but I'd never seen anything like this.

And it involved two of Europe's

leading financial institutions.

On the one hand,

the world's oldest bank

and Italy's third largest lender Monte Paschi.

And on the other hand, Deutsche Bank,

once the world's largest financial institution.

The idea that these two had got together

to cook the books was just astonishing.

I thought it was clever but illegal.

And a few of them should actually go to jail, in my view.

This was clearly a huge scandal

that made 450 million dollars disappear from Monte Paschi's books.

If it wasn't for our reporting,

the public may never have found out.

My name is Elisa Martinuzzi.

I'm a columnist with Bloomberg Opinion.

A presidential address to the nation.

This is an extraordinary period for America's economy.

Over the past few weeks

many Americans have felt anxiety

about their finances and their future.

So it's December 2008,

and we are right in the depth of the financial crisis.

The Dow tumbled more than 500 points

after two pillars of the Street tumbled over the weekend.

Financial institutions are really fighting for survival

and these two in particular,

Monte Paschi and Deutsche Bank.

We're seeing the stock falling

by more than 7% as we speak right now.

On the one hand, you have Deutsche Bank

with a massive balance sheet.

2.5 trillion euros,

it's a size of a large economy.

Trust that the bank is solid and sound

is what it needs to attain every day

to keep ticking along.

So showing that it's able to do a deal

like the one it was trying to do with Paschi

is absolutely critical.

And you have Monte dei Paschi

which just recently bought a big rival

at the peak of the market in cash,

already stretching its finances.

Suddenly, it was facing another 450 million dollars potentially

in a single loss, in a single investment,

that it would have to book at 2008.

They couldn't admit the loss

that they actually had faced

and so this deal was to cover that loss.

The risk they were facing was nationalization

by the Italian government

or control by the bank of Italy, direct.

It was a prospect

that management was trying everything it possibly could

to avert.

They'd come up with this complex,

multi-layered transaction which, like magic,

takes the loss that they would have to crystalize

at the end of 2008

and spreads it out over many years

in a fashion that they decide

doesn't have to be disclosed to investors.

And of course it's structured in such a way

that Deutsche Bank would in the long run

make a great deal of money from this.

So something in the order of 60 million euros

just on that trade.

The whole point of it was

to violate the accounting requirements of Italy

and fool the accounting structure.

Stop them having, essentially, to account for a loss.

Simple as that.

It wasn't long after they struck the deal

that Monte Paschi started hurting from the transaction.

Monte dei Paschi's just revealed

it could run out of cash in just four months.

It needs to offload a mountain of bad loans

or risk being wound down.

Yet Paschi limped along,

propped up by government bailout

after losses on bad loans also piled up.

Astonishingly, it took more than four years

for the chicanery to come to light.

Well after, regulators from the U.S. to Italy

had been alerted to it.

A tipster reached out and said,

"I have something for you

that's going to be of great interest."

And there started my reporting on Monte Paschi.

Little by little the source got comfortable

in sharing more and more details

about this transaction

that to be honest with you,

looked really too good to be true.

The material, when looked at it in its completeness,

spoke quite clearly of what was going on.

This transaction, that had allowed the world's oldest bank

to basically cook its books.

So what I endeavoured to do

was to find experts in the field

who would help stand up

what these transactions were trying to do,

help substantiate what the source was telling me

and one of these was Professor Michael Dempster

from Cambridge.

I had seen in past complex deals,

but I'd never seen anything like this

where basically it was shifting cash back and forth in time.

So, a simple version of how the deal worked

goes something like this.

You had two parts,

one was sure to win for Monte dei Paschi

and one was sure to lose for Monte dei Paschi.

The part that was sure to win

would generate a gain for Monte dei Paschi

which it would use to cover up the existing loss.

The part that was sure to lose for Monte dei Paschi,

the Italian bank would keep,

but it wouldn't crystallize that loss

right at 2008,

it would spread out the loss over many years.

What was striking was the fact

that the client was being given a huge amount of money.

Half a billion euros roughly speaking.

We'd never seen a deal like this

in which the client received a large amount of cash

at the beginning and paid it back

and then some afterward.

When I saw it

and when Elisa Martinuzzi saw it,

I mean it's obvious.

It's an illegal accounting device.

So initially it was the Siena prosecutors

that started looking at these transactions

and it went to trial about three years ago

and the verdict came in November.

A Milan court convicted 13 individuals

for helping Monte Paschi hide losses

from its accounts.

Individuals included Monte Paschi's former chairman,

Giuseppe Mussari,

and Deutsche Bank's former head of global rates,

Michele Faissola.

The judges also ordered the banks

to pay fines and set aside amounts

that totalled 160 million.

And it ordered further inquiries

into some of the individuals who had testified.

These are by a number of measures

the most significant convictions

relating to the financial crisis.

You haven't had chairmen of institutions,

let alone 13 senior managers

across three institutions face jail sentences

for their wrongdoing.

But of course this is convicted in Italian court.

They don't have to go to jail

unless they have a second trial

in which they essentially

can put them in jail.

So whilst they've been besmirched, so to speak,

their reputations,

it's not terribly huge punishment.

My initial response to the verdicts

was that they were not stiff enough

and they should of gone another layer up

to in fact the head of the investment bank.

I'm not so sure

that the public can really be confident

that we're not gonna see another Monte Paschi.

The situation is essentially the same today

as it was before.

A lot more complicated

because the regulators have tried to make it better,

but they've failed basically.

Having spoken to regulators

about the lessons from the financial crisis,

it's pretty clear where the weaknesses still lie.

Generally, on all the reforms that have been done

since the financial crisis,

we've made them better,

but we probably haven't made them good enough.

So there's really not been fundamental changes.

We've kind of made these improvements

around the edges.

I think people should still be concerned.

I think there's this kind of assumption

that it's yesterday's news

and I think that's probably ill-advised

because I think there's still some real fragility

in the system.

As a senior investment banking executive

recently told me,

his chief financial officer

would not be able to challenge him

on what's in his books.

You'd need a PhD to understand a lot of these transactions

and the people in charge

are often - don't have those PhDs.

It is not an awful lot to be confident about

what's really lurking

inside financial institutions' balance sheets.

And it remains just as difficult

for the outside world to get into them.

Yes, it's true,

the higher management often

doesn't understand much at all actually.

Which of course is a serious problem

when there is a crisis.

Not unlike what we saw in the lead up

to the global financial crisis

where it was mortgage debt that had ballooned,

this time it's corporate debt.

The market has grown enormously

and I believe that there's a recession coming

or a market crash coming

and it's a government matter,

it's a political matter,

and whether or not the politicians

will be able to sort something out,

I'm very pessimistic about that.