Monday, May 28, 2012

Investors have lost confidence in Spain

According to a Telegraph report, Nicholas Spiro, at Spiro Sovereign Strategy observed
The Spanish crisis has reached a tipping point. Investors have lost confidence in Spain. 
The botched bail-out of Bankia was the trigger for this morning's abrupt sell-off - a sell-off that threatens to turn into a rout unless bold and decisive measures are swiftly taken by eurozone policymakers to shore up the bloc's endangered sovereigns and their banks. 
Spain has become the focal point for market anxiety about the pernicious links between distressed sovereigns and their banks. 
Although Spain's banking woes are much less severe than Ireland's, the same negative feedback loop that felled Ireland in 2010 is undermining confidence in Spain. 
What is most concerning, and what necessitates speedy action on the part of the eurozone, is that the Rajoy government is stuck in a rut. It is in a 'damned if it does and damned if it doesn't situation'.
Regular readers know that adoption of the Swedish model with ultra transparency is the only solution that successfully addresses all of the concerns expressed by Mr. Spiro.

It separates sovereigns from their banks as future retained earnings become the source for rebuilding the banks' book equity levels.

It ends the undermining of confidence in Spain by ending the need for Spain's governments to make statements about how bad the situation with its banks is and risk having these statements being shown as false within days.  With ultra transparency, the market participants assess exactly what is going on with the banks for themselves.

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