Postscript to the posts part 1 and 2 on Spain’s home repossession nightmare
There would have been fewer home repossessions in Spain if the Bank of Spain had changed how the banks recognised their assets, according to Pau A. Monserrat, a former bank employee and now financial consultant interviewed on last Sunday’s episode of Salvados “Yo ya lo dije: Crónica de una crisis anunciada” on the warning signs that nobody wanted to see that a property crisis was on its way in Spain.
When banks repossess homes, apparently they usually recognise the properties at their value when the loans were made and not at current market value. So, apart from bank assets being inflated, Monserrat says that if the banks had been made to recognise repossessed properties at current value, they would have repossessed far fewer homes as it would have meant recording a loss. Instead, they would have more readily explored other avenues, such as accepting reduced payments, as this would have put them in a better financial position.
It seems like a simple solution. Maybe too simple. I suppose there’s a catch to it somewhere.
Of course, the banks’ positions wouldn’t have looked as good, which might be why such a change was never made and ties in with two of the themes of the Salvados episode: (i) the immense influence of the banks, which apparently deserved the government’s ‘infinite patience’ (as the ex-Minister for Industry, Miguel Sebastián—also interviewed on the show—was told by Pepe Blanco, the then secretary of the governing party in Spain, the PSOE) and (ii) how everyone was doing everything they could to avoid bursting the bubble and to ignore the few voices warning of the looming crisis. Which, as it happened, was eventually sparked by external events, although it seems there was enough tinder lying about in Spain for it to be set alight at any time.
Anyway, this episode of Salvados is worth watching (click on the link above). It’s an eye-opener to hear from an ex-employee about how the banks sell their products to the public, and the other people interviewed were also very candid, not least the ex-Minister for Industry, who drops more than one bombshell.
