http://www.timesofmalta.com/articles/view/20120721/local/Gonzi-assures-shareholders.

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Who will protect our human rights ?

Jeremy Cassar Torregiani
The article by Alfred Mifsud entitled Who will protect the taxpayer, which appeared on 15 July, shows that danger of intelligent, energetic people who act without integrity. To quote the worlds leading investor Warren Buffet: Integrity without knowledge is weak and useless, and knowledge without integrity is dangerous and dreadful.

In his reasoning for opposing government talk to find an equitable solution to the National Bank of Malta saga, Alfred Mifsud implies that the taxpayer should be protected and that any settlement would be coming from the taxpayers pocket.

The first point I would like to make is that everyone is a taxpayer, therefore to make a distinction between taxpayers and shareholders, implying that by being a shareholder you are not a taxpayer, is the first lie of many that appear in this article. If his article was designed to make a valid argument without wilful deceit, his headline would have read Who will protect the public purse from political favouritism? Instead however, he seeks to appeal to the masses by planting a supposed division between taxpayers and the shareholders, ignoring the fact that they are one and the same and, more importantly, equally two distinct facets of our citizenship that rank equally in the moral balance of the rule of law that should be observed to protect the rights and freedom of every individual whether he be paying taxes, receiving welfare subsidies or as an investor in our economy.

His second lie is to say that the run implicitly implied an erosion of any capital. A run is not the basis upon which a bank has no value, which is why central banking was established. Mifsud, as a former chairman of Mid Med Bank, knows this all too well but for reasons known only to himself, he chooses to mislead the reader to mitigate against a possible solution.

One of the worlds foremost economic historians, D. Bordo, explains the forces behind the development of modern central banks, providing insight into their role in the financial system and the economy.

Central banks of this era also learned to act as lenders of last resort in times of financial stress when events like bad harvests, defaults by railroads, or wars precipitated a scramble for liquidity (in which depositors ran to their banks and tried to convert their deposits into cash). The lesson began early in the 19th century as a consequence of the Bank of Englands routine response to such panics. At the time, the bank (and other European central banks) would often protect its own gold reserves first, turning away its correspondents in need. Doing so precipitated major panics in 1825, 1837, 1847, and 1857, and led to severe criticism of the bank. In response, the bank adopted the responsibility doctrine proposed by economic writer Walter Bagehot, which required the bank to subsume its private interest to the public interest of the banking system as a whole. The bank began to follow Bagehots rule, which was to lend freely on the basis of any sound collateral offered but at a penalty rate (that is, above market rates) to prevent moral hazard. The bank learned its lesson well. No financial crises occurred in England for nearly 150 years after 1866. It wasnt until August 2007 that the country experienced its next crisis.

The next lie is to imply that the National Bank of Malta was badly run. Of course, when compared to how banks are run today one would say that in comparison the National Bank was run primitively, but bear in mind that it was a wholly owned Maltese institution that like anything Maltese was limited by the size and experience of our market. Having said that, compared to all other wholly owned Maltese businesses it

was the jewel in the crown of our entrepreneurial ability, so much so that in 1955 the NBM had prepared a contract (which I have in my possession) to take over Barclays Bank once the British has decided to wind down their naval base. If the National Bank was managed unprofessionally, name one other Maltese company that was more professional and provide the proof so that the reader, rather than being misled by another half-truth, will understand correctly what is being said. My point is that as a Maltese institution it may have had its limitations, but if this institution was unprofessional we must also be honest enough to say that any other Maltese business at the time was no more professional that the National Bank of Malta.

In addition, the reference to put your house in order was made on the golf course to my grandfather the then vice-president not chairman, with the Governor of the Central Bank telling him that he knew for a fact that Mintoff had his eyes on the bank and to prepare for the attack as best he could. Then again not a major issue but important to show the interested reader that Mifsud mixes up his facts, misquotes and implies his pseudo intelligence at random to deceive and not to establish fact.

The next half-truth is the statement that the Central Bank of Malta had carried out an inspection and that the findings were unsatisfactory, so much so that the decision not to act as lender of last resort was based on its findings. First of all, the Central Bank was continually issuing directives of reform as it had only been recently established and as a result certain policies that were not in place were in the process of being introduced. As with any industry that had been previously less regulated, the adjustments were reluctantly accepted, but the NBM was doing all it could within the limitations of the economy to comply. Not one auditors report was quoted as the justification for not lending, and to therefore say that the Central Bank abdicated its legal responsibilities because it knew the bank was insolvent is a lie that cannot remain unchallenged. More importantly, the accounts showing its alleged insolvency were produced four months later so there was no way that the decision not to lend on the grounds of insolvency could have been made at the time of the run. Even then, the basis upon which the provisions were increased was not on account of non-performing loans as stated by Mifsud but on the basis of an alleged 36 per cent drop in property prices between 1969 and 1973.

To the casual reader this point might go amiss however this is a very important distinction. Had the provisions been based on non-performing loans it would have meant that the bank was being badly managed as it was lending large sums of money to people who could not repay it. If on the other hand, as stated by the auditors, the provisions were increased on the basis of information they received that showed a decrease in property by 36% it would prove to any respectable observer that rather than the business being insolvent, that it was orchestrated by government to expropriate at no value. Never do the auditors refer to non-performing loans as the reason for the increase in the provisions for bad debts. On the contrary, the notes to the accounts are very specific and read The major part of the provision has been calculated by applying an index of property price changes between 1969 1973 based on information available to the values of property on which advances are secured after taking into account collateral securities against these advances.

For the benefit of your readers it must be made clear that in fact the accusation levied against the bank at the time, but which Mifsud is all too happy to fudge in the interest of convenient argumentation, was not in fact that it was the NBM which was directly insolvent but rather that due to the would-be insolvency of the banks customers (i.e. the Maltese man in the street who had borrowed money to buy his home and finance his business and who the bank had sufficient confidence in so as to lend him money) which was, at the time, determined on the basis of an alleged drop in the value of Maltese real estate the bank was, as a result, insolvent. The argument underlying the statement of insolvency was that because property values had fallen by 36 per cent borrowers had, allegedly of course, borrowed in excess of the value of their own assets rendering them unable to repay their loans to the bank. An allegation disproved by historical fact through the actual (not hypothetical or presumed) repayment of those very loans to BOV as they fell due. Have no doubt that the repayment of those allegedly bad loans was totally independent of any government intervention or any modernisation to the systems and processes of the bank. Even the superlative banking genius of the likes of Danny Cremona could do nothing to make a bad loan previously granted by the NBM to bad borrowers suddenly good. But yet the loans were repaid so the only hypothesis, which needs to be proved beyond reasonable doubt, is the

assumption that the loans declared to be lost and unrecoverable by the government of the day so as to establish the would-be insolvency of the bank was justified. An assumption that I argue is impossible to prove because they were not unrecoverable. Time has proved that to be a fact not a presumption or a hypothesis but a fact. Time, being the same agent that has proved that the would-be loss in property value between 1969 and 1973 existed only in the minds of those who plotted and conspired for the takeover of the bank.

I should be able to rest my case here but because Mifsud continues to lie, I am compelled to continue in my answers in my quest for the truth.

Taking another angle, the sage Mifsud fobs off all the threats made by Mintoff as a sideshow to the core issue. In so doing he thrashes the very many people and fellow citizens and taxpayers of Malta that have come forward to recount the violent threats used in the crisis. Not only is this another untruth designed to appeal to that sector of the population who, motivated by self-interest, may oppose a settlement. It rubbishes the very lives that the violence ruined. More than the money, it is this issue that is most disturbing. That rather than calling a spade a spade and listening to the vast amount of evidence collected by people from various walks of life, he tries to protect a monstrous act of abuse to the detriment of law abiding citizens.

In my humble opinion, our tiny democracy has a lot to be proud of. Against all odds we have managed to create a sustainable miracle economy that is a beacon of hope to the rest of Europe. If tiny Malta has found a way how much more should mighty Europe? Yet rather than having done this with the stain of theft on our sleeve, let us acknowledge the good work of previous Maltese institutions that believed in the possibility when even the British Empire had thought it impossible. By finding a just solution to this long drawn out embarrassment, let us bolster the dignity of all Maltese taxpayers and shareholders alike and send a resounding message to the rest of the world that we are a truly progressive democracy that is open for business in a region riddled with rogue states and immoral practices. Using this formula let us work together as true Maltese to attract the largest and most respected financial institutions in the world to set up shop here in Malta and service a region otherwise plagued by liars and cowards that abuse people for their own power and greed.