The 2,800 residents of this pristine village isolated on a narrow finger of the gleaming Sognefjord are embarrassed, angry and eager to get their money back. So are the townspeople of Bremanger, Hattfjelldal and Hemnes, not to mention those of Kvinesdal, Narvik and Rana.
The seven small communities, lodged deep in a timeless Norwegian landscape of fiords and snow-clad mountains, somehow got caught up in the go-go markets of big, distant cities such as London and New York. At the time, it seemed like an easy way for the towns to get rich. But when the global financial crisis struck, they ended up getting burned by big-time investments beyond their ability to manage or even understand.
Along with what remains of their bankrupt brokerage firm in Oslo, the faraway Norwegian capital, the seven towns brought suit in New York on Aug. 10 against Citigroup, demanding $200 million in reparations from the U.S. banking giant. High-rolling Citigroup salesmen, they charged, lured unsophisticated Norwegian town councils into an investment scheme so complicated that nobody could fathom it and so risky that, when worldwide markets went wobbly, the little towns lost millions as suddenly as a salmon leaps from the fiord's chilly waters to gobble down a fly.
The improbable voyage of Citigroup's arcane investment model -- from frantic trading rooms in New York and London to tranquil waterside villages such as Vik, where townspeople see no need to lock their doors -- suggests some of the reasons the international financial system exploded almost a year ago: the unchallenged spread of greed, recklessness and, above all, faith that churning around those millions would somehow bring endless profits for all.
"The small communities who went to the market all hoped to get rich," a chastened member of Vik's city council, Morten Oystein Holmberg, said in an interview at his home overlooking the gentle rapids of the Vikja River bubbling toward the Sognefjord. "As politicians, now we know we are not entitled to gamble with citizens' money. That's my conclusion."
The collapse of the seven towns' investments, which had become chillingly clear by May 2008 and was irreversible by the time the crisis rippled across the globe last fall, left a lot of debris in its wake.
Terra, the Norwegian securities firm that was the go-between with Citigroup, was forced into bankruptcy. Its residual interests are being represented by a prominent Oslo lawyer, Jon Skjorshammer, whose Selmer & Co. law firm brought the suit against Citigroup in U.S. District Court for the Southern District of New York.
"The only ones who made money from these investments were the issuer and the broker," Skjorshammer said in his sleek offices overlooking an Oslo boat slip. "And now the lawyers," he added, chuckling softly.
A London-based Citigroup spokesman, Adam Castellani, said the bank rejects any responsibility for the towns' losses because, in its portrayal to Terra, the risks were clearly pointed out. "As Citi has maintained throughout, we are confident that the risks of investing in the notes were described in the materials provided to Terra Securities," Castellani said in a statement. "We intend to vigorously defend our position."
Local governments around the world lost big money on complex investments. Alabama's largest county is verging on insolvency after paying tens of millions to JPMorgan Chase & Co. and other banks for what amounted to losing bets on interest rates. More than 20 Massachusetts cities and towns bought long-term bonds described as ultra-safe from the Swiss bank UBS and then watched the values drop.
In the little Norwegian towns, mayors and council members are struggling to make up the losses. The national government had to change the law to give them more time to balance their budgets. One of the biggest losses was to their reputations. National newspapers portrayed them as country bumpkins who got rolled by slicks from the big city.
But there were more practical losses as well. Streetlights were turned off during the dark Arctic night in far-northern Narvik. Town halls in several communities lowered the temperature to cut back on heating bills during the frigid Norwegian winter.
Here in Vik, the budget was scaled back so much that some of the elderly were sleeping in hallways at the local retirement home and there was no money to put water in the town swimming pool.
Kurt Arne, in the town economic bureau, said 10 city employees were let go to shave the municipal payroll. "In every service, we've had to look for cuts," he lamented.