After the horror of collateralized debt obligations and other wheezes that crashed the global financial system six years back, one was led to believe that banking would henceforth be based on values and ethics. No longer would hideously complex products be sold to clients that were nothing more than ticking time bombs. So how is it that the subway system of Portugal’s second city – Metro do Porto – has found itself saddled with such a time bomb. And the reaction of some in the financial community towards that company can fairly be summarised as – suckers!
Indeed the word “sucker” has been unfairly associated with the management of Metro do Porto who were looking to restructure the debt they’d accumulated building this much needed bit of infrastructure. It’s key to revitalising a historic downtown area that is UNESCO protected but nearly 20% unoccupied. Anybody who knows the city will appreciate I’m not exaggerating when I say that buildings from the 16th to 19th centuries are literally collapsing.
I need to declare a special interest here – I’m half Portuguese and my mother is from Porto. My family there have businesses that have been slowly crushed through no individual fault but by the destruction of the internal market as the nation has struggled to pay off a debt mountain. This is the background to Metro do Porto ending up as the “sucker” at the poker table, ripe to be sold a product that would eventually explode in its face.
The Independent has detailed how the public sector officials running MdP, desperate to pay off its debt, bought what one expert dubbed “possibly the most stupidly complicated financial transaction ever sold”. The Indie has detailed the transactions in forensic depth and I recommend you read. An article on Bloomberg shows how the deals were probably sold to MdP. It characterises the company’s executives as gullible but the question I’m posing here is – what happened to banks cleaning up their act? Yes what they did was legal. Yes, I’m sure it’s compliant and breaches not a single regulation. So then – are we back to caveat emptor? The morals of the poker table?
The people who will pick up the bill for this fiasco are a hard pressed populace in Porto who have, grim-faced and out of national pride, cut back to the bone. One Portuguese newspaper article this week evidenced how meat, milk and fruit consumption have declined considerably since 2008. There are people living out of soup kitchens in this city. Where is the morals or ethics in this situation – where are the values?