For Youri, Zocher, Jonathan, Ezra and all other children, for a fair, safe and transparent financial world.

WORST BANK SCENARIO

© SaBAIS B.V.

Amersfoort, November 2023 (second, revised edition)

First edition: June 2022

ISBN e-book: 9789083148212

NUR CODE: 320 – Literary nonfiction general

Publisher: SaBAIS B.V.

Cover Art: CMRB

Graphics, design and format: Coco Bookmedia

Photography: Hendrik Jan van Beek

Translated by Ryan Palecek and Kyle Wohlmut

Disclaimer: see back of this book

Table of contents

Prologue

Introduction

OUR MOTIVES

Hester’s motives for writing this book

Wink’s motives for writing this book

PART 1 – BANKS AND THEIR SALES PRACTICES

Scene 1: Unexpected visit from the bank

Unjustified interest rate hikes

Hester’s memos: How it all got started

Milking Dutch business dry

Scene 2: And the farmer plowed on

An easy prey to outwit

Hester’s memos: ING summons

Scene 3: A day in the life of Theo Kocken

Cardano: a zero-sum game

Hester’s memos: Hester suspects fraud

PART 2 – THE YEARS PRECEDING THE CREDIT CRISIS AND THE CREATION OF AN INTERNATIONAL BANKING MODEL 2.0

Deregulation in the US, Europe follows suit

Banking Model 2.0: the worldwide business model until the credit crisis arrived

The risks of Banking Model 2.0

Balance sheet offsets and the collateral shell game

The role of securitization

The rise of international CCPs

Stricter accounting rules

The “secret” bank that runs the world

The end approaches

The eve of the credit crisis

PART 3 – TOWARD A NEW INTERNATIONAL BUSINESS MODEL: BANKING MODEL 3.0

Introduction

Bretton Woods 2.0

Euro Summit encourages joint economic policies

Recommendations of the De Larosière Group turned out to be nothing but window dressing

Banking Model 3.0: pimping collateral

The repo market: the grease that keeps Banking Model 3.0 running

Commonalities shared by Banking Model 2.0 and Banking Model 3.0

PART 4 – WORST BANK SCENARIO: THE GREAT BANK FRAUD

Introduction

Hester’s memos 2012–2014: Removal of margin accounts

Digital Pandora’s Boxes

Hester’s memos 2014: Joining forces

The smoking gun: The illegally passed Royal Decree

Hester’s memos 2015 – Part 1: Zembla and margin monitoring requirements

The gap in SNS/Reaal’s balance sheet

Hester’s memos 2015 – Part 2: Victory in court and AFM hires Cardano

The secret pension fund CCPs

Hester’s memos 2016: AFM report misused

ING moves collateral management to Bank Mendes Gans

Discovery of major balance sheet restatements at ING

The core of the fraud

PART 5 – HESTER’S MEMOS 2017-2021

Hester’s memos 2017: E-mails regarding the “free perk”

Hester’s memos 2018 – Part 1: Merel van Vroonhoven reappointed as AFM Chair

Hester’s memos 2018 – Part 2: SEC Notification and ING’s “Houston settlement” with Dutch public prosecutors

Hester’s memos 2018/2019: Danske Bank and Arthur Docters van Leeuwen

Hester’s memos 2019: Merel van Vroonhoven leaves the AFM

Hester’s memos 2020: Ignoring the courts’ determinations of contractual misrepresentation

Hester’s memos 2021–2022: Rosenmöller the Fixer

PART 6 – THE GLOBAL POWER BROKERS

European monetary integration and the introduction of the euro

How liquidity shortfalls lead to higher government debts

The call for EU-Bonds and Draghi’s discount window

EU-Bonds: a fresh source of liquidity!

The European Stability Mechanism

The Capital Markets Union (CMU)

Excessive Deficit Procedure (EDP)

A broken market mechanism and the European debt union

Unelected power brokers

Trust, they say, is hard-earned and easily lost

Conclusions

Epilogue

Acknowledgments

Glossary

List of Resources

APPENDICES

Appendix 1: Letter from EY to the IASB

Appendix 2: ING Group Annual Report 2007

Appendix 3: Modification of contracts and conditions at Rabobank, ING and ABN AMRO

Appendix 4: DNB’s refusal to provide text of risk notice

Prologue

On Tuesday, 5 October 2021, Hester Bais opened her inbox and found an e-mail from the Ministry of Finance. It was signed by one of the ministry’s top officials, Bernard ter Haar, and it read as follows:

Dear Ms. Bais,

The Ministry of Finance has commissioned ABDTOPConsult to handle the resolution of the redress process for the mis-selling of interest rate derivatives to SMEs. Your organization is or has been one of the stakeholders in this process. You can read more about the background of the evaluation of the redress process later in this e-mail.

For the purpose of receiving feedback on the redress process, I would appreciate the chance to speak with you. To set the evaluation off on the best possible track, I would like to schedule an appointment for this conversation, ideally online (via Cisco Webex or Microsoft Teams), in the shortest possible term. If, however, you would prefer a face-to-face meeting, I will of course accommodate your preference.

To schedule the call, I request that you/your secretary contact my secretary at rentederivaten@minfin.nl. The interview will be confidential and no record will be made of it. In the final report of the evaluation, no statements you make in this discussion will be reported in a manner that can be traced back to you absent your explicit permission.

It is possible that your organization has already assessed the redress process so far and has prepared or is preparing a document containing reflections on this. If that is the case, then prior to the interview I would like to receive a version of such a document containing your reflections and lessons learned. This would enable us to go further into the points your organization has identified in it during our discussion. If sharing this document before release is not an option, you can of course forward it to me after our conversation. It could provide useful input for the evaluation report. I must point out that any documents you provide to ABDTOPConsult could potentially be subsequently released to the public in response to a request under the Government Information (Public Access) Act.

Prior to the interview, I will send you a brief agenda for the discussion to facilitate your preparation.

If you have any further questions regarding the above, please let me know. I am looking forward to your response.

Regards,

Bernard ter Haar

ABDTOPConsult is an agency of the Ministry of Interior Affairs & Kingdom Relations; the “ABDTOP” component of its name is an acronym for the agency’s full name in Dutch, and stands for “Senior Civil Service for Temporary Contracts, Projects and Programs”. As the agency describes itself on its own website, it is “a small advisory group of experienced top officials within the Dutch government that can provide a rapid response to complex or urgent issues in many forms, from research and consulting to the filling of interim positions”. Critics, however, have also accused this “club” of being nothing more than a job reshuffling machine for government bureaucrats.

Bernard ter Haar has worked as an economist for the Dutch government since 1988. His name figures prominently in this dossier, although we doubt that he himself is fully aware of the magnitude of his role in it. Ter Haar was Director of Financial Markets and Deputy Treasurer-General at the Ministry of Finance when the major banks collapsed during the global financial crisis of 2007-2009. After that, he made his way through positions within the Ministry of Infrastructure and the Ministry of the Environment, Social Affairs & Employment, and ultimately the Ministry of Interior Affairs & Kingdom Relations, where he was an internal advisor from June 2020 to June 2021. Clearly, over the past 15 years, Ter Haar has been right in the thick of things, from the well-known state aid to banks in the form of capital injections to the not-so-well-known state aid via the “Great Dutch Bank Fraud”, to the spin-off of pension implementation organizations APG and PGGM in 2008. And then he landed at ABDTOPConsult on 1 July 2021.

And alongside his job as a consultant, he is a prolific blogger on the website that bears his name. By his own admission, the content of that site is made up solely of his personal opinions and does not reflect any position of his employer, the State of the Netherlands. His posts do, however, pertain to important subjects that either impact the Dutch government or, in many cases, in which the Dutch government is involved. Although not long ago he noted in one post that his site has had no more than 100,000 visitors in over six and a half years, it is quite curious that his site is not more popular among the public. Bernard ter Haar has been hailed as the hero of the credit crisis. He was even appointed Officer of the Order of Oranje-Nassau, the Dutch equivalent of a knighthood, in 2008. That said, the names of the key figures in Worst Bank Scenario have been the recipients of a conspicuously high number of such accolades.

Being aware of Ter Haar’s résumé, this e-mail stopped Hester in her tracks. For the time being, please try to look past any confusing terms like interest rate swap, margin and liquidity surcharge (we will explain all these over the course of this book) when you read Hester’s reply to Ter Haar, which she sent on Friday, October 8, 2021:

Dear Mr. Ter Haar,

Thank you for your invitation.

Stakeholder in the interest rate swaps redress process

In my capacity as attorney, I have now been embroiled in the scandal known colloquially as “Swapgate” for 10 years. I use the word “embroiled” because I was engaged as attorney in an individual conflict in 2012, not knowing that I was opening a proverbial can of worms. That conflict involved a business owner who considered himself victimized by the bank as the result of contracting an interest rate swap. After my review of the file, I concluded that a bank employee had likely stepped outside his purview by offering this product, which I only knew from the professional wholesale environment, to a retail banking customer and that, given all the financial malpractice I came across in the file, the bank would be willing to settle.

At the time, I could not have possibly suspected that I was about to end up in the middle of a massive corruption and fraud scandal. In taking on this client's suit, I was jumping on a running train, and at a certain point it became apparent that there was no longer any way to get off. I must make clear that I never had the deliberate intention to uncover this web of corruption and fraud. I was simply doing my job as attorney, and ultimately (in 2019) the Supreme Court ruled in favor of the business owner in question from my initial case. Our highest court upheld the opinion of Amsterdam Court of Appeals confirming that my client's entering into his contract was the result of culpable mis-selling on the part of the bank (ECLI:NL:HR:2019:1500).

Interest Rate Derivatives Knowledge Hub

Not until 2014 did it dawn on me how high the stakes were in the interest rate swaps dossier. The banks and their attorneys answered the litigation with overwhelming aggression from the outset, punching below the belt from the moment they stepped into the ring. They didn’t shy away from ad hominem attacks in an attempt to intimidate both my client and me. Furthermore, in early 2013, I discovered that a number of revisions had been made to ING’s records related to the dossier. This confluence of events led me to believe that the mis-selling of interest rate swaps went far beyond the single case I had been litigating thus far.

That was when I approached several specialists I knew were dealing with interest rate swap dossiers. We then shared our collective and accumulated knowledge about the market for these derivative products and brought together our collective insights in a report under the name of the “Interest Rate Derivatives Knowledge Hub” (in Dutch: “Kenniscentrum Rentederivaten”, or KCR). This information from the KCR was picked up by both politicians and the media, catapulting Swapgate to national prominence. As a result of the publicity, banks exhibited an increasing willingness to settle individual cases, and together we were instrumental in bringing about a collective settlement.

Nonetheless, when it became clear that the big banks were failing to performing the individual reviews of customers’ complaints about interest rate derivatives mis-selling in accordance with the Dutch Financial Supervision Act, the State (the Minister of Finance) appointed a derivatives commission made up of three members and gave it the mandate to draft a collective redress mechanism in collaboration with the banks. One of these three members, Theo Kocken, helped the Dutch conduct supervisor Authority for the Financial Markets (AFM) write this draft framework, which was then evaluated by the Minister of Finance in early February 2016 prior to the Minister’s appointment of the commission. Although the KCR specialists were invited to review these drafts, I declined to do so because I did not wish to agree to any confidentiality with these persons or the commission. I did not consider that to be in the interest of my clients nor in the interest of the other aggrieved parties. So I shared my position unsolicited (and the information disseminated in the KCR's name was public) and sent several e-mails to the Derivatives Committee.

Falling interest rates lead to interest rate risk | interest rates rise

The business owner for whom I litigated is the proprietor of a well-known retail chain selling denim apparel and also owns a portfolio of retail store properties, which he financed out of the profits and reserves from his retail chain. These properties were rented out to others retailers. This business owner always financed his retail properties with variable interest rate loans and purchased them outright without stipulating a financing condition in the purchase and sale agreement. Upon entering into the interest rate swap (under pressure from the bank), the business owner thought that he was setting a maximum interest rate on his financing through the swap (at the last moment, the bank required that he cover 75% of his interest rate risk, even though there was absolutely no financial need to do so), and moreover thought that his one-year Euribor loan offered flexibility. His strategy was to finance his properties at variable (short-term) interest rates in order to limit his dependency on any single bank. But in one fell swoop, contracting the swap eliminated that independence and bound him to the bank in golden chains.

With the introduction of the liquidity surcharge, the interest rate proved to be not fixed at all, and he was not able (without incurring extremely high costs (i.e., posting margin) to switch to Handelsbanken (which did not require a liquidity markup), at least not without incurring extremely high costs (i.e., posting margin). He therefore had to insure himself against the interest rate risk, but it was this very construction involving an interest rate swap that created the interest rate risk in the first place. While interest rates were falling in the market (read: manipulated downward by the European Central Bank), it turned out that the client’s interest rate was not capped at all, but rose by as much as 2 to 3%.

Victory in the Court of Appeals (2015) and Supreme Court (2019)

The business owner I referred to above was, unlike many other business owners, affluent and financially in a position to switch over to another bank (after payment of a significant sum of money for the margin call to buy out the swap) and also had the financial resources to litigate against his bank, which is exactly what he did. After moving his account to Handelsbanken (a Swedish bank that was rapidly gaining market share in Dutch property lending), he initiated legal proceedings against ING. Upon switching banks in 2012, he annulled the swap extrajudicially but offered (without being under any obligation to do so) to continue to pay the interest rate swap until a court ruling on the matter.

In 2013, the District Court of Amsterdam ruled against him, but on appeal the Amsterdam Court of Appeals overturned that ruling in September 2015 (interlocutory judgment; mis-selling), and that ruling was upheld by the Supreme Court in October 2019. This business owner received compensation from ING Bank in the amount of €1 million for overpayments despite falling outside the collective redress mechanism (even though he had no knowledge of or experience in interest rate derivatives).

Collective Redress Mechanism | reclassifying customers as professional | extrajudicial qualification as “expert”

By means of the collective redress mechanism, banks (in collaboration with the Minister of Finance and the AFM as authors of the draft of the mechanism) wrongly classified non-professional investors as “experts”. As a result, non-professional clients (such as this business owner) with no knowledge or experience in derivatives, and whom the bank had actually designated as non-professional when entering into the swap, were disqualified from redress mechanism. Likewise, countless larger business owners and semi-public institutions that had been classified as non-professional due to a lack of knowledge and experience were reclassified as professional investors in derivatives by the banks around 2010 without these customers knowing that the banks had done this, and done so exclusively in the interests of the banks themselves and their balance sheets. And these customers were also disqualified from the collective redress mechanism even though they qualified for the initial review (as agreed by the banks with the AFM and adopted by the Minister of Finance) in 2014. This means that the banks have wrongly collected billions of euros from business owners and semipublic institutions (in healthcare, education and social housing). I explained this to the Lower House of Parliament in my 2016 position paper, which was presented during the Hearing on Interest Rate Derivatives in September of that year. Being that with the arrival of Merel van Vroonhoven and Paul Rosenmöller the AFM was rendered completely toothless, and it now seems (in hindsight) that my seven and a half years of reporting about fraud has didn’t amount to a hill of beans, the actual damage to the real economy as a result of these interest rate derivatives has gone largely unacknowledged. The credit crisis remains unresolved as its consequences continue to get passed on to the public.

In this book Hester goes into much deeper detail into what that fraud consisted of; for the time being, however, it’s far too complicated to address here. Keep in mind that this is a correspondence between two insiders, both of whom are very much on top of this material. At any rate, she closes this section of her e-mail by noting that even after her client’s victories before the Court of Appeals (September 2015) and the Supreme Court (October 2019), the silence from both the AFM (the Dutch Authority for the Financial Markets) and the Ministry of Finance was deafening. Her e-mail continued (note that for the purposes of this prologue, we elide a few brief digressions in the original e-mail):

It is now clear that at the moment that the crisis broke out, an entire scenario was cobbled together to alter the fraudulent accounting, contracts, annual accounts and regulations as quickly as possible after the liquidity crisis arose in 2007. The International Monetary Fund (IMF), the European Central Bank (ECB), the Dutch central bank De Nederlandsche Bank (DNB) and the Dutch government pumped, and has continued to pump, the required liquidity into the system with the backing of commercial asset managers like BlackRock. This scenario will be explained in my (our) book Worst Bank Scenario, to be published in December (www.bankenfraude.nl). This book will be full of “reflections” (to use the word from your e-mail), and I would therefore like to offer the Ministry of Finance a free copy for the purposes of the evaluation of the redress process for the interest rate derivatives in the SME sector.

Independence of ABDTOPconsult | Ter Haar’s involvement in guarantee system and Illiquid Asset Backup Facility in 2008/2009 | balance sheet restatements 2008-2016

This brings me to my final, but no less relevant, point. In view of the role of the State (Ministry of Finance) as owner and rescuer of the banks (both state-owned and private), participant in the financial markets… and as initiator of the derivatives commission (while the State also granted an indemnity to the gentlemen in question) and author of the draft redress mechanism, I do not consider ABDTOPConsult independent, so I therefore consider your firm unsuitable for performing this evaluation.

This applies not only to ABDTOPconsult but also to you personally as former Director of Financial Markets and Deputy Treasurer-General of the Ministry of Finance. The parliamentary inquiry and other parliamentary papers show that you were closely involved in the state aid, the national and international guarantee programs and the concealment of the liquidity shortfalls at the bank/insurance groups...

While banks—together with the government, DNB and the AFM—were actively covering up these liquidity shortfalls, I was advising countless desperate clients facing the disastrous financial consequences of these swaps, arguing before judges on behalf of aggrieved parties, and devoting many dozens of hours to contacts with the AFM, banks, the Dutch Banking Association NVB and other institutions. It is now clear to me that banks altered their annual reports in 2008-2016, sometimes retroactively and without explanation, to obscure their liquidity positions...

Moreover, since December 2020, I have been aware that Minister Bos (as well as Ministers Balkenende and Hirsch Ballin) went behind parliament’s back in introducing a Remedial Decree (Bulletin of Acts and Decrees 2008, 581) with retroactive effect. I cannot exclude the possibility that you were also involved in these extra-parliamentary changes to the law...

Evaluation

Given the facts and circumstances surrounding the implementation of the redress process, I would view an evaluation of the process as not only welcome but indispensable.

Such an evaluation is necessary as a result of the unfair restriction the Dutch government placed on the scope of the evaluation process and the conflicts of interest the Minister of Finance had in carrying out the redress process. The Dutch state, as owner/rescuer of the financial groups, is partly to blame for concealing the shortage of liquid collateral, and it was precisely because of this liquidity shortfall that customers with interest rate swaps were unfairly confronted with liquidity surcharges, credit line reductions, requests for additional collateral, etc.

In view of the involvement (and complicity) of the Ministry of Finance in passing on the liquidity shortfall to the victims of interest rate swaps, as well as the responsibility (on both the political and personal levels) of the Minister of Finance himself, it would be advisable for the Minister to have an independent investigation carried out. Moreover, in establishing that investigation, the question of whether it should be conducted by an internal governmental investigative agency at all, or rather by an independent international body, is extremely salient. I have been reporting fraud to the AFM, DNB, FIOD and the Ministry of Finance (all members of the Financial Expertise Center FEC) for seven and a half years to no avail, and in the interests of the truth and the rule of law, I will start releasing these reports with the publication of my (our) book.

Last but not least, I believe that evaluation interviews commissioned by the Ministry of Finance should be recorded. It is now a generally accepted fact that the Rutte Doctrine is the boot on the neck of the rule of law.

Regards,

Hester Bais

Attorney

Introduction

The low interest rates that have been prevalent in Europe and the rest of the world ever since plummeting to unprecedentedly low levels in 2008, shortly after the onset of the credit crisis and staying there until very recently, have had a number of different impacts on society. Borrowing money was never easier, be it for consumers (a home mortgage, a car loan, or a 0% interest payment plan for a large-screen TV) or the Dutch government (for the tens of billions of euros in borrowing to address the pandemic, improve the environment or tackle much-needed housing and infrastructure projects). So easy, in fact, that it has long seemed that money was “free”. But, what is often forgotten is that this “free” money is, in fact, debt, and “we the people” will have to repay it. So the fact remains that when the government takes out billions in loans to solve problems, future generations must eventually pay the bill.

Yet both governments and consumers put themselves in debt all the time at the drop of a hat. Take the property market: the average price of a home purchased in the Netherlands was €387,000 in 2021, according to the Dutch government's bureau for statistics, Statistics Netherlands (CBS). By comparison, after five years of an ongoing credit crisis, after the housing bubble burst, the average house price in the Netherlands reached a low point of €206,100 in June 2013. So in just over eight years, the average house price nearly doubled. Although the average fixed interest rate for mortgages had fallen to about 1.4% and stayed there through 2022, after dropping an average of 0.3% per year in recent years, this doesn't say much about the amount of money you need to shell out for a home. And these amounts are mainly financed by bank debt because buying a house without a mortgage loan is something beyond the reach of most people.

In most cases, taking out a mortgage loan means borrowing up to 4.5 times your gross annual salary from the bank. So to buy that average house in the Netherlands worth €387,000, you need an income of at least €86,000 per year (disregarding the down payment). That's quite a big number for the average Dutch person, whose income the CBS calculated as €36,500 in 2021. Two-income households might get close to affording that average home price, but single people? Or young couples starting their careers and without much savings? For the vast majority of them, buying their own home is a pipe dream.

So the benefit of low interest rates on mortgage loans does not outweigh the vast increase in house prices. Moreover, when the housing bubble bursts, home prices plummet and many recent homebuyers are left holding the bag. Just like at the low point of the housing market in 2013, we are now once again seeing news reports about houses that are underwater (i.e., the mortgage debt exceeds the value of the house) and stories of cohabitants who want to divorce but have to continue living together because they can't afford to split up with all the negative equity in their home. And so it goes, all over again; doom and gloom abound, and history repeats itself.

Low interest rates also mean that saving money in a bank account doesn't pay anything, or can even cost money once the interest rate turns negative. People looking to make a return on their savings seek refuge in risk assets such as housing: one common tactic among such investors has been buying property in Amsterdam in order to rent it out for immense sums on the overheated housing market. For these people, buying a home is not a pipe dream but a lucrative business model—albeit one that makes it even harder to afford a home, fueling the erosion of social cohesion already in full swing.

This book is essentially about how these historically low interest rates were the result of the bank bailout after the credit crisis in 2008. We then go on to show how, even before the credit crunch, banks had a severe lack of liquidity (or rather a lack of collateral for which such liquidity was required) as a result of a series of banking business models that we will discuss later in this introduction. This is the reason why the European Central Bank (ECB) started manipulating interest rates downward beginning on 8 October 2008. This allowed banks to close their liquidity gaps by borrowing money cheaply from the ECB. Moreover, since market interest rates were also falling (because market interest rates follow ECB rates), banks were able to attract liquidity for next to nothing from other professional market participants such as the State of the Netherlands, life insurers and pension funds. But while low interest rates are good for parties like these, they're bad for savers, life insurance companies and pension funds, so at the end of the day these low rates are a net negative for, broadly speaking, the public and society. Low rates lead citizens to divert their savings to more risky investments, like shares and real estate. That's why the prices of both of these assets classes rise significantly when interest rates are low. This creates what is known as a debt trap. In such a scenario, putting money into, say, purchasing a home requires more and more debt, and that debt serves to pump up the bubble even more.

As of the publication of this book, more than thirteen years after the credit crisis, this situation has not changed: banks continue to be in permanent need of liquidity as a result of their business model, interest rates have been kept artificially low for years to allow banks to finance the liquidity needs resulting from this business model, and the ECB continues to lend billions of euros of free money to banks. The lending of “free money” to banks is being done, ostensibly, in order to stimulate the real economy, but in practice this money rarely seems to reach the businesses that need it. Banks are mainly using this easy money created by the ECB to close their liquidity gaps. The question we answer in this book is why this is so and why banks have been left alone to pursue these business models for so long and so far—so far, in fact, that anything, even large-scale fraud with the support of the Dutch government became justified to rescue the banks.

By the end of the 20th century, banks had become massive financial conglomerates, active in all kinds of financial services; many had even acquired entire insurance companies outright. In the run-up to the credit crisis, these financial groups were becoming increasingly focused on their profitability—something more or less dictated by their shareholders as a publicly listed company. That, of course, is because higher share prices translate into significant rewards and bonuses for the executives and employees of financial groups. This is when the focus shifted to cash flows and profit maximization. Complex derivative financial products, traded over-the-counter (OTC) between financial market participants, entered the market. Financial markets became less and less transparent and the interest rate risk, which normally rests with the bank, shifted to the customer.

Shortly after the credit crisis broke out, the European Commission ruled that the financial groups had to be split up again as a condition for receiving state support. Because so much has already been written about rescuing banks with capital injections (solvency support) from the Dutch State, for this book we chose to focus specifically on the liquidity support that banks needed at the time, something about which little has been publicly disclosed. Why there was so much secrecy surrounding this support should be clear after reading this book.

In any case, in 2008, the banks (as well as the insurers!) were effectively bailed out with the liquidity support they received from the government (in other words, we all picked up the tab). But these bailouts didn't solve the banks’ structural liquidity shortages. To permanently disguise this liquidity shortage, Jan-Peter Balkenende (then Prime Minister, member of the center-right CDA party), Wouter Bos (then Minister of Finance, member mainstream left party PvdA), Ernst Hirsch Ballin (then Minister of Justice, CDA again), Herman Tjeenk Willink (then Vice President of the Council of State, PvdA again), and the Dutch central bank (DNB, which at the time was headed by Nout Wellink), stitched together some after-the-fact remedial legislation carefully crafted to mislead parliament. Part of that legislation was an unlawful Royal Decree (2008, 581)—unlawful because it was simply implemented without being voted on by parliament, as required by Dutch law—rectifying some “technical failings” in the text of the main Dutch act regulating the financial sector, the Financial Supervision Act (Wft). The government had presented the bill as containing only a few minor corrections of no real significance (a textual adjustment, a brief explanation added, grammatical changes), for which the law allowed implementation without consulting parliament; but as you will see, these changes were anything but insignificant.

For one thing, they allowed the financial groups to portray their solvency (financial health) as better than it actually was in order to qualify for state aid. And they also made it possible for banks to institute a new business model: an even more lucrative one in which banks’ liquidity shortfalls are permanently masked by temporarily shifting liquidity back and forth between financial institutions in a kind of “shell game”. This decree was the beginning of an orchestrated multi-year scenario with only one objective: ensuring the long-term continuity of the big banks’ pernicious business models. We call this the Worst Bank Scenario, the worst possible scenario for both banking customers and society at large.

In this book we use the terms “banks” and “large banks” more or less interchangeably, although we use “large banks” specifically to mean those banks that contracted interest rate swaps with customers on the Dutch market. Those banks are: ING, Rabobank, ABN AMRO, Fortis Bank Netherlands, Deutsche Bank Netherlands and SNS (now Volksbank).

Once the Royal Decree had freed the banks from the problems of the old business model, this new model had to be put in place as fast as possible. Less than a few weeks after the Royal Decree was passed (illegally, as noted above), the banks started passing on the cost of this new model, which was more expensive for banks, to all their customers who had variable-rate loans. They were told that borrowing money had become more expensive and, as a result, they had to pay a generic “liquidity surcharge”, which took the form of an interest rate increase of 0.96% (rounded up to 1%), which kept going up in the following years, eventually up to as much as 3% (in some cases even higher). In reality, though, it was all a ruse—real long-term interest rates were actually falling thanks to the ECB's efforts, as already noted. And remember that all this was in the middle of the great financial crisis, which devastated the SME sector. The Royal Decree, which was the work of Balkenende, Bos, Ballin, Willink and DNB, essentially handed over Dutch SMEs—the engine of the Dutch economy—to the big banks, which had their designs on them. Lest we forget, by the time the Royal Decree was issued, the government was wearing multiple hats as it needed to bail out the banks with state aid and already owned Fortis/ABN AMRO outright.

Loans to businesses totaled over €275 billion in 2009, of which only an estimated 20% were fixed-rate loans, according to statistics published by DNB. This means that the total size of the variable-rate loan market was about €220 billion. Since 2009, banks have been reaping several billion euros per year in unjustified interest income from liquidity surcharges; a total of around €50 billion (up to 2022).

The damage to the real economy from the government’s sellout of Dutch SMEs to the banks is devastating. And beyond the economic damages suffered and still being suffered, the social misery is incalculable and irreversible: People lost their jobs, found themselves unable to service their debts, became ill from financial distress—in a few cases even committed suicide. Marriages collapsed, families were torn apart, people were left with unsellable homes after divorce or with enormous residual debt after being forced to sell with an underwater mortgage. Small business owners and semipublic institutions became the playthings of the big banks, with the bulk of the bill for the bailouts being passed on not only to the public but also to the bank’s “weaker” customers. Confidence in the banking sector has been irreparably damaged. There are so many people who were unable to get their lives back on track after the credit crisis. This book gives a face to all the people around the world who have suffered or are still suffering the consequences. Engineering the banks’ new business model required the involvement of multiple current and former politicians and public officials. Because we suspect that some of them may have been unknowingly and unwittingly sucked into this vast web of fraud, we mention only the names of those who we believe participated knowingly in the Worst Bank Scenario or should have known that they were participating in it. This applies in particular to Paul Rosenmöller (member of the far-left party GroenLinks), who is a director of the civil service pension fund ABP and was previously a member of the supervisory boards at both the conduct supervisor Dutch Authority for the Financial Markets (AFM) and pension administrator APG (part of ABP), and Merel van Vroonhoven, former chief executive of ING/Nationale-Nederlanden and former chair of the AFM. Together, they ensured that the financial sector regulatory agency that was arguably the most central to the Worst Bank Scenario, the AFM, was rendered toothless for years. They, along with people like former ING/Nationale-Nederlanden CEO Jan Hommen and Gerben Everts, are recurring figures in this fraud. In the time frame of the Worst Bank Scenario, Everts switched from being a pension administrator at APG to regulatory authority AFM, where he was tasked with the supervision of public auditors. And the ECB's and national central banks’ roles in this fraud story are also extremely questionable.

Jan Hommen merits special mention, as his role in the fraud is twofold. First, he held a key role at ING/Nationale-Nederlanden itself. After that—and after being knighted for “his exceptional contribution to the continuity of ING as an international enterprise as well as for his efforts to change the financial sector following the 2008 financial crisis” in 2013, with his medal pinned on him by Finance Minister Jeroen Dijsselbloem on behalf of the Dutch king—he took the fraud one step further when he moved to renowned financial auditing firm KPMG, as we will explain. Then, in January 2018, he moved to a senior position at the world’s largest investment firm, BlackRock. So it is not only the ECB, central banks, and regulators that helped the financial groups conceal their vast liquidity shortfalls.

In the years after the law was amended in 2008, those involved in the fraud had to adapt their accounting and administrative practices to the new reality. To show you how that happened, in this book we will focus mainly on the situation at ING. ING's approach to adapting to the new reality meant adjusting their financial statements retroactively in major balance sheet restatements in 2016: by €186 billion (retroactively, for the year 2014) and €163 billion (for the year 2015), both under false pretenses.

And apart from the balance sheet restatements, ING also quietly made changes to internal systems and modified existing contracts without telling the customers in question. Rabobank and ABN AMRO made similar retroactive adjustments, albeit for significantly lower amounts, in their own 2016 financial statements. But Rabobank had already made retroactive balance sheet restatements to its 2013 financial statements in 2014. In some instances, we will make reference to the situation of other major banks for a deeper understanding of the issues at hand. In particular, looking at the nationalization of SNS/Reaal and the “€700 million gap” at that financial group will contribute to understanding the broader plot in this fraud story. Considering the size of this particular capital shortfall, it is remarkable that those involved pretend (at least, so far) to not know where it came from. In this book, we reveal that this “gap” is more of a Grand Canyon because, in reality, the capital shortfall in question is not €700 million but at least €7.6 billion. At that juncture, the former Finance Minister Wouter Bos reappears, only this time as a partner and advisor at KPMG.

To what extent all involved were aware of their role in this larger story is a question that will need to be answered in the months and years to come. But at the risk of dropping a spoiler, the liquidity problems of major banks we've just described have still not been resolved. So the story is still ongoing. You can read the latest on the developments we've been following since the publication of this book on the website bankenfraude.nl.

Needless to say, this book can be described as an expert analysis. It is based on the decade-long research of Hester Bais, who, as an economist and financial law attorney, rolled into this immense fraud case more or less by accident. The writing of this book was prompted by years of unsuccessful complaints to regulatory authorities and others about this fraud. The authors wish to point out that their numerous futile and unanswered reports are also the reason we did not offer the persons and parties involved the opportunity to present any kind of response or rebuttal. Hester has given the people in question many chances to explain themselves over the past decade, and they all declined. Worst Bank Scenario is, therefore, not an after-the-fact reconstruction of this fraud but a revelation and reconstruction of how exactly it was perpetrated and uncovered. The analysis is grounded in Hester’s own experiences as a lawyer representing clients in numerous lawsuits (and settlements) against the big banks. It is also based on public sources such as annual reports, parliamentary papers and other publicly available academic publications. Where we deemed it essential, we have referenced the sources in the running text. For other sources consulted, please refer to the reference list at the back of the book.

More about Hester’s background can be found under “Hester’s motives for writing this book”. Wink Sabée, the author who chronicled Hester's story, describes his under “Wink’s motives for writing this book”. With Worst Bank Scenario, we aim to give the reader insight into how uncontrollable the financial system has become and in what ways public authority has been abused or rendered powerless in an orchestrated effort to advance the interests of the financial system. We strove to explain the essence of how this undesirable situation arose in the first place and are aware that certain details may not be entirely accurate or complete. Where that may be the case, we are entirely convinced that does not detract from the fundamental truths of the current analysis, which we stand firmly behind.

We wrote this book with the intention of bringing about real change to the current financial system, which emerged at the end of the 20th century. It is a system of inequality that protects powerful interests up to the highest level—and even to the highest echelons of the political sector—and ultimately places the burden on society’s more vulnerable groups, such as SMEs, public and semipublic institutions, and the public. At the end of the day, it’s the people who get stuck with the bill for such systemic inequality—higher taxes (income tax and VAT), school tuition, health insurance premiums and rents, alongside diminishing quality of healthcare, education and housing. These are the trends that are causing many people to experience the present day as a period of societal decline, with a plethora of uncertainties.

This is why a new system is inevitable—a financial world that is fair, safe and transparent. Young people in particular need to be given a voice in designing this new system, especially considering how older generations have done such a poor job of designing a system that also benefits them. Given the damage banks have done with their business models, we believe that our expert analysis can be a valuable reference for journalists. There’s an unlimited number of angles to approach this story from, each of which contains a gripping story unto itself.

There’s no time to waste. A new “multipolar” monetary system, based on different currencies, is taking shape right now. This system will run on a number of interconnected global blockchain and distributed ledger technology payment and collateral management platforms for professional market participants, combined with digital central bank money, such as the digital euro, for both individuals and professional market participants (Central Bank Digital Currency, or CBDC).¹ We expect that, in this system, the centralized monetary systems of world powers will be interlinked, and the IMF will act as the intermediary between them. In 2008, world leaders called this multipolar monetary system “Bretton Woods 2.0”. They saw the centralization of collateral as the indispensable bedrock of this new system. But this collateral consists of not only gold, as in classic Bretton Woods framework, but also includes other elements such as bundled and packaged bank loans and emission rights (for example, CO₂ emissions rights). DNB and Belgium's central bank, the NBB, are the founding members of a new European centralized collateral management system that the ECB will be launching across Europe in April 2024. We will revisit this in detail later in the book. Worst Bank Scenario describes the path to this new multipolar monetary system that revolves around highly liquid collateral (liquidity).

We have made every attempt to make the story as accessible as possible. That proved to be quite challenging at times because the material is fairly complex. We have compiled the most important financial terms in the glossary at the back of the book. To spice it up a bit, we opted to tell the story through a narrator, interspersed with personal experiences and observations of Hester’s, which we have set out in the sections entitled “Hester’s memos”. Furthermore, in Part 1 of this book, we wrote some scenes to bring some of the complex issues to life in a somewhat lighthearted way. Although these are fictional stories, their plots are based on real-life events. We hope that the main characters in these scenes take their roles with a grain of salt.

In Part 1, we deal with a product (interest rate swaps) that financial groups sold to SMEs and public and semipublic institutions under false pretenses in the years leading up to the credit crisis. We show how this product caused major financial distress for business owners, healthcare institutions, hospitals, housing associations, municipalities, water companies and educational institutions. Hester calls this scandal “Interest Rate Swapgate”, or “Swapgate” for short. In Hester’s memos, she discusses the first lawsuit she filed for a client (the retail denim apparel chain store owner from the Prologue) regarding interest rate swaps and the questionable role of the AFM in that case. Instead of ensuring that banks fulfill their duty of care towards their customers, the AFM has sided with the banks.

Part 2 covers the history of banking from the years preceding the Great Depression of the 1930s until the outbreak of the credit crisis in 2008. We show that until the economic crisis of the interbellum—the period between World War I and World War II—just like in the run-up to the credit crisis, banks formed large financial groups with insurers and became the enablers of the social misery that ensued. In this section, we look back at how laws and regulations—which had been put in place in the 1930s for the sole purpose of preventing the recurrence of such excesses—were relaxed again at the end of the last century. Banks subsequently abandoned the classic, safe way of banking (which we call Banking Model 1.0 in this book) that had provided relative calm in financial markets for decades. They then set up a new business model (Banking Model 2.0), which caused the huge liquidity shortfalls that were at the root of the 2008 credit crisis.

Anyone who thinks that the liquidity shortfalls and collateral shortages that were publicized at the time (up to €200 billion in the Netherlands, €400 billion in Germany, €320 billion in France, €100 billion in Spain and €300 billion in the UK²—€1.32 trillion in total—with global shortfalls adding up to several times that amount) were addressed and resolved after the credit crisis is deluding themselves. Despite pretending that they were working on this, banks in the Netherlands, with the help of regulatory authorities such as AFM and DNB, the ECB and the Ministry of Finance, built a new business model (Banking Model 3.0) that continues to disguise banks’ liquidity shortfalls (collateral shortage). This Banking Model 3.0, the model at the heart of the new multipolar system, is based on the European collateral management system referred to above. We examine this in more detail in Part 3.

In Part 4, we cover how the Great Dutch Bank Fraud was carried out in the Netherlands. This is the heart of the Worst Bank Scenario, the essence of the deliberately engineered bank fraud that, through network corruption, leads to the worst possible outcome for bank customers and society alike. We then turn our attention to the Royal Decree referred to above and show the route that the €200 billion Dutch collateral shortage travels from its inception at the financial groups to the balance sheets of central banks (DNB and ECB) as part of the new multipolar monetary system. We then look at how, in the meantime, the Dutch collateral shortage was unlawfully placed with Dutch pension funds such as ABP and Pensioenfonds Zorg en Welzijn (PFZW). Next, we highlight the role of ING’s “bad bank” (Bank Mendes Gans). ING is the largest commercial bank in the Netherlands. With a liquidity/collateral shortfall of €186 billion (as of 2014), ING is also by far the largest party in the Great Dutch Bank Fraud. Furthermore, we zoom in on the gap in the balance sheet at SNS/Reaal that became the smoking gun in exposing the Great Dutch Bank Fraud. In this section, we pick up Hester’s memos again, covering the period from 2012—the year in which Hester appears on the scene—through 2016. This is also the year in which banks made the major balance sheet restatements we've already touched on. In the meantime, we look on as Hester and other parties involved meet multiple times with the regulatory authority AFM, which stoically dismisses Hester’s reports of fraud and instead spews out a report that takes an unlawful stance that actually protects the banks.

The continuation of Hester’s memos that follows, chronicling the years 2017 through 2021, is the focus of Part 5 of this book. In it, we watch as Hester continues to write to regulators, reporting the fraud and malfeasance at ING to the SEC in America while questioning the independence of the academics and experts that have sifted through the fraud.

In Part 6, we then turn to the role of the ECB with respect to banks’ liquidity/collateral shortfalls. In it, we see how the European Union, after years of quantitative easing (QE) by the ECB, sets the stage with the introduction of EU-Bonds (NextGenerationEU) beginning in the summer of 2020. This came at the urging of the French President of the ECB, Christine Lagarde. She was commissioner of ING/Nationale-Nederlanden in 2005, finance minister³ of France during the outbreak of the credit crisis and, from 2011 until September 2019, president of the International Monetary Fund. This section reveals how schemes similar to the Great Dutch Bank Fraud have been carried out in other countries.

The consequence of this change of course in Europe is that future generations will be the ones footing the bill for the unresolved liquidity and collateral shortages of this generation. This harsh reality is discussed at more length in the conclusions. Another fundamental conclusion of our book is our plea for a transparent financial system. We view this as crucial because, as our book demonstrates, the current financial system is far too complex. The starting point for any financial system must be that financial products should be understandable to all who need them. This is because a financial product is not an end in itself but a means to bring about something in the real world that leads to prosperity for an individual or a community. But financial products should not create distress by doing something other than what they were intended to do. And if a product does have any such inherent risks, those risks should be clear and understandable to all. This book shows how, despite our best efforts to make it as understandable as possible, today’s financial world is not as clear and straightforward as it ought to be.

Finally, this: We, the authors, do not believe in this global system where the rich only get richer and the rest of the population is disenfranchised. In fact, this system of pumping money around through as many hands as possible to create the illusion of liquidity makes for abundant opportunities to “skim some off the top”. Entire enclaves, such as Amsterdam’s financial district (the Zuidas), are specialized in this game. Society bears the brunt of the costs of this skimming racket, which stretches far beyond the kickbacks paid to reward the orchestrators of this unique brand of network corruption. In exchange for generous compensation, “friends” and “partners” help each other by looking the other way at the right moment. Those involved may have previously worked in a position at a commercial bank or an accounting firm, only to casually pop up again at just the right moment in a job with the regulatory authorities or at the Ministry of Finance.

It’s like a junk trading circuit that blurs the distinction between public and private (commercial) interests. In this global system, everyone has their own agenda. At the end of this book, we briefly discuss the role banks still have in society.

Amersfoort/Amsterdam, June 2022 (first edition), November 2023 (second revised edition)

Hester Bais and Wink Sabée

_________________

¹ For example, investment banks from the United States, Europe, Canada and Japan created the Fnality International payment system (including UBS, ING, Credit Suisse, Canadian Imperial Bank and Nomura) and the HQLAx collateral system (including Goldman Sachs and ING). These ventures currently play a leading role in centralizing collateral management at a global level.

² Parliamentary Papers II, 2011/12 session, 31 980, no. 61, page 403

³ Macron worked with Lagarde at the French finance ministry, was part of the Attali Commission for the Liberation of French Growth in 2007, and was seconded from the government to French merchant bank Rothschild in 2008. That same year, the Dutch government hired Rothschild as an advisor on the financial groups’ bailout.

Our motives

Hester’s motives for writing this book

At the end of 2006, I decided I wanted to practice law. For the ten years before that, I had worked as a legal and compliance officer at a derivatives clearing member of ING, as a securities and derivatives settlement supervisor at the Dutch Authority for the Financial Markets (AFM) and as a lawyer at the stock exchange (and a brief stint as a headhunter). To be honest, my choice to join the legal profession was not directly motivated by a desire to fight against injustice. That came later. The clients I served were in the professional (read: corporate) market, and since the parties in the professional/corporate realm are on a more or less equal footing, I was not confronted by issues of injustice in any real sense. At the time, I would often get frustrated by how, as soon as the content got really interesting, my employer always brought in more senior partners (charging much higher rates). Then those more senior lawyers would simply write down what I told them and send off an exorbitant invoice to my boss.

Besides that, I found myself longing for more variety in my work. As a fast thinker, I thrive on challenges. And the advice of an in-house legal advisor or compliance officer is by no means always something that a board of directors listens to and acts on. All in all, not a very inspiring working environment. As a result, working for a law firm seemed like the right gig for me. Something where, after providing my counsel, I would be able to move on to the next assignment without having to worry about whether or not the client followed my recommendations.

Although I had received an offer from an upscale Amsterdam law firm earlier in 2006, it turned out that the firm was not set up for a lateral entrant like myself, and demanded I accept a very low salary. I thanked them for the offer and moved on. A year later, I applied to three other reputable law firms and received great offers from all of them. I chose a British law firm in the center of Amsterdam and became a senior associate. When the Dutch Financial Supervision Act came into effect on January 1, 2007, that became my area of expertise at the firm.

Around the same time, however, I learned from the results of a series of personality and aptitude tests that I was “gifted”. This set me off on a journey of personal and professional discovery, during which I learned to listen more closely to my heart. At first, this result made me feel sadder than anything else. For a lot of things in my past, the puzzle pieces suddenly fell into place. Recalling all those days as a child when I had to sit in the hallway doing “extra credit work” and the countless cups of coffee and tea that I was asked to fetch for my teachers—it suddenly started to make sense. One teacher considered me enthusiastic and curious; another labeled me hyperactive and restless. These events during my elementary school and high school years left me feeling stigmatized by my hunger for knowledge. It’s actually something of a miracle that I ended up completing two university degree programs (law and economics) because my aptitude often got in my way, especially in my youth. I felt lonely and misunderstood despite always having an easy time making friends.

Aside from this, my childhood was marked by my father’s suicide when I was a little girl, my mother bringing me up on her own after that and the education I received. In those years, I went to private schools in an affluent suburb, though I lived in a working-class neighborhood. Even before completing high school, I had already moved out on my own. I lived in two different worlds, going to school during the day and working in a snack bar at night.

My sadness gave way to compassion. As a child, I learned early on to be independent and get by on my own. I was resilient, learned to value people for who they are and to stand up for the weak. All this has made me who I am: an authentic, independent, loving and hard-working thinker. Anyone who knows me know that I have a strong distaste for backroom politics and hidden agendas and that I always remain true to myself: no-nonsense and down-to-earth.

As a lawyer, I also followed my own path. After a time at the British law firm where I started, I left for a Dutch firm and then, after my internship, started my own law firm—online and from home. BAIS Legal provides advisory services to financial companies and does what the AFM is supposed to be doing: promoting fair, safe and transparent financial markets.

In fact, it was pure coincidence that I even took on my first interest rate swap case because I was not a litigator and usually advised financial companies, not their customers. Despite that, I still decided to take the case. That's why I often say that I became a litigator against my better judgment. I genuinely believe in resolving conflicts amicably and without conflict, but that proved impossible in this particular case. In the end, what led me to take on the case most was a little voice inside—was it intuition?—but I certainly had no inkling of the cesspool I was opening. When that first victim of Swapgate knocked on my door in April 2012, the owner of a chain of denim apparel stores, what struck me most was his intense outrage. It was in his outrage that we found our common denominator: the great injustice that banks were inflicting on their customers. Unlike most others in a similar situation, this business owner was able to afford the costs of a lawsuit against ING. We began a fierce battle in which the bank and its team of lawyers pulled every trick in the book to hoodwink the judges and discourage us from going forward with our lawsuit.

This incredibly misguided abuse of power triggered my hatred of injustice and gave me the energy I needed to persevere. Being confronted with how the countless aggrieved parties I would go on to meet received no protection from the higher-ups at the AFM, who refused to recognize the abuse of power going on in front of their eyes, I was encouraged to keep on digging. I was frankly appalled by the way the moneygrubbing banks went about shamelessly exploiting semipublic institutions. I saw healthcare institutions coerced into paying tens of millions of euros in extra fees to the banks, money that they would have otherwise been able to put into patient care. This deeply disturbed me, and it made me all the more eager to sink my teeth into this dossier.

The fraud and network corruption I discovered shook my faith in the rule of law to its very core. It’s a story I’ve told over and over again to anyone willing to listen. But now my story has been committed to writing in Worst Bank Scenario, and it’s not going away. This book encompasses who I am and what I stand for: follow your heart, be a loving person and help make the world a better place.

Wink’s motives for writing this book

When I ran into Hester Bais, an independent financial law attorney, in the spring of 2020, I told her about my idea for a book: a fictional story about a man who would cause a major change in the world order through a single noble act. With some degree of trepidation, I had to confess that I was unable to fully conceive of the nature of this singular world-changing act. How is it possible that a small act by one person could shake a whole world paradigm? An act that could set lost souls back on the straight and narrow? That makes the world make sense again, with people taking responsibility for their actions? Where from now on we pursue good instead of being guided by the deadly sins of pride, greed and gluttony?

Now, I've never been the kind of guy who tends to speak up. Instead, I’m more of an observer, questioner and, as a writer, the chronicler of other people’s stories. So when we met, Hester almost immediately went off about a case that was related to my book idea, so it immediately grabbed my attention. Only this was no fiction, but a hard reality.

As it happens, in an earlier phase of my life, I used to write articles about the financial sector. I have also published books that guide consumers through the world of mortgages and pensions in plain language, with titles like Hooray, a mortgage! and Hooray, a good pension! I wrote these books in collaboration with experts who were well-versed in the subject matter. As with those books, I came into this knowing virtually nothing about the topic. I believe this is the ideal starting point. You ask questions, and keep on asking, and go right on asking as long as it takes until you can write it all down in a way that ordinary people can understand. I do have to say that the level of complexity went up fast as I started publishing more and more. While the subject of mortgages was still pretty simple, by the time I got to writing about pensions I really had to resist the urge to throw my computer and everything else in my house against the wall in frustration—more than once.

But in writing this book, I really went beyond anything I could have imagined. If you had passed me in the street at the time I was writing it, you would have certainly heard me mumbling to myself and maybe caught snippets of things I was saying, like “No, this time it’s really just too much” or “What am I supposed to do now?” I think I started to lose my grip when conversations with Hester had become a nonstop stream of haute finance terms coming out of her mouth until my head began to spin and I felt like a goldfish in too small of a fishbowl. To get a sense of what this feels like, just read the correspondence between Bernhard ter Haar and Hester from the Prologue, which illustrates it pretty well. Then, once I had the terminology a little bit under my belt, the next challenge was trying to get my mind around the whole story—a task in and of itself. Beyond the intricate web of interconnected details, the banks’ actions defied logic (being that they were fraudulent), which didn’t make it any easier for me to comprehend. There’s something about a good story that unfolds in a logical sequence, which makes a subject easier to understand. But when at every point along the way the story branches out in all directions, and you have to go down every branch until it feeds you back to where you were and you can move forward again, that’s something else entirely.

At the same time, I was drilling down into the fundamental question: how do you even tell a story like this? Answering that question took longer than you might think. It’s like trying to unravel a ball of yarn that keeps tangling itself up again as you go. The minute you think you’ve got to the end, it starts all over again. Until finally, at some point, you’ve got a straight thread at last and you can finally start weaving your story together to the point where you can finally put it in the damned book. I have tried to write a book that is as accessible as possible to a general audience so that as many people as possible can learn about this banking fraud and the systemic corruption underlying it. Although most everyone understands that fraud and corruption exist, what I want to make clear in this book is how it happened and the impact it had on the lives of ordinary people.

I’m what you might call a self-taught author: I went to business school, and after graduating in International Management (with a lot of average, or if I’m being honest, below average grades), I ended up working as an account manager for an advertising agency. That’s where I came into contact with a lot of copywriters, who always wrote things just a little differently than the client had intended, so in the end, I usually had to do some rewriting myself. Eventually it hit me: why not eliminate the middleman? If I just went to work as a copywriter and worked directly for the clients, then everything would be clear to everyone and it would be right the first time. Wouldn’t that be so much more efficient? So I whipped up a business card, borrowed a laptop and went to work. I used this self-taught approach on a lot of things, actually: making videos, writing and producing a web series, and now, of course, self-publishing my own books. I guess I’m something of a Jack-of-all-trades, but writing is the recurring thread that ties everything together.

Finally, a word about banks: I only really started coming into real contact with banks after the publication of Hooray, a Mortgage! (for which Nout Wellink, president of the Dutch central bank from 1997-2011, wrote the foreword). I still remember only too well a conversation in which a representative of a bank told me, completely in earnest, that the banking system runs on three essential values: trust, trust and more trust. I thought about that conversation a lot as I dug deeper and deeper into the material that became Worst Bank Scenario: the banking fraud and the systemic corruption. And I kept coming back around to the conclusion that the banks deliberately abused that trust—in the interests of their profitability, for the benefit of their shareholders. But even though I couldn’t escape this conclusion, I still didn’t understand it. Because in the end, doesn’t it just destroy your own business model? And wouldn’t you be crazy to do that? The bottom line, I suppose, is that that’s something for you to decide after reading, because Worst Bank Scenario is not fiction—it’s reality.

Part 1

Banks and their sales practices

Scene 1

Unexpected visit from the bank

An ordinary morning, somewhere in the Netherlands. A man and woman are sitting at their kitchen table, drinking their coffee in silence. They look out the window and they see the same thing they see every day: endless rolling pastures, here and there some cows, just milked, now quietly chewing, slowly refilling their udders for tomorrow. On the horizon, the sun is coming up, bathing the green in a golden glow. The man gets up and turns on the radio.

“...In 2012, for the third year in a row, the Dutch economy stands on the brink of recession, Statistics Netherlands announced today. Signs of an uptick in the economy are not expected. This year, thousands of retailers will close their doors and there will be a record number of bankruptcies in the business sector. Additionally, for the first time in living memory, the pension funds are expected to be forced to curtail benefits, Statistics Netherlands says. International news. The housing crisis in Spain continues unabated. More and more people are finding themselves unable to make their mortgage payments, which is creating a major problem for the already weak Spanish banks. The head of Spain’s Bankia expressed his regret about the situation before an angry crowd, urging them to keep their focus on the future. Other international news. Mario Draghi, president of the ECB, says that Europe’s central bank is ready to take steps to save the euro…”

The woman stands up, turns off the radio and sits back down. “I can’t listen to it anymore,” she says. The man looks at the woman and asks what time their visitor is arriving. “He could be here at any moment,” the woman answers. In the distance, the man and the woman see a car approaching, metallic blue, turning up the long drive that leads to the farm. “He’s in a different car,” the man remarks. It rolls over the gravel of the driveway in front of the house and comes to a crunching stop. A man steps out and opens the left-side passenger door, from which he retrieves his sweater on a hanger and puts it on. “Where’s Frank?” the woman asks out loud. Her husband picks up a letter from a stack of paper on the table and reads from it aloud. “‘For the purposes of our ongoing relationship I would like you to meet with my colleague, Roger Keller.’” He stops reading and says to her, “Evidently Frank’s not coming at all.”

The woman moves to the front door and greets the man who’s just arrived. The banker walks in, goes to the man and introduces himself. They sit down. “We were expecting Frank,” the woman says. The man, whose name is Roger, smiles and says that he’ll be their new contact person at the bank from now on. “Is Frank sick?” the woman asks. The man smiles again and tells her no, Frank’s doing just fine. At least, as far as he knows, because Frank works in a different department. “Oh, that’s too bad,” the woman says. “We would’ve liked to have seen Frank again. It’s been so long since he’s come by. I ran into him a little while ago, you know, he was in the supermarket with his wife; he said he was very busy but that he’d be stopping in again soon.”

The couple serves their new contact person at the bank a cup of coffee. He takes a whiff of the aroma and then sips. Says it’s delicious. The woman offers him a slice of the cake that she baked this morning because it’s Frank’s favorite. The new bank man also likes it. He looks around, and then compliments the couple on their farm. He tells them that he enjoyed the drive and that the smells he picked up through the open window reminded him of the childhood holidays that he spent with his aunt and uncle, who also had a farm. The man and the woman nod.

But now, the man from the bank continues, he’d like to come straight to the point. He tells them that he’s from the Restructuring Department. The man asks what Restructuring is. “Oh,” the man from the bank replies, “that’s the department at the bank for businesses that are not doing so well”. The woman says that things are going fine, but admits that the margins with the dairy cooperative for farmers are getting tight. “It’s really like they’re not standing up for the farmers anymore.” The man from the bank nods and says that the credit crisis is affecting everyone. All three nod at that.

The man from the bank says that Restructuring is going to help them and that meeting the obligations to the bank is an important part of that. That’s important, he stresses, because without the bank there soon wouldn’t be any farmers at all. He smiles. The farmer and his wife don’t smile. The man from the bank says that he’s gone over all the figures very closely back at the office. He shows them a piece of paper and describes how the profitability has deteriorated in recent years. The farmer says that he doesn’t quite understand what “profitability” means. The man from the bank explains that the farm isn’t making as much money as it used to. Then he says again that he’d like to come straight to the point. There’s a brief silence, and the farmer and his wife look at each other. The man from the bank says that the bank needs them to increase the repayments on the loan that the bank has extended them. And that from now on they’ll be paying a higher interest rate.

The farmer says again that he doesn’t understand because they’ve fully serviced both the interest and principal on their loan every month. The man from the bank replies that that’s correct, and it’s very good that they did so. He then explains that the problem isn’t that they aren’t making the payments, but that the bank’s risk on the financing has gone up, and as a result, the bank is forced to demand more security. “But we can’t pay any more than we already are—we just can’t,” the woman interjects. “Our costs have been going up for a long time, and that’s all because of the bank.” The man from the bank says that he knows how difficult this all is, but that there’s nothing else to be done.