Wednesday, May 30, 2012

Spanish Banks and Unemployment

It is sad to see viable small businesses in Spain laying off employees because their banks have called in the loans necessary for operating capital as reported in the New York Times Sunday.  This makes unemployment worse and recovery impossible.  No amount of austerity will solve this problem.  The banks do not require bailouts, they need a change in the rules so that failed loans (mortgages for real estate) are not a charge against their capital.  There is so way that a bank can stay viable with a historic 20 to 30 percent change in real estate values.  These loans have to be removed from the books as was done in Iceland.  Government austerity will only make the problem worse.

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