Spain’s behavior this weekend has created the remarkable opportunity – yet again – to discuss the fine points of complex, non-linear systems, and what happens when myopic retards fuck with them.
I was really worried that my selloff would not materialize. For all I knew, Spain had given the market just enough of what it wanted to hear to usher in another cocaine induced rally; maybe it would ultimately prove faulty, but does that help me if it can sustain itself for 6 months and 2,000 DOW points, like the last one?
But then, as if it were their intention, Spain fucked up so thoroughly that everything they thought they had accomplished was unwrought right before their stupid, socialist eyes.
I would have assumed they had learned their lesson after Greece. Greece tried this same bullshit, you’ll remember. They attempted to circumvent the terms of their credit default swaps; the result was pandemonium.
Without the specter of principle protection, there was no reason to be caught holding Greek bonds. That same week, their bonds sold off hard, making it more or less impossible for them to continue on without direct support from the EU.
They lost literally billions, trying to screw markets out of a few million worth of protection – and increased the likelihood that a multi-billion hit to their banks would ensue.
This weekend, Spain did the same thing. By working the terms of their bailout to give the rescue fund preferred treatment, they have reminded markets – again – that there is no security in loaning money to these people. What’s the point of the usual protections of sovereign bonds if unlimited government money can find its way to the front of the line?
There’s no safety there. Each bailout is a bigger threatening haircut to any bond restructuring you may have to take.
So at that moment, Spain and the EU, trying to ensure that their precious little bailout money was extra safe, undermined the entire bond market. Now, people are fleeing their notes en mass. In an attempt to make $100 billion inviolable, now Spain gets to worry about its entire fucking debt load.
It’s Greece, part deux. Brilliant move, Spain. Well done ladies and gentlemen.
The best part is, once again, the entire purpose of the ESM/EFSF mechanisms have been undermined in trying to screw over the other market makers. The only reason they wanted to bail out the PIIGS with these funds, rather than direct monetary intervention, was to appease Germany’s hardcore stance of avoiding any and all inflation.
The point of the ESM and EFSF was to encourage people to lend money to over indebted countries. But by giving them preferential treatment, they’ve actually succeeded in driving investors away further.
Now, all money that comes to Spanish debt, just like Greek debt, will come from the ECB. And so, the EU gets to enjoy stagnate lending, a budget crisis, AND more horrific inflation levels. Germany will be pissed. Manufacturing will continue to contract continent wide. And negotiations between countries will be tougher than ever.
All because Spain decided one gay weekend to act unilaterally and screw the pooch.