Tuesday, August 21, 2007

"I Know Nothing...."

Anyone who read David Marsh's "The Bundesbank" intimately knows just how tight and conservative Germans, and the culture of German banking really are. Maybe its because they experienced first-hand and all too vividly the post-Versailles Weimar Inflation, or more likely the impoverished and inflationary days following the end of the second world war.

This is not to say that Germany sailed through the last four decades without financial indiscretion, slip or scandal. Some may be old enough to remember the spectacular failure of private Cologne-based Herstatt Bank, for which settlement risk is now indelibly associated. And there was was Jurgen Schneider, seems to have bit off a development or an office building-or-five-too-many. And let us not forget the almost equally spectacular blow-up of Metallgesellschaft who was perhaps single-handledly responsible for $10 oil that nearly sunk Texas and sent revolution throughout the middle-east. One might also include the giant LBO (fully valuing @ 1:1 ost/west DM conv the DDR, in the folly-list where caution was throw to the wind. But this was, to be fair, wholly political even. The hangover, still is being felt today.

But despite these occasional past lapses, it is still surprising that in the land that birthed BuBa chiefs, Helmut Schlessinger, Karl-Otto Pohl, and articulate anti-housing bubble provocateur Ottmar Issing, that we discover IKB and Sachsen Landesbank with ummm rather large (in my book) dollar sub-prime zaitech portfolios that one must assume are worth rather less than their historical cost-base, yielding what will undoubtedly be sizable if not catastrophic losses. As a result, it is incumbent upon Germans and non-Germans to ask: "WTF guys???" "What were you thinking??!?" "Have you a secret desire to work deep in the mines of the Ruhr?" Didn't you see what happened to Bob Citron? Or the jail facing BAWAG's Elsner & Zettler??

My knowledge is indeed limited here, and so I can barely comment but please, someone tell me whether we are witnessing a "Schneider-ish" fraud or a "Schultzianly oafish" investment strategy.


Anonymous said...

But zis stuff is technology right! Ve do ze technology!

Anonymous said...

Hello Cassandra,

The DDR-Mark was exchanged to the (West) D-Mark up to a small amount 1:1; bigger (commercial) amounts were exchanged 1:2. The back market was, as far as I remember, 1:4.
The integration of an extremely underinvested and softcoal-based industry into an oil-based West-Germany was a huge problem; the hangover is still around, thereof I am sure.
The history of this transition should be written by a conspiracy theorist.
The formerly state-owned Eastern industry went into a holding called “Treuhand” (Trust.)
This trust was headed by a Manager (http://en.wikipedia.org/wiki/Detlev_Karsten_Rohwedder) who made a successful turnaround at a steel company (Hoesch AG) before. He was assassinated under circumstances that were never clarified in court http://en.wikipedia.org/wiki/Wolfgang_Grams
His successor (Birgit Breuel) was a politician.
I cannot help to state my usual prejudice against German politicians here. Common German knowlwdge states that to become a politician someone has to make the “Ochsentour” (word by word ox-tour) work one's way up the hard (and stupid) way.
Who else than an ox will do that?? So, the likely quality of the new manager is clear. The outcome was the hangover.
There is another characteristic to comment on. It is deeply engrained in German history to copy the most successful power that is around, a lot of (in my opinion stupid) German people still think that that is the US, so, they will copy without further questioning the US fashion, be it skirts or investment ideas.
What we are witnessing is not “Schneider-ish.” That guy committed fraud but is still highly respected in East Germany because he rescued historic buildings in Leipzig at the expense of bankers.
Hopefully this explains some background.