"The root cause of Spain's trouble is that it joined monetary union before its economy was ready. EMU halved Spanish interest rates almost overnight. Real rates were minus 2pc for much of this decade. Combined private and corporate debt reached 230pc of GDP, funded by French and German savings. The credit boom masked a steady decline in productivity over the last decade. Spain's unit labour costs have risen by about 30pc compared to Germany. The Bank of Spain made heroic efforts to counter the effects of the bubble by forcing banks to put aside extra reserves, known as dynamic provisioning, but the sheer scale of the problem has washed over the defences. Spain no longer has the escape valve of devaluation to claw back market share. It cannot resort to emergency monetary stimulus - as Switzerland, Britain, the US, and Japan are doing to prevent the onset of debt deflation. Prices are already falling at a rate of 1.2pc."

Ow. Sorry to see it happen to Spain. Not at all sorry to see it happen to Zapatero and his cronies. Meanwhile, in Ireland, they're taking a different approach to their banking crisis. Is it better? Not sure, but I'll throw it out there...

Ireland's approach to their bank bailout recently got coverage from Bloomberg and The American.

The basic concept is that toxic mortgages will be bought from banks outright. Not at the banks' own valuation, but not at the bottom mark-to-market rate either. Last week, Irish Finance Minister Brian Lenihan announced that a special agency would buy EUR 77 billion ($113 billion, bank valuation) of assets from 5 lenders at about 70% of the assets' carrying value based on independent valuations of legacy loans, paying about EUR 54 billions. Mark to market value if banks tried to sell them on the market is estimated at around EUR 47 billion. So the banks take a 30% penalty to their books, which is sharp but not bankrupting, and the government owns the assets. The transaction is paid for with government-backed bonds, and banks who wish/need to do so can pledge the bonds to the European Central Bank in return for cash.

There are some attractive features to that, and it does acknowledge the lessons of recent Latin American and Japanese crises, which is that allowing toxic debt to sit on financial institutions' books impairs capital markets, can strangle recoveries, and has led to "lost decades."

Now, here's the catch in the room. If property values over the next 10 years rise from their current spot by a total of 10% or so, or just under 1% per year on average, the plan breaks even. If they don't, or in fact continue to fall due to a widespread foreclosure/ ghost town new-builds glut and/or over-valuation in the market, then the Irish government is about to take a big bath. Bloomberg's David Reilly:

"Recapitalizations that make creditors and shareholders share in the pain, such as debt-for-equity swaps, should be an option. Ireland, like other countries, has to get over the notion that creditors are a sacred group who must be spared at all costs. At the very least, the government shouldn't ask taxpayers to wager so much on the hope that things will stop getting worse."

I pretty much agree with that. But creditors aren't the only group who can't be sacred cows. Which is why I generally agree with the broad thrust of this New Republic piece, which looks at the issue of senior bankers' compensation and treatment in these situations through a useful lens:

What happens to people like this in other bankruptcy-type proceedings? And the answer is, they don't do nearly as well on a personal level as the bankers have.

But then, they probably don't give as much, in personal financial contributions, to the people who are running the bankruptcy and setting terms. It's good to be the government.