Tuesday, February 26, 2013

Double Standard in Spain for Banks, Citizens

In Spain you are stuck with your mortgage, even after death and the Spanish banks, which were bailed out by their government at cost to the citizens of Spain, don't want to change this outrageous mortgage practice.
Insight: In Spain, banks buck calls for mortgage law reform By Sonya Dowsett MADRID | Tue Feb 26, 2013 8:20am EST http://www.reuters.com/article/2013/02/26/us-spain-mortgage-reform-idUSBRE91P09Q20130226

Majia here: According to the Wall Street Journal, austerity spending cuts in Spain are occurring in part in order to repay emergency liquidity loans from the European Central Bank (Roman and Brat, 2013). 

These liquidity loans were needed during the crisis to backstop private banking losses. Governments gave banks assets during the crisis to backstop losses associated with derivatives exposures. Sovereign debt problems came next, in part because of these liabilities incurred on behalf of private banking.  

So, governments absorbed many of the costs from the risk-seeking and fraud in the financial industry. Governments then cut social spending to meet austere deficit reduction programs in the midst of the biggest economic crisis the 1930s. Austerity imposed as a result of government bailouts to private financial institutions transfers losses to citizens. Spain’s unemployment rate reached 26% as a result of austerity measures.  

Imagine how many people in Spain are struggling to pay mortgages with a 26% unemployment rate, which was caused in significant part by government cuts that were needed after the government debt ballooned because it assumed private banking losses.

Essentially what is occurring is that the citizens of Spain are being held to a different lending standard than the banks. The banks get bailed-out by the citizens, who must suffer austerity as a result. Meanwhile, citizens who payed for the Spanish bank bailouts have no recourse.


David Roman and Ilan Brat (23 January 2012). Spain Jobless Rate Hits 26% Amid Austerity. The Wall Street Journal, p. A14. http://online.wsj.com/article/BT-CO-20130124-715738.html


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