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Why Spain's Bailout Turned Bust

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June 11, 2012 – Comments (5)

Here is my VERY short commentary on why the Spanish bailout turned to a bust.  After seeking a bailout, Greece then required bondholders to take a huge cut and the EU/IMF agreed.  Would you want to be a bondholder of Spanish bonds when they may seek the same resolution.

MORALE HAZARD!

5 Comments – Post Your Own

#1) On June 11, 2012 at 2:41 PM, ryanalexanderson (< 20) wrote:

Hmm...you've intrigued me.

The common expression, "moral hazard", where there is no punishment for the wicked and the risky, which are further emboldened to take more risks.

But spelled "morale hazard", indicates that there is a lack of morale among bondholders, and things will fail as a result. 

Both apply. So...typo? Or clever ironic commentary? 

 

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#2) On June 11, 2012 at 2:43 PM, rofgile (99.31) wrote:

Spain is not Greece.

Greece = government bankrupt due to bad fiscal management and lying about the state of finances to get into EU.

Spain = madrid government vs states.  Housing boom and crash, with independent banks that need bailouts.  Banks under widely different management and regulation.   

-> Spain is also an entreprenear-rich, young country vs. Greece being a welfare state.

I think the Spanish situation is very similar to the US situation 2009-present. The same solution (bank bailouts, low interest) should be applied to Spain.  I hope they got a large enough bailout, but other than that I would have confidence.  

It would be nice if the EU had a centralized bank-insurance program like our FICA. 

 -Rof 

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#3) On June 11, 2012 at 2:44 PM, rofgile (99.31) wrote:

I didn't catch that in #1.  Morale hazard... I like that.

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#4) On June 11, 2012 at 3:13 PM, IBDvalueinvestin (99.68) wrote:

$100B Euro's is not gonna fix Spain.

Its like putting a bandaid when you need heart surgery instead.

 http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2012/06/11/bloomberg_articlesM5FE300YHQ0Y01-M5GSL.DTL

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#5) On June 13, 2012 at 6:44 PM, devoish (98.37) wrote:

Spain should default and teach the investment community some risk management. So should Greece. Once that debt and interest payment is off the books, they will look good to lenders again. If not, they won't get into debt trouble again.

Right now the only discussion is about who will suffer losses.

Those who have the least - austerity.

Those who have more  - investors. 

Those who get the big paychecks - financial executives.

My short term money is on the executives who are advising Governments to cut services without raising top bracket income tax because paying themselves is the only sustainable course for them.

In the mean time I will do my best to invest in lowering my cost of living.

Best wishes 

Steven 

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