"On May 31, Spain-based journalist Daniel Estulin, citing high-level sources at [Banco Santander ($STD)], told the Telediario program of Spanish business channel Intereconomia that Santander has 800 billion euros in bad debts, and that Botin has ordered a firesale of foreign assets to plug the hole. According to Estulin's source, Botin was recently forced to accept 3% of face value in order to unload toxic assets on NY's Fortress hedge fund."
—Panic Spreads; G-7 Finance Ministers Hold Emergency Meeting on Spain (LPAC, 6/6/2012)
Just to be clear, today's news that Euro Zone Leaders Agree to Lend Spain Up to $125 Billion probably falls well short of what really is needed to pay for last week's stock market rally. Why it was only a few short weeks ago that hapless bailout junkies were celebrating the fact half of Spain's 2012 funding needs were already satisfied. But a few weeks (days?) more and reality reflective of the euro-zone's dire condition could lead to the [largely unfunded] emergency facilities (EFSF, ESM) being rapidly drained, and then what? Spain adds but one more EMU country no longer contributing to these facilities, thus increasing the burden on everyone else. Nothing like a "bailout" to bolster a rapidly growing mass strike movement in Europe.
Already in this opening salvo of Act IV of the EMU's disintegration, "Finland said that if money came from the EFSF, it would want collateral." Maybe the mummified remains of General Franco to be put on display at ECB headquarters in Frankfurt? If the whole purpose of bailout is to restore confidence, then obviously Spain's "bailout" (better called a payday loan) already is a failure.
You also have to wonder how the relatively generous terms being given Spain in this deal are sitting in Greece, Ireland and Portugal. And what monkey wrench might Germany's hardliners throw into the mix over coming days? Merkel's domestic political position already is weakened. Might she be only increasingly marginalized from now until Germany's 2013 federal elections? Just how Greeks are not further motivated to bolt from the euro on account of this deal with Spain altogether escapes the imagination. Greek resentment toward Germany has got to be off the charts at this point. The euro-zone's emergency lending facilities plainly are at risk of being all the more quickly drained with a Greek exit from the EMU following on commitments today to prop up Spain's banking system absent the fascist ECB's tough love demanding "reform" (read: "death").
Per the impact of Spain's "rescue" on financial markets, Doug Noland concludes this week's Credit Bubble Bulletin update titled, "Pavlovian," by asking "To what extent will the sophisticated operators now use generous market accommodation to head for the exits?" Well, first of all, I would argue this the general state of affairs going into last year's (2011) peak. Strong hands already have distributed their holdings to weak. We have been over this already. Yet in the matter of a predominately speculative trade conducted with full knowledge of a burning fuse leading to the trans-Atlantic banking system's implosion, I am in complete agreement with Noland. In fact I would argue this week's rally likely the sort of affair whose very purpose intends to make continued movement toward the exits as orderly as can possibly be at this moment. Add an insufficient payday loan to Spain and the less sophisticated sucker is likely to remain frozen for a while longer still. Just what the doctor ordered for weak hands hooked on fraud.
Any "Pavlovian" response to fantasy that, Spain can be bailed out could meet the wrath of "sophisticated operators" once what appears overhead resistance is reached. Yet questions raised here (as well as others) could generate more "uncertainty" than today's agreed "bailout" of Spain resolve, which end might serve to buy a bit more time for those who are trapped, while a battering ram venturing the unobtainable (German acquiescence to reliving its Weimar experience) is given a workout. So, any follow-through to this week's reversal could prove fairly choppy and indecisive in the lead up to the market's anticipated (and still imminent) collapse.
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