Spain is about to enter a full-scale Crisis.
A few facts about Spain:
• Total Spanish banking loans are equal to 170% of Spanish GDP.
• Troubled loans at Spanish Banks just hit an 18-year high.
• Spanish Banks are drawing a record €316.3 billion from the ECB
(up from €169.2 billion in February).
Things have gotten so bad that Spanish citizens are pulling their money out of Spain en masse: €65 billion left the Spanish banking system in March 2011 alone.
As bad as they are, even these data points don't do justice to the toxic sewer that is the Spanish banking system.
Case in point, over HALF of all Spanish mortgages are owned by Spanish cajas.
If you're unfamiliar with the caja banking system, let me give you a little background...
Until recently, the caja banking system was virtually unregulated. Yes, you read that correctly, until about 2010-2011 there were next no regulations for these banks (which account for 50% of all Spanish deposits). They didn’t have to reveal their loan to value ratios, the quality of collateral they took for making loans… or anything for that matter.
So, with Spain today, we have a totally unregulated banking system sitting atop HALF of ALL Spanish mortgages after a housing bubble that makes the one that happened in the US look like a small bump.
Spain's housing bubble is the dark blue line below. The US is the gray one.
Oh, I forgot to mention, the cajas primary lending market during Spain's housing boom were subprime and sub-sub prime borrowers.
Put another way, today the entire Spanish banking system is saturated with toxic mortgage debt on a level that makes the US in 2008 LOOK GREAT.
If you don't want to take my word for it, have a look at the Spanish stock market. It's been in a free fall for over a month as Spain's banking system teeters on the brink of collapse (remember they're drawing over €300 BILLION in emergency loans from the ECB.
If you think that chart looks bad, take a look at Spain's LONG-TERM chart where the market has just broken a 15-YEAR TRENDLINE signaling that the bully market is OVER and setting the stage for a horrific Crash.
This is hands down the ugliest chart out there today. Spain is telling us point blank that disaster is looming.
With that in mind, I believe we have at most a month before Spain drags down the entire EU. The Spanish economy and banking system are too large to be bailed out. The IMF and ECB know this.
Moreover, worldwide banking exposure to Spain is well over €1 TRILLION. What impact do you think that might have on the EU which has an entire banking system that is leveraged at 26 to 1 (Lehman Brothers was leveraged at 30 to 1 when it collapsed)?
Heck even Ben Bernanke and others have issued warnings that Europe could drag down the US banking system if it crumbles.