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Spain Goes Irish On Regions

Tyler Durden's picture


Slowly but surely, the Spanish authorities are gradually socializing the rest of the world to the dismal truth that we have been so vociferously arguing - that their debt levels (or more specifically their debt/GDP ratios) are significantly higher (explicitly) than their current official data suggest. Today's news, via the WSJ, that the Spanish government may take over some regions' finances, in an attempt to shore up investor confidence (just as Ireland did with its banks and we know how well that worked out?) is yet another step closer to the 'realization'  that all that is "contingent" is actually "explicitly guaranteed." As we noted here, this leaves Spain's Debt/GDP nearer 135% than its 'official' 68.5%. The WSJ notes comments from a top government official that "there will soon be new tools to control regional spending" and that they may take over at least one of the country's cash-strapped regions this year. As we broke down extensively here, this is no surprise as yet another group of political elite find the truth harder to deal with than the blinkered optimism they face the media with every day and yet as PM Rajoy notes "Nobody can expect that deep-seated problems be solved in just a few weeks", the irony of the euphoria felt around the world at the optical rally in Spanish spreads for the first few months of the year is not lost as Spain heads back into the abyss ahead of pending auctions and what appears to be more ponzified guarantees of regional finances (as long as they promise to pay it back and have 'a plan'). The simple truth is, as acknowledged by Rajoy, Spain has lost the trust of financial markets.

It seems that CDS markets have been ahead of the reality in Spain's true credit situation as it is perhaps a little easier to manipulate a few bonds than an entire sovereign CDS market. The velocity of the most recent move suggests some short-term action by the politicians/ECB soon enough though their failed attempt today suggests the wholesale exit of real money is a hole too big for even the ECB to comfortably fill - and furthermore, as we have noted, every bond the ECB buys via SMP increases the default risk (or more clearly reduces recoveries) on existing bondholders and thus making a situation worse...

Chart: Bloomberg

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Mon, 04/16/2012 - 15:43 | 2349464 Cognitive Dissonance
Cognitive Dissonance's picture

I can't wait until they ban rational decision making with regard to investing and force everyone to take on private debt as their share of the "national" burden.

Oh.....wait a minute......isn't the Fed and every other central bank doing that now?

Never mind. Nothing rational to see here. Go back to sleep.

Mon, 04/16/2012 - 15:48 | 2349509 economics9698
economics9698's picture

Print some more money Draghi and make the peasants pay.

Mon, 04/16/2012 - 16:21 | 2349641 DoChenRollingBearing
DoChenRollingBearing's picture

Your point is spot-on.  They typically DO (countries in trouble) print and they typically do screw the poor.  Nothing new about that.  Similar things could happen here it must be noted...

Mon, 04/16/2012 - 19:38 | 2350083 The Alarmist
The Alarmist's picture

"How do you know he's a king?"

"He doesn't have shit all over 'im."


Mon, 04/16/2012 - 20:00 | 2350121 spdrdr
spdrdr's picture

Our chief weapon is fear.  Fear and surprise.  Our two chief weapons are fear and surprise and ruthless efficiency....  our THREE chief weapons are fear, suprise and ruthless efficiency, and an almost fanatical devotion to the Pope.

Mon, 04/16/2012 - 20:07 | 2350130 Not Too Important
Not Too Important's picture

I'm going to give you three reasons to fix your post.




Mon, 04/16/2012 - 15:58 | 2349544 battle axe
battle axe's picture

Why does this seem like the Spanish Armada all over again? Spain I think your ships sunk again. 

Mon, 04/16/2012 - 17:47 | 2349894 Buck Johnson
Buck Johnson's picture

Spain is about to default and there are rumors that it may seek assistance by the end of this month.

Mon, 04/16/2012 - 20:09 | 2350126 Not Too Important
Not Too Important's picture

Well, the bottom line for any economy is energy acquisition, and if Spain can't get oil from the most desperate oil producer on the planet, at great rates and free shipping, then the rest is self-evident.

If a crack addict can't get crack from the cheapest crack dealer in town because he don't have no money, he sure as hell isn't paying his child support.

But can we trade CDS on his ass?

Mon, 04/16/2012 - 18:18 | 2349948 ACP
ACP's picture

Could be worse. Spain could go medieval on them, or worse yet, go inquisition on them.

Mon, 04/16/2012 - 15:43 | 2349469 GeneMarchbanks
GeneMarchbanks's picture

It seems that CDS markets have been ahead of the reality in Spain's true credit situation as it is perhaps a little easier to manipulate a few bonds than an entire sovereign CDS market.

Ha, I want to believe...

Mon, 04/16/2012 - 15:45 | 2349478 SloMoe
SloMoe's picture

It's all Greek to me...

Mon, 04/16/2012 - 15:44 | 2349486 JPM Hater001
JPM Hater001's picture

And here is our 4th nominee for the understatement of the year: Spain has lost the trust of financial markets.

Mon, 04/16/2012 - 16:10 | 2349585 blu
blu's picture

About this time next year that will read:

The US has lost the trust of financial markets.

Mon, 04/16/2012 - 16:23 | 2349645 DoChenRollingBearing
DoChenRollingBearing's picture

Yes and yes.

Mon, 04/16/2012 - 15:46 | 2349491 carbonmutant
carbonmutant's picture

Merkel says austerity will continue until morale improves...

Mon, 04/16/2012 - 15:51 | 2349516 Caviar Emptor
Caviar Emptor's picture

Starve a cold, but feed a fever. That's the model that Ms Merkel is using to solve the economic crisis. 

You can starve the economy into recovery as long as you simultaneously feed it through the other end. 


Mon, 04/16/2012 - 15:59 | 2349548 Cognitive Dissonance
Cognitive Dissonance's picture

My mind was racing. Glad to see I ain't the only deviated prevert on this thread. :)


Mon, 04/16/2012 - 16:17 | 2349620 Caviar Emptor
Caviar Emptor's picture

Preverted indeedy :-)

Mon, 04/16/2012 - 18:29 | 2349968 ali-ali-al-qomfri
ali-ali-al-qomfri's picture

Caviar Emptor

And it Started in Greece, …….


From Wikipedia, the free encyclopedia


The Ouroboros (or Uroborus)[1] is an ancient symbol depicting a serpent or dragon eating its own tail. The name originates from within Greek language; ???? (oura) meaning "tail" and ????? (boros) meaning "eating", thus "he who eats the tail".[2]

The Ouroboros represents the perpetual cyclic renewal of life and infinity, the concept of eternity and the eternal return, and represents the cycle of life, death and rebirth, leading to immortality, as in the phoenix.

It can also represent the idea of primordial unity related to something existing in or persisting before any beginning with such force or qualities it cannot be extinguished[citation needed]. The ouroboros has been important in religious and mythological symbolism, but has also been frequently used in alchemical illustrations, where it symbolizes the circular nature of the alchemist's opus[citation needed]. It is also often associated with Gnosticism, and Hermeticism[citation needed].

Carl Jung interpreted the Ouroboros as having an archetypal significance to the human psyche.[2] The Jungian psychologist Erich Neumann writes of it as a representation of the pre-ego "dawn state", depicting the undifferentiated infancy experience of both mankind and the individual child.[3]

Mon, 04/16/2012 - 18:59 | 2350009 gatorengineer
gatorengineer's picture

No we definitely need more speeding.... obviously socialism is the way to go, working so great here in Pennsylvannia where a liquor store stockman gets $30 bucks an hour and a state pension......

Mon, 04/16/2012 - 19:49 | 2350110 smiler03
smiler03's picture

Really? Government payrolled liquor store staff, says it all, government once again interfering where it shouldn't.

Mon, 04/16/2012 - 15:46 | 2349492 SilverIsKing
SilverIsKing's picture

What's the actual US debt to GDP ratio?  Surely a lot more than 135%.









Mon, 04/16/2012 - 15:55 | 2349539 Not Too Important
Not Too Important's picture

Well, let's see.

Ben will clearly backstop the $700+ trillion in derivatives that his friends are in. $120+ trillion just in JPM and BofA.

Total 'official' debt is $120+ trillion:


Roughly $820 trillion in debt.

US GDP at $14.5 trillion, per World Bank, 2010.

That comes out to, oh, let's see, hmmm. I'm not very good at fuzzy math. More than $5 dollars?

Mon, 04/16/2012 - 19:42 | 2350094 The Alarmist
The Alarmist's picture

If you ignore social security and medicare but add in the states, it is closer to 200%.  Add in the two great unfunded mandates and you are pushing 700%.  Add in other shit and you may as well just call it quits.

Mon, 04/16/2012 - 15:46 | 2349496 Hedgetard55
Hedgetard55's picture

AAPL getting juiced into the close, and I don't mean that positively.

Mon, 04/16/2012 - 15:50 | 2349518 CvlDobd
CvlDobd's picture

Whoever is buying DIA today is an idiot(s). A quick peek under the hood shows all is not well.

Mon, 04/16/2012 - 15:58 | 2349549 hack3434
hack3434's picture

That iDiot is probably uncle Warren buying his latest darling iBM. 

Mon, 04/16/2012 - 16:09 | 2349587 Not Too Important
Not Too Important's picture

Warren isn't buying anything. He's sitting back making a fortune on coal shipments with his new train set.

Life is good for Warren and BH. Round and round the track she goes. Where the coal goes, nobody knows.

Mon, 04/16/2012 - 16:23 | 2349656 DoChenRollingBearing
DoChenRollingBearing's picture

IBM has had a great run.  I think I'll sell mine.  Thanks, Warren, for taking it off my hands!

Mon, 04/16/2012 - 16:01 | 2349555 Village Smithy
Village Smithy's picture

What if you were only buying it to keep it in the green so tonight all the MSM could say "The Dow was up today on a report that retail sales were up last month"? Would you still be an idiot?

Mon, 04/16/2012 - 16:12 | 2349595 blu
blu's picture

And everyone thought Machiavelli was dead? 

Mon, 04/16/2012 - 16:13 | 2349600 CvlDobd
CvlDobd's picture

I will say yes but for a different reason than I originally mention.

Mon, 04/16/2012 - 16:36 | 2349703 Dr. Engali
Dr. Engali's picture

I would ask the question of how you could be on Zero Hedge if you don't understand the concept of painting the tape?

Mon, 04/16/2012 - 16:42 | 2349737 CvlDobd
CvlDobd's picture

Lol, don't be so sensitive.

To be fair, tape painting is a more complex idea than that of selling.

Mon, 04/16/2012 - 15:50 | 2349507 Caviar Emptor
Caviar Emptor's picture

See here's the problem: too much spending! 

But there's another problem: not enough spending!

They gotta shop shop shop till they drop drop drop! 


So on the one hand we need austerity, and that's supposed to bring on a Renaissance of consumer spending and borrowing. 

See any self-contradiction?

Biflation is no more self-contradictory than the economic theory and practicess that created it in the first place

Mon, 04/16/2012 - 15:48 | 2349508 Buckaroo Banzai
Buckaroo Banzai's picture

"Went Irish". Does that mean they got drunk, then got into a fight, then vomited, then started singing, then started crying?

Mon, 04/16/2012 - 15:59 | 2349551 t_kAyk
t_kAyk's picture

you forgot a few steps...


  • make a pass at the waitress (because she's been flirting with you all night, and really really likes you)
  • dance, or rather violently convulse in the middle of the room
  • tell that one joke, because your the funniest, wittiest bastard in town


Mon, 04/16/2012 - 19:42 | 2350097 The Alarmist
The Alarmist's picture

Has she really been flirting with me, or am I too pissed to really know?

Mon, 04/16/2012 - 16:00 | 2349553 battle axe
battle axe's picture

BB, That was funny.

Mon, 04/16/2012 - 16:01 | 2349558 centerline
centerline's picture

I didn't know I was Irish!  Damn.  Learn something new every day.

Mon, 04/16/2012 - 16:07 | 2349576 Not Too Important
Not Too Important's picture

The Irish are very polite. The last Irishman I met, told me, "You're standing where I want to vomit."

I was happy to get out of the way. Nice people.

Mon, 04/16/2012 - 15:53 | 2349528 Dr. Engali
Dr. Engali's picture


CDS markets have been ahead of the reality in Spain's true credit situation as it is perhaps a little easier to manipulate a few bonds than an entire sovereign CDS market.


Again I will ask the question. Why would anybody waste money on "insurance" when Greece has proven that CDSs are not worth the paper they are prnted on?

Mon, 04/16/2012 - 16:00 | 2349556 Not Too Important
Not Too Important's picture

It's important for the 'muppets' to think their investments are fully hedged. Very important for those managing OPM.

On the other hand, if it's your money . . .

Mon, 04/16/2012 - 16:00 | 2349557 CvlDobd
CvlDobd's picture

Again I will ask. How are you on ZH and not familiar with the concept of a trade?

You can buy and sell CDS for a profit. You don't have to hold until you see the whites of the four horsemen's eyes.

Mon, 04/16/2012 - 16:30 | 2349598 Dr. Engali
Dr. Engali's picture

Not everybody is in the CDS for a trade dipshit. A lot of those idiots think they are hedged for some screwy ass reaon. A CDS is sold as insurance on a bond, how somebody can buy that line of crap is beyond me. And how can anybody try to measure the risk of default when the security isn't worth anything more than a trade?

Mon, 04/16/2012 - 17:54 | 2349907 ZeroPower
ZeroPower's picture

lol wut

Mon, 04/16/2012 - 19:01 | 2350012 gatorengineer
gatorengineer's picture

Thats only true as there are alot more CDS's than underlying debt.....  The easy way to fix the problem is to limit the issuance of CDS to the value of the bonds issued.  Make it like a put or a call allow the bond holder the right to sell the CDS.....

Mon, 04/16/2012 - 16:34 | 2349691 bank guy in Brussels
bank guy in Brussels's picture

CDS is of course another casino game, but some bold players did make money on Greek CDS ... even as Greece was going down ...

There was the CDS 'basis trade', where you buy discounted Greek bonds, plus jacked-up CDS, and then when Greece defaulted there was a net profit when the CDS paid out. For some hedge funds it was a good haul.

But as Peter Tchir so well covered on ZeroHedge, it was somewhat of a fluke the trade worked, partly because of the odd way the post-default CDS auction was conducted by ISDA ...

A risky game in other words, and there are various ways to play it with CDS ...

But there's nothing more basic in the financial industry than trying to figure out how to profit from a sinking ship

Mon, 04/16/2012 - 16:38 | 2349719 Dr. Engali
Dr. Engali's picture

Again it's not the traders I'm talking about. I am familiar with the trade. It is the people who buy the CDS on the basis that their bond purchase is insured.

Do NOT follow this link or you will be banned from the site!