Facts & Stories
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The Italy You Missed
(March 12, 2009)
Giovanni Castellaneta. Ambassador of Italy to the United States - Washington
Italy's Ambassador to the US replies to a Washington Post article.
i-Italy received permission to re-publish for its readers Ambassador Castellaneta's "Letter to the Editor" originally published in the Washington Post on March 9, 2009.
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I read Mary Jordan's March 1 front-page article, "As Italy's Banks Tighten Lending, Desperate Firms Call on the Mafia," several times -- several times because I was expecting to find, somewhere, mention of the fact that Italy's banking system is among the most solid in the world.
I was hoping for perhaps a simple word about Italy's not falling victim in recent times to any subprime crisis, any bankruptcies, any artificial real estate boom, any Ponzi schemes or even any Bernard Madoff types (we put the one we had in jail several years ago and introduced new laws that have protected our financial system in these months).
Or maybe I would find mention of the successes Italian authorities are scoring against the Mafia and organized crime (the recent arrest of alleged mobster Giuseppe Setola) or that our homeland security activated a toll-free anti-racketeering and anti-loan-sharking number that operates 24-7, a measure that has proven quite useful.
But nowhere did I read about any of this. I have no comments about the article's one-sided content, the description of a despicable and tragic phenomenon. I wonder, however, if your readers would not have also benefited from just a word about Italy's commitment or success in fighting it? What idea would my countrymen have of America if they read an article on the Bush administration that interviewed only activist Noam Chomsky or a piece on climate change that cited only Rush Limbaugh?
I doubt that Walter Cronkite would have concluded Mary Jordan's article with "And that's the way it is."
* Ambassador of Italy to the United States - Washington
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Italy's Banking System
It is obvious that the person who wrote this article doesn't read the New York Times. Over the past few months in the "Business" section there have been a number of articles that laude Italy for not loosening its banking standards. In fact they cited only one bank for losses, but even those were very small. The Italian papers that I read at least once a week made no mention of tightening lending standards, because they are already structured to lend only to qualified customers, which is a prudent way to run a bank. Ms. Jordan may be one of those people who will always identify Italy with the Mafia, without reading articles that show the progress Italy has made to combat this blight, or maybe she feels that people in the US are always interested in reading about criminality, whether in this country or in others. Patricia Rubino Sandler
Italian Banks: Obsolete.
First, I plaud the reply of Ambassador Castellaneta and thank him.
Then, few words about the Italian financial system. True that the Italian Banks did not lower the lending standard on the National territory. But they did jump into the European bandwagon of excessive lending to Eastern EU countries and became overexposed. We will see how it will play out but it does not look good: the value of collateral assets in those countries have collapsed and borrowers cannot pay back.
But here is the caveat: the resilience of the Italian banking system is not due to higher ethic or risk aversion. Not at all (banks lended enormously to the Eastern EU countries). It's simply due to OBSOLESCENCE of the banks, their reluctancy to innovate and introduce new financial instruments.
Let's be straight: the failure of the financial systems in the USA and elsewhere was not caused solely by the innovative financial instruments: CDS, CDO, SIV although complicated were around since many, many years and worked fine. It was instead caused by 1] lack or unenforcement of SEC regulation (on leverage, for instance); 2] political decisions/interests (house to everyone); 3] newly relaxed standard of the rating agencies; 4] overextended consumer debt. These four major issues caused the collapse of the house of cards which, among other things, hosts those financial instruments.
So, the obsolescence of the Italian Banks saved the Italian system. None or few tossic financial instruments in Italy!
If someone disagrees about this idea of obsolescence, just compare the average banking costs for consumers in Italy with any othe civilized country. Statistics are available online. You will be amazed!
Obsolescence
It is true that Italian banks are overexposed in Eastern Europe. That problem is different than what we've experienced in the US. Yes, the costs of banking for the ordinary consumer in Italy is much higher. Checking accounts, loans, credit cards cost more to use on a daily basis. However, Italians know this and are more careful in their use of credit cards, and are more conservative in the loan amounts they take on almost everything. This could be considered "old fashioned," but maybe it may become the new coda in the US. Patricia Rubino Sandler
Re: Obsolescence
Well... the attitude of the Italian borrower (consumer) is not obsolete at all. Actually is very sound and, most important, sustainable. I would even say "modern" on the insight of the caotic time we are navigating (Shakespeare: Neither a borrower nor a lender be). It's a behavioural model for the average American consumer and is embedded in the Italian culture. Obsolete are the organizational and operational structures of the Italian banks, very reluctant to innovate and study/import/issue new instruments. In fact, most of their revenues come from fees and transaction costs imposed to their clients/consumers.
Unfortunately this bank story is just one example of the Italian attitude regarding (dis)interest to innovation. The wealth (in ANY form, not quantitative only) of a Nation starts from Education of its people and innovation is essential part of it. But innovation, beyond education, needs social incentives (which includes Government incentives). Although the average level of Education in Italy is just decent, Italians are disincentivated at all the levels (starting from the #%!$@*& political level) to pursuing innovations.
No wonder the wealth of Italy is slowly, hopelessly and constatly deteriorating. That's unstoppable unless dramatic, serious changes will occur.