Obama's Political Bank Run

The government threat to Deutsche Bank’s safety and soundness began on Sept. 15. That’s when the Journal reported that Justice was demanding an eye-watering $14 billion to resolve an investigation of the bank’s sale of mortgage-backed securities prior to the 2008 financial panic.

Deutsche Bank then had to acknowledge the size of this government stick-up as its stock price proceeded to drop more than 20% in a fortnight. The lack of exuberance among investors was entirely rational. Washington’s proposed withdrawal represented most of the bank’s market capitalization.

“Deutsche Bank has five loans to Candidate Donald Trump for $50 million according to Trump’s financial disclosure statement . . .”

If you were CEO of US bank capable of making a $50 million loan to a political campaign, would you loan money today to Donald Trump? Barack Obama controls the bank regulators, IRS, SEC, FBI and DOJ. Andrew Cuomo controls the state enforcement agencies in New York where most of these banks are located. Both politicians have demonstrated no inhibitions about using government enforcement agencies to achieve their objectives. In addition, every bank CEO knows if Hillary wins she will use the power of government to punish real and perceive enemies for the next four years. Making a loan to Trump is a direct request to a Hillary administration for four years of audits and government lawsuits.

Plus, given past behavior it is very likely Trump will walk from campaign loans if he loses, or insist on negotiating them down to a much smaller amount. Under these circumstances it would be irresponsible for any US bank CEO to authorize the loaning of substantial sums to the Trump campaign.

Why would Deutsche bank loan money to the Trump campaign? Probably the German government is hedging its bets on the US election, hoping to buy some influence with Trump should he win and using a Deutsche bank loan to skirt US campaign laws prohibiting foreign governments from contributing to elections. It may not be coincidental Trump recently named Merkel the foreign leader he most admires.

While it is possible the Justice Department demand for $14 billion was a warning to Deutsche bank about the Trump loans, it is more likely this heavy handed action by the administration was either payback for the EU tax levies against Apple or leverage to accomplish some other goal of the administration (keep Merkel from getting cozy with Putin for example). After all, threatening action to force the financial collapse of Germany’s largest bank is a very heavy handed move in the diplomatic power game. It is the equivalent of China levying fines big enough to take down Goldman Sachs and JP Morgan.

Obama and Hillary have other ways to use government power against Deutsche Bank and Trump which have the benefit of generating significant adverse press for Trump. One potential move is announcing a DOJ investigation of Deutsche and Trump for illegally skirting campaign finance laws. The press will follow such an announcement with days of stories alleging Trump is owned by foreign interests. Given voter perception Trump is an independent player is probably his greatest asset, adverse publicity “proving” Trump is owned by foreigners in the last weeks of a close race could tilt the election to Hillary. German loans to Trump’s campaign and Russian loans to his businesses may be one of the coming October surprises. Hopefully if the issue comes up in the next debate he’ll attack Hillary for the foreign contributions to the Clinton Foundation instead of chewing up time explaining his loans.

The current faux controversy over the fat Miss Universe is just the opening salvo from the Hillary camp as the campaign enters the final weeks. The big shots are yet to come.

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