Spain's Slush Fund Scandal

 

According to a recent report in the FT, the former treasurer of Spain's ruling Popular Party, Luis Bárcenas, has claimed in an interview that the party has been in breach of Spain's campaign finance laws for a minimum of 20 years. Presumably he was moved to talk because he was the one who got caught and is expected to fall on his sword. Now that he is facing a lengthy prison sentence, he no longer has a reason to clam up. Incidentally, no-one in Spain was surprised to learn what he had to say.

According to the FT:

 

“The former treasurer of Spain’s ruling Popular party (PP) has broken his silence over a slush fund scandal that has rocked the country for the past six months, claiming in an interview that the party had broken campaign finance laws for at least 20 years.

Luis Bárcenas, the man at the heart of the scandal, was arrested and detained late last month in connection with an inquiry into the €48m fortune he is said to have amassed in Swiss bank accounts. The investigating judge ruled that the former party treasurer will have to remain in prison until his trial, and fixed his bail at €28m.

His decision to give an interview after months of blanket denials, and to threaten further revelations, marks a potentially dramatic turn in the high-profile scandal. It suggests that Mr Bárcenas is disappointed with the lack of support he has received from PP leaders since the affair broke, and that he may be ready to implicate other senior party leaders.

According to the front page report in the Sunday edition of El Mundo newspaper, Mr Bárcenas claims to have documents and hard discs that chronicle the systematic violation of party finance laws. Their publication, he adds, would “bring down the government”. The interview – which appeared carefully worded and contained only a handful of direct quotes from the former treasurer – was conducted by the editor of El Mundo several days before Mr Bárcenas went to jail.

Though he confirmed many of the allegations that have been swirling in the Spanish media in recent months, Mr Bárcenas made clear that he was not yet willing to release all the damaging information he possessed. “In the current circumstances, the last thing that Spain needs is this government to fall,” he was quoted as saying.

However, the interview is likely to deal a heavy blow to the center-right PP all the same, and not just because it contains the threat of further revelations. Mr Bárcenas described in detail how donors used to arrive at party headquarters with bags and suitcases full of cash, some of which would be channeled into the official party bank account, while some would be used to cover election expenses outside the official campaign fund. Another portion of the money would go into a safe, and contribute to a party slush fund.”

 

(emphasis added)

The reason why Barcenas is not making everything public just yet is probably that he hopes that the material could yet provide him with a ticket to freedom. Essentially, he is telling the Rajoy government: 'Think of something to help me, or else'. At this stage we believe the 'or else' option has become nigh unavoidable, short of Mr. Barcenas suffering an unfortunate accident. Too much has already been revealed, and he is by now in too deeply already.

 

What we are seeing here is actually a strong parallel to Greece. The EU has been complaining about the Greek government's inability to collect taxes, without considering that Greek tax payers may have very good reason to pay as little as possible to the corrupt apparatus installed by the ruling class. As a Greek shipowner told a journalist when asked why he thought it was fine that rich shipowners are tax-exempt in Greece: “Would you want to pay money to Al Capone?”  Pause. “Me neither.”

The same attitude is pervasive in Spain. In fact, we would argue that both Greeks and Spaniards are among the few people in the industrialized world who have correctly identified the ruling class for what it really is: a form of organized crime. It obtains its income not by serving its fellow men, i.e., not by the economic means of production and exchange, but by political means, i.e., the expropriation of producers by coercion and the threat of violence. It is a monopolist of security and justice in the territory it rules, and hence nigh unassailable. The occasional cases where members of the ruling class are made to a pay a price (such as Mr. Barcena's case, or the recent scandal in France, where none other that the country's 'tax czar' was caught evading taxes) are really exceptions to the rule. Either there is a scandal so big that it is feared that the population may reject exploitation by the ruling class altogether unless a few heads roll, or it is a case where someone was so stupid in getting caught that it is decided to make an example of him in order to limit the damage and warn others to be more careful, or it is a rare case of internal strife among the members of the ruling elite that breaks into the open. Other than that, they have usually nothing to fear (just observe what happens to politicians who say that they are 'accepting full responsibility' for something that has happened on their watch. How often do they actually end up paying a tangible price?). 

In most European countries the corruption is more subtle and not as pervasive as in Spain and in Greece, and as a consequence the class of wealth producers, while grumbling, is for the most part quietly accepting the exploitative arrangement. One must not forget, citizens are subject to incessant statist propaganda, beginning already in school (it is no coincidence that governments have obtained near monopolist control over education). This mainly consists of hammering home that the 'State is needed', because without it, there would be utter chaos. As Hans-Hermann Hoppe writes in “The Economics and Ethics of Private Property” in the context of comparing Austrian and Marxist class analysis about the Orwellian features of this propaganda exercise:

 

“[…] the state is indeed […] the great center of ideological propaganda and mystification: Exploitation is really freedom; taxes are really voluntary contributions; non-contractual relations are really “conceptually” contractual ones; no one is ruled by anyone but we all rule ourselves; without the state neither law nor security would exist; and the poor would perish, etc. All of this is part of the ideological superstructure designed to legitimize an underlying basis of economic exploitation.”

 

(emphasis added)

Usually the cost of resistance is extremely high for an individual acting on his own, and as a result it is mainly low key. Spain and Greece are slightly different in that the corruption of the ruling bureaucratic-political apparatus is so glaringly obvious that resistance is almost regarded as a duty.

 


 

BarcenasFormer PP treasurer Luis Barcenas, greeting his former colleagues: I have tales to tell

(Photo credit: Dani Duch)

 


 

Widespread Fraud

In a recent missive in the wake of Moody's most recent rather sobering credit rating report on Spanish banks, Exane's bank analyst Santiago López Díaz (a.k.a. 'Santi'), summarizes the situation as follows:

 

Another of the paramount problems facing Spain is widespread fraud (not to mention widespread political corruption). Some of the Spanish cheerleaders argue that, in reality, the unemployment is not 27% because of the huge size of the black economy. We don’t disagree with that statement. Is the unemployment rate in Andalucía really 37%, as officially reported? However, none of the cheerleaders mentions that if we assume the real unemployment rate is much lower, we should also assume a much higher cost of capital for a country in which fraud is common and only a very few pay taxes.

When we analyze the personal income tax statistics recently released by the Spanish IRS, it is clear that Spain has a problem with a very difficult solution. Fewer than 6,000 people in Spain make more than EUR600k per year (???…nope, we are not kidding); just 73,000 (0.4% of all taxpayers) make more than EUR150k. And 40% of all tax payers declare a monthly income below EUR1,000 per month. 62% of all personal income taxes are paid by 6m people (in a country with 47m people).”

 

(emphasis added)

Although Santi doesn't mention it, the reason why tax evasion is such a widespread popular sport in places like Spain and Greece is precisely what we have pointed out above: people regard the class that obtains its income by political means as a criminal gang. They are evidently entirely correct with this assessment.

Of course one cannot issue a blanket condemnation of the character of people employed by Spain's government – undoubtedly there are a great many honest people active in the administrative apparatus – but as the campaign finance scandal shows, there is enormous corruption at the very top. It is a good bet that it extends downward from there.

In Greece it has e.g. been noted that any people working at a ministry who turn out not to be corrupt are standing out like sore thumbs. As a rule they are mobbed by their colleagues if they refuse to adapt. It seems likely that things are not quite as bad in Spain.

On the other hand, the data Santi relates above are highlighting a major problem with regard to dealing with the governments cumulative public debt as well as its unfunded liabilities (including the cost of future bailouts of the still floundering banks): a tiny minority of tax payers is ultimately expected to pay for all or most of it. They are unlikely to be very happy with their sacrificial lamb status. There is therefore a good chance that they will eventually 'go Galt'.

The sheer size of the so-called 'informal' or 'shadow' economy in Spain – without which there would probably be a famine by now considering the official unemployment rate – actually provides proof that people are perfectly capable of living peaceful and productive lives without the State. After all, the only interaction between people employed in the shadow economy and the State consists of stratagems by the former to avoid and evade the attention of the latter.

 

Conclusion:

As the sovereign debt and banking crisis in Europe continues to evolve, we may yet get to see a number of very interesting developments in terms of the social and political arrangements in Europe. One is that a few regions are liable to attempt to secede from the territories they currently belong to. Catalonia in Spain is actually a prime candidate for eventual secession and judging from the strong support secession has in the population,  one should not underestimate the probability that it will actually happen one day.

As we have argued in 'Secession, An Alternative View', a decentralization of political power, this is to say, the very opposite of what the EU is trying to achieve, would actually be a very favorable development for productive citizens and individuals. By contrast, the EU's goal of ever more political centralization and 'harmonization' only helps the ruling classes to exploit the producers of wealth more effectively by taking away their ability to 'vote with their feet'.

Finally, as the bankruptcy of the Western welfare/warfare states becomes more glaringly evident, even stronger growth of the informal economy seems likely to ensue. Eventually the State may not only become unable to live up to its financial promises, but may become unable to enforce its various monopolies and edicts as well, i.e., it may cease to be a viable entity. Just as the Marxists once predicted, it could then simply 'wither away' – but in its wake it would not leave a socialist Utopia, but actually a free society. In that sense, this latest scandal is actually a boon in disguise, in that it undermines the legitimacy of the State further.

 




IBEX, weekly

Spain's 10 year government bond yield. The fiscal position of Spain's government remains unsustainable. We believe risk premiums are set to rise again – click to enlarge.

 


 

10yr., yield, SpainThe IBEX Index in Madrid: a major secular bear market mirroring the economic downturn – click to enlarge.

 


 

 

 

Charts by: BigCharts.com


 

 
 

Emigrate While You Can... Learn More

 
 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • How to Stick It to Your Banker, the Federal Reserve, and the Whole Doggone Fiat Money System
      Bernanke Redux Somehow, former Federal Reserve Chairman Ben Bernanke found time from his busy hedge fund advisory duties last week to tell his ex-employer how to do its job.  Namely, he recommended to his former cohorts at the Fed how much they should reduce the Fed’s balance sheet by.  In other words, he told them how to go about cleaning up his mess.   Praise the Lord! The Hero is back to tell us what to do! Why, oh why have you ever left, oh greatest central planner of all...
  • India: Why its Attempt to Go Digital Will Fail
      India Reverts to its Irrational, Tribal Normal (Part XIII) Over the three years in which Narendra Modi has been in power, his support base has continued to increase. Indian institutions — including the courts and the media — now toe his line. The President, otherwise a ceremonial rubber-stamp post, but the last obstacle keeping Modi from implementing a police state, comes up for re-election by a vote of the legislative houses in July 2017.  No one should be surprised if a Hindu...
  • Moving Closer to the Precipice
      Money Supply and Credit Growth Continue to Falter The decline in the growth rate of the broad US money supply measure TMS-2 that started last November continues, but the momentum of the decline has slowed last month (TMS = “true money supply”).  The data were recently updated to the end of April, as of which the year-on-year growth rate of TMS-2 is clocking in at 6.05%, a slight decrease from the 6.12% growth rate recorded at the end of March. It remains the slowest y/y growth since...
  • What is the Buffet Indicator Saying About Gold?
      Chugging along in Nosebleed Territory Last Friday, both the S&P 500 and the Nasdaq composite indexes closed at record highs in the US, with the Dow Jones Industrial Average only a whisker away from its peak set in March. What has often been called the “most hated bull market in history” thus far continues  to chug along in defiance of its detractors.   Can current stock market valuations tell us something about the future trend in gold prices? Yes, they actually...
  • The 21st Century Has Been a Big, Fat Flop
      Seeming Contradiction CACHI, ARGENTINA – Here at the Diary we have fun ridiculing the pretensions, absurdities, and hypocrisies of the ruling classes. But there is a serious side to it, too. Mockery makes us laugh. And laughing helps us wiggle free from the kudzu of fake news.   Is it real? Is it real? Is it real? Above you can see what the problem with reality is, or potentially is, in a 6-phase research undertaking that has landed its protagonist in a very disagreeable...
  • A Cloud Hangs Over the Oil Sector
      Endangered Recovery As we noted in a recent corporate debt update on occasion of the troubles Neiman-Marcus finds itself in (see “Cracks in Ponzi Finance Land”), problems are set to emerge among high-yield borrowers in the US retail sector this year. This happens just as similar problems among low-rated borrowers in the oil sector were mitigated by the rally in oil prices since early 2016. The recovery in the oil sector seems increasingly endangered though.   Too many oil...
  • Will Gold or Silver Pay the Higher Interest Rate?
      The Wrong Approach This question is no longer moot. As the world moves inexorably towards the use of metallic money, interest on gold and silver will return with it. This raises an important question. Which interest rate will be higher?   It’s instructive to explore a wrong, but popular, view. I call it the purchasing power paradigm. In this view, the value of money — its purchasing power —is 1/P (where P is the price level). Inflation is the rate of decline of...
  • Rising Oil Prices Don't Cause Inflation
      Correlation vs. Causation A very good visual correlation between the yearly percentage change in the consumer price index (CPI) and the yearly percentage change in the price of oil seems to provide support to the popular thinking that future changes in price inflation in the US are likely to be set by the yearly growth rate in the price of oil (see first chart below).   Gushing forth... a Union Oil Co. oil well sometime early in the 20th century   But is it valid to...
  • Warnings from Mount Vesuvius
      When Mount Vesuvius Blew   “Injustice, swift, erect, and unconfin’d, Sweeps the wide earth, and tramples o’er mankind” – Homer, The Iliad   Everything was just the way it was supposed to be in Pompeii on August 24, 79 A.D.  The gods had bestowed wealth and abundance upon the inhabitants of this Roman trading town.  Things were near perfect.   Frescoes in the so-called “Villa of the Mysteries” in Pompeii, presumed to depict scenes from a...
  • A Bumper Under that Silver Elevator – Precious Metals Supply and Demand
      The Problem with Mining If you can believe the screaming headline, one of the gurus behind one of the gold newsletters is going all-in to gold, buying a million dollars of mining shares. If (1) gold is set to explode to the upside, and (2) mining shares are geared to the gold price, then he stands to get seriously rich(er).   As this book attests to, some people have a very cynical view of mining...  We would say there is a time for everything. For instance, when gold went ...
  • Silver Elevator Keeps Going Down – Precious Metals Supply and Demand
      Frexit Threat Macronized The dollar moved strongly, and is now over 25mg gold and 1.9g silver. This was a holiday-shortened week, due to the Early May bank holiday in the UK. The lateral entrant wakes up, preparing to march on, avenge the disinherited and let loose with fresh rounds of heavy philosophizing... we can't wait! [PT]   The big news as we write this, Macron beat Le Pen in the French election. We suppose this means markets can continue to do what they wanted...
  • The Knives Come Out for Trump
      A Minor Derailment GUALFIN, ARGENTINA – Yesterday, stocks fell. And volatility shot up.   When too many people have too many knives out at once, accidental cubism may result   Reports Bloomberg:   The Dow Jones Industrial Average tumbled more than 370 points, Treasuries rallied the most since July and volatility spiked higher as the turmoil surrounding the Trump administration roiled financial markets around the globe. Major U.S. stock indexes...

Support Acting Man

Austrian Theory and Investment

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com