No Other Banks Are This Exposed to Turkey, Argentina, Brazil…. Emerging Markets Haunt Spanish Banks

To diversify from the euro-debt-crisis, the biggest Spanish banks pushed deeply into Emerging Markets. Now, they’re in a new crisis. 

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

Almost exactly six years ago, the Spanish government requested a €100 billion bailout from the Troika (ECB, European Commission and IMF) to rescue its bankrupt savings banks, which were then merged with much larger commercial banks. Over €40 billion of the credit line was used; much of it is still unpaid. Yet Spain’s banking system could soon face a brand new crisis, this time not involving small or mid-sized savings banks but instead its alpha lenders, which are heavily exposed to emerging economies, from Argentina to Turkey and beyond.

In the case of Turkey’s financial system, Spanish banks had total exposure of $82.3 billion in the first quarter of 2018, according to the Bank for International Settlements. That’s more than the combined exposure of lenders from the next three most exposed economies, France, the USA, and the UK, which reached $75 billion in the same period.

According to BIS statistics, Spanish banks’ exposure to Turkey’s economy almost quadrupled between 2015 and 2018, largely on the back of Spain’s second largest bank BBVA’s madcap purchase of roughly half of Turkey’s third largest lender, Turkiye Garanti Bankasi. Since buying its first chunk of the bank from the Turkish group Dogus and General Electric in 2010, BBVA has lost over 75% of its investment under the combined influence of Garanti’s plummeting shares and Turkey’s plunging currency.

But the biggest fear, as expressed by the ECB on August 10, is that Turkish borrowers might not be hedged against the lira’s weakness and begin to default en masse on foreign currency loans, which account for a staggering 40% of the Turkish banking sector’s assets. If that happens, the banks most exposed to Turkish debt will be hit pretty hard. And no bank is as exposed as BBVA, though the lender insists its investments are well-hedged and its Turkish business is siloed from the rest of the company.

In Argentina, whose currency continues to collapse and whose economy is now spiraling down despite an IMF bailout, Spanish banks’ total combined investments amounted to $28 billion in the first quarter of 2018. That represented almost exactly half of the $58.9 billion that foreign banks are on the hook for in the country. The next most at-risk banking sector, the US, has some $10 billion invested.

Big Spanish banks — and other large Spanish companies — have a massive presence throughout Latin America. In the aftermath of Spain’s real estate collapse, when opportunities at home were few and far between, Latin America’s fast-growing economies were a godsend to many of those companies.

In 2012 Spain’s then King, Juan Carlos I, even went so far as to ask for help from the leaders of “friendly” Latin American economies. “On this side of the Atlantic we have seen difficult situations develop as a result of the economic and financial crisis,” he told attendees at an Ibero-American summit. “Our sights now turn towards you. We need more ‘Ibero-America.'”

Some countries, including Mexico, Colombia and Peru, agreed to lend a hand by lowering the barriers to their economies for Spanish companies. Large Spanish firms such as Repsol, OHL, Iberdrola and Telefónica and Spain’s two biggest banks, Santander and BBVA, took full advantage of the invitation, expanding their operations to take advantage of the region’s strong economic growth being driven by the global commodities boom.

But this diversification strategy was not without risk. As long as economic conditions in Latin America are buoyant, or at least benign, things are fine. But if emerging market assets suddenly begin to lose their allure and all the yield-hungry hot-money begins to get cold feet, as appears to be happening right now, what was once a godsend can quickly become a curse.

As the IMF warned in an assessment of Spain’s financial sector at the end of last year, the significant international presence of the country’s biggest banks, while providing welcome diversification effects, may also have significant implications for inward and outward spillovers:

The share of financial assets abroad has grown continuously for the Spanish banking sector, with the largest international exposures by financial assets concentrated in the United Kingdom, the United States, Brazil, Mexico, Turkey and Chile.

Most worrisome of all is Spain’s banking exposure to Latin America’s two mega-economies, Brazil and Mexico, both of which face months of political uncertainty and are also at high risk of contagion from the fallout from Turkey and Argentina. The Brazilian Real has already shed 20% of its value against the dollar so far this year, while the Mexican peso is down around 6%, having been buoyed by recent signs of progress in the NAFTA talks.

In Brazil Spanish banks have total exposure to the economy of $167 billion, according to BIS data. That’s the equivalent of 44.6% of total foreign banking investments in the country. For Banco Santander, Brazil is by far its biggest market, accounting for 26% of its global operating profits, compared to just 16% for Spain.

Meanwhile, in Mexico Spanish banks have over $160 billion invested, which represents 42% of total foreign banking exposure. Once again, it’s BBVA that is doing the heavy lifting, through its subsidiary BBVA Bancomer, the largest bank in Mexico. It provided 45% of BBVA’s group profits in the first half of 2018.

This pattern of exposure to emerging-market risk is replicated across most Latin American economies. In Chile Spanish banks account for 43% of total foreign bank-owned debt; in Colombia, it’s 32% and in Peru, it’s 40%.

So to diversify away from the crisis in Spain, banks pushed deeply into the Emerging Markets, only to find that some of them are now sliding into their own crisis. By Don Quijones.

Turkey’s lira is plunging, and now the economy faces a “substantial increase in the risk of a downside scenario.” Read…  Turkey’s Debt & Currency Crisis Morphs into Financial Crisis as Banks Face Funding Squeeze   
 

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  69 comments for “No Other Banks Are This Exposed to Turkey, Argentina, Brazil…. Emerging Markets Haunt Spanish Banks

  1. nick kelly
    Aug 31, 2018 at 3:41 pm

    Glad to be first to comment because I want to make a prediction: many of the comments will blame this Iberian/ Latino crisis on the IMF and /or the Fed.

    How do I know? I’m psychic.

    • Ambrose Bierce
      Aug 31, 2018 at 4:08 pm

      I don’t blame them, I just think they’re the only ones who can fix it.

      • Bookdoc
        Aug 31, 2018 at 6:18 pm

        Fix??? or just kick the can down the road…

  2. nick kelly
    Aug 31, 2018 at 4:26 pm

    Time for a serious question. Spain is in the euro zone and has some backstopping from the ECB. So why are all the amounts of its exposure in dollars? Has the euro made no penetration at all in the Latino (South American) zone.

    Also in Turkey where Spain has a big presence, can’t it lend in euros?
    If things get really sticky would Spain find the ECB easier to talk to than the IMF?

    • Aug 31, 2018 at 4:28 pm

      Blame the BIS, Nick (almost all the stats quoted above were in dollars) :-]

    • MOOMOO6576
      Sep 1, 2018 at 3:48 am

      Number 1)

      The ECB balance sheet is in tatters. They’ve bought every bit of junk the yield curve in Europe can offer. Italy knows this and is turning up the heat (‘the ECB can’t end its bond buying program or we will collapse’ – Salvini)

      The IMF balance sheet is relatively ‘clean’.

      Number 2)

      All the Latin/South American borrowing was in US dollars. So the fx has to be accounted for in that fashion…Otherwise the falling Euro would be lessening the problem… it is not. The rising US Dollar is exacerbating the problem. It is the rising US dollar which is amplifying the FX crises in all these countries ( Turkey, Argentina and others)

      • Tom
        Sep 2, 2018 at 7:38 am

        If these loans were made in gold , then these countries could dig up a payment.

    • Leser
      Sep 1, 2018 at 7:00 am

      ECB is the key point here, and socialisation of bad loans and risks through the backdoor. The gullible, hapless Germans are now sitting on €1000bn of receivables via Target which won’t ever be settled, nor pay at least interest, as they should. In every crisis, the extent of risk that is shovelled up to Northern Europe EU is increased by newly introduced mechanisms – because that’s what a good crisis is for.

      • Crysangle
        Sep 1, 2018 at 12:42 pm

        Booming the south, mutualised credit and fx, benefitted German exports, productivity, and political might…ruined the south in many ways. I don’t feel sorry for the Germans at all, they don’t feel sorry for the south either, only those south of south and east of east, are only concerned with representing and managing the project.

        • Leser
          Sep 3, 2018 at 9:42 am

          What ruined the South was the South itself, by gorging on artificially cheap and abundant credit which was used to blow up a property bubble of epic proportions. Surely fun while it lasted though by the time it bust, Spain and Portugal had doubled there cost and priced themselves out of much else of what could have provided income beyond the property mono-culture. Textbook examples of the commodity disease, only in this case the commodity was credit.
          “Oh but Germany profited from it and should now pay up – for fairness’s sake”. The worn and proven battle cry of investors making a killing on bail outs. There were quite probably German some cement trucks, scaffolding joints or whatever can be supplied into construction. A fraction of course of the total German exports.
          The real story is that German savers have lost capital and income in the many hundreds of billions to inflation and zero interest since the onset of Draghi’s money printing. That is now dawning on the Germans – EU and €-indoctrinated as they are – hence the relentless rise of Euroscepticism.

  3. Lion
    Aug 31, 2018 at 4:30 pm

    I blame the IMF

    • polecat
      Aug 31, 2018 at 7:43 pm

      “I blame tbe IMF”

      Ah … the fix(ers) are/is/will be in .. ‘;]

    • Mch
      Aug 31, 2018 at 11:53 pm

      The Impossible Mission Force? I knew it, those people were up to no good. You can never trust people wearing screwy people masks. Or can you?

    • Peter Mott
      Sep 3, 2018 at 8:18 am

      No you don’t – you are just winding Nick Kelly up!

  4. sdb
    Aug 31, 2018 at 4:57 pm

    Alpha Lenders ! This is fantastic , you should register it !

    I wish I could be this ironic .

    Will start using it as an adjective now (few will understand though)

  5. William Smith
    Aug 31, 2018 at 4:58 pm

    I blame corruption and greed.

    • Alex
      Aug 31, 2018 at 5:59 pm

      Corruption and Greed are core traits of all humans. Negative ones. They cannot be eliminated. Central Banking increases the Corruption and Greed by short-circuiting the free market from clearing some it away. Dolts, keep voting!!!

    • polecat
      Aug 31, 2018 at 7:45 pm

      If you want your Ferengi, you will get your Ferengi ..

  6. Alex
    Aug 31, 2018 at 5:26 pm

    Blame central banking. Without it this crazy sh$t would not happen.

    • Javert Chip
      Aug 31, 2018 at 6:31 pm

      Oh yes it would have happened.

      This sh$t happened for thousands of years before central banks (just on a smaller scale because the world was not as connected as it is now)

      • nick kelly
        Aug 31, 2018 at 11:03 pm

        Without a central bank (i.e. , a lender of last resort to banks) there is nothing to stop a banking crisis (see Lehman 2008) from turning into a financial crash that turns into a deflationary depression.

        The 1929 Stock Market Crash turned into a financial crash with 10,000 US banks going under WITH NO DEPOSIT INSURANCE. The Fed failed to act as a central bank and the result was the 30’s.

        With every developed economy having a central bank it should not be too large a leap to associate the two: development needs a central bank.

        When you need a loan you go to the bank. When the outfit you work for need a loan it goes to the bank.

        Where does the bank go when it needs a loan?

        If it can’t get one, it has to call your loan.

        • Maximus Minimus
          Sep 1, 2018 at 1:00 am

          “Where does the bank go when it needs a loan?”
          It goes to another bank. Nothing unusual. A crisis breaks out when the other bank cannot trust to get it’s loan back.
          The central bank should be the lender of last resort, and nothing else.

        • nick kelly
          Sep 1, 2018 at 10:12 am

          Check history of 2008. Who bailed out Citi?

          The Fed had organized the takeover of Bear but by 2008 banks wouldn’t lend to other banks (if a bank won’t lend to a bank, it won’t lend to anyone)

          The system had frozen up.

          These rants about how bad central banks are would make more sense if their central bank hadn’t just saved their ass.

        • KMOUT
          Sep 1, 2018 at 10:50 am

          For not much better and a bunch worse, Nick just laid out the blueprint for socializing the risk and privatizing the profit. And everybody on this site will keep on howling about it. Just keeps on rollin.

          The basic premise is that we NEED to incentivize this behavior…. I wish I could just splash money irresponsibly around the planet and collect seven figures for the honor.

        • Crysangle
          Sep 1, 2018 at 1:16 pm

          If accountability is not part of the process of lending, then you cannot pretend to call what you have created a bank. Call it centralised account fiddlers, communist support bureau, capitalist association for interest inventors, a political smoothing machine, but not a bank.

        • Old Codger
          Sep 1, 2018 at 8:01 pm

          When a bank needs funds over and above its deposites, it sells BONDS!

        • Peter Mott
          Sep 3, 2018 at 8:48 am

          You might have mentioned the London Panic of 1866 after the failure of Overend Gurney. It was this that led to the Bank of England taking on the role of lender of last resort.

      • MOOMOO6576
        Sep 1, 2018 at 3:51 am

        ….if we outlawed government’s ability to borrow… we’d have a much better system. Government’s ALWAYS default. ALWAYS.

        Government’s do NOT pay back what they owe. Ever.

        • Matt Schilling
          Sep 6, 2018 at 10:21 am

          Some things are simply too vital, too fundamental to human interaction, to let government anywhere near them. That’s why we have the First and Second Amendments in the USA. Money sits at, or very near, the top that list.

  7. Javert Chip
    Aug 31, 2018 at 6:46 pm

    Well, good to hear “BBVA… insists its investments are well-hedged and its Turkish business is siloed from the rest of the company”.

    Ha Ha ha, ha, tee hee.

    Whew! Pretending Spanish bank are being moderately well run is pretty funny. These wold be exactly the same Spanish bank managers that decided to diversify from their own pile-of-crap assets to Turkish & Argentina pile-of-crap assets. Extra “participation medals” to everyone involved for denominating loans in USD.

    Whooo boy! Pass the popcorn.

  8. raxadian
    Aug 31, 2018 at 9:09 pm

    Considering the infamous and corrupt practices Spanish companies and banks have done both in Spain and in other countries, is not just the fat lady singing.

    • MOOMOO6576
      Sep 1, 2018 at 3:57 am

      …boy that is an understatement.

      They actually went around to rural houses where people had installed their own solar power systems, and told them they have to pay for electricity anyway.

      The Spanish government/banks et al are complete crooks. Their little dalliance with ‘progress’, all financed from 1992 by the EU (now bust) is coming to an end. They will slip back to the status quo ante…

  9. Tom Stone
    Aug 31, 2018 at 9:42 pm

    Since someone has to ask…
    It seems certain BBVA will lose money on every deal, but can they make it up on volume?

  10. ML
    Aug 31, 2018 at 10:48 pm

    Something to be said for the Uk”# notorious dislike of foreigners? When foreigners cannot even be trusted to run a bank! How the Spanish chap in charge of Lloyds Banking has managed to break free is that he has concentrated LLoy on the UK. Might not be very worldly buf at least it is profitable.

    • Covey
      Sep 2, 2018 at 2:27 am

      Actually, the “Spanish chap” running Lloyds is Portuguese.

  11. timbers
    Aug 31, 2018 at 11:37 pm

    The solution is simple: Spain needs to de-uerize. That will allow it or regain it’s sovereignty. If it does not, Spain will remain a slave to the austerity God’s of the ECB eurocrats.

    The power of a nation to issue it’s own currency is essential to it’s national governments survival and basic function.

    This is applies to Spain too, and Argentina.

    • nick kelly
      Sep 1, 2018 at 12:20 am

      Argentina DOES issue its own currency. The abuse of that privilege has caused the Argentine peso to depreciate 27% PER YEAR since 1914.
      (Over a trillion times from then till now )

      The only thing separating Spain from Argentina is the ECB and the euro.

      The only thing saving Spain from the fate of Argentina is its membership in the euro zone.

      And right now you REALLY don’t want to be Argentina.

      • MOOMOO6576
        Sep 1, 2018 at 3:59 am

        Argentina BORROWS is USDollars.

        If Spain is counting on the Euro… their fate is Greece.

        Good luck with that.

      • Crysangle
        Sep 1, 2018 at 1:06 pm

        Nick that is BS. In another couple of decades likely Spain will have lost its nationalist/traditionalist sentiment beyond redemption, will have become “Frenched” or “Argentised”. I don’t remember Spain defaulting once it joined the international market, post dictatorship (did it?) . Now the country is well out of its depth though, needs to return to own currency, people are not content and the politics is nul, experimental, chaotic and tense at the same time. If you believe in the EU superstate theme then go right ahead though, but you are not talking of Spain then per se.

        • Crysangle
          Sep 1, 2018 at 2:26 pm

          There are many ways to cut and dice stats, many inputs that are not easily calculable (increase in quality or productivity, inflation on choices, monetary control and political freedom etc.) , but here is the modern round of basics for Spain. You would note the troubled banks, cajas, were actually working within acceptable under purely Spanish supervision, before ECB rates, competition, loose finance. This is happening in EU, under ECB authority, and not as a nation with sovereign policy. E.g :

          https://blogaldeaglobal.files.wordpress.com/2014/10/b43ae-grafico2b6.png

          https://eaees.cdnstatics.com/cdn/farfuture/vF15tHlZ-03af9PtI1zRC_QWXq0THAhVO1GbRI6qoHc/mtime:1506004231/sites/default/files/bootstrap/evolucion_de_la_deuda_de_los_hogares_espanoles.jpg

          https://colectivonovecento.org/2014/04/22/la-crisis-de-la-deuda-en-espana-elementos-basicos-y-alternativas/

        • Javert Chip
          Sep 1, 2018 at 2:38 pm

          I’m unclear what you find so objectionable about Nick’s post.

          It’s true Spain has not defaulted in the twentieth & twenty-first centuries (Nick didn’t claim they had). I interpreted Nick’s point as both Argentina & Spain had screwed the pooch financially, and only euro-membership was saving Spain from Argentina’s miserable fate.

        • Crysangle
          Sep 1, 2018 at 3:07 pm

          Maybe my reply which is in mod. will have answered that for you. The Euro is not saving Spain to my view, it is now trying to save/forge on with the larger EU project, trying to save the Euro itself. At zirp and nirp everything will seem “saved” because the effect of interest payments, the cost of increased borrowing, is so low. That in practical purposes though reduces the economy to one commanded by paper pushers, with nations and households perpetually on the hook if rates are chosen to be lifted, due to their need to roll debt (nations), or due to outstanding variable debt (households). If you are heavily in debt, the one who can ease it, provide money, is mistakenly seen as the saviour. Do you think people are that stupid though? They just balance off the alternatives and accept foisted solutions rather than demand proper (national) accountability. If you see that as some kind of reasonable “solution” , well I don’t. I find it highly manipulative, and destructive to society (unemployment and demographics being the most readable, but there are plenty of other metrics available also).

  12. fjcruiserdxb
    Sep 1, 2018 at 2:45 am

    BBVA exposure to Latin America isn’t knew. Like before, the carry trade is responsible for the mess banks finds themselves into. Cheap overnight or short term guaranteed funding from the ECB (since these banks cannot borrow on the capital markets) and pile into high yielding assets abroad with unhedged currency risk of course. In this case it is so reckless because the money comes from tax payers in the form of bailouts and is not being used to shore up capital or lend to businesses in the local economy. Instead the Spanish bailout money has been used to enrich the few, the Spanish Government and its crooked politicians. The ECB knows what goes on and does not care. Theft pure and simple.

    • MC01
      Sep 1, 2018 at 7:16 am

      You don’t need to look at the lender of last resort (the ECB) but at Euribor, which is the average interest rate for inter-bank transactions throughout the European Monetary Union (EMU).
      Euribor started to turn negative in 2015 and went in the red all across the spectrum in 2016, with negative rates going deeper and deeper as time went by. Not even the threats of a monetary policy normalization have been enough to move it from the unfathomable depth where it resides.

      For a large bank like BBVA, the real cost of finacing their operations is actually even lower. Remember, Euribor is an average index, so this is not even free money: it’s the modern day equivalent of the schwundgeld printed in some German and Austrian towns during the 30’s and whose alleged success apparently inspired the concept of Negative Interest Rate Policies (NIRP). I say alleged success because the various schwundgeld experiments never got far: monetary authorities in Berlin and Vienna saw them as counterfeiting and quickly sent the police to shut them up.

      Bear also in mind that it has never been cheaper to service a loan in Europe: to give an example, the vast bulk of mortgages in Europe are adjust rate (ARM) and are usually based on Euribor-12 plus anything between 1.5 and 2.5%. Far cheaper than it was in 2006, as Euribor-12 is deeply negative while back then was around 2%.
      Yet it’s failing to ignite the real estate boom everybody (but me) salivates for: Germany steadfastedly remains a nation of renters, mortgage approvals in Spain are less than a quarter of what they were between 2005 and 2008 and home ownership rates throughout the Continent are slowly but steadly dropping.

      Note that this is not for lack of trying or because the Hell Banks deny money to the “small guy” to hoard it in their virtual vaults. In fact the “small guy” is likely to be inondated by loan offers, whether he needs them or not and if you are a business owner… your secretary is likely to be sent in a fit of rage merely by mentioning the word “loan”.
      In fact right now Europe is awash in economic activity only made possible by this flood of cheap-to-service loans: just look at all the no-frills airlines. A single Airbus A320neo costs US $110 million and a Boeing 737 MAX 8 even more ($117 million). Dry-leasing an older A320 (meaning older and less fuel-efficient engines) is $250,000/month. This is truly big money, and without financial repression the boom we’ve seen over the past decade would have never happened.

      • Cynic
        Sep 1, 2018 at 12:44 pm

        In the Pyrenees- Northern Spain, Navarra, a ‘rich’ region – house prices are actually falling at present.

        Lots of elderly people growing by the day – disposing of properties, and the young just can’t buy into the market anymore due to atrocious ‘salaries’.

        And this is with easy money…..

        • MC01
          Sep 2, 2018 at 5:00 am

          As the saying goes, you can ask whatever price you want for your cabbages, but it’s another matter completely if somebody will pay it.

          I have a passing interest in looking at real estate prices in the places I visit for a reason or another and since 2014 Spain has gone through what I can only call yet another bout of collective real estate delusion. What I expected was for real estate prices to bottom, then to recover a bit and from there find a sustainable level. I had no idea how wrong I was. In three years prices have shot in the stratosphere, especially where they have no reason to do so. 40% more in three years in the Aragonese countryside? 55% more for a pretty ugly apartment deep in the Catalan hinterland?
          I am not surprised buyers have made themselves scarce, especially foreigners: France has far better value for money if you are looking for a quiet place to retire.

          Spanish (and Italian) sellers still live in their little fantasy world where real estate is “money in the bank” and “prices can only go up” but, in spite of the gymnastics and acrobatics banks and governments are performing to keep the party going, the booze is running out and it’s time for a massive and well deserved hangover.

      • Crysangle
        Sep 1, 2018 at 3:42 pm

        You are talking a US boom maybe, or a market boom? As far as EU is concerned all I note is a gentle hissing as it tries not to deflate too fast…

        Nominal I think

        https://fullfact.org/europe/eu-has-shrunk-percentage-world-economy/

        GDP capita
        https://www.ceicdata.com/en/indicator/european-union/gdp-per-capita

        • Crysangle
          Sep 1, 2018 at 3:45 pm

          Not find newer series, but here are 5/10 years of “boom” at negative real gdp for EU.

          https://aneconomicsense.files.wordpress.com/2013/02/europe-gdp-growth-2007q4-to-2012q41.png

        • Sep 1, 2018 at 11:51 pm

          Crysangle,

          You’re citing data from 2012, for individual countries, during the euro debt crisis. You’ve got to let go, dude. This is 2018!

          Since the 2009 financial crisis, the EU’s real GDP has grown about around 2% every year except for the 2012 debt-crisis period.

          The US real GDP growth has averaged just a little over 2% since the Financial Crisis. The EU hasn’t been all that much different except during the 2012-debt crisis situation.

          Select the 10-year chart:
          https://www.ceicdata.com/en/indicator/european-union/real-gdp-growth

        • Unohu
          Sep 3, 2018 at 7:29 pm

          It would seem that the OP did mention a decade long boom though? I am sure Crysangle would counter your reply with further recent data though, unemployment levels, economic and political sentiment for example.

  13. kk
    Sep 1, 2018 at 2:48 am

    Money lost investing overseas – who could possibly have foreseen such a thing?

  14. Victor
    Sep 1, 2018 at 5:22 am

    In which Spanish bank should I keep my money? I’m considering moving to Caixa d’Enginyers now…

    • Crysangle
      Sep 1, 2018 at 1:59 pm

      For a straightforward working bank account the best I know is Bankinter. They have managed to stay out of all the mayhem, good online service, they tend to keep to business they know.

  15. BlueDVR
    Sep 1, 2018 at 12:37 pm

    Another good article Don. I was wondering what banks would be bloodied now that the EM happy music has stopped. Thanks for doing the research. This fiasco appears to be the canary in the coal mine for the interconnected major banks. The common people suffer while the bankers get bailed out. Rinse and repeat. Alex is spot on. Good website Wolf. I visit nearly every day.

  16. George McDuffee
    Sep 1, 2018 at 12:51 pm

    To quote Quark the Farangi “Easy money is frequently the hardest kind.” Is bankers not learning from past debacles a mental illness, or is it a willful ignoring of reality?

    • L Lavery
      Sep 1, 2018 at 2:49 pm

      Banks have learned from the past, they’ve leaned they can get away with it, they will be bailed. That’s reality. Anyone who thinks different is deluded.

  17. EcuadorExpat
    Sep 1, 2018 at 6:37 pm

    It’s all much simpler than you can imagine. Where is the downside for the people making the decisions that have caused all this?

    Expecting humans to make good/moral decisions when there is no penalty for making the decision that enriches and empowers them is like expecting your dog to avoid that fire hydrant. Simply not gonna happen.

    Everybody thinks this is an economic crisis. It’s not, it’s a crisis of morality that has bled into the financial sector. It used to be a matter of personal pride for a banker to not make a bad loan that would cause a loss. A quaint concept, huh?

  18. Cashboy
    Sep 1, 2018 at 11:47 pm

    I was under the impression that the ECB bails out the European banks in trouble and the risk (by way of a kind of country personal gurantee) is passed on to the governments of the EC Members. This means the potential bad debt of the banks are in effect passed on to the tax payers of the EC countries.

    • Crysangle
      Sep 2, 2018 at 9:08 am

      As the whole show is underpinned by the currency itself, via Target2, the debt of a Euro nation is ultimately a liability for every other nation and citizen in Eurozone. It is a perfect example of systemic risk, managed by the ECB ( board of appointed national reps) crossed with whatever word the EU parliament/commission get in edgeways (sort it out, more money etc.) vs. whatever any particular nation is shouting out at ground level. So far they have papered losses and kept the flow going, with minimal write downs and a lot of improvisation. The day a main part of the circuit, a nation for example, calls it quits….. well your guess is as a good as Draghi’s I think, and every other nation, investor and citizen will be guessing also “What does this all add up to now ? ” At the very least it will be fully understood that any country is able to walk from its Euro obligations, and if it has a negative account potentially dumping a big pile of “odious debt” on the EU table if it chooses to unfriend. So far the fear of doing that has outweighed the costs of staying in Euro, but the convenience of tagging the Euro line is not felt by many in Europe, especially those that are constantly being told “how much it benefits them”…who when they look around believe that in sum it hasn’t. But hey, maybe that is all just the spice that makes the currency work, the “If you don’t then I’ll..” , which would explain EUro as everyone holding each other to ransom…say it ain’t so.

  19. WSKJ
    Sep 2, 2018 at 5:45 pm

    excellent post, and following comments, thx DQ and all.

    re comment above (Nick Kelly), I do see deposit insurance as one of the few unquestionably good things for the common man, that has been invented in the modern economic era.

    however, I’m not sure that deposit insurance for everyman requires a Central Bank. Upper case because I refer to the current manifestation of central banks as supremely powerful economic arbiters.

    Further, I think the jury is still out on how much good the zirps and nirps of central banking have done to optimize the current economic cycle. Wolf and commenters have often talked in terms of the hope that an overvalued stock market and other assets (yes, inc. real estate) may come down gently from the overstimulation of the “wealth effect” rather than in one of those crashes. The point being that the central banks have had their way, but there’s a general feeling of instability re the global economy.

  20. nick kelly
    Sep 3, 2018 at 10:40 am

    There is an ongoing thesis around the 2008 crisis, that the key point is the failure to jail a bunch of bankers.

    Actually, the key take- away is that is NOT that the management of say Citi was not arrested (however appropriate that might be) it is that the banking system of the US did not collapse as it did in the 30’s.

    Little anecdote from a book about the 29 Crash:

    “My dad had a hardware store. When the crash hit, he said: ‘About time those Wall Street crooks got it in the neck ‘
    A year later he lost the store.”

    How many of the folks critical of the Fed etc. REALLY believe The Great Depression could happen again? To them.

    After what we call WWI, it was called The Great War.

    But surely these days the government would act to prevent a collapse?
    It DID act, and its action was the only thing preventing Great Depression Two.

    The problem is that most people don’t realize how close we came.
    Vanity Fair has a great piece: ‘The Week Goldman Almost Died’ that
    paints a good picture complete with the Fed’s highest officials sleeping
    at the office, looking rumpled and red-eyed, with a very profane Timothy Geithner screaming at Citi. etc.

    • Crysangle
      Sep 3, 2018 at 11:48 am

      This is still disputed territory…creation of the fed., WW1 which spelt the end of EMU, the run up in lending prior to the crash… there is an interesting audio interview between HGWells and Stalin on the difference/similarity between financed liberalism and communism, was a different time but it gives an idea of how far central planning had/has in mind as possible end, I won’t link it because links go to moderation and can take a while to emerge… one reply from yesterday above seems “stuck”. Short of it is that monetarists seem to stick to one theory, Austrians to another.

  21. Crysangle
    Sep 3, 2018 at 11:52 am

    Oh dear , I’m blacklisted to permanent mod now, even for plain text. Yesterday plain went through even though a linked comment was in mod. , guess I hit some other barrier?

    • Sep 4, 2018 at 12:10 am

      There comes a time to stop arguing. That’s all.

      • Crysangle
        Sep 4, 2018 at 9:50 am

        “Never”!

        Though I understand people are busy, and in running a website a person cannot be drawn into various endless arguments…but sheesh, even donq is bearish on Spain, or at least counter-exuberant. Either way, something is going to shift eventually in the country, political stagnation and “Va mejor!” is not going to ease in some new economic paradigm or sort out the rifts between opposing authority,or in society…after that I’m guessing though, like most people.

        :-)

  22. WSKJ
    Sep 3, 2018 at 4:48 pm

    nick, sure, we give Bernanke et al. plenty of credit for averting Great Depression Two. Many of us have not bemoaned failure to jail big bankers; nonetheless, we do criticize the Fed’s management of the last 10 years of the USA’s economy. We do NOT criticize the crisis management where the goal was to prevent a precipitous plunge off the cliff, but the following years, those following initial stabilization, during which:

    the average middle class citizen, saving for retirement, was confronted with a zero-point-something interest rate on savings, instead of a conservatively expected minimum of 3% to 5% on savings.

    In short, the “wealth effect” has made the wealthy wealthier at the expense of the lower and middle classes. And meanwhile, the super-low interest rates maintained by Fed policies, have inflated the prices of assets, obviously in stocks and real estate.

    No serious economist has argued that the redistribution of wealth has worked to the benefit of the 99% during the last 10 years.

    I submit: the Fed’s labeling of raising interest rates as “normalization”. This would be a misnomer, were they not tacitly admitting that the zirps and nirps were abnormal. Use abnormal methods, and you may get unpredictable long-range results, including perhaps the possibility of a future crash bigger than the one that they forestalled.

    So: I give Bernanke plenty of credit for forestalling the big crisis. The question now- and yet to be determined- is when the real cost comes due, and how big that cost turns out to be. As of now, it still looks to me like a blank check.

    • nick kelly
      Sep 3, 2018 at 8:04 pm

      A good rebuttal and I agree normalizing should have happened faster.

      One point: if a bank is going to offer 5 % ‘minimum’ on savings, it would to charge 6.5 -7 minimum on mortgages. Surely the middle class has benefited from mortgages that are half that.

      • Crysangle
        Sep 4, 2018 at 10:28 am

        On the other hand increased finance of property purchase has allowed competition over purchase to push prices up well beyond the previous traditional house price/earnings ratio. So new buyers basically do not have access unless they join in and leverage up with what often ends up as perpetual debt. Lowering rates, and this is more obvious in variable rate mortgage policy Spain, lets off previous buyers but keeps property prices high for new buyers, who are often the discarded unemployed youth without any means anyway. So much so that in Spain the available housing stock was, and is, kept off market by banks and foreign investment funds, this supported by bailout policy. The foreign funds often turn their purchases into rental, sometimes going as far as buying up state social projects to manage them privately. So it can still be seen as bailing out the wealthy, especially when looked on from the perspective of people who had not yet accessed the housing market.

  23. Cal
    Sep 3, 2018 at 7:43 pm

    Oh well, at least the Spanish high speed trains are really nice, nicer even than those of the French, who can’t even figure out how to restock the toilet paper or provide hot water :-)

    Rode the new rails from Barcelona to Madrid last year; incredibly fast, smooth, great food served at your seat. We raced through hundreds of brand new elegant stations with a few passengers, served by quadruple high speed heavy duty electrified rail. Wow.

    All paid for by private loans to the Spaniards backstopped by the ECB and to be paid for by future poverty and austerity in Spain and the other sucker nations.

    As a U.S. taxpayer, we better not be expected to pay off any of Europe’s loans to “make ‘our’ banks whole” etc.

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