... if all the Spanish money which is in €500 bills (so-called binladens in Spain because noone has ever seen one) in the black market could be lured out to buy those newly issued government debt securities... I think we would hardly need any outside investment... that's the good side of having an extra 10% GDP than the formally accounted for... and it is an extra 10% GDP in the black market (mainly housing) during almost 15 years of growth... but these are only rumors...
The Guardian: Spanish hoards of €500 notes could aid liquidity (October 7 2008)
It is, perhaps, the strangest idea yet for pumping extra liquidity into Europe's troubled banking system. Spanish officials were yesterday reported to be looking for ways of encouraging Spaniards to remove the estimated 108M €500 notes they have hoarded in safes or under floorboards and take them to the bank. That averages out to at least two per Spaniard, or a total of €54bn, circulating outside the country's banking system.
Mmmhhhh why are the figures for new public debt and the black market money so similar?????? Black market to the preventive rescue?
As Migeru commented [editor's note, by Migeru over gmail chat], we may use the black money siphoned off the housing bubble over the years to cover the losses of the banking system resulting from the popping of that same bubble and the global macroeconomic environment...
And as I pointed out, given that we were the good students in the Euro class, it is only fair that the Spanish banks take no new risk to finance new productive companies (Spanish debt will do just fine) and use the well-earned money of banks to buy all the European banks in trouble they may want or desire... So, the Spanish debt is used to attract the money from international markets that the Spanish banks can not get...
Que nos echen un galgo... [editor's note, by Migeru Catch us if you can?] I must say, we Spaniards are freakingly brilliant... if only we knew how to shunt a couple million workers from the construction sector to other industries... but ei if we ever manage to do that... First Europe then the World.
[editor's note, by Migeru] Hold your horses, kcurie. After reading the details of the plan as described by La Vanguardia I don't like what I'm reading one bit:
- This is like the Paulson plan: the government proposes to buy CDOs for cash. As there is no market for CDOs they will pay "hold to maturity" (i.e., near face value) not "market" (i.e., near zero) prices for the assets.
- allegedly (and Pierre will disagree) the saving grace of the Spanish banking system is that it didn't engage in a subprime securitisation binge - and now they propose to buy €50bn of newly created CDOs, which La Vanguardia doesn't name (scary!) but simply describe as "from mortgage loans to loans to small and medium enterprises, which the financial institutions will group into securitised funds which will be valued by credit rating agencies" (reasonable!)
- rating agencies are known to be unreliable and incompetent at rating CDOs. Also, they don't have the manpower to value them quickly enough for this plan to kick in quickly Update [2008-10-10 7:16:54 by Migeru]: from the discussion in the comments it would appear likely that the Tresury will buy CDOs which Spanish institutions parked at the ECB in the Autumn of 2007 and which are now due for repurchase. This could be done very quickly as they would already be rated AAA.
- if the government lures people's savings out of banks for their debt issue, they will be squeezing the banks' deposit base which is exactly the wrong thing to do. Apparently (I heard this from a friend yesterday and kcurie confirms) the Treasury is running an aggressive promotional campaign for a new issue of Letras del Tesoro (6-month treasury debt) as we speak. My first reaction on hearing that from my friend before kcurie broke the news of this bailout plan was "oh, shit, they're raising cash for a bailout within the next 6 months". The only way this debt issue can fail to take down a bank or two by sucking them dry of savings is if the public buys bonds with binladens.
So, no, I'm not so happy any longer. If the binladen bait works it will indeed have been an amazingly clever move and it will say something very weird about the Spanish political economy (the government engineering a money laundering scheme to save the banks, and the underground economy happily and voluntarily taking part in it).
In sum, I don't like what I'm reading and in part I don't because it's ZP and not Solbes delivering the message and I don't trust his grasp of economics. ZP has good advisers (Solbes, Sevilla, Sebastián) and he probably has learnt a great deal since the infamous I can teach you this in two evenings incident during the 2004 election campaign, but this is probably a plan put together by ministers, central bank and the banks just like the Paulson plan. Solbes is, at the end of the day, an orthodox economist.