EU to Spanish Consumers Defrauded by Banks: Drop Dead

So Spanish banks lied to their customers, selling them preferred shares and telling them that they were government insured accounts, and now the EU is requiring that they get wiped out as part of a bailout:

Yves here. We’ve flagged in earlier posts how the Spanish banking crisis had the potential to become destabilizing politically, as if Spain wasn’t already at considerable risk of upheaval. Spanish depositors were pushed to convert their deposits into preference shares, which they were told were just as safe. That of course was never true.

This was a simple desperation move by the banks to save their own skins, customers be damned, by raising equity from the most unsophisticated source to which they had access. And now that that gambit failed, these shareholders are due to have those investments wiped out unless the Spanish authorities can cut a deal to spare them. The conditions of a bank rescue, which Spain did try to resist, was to have equity holders wiped out, or at least haircut. And that plan is now about to be set in motion. Having losses imposed on small savers who were in many cases conned by their own bank to buy these preference shares is going to do serious harm as well as further delegitimate the government.

Remember that quote from the Icelandic President? It’s only two posts down.

He’s right: bail out the people and jail the bankers.

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