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One of the
primary focal points of our writing is the corruption that has become endemic
to the political and financial elites of the world. When we refer to corruption
we are referring to insider deals, cronyism, lies and fraud. Since the Great
Crisis began in 2008, these have become the four pillars of the financial
system replacing the pillars of trust, transparency, truth and reality that
are the true foundation of capitalism and wealth generation.
As we
regularly note, corruption only works as long as the benefits of being
"on the take" outweigh the consequences of getting caught. As soon
as the consequences become real (namely someone gets in major trouble),
then everyone starts to talk.
This process
has now begun in Spain.
MADRID --
Spain's governing Popular Party was drawn deeper into a web of corruption
scandals this past week, after the Swiss authorities informed the Spanish
judiciary that the party's former treasurer had amassed as much as 22
million euros, or $29 million, in Swiss bank accounts.
The
treasurer, Luis Bárcenas, resigned from his
job in 2009, after being indicted in the early stages of an investigation,
which is still ongoing, into a scheme of kickbacks and illegal payments
allegedly involving other conservative party politicians...
Nonetheless,
the revelations have brought a fast-growing list of corruption
investigations, which have unspooled across Spain, to the doorstep of the
conservative government of Prime Minister Mariano Rajoy,
who has so far remained silent. About 300 Spanish politicians from across
the party spectrum have been indicted or charged in corruption investigations
since the start of the financial crisis. Few have been sentenced so far.
Source: NY
Times
Outside of
Spain, corruption scandals have also erupted in Greece. There it was revealed
that the very Greek political parties that were negotiated the Greek bailout
had received over €200 million in loans from the Greek banks.
Greek
prosecutors have ordered the two main ruling parties to testify in an investigation
into more than 200 million euros in loans they received from banks, officials
said on Friday.
The
investigation - which is examining whether the loans are legal and whether
any wrongdoing was involved - could
embarrass the fragile conservative-led government, which relies on aid from
the European Union and the International Monetary Fund.
Last year a
Reuters report revealed the conservative New Democracy and the Socialist
PASOK parties were close to being overwhelmed by debts of more than 200
million euros as they face a slump in state funding because of falling public
support.
Source:
Reuters
Here again,
we find that politicians were "on the take" via questionable if not
illegal funds. The fact that this story is coming out now does not bode well
for Greece, which is barely holding together as a country.
The
consequences of this discovery will not be positive for the Greek political
class:
Greece's finance
minister was sent a bullet and a death threat from a group protesting home
foreclosures, police officials said on Monday, in the
latest incident to raise fears of growing political violence.
The package
was sent by a little-known group called "Cretan Revolution", which
warned the minister against any efforts to seize homes and evict homeowners,
police sources said. The group sent similar letters to tax offices in Crete
last week.
Source:
Yahoo! News
Italy is also
facing a major scandal implicating key political figures including the
biggest player for European financial system, ECB President Mario Draghi:
Back in
mid-January, Bloomberg's Elisa Martinuzzi and
Nicholas Dunbar reported that Deutsche Bank helped Italy's third-largest
bank, Monte Paschi, cover up a 367 million euro
loss at the end of 2008 with a shady derivative deal. That swap
helped the bank look better than it really was just before taxpayers bailed
it out--echoes of Goldman Sachs's deal to hide Greece's national debt.
The Italian papers
followed Bloomberg's scoop days later with news that Nomura had structured a
derivative for Monte Paschi along similar lines.
The Italian central bank then disclosed Monte Paschi
executives had concealed documents on the trades from them. Reuters reported
that JPMorgan also did a sketchy derivative for the bank.
But the
scandal only continued to grow. So far, the bank may have lost a billion
dollars on the deals, and it turns out that the Bank of Italy knew about the
allegedly fraudulent deals back in 2010, when Mario Draghi
was its chief. Draghi is now head of the European
Central Bank, and has been critical in tamping down the euro crisis in the
last several months.
Now, the
scandal threatens to change the course of Italian national elections being
held later this month, giving a leg up to Silvio Berlusconi...
Source:
Bloomberg
The key item
in the above story is Mario Draghi's involvement.
As head of the European Central Bank, Draghi is
arguably the most powerful man in Europe. Indeed, it was his promise to
provide unlimited bond buying that stopped the systemic implosion of Europe
last summer.
In this
sense, the entire EU has been held together by Draghi's
credibility as head of the ECB. The fact that we now have a major scandal
indicating that he was not only aware of fraudulent deals in 2010, but gave
them a free pass will have major repercussions for the future of the
Euro, the EU, and the EU banking system.
We hope by
now that you see why we have remained bearish on Europe when 99% of analysts
believe the Crisis is over. The only thing that has the EU together has been
the credibility of politicians who we are now discovering are all either
corrupt, inept or both.
To use a
metaphor, if Europe were a single house, it would be rotten to its core with
termites and mold. It should have been condemned years ago, but the one thing
that has kept it "on the market" was the fact that its owners were
all very powerful, connected individual. We are now finding out that the
owners not only knew that the home should have been condemned but were in
fact getting rich via insider deals while those who lived in the house were
in grave danger.
As we stated
at the beginning of this issue, corruption only works as long as the benefits
of being "on the take" outweigh the consequences of getting caught.
As soon as the consequences become real (in that someone gets in major
trouble), then everyone starts to talk.
The above
stories about Greece, Spain, Italy reveal that we
have entered the stage at which people have begun to talk about Europe's
corruption.
2013 is going
to be a very interesting year for Europe.
Best Regards,
Graham Summers
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