A reply to Mintoffs apologists and other historical revisionists WhatMintoffs apologistssaythe NationalBank shareholdersclaim How Mintoffs apologists respond

Why Mintoffs apologists are wrong The fundamental issue is not compensation but whether there was any wrong doing in the first place. The National Bank shareholders maintain that they were coerced into signing away their shares. Mintoffjani say they were not, despite all the evidence to the contrary. This is a non-sequitur. A run can happen to or be orchestrated against any bank. It does not follow that the bank should be taken over. That is why protective measures are built into the regulatory system. The relevant question in the NBM case is not whether there was a run, but whether protective measures were enabled or hindered. Mintoff chose the latter. The other primary primary concern is whether the bank was financially sound. It was and it met all the regulatory requirements set by the 1967 Central Bank Act. The NBMs profitability is a secondary concern but it is further evidence that the bank was on a strong footing. The differentiating factor between a bank in a normally functioning system and the NBM case was Mintoffs disregard for the separation of powers, particularly in relation to the central bank governor, whose role he usurped, and the judiciary, which he influenced directly and through the intermediary of the attornery general who acted as his emissary. TheBankhada strongBalance Sheetbeforethe depositorsrunon theBankbeganand hadliquidity buffersabovethe legalminimum ratios Whenthebanklost theconfidenceofits depositorsitlostits mostimportant asset.Eventhe Titanicwasstrong andvaluableasitleft theportof Southamptononits maidenjourney. Afterithitthe icebergitwasmore thanworthless.It wasaliability.Lossof depositors confidencewasthe NationalBanks iceberg Wrong metaphor. The sinking of the Titanic was accidental and, after it hit an iceberg, inevitable. The forced takeover of the NBM was neither. Investor confidence and depositor confidence are essential to a banks health. That is why the banking system and the banking regulatory regime include measures designed to protect depositors and to restore confidence in a bank when necessary. The iceberg that sank the NBM was not the loss of depositor confidence, but Mintoff and his disdain for true democracy, for the rule of law, and for the separation of powers. In the Mintoff version of the Titanic story, a government forces the crew off the ship at gunpoint, prevents passengers from entering the lifeboats, and then proceeds to ram the ship into an iceberg to justify the action taken

TheBankwas profitablebefore thedepositorsrun ontheBankbegan

EvenNorthernRock wasprofitablebefore thedepositorsrun ontheBankbeganin 2008.

against the crew and passengers. When the ship starts to sink, the passengers are allowed into the lifeboats but the crew are left to drown. Whereisthe evidence? Government threatenedto withdrawpublic sectordepositsonly aftertherunonthe bankwasinfullforce andpublicview. TheCentralBank OnlyiftheCentral hadadutyto Bankmadea restoreliquidityto technicaljudgement theNationalBank thattheproblemsat underits theNationalBank obligationstoactas wereproblemsof alenderoflast illiquiditynotof resort. insolvency.The denialoflenderof lastresortsupport showsthatthe CentralBankmadea judgementthatthe problematthe NationalBankwas insolvency. Insolvencyrequires additionalcapitalnot temporaryliquidity. Nobodyhasprovided anyevidencethatin sodecidingthe CentralBankhadany ulteriormotives otherthanthe executionoftheir roleasprovidedin thelaw. TheMintoff Themomentthe governmenttook CentralBankdecided overtheroleofthe nottoofferlenderof CentralBankand lastresortsupport, forcedtheNational judgingtheNational Bankshareholders Bankasinsolventnot tosignovertheir justilliquid, investmentsforno governmenthadto consideration moveintoprovide underunfairduress theadditionalcapital thattheshareholders Therunonthe bankwas engineeredwith malicious intentions The motive behind Mintoffs threat was the acceleration of the banks demise to justify his premeditated takeover. That is why he deliberately stimulated the run by his public appeals for calm while privately threatening directors that he would withdraw public funds, depleting the banks liquidity with one hand while withholding bridging finance with the other.

This is fallacious reasoning. Those statements would only be true if the central bank acted independently of government. It did not because it could not. Mintoff the prime minister usurped the role of central bank governor, overriding the central banks autonomy and independence. The inconvenient fact that Mintoffiani try to hide behind their discussions of Central Bank technical judgements is this: the denial of lender of last resort support was nothing more than Mintoff usurping the role of Central Bank governor to justify what he had already decided as Prime Minister, i.e. to take over the NBM. Central bank intervention would not have been necessary if Mintoff had not already blocked a commercial bridging loan, again by usurping the role of Central Bank governor.

It is disingenuous to omit the chronology of events from this particular line of argument. The Council of Administration decided the NBM was insolvent AFTER Mintoff forced its takeover. The central banks decision not to provide lender of last resort support was Mintoffs. The decision was taken not because the bank was insolvent, and not because it was illiquid.

wereunwillingto provide.Government hadadutytoensure thatthetaxpayer getsfairrewardfor theriskstheywere beingforcedtotake andnottopayany compensationforan assetwhichatthat pointwasforall intentsandpractical purposes,worthless. Tojustifynot Theaccountswere payinganythingto auditedbya NationalBank reputablefirmof shareholders auditorsandthe Mintoff provisionstookinto government considerationamore eventually conservativeand presentedaudited realisticviewofthe accountswhich valueofthesecurity increasedthe heldagainstnon provisionforbad performingloans. debtstoalevel Prudentbanksvalue whichwipedaway suchsecurityonthe allequitycushion. basisofforcedsale whereastheNational Bankvalueditat optimisticmarket values. Subsequentevents Intheyears provedthatmostof subsequentto1973 thedebtsprovided thesharpincreasein forwererecovered oilpricesdelivered andBankof severalyearsofhigh Vallettatookback inflation.Inflation intoprofitslosses workwondersto incurredbythe easetheburdenof NationalBankto debtandtoimprove engineerits thevalueofsecurity. takeoverwithout Butthesesubsequent compensation eventscouldnot havebeenknownat thetimeofthecrisis in1973andthe decisionsmadein 1973havetobe judgedbythe circumstances prevailingatthe time.

The Central Bank had not, at any time, issued any warnings of insolvency or illiquidity. It did not because it could not, because the NBM was neither insolvent nor illiquid. The Central Bank had already advised government that the NBM was on a sound footing. That essential fact did not change even after the run started.

The Council of Administration, which included Mintoffs man, Lino Spiteri, ostensibly judged loans advanced against property to be likely bad debts. Most of the property-collateralised loans came through Tagliaferro Bank, part of the National Bank group. Tagliaferro Banks 1972 accounts were audited by the same reputable firm of auditors. There were anomalies in the Council of Administrations audited accounts, which were documented in the Sunday Times of Malta: http://www.scribd.com/doc/94824016/GlaringAnomaliesin AuditorsReportonNBMAccountspart1Times09JUN1974 http://www.scribd.com/doc/94824010/GlaringAnomaliesin AuditorsReportonNBMAccountspart2Times09JUN1974 The circumstances relating to the NBM case were as follows. There was no proper separation of powers between the government and the central bank. Mintoff overrode the central banks advice that the NBM was sound. He took a decision in the CBM governors shoes that the CBM should not allow a commercial bank to provide bridging finance. He then took another decision again, in the CBM governors shoes that the CBM should not act as lender of last resort. There was no separation of powers between the government and the police and armed forces. The police are meant to prevent crime. Mintoff used members of the police force and armed soliders for the criminal purpose of coercing shareholders into signing away their rights by calling on them in the dead of night and threatening them with the lifting of limited liability. There was no separation of powers between the

government and the house of representatives. Mintoff threatened to make directors and other shareholders personal liable to depositors by passing a law in parliament that would lift the limits on their liability, and this despite the fact that the house of representatives represents the people and not the government, and the proposed law was unconstitutional. There was no proper separation of powers between the government and the judiciary. Mintoff telephoned a judge who was to decide, in an emergency case, on a crucial matter of shareholding in the NBM. The attorney general acted throughout as Mintoffs emissary. He had even warned NBM directors that Barclays had already swallowed the pill before a final decision on the Barclays loan was announced. When Mintoff threatened to pass a law that would lift the limits on shareholders liability, the attorney general said that he had already drafted the law. Butstillthe NationalBank shareholders deservefair compensationfor thepropertytaken offthemthrough threatsandduress. Onlyifthereis concreteproofthat thevalueofthe assetsthey surrenderedwas anythinghigherthan zerobasedonthe factsand circumstancesas prevailingatthe time.Astothreats andduresstheseare asideshowtothe coreissuethatthe NationalBankwas consideredinsolvent bytheCentralBank andfailureby governmenttoputin freshcapitalwould havebroughtlosses onthedepositorsas hadhappenedtwo yearsearlierincase ofBICAL.Itwould havecreatedan undesirableBarclays monopoly. ThatMintoffwas alwaysroughatthe Threats and duress are the core issue that led to the takeover and are at the basis of a dispute that persists even today. The bank was considered insolvent AFTER Mintoff forced its takeover. Mintoffs apologists constantly and repeatedly sidesteps this crucial fact. The NBM case was fundamentally different to the BICAL case. Mintoffiani are being disingenuous when they try to draw a parallel between the two cases without explaining the fundamental differences. Barclays would not have been in a monopoly position by virtue of providing collateralised bridging finance to another commercial bank. Government was never, at any time, expected to put in fresh capital. To say that is to put a gloss on Mintoffs direct interference in the capital markets, the financial markets, the workings of a supposedly autonomous banking regulatory institution, and a supposedly independent and autonomous judiciary, and to gloss over his abuse of an ostensibly representative parliament to endorse unconstitutional laws. Mintoff could not have achieved the takeover through legislative means, but legislative and legitimate have different meanings. The legislation Mintoff proposed was unconstitutional. That makes his legislative measures illegitimate.

Oncedepositors weremadewhole andsufferedno losses, shareholders shouldhavebeen madewholetooas someofthemwere alsodepositors

edgesisawell knownfact.But realityisthathedid notneedtothreaten ashecouldhave achievedthe takeoverthrough legislativemeans. Thereisavery differentlegal positionbetweenthe rightsofdepositors andtherightsof shareholders. Shareholdershaveto loseeverything beforeanydepositor losesapenny.Any governmentwould gooutofitswayto protectdepositorsto maintainsystemic financialstability.In theyearsfollowing 1973theconceptof Depositors ProtectionScheme wasintroducedfor thispurpose.Itwas notinforcein1973. Government howeverhasno obligationtobailout shareholders.Inthe financialcrisisof 2008shareholdersof banksincrisiswere practicallywipedout inmostfinancial institutionsrequiring statesupport. Ofcourseyoudo

Mintoffs apologists distinguish between shareholders and depositors to make their case that the former should be sacrificed for the latter. The National Bank directors always maintained that neither depositors nor shareholders, and much less the employees, needed to be sacrificed and the facts of the case bear them out. Mintoffian historical revisionists seek to convince by isolating financial arguments from the real context of the NBM case, where an artificial situation was deliberately induced by a prime minister who had already decided that he would take over a private bank. Whether the run was maliciously induced is not the point. What is certain is that Mintoff exploited the situation to his own end, even threatening to aggravate the run by publicly withdrawing public funds deposited in the bank. No one has argued against protecting depositors in favour of shareholders. What has been argued is that shareholders were depositors too, so it is incorrect to say that no depositors lost any money.

Wehavearightto challenge governmentfor compensation throughCourts

Compensation is relevant only if there was wrongdoing, so by discussing compensation, Mintoffs apologists implicitly acknowledge wrongdoing against NBM shareholders even as they seek to justify Mintoffs illegitimate takeover of the bank. What Mintoffs apologists appear not to know or wilfully ignore is that National Bank shareholders are not suing government solely for compensation. They are suing for

Thecourtistaking toolongtodecide sowedeservean outofcourt amicable settlement

Wearefedupof waiting.Weneed compensation duringourlifetime

Anoutofcourt amicablesettlement willbeunjustto eitherex shareholdersorthe taxpayersasitwill leaveasenseof justiceundone.This issoespeciallyif pressureisbrought onanoutgoing governmentin electionmode seekingreelection. Somakepressureon governmentto arrangethecourt system.Imagineif governmentstarts offeringoutofcourt settlementstoall longoutstanding courtcases.

recognition of government wrongdoing the coercion that led to the forced takeover of their private property. Out-of-court settlement can only be achieved if government first recognises the wrongful seizure of private property by illegitimate means. If that recognition materialises, then there can be no argument against compensation being paid. If it is justice that Mintoffiani seek, then they should cease defending the wrongful acts perpetrated by a man they still admire, and to whose regime many owe their early career advancement and, in one particular case, their subsequent move from a government-owned bank into the private sector firm Mintoff pressured into retroactively justifying the takeover. The courts are independent of government. Mintoffiani do not understand this, which is why they dehumanise the events of December 1973, reducing them to no more than a financial transaction, and why they see nothing wrong in Mintoff having violated democratic institutions in the pursuit of his own ambition. Mintoffian argument about court delays is irrelevant to the issue at hand. However, if court delays are a problem, it is not incumbent on the NBM shareholders to effect change.