Spanish Band-Aid hasn't stopped the blood
The weekend bailout deal makes it so the nation's banks are not teetering, but it does not address the bigger issue.
Why doesn't anyone ever consider anything permanent relief? Why doesn't anyone say, "This is not a Band-Aid, this is the real thing"? Why can't anyone say "This puts it all past us, it is what we have been waiting for"?
Isn't that what's on your mind? Aren't you getting upset that people don't just say, "This Spanish bank bailout is what the markets are looking for, and we don't have to worry anymore"?
But there is a reason, and it has to do with the deep nature of all the issues involved and their inability to be solved piecemeal.
First, each country has a twofold problem. They all have banks that are teetering because no one trusts them to stay afloat. And they have nations that must issue debt constantly to pay their bills.
The Spanish deal this weekend makes it so the banks are not teetering. It does not address the sovereign bonds at all. Even after the $125 billion injection into the banking system, the Spanish bonds don't seem more attractive than they did before.
The only real natural buyers of Spanish bonds to date have been Spanish banks. They own more than half the Spanish bonds out there. We don't know anything about which banks are getting what and at what rate. All the Spanish banks have immense amount of debt issued themselves to fund their operations. Do the debt holders get bailed out as these banks do Citigroup (C)-like recaps and dilute the equity? Or is this like TARP, where the banks take a federal preferred and then pay it back over time?
We don't know.
Now, I am not saying that this is all a big waste of time. This money should stop the runs on the banks that were happening but not being acknowledged. That's a positive and a big one. It is why we rallied last week on the notion of a bank recap.
But still, it did not give us natural buyers of Spanish bonds. In fact, I worry that all that will happen with the $125 billion is that the banks will use it to buy more Spanish debt.
What we needed was something that also addressed the sovereign debt side, not just the bank debt side, because anything that addresses only one segment is just a Band-Aid or a tourniquet or whatever non-substantive-measure analogy you want to take.
We needed a new institution with fresh capital that would buy the sovereign bonds from countries trying hard to cut their deficits while not choosing to lend to those who don't. We needed a cordon on those that don't get their act together -- think Greece -- and a welcome mat to those that do.
So while this action might keep the depositors from running to other countries, it does not cause investment in Spanish bonds that needs to be made while Spain gets its act together.
Simultaneously, with an actual entity to buy Spanish bonds, the entity must also spur some growth that will then raise tax receipts and turn a vicious cycle down into a virtuous cycle up where we think, hmm, Spanish bonds yielding 6% versus U.S. bonds yielding 2% -- I will take that chance, knowing that both the government and the currency are solvent.
We didn't get that either.
Now, where would we all be wrong and the situation/solution be good enough? If there were suddenly demand for all of the bad loans and vacant property that these banks own. Perhaps they can use the fresh capital to make it so the bad loans are taken off their balance sheet. Perhaps there is such a plan that we do not know about.
But without something that spurs growth, that creates a reason to buy Spanish government bonds, and that makes you feel that Spain is investible with private capital, all we have is something that might forestall runs on Spanish banks if the Greeks establish a government this weekend that wants out of the euro.
That's all it really does. It stops one horrible thing -- bank runs -- from happening ahead of the Greek elections. That's good. It's one piece of the puzzle. But the puzzle is huge and is still not being addressed.
You simply have to ask yourself two questions when you are trying to figure this stuff out. One, would you now take your capital and buy Spanish bank stocks? And two, would you now buy Spanish banks?
I will give you the short answer: I wouldn't even put a deposit in a Spanish bank, let alone buy the stock of a bank or buy a Spanish bond.
It's just not worth the risk. Until it is, we are not out of the woods. We just keep the lines from forming outside one of the nine remaining Spanish banks.
That's not what turns a stock market around in this country. It just keeps it from going south. For now.
Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and has no positions in stocks mentioned.
More from TheStreet.com
Lending $100 Billion to Spain is like taking investment advice from Cramer----as USELESS as teats on a bull.
It is just more $ they will never be ale to pay back and the Socialist morons in Europe will never accept austerity untill they starve to death because noone will send them food they can't pay for and are too lazy to grow themselves.
This is carzy! You would think that people would wake up and say I don't belive in the system any more and just cash in. How can these banks be so far in debt and their stocks keep going up?
I would think that China would be investing into all of these banks at this point as a take over move. I guess they are going to wait till no one can take care of the problem besides them. That way the can just ask for more money. If you see how China is not helping the world markets then why do we keep purchasing their goods and worrying about what is happening in their back yard so much?
Just printing more money is not the answer anymore. It's time we take action to fix the problems long term. We must stop the debt bubble at every level going forward. This robbing Peter to pay Paul is going to bring the house of cards to the floor very soon.
Here's the Spain problem simplified:
Spain owes $200 - It borrows $100 from the EU. Spain now owes $300, It pays off $100 with the borrowed money but now it still owes $200. Nothing has been solved only time has been extended.
Let's see everyone is broke except the Federal Reserve who can prints monies at will.
let me guess the Federal Reserve will prints up some more fake monies and buy Spainish debt and Spanish bank stocks.
just going to make the coming collapse that much worse
soon we are going to be paying $1,000,000 for a loaf of bread and think it's a bargain.
A vicous cycle of printing money to bail out things without the underlying problems being properly addressed. Bailing out things that should have been let to naturally and healthally have the outcome of bankruptcy. Bankruptcy, while not a good thing, is a part of a functioning economy.
so on friday cramer says if something happens over the weekend stocks will rally..........
he said if nothing happens we will give back all or most of last week's gains..........
this morning with futures surging he arrogantly said that something happened and the usa is the place to be
shortly after this genuis call the market opened and tanked
so...........wtf is is cnbc doing giving this guy air time?
The Pain in Spain will return again and again until two specifics are addressed... job recovery and family-sustaining incomes that revitalize housing values, bolster municipal revenues and generate the mindset of prosperity. Forget "complex financial instruments" they only do a few any good and generally lead us exactly where we are today. Every currency unit printed now simply undermines and debases what was previously printed. None of it courses through the economy so it is debt like cancer, not debt that lifts up what isn't. A friend of mine said-- all this hoop-la about Europe is masking the REAL crisis... an America that isn't what it used to or needs to be for the whole world. I agree. Our best hope is that Jamie Dimon returns from Washington this week with a mandate to charge off the $700 Trillion in derivatives and make sure the next dollar he deals with is made out of paper, has a President on it and a watermark of legitimacy. The days of paper pushing and button pressing are fully over. Trust is back in vogue. There isn't a lot that qualifies yet... it's a rally everyone on Earth wants and needs right now.
IN CAPITALISM WE BAIL OUT BANKS AND DOW GOES FROM 6000 TO 13000...
THE BANKS SIT ON THE CAPITAL WHILE CEOS MAKE MILLIONS PER YEAR IN SALARY
meanwhile the rest of the populace gets to work for slave wages OR be unempoyed
competition dictates you pay workers as little as possible to increase profits....INSANITY
It seems high time that the peasants roll out the guillotine to capital hill and the fed reserve! These are all man-made problems created by "lawmakers" and burgeouise...
99%, why do you let these things happen?
99%, why do you allow self serving a$$holes to make rules that affect our lives, but will never affect their own 1% existences?
99%, why do you have to be such idiotic sheep?!?!
99%, waht is it going to take for you to say "STOP, go to hell, feds- We're calling the shots from now on"
99%, when are you going to tell politics that it's over and that we (the 99%) are going to run the game from now on.
oh 99%, you are as much sheep as the 1% are greedy and selfserving..........
Focus on YOUR FINANCES and disregard the media's attempts to sway you to keep faith in a crumbling paper money system. Rrinting more money, striking more Euros and making verbal promises will not work. When the governments finally limit your withdrawals and devalue the US$ in half all of the people will realize they were willingly and knowingly asleep.
Governments are buying time at most while BRICS nations and other emerging nations are going long on their currencies, buying physical precious metals and avoiding debt. at all costs. They are wise. Our media keeps us from the facts.
i see and read Europe's version of our Wall Street Journal (WSJ) every day. The headlines and various sections on the world's economics are bowel-loosening to be blunt.
We will not crash and burn in a spectacular economic blaze as many think. instead, something small yet very significant will commence the dominoes effect.
I wish it were not so, but it is.
Anyone can write about what happened. That's why they say hindsight is 20/20. Any layman can visit a few websites and write articles attempting to explain what has happened in layman's terms.
Foresight? If I went by the articles on this website, I'd give it maybe 20/200 or 20/400.
Copyright © 2014 Microsoft. All rights reserved.
US markets were able to rally hard and largely trim the day's losses. Meanwhile, a bounce in crude oil could be in the offing.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.