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US housing market crisis creates ripples in Norway

The crisis in the US housing market has made a highly adverse impact on a small seaport in far away Norway which lost at least $64 million in complex security investments.

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NEW YORK: The crisis in the US housing market has made a highly adverse impact on a small seaport in far away Norway which lost at least $64 million in complex security investments that went sour.

Norway's towns are the latest victims of the credit crisis that began last summer in the American subprime mortgage market and has spread to the farthest reaches of the world, causing untold losses and sowing fears about the global economy, the New York Times reported on Sunday.

People, are angry and scared, fearing that the losses will hurt local services like kindergartens, nursing homes and cultural institutions. With Christmas only weeks away, Narvik, a close-knit community of 18,000 has already missed a payroll for municipal workers, it added.

The town might need to cut its services and its 60-year old Mayor Karen Margrethe Kuvaas is finding difficult to sleep though sun does not rise at this time of the year in that part of the world.

I think about it every minute, Kuvaas, told the New York Times. Because of this, we can't focus on things that matter, like schools or care for the elderly.

The residents want to know how could anyone have mortgaged its future built on the revenue from a hydroelectric plant on a nearby fiord by dabbling in what many view as the black arts of investment bankers in distant places.

Now, they are considering legal action against the Norwegian brokerage company, Terra Securities that sold them the investments.

The residents allege that they were duped by Terra's brokers, who did not warn them that these types of securities were risky and subject to being cashed out, at a loss, if their market price fell below a certain level, the report added.

Norway's financial regulator, the paper said, agreed that the brokers had misled the towns, and it revoked the license of Terra Securities, prompting the company to file for bankruptcy.

But the company's parent, Terra Group, which is in turn owned by 78 savings banks and remains in business, rejected calls for it to compensate the towns, it said and quoted a spokesman as saying it too had taken a hit from the episode.

Norway's Finance Minister Kristin Halvorsen, has ruled out the possibility of a state bailout, and Citigroup, which announced Thursday that it would shut down one of the money-losing investments Narvik bought, said it had no legal obligation to step in, the Times reported.

Narvik has $34.5 million in a second Citigroup-devised investment, known as a collateralised debt obligation, which has also lost value as a result of the broader market turmoil. The town stands to lose at least some of that money, too.

Those investments represent a quarter of Narvik's annual budget of USD 163 million, and covering the losses would necessitate taking out a long-term loan, which the town could only pay off by cutting back on services.

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