The sudden pileup of banking and debt crises, combined with an already ongoing flight capital panic out of Spain, now poses the very real question: Will the trans-Atlantic financial system survive into the middle of next week?
As reported late on Friday, the Bankia bankruptcy and nationalization has thoroughly blown up in the face of the Rajoy government. In the period between the original nationalization/bailout on May 9 to May 25, the cost to Spanish taxpayers of the Bankia blowout has gone from 9 billion euro to 23.5 billion euro—and rising. Three other cajas are on the chopping bloc, without any prospect of buyers, meaning that the Spanish government will have to nationalize them as well.
At the same time that the private banking sector is disintegrating at breathtaking speed, the Spanish autonomous regions, which have their own separate debt obligations from private bondholders and are responsible for half the total Spanish government expenditures, are now screaming for help from the central government, demanding a bailout of their own. According to a New York Times report today, those regions will be facing 36 billion euro in debt rollover this year, but they are now already at the break point and will need instant injections of money from Madrid.
Further compounding the collapse, there is already a panicked capital flight out of Spanish banks—particularly the bankrupt caja real estate banks. Yesterday, Standard & Poors further downgraded Bankia, Banco Popular, Bankinter and two other cajas to junk bond status. Funds are transferring out of these banks to "safe" Spanish banks like Santander (sic), to British and German banks. When this capital flight occurred in Ireland and Greece, it was the first sign of a total meltdown of the system. Matt King, an analyst with Citigroup London, just completed a study of the Greek, Irish and Spanish flight capital patterns and issued his own dire warning, published Friday in the New York Times. Things, he said "looked fine the night before, but on the morning after, it's too late." This is precisely the evaporation process that Lyndon LaRouche has warned about ever since the eruption of the present end-game collapse in 2007. The combination of bank collapses, sovereign debt blowouts and panicked flight capital are the perfect storm, and Spain can be the break point for the European Monetary Union and the entire trans-Atlantic financial system. It could happen this long holiday weekend in both the U.S. and Europe. If not this weekend, the moment or reckoning is just days or weeks away.