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Austrian Civil Servant Blows $440 Million In Taxpayer Funds On Risky Derivatives

Tyler Durden's picture


It is oddly ironic that on the day the US bailout of AIG is complete, and with a "profit" at that, the spin goes, even if the spin ignores that the "profit" was only purchased at the expense of trillions in sovereign debt issuance and near immediate monetization by the Fed, which has onboarded a mindbogling amount of duration risk (from under $500MM in DV01 in 2008 to over $2.5 billion currently, but nobody will discuss this issue as few if any grasp just how much risk exposure the Fed has shifted away from entities such as AIG), that we learn just how far the abuse of virtually free taxpayer funds goes. Only instead of some US government apparatchiks blowing through billions in some concrete government building in downtown D.C., we go to the birthplace of Mozart, in Salzburg, Austria to learn that a "civil servant gambled hundreds of millions of euros of taxpayers' money on high-risk derivatives."

While this is merely one incident in a faraway land, what it does show is that in an environment in which cheap money is handed out loosely by the government (of which the US government is most guilty) the opportunity cost for prudent, fiducariy responsibility is very low, and it is only a matter of time before the new normal moral hazard rears its ugly head, as one after another more such incidents will come to light. And just like housing could never go down in the credit bubble years, so the Fed is perceived as infallible in the current latest, greatest and luckily final, peak bubble. Just like housing, the Fed is infallible until it fails.

From Reuters:

Salzburg officials said last week they had sacked a finance director after determining she used doctored documents and false signatures to hide a trail of losses from deals that started more than a decade ago, causing a book loss of 340 million euros ($439 million).


The incident has sparked calls for fresh elections in Salzburg state and for regional financing rules to be reformed. Austrian states have 8.2 billion euros of debt, or 8.1 percent of the country's public debt.


"It can't go on that one keeps getting cheap money from the BFA and then starts gambling with it," Fekter told journalists, adding that the states could save 150 million euros per year by using the BFA for all their financing needs.


Foreign currency speculation and trading in derivatives without having underlying assets would be banned, and valuation of assets on the books would have to be updated every year.


Fekter said: "We will make the standards compulsory for everyone. How the states then implement the standards will of course remain a matter of regional autonomy."


The head of the BFA, Martha Oberndorfer, said she would welcome stricter governance and the BFA would give a more detailed statement later.

Uh, why was she fired: she should be promoted to running a derivatives desk at one of the TBTF banks (oh yes, remember how the TBTFs were supposed to be made smaller, nimbler and no longer systemically important - just like AIG - following Dodd-Frank? Oops...), and when she blows up and said bank is bailed out by the government, the government can proceed to issue another several trillion, with the fungible proceeds used to fund the bank's "profit" on the bailout, and the spin can go on that another bank was rescued at a profit to taxpayers.

Joking aside, was the punishment enough? Or will those who want to gamble with free taxpayer money merely find it elsewhere? And how long will the global sovereign regime tolerate such moral hazard which now is backstopped not by shareholders, but by all taxpayers? It appears that the answer, when the myth of the welfare state ending is the alternative, is a surprising "far longer than most had expected." Surprising, too, the ability and length of time people are willing to delude themsleves, and stick their head in the sand of complete denial.

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Tue, 12/11/2012 - 22:35 | 3054411 A Nanny Moose
A Nanny Moose's picture

But can she say, "And now back to Moose and Squirrel?"

Tue, 12/11/2012 - 16:03 | 3052796 Democratic koolaid
Democratic koolaid's picture

Austria has one thing going for them his name is Frank Stronach.  This man is pushing Austria forward in a progressive direction that will transending the "political government's" within the common European community that is in essence public milking bureaucratic parasites. 

His "Economic charter" based country that will according to him make a better society because it will not let individuals who are only intrested in being elected rather then running a country corectly.


Tue, 12/11/2012 - 16:47 | 3053000 Canucklehead
Canucklehead's picture

Is Belinda involved?

Tue, 12/11/2012 - 15:50 | 3052801 Brokenarrow
Brokenarrow's picture

It amazes me who the fed has taken the losses of these black holes and shifted them to the taxpayer, yet the taxpayer doesn't get it.

The cnbc on steroids, business insider, is running all kinda cute pieces today on "what heros" the three criminals are. paulson, bernanke, and geithner. More amazing the bi is run by none other than one of the all time abusers of the markets and investors henry boldgett, a true low life.

They kidnapped the most beautiful girl in town, drugged her, beat her, and raped her. Then they realized what they have done, and rushed her to a hospital. In the lobby the same crimionals are telling the press "we are heros! We saved her!" This is how I see these criminals.

I pray to god they all drop dead from anal cancer......fucking lying theives.

Tue, 12/11/2012 - 15:50 | 3052803 whoopsing
whoopsing's picture

She's been trying to paper-over losses from ten years ago....must be a lesson in here somewhere....Bernank, Bernank??

Tue, 12/11/2012 - 16:12 | 3052861 Democratic koolaid
Democratic koolaid's picture

Lobyist convince governments(the people) to insure private for profit buisness (capitalist) and are left holding the bag.  

Tue, 12/11/2012 - 16:50 | 3053016 zilverreiger
zilverreiger's picture

Almost the man of the town, but not quite :D

Tue, 12/11/2012 - 17:49 | 3053285 nobusiness
nobusiness's picture

I'm sure she got her bonus first and probably a buyout to leave quietly.

Tue, 12/11/2012 - 17:55 | 3053312 WallowaMountainMan
WallowaMountainMan's picture

'even if the spin ignores that the "profit" was only purchased at the expense of trillions in sovereign debt issuance and near immediate monetization by the Fed, which has onboarded a mindbogling amount of duration risk (from under $500MM in DV01 in 2008 to over $2.5 billion currently, but nobody will discuss this issue as few if any grasp just how much risk exposure the Fed has shifted away from entities such as AIG)'

amen to that. and the obvious more....


Wed, 12/12/2012 - 01:04 | 3054786 dunce
dunce's picture

For those of you too young to remember the Orange county bankruptcy was caused by a government genius who thought he was the only one who understood derivatives and used profanity in his condemnation of those who questioned the wisdom of his financial manuevers. He of course never went to jail because he did not personally profit from his blundering but large financial institutions made millions from his stupendous ignorance combined with no adult supervision.

Wed, 12/12/2012 - 01:46 | 3054845 SoundMoney45
SoundMoney45's picture

This was a transfer to the banks, not gambling.  I am sure she will get a nice corner office in a bank that made $400M

Wed, 12/12/2012 - 02:05 | 3054866 resurger
resurger's picture

GS Assets 100bn and 44 Trillions in derivatives

The king of Moral Hazard

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