A perfect money laundering device: The Hungarian National Bank’s foundations

In order to understand how the Hungarian National Bank managed to make so much money in the last few years we have to go back to the period between 2010 and 2014 when the Swiss franc rose inexorably against the Hungarian forint and when millions of Hungarians who took out loans, mostly in Swiss francs, found themselves in an impossible financial situation. Many of them were simply unable to pay their mortgages, or even auto loans. The Orbán government naturally blamed the earlier governments for allowing “the Hungarian people” to become indebted in foreign currencies and put forth a plan to convert foreign currency loans into Hungarian forints. There was a lot of talk but no action until almost four years later, when on November 7, 2014 D-Day was announced. All foreign-currency loans were to be converted into forints.

Great was the surprise when borrowers found out that, although they had been diligently paying on their loans over the last five-six years, they now owed as much as or more than they did before they paid a penny on their loans. If, for example, someone took out a loan for 50,000 Swiss francs (9 million forints) in 2007 and had been paying mostly interest and very little on the principal, he now owed 13 million forints because of the weakening forint in the intervening years.

The banks also lost money on the deal because they were obliged to reduce the borrower’s debt by 1 or 2 million forints. Even so, the borrower got the short end of the stick as a result of the conversion.

The later the compulsory exchange of debt occurred the more expensive these loans would become. In November 2011 the exchange rate was 204 ft. to the Swiss franc; in November 2014 it was 256 ft to the franc. For someone with a 50,000 Swiss franc mortgage, that’s a difference of 2.6 million forints. Since György Matolcsy took over the chairmanship of the Hungarian National Bank, the Hungarian forint has continued to fall against the Swiss franc (250 forints at the beginning of his tenure versus 282 forints today).

Back in 2014, in order to exchange all the foreign currency-denominated loans to forints, the banks needed additional foreign currency themselves. So, the Hungarian National Bank lent 8-9 billion euros to the banks so they could pay their debts in Swiss francs or euros. The banks then paid the National Bank back in forints. The Hungarian National Bank profited from the difference between what it had earlier paid in forints for the euros and what it received back from the bank loans. If the government had decided to force borrowers to exchange their debts to forints in 2011, according some calculations the Hungarian National Bank would have missed the opportunity to make approximately 360 billion forints in profits on the exchange rate. The government and the National Bank were excellent market timers.

This windfall has been spent on real estate (90 billion), works of art (30 billion), a Guarneri violin, the financing of a new-fangled piano, etc. But the largest amount, 250 billion forints, went into five foundations established by the National Bank. As György Surányi, chairman of the National Bank between 1990-91 and again between 1995 and 2001, pointed out in a recent interview, this sum of money is 1% of Hungary’s GDP. It would be almost enough to pay the yearly salary of all 140,000 teachers. To put it bluntly, the Hungarian National Bank’s gain comes from the loss and sufferings of millions of foreign currency debtors.

György Matolcsy

György Matolcsy

An early critic of the November 2014 loan conversions expressed his hope that the Bank’s profit would go toward lowering the national debt, which was one of the chief promises of the Orbán government. Surányi in his interview also declared that instead of establishing “foundations” the money should be used to lower the debt and also to help the deeply indebted borrowers.

I myself wrote twice about the National Bank’s strange business activities. Matolcsy took over the chairmanship of the Bank in March 2013, and within a year it was evident that he was spending the profits of the bank at a fast clip. It was still before the forced exchange of foreign currency loans to forint loans that I wrote an article titled “The Hungarian central bank goes on a buying binge.” But that was nothing in comparison to the money subsequently put into the “foundations” established by the Bank. Since they were set up to teach “unorthodox” economics, the most respected economists of the land protested against this preposterous idea.

A caricature which combines Matolcsy's looks and the logo of the national tobacco shops

A caricature that combines Matolcsy’s eyes with the logo of the national tobacco shops

Others had more sinister objections: the “foundations” look like perfect places to launder money. Suspicions grew when Matolcsy refused to divulge any of the financial details of these so-called foundations. Bertalan Tóth, an MSZP MP, approached the National Bank in March 2015 for the particulars and was rebuffed. The next move was a suit against the Bank, which Tóth won in the first round. Matolcsy was adamant and the bank appealed. He lost again, and this time there was no opportunity for further appeal. Back in early March, Index optimistically predicted that “we will soon find out how good a steward of the public money the National Bank is.” Matolcsy was at the end of his ropes. He had to do something. Apparently he went to Viktor Orbán and asked him to intervene. Or at least this is what high-ranking Fidesz politicians told Ildikó Csuhaj of Népszabadság. Csuhaj learned that Ádám Balog, one of the Bank’s deputy chairmen, wrote the text of the proposed bill, which also included a hefty salary raise for György Matolcsy.

The next step was that a Fidesz MP submitted the proposal to create a law that would make the financial details of the foundations a state secret. The reason? Knowledge of the financial activities of an affiliated company of the Bank might cause financial loss to the National Bank itself. All of the Fidesz-KDNP members of parliament who were present voted for it. When pressed, Lajos Kósa, leader of the Fidesz parliamentary caucus, explained that the money that was put into the foundations was no longer public money. It had morphed into private property. Yes, exactly, and this is the problem.

According to all legal opinions, this law is unconstitutional. The hope is that President János Áder will veto it and send it to the Constitutional Court. László Kövér, who apparently disapproves of the bill, voted for it only because of party discipline and delayed putting his signature on the bill as long as he could, which was five days. Now it is Áder’s turn. We will see what his decision will be because surely Áder is not an independent actor. It all depends on what Viktor Orbán decides. Will he think that under the circumstances this bill would best be shelved or he will decide that he can do anything he wants? That no one can limit his power. Of course, there is still the Fidesz-packed Constitutional Court. Will he have its backing? That will also have to be taken into consideration before a decision is reached at the very top of the Fidesz pyramid.

March 6, 2016
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tappanch
Guest
tappanch
Guest

The time between the submission of the bill and the vote was less than 24 hours.
They want to apply the new law retroactively to deny the court’s order to disclose where $1 billion of public money went.

Member

Retroactive laws….. Again. I guess they really spent that money on things they do not want taxpayers have any idea about.

tappanch
Guest

March 15 opposition protest plans for Muzeum boulevard.

A: police bans it
B: court overturns police ban
C: Orban’s bodyguard unit TEK annuls court’s decision (de facto): the protest cannot take place.

http://tek.gov.hu/pdf/DOC040316.pdf

Another protest march for more educational freedom will still go ahead (unless the regime finds an excuse to hinder it)

Member

Question! I read somewhere that the police will cordon off an unspecified area around the National Museum on March 15 while Orban will deliver his speech. At the same time 5000 Polish people are making their way to Budapest to support Hungary’s leader. I tried to find any news that supports the gossip about the closing down the area. Did anyone else head about this?

tappanch
Guest

see TEK’s decree above

tappanch
Guest

the area is delineated.

Member

I guess I was typing away when you were posting this. You read my mind. Thanks tappanch. Well, I wonder who is he afraid of? Did anyone heard of any “attack” in the past on his majesty when he rendered his speech at the Museum? Is he this afraid? How ill the Polish fan club will get close? How will TEK knows who is there to celebrate and who is there to oppose Orban?

Kingfisher
Guest

Last year, all the streets near the National Museum were blocked off on March 14, and cars were removed. On March 15 itself, there were a great many police/security vehicles lining the back streets as far as Trefort utca and near to Kalvin Ter.

I personally wouldn’t have wanted to go anywhere near the speech, but one elderly neighbor wanted to go, and she was prevented from entering the ‘zone’. I would imagine that access is carefully orchestrated.

Member

Shame!!! It isa holiday for all! It is the National Museum, and not he museum for Orban or of Fidesz. They try to dictate when to celebrate! I think the everyone should stay indoors all across Budapest, and not go t the streets until 2:00pm. The teachers will take the streets at 3:00pm. I bet you anything that Orban will fly to Switzerland or something by that time, still..

Istvan
Guest
Eva where in the world did you ever find that photo of György Matolcsy, he looks like a mad man, possibly he is. Lajos Bokros gave a very interesting interview to the Beacon in 2014 about Matolcsy and Hungarian monetary policy. To read it go to http://budapestbeacon.com/featured-articles/lajos-bokros-gyorgy-matolcsy-is-a-political-appointee-who-understands-nothing-of-monetary-economics I was just stunned to discover that Matolcsy wrote a book entitled Economic Balance and Growth published also in English and can be bought in ebook form at http://valasz.hu/konyvek/konyv/egyensuly-es-novekedes-35 I doubt it’s a big seller in English or Hungarian. The Hungarian National Bank is the publisher of this no doubt award winning book, and no doubt many copies are stored near it art works and pianos. The book balance and growth according to its publisher provides a “detailed descriptions of all the new economic policy ideas, innovations and tools that the Hungarian economy have led to significant success, economic history perspective, between 2010 and 2014 also implemented fiscal and financial stabilization, creating sustainable growth in basic conditions.” In effect it is the Fidesz economic theory behind slogan “Hungary performs better.” The slogan, its marketing materials and branding cost the government HUF 540 million from November 2012 to early 2014 add to it now… Read more »
webber
Guest

Matolcsy also wrote a book about the United States, available only in Hungarian. It is an unreadable compilation of platitudes and falsehoods. It was published in a massive print-run and is sitting unsold in bookstores all over Hungary.

webber
Guest

P.S. Matolcsy has some problem with his eyes, and the nerves controlling the muscles around them – a sort of tick, which gives him an insane expression a lot of the time.

Guest

Re: ‘book on United States’

No doubt the theme was US as the responsible party for ruining Magyar financial and eco affairs post 2005.

webber
Guest

This is the cover of one of Matolcsy’s book, “American Empire: Scripts for the future.” The content is as awful as the cover – full of nonsense.
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Guest

The cover of Matolcsy’s book is in the style of Jehovah’s Witnesses. By analogy I can make my conclusions about its content.

Member

I thought this is a spoof. Is it for real?

webber
Guest

It’s for real. You can even buy it online – see the link below. You can get it much cheaper than the online price at some stores. I was leafing through it in one and the owner told me he’d give it to me at 1/2 price, because nobody is buying it. I didn’t either.
http://www.libri.hu/konyv/matolcsy_gyorgy.amerikai-birodalom.html

dos929
Guest
May I point out an error; the HUF stands now at 309 against the €, not at 282, but the fluctuation is such that it is mostly around 313-315, and sometimes reaches 320. Furthermore, the fall of the HUF occurred right after the Orban regime came to power, when two of their leading politicians (Kosa and Lazar) made irresponsible statements that resulted in the sudden demise of the HUF. The other major reason for the debts of the Hungarian society is the actions of first Orban Government, when they introduced subsidised loans for housing purchases. Since there was no limit how many apartments one could buy on this cheap loan scheme, thousands bought not one, but many properties, which after all were financed by the other tax payers… In 2002 the socialist governments inherited this burden, which when coupled with the 2006-2008 financial crises and the fall of the HUF under the Orban regime, created the ‘Swiss Franc’ fiasco. And, by the way, the darlings of the Orban regime were able to profit from this as well, as after bringing in a new law; they could pay off the loans with another government assisted scheme. Of course all those who… Read more »
Guest

Eva has given figures against the Swiss Franc – not the €.

Kázmér
Guest

Áder will veto so he can look good.

Kövér also waited with his signing so that Áder’s people would have more time to prepare the court submission (otherwise the deadlines would be too tight).

So now it’s up to the thoroughly packed Constitutional Court (these days it is not much more than a local Fidesz party branch), which will give a Dodonaic answer.

But the law in the second iteration will be smooth sailing.

If Orban decided than this is gonna be a law.

And it will be because this is how the system operates.

Plus this could be a huge legal/political issue down the road so the quasi-legalization of this epic larceny and money laundering is of paramount importance. It’s insurance. Nobody will now anything and they will shred the papers. End of story.

People are allowed to play with they roles (like Köver waiting with the signing, Áder can use his “veto”) but it has to be a law because it’s a party and that’s that. Fidesz is about discipline. If people started to resist and have individual ideas then the party would be over and it’s so not over yet.

Case closed.

Guest

You forgot to say “Orban is winning……. Yader yader yader”.

And “Orban is smart…….. Yader yader yader”.

And “Hungary is performing better……. Yader yader yader”.

Guest

You forgot to say that Orban can walk on water.

(As long as the water allows it.)

áronp
Guest

charlie, Jean P: Just wait and see what happens. Ignore the rest.

webber
Guest

They were and are waiting. The only people making predictions are the zombies chanting “Orban is a winner.”

Kázmér
Guest

Index reckons Trump would be very good for Orban.

Orban could deal with Trump and Trump wouldn’t care about Orban’s pro-Russian activities, in fact – so thinks index.hu – Trump would offer “Hungary” up to Russia (like FDR did). Orban would be happy in any case.

http://index.hu/kulfold/usa/feher_haz/2016/03/07/melyik_elnokjeloltnek_orulne_a_legjobban_orban/

emil
Guest

Needless to say Panyi has no idea what he’s talking about. Hillary Clinton as hard-core progressive, gimme a break.

Just like Bill, Hillary is actually conservative, pro-army, pro-establishment conservative who has some progressive credentials, but as politico.com says Clinton actually wants to turn right (not left). She naturally targets the conservatives and not the Bernie Sanders supporting left-wing. She just isn’t a leftist.

Orban is afraid simply because Hillary and her apparatus know Orban well and any new Republican administration would mean at least two years of total freedom for Orban.

That’s Orban main fear, that he encounters people who know him and he can’t have that few years of peacock dance until his counter-party finally loses his/her patience.

http://www.politico.com/story/2016/03/democratic-primaries-2016-bernie-sanders-hillary-clinton-220314

webber
Guest

Panyi knows s..t all about American politics.
Why they let him write, I do not know. What are his credentials? A decent comprehension of English, an aunt in Florida, and a summer vacation at a youth camp in Maine five or six years ago?

webber
Guest

Also – IF there is a new Republican administration, it’s not as if they will walk into the job with all new people. It’s never tabula rasa. The State Department is full of career people who pass on their understanding of the world to the next admin.

petofi
Guest

Quite right. And remember, the US is not bloody Hungary where a change in party leads to wholesale firings in every government department…

petofi
Guest

Total, idiotic, nonsense. Trump would likely be governed by the State Department professionals; and Republicans are traditionally tougher
on rogue states than the Democrats.

Istvan
Guest

Petofi is correct a Trump victory, as disturbing to me as it might be, would not be good for Orban. He will defend US business interests to the maximum extend possible and will likely show a little country like Hungary no slack in terms of shake downs of US corporations. I would say virtually the entire US officer corp was stunned by Trump public claim he would order his officers to violate the Geneva Convention on the use of torture and then his reversal on this outrage the next day.

On another topic there is an interview with László Mendrey on the state of discussions, or lack thereof, between teachers and the government. http://nol.hu/belfold/egyre-tobben-hagyjak-ott-az-orban-kormanyt-marciusban-johet-a-pedagogussztrajk-1605179

blimp
Guest

Matolcsy egyszrűen kifosztotta a devizahiteleseket. (Surányi György and he is right).

webber
Guest

He is. Sorry for the comment elsewhere. You are obviously not a Fidesznik.

Tomika
Guest

Building a little warchest to spend money on teachers, doctors etc.

Orban knows how to plan ahead.

He knows he has to buy votes and at the right time he will use that money wisely.

And the voters will calm down and given that there is no real alternative (c’mon, do you seriously want to have a neverending infighting of clueless former communists and urban hippies in a coalition unable to govern under the present constitution?) he will smooth sail into the government again. Pretty simple.

Same with Merkel (whose popularity is now on the rise, since she has no rival) or Erdogan recently, people in bad times want a strong leader (even of he is corrupt) and not wavering amateurs. People want to keep their positions not a danger of tax increases by leftists who give in to Brussels when the phone call comes.

Orban is here to stay because he is way smarter than his many adversaries.

http://index.hu/gazdasag/ado_es_koltsegvetes/2016/03/07/titokban_pluszos_a_koltsegvetes/

webber
Guest

If the Great O is so damned smart, how did he lose his 2/3 majority? And how is it that his party keeps losing by-elections, everywhere in the country?
He’s looking more and more like a loser.

Tomika
Guest

He is a real winner. He always does. Just watch.

http://hvg.hu/vilag/20160307_Orban_veto_EU_csucs

webber
Guest

The fat little guy with the tick from the medicines he’s taking for his tardive dyskenesia? You mean this guy?
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Tomika
Guest

Yep, and now the whole EU is dancing to his tune.

He pretty much won the day.

And he gets to keep the money and nobody can touch him.

Pretty good deal.

webber
Guest

Since when is using a veto, which everyone at the same table had, “winning?”
My guess is that the little man will need to watch his back now. Merkel may start gunning for him.

rókuci
Guest

Merkel won’t do s**t. And Orban is primarily working for Putin he is dividing Europe. The EU is totally impotent, can’t do anything with Orban. The Russians are real pros but even they haven’t had an agent like Orban for quite some time. Someone in Moscow just got a promotion.

webber
Guest

I agree -whoever Orban’s handler is in Russia surely is getting a pat on the back, and more. Orban is dancing nicely to Moscow’s tune.

webber
Guest

Funny. The Western press isn’t saying much about Orban at the summit. How could the EU be dancing to his tune when nobody noticed he has a fiddle?

NNN3
Guest

Orban’s “veto” is a myth. The state media via hvg.hu however did the dissemination of this lie well.

http://nol.hu/velemeny/orban-bloffje-1605227

Member

Tomika, Everyone is a real winner until they get caught one way or another. Stalin was a real winner, and was Tsar Nicholas II, and lets not talk about Al Capone, and was Ceaușescu. Your point is?

Istvan
Guest

Howard Gardner professor of developmental psychology at Harvard University has identified seven distinct intelligences, his theory is called multiple intelligences. Mihaly Csikszentmihalyi in general utilizes this theory. One Gardner calls “interpersonal” intelligence. I think PM Orban is off the scales in terms of interpersonal intelligence. He has great abilities to scheme, to utilize weakness in other people or masses of people to his or his party’s advantage. In that sense I think PM Orban is an intelligent person.

Member
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