Yesterday’s El País carried what to me was an extraordinary story about repossessions of Spanish homes. The recession has seen the number of repossessions in Spain rising to 100,000 per year, but far from suffering for making dumb loans, the country’s mortgage laws allow banks to profit from their clients’ failure to pay.

Repossession policy dictates that if a propert has to be handed over to a bank because its owner cannot keep up with mortgage payments, the bank must endeavour to sell it at auction, and use the proceeds to reduce the amount owed. In the current, stagnant environment, however, nobody is buying, even at repossession auctions, and much of what is on offer goes unsold. Such an eventuality does not perturb the banks, however – indeed, they are probably delighted not to sell – for in the event that a property fails to attract a buyer at auction, the bank gets to keep it for 50% of what it is adjudged to be worth.

Let us say, therefore, that someone has taken out a €100,000 mortgage on a house which at the time the bank judged to be worth €100,000 (many banks, of course, made 100% loans during the boom), and that after paying, say, €10,000 plus interest of that loan the debtor loses his job – not uncommon in a country with 23% unemployment – and can no longer make his monthly payments. The debtor now owes €90,000. The bank tries to sell the house at auction, with a reserve of €75,000 (the Bank of Spain says official house prices have fallen 17%, and the bank knocks off a bit extra to make it look like it is keen to sell). Nobody is interested. The house goes unsold. The bank acquires the house for €41,500 (50% of the official value of €83,000), and the debtor, who is now homeless and jobless, still owes it €48,500, plus interest.

It won’t have escaped your notice that this is a remarkably good deal for the bank. First, it received €10,000 plus plenty of interest – let’s estimate a further €10,000 – from the hapless debtor before he lost his job. Second, it is still owed nearly €50,000 plus interest. And third, it has acquired a house worth perhaps €60,000 (if we ignore the overoptimistic official figures) for just over $40,000. Even if the debtor now does the sensible thing and tells the bank where it can put the rest of the debt, therefore, the bank will have lost just 20% of the loan. Most debtors, however, will not be so bold, and will attempt to pay back the rest of the loan for fear of losing their hard-won creditworthiness. In the latter cases, the bank will have made a profit on the original €100,000 loan of €20,000 plus several additional tens of thousands in interest, so unless significantly more than half of debtors tell the bank where to go it cannot lose on these deals.

Of course, the above example is theoretical and the actual figures are likely to vary somewhat – the bank might sell the house for €70,000, adding another ten grand to its haul, and there are costs of selling to account for too. But unless I have miscalculated it does not seem too far-fetched. Under the current policy, banks benefit by making bad loans. Since most people will try to pay back the loan even though they no longer own their property, banks can easily withstand a few bad debtors, and it is not surprising in an industry where profit rules that their vetting policy is less than rigorous. A couple of commentators in the El País article recommend raising the 50% of the value at which the bank acquires the property to 70% – this would seem a bare minimum to avoid the moral hazard created by the current law. The protesters in the 15-M movement rightly blame the banks for causing the housing crisis, but where policy puts them in a no-lose situation it is inevitable that many will take advantage.

If you had ever planned an aerial invasion of Spain, last Friday would have been a good day to do it. For on that day, unannounced, Spain’s air traffic controllers decided to go on strike. At 5pm, all three hundred of those on duty called in sick. Five hundred flights were grounded; the skies remained empty for hours. Nobody in the government, the air force or the media had any prior warning. Nor did any of the 600,000 passengers who had to spend the bank holiday weekend (the most important in the Spanish calendar) sleeping on crowded airport floors with no food, no prospects of flight, and no information.

Spain’s air traffic controllers are among the least productive in Europe. The hourly cost of employing them is higher than in any other European country, and their annual salary, for which they work 32 hours per week, is €200,000. The wildcat strike was called because that salary has come down in the past year, bringing it closer to, but still higher than the European average, and because a new law prevents them from counting as working time all the many sick days they take (each controller averaged more than a day per month last summer).

Spain, as you may have noticed, is in the throes of a terrible recession (20% unemployment, frequent talk of IMF bailouts, no real sign of any let-up). Tourism is one of its biggest industries. The strike is likely to cost an economy already on its knees 400 million euros in lost revenue. And for a few hours on Friday until the army stepped in, the country’s skies were unpoliced.

The air traffic controllers nevertheless decided that this was an opportune time to take action. This now looks like a catastrophic miscalculation. Those who are struggling to feed their families are not delighted by the idea that a group earning in one year what the average Spaniard earns in ten think they are entitled to a pay increase. That that increase would come out of public funds (the industry is state-owned) when the country may be on the verge of bankruptcy does not add to the strikers’ popularity.

Fortunately, this tale of myopic greed has a happy ending. On Friday night the government declared a “state of alarm.” This placed air traffic controllers under temporary military supervision, effectively making them military personnel. If they do not perform their duties, therefore, they will be subject to the same penalties a soldier would face for disobedience. This can mean up to six years in prison. Within hours of the announcement of the state of alarm, the strike was over, as the spooked wildcats scurried back to their watchtowers. Disciplinary proceedings against them have already been opened, and the government seems determined to follow through with its threat. Hundreds of pampered air traffic controllers now face unemployment at best, imprisonment at worst. For the industry as a whole, privatisation beckons. The Spaniards I have spoken to, meanwhile, are pleased to see the spoilt brats getting their comeuppance. Many are no doubt wondering if the state of alarm can be extended to bankers.

The ECB yesterday slightly increased its bond purchasing programme, but did not push the nuclear button and announce some huge new programme of QE or bank re-capitalizations, as some in the bond markets were screaming for.

The editor of Euroweek, one of the finance mags I write for, reckons the ECB played it well:

There has been no shortage of thundering demands from bankers and investors for a vast wave of quantitative easing from the European Central Bank. Speaking to people in the market this week has at times felt like hosting the sort of talk radio show that attracts prophet of doom taxi drivers and the more outspoken members of the National Rifle Association. Amid the talk of meltdown and default, immediate “shock and awe” spending by the ECB was prescribed as the only thing that could save the world from a terrible peril.

The response from the ECB was predictably less aggressive, more nuanced and, for now, more appropriate. Trichet is not a politician: he does not do shock and awe, he never has and nor should any central banker. Central banks are there to keep things stable and boring. Further, this would be the wrong time to let slip the dogs of QE war. Yields on peripheral sovereign debt have made back some or all of the ground lost earlier in the week. A lot of firms are about to shut their books for the year. Borrowers do not have a whole lot more borrowing to do, if any at all.

So why, pending any reckless statements from a European politician, with volumes about to lighten, would the ECB worry about doing anything before Christmas? Next year is sure to provide plenty of problems. Now is not the moment to go nuclear.

I agree. I’ve noticed this pattern over the last decade, whenever financial crises occur: the markets shriek ever louder that governments ABSOLUTELY MUST come to the rescue or ALL HELL will break loose. This generates such a general sense of panic and catastrophe that terrified politicians cave in and open the tax purses, and then bankers get bailed out, close their positions, and hail a cab to the gentlemen’s club for whiskies and cigars.

Private banks are, really, the perfect parasite: if you look at financial news, almost all the ‘expert opinions’ come from bankers, from bank economists, from bank analysts, from bank traders. There are hardly any alternate views given in the media. The taxpayer doesn’t really have a representative to put forward our views on CNBC. So the financial sector has captured information transmission, and it makes sure the only message that gets through is: it is imperative that the market gets supported and the banks and boldholders get bailed out. The perfect parasite.

So has the ECB stood firm against the histrionic Gillian McKeith-esque fainting of the bond markets? Well…sort of. It also emerged this week that the Irish government will protect all senior bank bondholders from any hair cut in the restructuring of Anglo Irish Bank, and probably of other bailed out banks too. This taxpayer largesse towards senior bank bondholders came at the insistence of the ECB, according to the Irish government. And that pattern is likely to be followed in other bank bail-out regimes across the periphery of Europe.

So don’t worry, oh hysterical bondholders. The gallant ECB will hold your hand after all. Quick, fetch the smelling salts!

- With the UK election campaign under way in all but name, the FT’s Martin Wolf explains why he doesn’t fear a hung parliament – arguing that it might be just what’s needed to achieve fiscal restraint. “So poorly has single-party despotism governed the UK”, he suggests, “that I would welcome a coalition or, at worst, a minority government.” The Institute for Government, meanwhile answers all your hung parliament-related questions here, placing things in international and historical perspective.

- The Cable highlights the Obama administration’s key people on Iran. Richard Haass, meanwhile, suggests that the West’s strategy must do more to help the Iranian people – with the US and EU acting to “energise and lend rhetorical support to the opposition, helping it to communicate with the outside world”.

- Elsewhere, Der Spiegel profiles the five main risks to the Euro – namely Greece, Portugal, Spain, Ireland, and Italy – assessing their economic woes. Charlemagne, meanwhile, interviews Cathy Ashton. And The Economist also has news that Dominique Strauss-Khan, current IMF head, is considering running against Nicolas Sarkozy in France’s 2012 presidential elections.

- Finally, this week saw a group of British Academy experts writing to the Queen about the failure to foresee the credit crunch – a follow-up to a question from the monarch at the LSE last summer. Their suggestion: the need for a better-coordinated government horizon scanning capacity – something that could take the form of a monthly economics briefing to the Queen, which would serve – as Professor Peter Hennessy has commented – to “sharpen minds” of officials. Read the full letter here (pdf).

Last December I wrote about a Somali pirate’s justification for his choice of career. A former fisherman, like many of his countrymen, his main gripe was with foreign fishing vessels which overfished Somali waters and bulldozed local boats out of their way.

Well it turns out that now, thanks to the pirates,  fish stocks off the Somali coast have recovered. The greedy foreign piscatorial plunderers have been scared off, leaving locals to haul in bumper catches. Now that his justification for piracy has been removed, I wonder if our pirate friend will go back to his fishing rod.

Update: On the other side of Africa, Guinea-Bissau is clamping down on foreign fishing vessels too, but so far in a less swashbuckling way than the Somalis. The tiny West African country’s government has had a trawlerful of Spanish fishermen in custody for the last two weeks (which given the flimsy state of Guinea-Bissau’s navy and its complete absence of prisons is no mean feat). Apparently, the Spaniards are “losing patience.” Should have kept to your quotas then, shouldn’t you?