Eurozone’s offer of $125 billion to bailout Spain may not be enough. Or may have actually made things worse!
It was not enough. And it may never be enough.By now, it should be apparent that the bailout has failed — or is at least on its way to failing.... it now appears that the bailout could make things in Spain worse, not better.
How did they come to the $125 billion figure in the first place? Do you think the bailout was even necessary? Do you think it will fail/make things worse?
the only real way to begin to ensure the safety of the banks in Spain — and all of Europe — is to create a euro zone deposit guarantee system so that there would be no reason for a depositor to withdraw money.
Do you agree with this statement?
The article states that for this to happy it requires all European countries to use the Euro (and we all know the problems with that!)
Check Out This Article Here: http://dealbook.nytimes.com/2012/06/11/why-the-ba…
At this point 125 Billion dollars is largely irrelevant to the system. The biggest worry is confidence in the banks and the ability to walk down the street and get money when you need it. It is why FDIC insurance was raised here to help instill confidence. You need to have some kind of guarantee that there won't be a run on the banks. You can keep recapitalizing banks all you want, but at the end of the day there needs to be real collateral put up and frankly all the collateral over there is degrading fast. Sure, the ECB can fire up the printing presses but that compounds an already worsening situation. You can't cut your way to prosperity and you can't borrow your way out of debt. This situation requires something I like to call common sense. People will have to suck it up and realize we borrowed from our future to finance our present. There are only a few fixes for that. I don't need to spell them out.
Short answer, yes, i agree with the statement you posted.
I agree with your statement. The 'bailout' just piled on an extra 10% of debt/GDP for Spain and subordinates existing creditors. This won't buy time, it's putting the euro crisis into warp speed.
I think every people should think it in this way: What if I really owned Spanish government bonds? This way of thinking will put this issue into better perspective.
The latest history shows that whenever a bailout fund’s money is injected into an ailing bank, the rest of the previous holders’ claims will become subordinated. As a result, banks, holders of the banks' bonds, will experience a deteriorating collateral base. That in turn will force them to either claim more pledged assets or shed their positions. Since it isn’t possible for the banks to negotiate with the failing banks for additional collateral, the only plausible outcome is for them to walk away. This is exactly what is happening in Spain for the past year or so; private sector is exploiting the infusion as an exit strategy (For more detail see here: http://www.pimco.com/EN/Insights/Pages/Snapshot-on-Spain-And-the-Money-…) This is why we are seeing the bond yields keep going up and up again. In short, there are no more private interests left for this pour country. The same logic applies to deposit insurance scheme being suggested from some people. Should the ECB actually guarantee the Eurozone members’ deposit, the amount won’t be infinite; they will definitely attach a certain limit to the amount that could be guaranteed in case of a bank run, but it will only incentivize the already discouraged Eurozone citizens to withdraw all of their balances, with only leaving the guaranteed amount.
This suggests that the amount of money given to the Spanish government really doesn’t matter that much. The private sector will keep moving out their money from the country, and the interest rate will easily top 7%, the tipping point of a massive selloff, and the government will either find the rates to be prohibitive or they could just experience a failed auction to support their local governments.
I'll be in Barcelona at the end of the month...I'm hoping that A) Everything is a lot cheaper than normal because there's no demand, B) There is a good old fashioned riot that I can watch, or C) Both A and B
It is only delaying the inevitable. They tried to bail out Greece which is a small economy. That failed and Greece is now being kicked out of Eurozone and going back to Drachma. Now delay Spain default by a year with a bailout even though Spain's Central bank has already been downgraded to junk bond status by S&P. Won't help. Next Portugal. Then France. Then chaos in Eurozone while the Northern European countries try to insulate themselves.
It is just a band-aid, buys the Eurozone about 5 days. This monetary stimulus does not address the fundamental issues; 20% unemployment, and home prices are a fraction of what they were in 2000. Even further, not all Spanish banks are participating in the "bailout."
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