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Brokerage house insolvency compensation threshold raised

April 20th, 2015

A liberal economist criticizes the government for raising the ceiling of public compensation for the victims of recent brokerage house defaults. A pro-government columnist points out that while the Left is demanding full compensation, at the same time it criticizes the government for spending public money on investors.

On Tuesday, Parliament approved a bill that raises the compensation threshold from 20,000 to 100,000 Euros. The new compensation limit applies to those investors who lost their assets when the Quaestor brokerage house went bust (see BudaPostMarch 12). The Banking Association say that the new rule is unconstitutional, since it retroactively modifies the compensation cap and thus banks will have to contribute billions in order to fill up the Investor Protection Fund. The bill was approved by the opposition parties too.

In the meantime, it has been revealed that another firm, Kun-Mediátor Ltd. illegally collected and embezzled between 5 and 20 billion Forints.

The government passed the new bill in order to divert attention from its incompetence and past mistakes, Éva Várhegyi comments in Magyar Narancs. The liberal economist believes that the National Bank, which should have revealed the fraud earlier, in her view, now wants to calm angry investors by raising the compensation limit. Várhegyi, however, finds it highly problematic that the state uses public money to compensate investors who bought highly risky assets. She deems it unfair that taxpayers will have to cover the losses of investors who took high risks in the hope of high returns. In conclusion, she wonders if “risk communism” is to be introduced and from now on all investment losses will be compensated for by public funds.

In Magyar Hírlap, Zsolt Bayer finds it peculiar that the left-wing opposition parties, after approving the new compensation threshold limit in Parliament, now criticize the government for compensating irresponsible investors from tax money and claim that the new law is unconstitutional. The pro-government columnist suspects that despite their criticism, the left-wing parties will soon loudly demand that the government compensates the losses of those involved in the Kun-Mediátor insolvency too. He wonders aloud whether the Left will demand that the losses should be covered by the Prime Minister himself, so that investors are saved without spending public money. Bayer dismisses the accusations that the brokerage house defaults are the result of the Orbán government’s incompetence. He further contends that brokerage houses and other investment firms could operate illegally for years and commit massive fraud as a result of the amendments approved under former socialist-liberal governments.