PIGS at the Trough


It was announced today that the world now has porcine in the plural.

Portugal, Ireland, Greece, and now Spain.

After a contentious phone conference among the EU’s muckety-mucks, Spain will receive $125 billion in loans to shore up the capital in their banks.  Spain’s economy minister, Luis de Guindos, announced that the loans (coming from the EFSF, and not from the IMF) will be added to Spain’s bailout fund, then pushed into the failing banking system.  While initial estimates of the size of the Spanish bank-hole were around $60 billion, The EFSF wanted to over-promise in order to bring confidence back into the system.  “Going forward, it will be critical to communicate clearly the strategy for providing a credible backstop for capital shortfalls — a backstop that experience shows it is better to overestimate than underestimate, ” said Ceyla Pazarbasioglu, deputy director of the IMF’s monetary and capital markets department (as well as the winner in the “Impossible to Pronounce Name” contest).

But here’s the thing (or things).  From the beginning, Spain has never been clear (or truthful) on the capital needs of their banks.  Take the recently nationalized Bankia, for example.  On May 21, Bankia was nationalized by Spain to plug the 4.5 billion Euro hole in its capital.  By May 23 that figure had risen to 9 billion Euro.  The following day the number rose to 15 billion Euro.  By the 27th, when all was said and done, the total bailout was 19 billion Euro.  I’d hate to apply that same kind of exponential math to the $60 billion number being thrown around today!

Further, there is the issue of the cajas.  Basically these are Spanish savings and loans.  A bunch of them were failing and subsequently were bundled up to become the bank known as Bankia.  Even more of them, however, are still walking the Spanish landscape like so many George Romero extras at the mall.  Being highly unregulated, these cajas made many, many sub-prime (and worse) loans during the inflating of the Spanish real estate bubble.  This isn’t merely speculation.  To wit, I refer you back to the founding of Bankia.  No clear number that I can find totals the bad loans buried within the cajas.  And if someone knows, they ain’t talkin’.

The bright side to all of this is that Spain, who was effectively cut out of the bond market, can now borrow at sub-market rates from the EFSF.  Also, the lack of IMF participation leaves the American taxpayer out of the lending syndicate.  It’s also likely to be short-term bullish for stocks (and bearish for US bonds).

That is, until the markets decide that bad news is actually… well… bad.

I have to think we’re getting awfully close to that point.

Saving Spain’s banks may have been necessary, but the act of saving them screams to just how bad the European situation has become.

To conclude with a quote from Ben Bernanke at this week’s Congressional hearing, “a trillion here and a trillion there and pretty soon your talking about real money.”


One thought on “PIGS at the Trough

  1. For those curious about the flying pig picture at the top of this post, I present the story from the guy who was there at the time; John May.


    ‘It seemed like a good idea. The Pink Floyd, well known avant-garde electronic ensemble, were looking for a suitable cover photo to grace their latest album “Animals” which features just three tracks called “Duck,” “Pig” and “Sheep.” Some bright photo­grapher suggested building a large inflatable pink pig, which is where our story begins.

    Dateline Thursday, December 2. On a crisp, clear morning a party of assorted photographers and film people were clustered around* the base of Battersea Power station wait­ing for the pig to be launched. Specially constructed by a German firm, Ballon Fabrik, the people responsible for building the Zeppe­lins, the hushed and expectant crowd got ready to toast the pig with pink champagne.

    In the shadows lurked a hired marksman with rifle and dum-dum bullets ready to shoot down the monstrous porker should it get out of control. Alas, the party discovered they did not have enough helium to float their pink prodigy, so everyone drank up and went home.

    Dateline Friday, December 3. On a crisp clear morning a party of assorted photographers and film people returned to witness the second launching attempt. Extra helium had been laid on and gradually the 40 foot pig began to rise majestically into the air. Shutters started clicking furiously and then . . . quelle horreur. . . one of the lines securing the beast broke and pink pig floated up into the blue beyond far out of reach of the frantic humans below.

    First sightings came from an anxi­ous jet pilot who after touchdown at Heathrow, rushed to the control tower to report he had seen a large pink pig floating through the sky. He had to be breathalysed before anyone took his information seriously. Immediately a police helicopter was dispatched on the pig’s trail. It was sighted over London and tracked to 5,000 feet before the helicopter had to give up the chase. Then the Civil Aviation Authority swung into action, warning all pilots that a flying pig was in the vicinity.

    The London Evening News began receiving reports from its readers who claimed to have seen a pink UFO and one reader commented: “This large pink thing flew over my garden. It’s enough to send you on the wagon.” When I spoke to the press man at the CAA he told me “ it was last sighted east of Detling, near Chatham in Kent at 18,000 feet going east before we lost it on our radar.” When I asked him what he thought the ultimate fate of this flying phenome­non was likely to be, he said: “it will either disappear into the upper atmos­phere and dissolve, or continue across the Channel until it reaches Germany where it was made. You could call it a homing pig.” Later reports confirmed the pig had come to ground in Kent. For a while the Pink Floyd’s office slapped an embargo on information regarding the pig’s activities. When they finally .admitted the mishap they also confessed that they were not even sure whether or not they had enough pictures of the pig for the album. Perhaps they just don’t want to know anymore.’

Comments are closed.