Its a Loan, NOT a bailout!!??

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10 Jun 2012 10:27 by Pilgrim Star rating in Costa Calida. 223 posts Send private message

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So, the Spanish Government have requested a loan, not a bailout, to get the waterlogged banks afloat again!!

In my meagre knowledge, I imagine this means that "we" (I am a Spain taxpayer) will not incur the stringent conditions imposed on other "bailout" receivers??

OK, seems maybe good, but I wonder what measures will be put in place to ensure that the funds are used appropriately and not allowed to line the pockets and bank accounts of unscrupulous people that hold positions of authority, as has happened so often, even before loans were even mentioned??? One has only to read some of the posts on this site to see the depth of the depravity!!

I love this country and am proud to be allowed to live here and enjoy the lifestyle I craved for so long. My wife and I have committed to Spain, in every aspect, to hopefully indicate our honest intentions.

So, please, please, Sr. Rajoy, keep an eagle eye on things!!  



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10 Jun 2012 10:37 by acer Star rating. 326 posts Send private message

Very much agree Pilgrim - if the Spanish don't stop some of their archaic practices of the past the loan will just add to the problem.  I say this as presumably interest will be payable on the loan and if the loan amount is €80,000,000,000 this will be massive, so they're not out of the woods yet!





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10 Jun 2012 11:53 by jaldridge Star rating in Manilva. 4827 posts Send private message

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Loan, bailout...at the end of the day it's all the same thing.  It all needs to be paid back.

Reading on the BBC, the general consensus appears to be that this is a good thing as it strengthens the banking system in Spain.

So I suppose we should be happy about this?  My little brain is a bit confused 



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10 Jun 2012 13:44 by normansands Star rating in Kent. 1341 posts Send private message

Dear All,

if I need a loan to buy a house or a car, both of which will be of useful benefit and are affordable, even possibly self-financing, that is good economics surely.

is that the same here, given the Spanish banks record, can it really be a good thing to loan them money and under what terms????

we currently have a lot of publicity here for "pay day loan companies" apparently required in periods of austerity to loan money at 400% between pay days.

how many loan companies will I have to go to to sustain this lifestyle for any length of time?????

US opinion is that the eurozone is already dead so how can this help????

tell us TJ

Regards

Norman

afterthought - is it a ploy to get the bond holders to come down from 6%????


 


This message was last edited by normansands on 11/06/2012.

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11 Jun 2012 09:34 by D_B_S Star rating. 179 posts Send private message

Justin, they (politicos )are  just kicking the can down the road.

So we now have 100bn Euro to spend? What shall we do with it. I know we will lend it to the Banks so later in the year (October) the Banks can buy Spanish government (central and regional) Bonds since we will be unable to shift them on the money market. That takes care of that problem until ... 2012. Then we will ....??? Too difficult to answer.

Justin you have every right to be confused.

David



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11 Jun 2012 12:15 by xetog Star rating in Wiltshire/holiday ap.... 481 posts Send private message

Chambers Dictionary says a bail-out is to "assist out of (financial) difficulties".  What is this "loan" for?  So it's a bail-out then!  The fudge is that if the money were loaned directly to the Spanish Government, then Spain would be seen to need bailing out.  Lend it to the banks, who in turn lend it to the Government (albeit that most of it will disappear into bankers pockets ont the way) and that means that the Government does not need bailing out and the Eurozone can go on kidding themselves that Spain is a model of fiscal rectitude and delay taking positive action for another few months!

M.





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11 Jun 2012 12:20 by acer Star rating. 326 posts Send private message

Presumably also, if the loan goes bad the Spanish government can decline any responsibility.





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11 Jun 2012 12:21 by D_B_S Star rating. 179 posts Send private message

Xetog

as I said just kicking the can down the road.

Lets get Summer over with and see the money markets give Spain a real kicking in October.

David



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11 Jun 2012 12:26 by georgeh Star rating in condado de alhama sp.... 1138 posts Send private message

 buy gold, printing money is inflationery. remember germany in the 30,s zimbabwe recently

buy gold hoard it and see 2000 $ an ounce soon- happy daze!



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11 Jun 2012 12:37 by summer70 Star rating in Granada. 92 posts Send private message

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As Rajoy tells it, the loan is so that banks can again offer credit to small and large businesses, so that the economy can be given a push out of stagnation.

It is not an official bailout of the country because a) the amount needed for this would be 5 times as much, and b) a country bailout would have to insist upon austerity measures being put in place and, as these steps have already been taken (both by Rajoy's Government and by Zapatero's), there is no need to apply them.

Personally, I think that the proposed loan is not enough to cover what the banks need and to allow them to offer credit on any large scale.  So I think this is just a stopgap while those who pull the strings sort out their next move.

So I do feel happy that Spain has for now been pulled back from the brink of disaster (and thus the Euro has as well).  However I do not see this as a long term solution. But I hope Im wrong.



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11 Jun 2012 12:53 by D_B_S Star rating. 179 posts Send private message

Summer 70,

the money will go to repair the balance sheets of the Banks -- NONE will go to businesses. The Banks are close to being insolvent and the money markets are closed to them.

If Rajoy really knew what the REAL situation was do you think he would be paying for shed loads for Professional help with the Audits? The rating agencies are not going to change for the better.

Spain can only just manage the repayments on the current Bonds -- as I say wait for October for the whole thing to unravel.

Just kicking the can down the road.

As they say Voodoo economics -- will make great case studies for future MBA students.

David



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11 Jun 2012 13:08 by summer70 Star rating in Granada. 92 posts Send private message

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David,
I think you are right.  I was only talking about the difference between a full bailout and a loan to the banks As Rajoy tells it.
I do think that Rajoy is out of his depth and that choosing to stay in the background until the deed was done was a move typical of the man and the way he takes the lead.

However, considering that the PP were the controlling factor in a large number of the banks taken into the Bankia fold, I do think there is much this present Government does know about the true situation.

I am happy as I said because for now Spain has been pulled back from the brink in order to suit a number of international interests, and to agree to a full bailout with additional austerity measures would have been suicide for any Government.

But I am under no illusion that these problems have been solved.



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11 Jun 2012 13:08 by xetog Star rating in Wiltshire/holiday ap.... 481 posts Send private message

When banks lend money to each other no cash changes hands, just promises to cough up if neccessary.  Trouble is that everyone is making promises to provide money they don't have.  If I promise my friend that if he needs it I will lend him £1, he can do the same for another friend and so on until eventually, I have a promise that I can borrow £1 from the other end of the circle.  Who actually owns the £1?  Answer, no-one has the £1, it didn't exist in the first place, only the promise of it and we have a circle of pople with no money who each profess to have £1, but only have a promise of it.  The trouble is that the system makes it look like the 100 people in the ring have £100, but they don't.  If the cash is called for, the whole system collapses.  Scale it up to reality and banks promise to lend money they don't have to many multiples of other banks and the whole thing is a complete mess.  Everyone just prays that the "loans" don't get called in, because there is precious little cash to back it up.

M.





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11 Jun 2012 16:09 by Thewoodbug Star rating. 32 posts Send private message

 

The bank bailout of 100bn is not quite what it seems (no surprises there then!). It is not a bank  bailout  it is in effect a government bailout. The Spanish government wanted the cash to go to the banks directly, but for any number of reasons (not least the banks’ questionable credit and integrity) the euro-zone refused. The money will be channeled into the banks through FROB (the Spanish government entity responsible for restructuring the country’s banks), which will add as much as 10 percent to the country’s debt/GDP ratio.
 
The good news is that Spain will not be subjected to the humiliation of Greek, Irish and Portuguese-style euro-supervision for bailouts. Why? Well if they had said  ‘No’ to a bailout or imposed restrictive austerity measures then Spain would quite happily have gone down like Greece almost certainly will, but the difference between Greece and Spain is that Spain would take Europe with it. So, the option was sink or swim!
 
The total sum is ‘up to’ €100bn. Last week the IMF talked about a bank bailout of €40bn. And a few weeks ago it was only around €19bn. It is thought that Bankia need an immediate injection of €19bn, while Banco de Valecia, Novagalicia and Catalunya Caixa, need around €30bn so that only leaves €50bn for the rest of the huge Spanish banking industry.
 
It is known that €140bn is held by Spanish banks in doubtful loans, plus a total €400bn exposure to the construction industry. The leading portals predict a fall of 35% in house prices to bring them to a market level, (Spain is still 35% over-valued, despite the recent falls in property prices) so this means that thousands more poor souls will enter the negative equity trap and inevitably more toxic  debt will be created as a result of loan default. 
 
Considering that Spain guarantees 12% of Eurozone bailout funds – yes you read that correctly, and has not had any notable conditions attached to the funding, it has become a hot issue with Ireland, Greece and Portugal who had to endure tough austerity measures ………. Finland wants Spain to pledge assets   before they will ‘sign up’ to any agreements, arguing that ‘small industrious countries should not have to underpin larger, irresponsible, profligate communities’
 
So it’s a hard rocky road ahead for the poor working and unemployed Spanish people who deserve better – much better. And where was Rajoy over the weekend whilst this shady deal was being put in place? Where else? Watching the Italy v Spain match on the taxpayer, or should that be bailout payer?
 
The Woodbug.

 
 



 




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11 Jun 2012 16:22 by xetog Star rating in Wiltshire/holiday ap.... 481 posts Send private message

We all think that kind Mrs Germany is backing all these paper loans, but when they are called in, Mr Germany will put his foot down and say, " Mrs G and I are getting a divorce, assume what you like, but when did I agree to bail you all out?  We are OK and can go it alone, the rest of you pay your own debts!"

M.





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11 Jun 2012 16:35 by Thewoodbug Star rating. 32 posts Send private message

Hi xetog,

If you were Frau Germany and could borrow loads of money @1% because those very clever men at Standard & Poors say that you are nice and you can have a very high credit rating, and then you  lend it to Spain at 6.5% because the S & P man says thats what Spain should pay - you wouldn't be in a hurry to stop lending would you? Especially if you knew that all your mates would have to chip in if Spain defaulted! I used to work with an old union shop steward donkeys ago and whenever wage rises came up he always said ' Ten percent of bugger-all  is still bugger-all'

but 6.5% of 100 billion is a hell of a lot.

 

Cheers The Woodbug





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11 Jun 2012 16:39 by D_B_S Star rating. 179 posts Send private message

The woodbug has it right. All win except the Spanish tax payer and worker 9as there will be fewer in the years too come, or will have to take wage cuts as devaluation is not an option).

David



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11 Jun 2012 16:53 by xetog Star rating in Wiltshire/holiday ap.... 481 posts Send private message

Much of the borrowed money will go on paying off politicians and bankers, the rest will be spent on goods from Germany & China.  100 bn is nowhere near enough to reflate the Spanish economy, so Germany will win by making a profit on the goods they sell and get back a fair wodge of the money they lent in that way.  Then still expect their 6.5% on the money they lent in the first place.  It's a win win situation for them.  The neat thing is that they don't actually have to part with a penny, just a few electrons through a computer whilst the Spanish people loose their homes and have nothing to eat.  I suppose they are lucky though; at least they can starve in the sunshine!

M.


 


This message was last edited by xetog on 11/06/2012.



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11 Jun 2012 16:55 by ads Star rating. 1586 posts Send private message

Paul de Grauwe, (Professor Paul De Grauwe is the John Paulson Chair in European Political Economy at the LSE’s European Institute. Prior to joining LSE, he was Professor of International Economics at the University of Leuven, Belgium. He was a member of the Belgian parliament from 1991 to 2003.)  has apparently suggested the following:

The correct response to the crisis consists of three elements, all of which are key. First, the ECB should step in to stop panic and fear from undermining the stability of the Eurozone. It can do this by announcing that government bond rates of solvent but illiquid nations (Spain, Italy, Portugal, Ireland) will not be allowed to exceed a certain level (say, 300 basis points above the German government bond rate). The ECB is the only institution that can guarantee this, and stop the spread of existential fear that destroys the Eurozone. The EFSF and the future ESM have limited resources and cannot credibly commit to such an outcome.

Second, the European Commission should tell deficit and surplus countries alike to make the necessary adjustments. For the deficit countries this means austerity, albeit spread over a longer period. While the European Commission travels to the deficit countries and preaches austerity, it should also go to the surplus countries and urge them to stop trying to balance the budget when the Eurozone risks moving into a recession. The European Commission’s message should be that budget deficits in these countries are good for then and for the system.

Finally, steps towards a budgetary union are a key ingredient for moving towards a sustainable monetary union. Budgetary union is a long-term prospect. There is little prospect for achieving it quickly. What can be done quickly, however, is the issue of common Eurobonds. This approach has the merit of signaling to the market that irreversible steps towards budgetary union are being taken now, thereby taking away the existential fears abut the future of the Eurozone.

 

 
 

 

 

I wondered what those of you who understand the "games" being played think of this analysis as a possible solution?

 


 


This message was last edited by ads on 11/06/2012.



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11 Jun 2012 17:26 by xetog Star rating in Wiltshire/holiday ap.... 481 posts Send private message

As you may have noticed, I am not an expert in this subject, just a confirmed cynic and as such take any expert pronouncement with a table spoon full of salt!  The good professor may have the solution to the problem of European fiscal profligacy, but fails to factor in human duplicity.  Where does the majority of the money in the Eurozone come from?  Germany of course and as long as they hold their finger in the dyke then they can keep the debtor countries from collapsing,  But once they decide that it is no longer in their interest and remove their safety net, the whole edifice of the Eurozone and the EU will crumble.  When will it cease to be in their interest?  When the prof's suggestion about taking on some debt themselves kicks in.  I am not taking a dig at Germany here, my attitude is one of admiration for the political nous to bring every nation in the Eurozone into their debt. 

M.





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