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The Pain in Spain Is Insane

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  • The Pain in Spain Is Insane

    Taipan Daily: The Pain in Spain Is Insane
    by Justice Litle, Editorial Director, Taipan Publishing Group

    Manolo Marbán, of Toledo, Spain, has reason to cry these days.
    "I will be working for the bank for the rest of my life," the 59-year-old Mr. Marbán told The New York Times with tears in his eyes. "I will never own anything -- not even a car."
    Jaime Abelardo, an Ecuadorian immigrant, came to Barcelona in 1999. He later brought his family, thinking a new life was to be had in Spain. And now? Mr. Abelardo owes 260,000 euros to the bank -- including 77,000 euros in court costs -- which he will never be able to repay. "I'm thinking about shooting myself," he says.
    Mario Gozálvez, a Spanish truck driver, used his young daughter (23 years old) as a guarantor for the home equity loan taken out on his Barcelona apartment. A mere formality, he assumed, that he might have the funds to buy a new truck. But now, Mr. Gozálvez' mistake means his daughter is indebted to the banks, quite possibly for life.
    What great mistake did these men make? They bought or borrowed against real estate, during a housing boom, in a country where bankruptcy does not apply. When the situation turned south, the option to walk away turned out not to exist.
    If you lose your house in Spain, you do not lose your obligation to the note. Instead, you are thrown into a sort of modern-day debtors' prison. The debt stays with you. And if the bank accrues court costs? Those are added to what you owe. Huge penalties? Those come also. And the banks can charge as much as 18% or 19% interest.
    "Effectively, you can never get rid of this debt," a human rights lawyer reports. "Other countries in the European Union also have personal debt mortgages, but you can go to the courts and get relief. Not in Spain."
    Last week we touched on the meaning of le mort gage -- "engagement until death." In Spain it's for real.

    Foolish and Disgusting

    Spain's policy is immoral and idiotic. There is a reason why modern capitalism has done away with debtors' prisons -- an idea redolent of Charles Dickens novels and the old English spelling of "gaol" as a stand-in for jail.
    For the Spanish government, what better way to frighten people out of their minds than to demonstrate the hell that awaits any individual who, possibly through no fault of their own, loses their primary source of income (and thus their means of paying off a mortgage note).
    And what better way to make an absolute moral mockery of the entire borrowing and lending system. Even as an estimated 1.4 million Spaniards stare down the possibility of foreclosure -- and debt burdens for life -- the country's banks inch ever closer to a sovereign-funded rescue.
    By some estimates, as much as 20% of Spain's housing stock could soon become "upside down"... making 1 out of 5 Spanish homeowners a potential bank slave. And yet Europe's monetary wizards scramble and scrape to find ways to "save" (i.e. bail out) Europe's shoddy, rotten banks on the whole.
    Makes you sick, doesn't it?

    A Necessary Remedy

    Governments just don't get it. Capitalism needs bankruptcy to function, and politicians miss the point both coming and going.
    On the debtor side, bankruptcy is necessary in respect to giving individuals a "fresh start." Otherwise, the chances of making a bad mistake, or simply getting hit by bad luck, are just too great. When a calculated risk becomes a life sentence in the event of failure, the dynamic business creation engine dies.
    Similarly, when a large portion of the population are turned into post-boom serfs -- permanent servants to the banks -- their willingness to spend, to create, or to otherwise contribute economically beyond subsistence level simply disappears.
    On the creditor side, the risk of bankruptcy is necessary to prevent moral hazard and discourage shoddy lending practices. Coddled creditors are dumb creditors. An investor who thinks there is no risk of losing his money is more likely to do something stupid with that money. This, in large part, is why the global financial crisis happened in the first place. On some level, the banksters expected to get bailed out. (It's worked every time thus far.)
    Worse still, Spain's no-relief policy turns the Spanish banking system into a sort of financial mafia shakedown racket. The Spanish lenders can't lose in the same way that Tony Soprano can't lose. If you pay them back, they win. And if you don't pay them back, they own you... and possibly your family too... forever.
    This way of running things seems about as moral as taking out life insurance on homeless people, then working them to death in the hot sun. If they live, great. If they die, great.
    And Europeans say American capitalism is harsh!

    The Eurozone Is still Doomed

    Governments can do epically dumb things. It is hard to explain just how dumb. On some level the dumbness must simply be experienced.
    In this respect, and for this reason, the eurozone is still doomed. The euro, at least in its current form, is a dead currency walking. The world is simply fixated on the dollar at moment and has not woken up to this reality yet.
    John Taylor, the head of FX Concepts, the largest currency trading hedge fund in the world, believes the euro could hit parity (fall to $1.00) next year, a decline of roughly 30% from current levels. Your humble editor agrees.
    The divide between Germany -- the financial powerhouse of Europe -- and the indebted peripheral countries is great and growing. Meanwhile, Europe's politicians are smoking banana peels, biding their time in support of fantastically destructive policies (like Spain's) that make no sense, in support of a union that was idealism-driven rather than logic-driven in the first place.
    A crack-up is coming.

    Warm Regards,