Spain @Full Ponzi (Revisited)

This just in, the ECB has already recanted and signalled the potential for another LTRO immediately if needed.  That didn't take long, no wonder gold was up 3% on Friday.  Meanwhile, the first two LTROs lasted only 5 months before they fell apart, so which Spanish bank is going to step into the breech now to buy Spanish Gov't debt knowing that any 'sugar rush' will likely last at most a few weeks and leave the banks even further behind the eight ball.  Or, will they cash in their Spanish Gov't bonds as collateral, and use the new LTRO money to buy U.S. Treasuries (or German Bunds), thereby giving a one finger salute to the ECB.  Under that scenario the ECB would lose all credibility and would be forced to buy up Spanish Gov't debt directly - or face Spain's default.  And notice, how this whole LTRO3 is packaged under the guise of  'greater fiscal integration' which read-between-the-lines could take between several months and likely never to implement i.e. it's just political top cover for the ECB (see point #7 below).  Lastly, notice that Germany finally called the bluff on all of these copious jackasses who are saying Germany needs to be less rigid and inflexible regarding Eurobonds (aka. subsidies for bankrupt countries).   Germany says sure we can talk Eurobonds as long as we also discuss fiscal integration aka. fiscal discipline under German control.  As they say, careful what you wish for, you just may get it...

In my original post, I laid out my case for a potentially imminent financial collapse for Spain.  However, I feel I somehow understated the risks (I know, hard to imagine !); therefore, allow me to summarize why I think Spain is even riskier than Greece:


1) Spanish banks are overleveraged and already starting to fail e.g. Bankia

2) Spain's government is de facto bankrupt and reliant upon Spain's bankrupt banks for funding i.e. Spain is in 'Full Ponzi' mode now.

3) There is already a shadow bank run going on as wealthy depositors wire their money to Northern European banks and the middle class use the ATM to mattress banking system

4) Spanish banks are still (for now) the marginal buyer of Spanish government debt.  On this point, yields on Spain's 10-year hit a multi-month high of 6.61% Thursday but improved a bit Friday.  As ZeroHedge reports, some fool apparently is still writing CDS (insurance contracts) to back Spanish debt.  Once yields hit ~7% that stupidity will surely end.  

5) Once yields hit 7% (which can happen at any time, given current market turmoil), there will be no private market for Spain's debt, which will require IMMEDIATE intervention by the rest of Europe to prevent financial collapse

6) There is no current facility large enough to bailout Spain.  The ESM (European Stabilization Mechanism) is not yet in place and won't be implemented until July at the earliest.

7) That leaves the ECB as the only short-term financing option, but ECB President Draghi already has egg on his face now that LTRO 1 and 2 are falling apart much sooner than expected i.e. he has no political top cover.  Draghi's latest comments are that only greater fiscal integration can save Spain which gets us back to point #6.

8) And the coup de grace: apparently, Spain even approached the U.S. this week regarding a bank bailout

In summary, not withstanding PM Rajoy's ongoing denials, it's becoming crystal clear, that the Krugman Moment is fast approaching for Spain, yet there is no immediate solution to the problem and any longer-term solution is likely months away.