The Rout In Spain

Tyler Durden's picture

From Mark Grant, author of Out Of The Box

There Are Those Weeks

The Rout in Spain
Overnight the shares of Bankia plunged 51.4%. This, by any definition, is a rout. The citizens of Spain had bought preferred shares, hybrid bonds on the basis of an "implied guarantee" from the sovereign. No such luck. It had been a tout sold by the bank and guaranteed by no one. Now the owners are suffering the disastrous consequences.
Many European analysts had suggested that the swap out of these instruments into equity would drop the price of the stock to about 1.35 Euros but reality emerged today as the equity price plunged to 0.68 Euros. The shares traded today were forty-two times the normal average trading volume and indicated the size of the problem. The stock has lost 90% of its value since May 6.
In the meantime the central bank of Spain has said that the Spanish banks might have to reserve 5-10 billion Euros in more provisioning. This number is a joke and one more IMF/EU/ECB projection with all of the merits of two sparrows lifting a 747 for take-off. The number is more like 50 billion Euros and possibly twice that much the way things are going in Spain.
Spain has already gone bankrupt. It is not spoken of in this fashion, no one mentions it in public but that is the truth of it. The money, some $172 billion, was funneled to the banks and not to the sovereign in one more European ruse to distract everyone but the results are the same. Now it is becoming apparent that even this amount of money was not enough so more will have to be given. The money will go to the Spanish banks, the debt will be guaranteed by Spain, the contingent liability will not be counted as part of Spain's debt to GDP ratio but we will know the truth of it. Whatever direct money from Spain that goes into their banks will be called an "investment" and put on the left side of their balance sheet as an asset and the mockery will continue but I can still read a ledger; thank you very much.
This path then leads to our own Federal Reserve Bank. They have lent more than one trillion dollars now to foreign banks. Now many people nod and go to sleep as this number floats past. "Not so fast," I say, "Not so fast."
The Fed is lending about $700 billion to American banks and $1.03 trillion to foreign banks. Two issues are raised here in my opinion. Why is America lending all of this money to foreign institutions and I would hope that Congress will begin an inquiry into this question. The second issue is that since we are engaged in this lending why is it? One assumes that it is not for nothing and so it raises the question of the health of the European banks that must be so serious that the Fed is forced to come to their rescue. I repeat, the financial health of the European banks must be so impaired that the Fed has been forced to lend them ever increasing amounts of money.
Our world is like a Dali painting; distorted, out of balance and disjointed. The central banks pump in the money, the governments distort the data and lie, the markets head every higher and Puff the Magic Dragon flies on unencumbered.
In fact, according to the most recent data, the Fed now owns 30.32% of all ten year equivalent government debt. At the current trajectory the Fed will own all of the government's debt by 2018. The value of the Dollar may be three Nigerian bananas by then but not to worry because the Euro will only fetch two bananas and the Yen only one. It is indeed hard to see where we are going here. Deception and monetary creation have gotten us where we are but how long until someone actually climbs up Mt. Olympus and discovers that there are no gods is anyone's guess.

“There are decades where nothing happens; and there are weeks where decades happen.”

                     -Vladimir Ilyich Lenin

Watch out for those weeks!

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Go Tribe's picture

And another issue to confront: weapons.

It's interesting that we created democratic institutions for HOW the government runs and which minimal liberties we are "granted". But the big issue - force monopoly - has never been resolved.

My suggestion is that no government organization be given the right to bear arms. That should be a right held only by the Citizens. Certainly in America if not worldwide.

Then we will have justice and liberty.

deepsouthdoug's picture

Hey Mark, "The value of the Dollar may be three Nigerian bananas by then..."  It already is!

Arthur's picture

"The Fed is lending about $700 billion to American banks and $1.03 trillion to foreign banks. "

How is this within the Feds authority?

Dick Buttkiss's picture

Like the federal government, the Fed has no authority, just power. But as they are both sorcerer's apprentices, the power is way too much for them (or any other common mortal) to handle. And as there is no Sorcerer to clean it up, the catastrophe they have set in motion must play itself out.

Get out of the way, or get swept away.

Roger Knights's picture

At some point you'd think the German constitutional court would say No mas.

Overflow-admin's picture

Where's Spiderman?!?

sgorem's picture

"and I would hope that Congress will begin an inquiry into this question"  WTF ? always appreciate your posts Mark, but CONgress is not going to do a fucking thing until there is a REVOLUTION in this country and their worthless, malfeasant, fraudulent, criminal, crony, insider-trading, suck ass, despot asses are at threat of being put up against the wall in front of a firing squad.............ALL we ever hear from these shit-for-brains is, "we'll start an inquiry", we'll get a committee together to study the problem", "we're making progress in fixing the problem", yadda, yadda. what we have here is the highest tier of lying theives that money can buy in any government.

dataanalytics's picture

Espania...en el inodoro

JJ McApe's picture

spain is the most scary in the eu.

youth unemployment 55%, debt over 800b, economy shrinking by year -1,5%


viahj's picture

the enite global economy and financial health reminds me of the movie "Weekend at Bernie's"

Mark Urbo's picture

Naw, ya need a movie where the train crashes into the depot or the ship crahes into the shore (Speed II) or a plane crashes into the ground, etc.

Paracelsus's picture

   If you travel to beautiful downtown Peshawar,one can buy almost any type of weapon you desire.The world is awash in weaponry.What is most disturbing is the wide usage of area denial munitions(minefields) to inhibit farming /grazing or other agriculture.This makes the sovereign country dependent on food imports for survival,and breaks the traditional link of the small villages supporting liberation movements with food,recruits (volunteers?),etc.

The late Princess Diana was quite vocal in her denunciation of the worldwide employment of landmines.....

newworldorder's picture

As I have said before, the American Congress, the American People dont give a damn what the FED does or does not do. As long as free money gets delivered to the Treasury so that this government can spread the wealth both domesticaly and internationaly, nothing will be said.

We have an empire to pay for, millions of SNAP cards to fund, the flow of commerce to protect with our military and billions of $$$ in foreign aid to give to countries that wish us ill. To the 30% of Americans that pay most of the funding for this - I can only say; Suck it up and keep writing those checks to the US Treasury. 

Mi Naem's picture

...Stoys Moynly in thu Ployn. 

Fire Angel's picture

I strongly DISAGREE with this writer's characterization of Dali's work. Fire Angel