The latest valuation of toxic real estate assets owned by Spanish banks is a fundamental part of building the bad bank. This factor determines who will pick up the costs of cleaning up financial institutions so that they can rid themselves of toxic assets.
Given there is not such thing as a free claim in politics, what the Secretary of State of the Economy said yesterday makes sense. Jiménez Latorre said that the price of homes could have hit their high. Whether that is true or just wishful thinking, only time will tell.
This decision would benefit Spanish banks and diminish the cost of a bailout, which could run as high as 60 billion euros. This, and the 15-year repayment term that the bad bank would have to pay down toxic real estate assets, proves that the price of these assets and the damaged credit of property developers is not going to be small and that more time is needed to sell off devalued properties. What would happen if prices keep dropping? The effort to clean up the financial system would ultimately fall on taxpayers. Ireland is a good example of what could happen in the case that prices continue to fall. Luckily, the chance that this happens is only one percent.
We have to wait and see whether reducing the costs of the financial sector bailout would lead to a lot of pain and suffering that taxpayers would not want to put up with.
