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SocGen's Albert Edwards On Spain: "A Bailout Will Solve Nothing"

Tyler Durden's picture


SocGen's Albert Edwards reflects that we have a lot to learn from Japan's Lost Decade as a prequel to the current chaos the global macro-economy is undergoing. Drawing on work by Peter Tasker, Edwards notes the similar-to-current-Euro-thinking consensus view in Japan was that their banks were at the center of the economic woes and hence bank recaps were the turning point. Critically Tasker and Edwards disagreed, as "although the banking sector was indeed damaging the economy via a credit crunch, the banks were not the problem but a symptom of the problem: the true problem was deflation and the lack of stimulative policies. Indeed, Japanese banks did not start underperforming the overall market until 1997 as they became the victims of the economic weakness; they were not the origin of that malaise. And so it is in the eurozone. The Spanish banking sector is a victim of deflationary policies enacted at the behest of German economic orthodoxy. A bailout will solve nothing."

Edwards notes the lesson from Japan was that:

...overly focusing on the banks as "the problem" is misguided and until or unless deeply deflationary policies are altered, the Spanish banks will be back for another bailout before too long.


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Wed, 06/13/2012 - 12:27 | Link to Comment PrintingPress
PrintingPress's picture

Bailouts solve political elections

Wed, 06/13/2012 - 12:40 | Link to Comment CommunityStandard
CommunityStandard's picture

They are popular in Europe because someone else (Germany) is paying for it. Bailouts are very unpopular in America. Yet the politicians that voted for them stay in office.......

Wed, 06/13/2012 - 12:57 | Link to Comment Sudden Debt
Sudden Debt's picture

. President Dumbo, 2008-2012 & 2012-2047

Wed, 06/13/2012 - 15:35 | Link to Comment OttoMBMP
OttoMBMP's picture

Yeah, Albert, it's all Germany's fault.
Right or wrong - when I can blame Germany, I do it, right, Albert?
The Spanish banks' situation is due to German enforced austerity??!
How this austerity looks like has been shown in a nice chart here on ZH recently...
(I agree: Germany shouldn't have anything to say about Spanish fiscal policy, it shouldn't have anything to pay either!!!)

Hey, Albert, have you had lunch with François Hollande recently?
(Austerity is sooo bad. We need debt financed "growth"?) Hey, I used to like your articles. Are these socialists blackmailing you or something? Just asking....

Wed, 06/13/2012 - 17:12 | Link to Comment mkkby
mkkby's picture

Damn those Germans.  Don't they know their purpose in life is to be mommy and daddy for all the socialists who refuse to do anything for themselves?  They should be grateful to work hard and raise their retirement age, so fat worthless neighbors can sit on their asses.

Thu, 06/14/2012 - 07:01 | Link to Comment arsenal009
arsenal009's picture

Germany benefits by being able to export their products to the rest of the eurozone on the cheap.  If Germany doesn't want this benefit, they can always leave the Euro...

Wed, 06/13/2012 - 20:54 | Link to Comment WhiteNight123129
WhiteNight123129's picture

Here is what France needs, not a wishy-washy Hollande but a Clemenceau because of anti-imperialist, anti-colonialist views and his unbreakable spirit during WWI, mixed up with Charles de Gaulle for his fondness for the Gold standard. Germany should feel free to go on the Deutsche Mark.


Wed, 06/13/2012 - 23:25 | Link to Comment jeff montanye
jeff montanye's picture

clem seemed a little imperial toward germany in 1919 and, a generation later, his countrymen and women and children had reason to regret it.  or as keynes said, he saw european history as a perpetual prizefight.  and clem apparently made sure his prophesy was self-fulfilling.

Wed, 06/13/2012 - 12:28 | Link to Comment TrainWreck1
TrainWreck1's picture

An ordinary bailout will solve nothing.

What we need is a SUPER-bailout.

Wed, 06/13/2012 - 12:32 | Link to Comment Greenie
Greenie's picture

A super-enema would be far more effective

Thu, 06/14/2012 - 02:34 | Link to Comment The Navigator
The Navigator's picture

Super Bailout = Super Enema = SHTF......same result

Wed, 06/13/2012 - 12:34 | Link to Comment resurger
resurger's picture

They need to print a Quad

Wed, 06/13/2012 - 12:36 | Link to Comment battle axe
battle axe's picture

If you have deflation, then the only thing to do is print your way out of it, come on boys we need more paper......sarc

Wed, 06/13/2012 - 12:46 | Link to Comment resurger
resurger's picture

Axe this is teh sequence :

1- Print

2- Algo Glitch

3- Print

4- HFT Pump

5- Repeat


Wed, 06/13/2012 - 12:30 | Link to Comment Abraxas
Abraxas's picture

What I need is a super-spike in PMs (this time with the juniors following the move).

Wed, 06/13/2012 - 12:31 | Link to Comment Broccoli
Broccoli's picture

Deflation is sooooooo terrible. The bankers collateral goes to shit, but the people get richer in purchasing power. Can't have that. The game must be stacked against the people to continue.

Wed, 06/13/2012 - 12:44 | Link to Comment PhilB
PhilB's picture

What did you expect from a guy at Soc Gen? French banks are next in line for a bailout after Italy. While deflation in Japan certainly played a part in not taxing enough the average citizen to finance the malinvestment of the corporate and banking sector, to think that this is the heart of the problem in Europe is simply ridiculous. The banks are leveraged up the wazoo. They desperately need capital and must write off or depreciate over time a large amount of loans. The issue with ALL the banks globally is that their business model simply doesnt work if you pay Outrageous bonuses and can no longer depend on Outrageous leverage and risk taking. ROE on banks will collapse to pre-90s levels despite the mischievous efforts of Outreageous CEOs like Jamie Dimon.

Wed, 06/13/2012 - 15:20 | Link to Comment Solon the Destroyer
Solon the Destroyer's picture

I wonder how long it will take SocGen to figure out Deflation itself is a symptom of a far greater structural problem

Wed, 06/13/2012 - 12:32 | Link to Comment Matt
Matt's picture

These guys are right. If everyone has massive stimulus, the banks will do well and will not need bailouts. The sovereigns, on the other hand ...

Wed, 06/13/2012 - 12:32 | Link to Comment skohiu
skohiu's picture

"A Bailout Will Solve Nothing"

Captain Obvious statment of the day

Wed, 06/13/2012 - 12:32 | Link to Comment Element
Element's picture

"There will be NO MORE bailouts!"

- Barry


Wed, 06/13/2012 - 12:34 | Link to Comment TrainWreck1
TrainWreck1's picture

so entering Jamie Dimon in the 'Dinner with Barack' contest was all for naught?

Wed, 06/13/2012 - 12:35 | Link to Comment Element
Element's picture

Barry does not lie.

Wed, 06/13/2012 - 12:37 | Link to Comment TrainWreck1
TrainWreck1's picture

You owe me a new keyboard :P

Wed, 06/13/2012 - 12:38 | Link to Comment Element
Element's picture

Sorries, I'm good for it. ;-)

Wed, 06/13/2012 - 17:15 | Link to Comment mkkby
mkkby's picture

Ask Gemany for it.  They're the ones who pay everybody's bills.

Wed, 06/13/2012 - 12:42 | Link to Comment Benjamin Glutton
Benjamin Glutton's picture

I believe he meant we have facilities in place at the Federal Reserve to adequately recapitalize systemically important institutions without the need for such nasty public displays as congressional votes.

Wed, 06/13/2012 - 12:33 | Link to Comment resurger
resurger's picture

Charlie Bravo Kilo Charlie - 135 is now Airbone.

Wed, 06/13/2012 - 12:34 | Link to Comment carbonmutant
carbonmutant's picture

What most retail investors have been slow to grasp is that all voting and democracy has become irrelevant because all sovereign governments are now subordinate to the banks.

Solvency of existing governments is irrelevant because Banking liquidity has the highest priority.
Wed, 06/13/2012 - 12:37 | Link to Comment the 300000000th...
the 300000000th percent's picture

What slavery uh i mean a bailout wont solve anything?? Do you mean to tell me a bunch of broke ass countries lending each other borrowed money wont help any of them??

Wed, 06/13/2012 - 12:39 | Link to Comment Skateboarder
Skateboarder's picture

So have we come to the stage where even bailouts have been devalued? That's fun.

Wed, 06/13/2012 - 19:13 | Link to Comment SeattleBruce
SeattleBruce's picture

Totally - as Tyler pointed out the other day, the half life of the Spailout was about 2 hours...

Wed, 06/13/2012 - 12:42 | Link to Comment BlueStreet
BlueStreet's picture

A bailout might get us to next spring where we can live this whole charade over again.  We paid to see the show, enough with the previews.





Wed, 06/13/2012 - 12:43 | Link to Comment disabledvet
disabledvet's picture

"it still has to work." and I ABSOLUTELY agree with this article (now. Steep learning curve folks. SORRY!) it appears to be failing but we won't know until Greece "ejects from the euro zone" and "see what happens as a consequence." sorry to keep you on pins and needles folks but I haven't a clue. Should be interesting to see if anyone does actually. My money is still on the military for "where mind martians deploy green men follow."

Wed, 06/13/2012 - 12:46 | Link to Comment Dr. Engali
Dr. Engali's picture

We all know where this is heading. Just start printing and get it over with.

Wed, 06/13/2012 - 13:03 | Link to Comment disabledvet
disabledvet's picture

You mean "start building and start something."

Wed, 06/13/2012 - 12:52 | Link to Comment web bot
web bot's picture

I remember a time not that long ago where $500 billion ($500,000,000,000.00) was a LOT of money.

Today... it gets a "so what". Man we're in for a rough ride.

Wed, 06/13/2012 - 12:54 | Link to Comment Deep79
Deep79's picture

"...overly focusing on the banks as "the problem" is misguided and until or unless deeply deflationary policies are altered, the Spanish banks will be back for another bailout before too long."


so trying to cut back 30 years of debt accumulation is a deflationary policy. he sounds like all the idiots spouting "WE need to get back to Pro-Growth Policies". What the fuck does that mean.


If we can't even cut a little debt and live within our means, we are more fucked than I even thought, and my target on S&P is 550






Wed, 06/13/2012 - 12:55 | Link to Comment Sudden Debt
Sudden Debt's picture

A bailout.... 1.....
But what about a dozen bailouts?

Wed, 06/13/2012 - 13:02 | Link to Comment zerotohero
zerotohero's picture

Where's Superman when you need him?

Wed, 06/13/2012 - 13:25 | Link to Comment Cthonic
Cthonic's picture

Taking a hit off a kryptonite crack pipe

Wed, 06/13/2012 - 13:02 | Link to Comment Plymster
Plymster's picture

...although the banking sector was indeed damaging the economy via a credit crunch, the banks were not the problem but a symptom of the problem: the true problem was deflation and the lack of stimulative policies. Indeed, Japanese banks did not start underperforming the overall market until 1997 as they became the victims of the economic weakness;

-- Albert Edwards from Soc Gen

Why was there economic weakness?  Was it because all capital had been consumed by mis-priced assets and accounting games? 

Has the collapse of the Tech sector in 2000, and Housing in 2008 taught us nothing? was not overvalued because there "was not enough stimulative policy in place", but because Wall Street (Investment banks, and prop trading banks) were placing speculative bets.  Housing did not crash because the Fed was not accomodative enough, but because banks were regularly handing out 125% LTV loans to anyone who could fog a mirror. 

If the banks are not accountable for their speculative practices and risky lending, then who is?  Oh, that's right:  The taxpayers of The US, UK, France, Germany, Spain, Greece, Italy, Ireland, etc.

Wed, 06/13/2012 - 13:06 | Link to Comment disabledvet
disabledvet's picture

This is about interest rate risk...nothing more. "how do I start a new business" is the sales pitch. Yet that interest rate risk always remains. Hence "we need growth." forget the numbers..."read between the lines."

Wed, 06/13/2012 - 13:12 | Link to Comment No Euros please...
No Euros please we're British's picture

No problem, just start trading bailout ETFs. Paper is easier to manipulate than physical.

Wed, 06/13/2012 - 13:14 | Link to Comment Hedgetard55
Hedgetard55's picture

Edwards =  shit for brains "economist".


Yea, it's all the German banks fault.

Wed, 06/13/2012 - 13:16 | Link to Comment zrussell
zrussell's picture

I think some reporter in times passed copied a bankster elite's memo and instead of "bail out", it was incorrectly written "bailout". Hence the bankers see it one way and the (victims) investors see it another way.

Wed, 06/13/2012 - 13:17 | Link to Comment ACP
ACP's picture

Looks like he gave Spain the ol' Prince Albert, ouch.

Wed, 06/13/2012 - 13:18 | Link to Comment kito
kito's picture

i wonder if mr. edwards will feel the same when soc gen gets bailed out shortly...............

Wed, 06/13/2012 - 13:33 | Link to Comment Plausible Denia...
Plausible Deniability's picture

I'm still AMAZED by the insistence of the powers that be, and many on this very site, that Europe needs "stimulative" policies, i.e. lower rates and more government spending. Is everyone going insane?? Keynesian policies do work, in a vacuum, and are dependent on governments cutting back and running a surplus during good times. How often does that happen? We are witnessing a sovereign repeat of the housing collapse. When there is an exponential divurgence between economic growth and credit growth, which relies on real growth to avoid the ultimate margin call, collapse in certain. All things, including credit, revert back to the mean. Credit has continued expanding while growth has receded. Its over people. Only a matter of time. THERE IS NO WAY OUT besides restructuring (bankruptcy). Everything else is a band aid on a bullet wound.

Wed, 06/13/2012 - 14:11 | Link to Comment Papasmurf
Papasmurf's picture

The problem with government spending is that it doesn't bring products to market. 

Wed, 06/13/2012 - 16:25 | Link to Comment khakuda
khakuda's picture

Couldn't agree more.  I would add that home values, stock prices, college education costs, healthcare costs, etc, etc have all inflated at rates beyond wages over the past decades as credit built up.  You actually need deflation in the prices of these things to get back into alignment if you aren't going to be pumping up leverage like you used to.

I could also argue that the other major expense in life has also skyrocketed, and that is taxes.  Some argue that tax rates are low, but just because you haven't gotten the bill yet, doesn't mean you don't owe the money the government has been borrowing on your back.  If we were forced to balance budget over the years, we'd see how high tax rates really are and how fast they've grown.

Wed, 06/13/2012 - 18:24 | Link to Comment twotraps
twotraps's picture

Plausible, exactly.  Politics serve to draw out the problem to make the game appear legit and give everyone time to game the next shift.  Bernanke has been dragging it out for 4 yrs, shocking since we live in a flash crash world that the mkts have not priced in 1/10th of shit we read about every day.   When they figure out how those in power can somehow maintain themselves while everyoen else gets fucked with re-structure and rule-changes.......we will see something happen.  

Wed, 06/13/2012 - 13:38 | Link to Comment Al Huxley
Al Huxley's picture

And here I thought the Spanish banking sector was a victim of making poorly qualified loans backed by overvalued assets to people with insufficient capability to repay.  Silly me...

Wed, 06/13/2012 - 13:41 | Link to Comment dracos_ghost
dracos_ghost's picture

Securitization is a bitch. Bankers didn't mind 100% debt/GDP but anything above that -- blaspheme, "we needs us a bailout Ma". International Banking and Social Engineering don't mix -- contrary to the inbred scions of the world.

And where the hell is the she-male Lagarde in all of this. Mental masturbation doesn't cut it anymore. Contagion isn't going to give a shit about geopolitical borders or Oxford based thought experiments like the EMU. Seriously, these "World Leaders" need to lead or get out of the way. Enough of talking the talk, walk the fucking walk.

Step 1. Destroy all International Bankers.

Step 2. See step (1).


Wed, 06/13/2012 - 13:51 | Link to Comment theTribster
theTribster's picture

Duh. Its pretty obvious that a bailout doesn't solve any problems, it only addresses the symptoms. There is no plan to fix the problems, they are still hoping they just go away. Same as here although our problems are not as bad as Europes. The reality is that we really don't have even a credible bail out. The ESM is a fantasy given that it has only been ratified by 3 countries and Germany is not one of them.

So, not only does this bailout not fix anything it doesn't even work as a bailout. This shit was funny but now its just getting old, and we still have several more countries to bailout yet! When does the idea of bailout that won't work even as a bailout get some credence? Would that be after Italy, Cyprus or France? Maybe we can get past France if Germany offers to buy her for pennies on the euro. After Germany fails then we can split Europe with the Chinese, the only thing is they will have to fund our asset purchases - like now.

Seriously thinking that a European vacation may be a good thing this winter, that's if the continent is still working and they haven't reinstituted their old border control policies. Well, and they haven't started any wars between each other. And they don't blame Americans for thier problems, although I could act Canadian. Maybe not.

Wed, 06/13/2012 - 14:10 | Link to Comment Grand Supercycle
Grand Supercycle's picture

Rally Warning Continues...

SPX bullish daily chart & USDX bearish daily chart strengthen.

Significant equity / EURUSD upside & USDX retracement ahead.

Wed, 06/13/2012 - 14:23 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

hey!  if their reeeach-search showed that the banks... well, here's the paste which is actually (and +) tyler's:

Japanese banks did not start underperforming the overall market until 1997 as they became the victims of the economic weakness; they were not the origin of that malaise.

altho that is pretty funny to slewie, this guy's conclusion is ok:  fuk the banks;  waste0money (except for the banksters)

too bad rajoy&co didn't just give every single living, breathing spanish citizen who is actually in the country 2000 euros instead? 

he's the squid's guy, big-time!

p.s.:  when are you gonna send us our money, prez0?  when rahm sez?  ok;  thxz man.  oh!  and tell bilary to STFU...

Wed, 06/13/2012 - 15:30 | Link to Comment chet
chet's picture

We are Japan.  Not much we can do to avoid it.  Rates are at zero, we can't spark inflation and we still have the mother of all debt over-hangs. 

We decided to protect the creditors and their claims over everything else.  That ensures that the remaining debt will remain larger than the underlying collaterall for a long long time.  Private deleveraging for ever, while government fills the resulting GDP gap by running huge deficits.  I.e. Japan.

Wed, 06/13/2012 - 18:29 | Link to Comment twotraps
twotraps's picture

Interesting comment, maybe even with deleveraging and stocks working lower for a few years....what will it solve?  Structural problems will survive if ES trades 950 or worse, their balance sheets might hurt more, but what really will change without some massive rules-adjustment-accounting-gymnastics-reset??  

Thu, 06/14/2012 - 01:57 | Link to Comment EZYJET PILOT
EZYJET PILOT's picture

He's full of shit,it is the banks fault, just like it was the banks fault every where else. I don't understand him, he says bailouts are not going to work yet he demands stimulative government policy, oh I see he wants a constant drip feed of bailouts. He's just another morally corrupt wanker.

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