Vidas Hipotecadas

La agenda oculta de la Administración: el porqué de las cosas

The Administration's hidden agenda: the why of things

In light of recent developments, there are several questions floating around we must solve. Why did the public authorities encourage us to pursue such a dead end?

Surely there is not a single explanation capable of answering our question. What we do find are multifaceted ones, all valid, that help us understand the issues from multiple viewpoints.

Making vices virtues
In the first place, taxes derived from the real estate business became a enormous and significant source of income for public administrators. At the local level, municipalities discovered a formula for amending structural funding deficits that had been dragging on for years. Each time with more skills, but with the same resources for meeting the social needs of its citizens, municipalities fed the speculation monster in order to balance their budgets. For example, in 2004, tax revenue generated from the real estate sector made up 60% of the budget for Valencia and 50% for Madrid, without taking into account the debt issued to finance this sector nor of current transfers.

The political costs of pricking the bubble
On the other hand, political powers were aware that to change the model by deflating the housing bubble would imply destroying, at least in the beginning, hundreds of thousands of jobs that had been generated under speculation. Not a single minister of Labour or Finance, president or political party would accept the consequences of stemming the rate of growth during his or her term. On the contrary, they were ready to do whatever was necessary to reproduce and hold onto a model that they knew would eventually sink. The task was to do everything possible to make sure that when the boat capsized, they were not the ones at the helm.

Influences by lobbyists
At the end of November, 2012, while community partners rescued Ireland and international markets denounced the sovereign debt of Spain, the heads of 41 leading companies in the country gathered in a meeting with the now ex-President José Luis Rodríguez Zapatero and encouraged him to further deepen reforms initiated by his government. Those present included Emilio Botín, from Santander; Francisco González, from BBVA; Rodrigo Rato, from Bankia; Florentino Pérez, from Sacyr; and Isidre Fainé, from La Caixa. It hurts even to remember the word "reform" coming from the mouths of such prominant personalities, nothing more than a euphemism to avoid talking about social cuts, loss of rights and precarious labour. This meeting, that was on the front page of every newspaper, exemplifies the influence exerted by financial lobbies and businesses in political decision-making. Some companies spend huge amounts of money to defend their interests in Parliament, who have teams of lawyers at their disposal who pace up and down the halls of Congress, representatives dining with Members of Congress and who have the ability to obstruct any political decision that harms them. Tailoring political decisions to suit concrete interests at the detriment of public ones undermines the very root of democratic foundations.

Kidnapped Democracy: political parties, governments
and the banking sector

It is important to expose the power relation between political parties, governments and the banking sector.

Within the context of the actual crisis, different local, regional and state governments, rely, more than ever, on the banking sector to finance their spending, payroll payments to officials, transfering allocated grants and subsidies, etc. In a similar manner, political parties, with a still unresolved problem of structural financing, remain strongly indebted to banks and savings banks. Electoral events leave coffers empty and associated costs financed by debt. Even when the State wants to issue treasury bills and bonds, it needs the banking sector to market and distribute these securities. At present, governments are fully subjected to the will of the banking sector. Without this funding, party structures could not sustain themselves and the whole system would collapse. Therefore, if banks and saving banks hold a monopoly on financing, then political parties and governments respond by being very sensitive towards the interests within the banking sector and very cautious when making decisions that could harm them.

By way of example, in February 2011, when the government passed the Sustainable Economy Act, they included a provision which went unreported by the mainstream press and unnoticed by the general public. This provision made a valuation system, which defined the Land Act passed in 2007, much more flexible. Extended from three to six years, until June, 2013, the planned extension within the existing Land Act, made it possible, under more realistic criteria, to assess value of land. However it became a rule that actually made it possible to assess totally rough land as something developable. This new extension allowed financial institutions to avoid the depreciation of assets within their portfolios and to clean up their balance sheets. According the Platform for Dignified Housing, major urban centers, the difference in value, in accordance with the rules, could reach up to 90%. Dated on December 31, 2011, and with current government not even completed one hundred days in office, this extension passed into decree.

This decree also authorized the State to provide guarantees to the financial sector worth 100,000 million Euros. Undoubtedly, these measures represent a great relief to the sector, and send a very clear message about the priorities and interests that La Moncloa (the central government) was willing to defend.

Taking these things into account, it is not diffucult to understand the pardon granted to Santander CEO Alfredo Saenz by the Socialist government during that last minute of legislature and prior to general elections, after the Supreme Court had sentenced him to three months in jail as well as giving him a €6,000 fine. Santander had forgiven 12 million euros the Socialist government owed them. Gestures like this widen the gap between the public and political parties and reinforce discredibility of today's political classes.

Beyond politics: power and personal interests

Apart from these structural reasons there are others of a strictly personal nature.

Many times we have had the feeling that some politicians use public office as a springboard for launching their careers. When they leave public life, they need to relocate themselves within the labour market. Therefore, in order to secure a place on the board of directors of some reputable company, one has to cultivate and nuture relations within the business world. This condition, however, often leads to conflicts of interests, and those holding political positions might be tempted to support certain politicies that fall outside of public interests. This is what academically is known as "Regulatory capture". Antoni Comín, professor of Social Science at ESADE Business School, defines it as such: "Specialists within a certain sector capture the public servant responsible for regulating it who will be duly compensated for his or her services when returning to the private sector". In an extensive article titled "Ex-politicians gain importance in big business" published in April 17, 2011 by the online newspaper Publico, it reported that people either holding or who had held positions in public office accounted for 10% of the boards of directors of companies listed on IBEX (Spanish Exchange Index) and which was attributed to the extensive agenda of contacts with those working in public affairs. (this sentence in bold means that I'm not sure if I got the meaning of the sentence right) This does not even take into account those holding top management positions in companies nor consultants, CEOs or assistant secretaries, who, if they were to be included, would increase even more this amount.

An example of the revolving door policy between politics and the business world, concretely the financial sector, is that of Luis de Guindos, present minister of Finance for the Partido Popular and former executive of investment bank Lehman Brothers España, when it went bankrupt and former advisor to Banco Mare Nostrum intervened. Or that of Guillermo de la Dehesa, former Secretary of State for the Economy for the Socialist government who today is an adviser to Banco Santander. Or of Rodrigo Rato, the former Minister of Economy during Aznar's second term, who had a basic salary of more than 2 million euros when he was president of Bankia, an entity that received bailout loans from FROB (Fund for Orderly Bank Restructuring) to the sum of 4,435 million euros, before becoming nationalised. Once intervened, these loans converted into shares and the State became the largest shareholder of a ruinous entity.

Meanwhile, in September 2011, the assets held by parliamentarians of the Spanish courts was made public.

Practically all had investments in housing. In addition, the vast majority of the senators who make up the Upper House, a kind of residence to some politicians who retire after a long career, own more than two houses, although there are some who exceed more than twenty properties, such as apartments, commercial property, plots, parking spaces or farms.