Michael Lewis Does Germany

His tour of the financial collapse goes to the creditor nation:

He then offers me the same survey of German banking that I will hear from half a dozen others. German banks are not, like American banks, mainly private enterprises. Most are either explicitly state-backed “lands banks” or small savings co-ops. Commerzbank, Dresdner Bank, and Deutsche Bank, all founded in the 1870s, were the only three big private German banks. In 2008, Commerzbank bought Dresdner; as both turned out to be loaded with toxic assets, the merged bank needed to be rescued by the German government. “We are not a prop-trading nation,” he says, getting to the nub of where German banks went so wildly wrong. “Why should you pay $20 million to a 32-year-old trader? He uses the office space, the I.T., the business card with a first-class name on it. If I take the business card away from that guy he would probably sell hot dogs.” He is the German equivalent of the head of Bank of America, or Citigroup, and he is actively hostile to the idea that bankers should make huge sums of money........

The global financial system may exist to bring borrowers and lenders together, but it has become over the past few decades something else too: a tool for maximizing the number of encounters between the strong and the weak, so that one might exploit the other. Extremely smart traders inside Wall Street investment banks devise deeply unfair, diabolically complicated bets, and then send their sales forces out to scour the world for some idiot who will take the other side of those bets. During the boom years a wildly disproportionate number of those idiots were in Germany. As a reporter for Bloomberg News in Frankfurt, named Aaron Kirchfeld, put it to me, “You’d talk to a New York investment banker, and they’d say, ‘No one is going to buy this crap. Oh. Wait. The Landesbanks will!’ ” When Morgan Stanley designed extremely complicated credit-default swaps all but certain to fail so that their own proprietary traders could bet against them, the main buyers were German. When Goldman Sachs helped the New York hedge-fund manager John Paulson design a bond to bet against—a bond that Paulson hoped would fail—the buyer on the other side was a German bank called IKB. IKB, along with another famous fool at the Wall Street poker table called WestLB, is based in Düsseldorf—which is why, when you asked a smart Wall Street bond trader who was buying all this crap during the boom, he might well say, simply, “Stupid Germans in Düsseldorf.”

Previous posts on his Ireland article here and here.  There is something to be said for the German fear of inflation and general thriftiness playing a big part in the financial collapse.  It will be interesting to see how they handle things from here on out.  I am reminded of the saying that if you owe the bank a thousand dollars, the bank owns you, but if you owe the bank a million dollars, you own the bank.  The Germans have the means of production, and stacks of bonds, but to whom will they sell those products and what value are those bonds if the debtors can't pay up?