According to Reuters “Euro zone finance ministers agreed on Saturday to lend Spain up to 100 billion euros ($125 billion) to shore up its teetering banks and Madrid said it would specify precisely how much it needs once independent audits report in just over a week.”
I mention this because the news has sent securities markets soaring higher in both, Europe and the United States, and frankly I simply don’t understand why. Because although the loan indeed relieves pressure on Spain's top banks, there’s no guarantee it will help to improve that nation’s economy in any way nor solve it’s underlying fiscal problems.
Much like the U.S., Spain suffers in three major areas: a real estate lending bubble burst, a recession followed and the nation endures very high unemployment, all three causing significant losses to its major banks. And as these problems fester, the banks involved slide toward insolvency and thus require bailing out.
However, as we've seen from our own experience regarding bailouts, our government's borrowing continues to grow, approaching 16 trillion dollars, unemployment remains very high at over 8 percent and some economists predict another recession coming while others insist we never really came out of the first one.
So, to repeat my original question, why are investors happily pumping money into U.S. stocks when all that’s really happened is a European nation’s that’s broke has added over a hundred million in debt to the amount it presently has no hope of ever paying back?
In conclusion, I can only state that if Spain were a borrower that came to my organization for financing and told me that the funds were needed to cover the lending mistakes they’d made in the past, and that without the loan they’d fold, I’d refer them to my biggest competitor and pray that those guys do the deal.
That’s it for today folks.
Adios
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