Austrian Bureaucrat Loses $439 million of Taxpayers Money on Derivatives Gamble

This is a prime example of negative externalities (or cost of a mistake to the society) derived from centralized institutions has far more damaging effect than errors incurred by entrepreneurs or so called "market failures".

A mistaken decision from political authorities extrapolates to greater tax burden for the citizenry.

From Reuters (hat tip Zero Hedge)

Austria said it planned stricter controls over regional finances after a Salzburg civil servant gambled hundreds of millions of euros of taxpayers' money on high-risk derivatives.

Finance Minister Maria Fekter said on Tuesday she was preparing new national legislation to impose stricter conditions on how regional administrations could use money borrowed at preferential rates from the Federal Financing Agency (BFA).

Salzburg officials said last week they had sacked a finance director after determining she used doctored documents and false signatures to hide a trail of losses from deals that started more than a decade ago, causing a book loss of 340 million euros ($439 million).

The incident has sparked calls for fresh elections in Salzburg state and for regional financing rules to be reformed. Austrian states have 8.2 billion euros of debt, or 8.1 percent of the country's public debt.

"It can't go on that one keeps getting cheap money from the BFA and then starts gambling with it," Fekter told journalists, adding that the states could save 150 million euros per year by using the BFA for all their financing needs.

The above is another great example of knowledge problem. This shows that political agents are also human beings who possesses or embodies the same set of shortcomings as everyone else. Except that they command resources and privileges via mandated budges and guns.

Losses from “gambling” is actually fait accompli or a side issue. If the gamble paid off then this won’t have been in the news.

But even if we presume the noble intentions have guided the actions of bureaucrats, the real issue is why governments are given the latitude to put taxpayer resources at risk and why their losses means greater tax burdens instead of reducing them.

The irony of politics is that political errors have always been rewarded-- although the culprits does get sacked, the system remains in place--instead of being punished, all these comes at the expense of taxypayers—in terms of opportunity costs via resources and time, as well as, civil liberties.