How The People of Mashhad Went Bankrupt

An Iranian citizen journalist, who writes under a pseudonym to protect her identity, wrote the following article on the ground inside Iran.

 

Hashemieh Street, just off Vakilabad Boulevard in the provincial capital of Mashhad, is an upscale neighborhood. Every 10 meters along the street sits a real estate agency, a reminder of the recent housing boom in Mashhad and in particular in the area surrounding Vakilabad Boulevard. But things have changed quickly and drastically.

“It’s now a ghost town,” says Mohammad, 47. “Mashhad’s economy and the market for real estate are in recession. In the past month I closed just one deal. Prices have really plummeted. Two years ago I could sell a house for five million tomans ($1700) per square meter but now I’d be lucky to find a buyer for three and a half million ($1200) for a similar property. Everybody’s funds have disappeared. Nobody has a penny.”

The economic spiral in Mashhahd began in January this year when the prosecutor ordered that Padideh Shandiz Company shares stop being traded because the company had committed fraud worth over $34 billion. In March 2012, a Padideh share cost about $1.40 but just two years later, they were priced at $6.80.

After news of the prosecutor’s findings came out, people who’d spent millions or even billions of tomans of their money on shares in the company went to Padideh headquarters to get their money back.

Rajab, a 65-year-old cabdriver, is one such person. Up to this point, however, he is yet to receive any money back and is unlikely to in the future.

Rajab is a former employee of the Electric Company and was advised by his brother-in-law to buy the shares. He told him to sell his house, lease another one and invest his remaining money in Padideh Shandiz.

“Two hundred million tomans [$68,000] of my money is gone,” says Rajab. “The house was in the name of my wife who’s very keen to get it back. I try to calm my wife by telling her that we’ll get the money back and we’ll buy a good house, especially now that prices are low.”

Rajab adds, “God is playing a joke on us and has taken away the only place that we had. My youngest daughter is a student in her last year of medical school. Believe me when I tell you that if they don’t give us back the money, I can’t pay for her tuition. I can’t even buy her clothes.”

Boutique owner Abuzar says that in the past seven months, his sales have plummeted to a third of what they were. “I have no idea what’s happened,” he says. “The whole city is cursed. Look for yourself. It’s now 7pm on a Friday evening and shopping centers are deserted.”

 

Swindled Regardless of Background or Gender

Padideh Shandiz owes more than $31 billion in debt but the number of its shareholders in Mashhad remains unknown. However, it is so frequent that one talks to someone who has lost their money from the company, it could be as high as one in three people.

But the story does not end there.

Padideh caused a ripple effect. Since it was investigated, Mizan Bank has also declared bankruptcy and Fereshtegan Bank has said it is unable pay those clients back who want to close their accounts, at least in the short term. At the same time, Tabarrok Group, which like Padideh sold off its shares, has said it has run out of liquidity.

Dentists Melissa and Alireza were married last year. At the time, they cashed in their gold and any other precious things they had and deposited the money at Mizan Bank. This way they would benefit from a monthly interest rate of 30 percent on their $140,000. Alireza chose Mizan Bank because of this high rate.

“Now we’re being told we’ll receive our money back in monthly installments of less than $700 dollars meaning that it’ll take 200 months to get it all back and that’s when you forget about the interest,” says Alireza.

“You won’t believe how nervous I’ve become,” his wife Melissa says. “Several times I’ve come close to losing my focus and injecting anesthetics into the wrong places. Sometimes I completely forget what I’m meant to be doing with the patients’ teeth!”

Sixy-two-year-old pensioner Masoumeh was widowed six years ago and has been living by herself ever since. She deposited her money in Fereshtegan Bank, which now refuses to allow withdrawals.

“Every day I go to the bank but they mess me around. One day I’m told that I need to speak with the bank’s president. Then the next they say that they’ve merged with Arman and Ferdowsi banks and are under the supervision of the Central Bank. The only thing that’s guaranteed is the fact they’re not giving us our money back,” Masoumeh explains.

“I receive 700,000 tomans [$240] for my husband’s pension. Last year I sold a piece of land. My children took their share of the money and gave me an equal part. I put that money in the bank. I was a fool not to deposit it in a reliable bank. Now I’m in a hole,” she adds.

 

Let them eat tomato paste

Pharmaceutical company salesperson Yasaman has invested in every debtor company except for Fereshtegan. “Now I can’t sleep and constantly suffer from anxiety. I went to Tabarrok Group and they told me that they’d give me a draft for tomato paste. What can I do with that?” she says. “Of course they have their own brokers who’d buy the tomato paste back from me. But let’s say I have 20 million shares and they give me 24 millions worth of tomato paste and then the brokers only buy it for 15 million. What then?”

In January, Padideh offered to buy back its shares in exchange for post-dated checks. Some of these are due soon.

Civil engineer Majid said his cousin is one of the people waiting for a check; his is due in September. “But I’m waiting to see if the check clears. I thought that if you held on to the shares something could be done but if the check bounced, we’d have no recourse.”

Many people are now waiting with bated breath to see if Padideh will honor its promise next month. If Padideh’s accounts remain empty, there is a strong chance that shareholders will stage new and angrier protest rallies.

“Numerous people are entangled in financial disputes. It is without historical precedent that in a very short time so many citizens in a city have to deal with this kind of financial swindle. This group of citizens feels helpless,” says a sociology professor at Mashhad’s Ferdowsi University. “They don’t believe that the government or the judiciary cares about them or that an institution will take over their debt in order to give people their money back. No officials are discussing it. This atmosphere spreads a sense of gloom among the people. People are also losing psychological capital day by day as a result. How can we expect economic or market dynamism from these people?”

 

A sense of humor gives way to mistrust

The president of a Persian Bank branch explains there is little hope that the situation will improve in the short term unless the government intervenes.

“Even if Padideh wants to pay, it doesn’t have the money,” the bank president says. “Its assets are nearly worthless, so there will be no money in the middle-term. People gave them their liquid assets and as a result the housing market is practically depressed. Like many other cities or even countries, Mashhad’s housing market is its main market. If it’s depressed, the economy also becomes depressed.”

He continues, “If the government lacks the will to intervene, economic damages will continue. Worst of all, a lack of trust has spread among the populace; nobody trusts anyone. Everybody thinks they’ll be swindled at any moment. Economic caution has increased multifold. But a free economy can’t deal with that much caution as it acts like deadly snake venom.”

Signs of economic recession are visible across the city. From shops and stalls selling rosaries to the mausoleum of the eighth Shi’a Imam to the shop that sells Brown electric razors, electronic stores and Shandiz resort outside Mashhad, everybody constantly complains about the recession and its impact. The people of Mashhad were once known for their sense of humor but now they are sad and quiet. They are bankrupt, both financially and socially.

Farkhondeh Pourbagher, Citizen Journalist, Mashhad

 

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