Spain, Bad Banks, Assets, Losses and Lies
Courtesy of Golem XIV
I thought it might be a good moment to take a broad look at Spain’s financial troubles and outlook. For those of you who tire of details, the executive summary is that is that it is bad and without a doubt going to get considerably worse over the next 6 – 18 months despite Spanish government and EU claims to the contrary.
Here’s why.
On Friday (31st Aug) the Spanish Government passed what it said would be Spain’s definitive banking reform. This is actually the third such ‘definitive’ reform. The previous two were more blather than action. All the talk in this reform centres around the creation of a so called ‘bad bank’. Which, it is being claimed, will sort Spain’s ailing banking system once and for all. This despite the fact that Spain already has a bad bank, a really bad one, Bankia. I say this only half in jest. I’ll come back to Bankia.
First let’s deal with what a bad bank actually is and does.
Bad Bank
A ‘bad bank’ isn’t a bank. It’s an ‘Asset Management’ company. A company is created, which buys all the rotten, failed, toxic, non-performing loans which Spain’s banks and it’s Caja’s have on their books. The company then ‘manages’ these assets. There, all better now?
Of course you might have a couple of questions. Like, who set’s up this company? With whose money? What does ’manage’ mean? And if the company can make a profit from ‘managing’ the assets it buys from the banks, then why couldn’t the banks ‘manage’ them?
So how is it going to work, exactly? Well according to Spains Minister for the Economy,Minister Luis de Guindos, speaking at a news conference last Friday,
The aim is for private investors to take a majority stake in the bad bank .
He went on,
“The asset-management company should be viable and not generate losses and in the end not have any impact on the taxpayer,…”
Gosh, why didn’t we think of this before? Private investors are going to pay for the whole thing, and then it will make oodles of money and cost the taxpayer nothing. Oh really?
Before we go on with this fiction lets just stop to mention how the company makes money.
Pic credit: Jr. Deputy Accountant
