Ominous Portent in Spain

Kudos to my friends at Seeking Alpha for picking up a news item that will largely escape public notice: Banco Santander’s failed auction of Spanish local government backed bonds. When the story broke at Reuters last week, we weren’t given much in the way of numbers. This morning the WSJ fills in some of the details: the underwriting banks only moved half of the nearly $1.5B in paper, which means they are left holding another big slug of dodgy public debt.

A commenter at SA perceptively writes “It all starts with banks not wanting to lend to each other and not trusting the assets behind the bonds and their books…..I think this is more scary than the Greek issues.”

Indeed. Santander has, for some reason which escapes me, largely been given a pass during the financial crisis and its aftermath. This may be one of the most significant financial events of 2011 to date.


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