Spain: For Whom The Bell Now Tolls

Tyler Durden's picture

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

“It is an old saying; the Devil lurks behind the cross. All is not gold that glitters. From the tail of the plough, Bamba was made King of Spain; and from his silks and riches was Rodrigo cast to be devoured by the snakes.”
               -Miguel de Cervantes, Don Quixote
It was not so long ago that I spoke at the “Strategic Forum” which was sponsored in part by TD bank. After my presentation about Europe where I had stated, quite clearly, that Spain would hit the wall I found myself accosted by the economist of one of Spain’s major banks. Fortunately Craig Alexander, the senior economist at TD, was walking next to me and as the quite impolite lady from Spain tried to verbally incase me in the famous “iron lady” of the Spanish Inquisition he grabbed my arm and led me out to the patio to speak with some other people and so saved me from not only the diatribe of the loca senorita but from saying several impolite things which I was about to say in retort. As I consider the latest data about Spain I think of this incident and take some delight in saying, “I told you so” or other things inadmissible in my commentary.
To use the analogy offered by Senor Cervantes I would say that Rodrigo, as representing Spain, is about to be devoured by the snakes. The central bank of Spain just released the net capital outflow numbers and they are disastrous. During the month of June alone $70.90 billion left the Spanish banks and in July it was worse at $92.88 billion which is 4.7% of total bank deposits in Spain. For the first seven months of the year the outflow adds up to $368.80 billion or 17.7% of the total bank deposits of Spain and the trajectory of the outflow is increasing dramatically. Reality is reality and Spain is experiencing a full-fledged run on its banks whether anyone in Europe wants to admit it or not.
The Spanish ten year now yields a 6.81% and their thirty year is yielding 7.34%. Spain has now set up a fund for its regions to tap of $22.6 billion and this, in my opinion, will not even be close to what is asked for or required with the regions needing some $50-75 billion in assistance in my estimation. Many of the regions in Spain are not paying suppliers or their other local debts and the situation is clearly out of control.
In October Spain has $25 billion in sovereign debt maturing plus will be adding new debt under their current plan so that the snakes are not only coming out from under the rocks but dropping from the trees. On top of this Bankia, late Friday, reported out bad loans of $8.24 billion and an operating loss of $5.58 billion causing the government to go into hyper-drive and promise to inject $5-6 billion into the bank immediately to prevent its collapse. If funds from the EU/IMF are to be utilized, which has been widely discussed, a very political problem arises. Bankia has issued preferred shares to many of their depositors and they would be wiped out if the European money is utilized under the current regulations which would cause Mr. Rajoy more than a few problems and could send people back into the streets. Then Spain has the highest unemployment rate in Europe, even higher than in Greece, with a 25.1% jobless rate. For those under twenty-five the job situation is extreme with a 53% unemployment rate.
"Was there ever a people whose leaders were as truly their enemies as this one?"
                  -Ernest Hemmingway, For Whom the Bell Tolls
The River Runs Dry
Between December of 2011 and the end of March 2012 the Spanish banks bought $109 billion of the Spanish sovereign debt. Much of this was facilitated by the ECB who lowered and lowered again the collateral rules and handed the money to the Spanish banks in such a size that bad things, very bad things will result if Spain hits the wall and defaults. Then since March, as forced by their own inadequate capital positions, the trend has reversed and the Spanish banks have sold $21.3 billion of Spanish sovereign debt with $11.7 billion in July alone as capital flees from the Spanish banks and the actuality of the balance sheets overcomes the “dynamic provisioning” that helped to cause the fantasy.
The friendly “suggestions” by national governments in Europe are also getting a push back from European buyers. BNP recently imposed a $12.5 billion debt limit by country and many other banks in Europe are following suit. BNP has reduced their sovereign debt holdings by 35% since June 2011. In July, the aggregate of sovereign debt reduction for all of the French banks was $8.7 billion as they took advantage of the ECB speculation to lower their holdings.
The Cries of Desperation
Spain’s Prime Minister’s rather comic call that his country’s heading into bankruptcy was a “victory for all of Europe” is more properly found in some Theatre of the Absurd. The recent rants and raves by the Prime Minister and the Finance Minister that the ECB should buy their debt without limit is an obvious last ditch Hail Mary pass before the plunge into the financial abyss begins. The ECB may not require audits of the national government or of the regional governments or the Spanish banks but the ECB pledge of Mr. Draghi is dependent, you may recall, on the EU and the various stabilization funds’ use and alone, or with the IMF, audits will be demanded by many countries and the results of the “dynamic provisioning” will be found to be just what I have asserted I would bet which is the juggling of the books for all three entities. The gasps for breath will be resplendent in Paris, Berlin and in Brussels and panic attacks will be on the rise in many European capitals. Spain has begun the well-worn “walk of shame” already traversed by Greece, Ireland, Cyprus and Portugal.
Forthcoming Events
There are some major flashpoints coming soon in Europe. One is the ruling by the German Constitutional Court on September 12 whether the ESM is legal in Germany or not. While it is widely expected that the High Court will go along with the program; who knows? On Tuesday, September 4, Draghi will release his “save the world” plans to the European Central Banks ahead of the next ECB meeting which begins on September 5. There is a huge and serious division between Mr. Draghi and the head of the Bundesbank. There were rumors last week that Jens Weidemann, head of the German Central Bank, might resign over the policies about to be proposed by Draghi. Here we have the troubled nations and the healthy nations of Europe locked in mortal combat in what could become a very serious situation. It is the haves versus the have-nots and where the needy countries have more votes as one nation after another has gotten into financial trouble. Draghi may well put the funding countries in such a position that local politics will not allow what is going to be asked of them and “refusals to fund” could be the result which would throw the ECB into chaos. I expect a very rancorous session at the ECB with potentially explosive results. Even if the outcome is muted by the connection to the EFSF and the possible ESM, the funding may not be available when all is said and done by the individual nations and so the ECB’s bond buying or other forms of Quantitative Easing may be stopped dead in their tracks by any form of help being appended to programs that may not function. I personally think that Draghi has vastly overplayed his hand and that expectations based upon his frothy comments may prove to be without merit.
Also this week we will get the release of Barroso’s ambitious plans for bank oversight. He will announce a Brussels type bureaucratic scheme where the ECB will oversee all of the banks in Europe. This would be one more blow to national sovereignty and I expect a major push back from a number of countries. Germany has already come out against the concept stating that the ECB should only regulate the 25 largest banks in Europe. The plan will be put on the table no doubt but here I think that whatever may come eventually will bear little resemblance to the proposal that will be soon released.  With the current trend in Europe becoming decidedly more nationalistic I think this new grand scheme will have little chance of success as proposed. 
The End of the “Muddle”
We are now at the virtual epicenter of the European Crisis where decisions will have to be made; avoidance is no longer possible. We have reached the end of the road where there is no more path left for can kicking. It is now and here and in the next few weeks where the rock and the hard place will converge and explosive political and economic consequences may result. The “future” has arrived in the “present!” “Now” is “Here.”
Greece---to fund or not fund and bear the costs and market reaction.
Spain---about to go bankrupt and to fund or not fund and how to do it. Expect quite serious reverberations in Spain and in Europe as the amounts of money involved are not trivial. The Firewall has been breached. Expect Firestorms.
Italy—soon to join the long line asking for alms.
The ECB---a major fight where the troubled countries will demand so much from Germany that politics in Berlin may not allow for giving what will be demanded of them.
The ECB---a grand plan to be put forth that will pit the Bundesbank against most of the other Central Banks in Europe.
"You only heard the statement of the loss. You did not see the father fall as Pilar made him see the fascists die in that story she had told by the stream. You knew the father died in some courtyard, or against some wall, or in some field or orchard, or at night, in the lights of a truck, beside some road. You had seen the lights of the car from down the hills and heard the shooting and afterwards you had come down to the road and found the bodies. You did not see the mother shot, nor the sister, nor the brother. You heard about it; you heard the shots; and you saw the bodies."
              -Ernest Hemingway, For Whom the Bell Tolls
There will be bodies.

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selectricity's picture

JPMorgan Estimates What Yield Levels The ECB Might Target On Spanish And Italian Bonds

SilverDoctors's picture

If the ECB is going to cap Italian rates, they had better announce it before the 10 year crosses 7% again. 3 taps and out!
Will be interesting to see which implodes first, Spain or Morgan Stanley.  Jim Willie believes Morgan Stanley is imploding, and is a month or 2 away from bankruptcy!

falak pema's picture

tweedle dee and tweedle dum!

THX 1178's picture

There will be bodies?

I...Eat...Your...Paella. NOMNOMNOMNOMNOM! I EAT IT UP!

Michael's picture

Under normal circumstances I’d say I told you so. But, as I have told so with such vehemence and frequency already the phrase has lost all meaning. Therefore, I will be replacing it with the phrase, I have informed you thusly.

— Sheldon, The Big Bang Theory
GetZeeGold's picture



Spain: For Whom The Bell Now Tolls


Better break out some airhorns......cause no one is paying attention to that crap.


Hey look equities are up.....everything must be going great!

CrashisOptimistic's picture

Guys, by now we have learned how Europe works.  

There is not EVER going to be a meeting and a march out to microphones where it is announced that "we can reach no agreement, it will all fail".  That is not how Europe works. 

What will happen is a meeting will be held by the ECB council, no agreeement will be reached, and they will march out to the microphones and announce:

"we had a great discussion and it is headed firmly towards full arrangements to lend money to individual countries while also seeing those those countries successfully reduce their deficit as a % of GDP.  Our meeting was hugely successful and we will see this success within a year.  The Euro is thus proven to be irreversible."

There is never going to be the big explosion moment.  They will claim progress and huge success right up til the day their salary stops arriving.



falak pema's picture

...right up til the day their salary stops arriving...

The USSR imploded, but those KGB shills still have their salaries paid under a another name. Putin is/was one of them. 

So I wouldn't bet on that occurring.

Europe can go that way like the USSR but we will still have the bureaucrats who will be required to build the new, new blue print for the future Union THAT DOES WORK! 

We are now truly heading to Oligarchy rule with super bureaucrats pulling the wool over our eyes that "governments are necessary at Euro level to balance their corpocratic power"; all the while they collect their paychecks from those very plutocrats they are supposed to regulate. 

Its a nice happy family, where God and the Devil sit side by side and exchange their masks like at the Venetian ball. Go  try tell who is who, not that it matters. Its your blood that is their life line. 

We need another Voltaire to ridicule their game and then a Danton who says "off with his two heads!

CrashisOptimistic's picture

Whereas your analogy may have merit, your specifics are not applicable.

The KGB may have kept getting salary under a different name, but that only happened because oil is the underpinning of Russia's success.

Europe has little, and what it has (up in the North Sea) is dying.

So, no.  The no salary moment can indeed happen in Europe.  They will just claim all is well and try to move headline reading algorithms right up until that moment.

BurningFuld's picture

That's a good read. I think Morrgan Stanley was going to do a number on gold after Bernanke's last speach to try to save their ass, but there is some huge money that is not letting it happen anymore. (China) Feel the pain boys.

unununium's picture

Jim Wille is hung up on the fact that liquidity cannot solve the problem.  He ignores the possibility that central banks can simply give money to the banks with no strings attached.  The Fed tabulates the balances of every wholesale and retail bank's account and creating or moving funds only requires a few keystrokes.  The Fed is not audited, so no one would ever know.

Central banks have already proven they are willing to hand money to banks free and clear:

 - Purchase of MBS at unspecified discounts (assume full par value) then quietly eat the losses (rolling 1.5T par value)

 - Promise to hold short term rates low for a specified period, handing banks the spread to treasuries of that duration.

 - Paying interest on fed deposits

... and these are just the schemes that one can discern from public information.  Who knows what else is going on?


ElvisDog's picture

Sorry, I'm suffering from Imminent Collapse Fatigue (ICF). I've heard too many of these breathless imminent demise predictions over the past four years. I'll believe it when one of these apocalyptic predictions actually happens on schedule.

neptunium's picture

I agree, If the blogosphere wasn't continually telling us that the world was about to descend into anarchy, where we'll sort through trash longingly searching for a half-eaten tin of dog food it'd just be a bunch of shit-boring economic fuckery. 

But the strange thing is, most of us are actually looking forward to some sort of crash, we are actually really excited about the prospect of something interesting happening for a change, we spend our entire lives enviously watching newsfeeds of disasters, riots, famines and civil insurrections mindful of the fact that for us in the west living average lives, the greatest curse we have is boredom and some part of our 3+ billion year genetic heritage of continual violence, fighting, fucking, and feeding senses that this isn't as fulfilling as we'd hoped. 

So bring it on, I'm stockpiling Pedigree..



vmromk's picture

Nothing that an asshole with a silo full of ink and paper couldn't fix.

falak pema's picture

The more money Draghi pours into those banks "to save Spain" the more money flows out to private accounts, and the greater is the bank hole that will one day have to be nationalised and ECB "bonded". 

This has to be a scene from a Three stooges movie. Even Hemingway could not have imagined such villainy being done without a single shot being fired! 

"Before we shoot your wife, your mother, and rape your daughter, we will first transfer our profits abroad and socialise our debts on the government balance sheets. Then the fireworks can begin!"

We are after all in the 21 st century and don't use vile 20 th century methods! 

Does Draghi have pointed ears ...and clawed toes like a vulture?

What a pierced wine barrel that is! 

New_Meat's picture

Our Dear Ms. got junked for a . {dot}

You get (so far) seven greenies for a / {slant}.

I'm a'hopin' that this doesn't go to your head, don't cha' know.

- Ned

williambanzai7's picture

As long as it is an orderly withdrawal by wealthy citizens, corporations and politicians, it is not called a bank run...but the minute the little guys line up at the ATMs, heavens to Betsies!!!

kito's picture

That orderly withdrawl is what got the world into this mess......the elite sucking money and wealth OUT OF THE SYSTEM and into their hands......

dogbreath's picture

why wait for the line ups to start

andrewp111's picture

By definition, a bank run is a disorderly panic mass withdrawal. Sort of like happened to the Money Market Funds after Lehman failed. It lasted an hour with $250B withdrawn- until the FDIC put on a total guarantee and stopped the run. The current Spanish withdrawals are a very slow leak by comparison.

Haager's picture

They will kick the can no matter what happens.


Time is marching on...

eigenvalue's picture

Mark Grant doesn't mention his "NO MORE QE" prediction any more? Is it his tacit admission that he is wrong?

i-dog's picture

You don't mention your $2,830 gold prediction for August 2012 any more either (1534618)! Is that your tacit admission that complex systems can't be predicted with any guaranteed accuracy?

kito's picture

But I-dog, is it not you who called for the end of the dollar in just a few short months......i believe you wagered credibility with a side of seem so certain about your prediction regarding such a complex system......

Votewithabullet's picture

What you say can and should be shoved down your throat...

eigenvalue's picture

To be honest, I was actually kidding when making that prediction. However, I'm quite impressed by your good memory. I myself already forgot I made such a prediction before. Anyway, thanks for the reminder.:)

ArrestBobRubin's picture

I guess this devastating news means another fantabulous week for the Spanish stock market and bond yields.

BurningFuld's picture

Only way out is currency devaluation...say a 2 for 1 trade. Every country did it in the 1930's. Oh wait you need something to devalue against don't you? Well here is where a gold standard makes a bit of sense now doesn't it?

The Paucity of Hope's picture

Before they return to a gold standard, they will confiscate the gold from the peasants.

MrSteve's picture

But aren't peasants called peasants because they have no gold? Ergo, confiscating their non-existant gold is illogical and impractical. Other ZH reports on 28,000 gold buying shops in Italy seems to indicate that Italy is also pretty far down the road to collapse if the people have already sold out of their gold. What else could they have left?

Ghordius's picture

Have you any idea how much gold private citizens hold in Italy? It's the UK and the US that have the lowest average personal possession among the rich countries.

Italians? A country of goldbugs second only to Turkey and India. Look at the statistics.

And they haven't forgotten the Lira. Poverty line used to be 1'000'000 Lira per month while popular songs about hoping to achieve 1'000 Lira per month were still not oldies.

SamuelMaverick's picture

aka 'cash for gold' stores in the good ol USA !!!!

SilverDoctors's picture

BurningFuld- currency devaluation can aka gold revaluation- the last arrow in Bernanke's quiver.  I expect it's coming...this next QE will likely be the last before gold revaluation.

apberusdisvet's picture

 I hereby nominate  Nigel Farage as the new supreme ruler of the Euroland.  Go kick some ass, Nigel.

Hangfire's picture

We're only making plans for Nigel!

Acet's picture

It would be really great if Nigel Farage was just as critical towards politicians and the elites in his homeland - Britain - as he is towards the EU.

Unfortunately his speeches are just playing to a certain kind of Brit, the kind that was trained to be unthinkingly Euroskeptic by Murdoch-owned newspapers and their ilk, which frequently publish such bulshit as for example saying that the EU regulates the curvature of bananas.

Effectivelly Nigel is a tool of a certain kind of elite in the UK that, having gained control of British public opinion, see the EU as the only risk to their dominance.

For all the bureaucratic clusterfuck that the EU often is, thanks to the presence of the likes of the Dutch, Germans and Nordics it has in fact passed a lot of legislation that has avoided the likes of Britain to trample all over it's own citizens' rights. Without the EU the UK would be far more advanced in its path towards totalitarianisms than it is.

As a Portuguese I can tell you it's even more so with regards to Portugal - if it wasn't for the EU there would be a lot more shit going on in my homeland than there is.

The Euro, on the other hand, turned out to be a shit idea.

Ghordius's picture

+1 It's too early to say if it was a shiity idea, IMHO.

max2205's picture

Like the eye of the storm. Will the weakened structure hold when the next winds begin.

At 20x ( and more like 40x) spain has lost 20 trillion of loan backing with 1 quarters worth of bank run outflow. Bad loans at that. Those will have to be called in or written off.

Even Ben can't do those numbers

Jason T's picture

Martin Armstrong had said his computer was jumping up and wishing it had legs so it could hide under itself from those outflow numbers..

he likenedi it to 1998 when LTCM went bust from outflows in Russia.



americanspirit's picture

I guess the 64 Peseta question is - outflow to where? I have a friend in the investment business who tells me that he has direct knowledge of one Spanish group is quite frantically shopping the US for somewhere to put their $500 million in cash. That's quite an outflow. IMO they should just buy gold and sit on it very tightly - but I know nothing.

tao400's picture

Martin armstrong also said gold would plunge

delacroix's picture

martin armstrong spent years in prison, at that hands of the club. he has to be careful, what he says. read between the lines. pay attention to the bolded text. he may be saying something, without outright saying it. jmho

SamuelMaverick's picture

I have read the last few writings of Armstrong and have sadly noticed that he has trouble getting his points across and seems to be ' off ' and somewhat incoherant.  His comments on gold just do not make sense. 

unununium's picture

Querido España,

Les aconsejo que sigan nuestro ejemplo.

Islandia (Iceland)