Black is Black

Amigo Amaro Carrillo, la burbuja la vi llegar muy de cerca, te comento que teniendo licencia oficial por dieciocho años como Real Estate Broker del Departament of Business and Professional Regulation del Estado de la Florida y siendo mánager de una oficina importante de Real Estate en Miami con ciento veinte agentes a los cuales les tenia que orientar y aprobar o negar contratos inmobiliarios donde los millones bailaban, pude apreciar lo que estaba pasando en esos momentos de la burbuja, los bancos se prestaban para aprobar lo que yo consideraba desde mi conocimiento era un arreglo aprobado, como si aquí no hubiera pasado nada y que no rechazaría esa institución bancaria al darle un “toque legal” como el de los Intereses Creados de don Jacinto, mi comentario hacia el agente que me dejaba ver un contrato “amañado” con detalles técnicos “de altura” era, “esto aquí no pasa”, si quieres busca otra compañía pásalo por allá aun cuando yo perdiera la comisión, y lo peor de todo es que fuimos muchos los que perdimos inversiones que eran buenas, pero se convirtieron de la noche a la mañana en basuras que no se podían sostener, la burbuja llevó a muchos, algunos conocidos, al suicidio, a compañías a cerrar perdiendo millones de dolares, y todo porque el dinero de los depositantes bancarios fueron mal usados y por tal motivo hoy podemos apreciar que la poesía de “black is black” se elevo en años para fastidiar a media humanidad, puedo comentarles que al final el FBI pasó por nuestra oficina de Real Estate y “todos mis contratos aprobados estaban en ley”, yo no me presté para que el desorden caminara por mi lugar.
Del baúl de los buenos y malos recuerdos….

From the looting of Caja Madrid to the Bankia fraud
Por DIAGONAL English

By Madrilonia / Translation: Rob Dyas.

Bankia is nothing more than a private bank paid for by everyone: millions of people who deposited their money in public building societies to which can be added the €4.5 billion of state money paid through the FROB (public banking restructuring fund). Following an analysis of the financial practices of Caja Madrid and Bankia, we can confirm that the contracted debt is illegitimate because it is owing to the profiteering of the directors and related businessmen in connivance with the political parties and major unions.
When and why did Caja Madrid stop being a ’caja’ (building society) with social objectives and start being just another financial shark? Successive Strategic Plans approved by the oranisation since the start of Miguel Blesa’s presidency in 1996 have had financial growth by exploitation of the property cycle as their sole objective resulting in unchecked increases in family debt achieved through cheap money and very aggressive commercialisation policies. Annual profits shot up from 2.3% in 2002 to 23% in 2005 right up to an incredible 117% in 2007 (year on year increases). Everything was apparently going swimmingly and the directors decided to award themselves personal prizes. On one hand they liberally dished out loans to themsleves, the board members (whether it be on a personal basis or to their private companies); on the other, they approved a long term incentives plan for the top directors that consisted of additional remuneration, connected to the annual results, transmitted through a multimillion euro insurance policy that matures once they reach 65 years of age.

The board of directors, led by Miguel Blesa for nearly 15 years, has included illustrious individuals that were proposed based on the interests of the largest political parties, unions, large corporations and regional governments. During the entire boom period, it was converted into a management centre for a framework of economic operations to increase the property bubble and the sale of high risk loans that have proved to be highly profitable for their property developers and ruinous for the accounts of the organisation and for thousands of ordinary families.

Who controls the board of directors? Ultimately it is the Bank of Spain ad the National Stock Market Commission (Comisión Nacional del Mercado de Valores), both with a huge responsibility in the historical distortion of the cajas (building societies). However, it is also certain that the building societies are subject to the instruction of their own general assemblies. In the case of Caja Madrid, the General Assembly is the organ responsible for approving the annual accounts, changes in statutes and redistribution of funds for community works. It has more than 300 members that represent the municipal corporations, the Madrid Assembly, employees and clients and representative entities (such as the Madrid Family Companies Association [Asociación Madrileña de la Empresa Familiar] the 1st May Foundation [la Fundación 1º de Mayo], the Regional Federation of Madrid Neighbourhood Associations [la Federación Regional de Asociaciones de Vecinos de Madrid] or the Students Residence Foundation [la Fundación Residencia de Estudiantes] amongst others. The key thing is that the members, each paid on average more than €1,200 to attend each of the 3 annual meetings, have been approving the annual accounts without querying (at least not in a convincing manner) the “business” model developed over the past decade by the company.

We could say that Caja Madrid unites in an integrated way all the characteristics that define a failed banking model by basing its activities unequivocally in the interests of the politicians or businessmen of its board of direcors (the 1%) against those of the population (the 99%). A key player in the property cycle (the prime cause of the caja’s bankruptcy), Caja Madrid has been a veritable conveyor belt used to transfer permanently the money of its savers to the business oligarcy of Madrid in collusion with the interests of the directors that depended on the mainstream political parties. The “community objectives”, that a caja should supposedly carry out on a non-profit basis, were turned into the fuel for the Madrid boom (driven by the PP) to function at full tilt.

Caja Madrid has been used for the benefit of a minority. However, the insulting “politicisation” of the cajas does not excuse the responsibility that must be taken for their mis-management. The solution is not to privatise them. A public financial entity should be managed with the criteria of social utility, be transparent and commit to control functions that would avoid what has happened. Of all the characters that participated in the board of directors, five stand out on their own: Miguel Blesa, Gerardo Díaz Ferrán, Ricardo Romero de Tejada, José Antonio Moral Santín and Rodrigo Rato.

Gerardo Díaz Ferrán was the co-owner of Grupo Marsans (national travel agent that was declared bankrupt in 2010) with his partner Gonzalo Pascual. Between 2007-2010 he was also president of the CEOE (spanish equivalent of Chamber of Commerce). When Marsans collapsed, the administrators declared that both had “used the company as a “purse” from which they passed money to their other companies resulting in the insolvency”. Where did Ferrán get the money for his “business”? Between 2004-2009 he received loans totalling €34.5 million, equivalent to 88% of the total loans given to all the Caja Madrid directors. Included in this figure are loans to family members amounting to €7.9 million (3 of which were personal mortgages on the homes of his children). Recently the judge under Madrid instruction number 9 has decided to reopen an investigation into a credit line of €26.6 million. Blesa, the president of the company, has been charged with approving these credits despite knowing that the businesses of Díaz Ferrán were at the point of collapse. It seems this dispute will now be resolved in the courts. Despite all that has happened, Ferrán has managed to renew the credit now under the presidency of Rato.

The Marsans case is not the only one with irregular loans. Martinsa-Fadesa, the property company that had the largest sums of unpaid loan instalments, received loans of some €1 billion from Caja Madrid when the company was already destined to stop its loan repayments. In the case of Gescartera, La Caixa and Caja Madrid were condemned in 2008 as accessories in being jointly and knowingly responsible for the “maintenance of irregular business practices on the part of Gescartera.” Caja Madrid was made liable for 26 of the nearly 88 milion euro black hole.

Ricardo Romero de Tejada became famous for the defections from the PSOE in the Madrid Constituency that provoked early elections. This was the reason for the emergence of Esperanza Aguirre (PP – right wing) in the government in 2003. In that moment, Romero de Tejada was linked to the businessmen Francisco Bravo and Francisco Vázquez with large property interests in Madrid. Bravo and Vázquez reserved the same hotel rooms used by Tamayo and Teresa Sáez during the surprise attack (the defections from the PSOE in 2003 – Tamayo and Sáez were at the centre of the debarcle) and achieved various opportune reclassifications in Villaviciosa de Odón (the PP local government of the region approved major planning consents for their developments). Tejada was accused himself of falsification of documents and fraud committed in 1998 when he was the mayor of Majadahonda. He was succeeded in that municipality by Guillermo Ortega, connected to the Gürtel scandal (major corruption scandal involving the PP and embezzlement of public funds).

José Antonio Moral Santín, the vice president of Caja Madrid. Moral began with IU (Izquierda Unida – left wing political party) but it soon became clear that he had his own agenda. He established alliances with directors from the PP and it is these, along with the Banking Federation of the CCOO (union), that ensured he maintained his high position. Moral kicked up a major fuss when his salary was revealed: €278k as a employee of Bankia and another €231k as director in the matrix of the Banco Financiero y de Ahorros.

Of course he is not the only unionist millionaire: becoming part of Caja Madrid is like an instant lottery win. Currently, the secretary general of the UGT (union) in Madrid, José Ricardo Martínez, is paid €181k a year by the bank. He achieved this thanks to the distribution agreed between the PSOE and the regional PP (the PSOE were looking for political and union support when they managed to substitute Miguel Blesa at the head of the entity). He has also been chosen as a director of the Corporación Cibeles, a “holding” financial company of Caja Madrid, from which he takes a salary of €198k a year. Two others, Francisco Baquero Noriega y Pedro Bedia Pérez, both from the CCOO (union), earn more than €300k each as directors.

Miguel Blesa had been the great president of Caja Madrid from 1996 up until the aguirrista (Esperanza Aguirre – president of Madrid) maneuver to put in place her man Ignacio González. Aguirre changed the Caja Law (Ley de Cajas) to have more control over them, a move challenged in court by Gallardón (ex-mayor of Madrid and current Minister for Justice, PP). This struggle was openly criticised by Cobo (Gallardon’s associate) in an interview with El País (national newspaper) which led to the aguirristas demanding his expulsion from the party before Rajoy in the Madrid Assembly. Aguirre never achieved the placement of González as head of Caja Madrid, despite reaching an agreement with Tomás Gómez (PSOE), and instead had to accept the choice of the national PP: the great Rodrigo Rato. However, the leader could not hide her satisfaction at having snatched a position from the “son of a bitch” (Aguirre’s words) Gallardón.

Blesa was relieved of his position but nevertheless set himself up nicely with his famous bonus. The loyalty program, without any defined temporal limit, came into force on 1st January 2007 and apparently included €25 million for its beneficiaries; the ten members that were in that moment the top command of Caja Madrid: Blesa himself and 9 other directors: Juan Astorqui, Carlos Martínez, Ramón Ferraz, Rafael Spottorno, Matías Amat, Carmen Contreras, Mariano Pérez Claver, Ricardo Morado and Ildefonso Sánchez. Since Rodrigo Rato took the helm at Caja Madrid, three members of the high command have left the organisation: Blesa himself; Juan Astorqui, director of communication; and Ricardo Morado, who was responsible for systems; between them they received payments of nearly six million euros. Blesa was paid €2.8 million, Astorqui €1.4 million and Morado €1.8 million. These payments will be derferred due to the current state of the caja.

Rodrigo Rato took the presidency of Caja Madrid and began the Bankia operation (a new banking entity resulting from the merger of Caja Madrid and Bancaja as well as seven smaller entities [Caja Canarias, Caja Ávila, Caixa Laietana, Caja Segovia y Caja de la Rioja]). Bankia is nothing more than a private bank paid for by everyone: millions of people who deposited their money in public building societies (cajas de ahorro) to which can be added the €4.5 billion of state money paid through the FROB (public banking restructuring fund). Bankia, the bank that holds the most deposits and assets for spanish residents (more than €330 billion), was floated on the stock exchange on 20th July 2011. Rodrigo Rato decided to float the company in order to continue its financial growth with the money of many people. The shares, that captured the money of 400,000 savers thanks to an expensive publicity campaign, have fallen from €3.75 to €1 in less than a year. Following this failure, which probably involved several related crimes, Rodrigo Rato abandoned the Bankia presidency, taking with him a payment of €2.1 million.

Following an analysis of the financial practices of Caja Madrid and Bankia, we can confirm that the contracted debt is illegitimate because it is owing to the profiteering of the directors and related businessmen in connivance with the political parties and major unions (in order of responsibility: PP, PSOE, Izquierda Unida [politcal parties], CCOO and UGT [unions]). They did not hesitate to grant high risk loans to companies, constructors and individuals. They did not hesitate to sell “preferentes” (high risk investment vehicles) to the elderly and to swindle people with the rounding up of interest rates on mortgages (a practice, now illegal, for which many banks were condemned). They did not hesitate in the creation of a private bank from the public cajas and the floatation of the entity that aggravated the financial crisis. If they leave with a golden handshake, many more will follow behind them. A popular lawsuit has already been launched against Rato and the ex-director of Caja Madrid, Miguel Blesa, in relation to the fraudulent loans granted to Díaz Ferrán. The headquarters of Bankia alone, now in the hands of the state, costs €13.635 million. The European bailout plan for €100 billion will go to shore up the banks, above all Bankia. Because of all this it is necessary to have an audit into the illegitimate debt and to allocate responsibility for the disaster. Those responsible should be held accountable using their own assets and go to jail. However, we should not forget that Bankia is paid for by all of us and that its housing assets, with their limited market value, still have an enormous social value if used appropriately.

[This article was originally published in Spanish on June 29th, 2012]