Spain: Shall Bitterly Begin His Fearful Date

Tyler Durden's picture

Via Mark J. Grant, author of Out of the Box,

Spain: Shall Bitterly Begin His Fearful Date
The data out from Spain this morning should be one serious wake-up call for anyone exposed to Europe. The fourth largest economy in the Eurozone is getting hammered and for anyone that has doubted that they will need a full scale bailout; think again. The numbers are a disaster. Deposits at the Spanish banks dropped by a record amount in July, -$93 billion which is a decline of -4.7% in just one month. On a year-over-year basis the decline in deposits is 12.0% but the trend in loss of deposits is escalating rapidly. The total banking deposits in Spain are $1.51 trillion we are told and the loss in deposits is 56.4% on an annualized basis which, if this trend continues, would effectively wipe out the capital of each and every bank in Spain. With an economy that has shrunk to $1.3 trillion the drop in bank deposits represents a 6.6% loss of capital to support the economy. This is not a leak, as reported by some in the Press, but a bank run. Spain also reported out for June bad loans at 9.4% ($205.45 billion) which is the highest on record as reported but it is also a number which may not be believed!
Beginning in 2000 the Spanish banks, with full support from the government of Spain, began what is called “dynamic provisioning.” Please allow me to explain this arcane phrase to you in simple English; it means the official allowance of “cooking the books;” it does not mean anything else regardless of what you may see bandied about in the Press. It means that losses and reserves can be shifted and modified from one quarter to the next and it also means that categories, such a Real Estate losses or provisions, may be falsified by some bank or by the government of Spain to show what they wish to show or hide what they wish to hide. This is why I have stated and re-stated so many times that the financials of the Spanish banks are garbage or worse and cannot be trusted.
In 2009 the Bank of Spain’s Director of Financial Stability wrote the following in a paper published by the World Bank.
“Dynamic loan loss provisions can help deal with the procyclicality in banking. Their anticyclical nature enhances the resilience of both individual banks and the banking system as a whole. While there is no guarantee that they will be enough to cope with all of the credit losses of a downturn, dynamic provisions have proved useful in Spain during the current financial crisis.”
Several years ago Spain, along with the rest of the European Union, adopted the International Financial Reporting Standards but the adoption did not mean implementation. The EU from 2000 to today has allowed Spain to utilize their own accounting rules, this “dynamic provision” financial scam and so the books for all of the Spanish banks have been inaccurate, have been a lie, have been a fraud for the last twelve years. This is strong language and I am quite aware of it but it is accurate language and categorizes what Spain and its banks have done. Consequently even when you read today’s numbers and when you try to put them in perspective one can only guess because it is obvious that the data is purposefully minimized in favor of the government and of the banks so that investors can be fooled by the make believe figures.
Real Numbers
First let me state that it is quite impossible to get any kind of accurate figures for any and all of the Spanish banks. You can look at the actual Real Estate prices in the Spanish market and realize that the Spanish banks are overvaluing their holdings by about 40% and there is a starting point for defining the seriousness of the problem. One can then guess, and it is a guess but a rational one, that not only are the Real Estate provisions wrong and inadequate but that the reserves are inadequate, that the losses are far greater than reported and that the scam of utilizing “dynamic provisioning” is applicable to all of the Spanish bank loans which, if close to reality, would mean that all of the banks in Spain are insolvent. This would mean bankrupt and only being kept alive by falsified numbers. This is not the end of the problem however and it is only a small leap to a far worse situation.
If the government of Spain is allowing this “dynamic provisioning” for their banks; what makes you think that they are not using the exact same scheme for their national data? If Spain is allowing the numbers for their banks to be cooked then I would assert that they are following the same plan with the country’s numbers so that nothing about the Spanish banks or the Spanish GDP, debt to GDP and the size of their economy is even remotely believable. I would state that we know almost nothing that is real about Spain or her banks and that Spain is a fairy tale wrapped in deceit and bound in giant lies to preserve the country in her state of disgrace.
A Vastly Increased Risk
One year ago the Central Bank of Spain was borrowing $71.53 billion from the European Central Bank. In the last figures available, July, the Central Bank of Spain was borrowing $530.8 billion (an increase of 86.5%) from the ECB either directly or through the Target2 funding which impacts the Bundesbank and Germany quite directly. In other words Germany is now at a huge risk which is not just their 22% ownership of the ECB but a direct and full risk of impairment or default by Spain in the Target2 funding provided by the Bundesbank.
Sovereign Debt                                   $763 Billion
ECB/Target2 Debt                              $530.8 Billion
Regional Debt                                     $175.7 Billion
Spain’s Bank Gtd. Debt                      $153 Billion
Total Direct Debt of Spain               $1,622.50 Billion
Spanish GDP (If Believed)               $1,331.00 Billion
Spanish Direct Debt to GDP Ratio        121.90%**
**This does not include Spain’s obligations to the EU or the ECB nor does it include corporate debt that has been guaranteed by Spain which would raise the debt to GDP ratio considerably.  
Some consequence, yet hanging in the stars
Shall bitterly begin his fearful date
With this night's revels, and expire the term

                 -William Shakespeare, Romeo and Juliet

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FL_Conservative's picture

If the funding fits, you must acquit.

MillionDollarBonus_'s picture

 Spain WILL receive emergency financing from the ECB, the European commission via Eurobonds OR if need be our Federal Reserve. I am a proud investor in long term peripheral debt. Buyers of long term Spanish, Greek, Portuguese and Italian debt are going to be raking in HUGE positive cash flows, in addition to outstanding capital gains when investors realize that the risk of default is in fact ZERO. You guys are missing out BIG time. It's pretty sad, actually.


Nothing To See Here's picture

"I am a proud investor in long term peripheral debt."

That one made me spill my coffee, good one there MDB!

MillionDollarBonus_'s picture

Laugh all you want ... but while you laugh the smart money are quietly reinvesting their coupons in even more dirt cheap long bonds. Doomer ZH investors are missing out on the investment opportunity of a life time.

FL_Conservative's picture

MDB, when your fast downhill ride gets rolling, you better be strapped in.  You're going to need it.

Whiner's picture

Give praise to MDB. He is the perfectly consistent mocker of the MSNBC Banksters speaking to us in parody of their sheeple propaganda. I read him with relish. What punditry! What irony! What sarcasm! All hail MDB- one year's worth of unacclaimed dramoptimism!

MillionDollarBogus_'s picture

You guys don't know nuthin......

Spain will get bailed out...

Greece will get bailed out...

EU bond yields will soon go to zero...

Swiss 2 year bond yields will go back positive...

Now where did I put my meds....???

smiler03's picture

This daily attempt is so pathetic it's useless. Go on a very long holiday please.

bnbdnb's picture

Agreed, 400% profit with a useless euro.

q99x2's picture

Proof the market is headed lower:

Hold your nose. The stinkbag speaks:

Dick Bove's 'Wow' Call

DUNTHAT's picture

Nope ! went to far.  Now we know you are bullshitting !!

Gadocat99's picture

MDB -- I think you're a genius.  The whole 'reverse psychology' thing is so subtle and effective!  Do the PTB know you are a double agent?  I bet not.  Getting paid to espouse the directive, then craftily writing so that the real message is crystal clear and polar opposite requires real talent.  Hat swoop bow to your intellect.

silverserfer's picture

sarc/sarc(2)= -.5(MDB)+S(.065667)

~full retard

asteroids's picture

Poor MDB: There will be NO QE or equivalent Euro printing. People have finally learned that you don't fix debt with more debt. That's all these programs are, money printing, turned into debt, and put on the public's books. The public is sick, tired, and hungry because of it.

Mugatu's picture

I will glady pay you tomorrow in worthless Euros for currency that can be used today.


Tommy Gunner's picture

Are you Jon Corzine by any chance?

q99x2's picture

The central banksters gonna mop up anyone with money in Spain. Going to give them the Grecian torture.

Nothing To See Here's picture

Why am I getting the weird image of Germans being dragged into forced labor in order to provide for the PIIGS welfare?

Bollixed's picture

Why do I find the following math a wee bit fuzzy...

"One year ago the Central Bank of Spain was borrowing $71.53 billion from the European Central Bank. In the last figures available, July, the Central Bank of Spain was borrowing $530.8 billion (an increase of 86.5%) from the ECB"

JeffB's picture

That jumped out at me as well. Somehow I don't think they're comparing apples to apples here despite the juxtaposition.


alex_g's picture

The increase is 86.5% of the new total.  It's actually up over 7x

DeFeralCat's picture

Or the Grecian formula.

scatterbrains's picture

Holy cow Germany could capsize if they are forced to eat this. Where's the Fed ? Cant they do a swap or someting ?

Jlmadyson's picture

Half the fed balance sheet kind of swap?

Sounds very bullish in this market.

scatterbrains's picture

makes me want to burn off a bunch of c-notes on the copier and go out and spend it just to help out my country what little bit I can. We should all pitch in and do our part.

Jlmadyson's picture

Hmm Greece or Spain to fallout first that is the question.

122%, feels good bro.

Dr. Engali's picture

Shhhhhhh....,Will you guys keep it down in here? I'm trying to finish up my continuing ed and I don't want to miss anything. Tyler if you could refrain from posting any more articles for the next hour I would appreciate it.

SMG's picture

They can only keep papering over this collapse for so long.  Soon it will be front and center for all to see.

TheCanadianAustrian's picture

"One year ago the Central Bank of Spain was borrowing $71.53 billion from the European Central Bank. In the last figures available, July, the Central Bank of Spain was borrowing $530.8 billion (an increase of 86.5%)"


Maybe it's because I'm halfway through my first cup of coffee, but I'm totally confused by this math.

ebworthen's picture

Good point.

I get ~640% increase (?).

Nothing To See Here's picture

Since when should maths matter? It's all about accounting and pretending no?

etresoi's picture

For the math deficient, move the decimal one digit to the right.  Duh!

ebworthen's picture

That would be $690.2645 billion.

But...a huge increase nonetheless.

Debt is good isn't it?  So...this must be bullish...right?

JeffB's picture

"One year ago the Central Bank of Spain was borrowing $71.53 billion from the European Central Bank. In the last figures available, July, the Central Bank of Spain was borrowing $530.8 billion (an increase of 86.5%) from the ECB"

"For the math deficient, move the decimal one digit to the right.  Duh!"

I still don't get it, even with the hint. Which decimal should be moved one digit to the right?

$71.53 -> $715.3 billion still doesn't seem to work

$530.8 - $5308 billion doesn't either

86.5% -> 865% increase doesn't appear to be accurate either.


I think I figured it out...

For what it's worth, I pulled out an old Radio Shack Financial Calculator (probably Texas Instruments) I found in a drawer and which probably hasn't been used in decades & tried to remember the sequence for it to calculate the % increase. I didn't remember how it was supposed to be input, so I took a guess by inputting 71.53 hitting the "2nd" button, which puts it into the calculate mode on the top of the other buttons, in this case ?% & then hitting 530.8 ... amazingly (to me) it came up with 86.524115%

It looks to me as if this Tyler made the same mistake I did, inputting the numbers in reverse order. Apparently you need to put the final number first, then the original number to get the % change. In other words, if Spain had borrowed $530.8 billion last year, and "only" $71.53 billion this year, that would have been an 86.5% decrease in borrowing.

Reversing the reversal (bringing us back to where we should be, I believe) it comes to a 642.06627 % increase.


sunnyside's picture

You've solved the whole problem!  Hand out Radio Shack Calculators to all Central Bankers and tell them to reverse the reversal.  They too will fuck it up and all will be well with the world again.


ebworthen's picture

"Total Direct Debt of Spain $1,622.50 Billion"

Drop in the bucket for Benny and Jets - just wait - U.S. Taxpayer to be bailing out Europe right next to the Germans.

Who is there to stop the banks and their central banker lackeys?



Haven't made their appearence yet.

mac768's picture

Quit, Professor Higgins! Hear our plea 

Or payday we Will quit, Professor Higgins! 
Ay not I, O not Ow, Pounding pounding in our brain.
Ay not I, O not Ow, Don't say "Rine," say "Rain"... 
Eliza The rain in Spain stays mainly in the plain!"

DeFeralCat's picture

The pain is Spain is not on the wane.

Mr Lennon Hendrix's picture

While the Fed prints trillions a year out of thin air to buy USTs....

Move along....

MachuPicchu's picture

No, no, nooo.! Spain is NOT Uganda..!!"!

tahoebumsmith's picture

With unemployment rising and business screeching to a halt all over the country, the only question I have at this point is...How in the hell are they EVER going to pay that money back?

CrashisOptimistic's picture

You guys really do need to get calibrated.

Money is an artificial concept.  Adam and Eve didn't have money.  Something artificial, that can be redefined by whim or edict, is not going to be allowed to destroy civilization.

The end of all this crisis is the same as its cause.  Oil.  Relentless, grinding oil scarcity that requires so very much increasing effort to extract from the ground is what will take it all down, because it is not artificial and only oil, nothing else, only oil brings food 1000s of miles to grocery stores.  There is nothing governments can do about this by whim or edict.


JeffB's picture

It's two separate crises.

I agree that the politicians have far more control over the supply of money, particulary in their artificially contrived fiat money system. But money is not just some ephemeral and near meaningless concept.

Many many wars have been fought over money, albeit usually real money, like silver and gold. Money is supposed to be a store of value, as well as a means of exchange and is critically important to any economy and to the overall world economy. Just ask any of the many countries whose economies were collapsed when hyperinflation hit.

The Great Depression and the World War it helped to foment weren't caused by a scarcity of oil.

The magicians playing with our monetary system behind the scenes have created a house of cards that has been threatening to topple for some time now. They've been rather adept at shoring it up but it will inevitably come tumbling down and their makeshift patchwork is making it ever more unstable day by day.

Bumping up against the limits of peak oil extraction obviously makes things that much worse and could be the trigger that brings the whole mechanism down.

But I personally see it as a perfect storm of multiple crises hitting at the same time. The oil crisis could well cause big problems even if we had a sound monetary system. But that doesn't mean the monetary and the debt crisis it caused are relatively unimportant. At least that's how I see it.


Ancona's picture

Thanks for the bull-horn up the ass pic my balls hurt.

Cognitive Dissonance's picture

No problem. Just ramp the Ponzi up to Warp 8.

Give me everything she's got Scotty!