• The Speculative Real-Estate Bubble and the Securitisation Scandal in Italy

  • Walter De Cesaris | 22 Oct 09 | Posted under: Italy
  • In the explosion of the most serious economic crisis since 1929, international real-estate speculation has played a fundamental role. This holds true for Italy as well.

    I will emphasise three aspects, each of which require more specific investigation.

    • The American mortgage crisis and the aggravation of the housing crisis. This was the first explosion of the crisis’s pathology: a speculative financialisation out of proportion to the real economy. In the USA, more than 2 million homes are in receivership. In the impoverished areas of American cities, after the expropriation of insolvent borrowers, banks (and this is also the case in Europe) have emerged as some of the biggest landlords.#1 In Italy, the numbers relating to evictions are appalling: in one year they grew by almost 20 %. More than 50,000 judgments in 2008 alone, of which 41,000 (82 %) for non-payment of rent. An important component of the platform of the Committees Against the Crisis (which are being organised) is a freeze of evictions for innocent non-payment of rent.
    • The relation between real-estate speculation and the urban question (put positively, we could say: between the right to a house and right to dwell). Not only houses, but large parts of our cities, of real estate, of supply networks, of services, have, in the context of the current processes of privatisation, become spheres for private-capital investments and have been largely determined by private capital, which means the end of city planning as the public governance of urban space. The “city as a common good” is one of the key points in the construction of an alternative.
    •  The speculative bubble. The financialisation operations of the real-estate sector have strongly involved the most important business groups and brought about a true and proper reorganisation within it. The stock-exchange capitalisation of real-estate capitals has shifted billions of euros. Just one general statistic: in Italy, in the period in which nominal salaries grew by 13 %, real-estate values jumped by 131 % (i.e. grew 10 times faster). A fundamental piece of the cake was represented by divestments of public property, whose accomplishment was greatly accelerated – procedurally and temporally – by means of so-called “securitisations”, an enormous business racket, an immense speculative bubble, a cause – and not a merely transient one – of the financial drug which has killed the poorest and ended by poisoning the entire economy.

    I would like to translate this scheme into the concrete terms of the Italian developments, within what we can call actually-existing capitalism, that is, the perverse web of politics, business and financial speculation. A scandal of enormous dimensions which has direct impact on the national and European governing institutions and on the relation between these and the globalised credit system.

    To make the story more interesting, we can translate it into the terms of a film plot, a sort of crime story that has as its protagonists and interpreters famous actors of the world credit system and of the global financial crash: Lehman Brothers, J.P. Morgan, etc.

    The director and scriptwriter of this great work is doubtless the powerful Minister of the Economy, Giulio Tremonti. Today Tremonti seems to be another person, like the great directors who nonchalantly go from drama to comedy, always producing masterpieces. Very recently, he accomplished another pirouette, returning to the past splendours of lifetime tax amnesties and of general amnesties, a remake of the tax shelters, that is, of amnesty for illegally exported capital, and a new chapter is opening in the saga in which Minister Tremonti, in the years from 2001 to 2006, left his mark the economic and fiscal policy of the Italian government.

    However, up to a short while ago, when the financial crisis was exploding, Tremonti had been passing through a penitential phase. He was for bringing “ethics” to the market. In his last book he speaks of the “crisis as a global Parmalat, where the unhealthy behaviour of speculative finance appears, capable of issuing bonds, worthless papers, for billions of euros and then, via funds, spreads them on top of complex investment offers to be sold to all of the citizens unaware of the risk”.2 This can all be synthesised by the formula that points to the culprit truly responsible for the world crisis: “techno-finance, degeneration of the economic system which we can call marketism”.

    In 2001, however, the Minister was not thinking this way. Creative finance was his gospel then.

    It was, as already said, Tremonti who was the inventor of the most modern and unscrupulous financial operations used to generate cash. It was Tremonti who invited Italians, in their own small way, to do like the Americans and get into debt and mortgage their own house to have liquidity and relaunch consumption.

    This was the Tremonti of securitisations, in particular of public real-estate. This matter has not received the attention it merits. Mario Sensini,3 called it “one of the greatest property divestments ever undertaken anywhere in the world”. More modestly, Tremonti spoke of “the greatest securitisation ever undertaken by a European nation”.

    An application of creative finance with astronomical figures. In 2006 the National Audit Office4 issued a preliminary statement: in the face of portfolios securitised to 129.1 billion proceeds of 57.8 billion were obtained with a sum of 15.9 billion for debt reduction (for every securitised 8 billion less than 1 billion for debt reduction).

    Let us briefly explain the prodigious mechanism set in motion: The Treasury wants to sell real-estate properties and cedes them en bloc to a company expressly established for this purpose, the “SCIP” (Società di Cartolizzazione Immobili Pubblici [Public Property Securitisation Company]). The latter advances to the Treasury an immediate compensation which it does not itself pay out but draws from bond issues on the market. In turn, SCIP reimburses investors the amounts received plus interest through funds collected from the sales that have been effected.

    So far one might say everything sounds normal, or almost. However, as in all successful films, there is a coup de théâtre. What happens if the SCIP cannot redeem the bonds? No problem, the state pays! In fact, the titles are guaranteed regardless of the outcome of the sales. We might say that the bonds are sold on the market but guaranteed without consideration for the market. A necessity, some will say, so that the rating agencies do not lower their investment value. On the other hand, a triple A, the highest rating, is guaranteed for investments on the stock market but without the risk because the state a priori guarantees the interest payments covering a possible difference, if, at the end of the process, SCIP is not in a position to honour the debts.

    As creative finance, it is not bad. We are dealing here with the concrete application of the neoliberal model of speculative finance: privatise the gains and socialise the losses.

    But let’s take a step back.

    What is SCIP? The news media5 tell us that SCIP was born on November 23, 2001 in a notary office in Rome and was founded by two lawyers representing two Dutch foundations having their headquarters in Luxembourg; its social capital amounts to 10,000 (yes, that’s right, ten thousand!) and with a Scottish citizen in his 70s, Gordon Burrows, as president. In short, to speak plain, SCIP is an empty container. But capable of making money for itself and for the banking system.

    As with all the great sagas, the SCIP affair took place in instalments. SCIP 1 and SCIP 2 are carefully prepared and go on the air.

    The first film proves to be a success and its sales make possible payment of bonds with scheduled maturity dates. The repeat performance, SCIP 2, born on wings of enthusiasm, turned out to be rather more unpalatable: the sales turned out to be considerably less than expected. By the end of 2008, receipts were 66.5 % of what had been estimated, quite a bit lower than those needed to handle the payment of the debt accumulated through the bond issues.6

    A third sequel, SCIP 3, i.e. the securitisation of the property of the Ministry of Defence, has, by contrast, remained at the script-writing stage. The clapperboard is not ready for it because by now the insolvency of SCIP 2 is impending.

    What in fact happened at the end of the film SCIP 2? Something very simple and not so far away that it could not have been thought of from the start: the bonds issued superseded the sales made and SCIP does not have funds to pay the matured bonds. And, according to script, the state intervenes – with 1.7 billion euros.

    This brings us up to the present. On February 11, 2009 (with 9 years having passed since the first securitisation and the invention of the SCIP) the same director, Minister Tremonti, declares insolvency and the closing of the operation – the state pays the losses.

    Thus creative finance reveals its secret: it does not entrust a deal to the market, taking on, in exchange the onus of the risk; it awards itself the deal without the attached risks, saddling the state with the latter.

    Did everyone lose from this? No, the banks which issued the bonds have been miraculously healed, along with the consultants and managers, and no one knows the contracts stipulated by the Luxembourg SCIP, for the data are not public: “Burrows and the two Dutch foundations still figure today in the organisation chart and among the shareholders of the SCIP. However, in the meanwhile, at the same company address, Via Eleonora Duse 53 in Rome, some forty real-estate and financial companies have sprouted, all controlled by the same number of Dutch foundations. A grouping of names which are, to say the least, picturesque: Macbeth, Panacea, Atlantide, Tevere Finance …”7

    With the demure language proper to it, the National Audit Office had already spoken plainly in 2006: “The principal risks of the securitisation operations consist of their lack of transparency and of their so-called ‘overcollateralisation’. In the case of public real-estate, the legal and actual guarantees granted the purchasing vehicle company are such as to make the risk remain with the grantor”.8 And the grantor, as the story clearly tells us, is the Italian state.

    No one knows for sure since the contracts are not public, but a realistic estimate speaks of an operational cost in round figures between 850 million and 1 billion euros. A mind-boggling scandal followed by another scandalous circumstance: the fact that it largely happened in silence, which is very strange, seeing as the Italian government, in the form of its leader Berlusconi and his two principal ministers, was pilloried in the press, and not only in Italy, due to various kinds of illicit behaviour and actions.

    To try and explain the reason for this strange omission, I will put forward an hypothesis followed by some reflections of a political character, which also involve the politics of the various lefts within the crisis of the Italian political system.

    • The general dimension of securitisation is emblematic of the processes triggered by privatisation policies and the dismantling of welfare, imposed by neoliberal globalisation. It is the moloch of Maastricht that is striking. The operation arose with the declared aim of generating cash to reduce the debt and to bring the country within the parameters of the established deficit/GDP ratio (an effect that was achieved in a rather modest way considering the resources invested, as the National Audit Office recognised). At the same time, with securitisation fresh money was obtained in the end from the population’s income (wages and pensions, liquidations) used to acquire houses. And, finally, welfare is being dismantled: those securitised public properties were to ensure social security benefits. We could say without exaggeration that the securitisation operation falls, in its general dimensions, within a logic shared by both the right and the centre left, a “European” dimension (“Europe” meaning here the Europe of the banks and of the liberal treaties).
    •  It is said that Tremonti, as soon as he was seated as the Minister of the Economy in 2001, found the project already prepared on the desk of Visco, the ex-minister of the centre left. Without in any way wishing to demote Tremonti’s creative contribution, we cannot but recognise that there is truth behind this malicious bon mot. The project of divesting the property of the Public Social-Security Agencies began in 1995 in the period of the Dini government, supported by the moderate left when the first pension counter-reform, backed by the European technocracies, was launched. It was the government led by D’Alema, the representative of the then Democratici di Sinistra (DS), which put forward the possibility of selling the public real-estate en bloc.9 In short, the continuity is clear: Tremonti acted within a course plotted in its time by the centre left. This also holds for other fields, in particular in the case of the most important choices for economic and financial policy.

    What lesson can the radical left learn from realities such as this? First of all, it should be recognised that in the matter of securitisations, the left – whether in political, union or movement contexts – has not been absent. It fought, achieving results that were not marginal, using its position to be part of the majority both of the government within the Ulivo alliances and of the Unione.10 Reading the more than 350 pages of the National Audit Office’s report, already cited several times here, one learns how the SCIP management tried to attribute responsibility for their own bankruptcy to the institutions of the movement for the right to housing. One of the basic explanations used to justify the 1.7 billion euro hole is in fact that the bond issues were higher than the volume of sales because the latter were meant to relate to the development of the market price, but the pressure applied by the left, the unions and the movements caused it to be blocked at the 2001 level, and the tenants paid less than what had been forecast by the SCIP managers.

    It was a nice win for the pockets of the workers and pensioners who lived in those properties, but not enough to change the overall picture of the operation. As in other circumstances, perhaps more so in this case than in others, we are dealing with damage control rather than inverting the tendency. The left perhaps succeeded in hampering the mechanism used so shrewdly, but certainly did not manage to force a change of course. In the end, the protagonists of the operation made their profits just the same and left all of us to pay the bill.11 From the general political point of view, therefore, the political and social left played a subaltern role. 

    In short, the point not to avoid or forget is the dramatic failure of the centre left and of the various lefts within that cycle, that is, within the cycle of the failure of the left in government. I am speaking of a general failure – in the national government and in the main experiences of regional government (for example, the case of Campania) and of governments of large cities (for example, the disaster of the so-called “Roman model”).

    On this crucial problematic we need a real elaboration that goes beyond the process of this or that leader in order to investigate the cultural roots, the structural elements and the supra-national conditions of this outcome. Without the courage of such a critical analysis, no refoundation of the left is possible and there is the risk of being stuck in pure politicism, in gattopardian formulas and half-formulas, saying that one is changing while one is unable to grasp the essence of the change that has to be brought about. Staying with the area of housing politics, the basic point consists in the inversion of the tendency: to pass from divestment to an increase (in an innovative way) of the public patrimony. On this axis, and on the connection between the right to housing and to the city as a common good, that is between dwelling and living, is where we should concentrate our efforts in building an alternative to the devastation of privatisation and to urban speculation.


    1. Knut Unger, “Dalla crisi immobiliare al diritto alla città, MieterInnenverein Witten, March 2009. 
    2. Tremonti, “La paura e la speranza”. Mondadori, 2008. 
    3. Corriere della Sera, April 1, 2004. 
    4. Corte dei Conti, Adjudication No. 4/2006 of March 31, 2006 – Report on the Investigation into the Consequences of Securitisations. 
    5. Roberta Carlini: “Tremonti chiude la Scip e il conto a noi”. Sbilanciamoci.info. 12.2.2009. 
    6. Maria Cecilia Guerra: “Ma quanto ha reso vendere gli immobili pubblici?”. LaVoce.info 05.05.2009. 
    7. Italia Oggi, February 12, 2009. 
    8. Corte dei Conti, op.cit. 
    9. Legge finanziaria 1999. 
    10. From 1996 to 1998, Rifondazione Comunista (PRC) was part of the majority that supported the first Prodi government. From 1998 to 2001, the DS’s left, the Partito dei Comunisti Italiani (PdCI) and the Greens, after the rupture between the PRC and the Ulivo, participated in two successive centre-left governments, the first led by Massimo D’Alema and the second by Giuliano Amato. From 2006 to 2008, PRC, PdCI, the DS’s left and the Greens participated directly in the second Prodi government, within the Unione alliance. 
    11. Roberta Carlini, op. cit. 

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