More Pain In Spain

(10 am. – promoted by ek hornbeck)

Cross posted from The Stars Hollow Gazette

The Greeks choice of staying with the pain of austerity measures may have helped divert a crisis for the Euro Zone, but not for long. There is still Spain.

Spain bailout fears mount

Fears of a full-scale bailout for Spain have mounted as its borrowing costs spiked to danger levels on concern over the nation’s stricken banks and fast-rising debt. [..]

Tapping the markets for the first time since the Greek vote on Sunday, Spain raised 3.04 billion euros, beating its 2.0-3.0 billion euro target in an auction of 12- and 18-month notes.

But it had to pay exorbitant rates to lure investors – 5.074 per cent for 12-month debt and 5.107 per cent for 18-month debt.

The yield on Spanish benchmark 10-year government bonds shattered the 7.0 per cent barrier on Monday for the first time since the creation of the euro in 1999, pushing above 7.2 per cent.

On Tuesday, the yield on 10-year bonds was at 7.003 per cent. [..]

Spanish borrowing costs at ominous levels

Spain, on the edge of losing debt-market access, paid around 200 basis points more in interest rates Tuesday than a month ago to lure investors to its Treasury bill sale, an ominous sign ahead of a critical government bond auction Thursday.

The latest surge in the country’s borrowing costs comes a day after fresh central-bank data showed Spanish lenders were sitting on the highest level of bad loans in 18 years, raising fresh worries over the battered sector’s capital needs.

The Fat Lady isn’t singing yet.

Just an interesting aside about interest rates, David Dayen points out this exchange from today’s House hearings with none other than the Obama administration’s favorite banker, Jaime Dimon:

But the two stars of the show thus far were Democratic Reps. Gary Ackerman and Brad Sherman. Ackerman asked point-blank if there’s any difference between gambling and investing. Dimon replied that with gambling, the house usually won, to which Ackerman quipped “That has been my experience in investing.” But he got at the central point, that hedging, which entails making a bet that would counteract any other actions in the markets, really bears reveals no difference from gambling. He emphasized that “with hedging, if you’re right, only you win, and if you’re wrong, we all lose.” Precisely. There’s no productive business being done with hedging.

Dimon replied to this by saying that they do a lot of other productive business with the rest of their $2 trillion in assets, so the gentleman from New York should kindly shut his mouth (that’s a paraphrase). And Brad Sherman followed up on that very well. He first said that hundreds if not thousands of small businesses need loans, and instead of accommodating them, “you took $350 billion to London.” Sherman added that JPMorgan holds a $14 billion subsidy through their implicit Too Big to Fail guarantee. This elicited an amusing moment, as Dimon said “We borrow in the marketplace, with the smartest people in the world, with 200 basis points over Treasury.” Sherman replied that “after you lost so much money in London, I would be surprised if people lent you money for less than that.”



    • TMC on June 20, 2012 at 13:17

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