Posted on 02/20/2008 5:13:25 PM PST by DeaconBenjamin
The German government has had to bail out state-owned banks with taxpayers' money after their managements recklessly gambled away billions on subprime investments. But if a state-owned bank were to go under, the consequences could be disastrous for the whole economy.
Anyone who is not responsible for bearing the consequences of the risks he or she takes can easily turn into a gambler. And the bets kept increasing in recent years, getting more and more public-sector banks into financial hot water. Now the banks find themselves lacking the assets they need to weather the turmoil of an international financial crisis.
KfW has already had to provide IKB with close to €5 billion in a series of three bailouts. With KfW itself gradually running out of cash, the federal government has now contributed another €1.9 billion.
The state of North Rhine-Westphalia has injected €1 billion into WestLB, another state-owned bank, as well as providing the ailing bank with another €3 billion in loan guarantees. The situation is even worse in Saxony, where the state has issued €2.73 billion in loan guarantees to Sachsen LB, that state's Landesbank, as Germany's state-backed regional banks are known. The other state-owned banks are providing another €14 billion in guarantees. Hamburg-based HSH Nordbank urgently needs €1 billion in fresh capital, while BayernLB last week reported a €1.9 billion write-down as a result of subprime exposure.
* * *
If an industry giant like WestLB were forced to its knees -- which almost happened two weeks ago -- at least two other state-owned banks and a dozen savings and loan associations would crumple along with it.... The failure of a major state-owned bank like WestLB would also inevitably affect corporate customers, even forcing some into bankruptcy.
(Excerpt) Read more at spiegel.de ...
Must be all of those predatory lenders Hillary and Obamma will fix.
The securities were divided into 4 tranches.
The insurors AMBAC and MBIA insured the top and least risky 25 %
WestLB apparently bought the bottom 25% tranche.
Did I get it right?
maybe Obama’s hope will fix it.
History doesn’t repeat itself, but it rhymes...Hitlery can be found in the USA this time
GREAT FIND! Thanks for sharing!!!
Only Mac has said people responsible for subrime mortgage crisis should pay. Unfortunately, we haven’t heard much on this even from him.
Too bad Media has so many other things to worry about, like Joran Vand der Sloot and Roger Clemens Giant Butt.
Well they obviously just need to raise taxes again...
Make me President for the week, and every mortgage originator that exaggerated the applications info will be tried, convicted and publicly executed. If it is proven that the mortgage broker was encouraging such loan practices, will have his personal property seized, his immediate family and children excluded from all federal loans, entitlements and etc for life, and the broker will be tried, convicted and shot. I think this approach is better than any rules and regs proposed by the GOP or DNC. One thing about white collar schemers, they are greedy but not die hards. The government can warn 10,000 of them not to do that again by killing a few of them. Jihadist on the other hand are the opposite.
Well now...
You are so right. My problem is that there is NO urgency, and even worst, Congress has not even expressed concern. Only guy who has said anything is that crazy RINO that everyone so loves to hate.
At least in other places Govt. is involved and trying to tackle the problem......here we are sending 600 dollars to everyone and thats our solution.
Its time to revive the slogan “Do Nothing Congress”.
where are all these delinquent homes?
But the house of cards was brought down two weeks ago by Deutsche Bank, which ended the line of credit for Rhineland Funding, an innocent-sounding investment vehicle based in the American state of Delaware. IKB had securities holdings there and in another fund worth more than €20 billion ($27.6 billion).
Deutsche Bank had handled Rhineland's payment transactions and some of its financing. After canceling the line of credit, the bank alerted regulators at BaFin, the German supervisory agency. It became clear during subsequent crisis meetings examining IKB's credit liabilities that the humble bank had losses totaling between €2.3 billion to €2.5 billion at current market conditions. "They were broke on Monday," says a board member.
xpecting further liabilities to surface, regulatory boss Sanio went around the summit meeting in Düsseldorf with his proverbial hat in his hand. In the end, the state-backed development bank KfW, as principal shareholder in IKB, would have to cover the €2.5 billion in potential losses. Germany's private banks offered €500 million. The nation's credit unions and public savings banks are expected to pony up another €500 million.
* * *
But how could a small German bank with only 1,700 employees and a mere €1.4 billion in equity capital make such huge bets in the United States without someone noticing? IKB bought €12.7 billion in special securities via Rhineland Funding that failed to show up on the bank's ledgers. These securities consist of loans bundled together by banks wishing to unload their real estate and corporate debt risks. The various packages were then categorized according to credit ratings by agencies such as Moody's and Standard & Poor's -- enabling the mortgage of a welfare recipient in Alabama, say, to be traded on global financial markets.
IKB could at least show that most of its special holdings had higher credit ratings. However, it now seems that during a housing market slump, nobody wants to buy these prettily packaged parcels of debt. "It could be full of rat poison," says one banker, shrugging his shoulders. Indeed, as the market has gone south, credit agencies have started to become more realistic and ratchet down their ratings.
But, but . . . this can’t be! The Basle nut jobs said the European banks had risk management systems far superior to those in the US, So they could operate on less capital. Could it be that . . . that . . . that they were wrrrr . . .wrrro . . . wrong?????
Well add ‘em to the list with Spain and England. I wonder when France will bail out Society Generale or whatever it’s called.
Ich bin ein Badloaner
Kreditanstalt, 14 May 1931. The start of the collapse.
Oh dear......what can we do....we’re doomed. Maybe we can let the fed gov’t come in and take over a few banks....or let Freddie (that means us) pick up a few thousand loans.
This orchestration is just a little too transparent for me. 4 years of Marxism is on the way and everyone but a few are going to cheer when it arrives. Americans won’t look too smart when the history books are written and this decade is analyzed.
Republicans in TX are going to be turning out 25-33% what the democrats turn out in the primary. This is sickening. Can’t they see through this?
They are going broke precisely because "Govt." owns the banks. The stupid German state governments were so greedy they bought most the worst of U.S. bad debt.
". . . apparently bought the bottom 25% tranche.
Did I get it right?"
bert is correct
yitbos
What they had was state ownership. They thought (knew?) the state would make good on bad bets.
Kinda like the bank management considered state ownership (underwriting) the same as deposit (investment) insurance.
yitbos
The splits ranged from 25-25-25-25 to 80-15-4-2-1 with 60-15-10-5-5 being common. The Chicago, New York, and London boys were passing on the lowest tranches to the rube foreigners in a confidence game so well tuned the foreigners signed off on the worst tranches before receiving any paperwork on them. (Or at least that what has been claimed by a Norwegian investment group and two German bank executives so far).
In the end this con game is going to cause worse image problems for the US than all of the military adventures undertaken in the last 30 years. And it was perpetrated by only a few tens of thousands of people upon the world.
Caveat Emptor.
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