Tuesday, February 5, 2019

Golem XIV - It’s not Brexit but “Deutsche-it” you want to worry about

Author of The Debt Generation

The big banks have become too big to fail, but they could they become even bigger? Many of these banks engage in criminal activities, but countries can't afford to see their top banks fail,  and so they can function outside the discipline of the market.

While everyone is endlessly told about the world-ending dangers of Brexit, I wonder if we should be paying a little more attention to “Deutsche-it”.  If the UK leaves the EU the EU will survive.  But what happens when – and surely it’s no longer if – but when Deutsche Bank, Germany’s biggest and only truly global bank has to be rescued? What will the fallout from that be?
I am sure the German authorities will claim its not a rescue its a merger. Yeah right!  It’s a rescue. Deutsche Bank’s shares have fallen 48% in just the last 12 months – the same time the management said they were going to have the bank turned around. The bank’s shares are now worth no more than they were nearly 40 years ago. Which is not such good news.
But there’s worse. While, and perhaps in part because(?) Deutsche Bank’s share price has been in free-fall,  Deutsche Bank has been money laundering around the world. That corruption is now beginning to catch up with the bottom line that it had been pumping cash into for so long. Deutsche Bank is being investigated after the Panama papers revealed its roll in industrial scale tax avoidance and money laundering. No sooner had the ink dried on that headline when the revelations about Deutsche Bank’s central role in laundering money through Danske bank drew yet more investigators to its HQ like flies to a fresh and steaming turd.
Now don’t get me wrong I’m not saying this makes Deutsche Bank special among big banks except in the category of being caught. There, they have certainly wrestled the crown from Citi and Wachovia.
What I am saying is that that much laundering in that many localities is going to mean the usual bankers defence of ‘one bad apple’, ‘one corrupt employee’, ‘one weakness in our otherwise impeccable rules which are now being updated etc etc’ is not going to wash (sorry I couldn’t resist) so easily.  Deutsche Bank is a dirty bank. But does this mean Deutsche Bank could be brought up on corporate criminal charges? Not a chance. To do that could mean it would lose its banking license and that would be “Deutsche-it”. And “Deutsche-it” would be far more dangerous to the EU as a whole than Brexit. Deutsche Bank is a filthy, systemically dirty bank but a bank which the German state is going to save. Using tax payers money. But how?

Golem XIV

Golem XIV - It’s not Brexit but “Deutsche-it” you want to worry about


Ralph Musgrave said...

Under full reserve (a system where money creation by private banks is banned) it is plain impossible for banks to fail.

Andrew Anderson said...

it is plain impossible for banks to fail. Ralph Musgrave

Even under a "loanable funds" banking model, banks can make bad loans and enough of those can cause a bank to have negative equity.

So banks can fail even without the ability to create deposits.

So what are you talking about, Ralph?