http://docs.google.com/present/edit?id=0AXWaAwcsC6kbZGYydGcyeGtfMzNnZjd6ZnFmcg&hl=en

Just one detail:

“Compare with the US where most of the loans are non-recourse and you’ve got the same problem.”

You may be right that the bankruptcy law wasn’t an important part of the thinking – although as I say, Caruana explicitly, and cynically in my view, referred to it – but I can’t agree that the US has the same scale of problem Spain has – proportionately Spain is a much, much bigger deal.

Of course, people are really shafted in Spain as they can never escape paying back the ol’ mortgage for the rest of their lives.

OK, thanks for the presentation. It is excellent. I will cover it this morning, it ties in completely with what Jonathan just did at Variant Perception.

Also I see much better were you are coming from now. Of course, I agree the banks are not without blame. Personally I hold Jaime Caruana pretty responsible. Basically, having a full recovery bankruptcy law in place, and a tradition among young people of not emigranting (the Spanish family ties) was surely on of the reasons the banks were prepared to engage in such reckless behaviour, as he pointed out in a speech (which I can no longer find) in 2006, where he said that property was overvalued by 30% but risks to the banking sector were low for the reason just mention.

One of the first things that will be needed is a new personal bankruptcy law to get the young people out from under all that debt before they HAVE to emigrate.

Anyway, I think we should talk. Our analyses are very similar. Mail me at ed.hugh@gmail.com

Cheers,

Edward

That is a great summary! Re Spanish banks dubious advising of clients (= out and out selling), the latest scam has been to sell prefeence shares as to retail clients as if they were deposits. Someone (the OCU?) should be taking out legal action about this.

I´m getting started with blogs, here is my first attempt at attaching/linking presentations.

http://docs.google.com/present/edit?id=0AXWaAwcsC6kbZGYydGcyeGtfMGdzNWIzZmZw&hl=en

I completely agree with you that private debt HAS been the problem, but as you rightly point out, this private debt has created a huge level of national indebtedness, which of course the private sector now cannot pay. So the debt simply gets transfered over to the public debt. That is how things work.

Look at Latvia, in 2007 Gross debt to GDP was around 12% (ie virtually nothing), then banks households and corporates went bankrupt, and now Gross debt to GDP is predicted at 80% in 2010 and rising – ie they cannot enter the euro due to this problem. I agree completely about Spain’s CA deficit. Spain needs to pay 3 billion euros a month on the income account just to pay the interest.

“More important than the absolute level of debt is the absolute level of deficit; here Spain is second behind the US. This deficit has been financed by a pretty novel and opaque system: Spanish banks have tapped the Euro capital markets (born 1 Jan 1998) via securitisations, bonds, cedulas and other instruments.”

I absolutely agree on all this, see my Spain economy watch blog, and my post (identified in the top of the sidebar) on cedulas hipotecarias.

I don’t entirely agree with this:

“The main culprits of this drama, i.e. the govt and the banks, are hoping that the deposit to loan ratio can hopefully be reestablished closer to 1 in the next few years.”

The main culrpits here (although they were obviously aided and abetted along the way by a motley assortment of banks, builders,developers etc), were all the Spanish people who told me incessantly that property prices could never come down in Spain, and bought flats, houses, stud farms whatever and remortgaged and remortaged furiously to buy SUVs and 4 wheel drives, on the back of this mistaken new religion.

I think the Spanish citizenry is in complete denial about its own part of the responsibility here, and while there are many others obviously to blame for this huge tragedy, the first thing that has to happen is that people who are bankrupt have to recognise that the buck stops where it stops, and not try to shift the blame onto others.

I’m afraid you can’t post presentations directly onto a blog. Find a link to it, or upload it yourself at eg, Google docs, and then post a link.