Spain saw a real boom in housing construction up to the end of 2006, with 865,561 housing starts that year. Part was social engineering, but many homes were for cheap housing for Latin American migrant workers (Chapman, 2010). Easier access to credit, allows financial institutions to search for a new consumer, as in the U.K., France, and Germany, the entirety of the European Union backs all euro zone guarantees to the financial sector. It was not until late 2007, that the U.S. stock market began to implode on the implications of default on sub-prime mortgages within the United States (Niall Ferguson, 2009). “‘Turbo-capitalism’—the supremacy of finance capital over every aspect of social and personal life—is an exclusively Anglo-American invention, which the governments of Germany and France have opposed for a long time” (Schwarz, 2008), explains the World Socialist Web Site September 2008 adding, ”The call for a form of ‘regulated capitalism’—that can prevent risky speculative transactions, cutting down to size the power of finance capital and giving priority again to production and trade— is an illusion.” (Schwarz, 2008).
European banking—especially within the German banking system—is a highly leveraged industry, as it’s leverage ratio or assets divided by net worth is 52 to 1, compared to that of France which carries through leverage 28 to 1, and to the U.K. which carries 24 to 1, within the European Union as of October 11, 2008 (Wikipedia, 2010). Stronger loan guarantees and lower profit margins out of the EU, late 2006, allured German banks alongside several other savings banks within the European Union to enter into mortgage-backed derivative deals and buyout U.S. collateralized debt obligations, as to other variable “toxic assets.” (Chapman, 2010). European banks have approximately 75 percent as much exposure to U.S.-originated ‘toxic assets’ as the American banks (Niall Ferguson, 2009). The German government estimates, that there are ‘toxic assets’ with a nominal value of over $1 trillion (€800bn) on the balance sheets of these German banks. The IMF says, European and British banks have 75% as much exposure to U.S. toxic debt as American banks themselves, yet they have been much slower to take their punishment (Pritchard & Waterfield, 2009). To date, write-downs have been $885bn in the U.S. as the European banking sector is seen losing nearly $1.3 trillion in the 2007-10 period, according to International Monetary Fund forecasts in May (Cutler, Slater, & Comlay, 2010).
Spain,…
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