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Are We Becoming Immune To Bailouts?

On June 10, there was an agreement reached to bail out Spanish banks for $100 Billion Euros. This was done to stem the run on the Spanish banks that has been building over the last month. (8) You would expect such a move to create relief in the markets and for the problem to subside. (2) The markets did rally for a couple of hours, but then turned lower on the idea that the problems aren't solved. (1) This has been the case all along, but the reaction is new. Even Fitch is not buying into the bailout as they downgraded Spanish banks right after the bailout announcement. (6) Typically the markets rally until the next crisis. Another likely consequence was that the Spanish government bond yield would decline as a result of the relief of stemming the bank runs. Not only did this not happen, but the bond yields are actually going up and reaching the critical level of 7% on the Spanish 10 year bond. (1)(7) The same thing is happening to Italian bonds. (5) The reason for this reversal is that there are concerns that the public debt will be too high. This is not news, but the reaction to the reality is new. (3)

The whole idea behind the bailout was to instill confidence in the Spanish banking system, so people would stop withdrawing money out of panic. It doesn't appear to be working - so what is next? The markets are now waiting to see what will happen to the Greek election this weekend. (4) The Greek banks have also been having bank runs, (3) so the situation seems to be getting worse. The default scenario is for the European Central Bank (ECB), the International Monetary Fund (NYSE:IMF) or another financial body to back the bank deposits in an attempt to bring about more confidence. Unfortunately, once trust is lost, it is hard to get back. If we are becoming immune to bailouts, what will happen next?