Debt.

Been thinking about the spanish banking crisis since it is the biggest item in the news with respect to debt, now. As ever there is a lot of misinformation about and it is hard to follow what is actually happening. As an example, the bbc issued a Q&A piece purporting to explain the crisis: as ever it did no such thing.

One of the major threads in most of the press is that the crisis is largely due to the problems of the regional banks in Spain. They were generally smallish local banks and as one might expect they were very heavily involved in lending on property. As with Ireland that is a major source of the banks' problems in Spain: the assets were not worth what was paid for them and now people cannot pay the mortgages. So this is private debt.

It is essential for orthodox commentators to turn this into "spanish debt" and we have seen that conflation before. Debt is private when it suits them and public when it doesn't and I have previously demonstrated how it is difficult to tease out what is actually being referred to in any given article.

Given that necessity the particular way it is being characterised in the case of the banks in Spain is to say that the regional banks were under the control of the local politicians. So far as I can discover that is not true.

It is important to recall that Spain as a state had no debt before the international crisis: they ran budget surpluses and followed IMF prescriptions in every way. That did not save them from the crisis, and is itself evidence that the crisis is nothing to do with feckless governments recklessly spending on unaffordable welfare. Which poses a bit of a problem for the orthodox view: because whether you act like germany or you act like greece (in terms of the stereotypes normally presented) you still go down.

Bankia is the biggest bank that is in trouble. It was formed in 2010 from a merging of a number of regional banks which were in serious trouble because of the collapse in house prices and construction. The biggest of those was caja madrid. It was formerly a charitable type of institution run by the catholic church under another name, and it was certainly private as late as 2008, because you can find its listing on the london stock exchange for that year. A press release relating to an award for conservation it received describes it as a private non profit organisation: and also notes that its chairman is one Rodrigo Rato. One can justly call him a politician, because he was a conservative MP and served as the economics minister from the late 1990's till 2004. Then he became Managing Director of the IMF. He left that post in 2007 and he was head of Bankia from 2010 until it went bankrupt this year. So he is a politician: but not the kind of pork barrel vision which the charge tends to conjure in our minds. More a kind of technocrat, one might say. Though wiki does note in passing that he has been accused of failing to keep proper separation between his business interests and his political position: don't think anything was proved.

Caja Madrid did, however, have a lot of politicians on its board: that is no surprise for a non-profit organisation with a history of charitable lending going back to the 1700's and heavily influenced by the church which founded it, presumably. It is controlled by 320 representatives from a variety of bodies including ordinary depositors; employees; representatives of the royal family (through royal patronage); the Assembly of Madrid; Muncipal bodies (not specified in anything english I can find); and "entities representing group interests", also not defined in my digging about.

I find the implicature entailed in the note that the bank was controlled by politicians not sustained. I find the idea that it was always a state institution similarly not sustained. I find the idea that this was a spanish bank before the crisis not sustained.

What I would like to see is the rationale for calling this spanish debt in the sense that it is sovereign debt.