## Wednesday, July 08, 2015 ... /////

### How I became a creditor in a bankruptcy

In April or May 2013, I decided to move a somewhat large amount of money to MSD, the Metropolitan Cooperative Savings Union (the largest Czech de facto bank among those that weren't officially a "bank") because someone else was satisfied and the interest rates on their saving accounts and deposits were high. You could have gotten over 4 percent a year – the drop to at most 1% in these two years was dramatic.

If you know how much "good luck" your humble correspondent has, you can postdict what happened. Even though the union had existed since the 1990s, for 15 years or so, it was frozen by the Czech National Bank just a week or two after I moved the money over there. Cool! They found some suspicious financing, transfers to Asia – which looked unusual for a nearly rural non-bank.

To make things worse, CZK 700,000 (of partly my money, it wasn't just my money I was dealing with, however) got stuck in the air during a transfer. It was no longer in the "sender" account and hadn't arrived to MSD yet. This particular hassle – uncertainty whether that amount got irreversibly lost – has lasted for 1 month. Well, concerning the whole money, I had almost no doubts that the full insurance of deposits up to the equivalent of EUR 100,000 would work and it did work (without those insurance laws, I would have never dealt with such unions). I was paid all the funds – including the interests from the frozen period – from the Deposits Insurance Fund (FPV) in early 2014.

But it's an amount equal to $60 I want to mention. ;-) Because those CZK 700,000 were in the air for a month, a special regulation could have been applied. The bank responsible for this significant delay of a payment had to retroactively pay a very high interest rate on the delay, about 8% per year. I managed to understand what I had to do for the MSD to admit that they owed me that – some CZK 4404 (some$180 now), sent a letter, and the MSD quickly confirmed that they owed me those \$180.

The credit union was stripped of its license in late 2013, indeed. My belief that some really bad things were happening in MSD was growing – despite the seemingly flawless operation of the union for 15 years. The main reason why I think that something was really sick – or criminal – in MSD by the middle of 2013 was the result of the insolvency proceedings.

When MSD lost the license, it had to be liquidated. So a liquidator and insolvency manager were named – I forgot what's the difference between these two but I think that there are two stages of the liquidation. The remaining assets of MSD had to be sold to partially satisfy the claims of MSD's creditors (all of whom had to be among the 14,000 "members" of the union, just like all the savers, because of the cooperative logic of this enterprise).

The total claims were over CZK 12 billion (half a billion dollars). When the insolvency manager Dr Hala sold everything he could, he only got CZK 4.1 billion i.e. 33.8% of the claimed amount. This percentage was just paid to all the creditors – which is a very transparent algorithm to deal with that, something most of us may easily understand, remember, and consider fair.

Only 265 (physical or legal) persons made it among the list of creditors and so did I – when I managed to successfully register my "interests from the delay" (after having sent some documents using the "data box", a special e-mail account designed to communicate with the Czech official authorities which I had to establish years ago because of some value-added-tax laws applied to Google ads – after some time, it looks handy at some moments). You may calculate that if I were an average creditor among the 265 creditors in this bankruptcy (one of the largest financial bankruptcies in the Czech history), I would be receiving CZK 4.1 billion over 265 = CZK 15 million today. People often talk about equality and egalitarianism but when it is really important, everyone suddenly forgets about it. So my CZK 15 million didn't arrive. Instead, I was sent CZK 1,500 which is smaller by a factor of 10,000. ;-)

Just to be sure, the largest creditor was the Deposits Insurance Fund (FPV) which has previously compensated the depositors up to EUR 100,000: this fund has received CZK 4.06 billion. But despite its overwhelming claim, it was treated qualitatively on par with the other creditors and received the same percentage. Only CZK 40 million or so were divided among the remaining 264 creditors. If I were an average of those 264, it would still have been at least CZK 150,000, but I was 100 times smaller than the average one – almost certainly the smallest creditor of all. ;-)

Two years ago, I felt very uncomfortable about the Czech National Bank's assault on the credit union. It seemed like they wanted to liquidate everyone who was offering decent interest rates at that time. Now I find it more likely that there were extremely good reasons to close the credit union and banks (etc.) with similarly high interest rates had to have problems to remain profitable at that moment. I don't see inside – almost no one does – but it seems more sensible to me to believe the insolvency manager that only CZK 4.1 billion out of 12 billion could have been recovered than to believe the MSD managers who said that things were just fine. But I don't really know for sure.

Assuming that the behavior of the official institutions was right (and I sincerely hope that the MSD folks had the opportunity to defend themselves in the case that some accusations were not legitimate), I must say that this way of dealing with problems and bankruptcies seems very healthy and straightforward to me. There is a supervisor who checks whether the banks etc. are OK. If they have apparently violated some laws or rules, or have already become clearly insolvent, they're stripped of their license. The liquidator sells the assets, determines the percentage, and pays the percentage to all the creditors whose claims have been classified as valid.

This process is an important part of capitalism. When things – companies etc. – don't work well, they have to die. But some good stuff is left and it has to be sold and redistributed to others who are likely to be better in managing and exploiting these assets. The death of a company therefore plays a creative role, it improves the system as a whole. Capitalism can't really work without bankruptcies.

Yes, I believe that basically the same straightforward recipe should be applied to Greece. After the June 30th default, remaining assets of the Greek government should be conquered by a liquidator – perhaps with the help of the German military, if needed (if some Greek guerillas decided to violently disagree with the fact that the government assets no longer belong to what we have known as the Greek government). These assets should be sold and divided among the creditors. Perhaps, the creditors could agree to provide the Greeks with some humanitarian aid. A new system without any major redistribution – without any big government – should emerge in Greece. If a new government is supposed to be reconstructed, it should be created gradually, from the bottom up, and from scratch. The Greek government has turned out to be a totally dysfunctional organization, so it has to die and its assets have to be sold to others who may manage them more viably.

Everything else – all the efforts meant to preserve this intrinsically failing government (in fact, one that openly states that it not only wants to stay dysfunctional but it wants to be more dysfunctional and loss-making than ever before) – are violating the basic rules of capitalism. They're like allowing zombies to fill our streets, allowing MSD to do "business" even when it's clear that its equity is hugely negative. The preservation of demonstrably dysfunctional economic entities – bankrupt ones – is simply not how the world works when it works well. It's outrageous when a bunch of thieves, liars, losers, and incompetent managers who have screwed pretty much everything is being given a special treatment just because they call themselves a "government" and just because they use a few million of other people as their henchmen.