Five Things: Spanish Real Estate and the No Good, Horrible, Very Bad Bank Solution
What happens to "toxic loans" after they are "dumped" into the "bad bank" like a truckload of garbage?
Spain occupies the far southwestern corner of Europe, rolling out along the Iberian peninsula bordered by Portugal and the Atlantic Ocean to the west, the Mediterranean Sea to the east. Both a former empire and the original melting pot, over the course of the country's 35,000-year history it is easier to count the barbaric dictators, megalomaniacs, and murderous religious nuts who have not, at some point, stepped foot on its soil than the ones who have. Spain practically invented the religious war, or at least perfected it.
Still, few Americans realize Spain is larger than the state of California. Most, if they think of the country at all, think of it as little more than a subsidiary of the Club Med franchise, basically just a resort, or a small section in the back of their local wine store. But it has the ninth or tenth largest economy in the world, so when the head of the country's mortgage industry declares the entire real estate industry bankrupt, it's "worrying," as the local news there puts it.
After all, real estate is nothing if not a religion, and when the chief pope-in-charge of doling out mortgage loans declares the very backbone of that religion bankrupt, students of history know that bloodshed is likely close at hand.
On Tuesday, while the world was nervously eyeing Greek and Swiss bankers for any furtive movements, Santos Gonzalez Sanchez, president of the Spanish Mortgage Association, the man who speaks on behalf of the country's mortgage lenders, essentially had a nervous breakdown in public, declaring the country's entire real estate industry bankrupt. Which is true, but beside the point. This is the man who heads up the whole gig. It would be similar to the pastor at your local church painting the sanctuary red and sacrificing a bull... just for fun.
"The real estate sector is bankrupt," Sanchez said, pointing out that Spanish developers had a combined debt of $450 billion in the third quarter of 2009, the equivalent of around 30% of Spanish GDP (Gross Domestic Product).
It is doubtful we'll ever know what really made Sanchez crack. But local news reports of the situation provided a grim reminder of just how removed everyone is from the atheistic reality underlying the religious of real estate.
"Some experts believe that Spain needs to create a 'bad bank' where all the toxic real estate loans can be dumped, freeing the banks from their bad debts and enabling them to start lending again," one news outlet reported with unabashed naivety and hope.
The "bad bank solution" is not unlike the solution you might find at the confessional. A mediator listens while you dump your toxicity on him, then offers up some regulatory suggestions before you walk away and get back to the business of sinning.
What happens to these "toxic loans" after they are "dumped" into the "bad bank" like a truckload of garbage? Where do they go? Who eventually pays? According to the cult of real estate those questions must be irrelevant, because not only are they never answered, they're never even asked.
But we're talking about debt here, and what is debt? It's the fundamental tenet of a twisted religion in its own right, one basking in the black hole of nihilistic despair, or, as Joel Achenbach put it on his blog at the Washington Post, a mere theoretical possibility, hardly more than a hypothetical:
The great thing about debt is that it doesn't have to be repaid until the future, which conceivably might not even happen. The future, remember, is just a theoretical possibility, hardly more than a hypothetical. The key characteristic of the future is that it hasn't happened yet; thus by definition the arrival of the future is merely some probability less than 1.
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