Well, it’s starting to look as if Mr. Fernández is right.
“It’s the damn Spaniards,” he’d say, when I asked him why, in Puerto Rico, spectacular frauds are committed to the accompaniment of shrugs and yawns. Our secretary of health, who formerly was the medical director and executive vice president of Triple-S, recently awarded a juicy (think it was $200 million) contract to a health provider—and guess who it was?
Triple-S!
But wait, cried the secretary, it’s saving us 43 million!
Sure, but Triple-S has declined to accept liability—leaving the government stuck if any Triple-S patient sues. The previous health provider—Humana—had accepted liability.
The Trinidadian writer V. S. Naipaul once propounded a theory—corruption was the national sport of Trinidad and Tobago. As proof, he told the story of a concert promoter, who came to town promising an extraordinary gala of unbelievable names—the greatest singers of Europe and America would be there. He published lavish ads, he spoke on radio, he showed pictures of himself with Sinatra and Carlos Gardel. He sold zillions of tickets and then….
Those points of ellipsis kinda tell the story, right?
OK—you saw that coming. But what might surprise you is the reaction—all of the Trinidadians walking around the next day shaking their heads and saying, “wow, that guy was great! Hey, that was the best scheme I’ve seen in YEARS! Totally cool!”
That said, let me whip out my pistol and shoot myself in the foot. Because, as you can see in the video below, the Spaniards themselves are anything but amused by the estafa or con that got practiced on them—a con perpetrated by the Spanish government.
If you’re living in the United States, you may not be aware of how dire the situation in Spain is. Unemployment is around 25% (unofficially), but unemployment of Spanish youth is nearing 50%. The economy has contracted wildly, and Spanish banks, which had expanded aggressively, were hit hard. So they needed cash, and fast.
Into this picture steps Rodrigo Rato, whose last name means what you think it does, and who cooks up the perfect scheme.
Rato came from money, and has made money his profession. He got an MBA from Berkeley, went on to become first deputy prime minister of Spain, and later served as managing director of the International Monetary Fund.
In 2003, Rato was vice president of the government minister of the economy, and he was facing bad news: the banks had to be shorn up. So what did he do?
He legalized a practice, and allowed banks to begin selling preferentes, a financial instrument that you and I—assuming you’re as dumb about money as I—don’t want to touch.
In fact, it’s hard to see why anyone would, except under very special circumstances. Essentially, you’re lending money to the bank, but have no voting rights, no say in the corporation, no guarantee of interest, and no rights to withdraw your money. Oh, and you’re pretty much last on the list of debtors to get paid. In short, you’re giving your money away, and hoping that you’ll get something back. I’d only do that if I controlled 51% of the company….
They are called high-risk investments for a reason, and that makes it all the more galling that the banks began to sell the preferentes to the very people who should never have bought them—middle aged or older modest savers who put all their money into these investments.
You can argue—they should have known better, they should have read the fine print. Confession—I am writing this in an apartment bought through a mortgage which was only given to us after we signed well over twenty documents, not one of which we read. And Mr. Fernández has an MBA, to boot.
Right, so if we—with our twelve years of higher education—were infernally stupid and trusting, who can fault the elderly Spaniards, who listen as that nice bank manager they’ve known and trusted all those years calls them up and tells them about a really great deal. 7% interest!
They fell for it. But it’s not just that the banks had sold them a questionable investment—one writer alleges that the banks had in fact set up subsidiaries in paraísos fiscales (don’t have to translate, do I?) The only thing the subsidiary did was to collect the money and ship it off to the main bank, but the fiscal paradise was considerably sunnier for the bank than the small investor, trying to retake his money. The bank, in short, was in the Cayman Islands; the investor was on the street.
Quite literally on the street, with their whistles and pots and pans, as well as hand-written placards. Thousands of protestors; perhaps a million people out 80% of their money. And then, according to El País, the police responded to the protests, fining the organizers for various supposed infractions to the peace.
El País also reports that the Supreme Court has just told one large Spanish bank (BBVA) that it has to return almost 300,000 Euros plus interest to a couple who had invested in preferentes. And that the bank had the obligation to assess the couple’s financial status and acumen.
Seems pretty obvious, doesn’t it? Oh, and what happened to Rato, who legalized this particular fraud?
Forbes named him worst CEO of the year in 2012.
