France: Banks lend, communities pay

21 September 2011

Libération, 21 September 2011

Dexia Crédit Local (DCL), "the bank that ruined " over 5000 French towns and cities sold toxic loans to French local governments according to a list,obtained by French daily Libération. Between 1995 and 2009, the Franco-Belgian bank sold €25 billion worth of so-called "structured" loans based on fluctuations between exchange rates for the Swiss franc, the euro, the yen and the dollar. "Death traps," the paper calls them. At first these loans are offered at very low interest rates, but then "it becomes a mad world in which every global event with economic repercussions can drive up the cost of reimbursements for a French city," notes Libération.

Today, the 5500 cities and towns concerned owe nearly €4 billion in interest payments. The loans represent a risk for the seller, Dexia, which bought "structured swaps" from major international banks, in an attempt to balance its position. "In the end, the structure put in place is totally to the advantage of the major banks (...) And if they speculate well, they will hit the jackpot," the paper explains. "JP Morgan thus earned a profit of €712 million, Royal Bank of Scotland €676 million and Goldman Sachs €507 million," the paper adds. "If there is one field in which one must deplore that imagination took power without ever wanting to assume the responsibilities, it is finance: the citizens of the communities concerned will have to pay for twenty years for the nutty creativity of banking sector hotshots. Yet we know what comes next: more taxes, less spending and a freeze on future investment," the paper concludes.