Is Spain’s Bad Bank Bad? Depends for whom

By Vicente Clavero

For four years now, with this endless financial reform, they have been taking us Spaniards for fools.

Former Socialist prime minister Zapatero first, and now Mariano Rajoy, have always argued that the bank rescue was a prerequisite for overcoming the crisis and it would not cost us a single euro. But the fact is that the State has devoted considerable resources that will be difficult to recoup and to date there’s still no sign of the promised flow of credit.

The string of bankruptcies of savings banks, and that of Bank of Valencia, has eaten up more than 20,000 million euros, which could have been used next year to pay half of the interest on [Spain’s sovereign] debt. This figure excludes the capital needed to boost the battered solvency of the three institutions controlled by the [state-financed] Fund for Orderly Bank Restructuring (FOBR), Bankia, Novagalicia and CatalunyaCaixa, that the stress tests conducted by the consulting firm Oliver Wyman hasquantified at another €46,000 million.

To address these needs, and those that will come, in June the Government had to ask the European Union for an advance on the expected fully-blown rescue of the country, though he disguised it under the euphemism of “financial assistance”. According to Spanish Finance Minister Luis De Guindos, in the end there is only need for forty of the agreed hundred billion euros, for which, by the way, rather than the recipients, all the Spanish people will pay.

Until Bankia, Novagalicia and CatalunyaCaixa or future owners are able to return the funds – assuming that they ever are, that money will weigh like a deadweight on public finances and force us to make further sacrifices. For this, we must thank the executives who lined their pockets courtesy of an insane credit policy and authorities whose lack of diligence is betrayed by their failure to prevent and punish abuses committed by them.

The Government is going to try to dilute the consequences of these excesses through the new Asset Management Company, ie, in the bad bank, a rug under which they will, for a while, hide the giant quantities of garbage that still exist on the balance sheets of the banks. They have 15 years to get rid of it, and pay back [the public purse], in an operation that De Guindos says will pay for the difference between the purchase and the selling price.

If so, it is not clear why the Government is committed to allow private investors into the bad bank. Unless, that is, we are facing another blatant case of the privatization of profits and the socialization of losses.

El Publico 5 Oct 2012

Translation by Revolting Europe