Saturday, 1 September 2012

Eurogroup on BFA-Bankia

The Eurogroup reports,
Today BFA-Bankia published its financial accounts as of 30 June 2012, pursuant to its obligations under the Spanish Securities Markets Law. As expected, these published figures show continued financial strain on BFA-Bankia. These figures confirm the importance of the Financial Assistance of up to EUR 100 billion for the Recapitalisation of Financial Institutions, which was agreed and entered into operation in July, in providing a credible and readily available backstop for the Spanish banking sector.
As they did not include any key numbers from the financial statements it is a bit difficult to get into a discussion of its financial strain. But the big picture is this: if a financial institution, or any other company, is in financial problems, either illiquid or insolvent, it should be allowed to file for bankruptcy protection or to use any other insolvency procedure applicable in the country it operates. And it certainly does not confirm "the importance of the Financial Assistance of up to EUR 100 billion for the Recapitalisation of Financial Institutions". But that is what the Eurogroup and other EU bureaucrats and proponents want us to believe and is the reason why the Eurogroup makes such an announcement. It is wrong to provide such financial support, and it's wrong because somebody else, many of whom that has nothing to do with this, ultimately ends up paying for it. You don't get something for nothing, there is no free lunch.

We'll keep banging the drum here: let the market forces decide and stop promoting moral hazard, government intervention and everything else that distorts the markets which ensure we all lose over the longer term.

Here's the whole document.

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