Dear Europe – You’re Doing It Wrong

• Posted by kid dynamite
• on June 12th, 2012

Look, I haven’t really torn into Spain’s plan to push their fiscal pain down the road to a later date.   When I read all this crap about Spain, it comes across as “blah blah blah blah Spain has too much debt blah blah blah blah so they’ll solve the problem with more debt blah blah blah blah and maybe things will collapse in the future instead of today blah blah blah”

I did, however, put a few things together in my head this morning after reading a piece from Andrew Ross Sorkin titled “Why The Bailout In Spain Won’t Work,” which had some points directly contrary to an FT post I read yesterday about what the European Union is actually talking about doing.

First, Sorkin:

“But we forget history: TARP was only one component of the bailout. Perhaps more important — consider it the unsung hero of ending the crisis — was the government’s unilateral move to raise the amount of money the Federal Deposit Insurance Corporation could insure, increasing the account limit to $250,000 from $100,000 and fully backstopping the entire money-market industry.

Investors and bank customers who were considering taking their deposits and running in 2008 no longer had reason to do so once deposits and money-market funds had been guaranteed. Keeping your money at Citigroup or Bank of America was relatively indistinguishable from a safety standpoint.

That is not the case in Europe. Customers of Spanish banks still have reason to worry about the solvency of their banks — and their country — making it reasonable for them to take their money from Spanish banks and send it to banks in safer countries like Germany. Indeed, the bailout makes it less likely Spain can pay back its debts because the new loan of up to $125 billion was just added to its huge debt pile. Worse, Spanish banks had been the biggest buyers of Spanish debt (a farce of a way to prop up the economy) and that most likely won’t continue.”

Then, the FT, quoting an EU source on options they are considering:

“Reuters: “Imposing border checks, limiting ATM withdrawals also part of worst case scenario planning”  – EU sources”

Did you catch that?  Sorkin’s post explains how CONFIDENCE is the key factor – how you have to make it so that your banking deposits feel confident that they will not be fiscally raped and pillaged.   Then there’s the reality of what is being considered; which is, loosely translated, “Fuck your confidence – we just won’t let you take your money out of our banks, and we won’t let you flee to another country in search of better days.”

Ummm. yeah. Good luck with that one…

Sorkin: Spain’s Bailout Won’t Work

FT: Someone Tell This EU Source to STFU

Levine: On Spanish CDS

-KD

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