Imagine if a few years ago American banks sold its American clients subprime mortgage bonds rather than CDs with the banks claiming that these were safe investments with the tacit support of the federal government. Now imagine the reaction if said government told these risk-averse retail investors that you won’t be getting your money back.
Spain has screwed their citizens in the bank bailout deal. Keep in mind that senior bondholders will be paid in full and even equity stakes have not been totally wiped out. Additionally, Spain is raising taxes and cutting spending. All of these factors will drive Spain into a Greek-style depression.
Spanish bond yields dropped like a stone today. This was a Pavlovian reaction to the announcement of more austerity. Fundamentally, Spain is getting worse by the day.