"Roman Candle" turns 20: Secrets of Elliott Smith's accidental masterpiece (slideshow)
Elliott and the friends with whom he recorded in middle school in Texas (photo courtesy of Dan Pickering)
Honest bankers will tell you they’re in a get-rich-slow business, that any rapidly growing bank is headed for trouble. That conventional wisdom was proved correct by the record of the Ahmed Chalabi-run Petra Bank.
Within two years of its founding in 1977, the bank was the second largest in Jordan, after the extremely conservative Arab Banking Corp. Chalabi, through Petra, did bring some modern banking services to Jordan, such as Visa cards, ATMs, and innovative commercial lending. Thanks to his ties to Jordanian leaders, he was able to open branches in the West Bank. Among his partners were wealthy families from Kuwait and Saudi Arabia, and the Al Nihayan family from Abu Dhabi. (The Al Nihayan were also major shareholders in BCCI, the infamous Bank of Credit and Commerce International, which collapsed noisily in the late 1980s.)
From the beginning, there were signs of trouble. Petra made use of the Chalabi family’s international connections to move money in and out of Jordan several steps ahead of the country’s exchange controls. “They were far more efficient than the other banks,” says a Jordanian businessman. While this made it possible for Chalabi’s Jordanian clients to move funds around more rapidly than if they were banking with the more staid Jordanian competition, an ever larger part of the money from Petra Bank’s perpetual-motion machine stayed out of the country.
According to the United Kingdom’s Guardian the trigger for Petra’s closure was the decision of Jordan’s central bank governor to tighten up on the outflow of foreign exchange in order to prop up the country’s currency. When he ordered 20 Jordanian banks to deposit 30 percent of their foreign exchange holdings with the central bank, Petra alone was unable to comply. That triggered an investigation, and authorities replaced Petra’s board of directors and then closed the bank in August 1989. By then, at least $200 million could not be accounted for.
Chalabi has always insisted Saddam Hussein was somehow behind the bank’s demise, and while that claim has never held water, the details of Petra’s collapse have always been murky. But a look at documents collected by auditors from an Arthur Andersen branch in Geneva sheds some light on where the missing money went. The audit found that 40 percent of the bank’s loans and commitments were “non-performing,” or not paid back. Part of the problem was what the accountants call “related-party transactions,” in which a bank lends money to its owners, their companies, their relatives or their business partners. Fourteen percent of the bank’s assets, or about $130 million before the Jordanian devaluation, were dubious loans to, or commitments from, “related parties” — meaning members of the Chalabi family network, who had a high rate of default on them.
A similar pattern of questionable transactions was also found by the auditors of Chalabi’s brothers’ financial institutions, Socofi in Geneva and Mebco in Lebanon and Switzerland. Both collapsed in a chain reaction in 1989. According to the Arthur Andersen audit of the failed Petra Bank, the reduction in shareholders’ equity caused by “adjustments” such as disappearing deposits with foreign institutions, including Mebco and Socofi, accelerated rapidly in the 1980s. From 883,442 dinars in 1983 (roughly $2.6 million), the losses accelerated to 12.7 million dinars in 1988 (or about $38 million.) In 1989, up to the bank’s closure at the beginning of August, the loss of equity totaled some 40 million dinars, or over $120 million.
And yet Chalabi’s American backers have always bought his self-serving explanation for his bank’s demise: that Saddam Hussein did it. Tamara Chalabi, Ahmed’s daughter, was given a platform on the Wall Street Journal’s editorial page in August 2003 to argue that the bank failed because her father attempted to block Saddam Hussein’s influence in Jordan. She insists that Saddam went behind the scenes to get Jordan’s King Hussein to force the military to seize Petra Bank, and the Iraqi dictator then used his influence in Jordan to rig the audit to make the bank appear insolvent.
Jordanians and even some former Chalabi associates scoff at that assertion. For one thing, Saddam’s military power dwarfed Jordan’s in 1989. “If he wanted to crush Chalabi, he had only to ask for it,” says Hamzeh Haddad, who was the legal advisor to the Central Bank at the time of the Petra collapse. “He had no need to conceal his wishes.” Also, according to Hassan Abdul Aziz, Chalabi’s former associate and a director of the bank, Petra had been useful in financing Saddam’s Iraq.
According to a Jordanian official involved in handling the Petra affair, after Petra’s closure in 1989, the Jordanian government had to put up some $300 million to guarantee depositors’ money — a staggering blow to the oil-poor country. The total cost to the economy is estimated at $500 million. “We’re still feeling the effects of the Petra collapse in many ways,” says Mohammed Alayyan, a publisher in the capital of Amman.
Chalabi was tried and convicted in absentia on 31 charges of embezzlement, theft, misuse of depositor funds and currency speculation, and sentenced by a Jordanian court to 22 years in jail. Despite Chalabi’s claims, it’s clear the Petra Bank fraud was one crime that Saddam Hussein didn’t commit.
John Dizard is a columnist for the Financial Times.More John Dizard.
Heatmiser publicity shot (L-R: Tony Lash, Brandt Peterson, Neil Gust, Elliott Smith) (photo courtesy of JJ Gonson photography)
Elliott and JJ Gonson (photo courtesy of JJ Gonson photography)
"Stray" 7-inch, Cavity Search Records (photo courtesy of JJ Gonson photography)
Elliott's Hampshire College ID photo, 1987
Elliott with "Le Domino," the guitar he used on "Roman Candle" (courtesy of JJ Gonson photography)
Full "Roman Candle" record cover (courtesy of JJ Gonson photography)
Elliott goofing off in Portland (courtesy of JJ Gonson photography)
Heatmiser (L-R: Elliott Smith, Neil Gust, Tony Lash, Brandt Peterson)(courtesy of JJ Gonson photography)
The Greenhouse Sleeve -- Cassette sleeve from Murder of Crows release, 1988, with first appearance of Condor Avenue (photo courtesy of Glynnis Fawkes)