A Milan judge on Tuesday ordered Prime Minister Silvio Berlusconi to stand trial in April on charges of prostitution and abuse of office, dealing the most serious blow to his leadership in the 17 years that he has dominated Italian politics.
In a brief statement the judge said the trial would start on April 6. Mr. Berlusconi faces charges that he paid for sex with an under-age nightclub dancer nicknamed Ruby Heart-Stealer, and abused his office to help release her from police custody when she was detained for theft. The scandal has dominated political debate in Italy for months.
Mr. Berlusconi denies wrongdoing and has said he has no intention of stepping down. But in an increasingly tense climate after large anti-Berlusconi demonstrations on Sunday, analysts said the judge’s ruling makes it nearly impossible for the prime minister to govern and all but guarantees early national elections.
“The situation is more political than judicial now,” said Stefano Folli, a political columnist for the financial daily Il Sole 24 Ore. He predicted that in the short term Mr. Berlusconi would hold on, but “in the middle-term it’s an unsustainable situation.”
EARLIER today a judge in Milan, Cristina Di Censo, indicted Italy’s prime minister, Silvio Berlusconi, on charges relating to his alleged use of prostitutes. She said he should be tried for paying an underage prostitute and then attempting to cover up the alleged offence by taking advantage of his official position, which is itself an offence in Italy.
But Ms Di Censo did more than just indict Mr Berlusconi. She accepted, in full, arguments put forward by the prosecution that have potentially devastating implications for Mr Berlusconi (who denies any wrongdoing). First, she agreed with them that, because of “the obviousness of the evidence” they had gathered against him, he should be put on trial without a preliminary hearing. The full trial is due to begin on April 6th, and by a twist of fate (or, as Mr Berlusconi’s followers will no doubt contend, malevolent design) all three judges at the trial will be women.
That development seemed particularly resonant against a background of protests by Italian women against Mr Berlusconi and the entrenched machismo his female critics see him as representing. On Sunday, several hundreds of thousands took to piazzas around Italy to demonstrate “for a country that respects women”.
Their protest was the latest challenge to a prime minister whose personal popularity has fallen significantly since the scandal broke last October. Mr Berlusconi also faces daily problems attempting to get legislation through parliament following a walk-out by some of his followers last year.
The legal age of consent in Italy is, holy cow, 14. But it is unlawful to engage in prostitution until the age of 18. Ms. Ruby, her stage name, was 17 when she let the PM boink her.
Berlusconi has said, “I didn’t pay her for the sex”. Which is a round about way of saying, “Yeah I hit that.”
On Sunday thousands took to the streets in Italian cities and worldwide in coordinated demonstrations that organizers said were aimed at restoring the dignity of Italian women amid the latest sex scandal and after years in which Mr. Berlusconi has routinely appointed television showgirls to political office.
No misogyny there. And how about Berlusconi’s lawyer’s take?
Noting that Mr. Berlusconi would be tried before a panel of three women judges, he said: “Great. Women are always appreciated, sometimes even agreeable,” the center-left daily La Repubblica reported.
Makes me wish I understood Italian so I could follow every twist and turn being reported in the Italian media.
Despite the scandals, the angry women, and the splitting of his political coalition, Berlusconi has managed to hold onto power. Why? The Guardian’s Alexander Chancellor says it’s because he’s a master salesman. “When he was building his media empire,” Chancellor says, he demanded his sales team have “the sun in their pockets”–they had to be sunny, smiling, non-smoking, mustache-free. The rules made Berlusconi billions. And now, despite the bad headlines, “Berlusconi still has the sun in his pocket. Addressing political rallies, he always looks hopeful, confident, and in charge. … He may have fallen from grace among many women and Catholics, but most men, apart from those of the left, seem still to like him well enough. In Britain he would probably be resented for his wealth alone, but in Italy it works in his favour.”
Berlusconi is, after all, a guy who once called Rosy Bindi, the middle-aged woman who heads the opposition Democratic party, “increasingly more beautiful than you are intelligent.” Her response was to tell him “I am not one of the women at your disposal,” which prompted an “I’m not at your disposal” campaign in support of her. (Bindi’s rejoinder may have sounded more pithy in the original Italian.) Like that exchange, the insults in the so-called Rubygate scandal are fascinating for their degree of bile, if a little stilted in the translation.
A few days ago, before Berlusconi was indicted for allegedly hiring an underage prostitute, more than 100,000 people, mostly women, came out across the country to protest his dalliances with young women. (Not to mention his penchant for institutionalizing sexism by, among other things, putting skimpily clad showgirls on the networks he owns.) This prompted Berlusconi’s education minister, herself a woman, to label the protestors “the usual snob heroines of the left.” By American standards this is a fairly stunning thing for a high-ranking politician to say. Not to mention a great band name.
Explaining something as tangled, technical, and multi-dimensional as the 2008 financial crisis is fraught with difficulty. Some have tried comparing toxic assets to supermodels, while others have given musical theater a shot.
This morning we have another answer–in the form of a 576-page book–from the congressionally appointed panel charged with investigating the roots of the meltdown. Were it not for corporate incompetence, inadequate government regulation, and excessive risk-taking by Wall Street banks in the housing market, the commission concludes, the country could have avoided financial calamity.
At long last, here is the dissent filed by Vice Chairman Bill Thomas, Dr. Doug Holtz-Eakin, and me to the Financial Crisis Inquiry Commission Report. (I know, you’ve been holding your breath waiting for this.) This dissent will be transmitted to the President and the Congress later today (Thursday, January 27th) along with the majority’s document and Peter Wallison’s separate dissent.
Our dissent is 27 pages long as a PDF. The majority’s document is 20 times longer. Their endnotes are 98 pages. I am not making this up. The full report will be available on FCIC.gov tomorrow around 10 AM EST. Peter Wallison’s dissent is available now.
Since I know that 27 pages is too long for the overwhelming majority of readers on the web, I’ll try to suck you in by telling you that our core argument is in the first seven pages. The last twenty flesh out in more detail each of our “ten essential causes of the crisis.” You could stop after seven pages (I hope you won’t) and have our basic argument.
If you have followed any of the press coverage of the FCIC over the past six weeks, you may think you know what we’re going to say. This dissent, however, makes a fundamentally different argument than the four-man document I signed onto in December. For me this document supersedes that December document, which I looked on as a temporary placeholder.
Bill Thomas, Keith Hennessey, and Douglas Holtz-Eakin have a dissenting statement in response to the final report of the Financial Crisis Inquiry Commission:
We recognize that … other … narratives have popular appeal:… Had the government not supported housing subsidies (the first narrative) or had policy makers implemented more restrictive financial regulations (the second) there would have been no calamity.
Both of these views are incomplete and misleading. … We believe the crisis was the product of 10 factors. Only when taken together can they offer a sufficient explanation of what happened:
Starting in the late 1990s, there was a broad credit bubble in the U.S. and Europe and a sustained housing bubble in the U.S. (factors 1 and 2). Excess liquidity, combined with rising house prices and an ineffectively regulated primary mortgage market, led to an increase in nontraditional mortgages (factor 3) that were in some cases deceptive, in many cases confusing, and often beyond borrowers’ ability to pay.
However, the credit bubble, housing bubble, and the explosion of nontraditional mortgage products are not by themselves responsible for the crisis. Our country has experienced larger bubbles—the dot-com bubble of the 1990s, for example—that were not nearly as devastating… Losses from the housing downturn were concentrated in highly leveraged financial institutions. Which raises the essential question: Why were these firms so exposed? Failures in credit-rating and securitization transformed bad mortgages into toxic financial assets (factor 4). Securitizers lowered the credit quality of the mortgages they securitized, credit-rating agencies erroneously rated these securities as safe investments, and buyers failed to look behind the ratings and do their own due diligence. Managers of many large and midsize financial institutions amassed enormous concentrations of highly correlated housing risk (factor 5), and they amplified this risk by holding too little capital relative to the risks and funded these exposures with short-term debt (factor 6). They assumed such funds would always be available. Both turned out to be bad bets.
These risks within highly leveraged, short-funded financial firms with concentrated exposure to a collapsing asset class led to a cascade of firm failures. … We call this the risk of contagion (factor 7). In other cases, the problem was a common shock (factor 8). A number of firms had made similar bad bets on housing…
A rapid succession of 10 firm failures, mergers and restructurings in September 2008 caused a financial shock and panic (factor 9). Confidence and trust in the financial system evaporated, as the health of almost every large and midsize financial institution in the U.S. and Europe was questioned. The financial shock and panic caused a severe contraction in the real economy (factor 10). …
[I]t is dangerous to conclude that the crisis would have been avoided if only we had regulated everything a lot more, had fewer housing subsidies, and had more responsible bankers. Simple narratives like these ignore the global nature of this crisis, and promote a simplistic explanation of a complex problem. Though tempting politically, they will ultimately lead to mistaken policies.
I don’t think the conclusion that better regulation would not have stopped the crisis follows from the factors they list.
By their own admission, the reason that factors 1 and 2 led to factor 3 was “an ineffectively regulated primary mortgage market.” So right away better regulation could have stopped the chain of events the led to the crisis.
Factor 3 was “nontraditional mortgages that were in some cases deceptive, in many cases confusing, and often beyond borrowers’ ability to pay.” Sure seems like regulation might help to prevent deception and confusion (through, among other things, a financial protection agency). One thing is clear in any case. The market didn’t prevent these things on its own.
On to factor 4: Securitizers lowering credit standards, a failure of credit agencies, and buyers failing to do their own due diligence. Once again, regulation can help where the private market failed. The ratings agencies exist because they help to solve an asymmetric information problem. The typical purchaser of financial assets does not have the resources needed to assess the risk of complex financial assets (which is why saying that they should have performed their own due diligence misses the mark). Instead, they rely upon ratings agencies to do the assessment for them. Unfortunately, the ratings agencies didn’t do their jobs — perhaps due to bad incentives arising from to how they were paid — and this is where regulation has a role to play.
Factor 5 is the accumulation of correlated risk — again something a regulator can stop once the accumulation or risk is evident. This seems like an easy one — when regulators see this type of risk building up, they should do something about it. The question, however, is how to give regulators better tools for assessing these risks. Backing off on regulation, as implied above, won’t help with this.
IT IS not the most promising script for a whodunit. Ten experts are brought together to solve a mystery, but they can’t get along and ultimately reach three different conclusions. That, sadly, is the story of America’s Financial Crisis Inquiry Commission, whose book-length report was released on January 27th.
When the six Democratic and four Republican appointees began their work, there was hope that they could clarify the causes of the financial crisis in the same way as the authors of the 9/11 commission’s report had shed light on the terrorist attacks of September 2001.
It was, though, evident well before they had finished 19 days of public hearings and over 700 interviews that ideological spats would get in the way. By November Republican members were moaning that the Democrats were more interested in crafting a document that would bolster their party’s attacks on the new Republican majority in the House of Representatives than in revealing the truth. When a majority of the panel voted to push the report’s release beyond the December 15th deadline, the four Republicans produced their own preliminary report. Then they began to fracture too.
The result is an unfortunate loss of credibility and, confusingly, three competing narratives. The main report, endorsed by the Democrats only, points to a broad swathe of failures but pins much of the blame on the financial industry, be it greed and sloppy risk management at banks, the predations of mortgage brokers, the spinelessness of ratings agencies or the explosive growth of securitisation and credit-default swaps.
The report takes swipes at politicians, too, for overseeing a long period of deregulation that allowed Wall Street to run riot; and at regulators for not using the powers they had to curb risk-taking and for blithely assuming that markets could police themselves. It points to the Federal Reserve’s “pivotal failure” to rein in reckless mortgage lending, and to the Securities and Exchange Commission’s lax supervision of investment banks. It also fingers an over-reliance on short-term debt. These, however, are hardly novel conclusions.
You may recall the Democrats telling us that the FinReg bill would make it impossible for banks to be “too big to fail” ever again. Nobody believed it then and this inquiry apparently proves it a lie.
Despite a slowly improving economy, it could all fall apart again with another shock to the system. If that happens, the taxpayers will be left holding the bag.
his report has had a long and sometimes challenging history. But to paraphrase an old gospel song, it “may not be here when you want it, but it’s right on time.”Useful Utopians
Over three decades, our government was captured by a libertarian-inspired economic philosophy that had previously been considered radical and impractical — correctly so, as it turns out. That philosophy’s most prominent spokesman, former Ayn Rand acolyte Alan Greenspan, was celebrated as a “maestro,” until the house of cards he came to symbolize finally collapsed.
The prevailing economic myth, of an impossibly wise and genuinely free market, was as useful as it was Utopian. It provided ideological cover for the deregulation that both parties embraced. Government leaders were compromised by the lure of huge campaign contributions, and by a revolving door that ensured future wealth for cooperative politicians and regulators from both parties. The result enriched Wall Street and the Washington elite and left the rest of the country wounded.
The deregulation of the 90s allowed banks to take risks they couldn’t possibly survive. But they had been rescued in previous crises, and the cozy relationship between government and bankers assured them they’d be bailed out again. Freed from the consequences of their own actions, they gambled… and we lost.
Money for Nothing
The most surprising thing about the FCIC hearings for me personally was the lack of competence shown by so many top bankers. The Wall Street executives I worked for were smart, demanding, and driven, but bankers like Citi’s Robert Rubin and Chuck Prince… not so much. Their FCIC testimony displayed a shaky grasp of their business and a lack of concern about the risks facing their own organizations. Many of them seemed to lack even the most basic level of intellectual curiosity. A big bank is a fascinating, complex entity, but one executive after another seemed to shrug off the details of their own banks’ operations with bored indifference.
Sure, their testimony may have been especially vague because of their understandable desire to avoid self-incrimination. But even allowing for that, the low level of managerial skill they displayed was disconcerting. Today’s generation of financial executives may be enjoying the greatest disparity between income and executive performance since indolent princes inherited vast kingdoms through the divine right of kings.
Yet despite this embarrassing record, these executives want to be pampered and flattered by Washington again — and they’re getting their wish. The president and his party took some steps toward genuine financial reform with last year’s bill, but a great deal of work is still needed and their recent appointments aren’t encouraging. Meanwhile, the Washington consensus is pressuring the administration to assuage the “hurt feelings” of CEOs with some success, despite record profits that should provide more than adequate compensation for any injuries to their pride.
Unfinished Business
The president only mentioned financial reform in passing, in his comments about regulations:
When we find rules that put an unnecessary burden on businesses, we will fix them. But I will not hesitate to create or enforce commonsense safeguards to protect the American people. That’s … why last year we put in place consumer protections against hidden fees and penalties by credit card companies, and new rules to prevent another financial crisis…
Last year’s bill was a start, but more reform is urgently needed — to break up “too big to fail” banks, end runaway speculation, protect consumers, and end the incestuous relationship between banks and government. Prosecutions are needed, too. They’re the only way to ensure that bankers can’t violate laws with impunity, knowing that even if they’re caught their shareholders will pay the fines.
It appears we got hit with another 10-12 inches of snow overnight. Schools are cancelled, and my trains are not running into the city yet.
I need to go blow the snow off the driveway, then figure out what I am gong to do today. I was hoping to read the FCIC report, but it does not look like I will get to the store today.
And speaking of Snow Jobs, the dissenters in the FCIC continue their embarrassing foolishness.
The NYT devotes two paragraphs to Peter Wallison — they mention he was “chief lawyer for the Treasury Department and then the White House during the Reagan administration” and that he is “now at the conservative American Enterprise Institute.”
But nowhere do they mention that he was co-director of the AEI’s Financial Deregulation Project. This is a serious omission by a major publication.
The New York Times should be much better than this . .
Around The Sphere 