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 The half-life of a bailout has never been shorter.
Just a few days after Spain's banking system was bailed out, Spain's borrowing costs hit a record high.

Spain’s benchmark borrowing costs rose for a fourth day after touching a record yesterday, raising the specter of sovereign bailouts for the government in Madrid and then Italy that would stretch European Union finances to their limit.
   The bond rout wiped out the effects of 1.1 trillion euros ($1.4 trillion) in official funding for euro-region banks that has held yields in check since December. Spain’s 10-year yield is close to the 7 percent level that forced Greece, Ireland and Portugal to seek bailouts. Italy, the second-biggest sovereign borrower in the euro area, may need to seek a rescue within months, said James Nixon, chief European economist at Societe Generale SA (GLE) in London.
 Translated: $1.4 Trillion of bailout money was thrown into the blackhole that is Europe's banking system. Wasted.
   And as for Italy getting a bailout, that is never going to happen. Italy's economy is too big and their debts are too large. Germany would never agree to it. Not in a million years.

 In Berlin, German Chancellor Angela Merkel and her Finnish counterpart, Jyrki Katainen, who both manage AAA rated economies, yesterday told southern European nations to keep implementing the austerity plans that have driven them into recession. They said Europe wasn’t ready for debt sharing through euro bonds.
    Introducing euro bonds “is putting the cart before the horse and absolutely leads us down the wrong road,” Merkel said...
 “The crisis will inevitably roll on to the next domino, and that’s Italy,” Nixon said in a telephone interview. “The southern European economies are effectively in free-fall and market appetite for southern European debt is rapidly drying up. I can’t see anything to turn that dynamic around.”
  Rajoy’s cuts are so deep, equivalent to about 4 percent of last year’s GDP, they are undermining growth and reducing tax revenue, according to economists at Goldman Sachs Group Inc. (GS)
    “The deficit target is close to impossible at this point,” Pavan Wadhwa, global head of interest-rate strategy at JPMorgan Chase & Co. (JPM), said in a telephone interview yesterday. “It’s going to be very hard for Spain to hold on.”
 That pretty well sums up Europe's problems. Spain has cut their budgets deeply in midst of a depression, which further depresses their economy and thus makes budget targets impossible to reach.
  Because of their economic depression no one wants to lend to them, thus they are priced out of the debt markets and can't afford to borrow. It's an impossible situation, and Spain is simply too large to ignore like Greece was.

  Speaking of Greece, their nationwide bank run has kicked into overdrive.

 Daily withdrawals have increased to the upper end of a 100 million-euro ($125 million) to 500 million-euro range this month, one banker said, asking not to be identified because the figures aren’t public. A second banker said the drawdown may have exceeded 700 million euros yesterday.
   At 500 million euros a day, deposit outflows would probably exceed the previous monthly peaks since the outset of the crisis, and wouldn’t be sustainable if they continued over several months, according to one person.
 This one is real simple to understand: if the bank runs keep up the Greek banking system will go under. As in totally vanish. Greece, already in a depression as well, threatens to see a full scale economic collapse.

  Meanwhile, the more forward seeing investors are already targeting Italy.

 The Rome-based Treasury sold the one-year bills at 3.972 percent, 1.63 percentage points more than the 2.34 percent at the previous auction on May 11.
 While yields are still low and affordable, the size of the jump is disturbing. It's evidence of fear in the markets.

  Europe can survive a Greek default and exit from the Euro (what happens in Greece may be another story).
  Europe may or may not be able to handle a much larger Spain default. If the next Spain bailout is as disastrous as the recent one, then Spain is in real trouble.
   Europe can not bail out Italy. That just simply is not going to happen. A default in Spain will likely trigger a panic in Italian bonds, thus Europe's crisis point is very, very near. We are probably talking about weeks now.

  What this means is hard to say because we aren't just talking about economics. This is as much about politics.
   Barring a miracle, Greece will be exiting the Euro before the end of the year. How this plays out is purely a political decision.
   If the governments want to keep the Euro in its present condition, they must find a way to rescue Spain. Will they do that? I'd bet against it.
  If Spain defaults then it seems more than likely that Italy will get priced out of the debt markets as well. That would mean the end of the Euro as we know it.
   I would expect some form of Northern Euro to emerge when the dust is settled. But we'll see an extended depression across southern Europe with extreme, and unpredictable, political fallout.

  That means it is likely there will be another global banking crisis before the November elections.

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Comment Preferences

  •  So does the US. (4+ / 0-)

    Check the May sales numbers that just came out AND April was revised down to negative from a positive.  We are probably already in recession.  ;)

    ~War is Peace~Freedom is Slavery~Ignorance is Strength~ George Orwell "1984"

    by Kristina40 on Wed Jun 13, 2012 at 05:40:46 AM PDT

    •  We have never been (4+ / 0-)
      Recommended by:
      gjohnsit, Jim P, terabytes, Kristina40

      out of "recession" . . . they've just been temporarily doctoring the numbers with ever more debt financed "bailouts".  "The market" is looking "up" again this week on the promise of yet another "QE" (or whatever they're going to call it this time) . . . see?  everything is hunky dory, ignore the unemployed, the rich are doing fine . . .

      The official govt position is that "the economy" is all a matter of "perception" . . . if they tell us (enough times) that everything is OK we'll believe it and it will be OK . . . witness Obama's recent gaff.  In the meantime they take care of their own (and that's not us).

      Fake Left, Drive Right . . . not my idea of a Democrat . . .

      by Deward Hastings on Wed Jun 13, 2012 at 06:43:46 AM PDT

      [ Parent ]

  •  Viva El Banco! (2+ / 0-)
    Recommended by:
    Kristina40, gjohnsit
  •  U.S. banks, despite spin, are up to their necks... (21+ / 0-) this, BIGTIME, as I've noted in posts in mid-February and a few weeks ago.

    It's one thing to talk about direct, sovereign exposure, it's another thing, altogether, when it comes to U.S. investment in German, French, Dutch and British banks, virtually all of which are up to their necks in in Italian and Spanish (and Greek, Irish and Portuguese) sovereign and bank debt.

    In just CDS' counterparty calls, alone, this is going to be exceptionally ugly. Many have said this will make (Lehman, etc.) 2008 look like a day at the beach.

    For more on this, read Satyajit Das' (one of the leading derivatives experts in the world) commentary, accessible and linked in my two posts to which I link, above.

    "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

    by bobswern on Wed Jun 13, 2012 at 05:58:40 AM PDT

    •  From your link... (12+ / 0-)
      A September 2011 report prepared by the Congressional Research Services estimated that American banks’ exposure to Greece, Ireland, Italy, Portugal, and Spain — some of the most heavily indebted euro zone economies — amounted to $641 billion. U.S. banks’ direct exposure to European sovereigns is around $100 billion. The net exposure is probably lower due to hedges.

      Indirect exposure via dealings with banks exposed to Europe is larger. American banks’ exposure to German and French banks greater than $1.2 trillion, about 10% of total U.S. commercial banking assets. U.S. banks also have substantial open derivatives contracts with European banks. (A face value of around $750 billion, although the current value of the positions is much lower.)

      That is a lot of money. It would seem the debt the world has run up over the last decade is simply too large for any entity to absorb. At some point this game of hot potato has to come to an end.

      Growth for the sake of growth is the ideology of the cancer cell. --Edward Abbey

      by ricklewsive on Wed Jun 13, 2012 at 06:35:07 AM PDT

      [ Parent ]

      •  Yep (7+ / 0-)

        US banks have been spinning that they don't have much [direct] exposure to Greek / Spanish debt
        They always fail to mention their exposure via their beloved Credit Default Swaps

        •  CDS are short-term instruments (3+ / 0-)
          Recommended by:
          bobswern, LivesInAShoe, Sparhawk

          ...they're only generally about 5 years.  Some 60% of the 2008 CDS market has been unwound at this point.  I'm sure someone will be caught exposed, but I'm not sure how world-destroying it's going to be.

          The sheer length of time the Eurozone has soldiered on without a default has probably helped.

          •  The world won't be "destroyed".... (7+ / 0-)

   in the U.S., taxpayers will backstop US too-big-to-fail losses; in Europe, pretty much the same thing is going on. Same-old same-old: The one percent's privatization of their profits and socialization of losses...except when the 99% can no longer take it. Then we have social unrest, and things unravel.

            It's the "little things" for us "little people," however, where the respective societies will take their hits. You know? Stuff like: food, jobs, shelter, etc., etc. All of those types of things that the 1% could give a rat's ass about when it comes to the 99%.

            We must have austerity, dontcha' know? As for the 1%, they must maintain their rentier society status quo. So, if a few thousand, a few hundred thousand, a few million, or tens of millions have to suffer and (some will) die in the biggie. After all, we MUST maintain order the status quo.


            "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

            by bobswern on Wed Jun 13, 2012 at 07:50:22 AM PDT

            [ Parent ]

      •  but we can print money (3+ / 0-)
        Recommended by:
        ricklewsive, bobswern, eightlivesleft

        which the individual nations in the European Union can't do.  Nor am I suggesting that printing money resolves many of the systemic problems or doesn't come with costs of its own.

        But the European problem is made more difficult by a common currency and not "in common" problems with their economies.  

        The masters of the universe don't seem to think that experience has anything to offer them.   The period following WWI leading into WWII should have had some hints.  Globalization has profit opportunities, but it is a house of cards when something goes wrong.   Trying to destroy one economy of a trading group to save oneself inevitably turns out to hurt the entire group.  Unregulated greed is bad for economies.   People stuck in depressions, people facing worthless currency,  people who feel cheated by their neighbors.  They are uber dangerous.  Ask the Germans.

  •  Going to the Euro... (2+ / 0-)
    Recommended by:
    GoGoGoEverton, gjohnsit

    ...without establishing a central government like the US, may be the single stupidest and most ignorant decision in the history of Western Civilization.

    •  Especially since (4+ / 0-)
      Recommended by:
      dov12348, Kristina40, Texdude50, DeminNewJ

      The federalist weak central govt thingies was tried here over 200 years ago and spectacularly failed to the point that we had to write  a constitution and centralize our govt.  when you have 13 or 20 separate entities all acting independently and against one another, there is no way a union will last.  

      Right now the biggest obstacle to a true European Union is Merkel.  Either she changes tune, or all of Europe will descend into chaos, Germany included.

      This is your world These are your people You can live for yourself today Or help build tomorrow for everyone -8.75, -8.00

      by DisNoir36 on Wed Jun 13, 2012 at 06:16:14 AM PDT

      [ Parent ]

      •  Yep. But WTF were they thinking? (2+ / 0-)
        Recommended by:
        Kristina40, Texdude50

        That the Euro would solve everything with all the countries voluntarily in agreement, sitting around the campfire singing Kumbaya?

        •  I think they were trying to mitigate the tribalism (7+ / 0-)

          which they are speeding toward right now.

        •  Actually they are busy figuring (9+ / 0-)

          out how to make this work out best for the bankers. The people are not of any importance or consideration at this point in time. Always remember that, it helps make sense of things.

          ~War is Peace~Freedom is Slavery~Ignorance is Strength~ George Orwell "1984"

          by Kristina40 on Wed Jun 13, 2012 at 06:29:50 AM PDT

          [ Parent ]

        •  They were thinking (5+ / 0-)
          Recommended by:
          skillet, Texdude50, jbob, dov12348, Egalitare

          "one step at a time" . . . currency union, regulatory union, open boarders, free trade . . . political union would naturally follow (and if it didn't it would no longer matter).

          They forgot about the parasites, and the advantage they would take of all that . . .

          Fake Left, Drive Right . . . not my idea of a Democrat . . .

          by Deward Hastings on Wed Jun 13, 2012 at 06:30:38 AM PDT

          [ Parent ]

        •  There's a pretty clear history, stretching (2+ / 0-)
          Recommended by:
          gjohnsit, JVolvo

          back to before WWI of many of the upper classes wishing to create a united Europe.

          After WWII the push became stronger, as Germany had just proven that one route (military conquest) just wasn't going to happen.

          The formation of the European Economic Community (aka Common Market) and the like was seen as first steps.

          The creation of a common currency was thought of as a way to ease into political union. And one where national democratic self-rule would be subsumed to rule by upper class twits. Er, experts.

          On one side, the European Union was positively intended as a way to transcend the nationalism/tribalism which has caused misery after misery in Europe. On the negative side, it was intended as a way to have the Optimates direct the lives of the peasants, of course, for their own good.

          The Eurocrats mistake, I think, was in trying to force the pace. If they had introduced the Euro, adopted trade/pricing policies which built up the eastern and southern states over a period of 30 or 50 years before taking them into the Euro... it might well have worked.

          But they wanted "Union Immediately" and it's backfired on them.

          The Internet is just the tail of the Corporate Media dog.

          by Jim P on Wed Jun 13, 2012 at 10:01:03 AM PDT

          [ Parent ]

      •  a true European Union? (0+ / 0-)

        Meaning a Union where Germany keeps paying for everyone else's problems? Germany should secede from this fraudulent Union.

        •  Ah yes poor Germany (1+ / 0-)
          Recommended by:

          Spoken just like a republican.  'damn worthless Europeans.  What good are they?  We export our goods and services to them, making a ton of money off them,  our banks lend them money, making a ton of money off them.  Now they're poor and broke and want our help?  Pfft!!!'

          If course what you fail to recognize is that Germany on its own will collapse as well.  It needs the rest of Europe as much as the rest of Europe needs Germany.  Germany exports to those countries and part if the reason Germany is not doing so hot is because the other nations can no longer afford German exports.  The parasite is killing the host and it along with it.  

          Not to mention that much of the damage inflicted on European nations was a direct result of the greed of German banks.  The only reason Merkel is balking at measures that would really help is because she's protecting those bankers.  

          But hey let Germany secede and destroy Europe.  It's not like they started 2 wars and destroyed Europe or anything.  Oh wait they did.  But hey that was like 70 and 100 years ago.  I mean who remembers that far back anyway.  

          This is your world These are your people You can live for yourself today Or help build tomorrow for everyone -8.75, -8.00

          by DisNoir36 on Wed Jun 13, 2012 at 10:01:45 AM PDT

          [ Parent ]

        •  However, if Germany secedes, (0+ / 0-)

          it makes their own currency / exports far higher priced than everyone elses, which they certainly don't want and can't afford right now.

          "I can't do it by myself. No president can. Remember: Change doesn't happen from the top. It happens because of you." B Obama, 2008

          by nzanne on Wed Jun 13, 2012 at 11:15:54 AM PDT

          [ Parent ]

          •  German manufacturing is thriving (0+ / 0-)

            thanks to German owned factories in Poland and other eastern European countries using the cheaper labor those countries have on offer.

            Thank Jan, Stanislaus and Maria in Poland for the German economic miracle.

            Guess who will get 50% shorter hours if German exports fall 50%.

  •  Ha, looks like the Euro could do what Hitler and (1+ / 0-)
    Recommended by:

    the Kaiser never could accomplish. And by ha I mean "fuck" for most of continental Europe.

  •  Deja Vu all over again (6+ / 0-)
    Recommended by:
    ricklewsive, MGross, katiec, gjohnsit, Jim P, JVolvo

    via NYTimes
    Bailout in Spain Leaves Taxpayers Liable for the Cost

    On Tuesday, Spain’s long-term borrowing costs soared to their highest level since the country joined the euro zone. Investors have apparently concluded that the rescue is potentially a much better deal for the banks and their shareholders than for the government, its taxpayers and bondholders.

    Many details of the banking bailout remain to be resolved — including which of Europe’s rescue funds will supply the money. The one thing that is clear is that even though the money will be funneled to the banks, the government in Madrid will ultimately be responsible for guaranteeing that $125 billion, adding to the Spanish government’s already rising debt load.

    •  Why in the hell do we keep giving money to banks? (5+ / 0-)

      It just never works out well, either the vultures descend and eat it in the form of higher borrowing costs or the banks don't use it as intended.  

    •  That pretty much sums it up (3+ / 0-)
      Recommended by:
      Jim P, northsylvania, beforedawn
      The one thing that is clear is that even though the money will be funneled to the banks, the government in Madrid will ultimately be responsible for guaranteeing that $125 billion, adding to the Spanish government’s already rising debt load.
       The money might go the the Spanish banks, but they will use it to pay back their loans to German and French banks. Al this at the cost of Spanish taxpayers.
         It was the same story with the Greek bailouts.

      Callate o despertaras la izquirda! - protest sign in Spain

      by gjohnsit on Wed Jun 13, 2012 at 08:58:40 AM PDT

      [ Parent ]

      •  I guess I don't see the alternatives (1+ / 0-)
        Recommended by:

        Germany is not, ultimately, going to want to be responsible for the Spanish debt.  

        Maybe I don't understand the complexities, but it seems to me that the basic problem is one currency across separate and independent entities that don't feel tied to, or responsible for, each other's financial problems.  

        •  When a German or French bank (4+ / 0-)

          lends money to a Spanish bank or developer, or to a Greek government, they enter into risk. Whether they want to or not they are then partly responsible for the debt. If the banks did not do their due diligence then their part of the deal is high risk.

          This "capitalism" thing seems to have morphed into the idea that those who control money are never responsible for anything. The "other guy" is the one who has to take the losses in all circumstances.

          Growth for the sake of growth is the ideology of the cancer cell. --Edward Abbey

          by ricklewsive on Wed Jun 13, 2012 at 09:40:53 AM PDT

          [ Parent ]

        •  The core problem is Banks are bankrupt. (2+ / 0-)
          Recommended by:
          eightlivesleft, gjohnsit

          If an honest accounting were taken, it would be plain that the accumulated debt of the world's institutions could not be paid off in anyone's lifetime.

          Rather than face relative poverty (having to, say, give up 2 of the great cars, fire a chef on one of the yachts, give up one of the helicopters, and sell three of the properties) the bankers have decided to hire the politicians to help them steal whatever non-banker people have left to them.

          So at least the appearance of solvency is there for them.

          The only possible survivable route is a one-time-only debt write-off for the people, the nations, the institutions, and go forward from there. The alternates are perpetual debt and "austerity" for all humanity, or the disappearance of a large part of it.

          The Internet is just the tail of the Corporate Media dog.

          by Jim P on Wed Jun 13, 2012 at 10:08:32 AM PDT

          [ Parent ]

        •  the alternative is (0+ / 0-)

          seize the assets of the bankrupt banks and sell them off to the solvent banks (yes there are some) that have prudently managed their assets.  Use the proceeds to pay off the failed banks' depositors.  If there is nothing left for the stockholders, or unsecured lenders, tough luck.

      •  yeah (2+ / 0-)
        Recommended by:
        gjohnsit, northsylvania

        These bailouts are simply a pass-through of money to foreign banks, similar to the bailout of AIG, which was a pass-through of money to Goldman Sachs.  The representation that any country is being bailed out isn't true.

        I don't know how much longer democracy is going to survive in some of these places.  If the Syriza candidate wins the election in Greece, I believe he will be removed by force.

        A terrible beauty is born. --W.B. Yeats

        by eightlivesleft on Wed Jun 13, 2012 at 10:29:17 AM PDT

        [ Parent ]

  •  The Spanish bailout is a sham (11+ / 0-)

    ..or should I have said 'scam'.  Where is the 100bn euros coming from?  Not the IMF.  Not the EFSF.  Not the ECB, but from something called the European Stability
    Mechanism (ESM). (It seems that part of the strategy in dealing with this European bank crisis is to flood the debate with agencies best known by their initials).

    The problem with the ESM is..wait for doesn't even exist yet.  It's part of the new treaty that was drawn up a few months ago, and, to date, has only been ratified by 4 of the Eurozone's 17 members.  Germany is not one of the four.

    It gets better.  The idea of the ESM is that countries would contribute to it in proportion to the size of their economies.  So, Spain is expected to contribute 11% of the fund, Italy 17%, Greece around 2%.  What could possibly go wrong with such a plan?  

    •  LOL! from a non existing fund.... (3+ / 0-)

      It was a news event in vain hopes of masking the market realities.  Yield spreads on Spanish and Italian STILL continue to march higher and higher.

      Though I was kind of surprised that the "relief rally" lasted 30 hours.   I thought it would have been comparable to the Facebook IPO.   Not all of us are that stupid......

    •  Should also add.....remember pre 2008 crisis... (4+ / 0-)

      When then Treasury Sec'y Paulson proposed a fund @80 billion for dealing with toxic CDO's and related.  I laughed so loudly, scared some people at the restaurant.

      Ok Skippy....who's going to pledge their good assets to pay the bad crap at another bank?

      Sort of like they're furiously trying that "bad bank" garbage in this crisis.......again.....just like 2008.

      Ok create a bad bank that will take the bad assets of the other banks, making them "good".  Who's going to run a bad bank?  Who is going to deposit their money in a bad bank?  Wha is the underlying function of a bank Skippy?  

  •  Nero/Merkel still clinging to the illusion that... (2+ / 0-)
    Recommended by:
    gjohnsit, JVolvo

    Germany can ride serenely on the shoulders of the Southern European peasants as Greece (then Spain, then Italy...and then France?) suffer tatastrophic banking collapses and crashing economies. But there will be no one left to buy all those Bimmers piling up on the docks at Hamburg.

    Germany is chained at the ankle to the reeking economic corpse of Southern Europe. Sorry, Angela. No way to get away from the stink.

  •  How many lives does this (2+ / 0-)
    Recommended by:
    gjohnsit, northsylvania

    cluster have? 9? 90? At some point I hope the whole mess just goes ahead and does whatever it's going to so we can begin to move on and try to get things going again.

    Oh, and we should be taking notes so we can see and avoid such things in the future.

    Moderation in most things.

    by billmosby on Wed Jun 13, 2012 at 12:04:57 PM PDT

  •  Thirty years ago (0+ / 0-)

    the US government paid about 12% to borrow money.

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