Let me make it clear straight away – the lies, corruption, cowardice and greed of Spanish bankers and government officials is nothing special. What is happening in Spain now, reminds me of Northern Rock in the UK, Hypo in Germany and CountryWide in the US. So please do not think that I dislike Spain or of the ordinary people of Spain. The people I detest in Spain are the same people I detest in Britain and every country: The Cabal of corrupt Bankers and Political parasites.
Every country will have its moment in the spotlight. Italy is preparing in the wings as we speak. But today, on the Eurofiscal Corruption Contest, Spain is on stage.
It is the mantra of the main political parties and media across Europe, that the present crisis is the result of too many people taking on loans they could not afford. Neither the bankers nor the politicians, according to the accepted story, saw the crisis coming or could have seen it coming but have been engaged in heroic attempts to rescue us from a crisis of our own making. THIS IS NOT TRUE.
First, people did not ‘take’ loans they could not afford. The loans were ‘offered’ by bankers whose job it should have been to advise their clients on whether the loan was wise and sustainable. The bankers offered no such advice but instead pocketed the bonuses which came from selling as many loans as possible to all and sundry. So a more accurate summary of who is morally guilty, is that people accepted loans they should have known they would not be able to afford if ever the market turned down, but which were offered to them by professional bankers who assured them they would be fools not to get on the property ladder. Second, a vast number of the loans which have gone bad in Spain were not in fact ever made to ordinary people. They were made to developers and construction companies. It is those companies which have defaulted.
I am not saying ordinary citizens bear no responsibility. My concern is to stick a knife into the diseased carcas of Spanish Politics and bring to the surface the parasites who have gorged themselves on the flesh of Spain for decades and insist that their blame be recognized.
Let us start with the men who can be said to have built and profited from the disaster which is now engulfing the Spanish people. Four of Spain’s ugliest parasites are Rodrigo Rato the former head of Bankia, Prime Minister Mariano Rajoy , Miguel Ángel Fernandez Ordóñez the Head of the Central Bank of Spain and Jaime Caruana former head of the Bank of Spain. These men form a tight and incestuous group who have promoted and appointed each other to positions of power. They were at the helm during the whole bubble period and they can be said to be the men who caused the present crisis. They, as I hope to show, are at least some of Spain’s guilty men.
Rodrigo Rato become known to the outside world as the Head of the now notorious Bankia. It has been Bankia’s collapse which triggered the current round of Europe’s on-going bank debt crisis. The Bankia collapse has angered the rest of Europe’s elite. Just when they thought they had succeeded in convincing people to forget that this was a crisis of private bank debts and insolvency, caused by bankers, and to think instead that the whole problem was a Sovereign debt crisis caused by greedy citizens, along comes Bankia to remind people, in a most unhelpful fashion, that, at root, this is a PRIVATE BANK CRISIS. A crisis of private loans and private debts, created by bankers at private banks for their private clients. Particularly in Spain this crisis is not one of Public debt.
The Spanish government’s debts were a mere 36% of its gross domestic product (GDP) (the output of its economy) in 2007, while the German government’s were 65%.
And what is more Spain was living well within its means, spending less than it was taking in. Those are facts.
BUT, once Spain entered the Euro interest rates fell dramatically. The result was that borrowing grew and grew. Those who borrowed first and biggest were the developers, construction companies and banks. The ordinary Spaniard followed their lead, and was encouraged to do so because those who had borrowed first, the builders, developers, speculators and banks, urgently needed customers. The big players led the market. They did not respond to demand they created and fostered it.
But back to Señor Rato. His role in Spain’s agony goes back long before Bankia. Señor Rato was, in fact, Spain’s Minister of the Economy from 1996 until 2000 and Vice President from 2000-2004 when the PP was previously in power. This means he was at the helm of the economy during the bubble years when property prices tripled.
Of course he wasn’t alone. Here enters our story another of our villains, Señor Jaime Caruana who was Governor of The Bank of Spain from 2000 – 06, the exact time Rato was Minister of the Economy. He too was a PP nomination. As Governor of the Bank of Spain, Señor
Caruana shared with Rato oversight and regulation of the banks. Neither of them did or said anything to warn of the growing dangers from bank lending and debts. There is nothing I am aware of on record anywhere. Señor Caruana smiled, waved and drew his salary. He was also appointed, again with Señor Rato’s support, to be the Chairman of the Basel Committee for Bank regulation.
So here was Caruana, the Governor of the Bank of Spain, who we now know was asleep at the wheel, while every Caja in Spain was gorging itself on rancid, stupid and outright fraudulent loans, now appointed to the pivotal European Committee charged with regulating Europe’s banks and saving them from themselves. Irony? The word isn’t big enough.
So Señor Caruana was Govenor of The Bank of Spain while also enjoying the power and prestige, of the Basel Committee, and from neither vantage saw anything to worry about in the hugely inflating property and debt bubble at all, and made sure nobody investigated the Cajas. While Caruana had Bank of Spain and Basel Señor Rato too found higher office beckon.
As minister of the Economy, Rato was a rising star in the Parido Popular government, but so was another man, Señor Mariano Rajoy. It was Rajoy not Rato who, in 2004 ascended to become head of the PP. and later Prime Minister. What happend to Rato? As Rajoy ascended to the leadership of the PP, he and the outgoing PP head Señor José María Aznar, lobbied for Señor Rato to become Managing Director of the IMF. Getting their man to head the IMF was virtually the last act of the PP leadership before they lost the 2004 election. Señor Rato was MD of the IMF from 2004 till he resigned suddenly in 2007. 2007…Hmm. During the time he was there, the IMF said nothing unkind about Spain’s property bubble nor its banks. Caruana was at The Bank of Spain and the Basel Committee where he saw no evil, while Rato was at the IMF where he spoke no evil.
Of course Rato left the IMF in a hurry in 2007 while Caruana had been replaced in 2006 at the Bank of Spain by the new governor, Señor
Ordóñez, who was appointed by the new socialist government. You might think would upset things for Rato et al. But no. While Rato was still at the IMF in 2006 he plucked Caruana, even as he left the Bank of Spain job and installed him at the IMF as Director of the new financial, capital and regulatory operation called the Monetary and Capital Markets Department. Where he could see no evil even more comprehensively than before. Rato was out of the IMF, but his man was newly in. Rato was not done yet.
But before finding out what Rato did next it is important to remind ourselves of the saga of the Spanish regional banks, the Cajas. The first Caja to collapse was Caja Castilla La Mancha in July ’09 . As I wrote back in May 2010 in The Ugly Truth everyone expected others to follow. Even a year later none had. Then David Watts at CreditSights wrote a piece which ZeroHedge picked up and about which I wrote in The Stink is Out. The Caja’s and other Spanish banks had been quietly and selectively buying back the worst performing loans out of the securities they had sold. This meant when people looked at Spanish securities they looked impressively healthy and seemed to speak of a well run and surprisingly resilient Spanish banking sector. A fiction which suited Rato and Caruana.
But this fiction came at an appaling cost. By buying back those bad loans the Spanish Caja and banks were managing to hide the real extent of their losses and insolvency but only by keeping the worst loans and the losses they created, on their own books. While other banks in other nations were off-loading whatever they could on to any idiot who they could cheat, the Spanish banks were shovelling their mess down their own throats.
Of course for this to work the bank regulators had to be either unaware or complicit. This is where the new Govenor of the Bank of Spain, Señor Ordóñez comes in. He was not PP but appointed by the new ‘socialist’ government. You might have thought he would have blown the whistle, but he didn’t. Rajoy, Rato and Carauna who were all either out of power or out of the country after 04 -06 were all so well connected it beggars belief that they would not have known what was going on in the Cajas, but they didn’t blow any whistles either. Why would they? They would be exposing their own complicity and guilt. In fact Caruana is even more guilty than the others, if that’s possible, For in ’09, justy when Caja Castilla La Mancha became the first to choke upon and then violently vomit up all of its own shit that it had been shovelling into itself, Señor Caruana had become General Manager of the Bank of International Settlement, the BIS. He was the Central Banker’s banker and guardian of their secrets. He said nothing.
Now let us return again to Caruana’s benfactor, Signor Rato.
Whatever caused Señor Rato to resign so suddenly from the IMF it did not end his career. Far from it. By now we are in 2011 and Señor Rajoy is now Spanish Prime Minister. He was determined to hear no evil. To help him do this Señor Rajoy turned once again to Señor Rato, now ex of the IMF, and this time he appointed him to be head of Caja Madrid.
Madrid also happened to be where Signor Rato’s family, who are very wealthy and who have been involved at the heart of Spain’s politics since Ratos’ Grandfather was Mayor of Madrid and a minister in successive governments, happen to have deep business interests. Caja Madrid gave out a huge number of loans to… construction and development companies. It is the construction and development companies, such as Begar and Ploder Uicesa or Metrovacesa which have defaulted on their loans and gone bankrupt.
But remember many of those worst loans, the Caja’s had been hiding away by buying them back and swallowing them. There is zero reason for believing that Caja Madrid, at the epicentre of the banking and property bubble would not have been playing this fraud. When Señor Rato took the helm he would have been quickly aware of the explosively awful situation. No sooner had he and Rajoy got back together than the Caja implosion engulfed them both. Rajoy and Rato’s answer was to merge 7 dying Caja, including Caja Madrid, into Bankia.
In their minds somehow sewing together 7 dying men into one many limbed monster was going to make them all much healtheir. Maybe they believed their own bullshit. They had, after all been swallowing it for some time. Perhaps they had aquired a taste. Who knows. But on the 31st of January 2011 one of Spain’s more shameful events began. Señor Rato annouced that Bankia would go public and they would offer Spanish investors, ordinary people, pension funds etc, the chance to buy into this new bank which Rato said, and I quote from the official press release, was,
“solid, healthy and with a vast capacity for generating resources, a factor that has already proven its values on the market”.
On July 15th Rato’s version of reality was endorsed when Bankia passed what the European Banking Authoritiy’s called its definitlive and completely transparent stress test. The finest financial experts of the EBA and The Bank of Spain working, as they said, hand in hand with Bankia’s own overseers, found nothing amiss in Bankia. And the bank even declared a profit of €44 million.
Those who believed all the bankers and their expert friends and bought Bankia shares at the offer price of €3.75 have now lost over 60% of the money they invested. Bankia shares are today worth 1 euro. Bankia is now so close to death, the death it was in actual fact always close to, that the Spanish people are once again being forced to bail it out.
Mr Rato was forced to resign. No sooner had he gone but Signor Ordóñez, Govenor of The Bank of Spain has also said he will resign too.
The rats are leaving the ship in Spain. A right leaning pressure group, Manos Limpias, founded and led by a lawyer, recently filed suit against both Ordonez and Rato. The suit which has been admitted to court by a judge in Madrid accuses Señor Ordonez of mismanagement of the banking sector particularly during the Bankia bailout and accuses Señor Rato of falsifying financial statements. Señor Caruana is so far safe at the BIS. He should not be. While Señor Rajoy is protected by still being in power. And he too should be made to answer.
Rato, Rajoy, Caruana and Ordóñez all saw no evil, heard no evil and spoke no evil. Together, however, they profited personally from destroying the lives of their countrymen and women. That, to my mind, is evil.