Steinbrück: US No Longer Financial Superpower

Germany’s Finanace Minister Peer Steinbrück blasted the United States for the financial meltdown in a speech before the German Bundestag:

Reiterating Berlin’s push for tighter regulation, Steinbrueck accused the US of blunders."The cause of the crisis was the irresponsible exaggeration of the
principle of a free, unrestrained market," he told the Bundestag.Washington has been reluctant to increase minimum equity rules and has too many competing regulators over US investment banks.

"This system, which in many ways is inadequately regulated, is now
collapsing," he said, adding that Germany’s banking system remained
"relatively robust," with German regulators confident they can absorb
losses."New rules of the road" for the financial markets were needed, he said.

No doubt everything Steinbrück said in his speech is true.  But there is also an old German saying: " Bevor du den Mund aufmachst, kehre mal vor deiner eigenen Tür!" – which roughly translates into "People who live in glass houses….".  When I heard about the collapse of Lehman Brothers I wondered how exposed the German Landesbanken were to the crisis.  These state-owned banks, such as the WestLB, have notoriously poor risk management and are nearly always in the middle of any financial crisis. I was not disappointed: it turns out that collectively the Landesbanken stand to lose nearly €1 billion from exposure to Lehman.  What I didn’t expect was that the German Genossenschaftsbanken (cooperative credit unions) also may lose nearly as much.

In an interview in the Tagesspiegel this morning in Berlin, Steinbrück’s predecessor and the head of the surging LEFT party – Oskar Lafontaine – blamed Steinbrück for Germany’s involvement in  "junk securities trading" (Schrotthandel) and called for his resignation:

Die Bundesregierung hat die Fehlentwicklung in der Geldwirtschaft
befördert. Sie hat Hedge-Fonds zugelassen, die als große Spieler bei
Unternehmen oft hohe Schäden anrichten. Sie hat die Verbriefung von
Kreditforderungen zugelassen – das ist der Schrott, der der
Mittelstandsbank IKB zum Verhängnis wurde. Und die Regierung hat den
Banken ermöglicht, Zweckgesellschaften zu gründen und so unkontrolliert
riskante Geschäfte zu tätigen. Das hat nicht für die versprochene und
nun geforderte Transparenz gesorgt, sondern die Intransparenz
verstärkt. Das Gerede der Regierung wird durch ihr Handeln widerlegt. (The Federal Government (of Germany) supported the mismanagement of the finance sector. It permitted the activities of the hedge funds that quite often inflicted enormous damage on business enterprises. It permitted the securitization of credit obligations – this is the same junk that brought down the IKB Bank.  And the goverment made it possible that banks could form special purpose units that could engage in unrestricted risky transactions. None of this contributed to the transparency that was promised and is now being demanded (by Steinbrück).  The government’s rhetoric is belied by its actions.)