Italy’s Monte dei Paschi A Four-Century-Old Nemesis Casts Its Shadow Over Upcoming Elections by Claudio Celani Jan. 27—The crisis of Monte dei Paschi di Siena, the northeastern Italy. It was first sold for about EU3 billion world’s oldest active bank, has again revealed criminal to the Dutch megabank ABN Amro, despite bitter op- actions undertaken by bankers, supervisors, and gov- position from Italian central banker Antonio Fazio. ernments to cover up the insolvency of major financial Fazio was accused of teaming up with organized crime institutions, and forced the issue of urgently imple- figures, forced to resign, and eventually sentenced to menting a Glass-Steagall-like banking separation in the prison. He was replaced by Mario Draghi, the current current Italian election campaign. head of the European Central Bank (ECB). Monte dei Paschi (MPS, known as Montepaschi), Then, ABN sold Antonveneta to Spain’s Banco established in 1472, is now facing bankruptcy after Santander for over EU6 billion. And Santander flipped posting losses of EU4.7 billion in 2011, and EU1.66 it to Montepaschi for EU10 billion-plus. billion in the first nine months of 2012. The bank re- Montepaschi head Giuseppe Mussari knew that ceived its first bailout of EU1.9 billion in 2009, and is Antonveneta’s real value was one third of that figure. now asking for an additional EU3.9 billion. The Bank Why did he decide to buy it, especially given the fact of Italy has already given the green light for the rescue, that MPS did not have enough money? The answer and the government is expected to disburse the funds, could be provided by Goldman Sachs. even if Prime Minister Mario Monti will have to pay a Goldman Sachs, in fact (together with Citigroup high political price at the polls. National elections are and Merrill Lynch), was the “global coordinator” of scheduled to take place Feb. 24-25. the Antonveneta purchase by Monte dei Paschi. But Goldman had already been an advisor to ABN in the Emerging Scandals takeover of Antonveneta. Thus, Goldman Sachs knew In fact, the bailout request takes place in the midst of well what the value of the bank was. emerging scandals showing that MPS has suffered The head of European operations of Goldman Sachs losses in derivative bets, and covered those losses with during the ABN-Antonveneta negotiations was a cer- new bets and fraudulent bookkeeping. In particular, tain Mario Draghi, the same Mario Draghi who, in De- two derivatives contracts are being investigated by cember 2006, replaced Antonio Fazio at the Bank of prosecutors, involving losing bets with Deutsche Bank Italy, after Fazio tried unsuccessfully to squelch the and Nomura, respectively called “Project Santorini” deal. Then, as head of the Bank of Italy, Draghi was re- and “Alexandria,” which increased the MPS losses, sponsible for supervision of banking, when MPS faked but shifted them into the future, allowing MPS manag- the books to cover its derivative losses. ers to cover them in the books. It is believed that this is Now, both Draghi and his successor, Ignazio Visco, only the tip of the iceberg. as well as former Goldman Sachs advisor and current Montepaschi’s troubles started in 2007, when it ac- Prime Minister Monti, are accused of being accom- quired the Antonveneta bank for EU10.3 billion, plices of MPS. Former Economy Minister Giulio thereby becoming the third-largest Italian bank. The Tremonti, who is running for the Senate on his own Antonveneta case is among the murkiest in recent Ital- slate under the symbol of the Lega Nord (Northern ian banking history. It was a commercial bank serving League) party, on Jan. 23, accused Monti of having business and families in the highly productive region of been aware of the real mess at Montepaschi, and having February 1, 2013 EIR International 37 hidden it from the parliament. Monti pushed through Polidori, who is running again for Parliament, reiter- the MPS bailout, attaching it to a confidence vote, ated her call for a Glass-Steagall-like banking separa- Tremonti charged. Furthermore, the government loan tion. “The serious MPS case prompts me to relaunch a can be repaid, not with money, but “with other financial fight which has seen me for years in the front line within instruments,” i.e., junk. and outside Parliament,” Polidori said, in a release pub- Tremonti also accused Draghi of failed supervision lished by several wires. “The need has now become an as Italian central banker. non-delayable priority, to reintroduce the separation A statement by the current Finance Minister, Vit- between commercial banks and investment banks.” torio Grilli, indirectly confirmed Tremonti’s allega- Wires published Polidori’s statements, recalling tion. Grilli said that “the MPS situation is not new, it is that Polidori was the first signer of a 2010 parliamen- not a bolt out of the blue. We had known the existence tary motion calling for banking separation. of problems for one year.” In addition, Giulio Tremonti called, not for the first Bank of Italy governor Visco attempted a defense, time, for a Glass-Steagall-like banking separation, in an saying that Montepaschi had delivered false informa- interview with La7 private TV channel. “You should tion, but records of Bank of Italy inspectors’ findings in not use citizens’ savings to speculate, as it [was de- 2011, published by the news media, nail the central cided] under Roosevelt. The old Italian banking law bank in its responsibilities. similarly forbade speculation with savings. Clinton in the U.S. and Draghi in Italy more or less at the same Election Debate time abolished that law.” The Monte dei Paschi scandal has become the center Then, at the MPS shareholder meeting the next day, of the electoral campaign: Next month, Italians will while world media were focused on the clown show de- elect a new Parliament—and a new government. Cur- livered by comedian Beppe Grillo, a Member of the Eu- rently, the Democratic Party (PD) is leading in the polls ropean Parliament intervened, calling for an immediate with 36%, followed by the alliance between former implementation of Glass-Steagall. Claudio Morganti, Prime Minister Silvio Berlusconi and Lega Nord, with secretary general of the Lega Nord in Tuscany, said: 24% (Berlusconi claims 32%), and Mario Monti’s slate “The reintroduction of Glass-Steagall, abrogated in 1999, with 16%. If things stay as they are, the outcome will be would permit the separation of commercial banks from a PD-Monti government, with either Monti as prime banks that practice speculative and risk activities. I minister, or dictating the agenda. wonder whether it is accidental that, after the abrogation But the MPS scandal might upset the apple cart. The of Glass-Steagall, so many problems with derivatives and electoral contenders each try to blame the other party; toxic assets started. The amount of junk assets being however, technocrat-turned-politician Monti and the traded on financial markets is tens of times larger than PD are the ones on the grill. Monti now faces a di- world wealth. Derivatives are a weapon of mass destruc- lemma: If he bails out Montepaschi (as his masters have tion, and only after introducing a bill separating banks, can ordered him to do), he will pay dearly at the polls. If he we proceed with identifying tasks and responsibilities.” does not, he risks a systemic blowout, as a consequence Morganti also said he is opposed to nationalizing of an MPS failure. Montepaschi, as someone is pushing. “I would never The MPS crisis is slowly forcing the Glass-Steagall nationalize a bank such as MPS, which is full of toxic issue into the forefront. Even if the debate has not yet assets. Taxpayers would be forced to cover the losses exploded, it happens that, whenever someone intro- and recapitalize it. Such losses must be paid by those duces the idea of Glass-Steagall in a discussion, nobody who actually created them, without expecting Father dares to oppose it. State to step in.” In an interview with Radio Padania on Jan. 24, Mo- In a talk show on the national RAI2 channel, former visol—the LaRouche movement in Italy—president minister and candidate for a right-wing slate, Giorgia Liliana Gorini explained why Glass-Steagall is the Meloni, claimed that her slate “is the only party which, only solution, while Lega Nord Sen. Massimo Gara- in its program, calls for separating commercial banks vaglia reminded listeners that he had introduced a draft from speculative banks.” Her opponent, Democratic bill for the measure in the last legislature. Party representative Francesco Boccia, answered that The same day, former Undersecretary of State Catia he agrees on that proposal. 38 International EIR February 1, 2013 MPS and Derivatives: a Very Old Story Gambling is not a new experience for Monte dei The global financial Paschi di Siena. The bank, crisis has now founded 20 years before Co- overtaken the lumbus discovered America, world’s oldest bank, Monte dei Paschi di was originally dedicated to Siena (shown here local agriculture and pasto- in Siena’s Palazzo ralism (paschi means pas- Salimbeni), whose tures). But it soon become a speculative activities date back global investment bank, and to the Tulip craze of played the central role in the the 17th Century, famous Amsterdam-based when the “Semper “Tulip bubble” (or “Tulipma- Augustus” tulip bulb sold for the nia”) in the first half of the equivalent of 17th Century. It was during $340,000, in today’s that financial bubble, one of currency. the largest in history, that MPS invented derivatives. collateral, creating a speculative In 1593, Monte dei Paschi, financial bubble which, in De- which was the most powerful cember 1635, amounted to 15 bank in Europe, operating on the times the entire wealth of Europe.