FINANCIAL MARKETS

Regulatory rage will not prevent the next crisis

By Josef Joffe

[This article published in: DIE ZEIT, Nr.10, 2/21/2009 is translated from the German on the World Wide Web, images.zeit.de/text/2009/10/Zeitgeist.]

“Now we are all socialists,” Newsweek titled its issue on the eve of “Euro-7.” The summit of the big EU economic powers. After predatory capitalism, the first summit message was the complete control of the worldwide financial markets. Part two was compensation, the rage against “tax havens” as though Switzerland had caused the worldwide economic crisis.

Hangovers produce the best resolutions but one really does not think best with a buzzing head. Is this really a regulation crisis? In America eight authorities monitor every bank. In Germany, the most foolish speculators control state banks. The problem goes much deeper.

How should a regulator know whether a new financial instrument like the “gold-trimmed solar sustainability certificate” is necessary or frivolous? How can a young ministerial counselor prescribe the business of Mr. Ackerman (head of Deutsche Bank)? Monitors have neither knowledge nor authority. How else could Hypo Real Estate place 600 billion euros outside its balance sheet?

Ten officials in every boardroom is not the solution. Rather the problem is the incredible transformation of the modern bank into a service enterprise with an adjacent casino, the British economist John Kay notes. We have known the bank-as-service since 1500. The bank takes the money from our accounts and uses that money for loans and mortgages.

The “casino” takes place under the counter… “The banks force toxic assets on each other,” Kay writes.

The casino does not belong in the bank. The banks do the tedious business with the margin between deposit- and lending-interests. Minimum reserves ensure that the loans do not grow to the sky. This prevailed in America after 1929 under the Glass-Steagall Act. Up to the 1990s, commercial banks were hermetically cordoned off from investment banks. The two great bubbles (2000 and 2008) first arose after the repeal of the law…

After this crisis, this separation must be reinstated so the frauds who brought their dreams to the financial acrobats know from the start that banks with their state-guaranteed creditor-protection do not stand behind Citi- or Commerce-bank. High-risk securities cannot be forced on citizens any more. The financial sector that enriched lads with Harvard MBAs in New York or Frankfurt should shrivel for the sake of the well being of humanity. There will be fewer MBAs and more engineers and software gurus.

RESPONSIBILITY IN THE CRISIS

Is no one responsible?

Enlightenment about how and why the crisis occurred is part of overcoming the crisis, not only money packages

By Heribert Pranti

[This article published in: sueddeutsche.de, 3/2/2009 is translated from the German on the World Wide Web, www.sueddeutsche.de/politik/493/460129/text/print.html.]

Last week the disappointment over the political Ash Wednesday was great in Germany. People acted everywhere as though this day should be an opportunity for the emergency of the German Obama.

Speakers presented their swaggering words on this day. This lament is a ritual like the political Ash Wednesday itself.

The problem of the political Ash Wednesday is not the ritual. The parties deal with each other daily; they speak and act as though every day was a political Ash Wednesday and they had to explain that the other party was a national disaster and its policy was dangerous for the future of the country. This ritual together with the defense of some pure doctrines get on the nerves of people in times of crisis.

It is astonishing and amazing how people keep their cool, endure unreasonable demands and patiently watch as state billions are stuffed into so-called packages, how the staggering regional banks are supported again and again, how a Hypo Real Estate proves to be a bottomless pit and how the state plunges into adventurous debts and risks to rescue financial management.

What is remarkable in all this is that no one puts ashes on his forehead, no one in politics and no one in the economy. No one gives an account; no one accepts responsibility. No one is responsible that capitalism went wild with joy. Those who helped capitalism are silent today or lament about the capitalist excesses they promoted themselves. The conduct of politics and the ministerial financial- and economic bureaucracy calls to mind the arsonist who later diligently joins in putting out fires.

Capital crimes in the literal sense occurred at the beginning of the great crisis. However hardly anyone raised the questions of responsibility and guilt. The shadow- and zombie-banking system was not secret. The German state banking oversight watched how the toxic waste was deposited in the international financial system. Official politics had known, tolerated and promoted this for a long time, especially under the Schroeder government. It trusted everything would be all right somehow. Everything did not turn out all right.

Many turned Satan’s mill. Many joined in unleashing capitalism, including German politics. Enlightenment is part of overcoming the crisis, not only money packages. Freedom from crisis is impossible without enlightenment of the old irresponsibility, carelessness and criminal intent, without analysis of the terrible mistakes, wrong tracks and thought patterns, one only makes new mistakes, takes new wrong tracks and falls into old thought patters.

All accounting for the great disaster was refused in the past. We cannot see this since we are diverted by the matter-of-factness with which billions are sought in the economy and spent in politics. The diversionary motto is: when it burns, put it out and don’t keep asking why it burns. But this is not right. Whoever does not know the causes of the fire will put it out with the wrong means – and risks the next fire.