The Norwegians call this stunning, fjord-lacerated coastline Nordland. A couple of months back in this land of the midnight sun we would have had only a few hours of light a day to enjoy this truly stunning wilderness. 120km above the Arctic Circle and a 2.5-hour flight from the capital, Oslo, is the small town of Narvik. The out-of-the-way seaport of just 18,000 is anything but an international financial hub. Not exactly Wall Street. But recently, Narvik has taken one hell of a financial hit.
To put it bluntly, the town of Narvik has been duped to the tune of tens of millions of US dollars in risky investments, ultimately leading to sub-prime loans. The local council has, if you like, been sold a loan lemon by an Oslo-based brokerage firm called Terra Securities. Terra Securities in turn is owned by 78 different banks, not just from here in Norway, but including some of the biggest hitters on Wall Street, like Citigroup.
This proverbial speck on the Arctic map has turned out to be a classic example of just how far the tentacles of the international sub-prime debacle have spread. In short, Narvik suddenly found itself caught in a daisy chain of deceit and debt that's left its public services and utilities – its schools, nursing homes, cultural institutions, its tourist industry – all struggling.
GARY MALOY, TEACHER: 'Shocked' is a good word, 'anger' is another. It's unbelievable that something like this could happen to a community like Narvik.
Gary Maloy is a junior high school teacher, an American married to a Norwegian. He's lived here in the village of Bjerkvik, outside Narvik, for 16 years.
REPORTER: It's not just one area of the community being affected, it could affect everybody.
GARY MALOY: Everything.
REPORTER: Directly or indirectly.
GARY MALOY: From the youngest to the oldest and everything in between. From the schools to senior care, the sports facility, schools, all aspects of the community can be torn down.
REPORTER: Are you hearing people talking of leaving?
GARY MALOY: Not publicly, but it has to be It's crossed my mind.
Before we even left Australia to come here, the Mayor of Narvik, Karen Kuvaas, told us not to contact her. She voted for the shonky Terra Securities deal, but told us she was fed up with the scandal and wanted to move on. If only. So we contacted her political opponent instead. Torgeir Traedal is the leader of the opposition in the Narvik Council.
REPORTER: Will the town ever be the same again?
TORGEIR TRAEDAL: Yes. We have lost at least 200 millions. 200 million Norwegian krone?
REPORTER: Norwegian krone, which is about US $35 million?
TORGEIR TRAEDAL: Yes. We have a yearly budget of 900 millions and we have lost 200 millions. So we have lost..
REPORTER: A quarter of your budget?
Surprisingly, Torgeir Traedal also voted to invest a huge chunk of the town's budget with the big money boys in Oslo, with their Wall Street connections.
REPORTER: Councillor, you're a fireman as well as a councillor. Well, you've got a big fire on your hands here at the moment.
TORGEIR TRAEDAL: Yes, the fire is out of control. Yes.
REPORTER: Out of control? How did it get out of control? You were on the committee that voted for this deal.
TORGEIR TRAEDAL: To us we were going into the Norwegian federal companies.
REPORTER: So you thought all the investment money was just going into Norway? Not New York, or other parts of the world, or with a group as large as Citibank anywhere in the world? Who do you blame for this?
TORGEIR TRAEDAL: I'm blaming the Mayor because the Mayor have signed documents that take us out cross border. They didn't say that. We say that we should go in Norwegian federal companies with 100% security.
REPORTER: So you weren't given the full facts?
TORGEIR TRAEDAL: No, because they hold back the facts.
What we wanted to ask the Mayor was why the Council thought they could risk the town's welfare and budget on a crazy money deal. Well, as close as we can get to an explanation for that is what you can see and hear right now – melting snow and running water. They were making heaps out of hydro-power, which they apparently used as collateral for large speculative loans. Maybe they thought getting involved in the dicey money market, raising money that way, was politically much safer than raising taxes. Boom, boom.
But the prospectus in Norwegian sold to Narvik's council contained a hidden bomb. The brokers from Terra Securities somehow forgot to translate the all-important paragraphs that told just how risky their leap into the murky world of sub-prime investments actually was.
TORGEIR TRAEDAL: The administration said there's no risk, we have everything under control. Terra has kept this money because we have the bank guarantee from the Norwegian state and we have also a document from the communal department in Norway, from the government, that this was also legal. But afterwards the document is not correct.
REPORTER: So you thought though, you could cover any risk?
TORGEIR TRAEDAL: Yes.
REPORTER: And you were wrong.
TORGEIR TRAEDAL: We was really, really wrong.
Narvik is a strategic location with a proud but unfortunately bloody history. Ulf Torgensen, the director of Narvik's War Museum, told us how Hitler himself had fancied Narvik's ice-free harbour as the spot to build his naval machine. During the war there was a real stoush here – in fact, one of the great naval battles. It left hundreds of navy men dead and even today its fjords are still strewn with destroyer wrecks.
REPORTER: This is exactly the area we were just looking at in that famous battle? This is the fjord here?
ULF TORGENSEN: This was around Narvik.
REPORTER: This is Narvik over here. It's interesting, because somebody said recently Narvik has always been a target of opportunity, if you like, for foreigners. In the Second World War it was the Germans and now it's the money men in Wall Street. I mean, how ironic is that? You find yourself at battle again?
ULF TORGENSEN: It's a new battle, to survive.
REPORTER: It's something you would never of dreamed happening?
ULF TORGENSEN: No, I couldn't dream about it. You know that the stock market could go up and down, but you are spending the money you have, not the money you don't have.
Don't be shocked. We were, after all, in Norway. Up here blokes talk politics in the sauna rather than the pub. You're actually lucky our camera wouldn't work in sauna temperatures! But afterwards, we did catch up with Gary Maloy and a couple of distraught locals. The schools, which need rehabilitation. Retiree Tore-Jan Nikolaisen and local ambulance worker Jarle Rydningen.
JARLE RYDNINGEN, (Translation): For at least 10 to 20 years, our descendants will also be affected by the situation. Well, let’s say ..they won’t have the same access to schools for their descendants. It will have extended effects.. Nursing homes, school books, swimming, gymnastics.
MAN (Translation): Are you thinking about people living here now?
JARLE RYDNINGEN, (Translation): Yes, those who are here now, let’s look at my daughter, the children.. her children, our grandchildren, do you understand?
TORE-JAN NIKOLAISEN (Translation): Well.. the power stations are the inheritance of the people. They're built for local people. They're traditionally owned by municipalities, but they're being merged. The tragedy is those are the funds they've traded with. They've played with those, and they've used future money. The income from the long-term is gone.
Next morning, sauna-refreshed, over breakfast and before leaving, we read that Narvik was not the only Norwegian town belted by the creeping credit scandal, in particular, by dodgy deals with Terra Securities. This is, they're going to somehow have to recover the millions that have been lost by the Terra scandal. In this neck of the Norwegian woods they're known as the Terra Towns. Between them, they've lost the equivalent of US $100 million. But any hope they might have had of recouping their cheated investments disappeared when late last year Terra Securities went bust. But the ongoing legal wrangle could drag on for years.
In Oslo, we met with Eystein Kleven, the chief investigator for Norway's financial regulator.
REPORTER: So you've done what you could, where the broker is concerned, but the problem still remains of about, what, eight different municipalities in Norway now who are affected this way, like Narvik? What advice can you or anyone else give them to recover from this predicament they're in?
EYSTEIN KLEVEN, CHIEF INVESTIGATOR: Well, in the future they should not go into products like this, not buy products they don't understand. That's the main experience from this case. And I think this case is so big, so well known, that municipalities and other public institutions, they have learned this from this case. But the investment firm violated the law and the license was revoked.
REPORTER: But that doesn't help the people of Narvik.
EYSTEIN KLEVEN: No, of course not, but there is nothing wrong with the law. For instance, theft is forbidden, as long is theft is being punished, the law is functioning.
REPORTER: Is that what you see it as, theft? That these brokers have in fact stolen from the people of Narvik? Is it that brutal?
EYSTEIN KLEVEN: No, they misled. It is not a theft. They misled.
EYSTEIN KLEVEN: We don't know how much the broker themself really understood these products. That's also a problem. We're not sure.
REPORTER: I know the brokers don't like being called financial cowboys. But are they?
EYSTEIN KLEVEN: Well, some of them are, yes, some of them.
So, having come all this way, what had we proved? Well, as we've heard, the sub-prime loan crisis might have had its roots in US suburbia, but somehow, it had worked its insidious way to this remote, unsuspecting community. Narvik, if you like, was the tip of the international sub-prime iceberg. Meanwhile, for the shell-shocked folk here, those long, bright Arctic summer days are still a heck of a long way off.
JARLE RYDNINGEN, (Translation): It's normal to play with money you can afford to lose. The money played with here wasn't for losing. You can't afford to lose it.
TORE-JAN NIKOLAISEN (Translation): How did they dare take such risks with people's money? It was borrowed money! That is what makes it so tragic.
REPORTER: Beautiful location, pretty ugly story. Clearly, the subprime credit crisis knows no global boundaries. And, of course, we're now hearing of councils in this country who've also made the same stupid mistake.
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