The systemic corruption now coming to light within the Spanish banking system is breathtaking. But, as is always the case, such large scale, systemic graft and corruption can only exist and (temporarily) flourish if the state and politicians run interference and cover.
Doubtless the ignorant critics will decry the evils of capitalism. They will call for more social controls and political direction, declaiming capitalism (or the economic system based upon the rights of private property) as hopeless flawed due its spawning greed and exploitation. The reality is that the "capitalism" of Spain (and the West in general these days) is not free market or private property based. It is crony capitalism, where the political authorities and the government act as patrons of favoured businesses and certain monied barons who pay.
The Guardian exposes just how corrupt the Spanish banking system has become.
Spain's savings banks' culture of greed, cronyism and political meddlingHow did such surreal inanities comes to pass? Whole swathes of people and institutions have to be willingly complicit in order for this to proceed. The law, the courts, the political authorities all are involved. At best they have to maintain a "see no evil, hear no evil" ostrichesque perspective.
The behaviour of executives at Spain's savings banks or cajas is now coming under scrutiny as the sector prepares to seek taxpayer bailouts
As European taxpayers prepare to rescue Spain's ailing banks, anti-corruption prosecutors, academics and regional parliaments are uncovering a tale of greed, cronyism and political meddling that has brought many of the country's leading savings institutions to their knees.
Attempts to investigate Bankia, the country's fourth largest lender that absorbed a number of savings banks, have been blocked by the ruling People's party. Photograph: Sergio Perez/Reuters
With the fourth biggest lender, Bankia, demanding €19bn (£15.4bn) and authorities now admitting a further €9bn is needed by two former savings banks – CatalunyaCaixa and Novagalicia – concern is focusing on both the mushrooming bill and the way banks have been run. Court investigators are also scrutinising payments to former senior executives and the part-flotation of Bankia, in which 350,000 small investors saw two-thirds of their money wiped out.
The bill that Europe's rescue funds must pay has been increased by the multi–million euro payoffs taken by some senior executives shortly before their banks collapsed and decisions taken by unqualified board members who admit they were incapable of analysing the banks' books. Boards were stuffed with political placements or people who had little idea about banking – including, in one case, a supermarket checkout worker.
They often rubber-stamped decisions. In some cajas they were rewarded with well-paid positions on the boards of subsidiary companies as well as with luxury foreign trips and soft loans. Trips to India, China or Chicago and the hundreds of millions of euros in loans to executives, board members and their families formed part of the gravy train of political favouritism and cronyism.
Chairmen were often unqualified politicians, with academic investigators finding a close relationship between the size of a bank's bad loan book and the inexperience, lack of qualifications and degree of politicisation of the chairman.
A committee in the Valencia regional parliament is looking into how the Caja de Ahorros del Mediterraneo (CAM) – described by the Bank of Spain as "the worst of the worst" – collapsed last July. "Did I check through the accounts?" asked José Enrique Garrigós, a small businessman who was a CAM board member. "Look, I'm an average businessman, I don't have the time or the training to do that."
He said that other board members at the savings bank, based in Alicante,, eastern Spain, included a checkout worker and a sociologist. A dance teacher, an artist and a university psychologist were also reportedly on the board. "The things we have been hearing are surreal," said Mireia Mollà, a regional MP for the leftwing Compromis party. "We still don't know what payments senior management took with them when they abandoned the ship." . . .
Analysing the accounts would have required her to be a superwoman, complained one CAM board member. "I didn't have sufficient financial, legal or accountancy skill… board members were not legally required to have any sort of qualifications or experience," agreed fellow board member Juan Pacheco.The fact that many of the banks were non-profit community savings banks (or cajas) exacerbated the problem. The governance in such institutions is often notoriously weak. Unfettered by the need to make a profit and deliver a return to shareholders, very quickly such non-profits begin to exist to satiate the greed and lust of senior management and their patrons.
This left control of CAM in the hands of chairman Modesto Crespo, director general Roberto López Abad and a few senior executives, they said, with the board effectively rubberstamping their decisions.
"There was barely any debate and votes were … unanimous," said Pacheco. "One board meeting a year was held abroad," said Navarro. "I refused to go on principle." But he admitted attending a meeting hundreds of miles away in San Sebastian with some 50 other people: "Obviously I went with my wife, and the rest of the board took their partners too."
Over six years, board members and senior executives – or their families – received €161m in loans, often at soft interest rates, according the Workers Commissions trade union. Senior executives doubled their salaries over the same period. . . .
Part of CAM's senior management had opted for early retirement as the bank headed towards disaster, with six members, including director-general López Abad, estimated to have left with payoffs jointly totalling more than €10m. Similar stories of multimillion euro payments are emerging from other cajas, which have now been forced into takeovers or mergers to form commercial banks – with the savings banks as shareholders.The corruption has gone way beyond a few rogue directors. It appears widespread and system, and crony relationships with politicians and political parties are part of the picture.
Bankia, for example, paid executive Matías Amat €6.2 m for taking early retirement. Bancaja, one of the seven cajas that merged to form Bankia, reportedly owes executive Aurelio Izquierdo €14m. CAM was nationalised and sold for €1 to Banco Sabadell after receiving €3bn from Spain's bank restructuring fund – which now looks incapable of meeting the financing of other former savings banks.
Attempts to investigate Bankia have been blocked by the People's party in the national parliament and the Madrid regional assembly, but Spain's attorney general has admitted that it is under investigation. Twelve of the 45 cajas that existed three years ago are reportedly being looked at by anti-corruption investigators. On Thursday, the Catalan parliament agreed to set up a committee to look at banking problems as a whole. "If we really knew the truth about Bankia and the other cajas, the two big parties – the People's party and the socialists – would explode," said Arsenio Escolar, editor of the 20 Minutos newspaper. (Emphasis, ours).
Without a widespread social ethic of personal integrity, honesty, truth-telling, and respect for other's property and their property rights, free-market capitalism cannot survive, let alone prosper. There is no magic in "capitalism".