ESM Will Supply Whatever Money Is Needed In Euroland

Posted at 10:58 AM (CST) by & filed under General Editorial.

My Dear Extended Family,

The European Stabilization Mechanism Treaty due to pass in July this year will take care of whatever money is required by Spain or any other Euroland nations for effective bailout. It starts with $700 billion in capitalization and has an open call for additional capital infusion with no limit placed on these calls and no further agreements required.

New additional capitalization called on by this treaty is mandatory, not elective and therefore will go to infinity.

The member nations have 7 days to pay up when ordered to by the management of the EMS who are protected against any form of attack or litigation to legislation. It will be backed by the US Fed via swaps while the US publicly denies it is adding any capital to the IMF or this new entity, ESM.

It is the mechanism for QE to infinity in Europe.

QE to infinity, properly understood, is debt monetization on steroids. Denials will be legion, but this debt monetization on steroids will not and cannot be avoided.

The advent of the ESM Treaty establishing the European Stabilization Mechanism is economically Earth shaking and recognized by almost no one out there. It cannot be otherwise, it cannot be avoided. It can de denied but it will occur.


Cost of Spain’s Housing Bust Could Force a Bailout
Published: April 24, 2012

By any measure, the Spanish real estate boom was one of the headiest ever. Spurred by record-low interest rates, Spaniards piled into holiday villas along the Costa Brava, gaudy apartments in Madrid and millions of starter homes throughout the country.

Marta Afuera Pons is juggling two mortgages — one on her house, another on an investment property that went sour — and is about 350,000 euros in debt. She is trying to persuade her lender, the savings banks BMN, to take back the mortgage and the property.

But since the frenzy drove Spanish home prices to a peak in 2007, they have fallen by at least one-fourth, and the bottom seems nowhere in sight. As Spain endures its second recession in three years and unemployment nears 25 percent, an increasing number of debt-heavy Spaniards can no longer meet monthly payments on the mortgages that their banks were all too eager to give.

With a rising portion of Spain’s 663 billion euros, or $876 billion, in home mortgages at risk of default, many economists say it is only a matter of time before some of Spain’s biggest banks will need a bailout. And the Spanish government, staggering under its own debt and budget deficit burdens, may not have the money to come to the rescue.

The implications of all this for the rest of Europe were a prime topic at last weekend’s meetings of the International Monetary Fund and the World Bank in Washington. The big fear is that the European Union will need to step in with a Spanish bailout — one much bigger than any of those already extended to Ireland, Greece and Portugal.

“Retail mortgages are set to become the Achilles’ heel of the Spanish banking system,” said Edward Hugh, a Barcelona-based economist and blogger who has closely studied the issue.

Two years ago, when Ireland’s banks succumbed to a real estate bust, the Irish government’s rescue effort eventually forced it to take 80 billion euros from the European Union and I.M.F. Analysts say that a similar rescue for Spain would cost at least 200 billion euros, or $264 billion — nearly double the 110 billion euros given to Greece, whose debt travails had long raised the question of which European economy might be next to require a rescue.

Last week, the Spanish central bank reported that the nation’s nonperforming loans had hit the highest level since 1994. And while the government’s official estimate of mortgages going unpaid is only 3 percent, Mr. Hugh and other economists say the actual numbers are probably much higher — in double digits for some lenders.

The real estate boom, while it lasted, gave Spain the world’s highest rate of homeownership — with more than 8 of every 10 Spanish households owning the places they lived. But lenders are now depending on people like Marta Afuera Pons, who is juggling two mortgages — one on her house, another on an investment property that went sour — and is about 350,000 euros in debt.

In late 2010, Ms. Afuera Pons, who had just lost her job as a social security administrator, stopped making payments on the mortgage of 132,000 euros that she and the man she lived with had taken out for their home in Tordera, near Barcelona.

Separately, they still owe 185,000 euros to the same bank after receiving further financing in 2007 to buy a house that was never built, because the developer went bankrupt a year later.

Like many Spaniards, Ms. Afuera Pons is hitting the two-year limit for receiving unemployment benefits. This month, she will receive her last 1,100-euro unemployment check.

Finding no buyers for her Tordera house, Ms. Afuera Pons says she is trying to persuade her lender, the savings banks BMN, to take back the mortgage and the property. She would then probably move in with her mother, because her partner left last summer for Brazil and is now married there.

Ms. Afuera Pons says she accepts blame for her financial disaster but considers her lender, BMN, the enabler. She has joined an association of mortgage holders that has been staging demonstrations to demand relief.

“It’s now easy to say that wanting this new house was a risky investment, but the bank fully supported this idea,” she said. “Everybody lost any sense of caution, starting with the banks.”

BMN said it would not comment on Ms. Afuera Pons’s specific case. But a spokesman, Miguel Portilla, said that the bank’s policy was “always to try to find every way possible to avoid throwing people out of their home and on to the street.”

Real estate experts in Spain estimated that about 300,000 properties have been repossessed since the onset of the financial crisis in 2007. Unwilling to take losses, banks have mainly held onto these homes. But now, facing pressure to raise more capital, banks are rushing to unload them, offering discounts of up to 60 percent.

Many investors also see a warning signal in the deteriorating performance of Spain’s 100 billion euro mortgage-backed securities market.