November 27, 2007 (LPAC)--A particular credit disaster is rocking northern Norway: as reported in the Swiss daily Neue Zuercher Zeitung today, the four cities of Narvik, Rana, Hemnes and Hattfjelldal have lost heavily in U.S. credit derivatives, Narvik even being forced to take an extra loan to pay the December salaries of municipal employees, after losses of 50 percent with collateral debt obligations in the USA.

The four cities engaged in this foolish speculative venture in the range of, combined, 451 million crowns ($90 million) at Citibank, using expected future revenues from oil and gas as collateral. Brokers of the firm Terra Securities, itself a daughter firm of Terra Gruppen (a conglomerate of 8 former Norwegian savings banks established in October 1997), assisted in this deal.

Charges by municipal politicians that Terra did not inform them properly about the risks implied in the "trigger mechanism" of the deal, were first repudiated by Terra, claiming that the municipal treasurers were "professional" enough to cover their losses from the U.S. ventures. But meanwhile, Terra conceded "mistakes" and granted extra credit lines to the four cities in the range of 70 million crowns, and Citibank's Europe chief personally flew to Norway to straighten the situation out. And Norway's Finance Minister Kristin Halvorsen ordered the nation's financial watchdog agency to look into the affair.

While some might be tempted to view this situation as a local affair, clearly, the collapse is, in fact, global.