Spain Goes For Broke In Sweeping Toxic Crap Under The Rug For Second Time In As Many Years

Tyler Durden's picture

All those who thought only our brilliant financial alchemists had the ingenious idea of sweeping all the toxic assets plaguing bank balance sheets under the rug of taxpayer bailouts "until things get better," are in for a surprise. It appears that recently insolvent Spain is not only as big an offender in this regard, but has been ahead of the curve for a several years. In an attempt to pretend all was good, Spain's banks, which are now locked out of financial markets for good reason, onboarded worthless mortgages as long ago as two years back. This was done with the hope that sooner or later (but definitely in under two years) prices would pick up and these homes could be sold for at least one dollar of equity. Alas, something happened on the road to financial nirvana: the Keynesian model collapsed, and the properties are now worth less than they ever have been, are generating the same amount of cash as they did two years ago (none), and now, finally, banks are forced to start accounting for these loans in a manner at least marginally close to reality. The result: a scramble to reflate the housing bubble like never before, in the hope to get at least a few mortgage payments out of the newest batch of greater fool. As the WSJ reports: "Banks are piling on incentives. Midsize Banco Espanol de Credito SA offers deferred deposit payments and 100% financing "for many of our houses," according to its website. Larger lender Banco Bilbao Vizcaya Argentaria SA and smaller Banco Pastor SA offer generous financing and lower teaser rates, as well." In other words, all the ingredients that were present in the creation of the first housing bubble are here once again. And just to be safe, Spain has decided to multiply the dosage by a factor of ten. When this little scheme implodes, which it will, the consequences for the economy will be comparably be about 10 times as bad. 

From the WSJ:

Spain has one of the world's most-troubled housing markets, yet some buyers are suddenly able to get mortgages with 100% financing, and developers are building new homes on empty lots despite a huge glut. The reason: Spain's banks took possession of a large inventory of homes, buildings and land two years ago, forgiving the debt in hopes of heading off defaults. The plan was to resell the properties when the market bounced back and evade the worst impact of the looming housing crisis. But Spain's housing market has only gotten worse, and now the bill is coming due as the banks labor under the weight of an estimated €59.7 billion ($73.8 billion) in real-estate assets on their books. Under pressure to make further markdowns on the assets by their main regulator, the Bank of Spain, many banks are now scrambling to unload the properties as quickly as possible.

In some cases, that means offering deals to consumers that are suspiciously like those that got the global housing market in trouble in the first place. The tactics include not just 100% loans, but also low initial teaser rates for buyers or initial payment deferrals for as long as three years.

At the same time, banks that own big plots of unbuilt land are announcing plans to build new houses to give the illiquid lots more value, despite the country's estimated glut of one million empty homes.

"On the one hand, they are selling the properties that already exist, and on the other, they are building houses," said Fernando Encinar, the director of research at, a Spanish real-estate website.

There is just one word for this strategy: idiocy. Yet for generations of brainwashed Keynesian demon economist, this is the only option. Taking a haircut on fair values would result in a toxic tailspin that would destroy not only Spain's eocnomy, but that of Europe, and the US, eventually, as well. A more P.C. way of saying this is as follows:

Some analysts, however, suspect the strategy is simply kicking today's housing problems into the future. "They're making a bet," said Alfonso de Gregorio, director of wealth and fund management at Gesconsult, a Spanish fund manager. "Wait for the economic crisis to resolve itself, push forward the problems by three or four years, and try not to let it show too much on the bottom line."

Others worry that the generous financing, which helps maintain the prices, is muddying the long-term picture for a sour Spanish housing market. Unemployment in Spain is currently 20% and is likely to rise with the austerity measures recently announced by the government of Prime Minister Jose Luis Rodriguez Zapatero. A recent Standard & Poor's report said that housing prices, which have fallen 16% from their peak in 2008, could fall another 12%.

And let's not forget those very Cajas, that would not exist if it were not for the government's most recent effort to bail out Spain's depository institutions:

"Need a home? Now is the moment!" says Caja Madrid on it website, where it also advertises financing options and special offers, such as an apartment in the small city of Manresa, near Barcelona, for €247,000.

"Escape your old home!" says the site of Valencia-based savings bank Bancaja, which advertises no payments for as long as three years at the start of the mortgage.

Such programs are having some impact. Santander sold 2,045 of the 2,745 homes it has placed on sale through its Altamira subsidiary since January, 2009, said a spokesman. Caja Madrid said it sold 10 times the amount of properties in the first five months of 2010 compared with a year earlier.

Just as US attempts to reflate the housing market have failed, and as Meredith Whitney said earlier, a double-dip in housing is now a certainty, imagine how ugly things will get in Spain, which not only does not have a reserve currency at its disposal, but has no real currency, due to the ubiquitous presence of the euro. At this rate of deterioration, one won't have long to wait. In the meantime, expected many more bailouts of Spain and its banks by everyone and anyone who has even a marginal dollar of liquidity, in the hope of delaying where the lack of cashflow finally encounters the most underwater debt tranche.

h/t Victor

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ZerOhead's picture

I challenge anyone to find a flaw in this plan to 'democratically' overthrow the U.S. government. Seriously it will work!

Na na na na naaa... I'm smarter than you guys! You guys are so stupid! Blah blah blah blah blah blah...

Listen 2,000 hit's already and my boat is still floating sink me Bitchez!

DoChenRollingBearing's picture

ZerO, a hearty high-five for your forum!  Just went to take a look.  There were 2 of us on a thread the other evening who wanted to find a place here at ZH to bring down the Squid.  Your forum is almost that, except yours is bringing down the present form of .gov.

+ all the debt in Spain!


But, with forums, I might never get off ZH and the computer!

MacedonianGlory's picture

Socialists in Spain, as in Greece and also in IMF etc., want Global Gvmt (the New Messiah).


IE's picture

"Goes for Broke" ... and succeeds.  ;-P

But seriously... why do they have to mark the assets to market?  What kind of draconian accounting standards are those?

hedgeless_horseman's picture

A three minute explanation of the whole ball of wax:

I need more asshats's picture

"imagine how ugly things will get in Spain". Still waiting for the hilltop villa on Ibiza.

People say, Asshat when are you going to get the villa. I say, soon, very soon. I'm patient like that.

DoChenRollingBearing's picture

Things go gown enough there in Spain, I may buy me a villa there in Ibiza, or maybe somewhere nice in Italy, or the Riviera...

With a handful of gold coins!

Monkey Craig's picture


If you live in the US, I'm sure you'll have to smuggle those coins up your ass or in your stomach. I can't see how TPTB will allow private citizens to have money that they can't track.


Let me know  if you think otherwise!

DoChenRollingBearing's picture

I already have gold outside the USA.

You may be right about TPTB disallowing export of gold sometime.  I suspect that there will a little bit of time, a warning, to get more out before that window slams.

My wife and I not long ago took 5 oz each (so did not have to declare them) on a flight overseas.  Neither time did TSA even blink when the gold went through.  Someone told me that gold does not show up on the machines, but, YMMV.  Future machines will probably pick it up.

There are other ways to get gold out of the US.  In your car.  In a boat.  Use your imagination.

Implicit simplicit's picture

I guess if you own CEF or PHYS you have physical outside the US.

Apostate's picture

Easiest way to get gold out of country: Fedex. 

Pizza spaghetti and mandolino's picture

Maybe you'll be able to buy a villa in Ibiza for a few gold coins but not in Italy.

However, don't despair !

This fall you may som nice commercial real estate right in the US, or villas along the Gulf of Mexico with your few gold coins.


WeeWilly's picture

Folks call you "Asshat"? What cretins, I'm embarrassed for you!

You are, and always will be "Mr. Asshat to me!"

Turd Ferguson's picture

Fuck. These motherfuckers are going to wipe us all out.

Global tyranny may not be their goal but it will be their end.

Monkey Craig's picture

Turd: I love your comments....followed them all day at 'work.'


I'm thinking some type of tyranny is on the way. All of our infrastructure sucks, bridges are falling, oil wells are exploding, and TPTB are bragging about the mineral rights in Afpakistan.


I just wonder if it will be more like 1984, Brave New world or Fahrenheit 451.


Turd Ferguson's picture

Muchas gracias.

I often wonder, as I sit, in my underwear, in my mother's basement, whether anyone is actually reading what I compose.

To your question, I envision something akin to "Red Dawn", the Cold War-era flick with Patrick Swayze and Charlie Sheen. A neo-Marxist, pseudo-dictatorship will emerge but this country is too big to fully submit to their oppression. We are still populated with plenty of rugged individualists (for proof, Read ZH daily). Pockets of armed resistance will prosper. We are: "WOLVERINES!!!"


AccreditedEYE's picture

I often wonder, as I sit, in my underwear, in my mother's basement, whether anyone is actually reading what I compose.

LMAO!!! You sir are most certainly NOT a douche bag. lol

WeeWilly's picture

I think people are too dependant, Mr. Turd. Turn off the power for 4 days and people will agree to do whatever the government says. N'es pas?

thisandthat's picture

Isn't it the other way around?

robobbob's picture

Try the incompetance of the society in "Brazil"

armed with the terminators weapons

Problem Is's picture

"I love your comments....followed them all day at 'work.'"

So you're the one that has been fucking up US worker productivity...

Mikebrah's picture

I think probably more like 'Idiocracy'

Rainman's picture

If Spain would just fudge that 20% unemployment number down to say 10%( like USA ), they would be able to convince even more people to buy homes they can't possibly afford.

I need more asshats's picture

Can't wait to see the results of the second leg down. It's like 1970 all over again. People thought that the 'all clear' signal had been sounded and they we're buying up what they thought was steeply discounted RE.

Then the bottom really fell out.

three chord sloth's picture

I bet that 20% is the fudged number. (I always assume every nation fiddles their numbers more-or-less the same way.)

masterinchancery's picture

They can afford them if they don't have to make any payments!

thisandthat's picture

Yes! convince people they aren't unemployed and they'll buy houses again - as collateral benefit, save on unemployment subsidies - double-triponomics!! :)

buzzsaw99's picture

John-Clawed T. will bail them out.


Mitchman's picture

When I first read the headline I thought it said "Spain Goes Broke..."  Then I read it more carefully and it said "Spain Goes FOR Broke...".  Then I read the article and I thought that I was right the first time...

DCon's picture

Asshat, will you pay for your villa with coloured paper or gold?


CPL's picture

bullets are cheaper...

Mr Lennon Hendrix's picture

Thanks, that was really something.

CPL's picture

I was waiting for the Banana Hammock Republic to join the US line dancing routine.

three chord sloth's picture

Nice. I bet this story just tickles the Germans. It's like all of Southern Europe is trying to drive Germany out.

Mitchman's picture

Anyone know if Merkel's candidate won the German presidential election this weekend?

Mr Lennon Hendrix's picture

Currentseas...all of them...are set to implode in 3......2.......1.....

Atomizer's picture

But, but the TV told me everything is OK. This is a real shocker to me.

Top 10 CDS Positions

Weekly Activity

I better buy a new serta mattress, so I can properly count sheep at night.

Sarcasm off

Atomizer's picture

Animated Editorial Cartoon- August 11, 2007


Implicit simplicit's picture

The disdain for Spain falls mainly on the ears of the deaf and insane.

Rick64's picture

That must be a hell of a rug. The U.S. should order a dozen or so.

bob_dabolina's picture

I know I might be in an unpopular camp but the EUR/USD is set to appreciate signifigantly.

I really could careless about short-term moves.

The bottom-line is that the dollar is in trouble over the long-term, thus the currency depegging issue being considered by the Chinese. This depgging issue is just another form of currency manipulation. An appreciating dollar is the antithesis of what central banks want.

I could be wrong but I doubt it.

When I saw the cover page in Newsweek about the euro collapsing my dreams were answered. I knew at that moment the exact opposite would occur within the coming years.

Implicit simplicit's picture

Bob, I think they are both doomed. They will just take turns hiphopping over each other like a couple of drunk jack rabbits all the way down the hole. That way they screw ovwer anyoned that was bettn one way or the other.

bob_dabolina's picture

You're right. They are both doomed.

I just don't think investors realize the risk of being in dollars/treasuries and to be honest I don't give a shit.

I have my wealth protected. I can sleep at night with complete comfort, and in the end, thats what really matters.

Implicit simplicit's picture

True that. I guess I'll keep on workin till I croak, but I like my work so what else is there to do.

Muir's picture

Yeah, I kinda get that feeling too.