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Tags: Rogers | Europe | spain | Banks

Jim Rogers: Europe Should Have Let Spanish Banks Collapse

Monday, 11 June 2012 02:28 PM EDT

European finance ministers shouldn't have arranged a $125 billion bailout for Spain to recapitalize its banks, says noted international investor Jim Rogers.

Bailing out ailing financial institutions adds to debt burdens and gives policymakers wiggle room to put off making tough decisions like paying down debts.

"It's nothing more than pushing the thing out into the future. It's making the situation worse. The solution to too much debt is not more debt. This is the most insane thing I have ever heard," Rogers tells CNBC.

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

"It's going to make the collapse, when it comes, even worse. You should be not careful, you should be worried."

Prior to the global economic downturn, Spain ran a budget surplus and was not guilty of excessive public spending like in Italy and Greece.

However, the country bet heavily on the real estate sector, and when the housing sector went bust worldwide, the country was forced to borrow heavily to prop up its banks that were burdened by bad loans.

The bailout will help Madrid recapitalize those banks, although letting them go under would have been better, Rogers says.

"Let them go bankrupt. The way the system is supposed to work is when you fail, you fail. Competent people come in and take over the assets, reorganize and start over," Rogers says.

"What we are doing in the West, we are taking the assets from the competent people and giving them to the incompetent people and say 'now you compete with the competent people with their money.' It's absurd economics. It's absurd morality."

Greece, which received rescue funding earlier this year, should have been the first to go bankrupt and serve as an example to the rest of Europe.

"Let Greece go bankrupt and then others would realize that 'OK guys, we've got to shape up. If we don't shape up, we're finished.'"

Some market observers point that the bailout doesn't solve Spain's underlying problem of too little growth and too many debts.

"The Spanish deal is another Band-Aid," said Matt McCormick, who helps oversee $6.2 billion at Bahl & Gaynor Inc. in Cincinnati, according to Bloomberg.

"Many investors are viewing this with skepticism. The problem is not going to be fixed by this amount. It’s not a solution, and people know the difference. Expect more volatility not less."

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

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Monday, 11 June 2012 02:28 PM
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