The township politicians are both embarrassed and angry at the financial advisers who they now claim led them astray. "They think we're a bunch of small-town fools," one local mayor told newspaper Dagens Næringsliv.
The politicians remain ultimately reponsible, though, and voters aren't particularly happy as news emerges about what's become of a large chunk of their public funds.
Officials in four northern Norwegian townships (Narvik, Rana, Hemnes and Hattfjelldal) went along with an alleged recommendation by Terra Securities to invest a total of NOK 451 million in what they're now calling "high-risk structured products" offered by Citibank and sold for Citibank by Terra.
The American commercial paper was also tied to bonds issued by local governments in the US, and Norwegian Broadcasting (NRK) reported that hedge funds were involved. To boost returns, the Norwegian townships also borrowed NOK 3.5 billion to invest in Citibank's products, which later lost as much as 50 percent of their value because of the US credit crunch.
News started leaking out about the troubled investments when the townships were ordered to pay in millions more, to satisfy guarantee requirements. Mayor Asgeir Almås in Hattfjelldal feels cheated.
"I wonder whether Terra had such a lucrative deal with Citibank that they found some fools to earn quick money," Almås told newspaper Aftenposten. His little township with a population of just 1,500 but solid revenues from power plants, invested NOK 100 million and since has paid in another NOK 20 million in guarantees.
'Sorry'
Terra officials say they're sorry about the losses, but claim the townships are viewed as "professional players" in the financial markets and must also take responsibility "for the investments they choose to make."
The politicians claim they "asked all the questions we could" about risk levels, not least those tied to currency valuation. The US dollar is also extremely weak at present against the Norwegian kroner, reducing relative values of US holdings.
While the finger-pointing continues, the townships are obligated to put what some fear is good money after bad. Norwegian townships that are suddenly relatively wealthy on energy revenues are also learning to be more cautious, as they face constant, complicated investment offers from foreign institutions.
