Since I began covering the Eurocrisis, I have noticed that European officials always wait until the weekend to release bad news. Had this news hit the wire during the week, it could have caused a swoon. The plan with bad news releases is to wait until the weekend so that the sundry bureaucrats, banksters and politicians could spin it.
The first spin is within the first two lines of the article where we learn that Spain will “inject” capital into Bankia by “pumping” €4.5bn into it. The words in quotes are euphemisms for giving the taxpayers’ money to the banks.
Bankia is on the road to failure, so it is important to note that this money is being thrown away. If you don’t think that Bankia will totally fail soon, than you have not been paying attention to the GFC. Whenever losses begin at an entity, they are underestimated until the day the entity fails and becomes a ward of the state. Remember AIG or Merrill or Greece?
When Bankia fails, the shareholders will lose their entire investment. Additionally, depositors who were sold subordinated debt with the pitch that it was as safe as their deposit accounts will also lose all of their money. There are calls for the Spanish government to bail out ordinary Spanish citizens who purchased this debt, but the EU is insisting that they take losses. This is a politically untenable situation for Rajoy’s government.
Spain is undergoing a bank run. The Spanish banks are holding up the Spanish sovereign and vice-versa. If one falls, they both do.