Foreign Perspectives

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I came across a rather comprehensive take on how bad things are in the Spanish economy which makes for some interesting, if long, reading.

Spain is one of those places that hasn’t, yet, featured on the news in terms of problems with their banks which is surprising in some ways as it’s not a country that one would ordinarily consider as having strong banks. However, that’s misleading as the countries with the supposedly strong banks have nearly all run into trouble by now but largely because that strength enabled them to start operating on the international stage and thereby pick up problems that they’d not have gotten had they stuck to their domestic market.

Spain is different in that, for the most part, the banks seem to have acted to pull money into the country but that has created something of a problem since, as the article points out, it has created a climate where there’s been a little too much money knocking around. The problem in Spains case is that the developers have used that money to build far too many houses and now find themselves with a rapidly increasing stock of unsold houses.

The solution? Well, the developers would like more money to build even more houses but that glut of houses means that prices are falling rapidly in reality although that doesn’t show up in official statistics as those are based on estimates of the value of the houses rather than what they’re actually selling for. As elsewhere, the list prices of those houses bears little reality to the price at which they are really selling for and therefore it’s very difficult to get a clear picture of what’s really happening. Despite that, it appears that the fall of 50% or so the previous year will be followed by yet more falls to come.

That continued falling of prices spells trouble for the builders. In accounting terms, they’re presently holding them as trading stock but the falls are forcing them to reconsider them as assets for sale. That might satisfy the accountants but unperforming assets are no good to anyone and, of course, they can’t sell them. Nor can they reduce the prices by as much as normal people could because they’d then be into potentially serious losses.

In fact the solution seems to be to let a significant proportion of the developers go bankrupt and reduce building to more normal levels thus letting the stock of unsold homes find buyers. Not an easy solution but then if, as seems likely, we’re heading into a depression rather than a recession then no solution is going to be an easy one… last time around it took WW2 to get us out of it.

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Worryingly, the answer is probably “yes”.

In the last year the UK has had a series of high profile banks going bust (although they never used that phraseology). Just over a year ago the Northern Rock was taking around 20% of the entire UK mortgage market which is some doing for what was a fairly small building society not so long ago; not too many months later it was taken over by the government. Since then we’ve had Alliance & Leicester being bought by Santander, Halifax/Bank of Scotland being rescued by LloydsTSB (ironically one of the more logical takeovers given the history of both banks) and just this weekend Bradford & Bingley joins the Northern Rock in public ownership. That’s just the big players too as numerous smaller outfits have disappeared in the past year with the Nationwide alone sweeping up the Portman, Cheshire and Derbyshire and no doubt others have gone by the wayside with a less public profile.

Thus the business of obtaining mortgage quotes is becoming both simpler and more complex. Simpler in the sense that there are fewer outlets around these days but more complex in that the criteria for granting a mortgage have become somewhat stricter: after all, when the banks themselves are going broke and tightening their belts they need to do the same to potential customers.

How could it possibly get worse though? Well, to date we’ve “only” had banks in the lower end of the top 5 or 10 going bankrupt thus it’s possible for LloydsTSB to sweep up the Halifax and JP Morgan to absorb a string of smaller banks in the past year. What would happen if some of those at the top end of the range went to the wall though? Who could take over the likes of Citibank or HSBC?

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By far the most popular post on our Whole Earth Guide is the one detailing how to go about opening a bank account in America.

The reason is simple really: if you run an online business then sooner or later you generally find yourself in need of an American bank account. Unfortunately, the increased security measures in place post 9/11 mean that it’s not quite so easy to open one these days unless, of course, you’re living in America and therefore a considerable number of websites have grown up with the specific aim of selling you the required information.

Our site doesn’t charge for that information and therefore is increasingly popular as it provides exactly the same information that other sites charge anything from $5 to $250 to provide.

However, we’re sorely tempted to start charging for it too given some of the emails we’ve received demanding additional information and wanting to know why it isn’t on the site yet. What we’ll likely do is to charge for the hand-holding level of information or at least offer it for sale as the information on the above page is quite sufficient to allow anyone to open an account in America.

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