The Mafia Is Now Italy's No. 1 Bank

It seems that the European austerity policy isnt working out quite as planned. Big surprise, right?

That's the thing about markets: supply has a way of meeting demand. The decision to put bond holders' interests before those of the customers and voters is beginning to bite. In Greece, there are stories emerging of parents abandoning their children because they can no longer afford to care for them.

In Italy, the response to bank lending restrictions has meant happy days are here again for the Mafia, that infamous lender of last resort. And the borrowers are not down-on-their-luck gamblers, but small business people; shopkeepers and service providers, who need loans to keep going until the next payday or until their clients pay at the end of the month.

And that pretty well captures the economic, intellectual and moral bankruptcy of austerity policies designed to keep the capital markets flowing without giving enough thought to those who actually create the capital. When people need money to feed their families and keep their businesses open, they will find a way. Those unintended consequences will get you every time. The policy makers were warned, but belief systems are more powerful than information systems. Particularly when misplaced moralism replaces hard-nosed pragmatism. JL

James Mackenzie reports in Reuters:

Organised crime has tightened its grip on the Italian economy during the economic crisis, making the Mafia the country's biggest "bank" and squeezing the life out of thousands of small firms, according to a report on Tuesday.

Extortionate lending by criminal groups had become a "national emergency", said the report by anti-crime group SOS Impresa. Organised crime now generated annual turnover of about 140 billion euros ($178.89 billion) and profits of more than 100 billion euros,
"With 65 billion euros in liquidity, the Mafia is Italy's number one bank," said a statement from the group, which was set up in Palermo a decade ago to oppose extortion rackets against small business.

Organised crime groups like the Sicilian Cosa Nostra, the Naples Camorra or the Calabrian 'Ndrangheta have long had a stranglehold on the Italian economy, generating profits equivalent to about 7 percent of national output.

Extortionate lending had become an increasingly sophisticated and lucrative source of income, alongside drug trafficking, arms smuggling, prostitution, gambling and racketeering, the report said.

"The classic neighbourhood or street loan shark is on the way out, giving way to organised loan-sharking that is well connected with professional circles and operates with the connivance of high-level professionals," the report said.

It estimated about 200,000 businesses were tied to extortionate lenders and tens of thousands of jobs had been lost as a result.

EXTORTION WITH A CLEAN FACE

Old style gangsters handing out cash in bars and pool halls had been replaced by apparently respectable bankers, lawyers or notaries, the report said.

"This is extortion with a clean face," it added. "Through their professions, they know the mechanisms of the legal credit market and they often know the financial position of their victims perfectly."

Small businesses, who have struggled to get hold of credit during the economic slowdown, may have been increasingly tempted to turn to the mafia, said the report.

Typical victims of extortionate lending were middle-aged shopkeepers and small businessmen who would struggle to find a new job and who were ready to try anything to avoid bankruptcy, it added.

"They are usually people in traditional retail sectors like food, greengrocers, clothes or shoe shops, florists or furniture shops. These are the categories which, more than any other, are paying the price of the (economic) crisis," it said.

According to a separate report this week from small business association CNA, 56 percent of companies had seen banks tighten their lending requirements in the past three months.