February 05, 2015

Spain (the whole Western world) needs a manifesto that explains what happened and then inspires hope… and here is what I propose.

Sir, Andres Ortega’s “The debt Greece owes us is the least of Spain’s worries” February 5 is a very responsible written article… perhaps too responsible for the times, because a call for responsibility, to produce responsibility, must be accompanied by a clearer reason for hope than what is reflected in his “So extend and pretend — and reform and grow.”

The following would be my message, my manifesto to Spain.

“Bank regulators, with the intentions of making our banks safer, decided that banks needed to hold more equity against what was perceived as risky, than against what was perceived as safe. Unfortunately, this translated into that banks were able to earn much higher risk adjusted returns on equity when lending to the safe than when lending to the risky… and that, as you should be able to understand, excluded all small businesses and entrepreneurs, our primary growth agents, from having fair access to bank credit.

In this respect we are announcing that, effectively today, we are requiring our banks to hold the same equity against all assets, 8 percent; and since that generates immediately an immense deficit of required banks equity, which the markets will not be able fast, we, the government of Spain, will subscribe all equity needed to fill that gap, with the intention of not exercising its voting rights and of selling it back to the market, little by little over the years.”

Andres Ortega writes about “a wedge between the north and south of the Eurozone”. He would benefit from understanding that the real wedge is between “the risky” and “the safe”, between the ordinary citizens and their "infallible sovereigns" and the AAArisktocracy.