Spanish practices....

I have been trying to figure out just what the hell is going on in Spain. Greece is a side-show. It only has a midget economy, and everybody knows that, after years of living high on the hog at others’ expense, the game is up. Nemesis beckons.

Spain is different – but in some ways the same.

It is different in size. It has a large industrial economy. And it has even larger debts.

It arrived at the present impasse because, like Ireland, it embarked on a madcap building boom off the back of cheap money. Unlike Ireland, it helped destroy its expat market through corruption and dispossessions without compensation. Like Greece, it had a bloated public sector, excessively generous pension benefits and early retirement, and a ‘jobs for life’ regime that made it almost impossible to get rid of workers.

But its sovereign debt, although high, was at least not critical. Its GDP/ debt ratio is better than Britain’s. Its problem was with its regional banks, not the big beasts like Santander, but the relative tiddlers, the equivalent of the German landesbanken (which are also in trouble; we don’t hear much about them. But we will).

So the question is: why not let them fail? They would soon have been snapped up by predators.

Instead, Spain goes cap-in-hand to Brussels and gets a €100 bn bail-out without, as far as we know, any of the draconian conditions applied against Ireland.

The money is not being paid to the affected banks, but to the Spanish Treasury. This all becomes sovereign preferred debt which pushes Spain into the danger level. Rates have hit 7% which is unsustainable. The Treasury than allocates the dosh to the banks which then buy Government bonds. Round and round it goes.

And where is the asset backing?

At which point all becomes clear.

There is no money. It’s all funny money.

It’s the world’s biggest Ponzi scheme.