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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

June 12, 2012 at 9:54 AM

The pain in Spain

Pedro de Costa of Reuters tweeted “worst bailout ever” this morning as yields on Spanish bonds reached a euro-era high. I’m not sure. The competition is tough. The $700 billion TARP bailout in this country would certainly be in the running. The taxpayer money was “paid back,” but the too-big-to-fail banks emerged bigger and more dangerous than ever. No meaningful reform was enacted. Nobody went to jail. Oh, and there was the $2 trillion in Federal Reserve support, much of which was turned into low-interest loans to the banks for more gambling.

Still, the Spanish bailout marks a turning point. Not only did the leaders of Europe fail to kick the can down the road, they may have made the situation worse. Nothing has been done to address Spanish unemployment, a Depression level of 25 percent and 50 percent for young people. Fitch responded to the Euro-rescue by downgrading Spanish banks.

The bailed-out banks hold Spanish sovereign debt which was incurred to keep the banks afloat in the first place. Bondholders are subordinated to the moon, further distorting any benefits of the bailout. The shadow-banking boyz are making a killing shorting Spain. Round and round. And the contagion is spreading to Italy and probably France.

Then there’s Greece — still. Elections this weekend will determine, for now, whether Greece accepts Berlin’s austerity or exits the eurozone, with dangerously predictable results. Across the continent, the “bank jog” continues, but it could quickly become a run. That will turn a continental recession into something far worse.

And Don’t Miss: America’s economy battles uncertainty, home-made and imported || The Economist

Today’s Econ Haiku:

An apt metaphor?

The Commerce Secretary

Crashes, hits and runs

Comments | More in Eurozone

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