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.

By Jim Cramer Jun 11, 2012 10:50AM

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.


Here's why.


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

Jun 11, 2012 12:51PM

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.

Jun 11, 2012 1:09PM

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. 

Jun 11, 2012 2:53PM

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.

Jun 11, 2012 1:27PM

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.


Jun 11, 2012 2:12PM
Spain is done. Put a fork in it and call it a day.  No amount of bailout money can change the results if Spain will not change its fiscal policy.  Look at Greece.  Kick the can down the road!!!
Jun 11, 2012 11:53AM

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 is is cnbc doing giving this guy air time?

Jun 11, 2012 12:56PM
Jim, there should never be anything considered "permanent" in the financial sector. In fact, a 7 year re visitation requirement by a randomly selected panel, wouldn't be a bad idea. When you consider the credit landscape from 1972 to 2002... the latter economy didn't remotely contain the variables that were extremely important 30 years earlier. Credit is just a piece of the financial universe that is in constant need of scrutiny, time-accurate regulation and oversight that was NOT manufactured in the classroom. Could you imagine the impact of an Enron alumni randomly seated on the panel?

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.

Jun 11, 2012 2:43PM




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

Jun 11, 2012 12:04PM
Permanent relief used to be the fluctuation of the currency.  When each European country had to make decisions that directly effected the welfare of their citizens.  The Euro changed all that and it will take some time to iron out all the wrinkles.  Obviously the German banking model is not the best for all countries. Expanding it throughout Europe may prove to be a problem even for the Germans.   Without the possibility to fail you make decisions that may not be the best in the long term.   Kind of like some Corporations and the US dollar.
Jun 11, 2012 2:50PM

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..........

Jun 11, 2012 12:41PM
Crammer only seems to know what he's talking about - after it is so clear - he's the one who never saw the crash coming - who are all these people pushing and pulling at us - one day up - the next day down - who pays them? This of course is never going to work. 25% unemployment - leads to trouble in the streets. Not only is it not the long term solution, it is an indicator of how over inflated the market is- a gambler's paradise. Crammer is no leader - just a follower. His value is entertainment not guidance.
Jun 11, 2012 3:12PM



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.

Jun 11, 2012 1:29PM
You're nuts to buy any sovereign bonds including USA when they're printing money that will inflate real assets like commodities and equities and deflate fiat currencies. I'm just now seeing the last of my CD ladder expire and will continue to buy equities with whatever cash I don't need in next year or two.
Jun 11, 2012 11:10AM
Raise tax receipts? I thought cutting taxes was always the answer!
Jun 11, 2012 4:15PM
capitalism only works when labor has the leverage to demand a fair wage.without money in the hands of the middle class there is no demand and no reason to hire.until then the cash sits in the hands of the rich doing nothing.thats why bonds are at 2 percent.theres plenty of money doing nothing
Jun 11, 2012 1:30PM
yeah daytrader Cramer hatches a plan to fix Europe...  Sure, what is it?  Going to have them invest in Bear Stearns?  Bear Stearns is fine, right daytrader Cramer?  I've been waiting for you to mention the article where you wanted Warren Buffet to be more like Facebook? 
Jun 11, 2012 11:27AM

 thought cutting taxes was always the answer

Jun 11, 2012 3:41PM

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.

Jun 11, 2012 4:23PM
Hey Jim, don't ask the 99% American People for any more money! We're broke from the last bail-out! It's up to the corrupt Republican corporate MONARCHY to take care of their own! They need to spread the 99% wealth to the 99% American People, then maybe we'll be able to help again after the coming 2nd Depression! Right now, we, the 99% American People, will try to take care of ourselves as best we can! We've been MADE SLAVES OF BY THE CORPORATES and we know we won't get any help from them! I guess we'll all go down together! Maybe when we get up from this mess we can go back to a TRUE DEMOCRACY and drop the CAPITALISM which isn't working, won't work and never has worked! It only breeds GREED of which there is ZERO CONTROL!
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

124 rated 1
266 rated 2
452 rated 3
702 rated 4
671 rated 5
604 rated 6
640 rated 7
495 rated 8
267 rated 9
158 rated 10

Top Picks




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.