Zombie Economics of the Bullring

Generali

When things started going badly wrong for the Japanese economy, one of the problems were the so-called Zombie banks. These were practically insolvent banks that were being propped up by Government guarantees that weren't calling in bad debts for fear of having to write the debt down in their books and thus making themselves insolvent in law.

Spanish banks have lent money to many consumer discretionary spending businesses who are suffering badly in times of austerity. So if you're Spanish and you are broke, perhaps you watch the corrida on TV rather than at the ring.

Now, if you're a bank that has lent money to bullrings and you're in trouble anyway the last thing you need is for the bullrings to go bust. So what to do. Of course! You take your meager available capital for lending and set up a scheme where people can get (relatively) cheap unsecured loans to buy season tickets to go and watch the bullfighting.

http://online.wsj.com/article/SB10001424052702304177104577313752908609084.html

It's madness. Once again, it just brings forward consumption from tomorrow to today.

macaque_2

Generali wrote: »

When things started going badly wrong for the Japanese economy, one of the problems were the so-called Zombie banks. These were practically insolvent banks that were being propped up by Government guarantees that weren't calling in bad debts for fear of having to write the debt down in their books and thus making themselves insolvent in law.

Spanish banks have lent money to many consumer discretionary spending businesses who are suffering badly in times of austerity. So if you're Spanish and you are broke, perhaps you watch the corrida on TV rather than at the ring.

Now, if you're a bank that has lent money to bullrings and you're in trouble anyway the last thing you need is for the bullrings to go bust. So what to do. Of course! You take your meager available capital for lending and set up a scheme where people can get (relatively) cheap unsecured loans to buy season tickets to go and watch the bullfighting.

http://online.wsj.com/article/SB10001424052702304177104577313752908609084.html

It's madness. Once again, it just brings forward consumption from tomorrow to today.

It's a bit like a terminally ill patient who can only be kept alive with hourly transfusions of blood. Sometimes the greater good is served by letting the patient die and using the blood for patients with a genuine chance of survival.

At the moment far too much cash is being diverted from the productive economy (small manufacturing companies are going bust by the day for want of a small overdraft) to keep the terminally ill property market alive month by month.

michaels

Don't worry, as long as the ECB keeps handing the Spanish banks dirt cheap money and it doesn't all go pop then things will be fine - of course if it does all go pop who can support the ECB...

PS I thought this was going to be about UK commercial property loans in Birmingham....

RUN_RABBIT_RUN

macaque wrote: »

At the moment far too much cash is being diverted from the productive economy (small manufacturing companies are going bust by the day for want of a small overdraft) to keep the terminally ill property market alive month by month.

are uk banks offering customers unsecured loans to make their mortgage payments then? or rental payments?

no they aren't are they, macquacky? i think you'll find that the op was talking about spain and spainish bullrings, not the uk and the uk property market

purch

It's madness

The Return of the Los Palmas 7 or El Regreso de los 7 Palmas :eek:

macaque_2

RUN_RABBIT_RUN wrote: »

are uk banks offering customers unsecured loans to make their mortgage payments then? or rental payments?

no they aren't are they, macquacky? i think you'll find that the op was talking about spain and spainish bullrings, not the uk and the uk property market

What about negative equity? How secure is a secured loan if the value of the asset falls? In many countries banks have lost a fortune on loans secured against property.

In the UK many small businesses cannot even get overdrafts secured against confirmed orders (which unlike consumer sales are binding contracts).

The UK economy is being slowly strangled to avert another bank meltdown.

HAMISH_MCTAVISH

macaque wrote: »

In the UK many small businesses cannot even get overdrafts secured against confirmed orders (which unlike consumer sales are binding contracts).

No, that can't be right.

The bears keep telling us that there is no shortage of money to lend in the UK, and anyone that is a good credit risk can get a loan. Banks are obviously just lending responsibly now..... etc

macaque_2

HAMISH_MCTAVISH wrote: »

No, that can't be right.

The bears keep telling us that there is no shortage of money to lend in the UK, and anyone that is a good credit risk can get a loan. Banks are obviously just lending responsibly now..... etc

I'll tell you what Hamish, one particular bank (not naming names but HSBC is a clue) are losing a business customer within the next few months. Their charges and conditions for a business overdraft would have made a 'pay day loan' company blush.

Wookster

Generali wrote: »

It's madness. Once again, it just brings forward consumption from tomorrow to today.

Yes it does.

What folks (i.e. the likes of hamish and several bufoons in the EU and in government here) don't get is that once you start tinkering with markets you can't stop. You have to tinker more and more and more and more because they get farther and farther away from equilibrium.

People forget this when they harp on about bonuses at RBS... face it, you messed with nature's (and capitalism's) order. The bail out doesn't stop on day 2. It continues for many years beyond that.

kabayiri

I guess it's time to rewrite some classics then.

Una paloma blanca
I'm just a bird in the sky
Una paloma blanca
Over the mountains I fly
No one can take my freedom away

becomes ...

Una paloma banker
My lending plan is pie in the sky
Una paloma bankrupt
The overdraft mountain so high
No one can take my free dosh away


But seriously, who can blame the consumer (European in this case) ?
We are just pawns in an ever more elaborate banking game.

Thrugelmir

Generali wrote: »

When things started going badly wrong for the Japanese economy, one of the problems were the so-called Zombie banks. These were practically insolvent banks that were being propped up by Government guarantees that weren't calling in bad debts for fear of having to write the debt down in their books and thus making themselves insolvent in law.

That's because the banks held shares in the same Companies that they had lent money too. When equity prices fell then the banks assets fell as well. Creating a downward spiral.

Nearest we have is HBOS. As their ownership of property developers. Makes Lloyds Bank the 4th largest housebuilder in the UK..........:eek: