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Doesn't matter what UBS has written down. What would matter if the Swiss government needed to bailout UBS. On DB - it may well be, but the German government doesn't have the of bureaucratic expertise to do that. Plus a collapse of DB would create an ungodly mess in the entire German financial system which would likely shut down other banks. Credit, both consumer and business, would simply freeze up while the details of what to do were being worked out.
by MarekNYC on Sun Sep 21st, 2008 at 10:52:04 PM EST
[ Parent ]
Why do you think the Landesbanken, the KfW, and the Sparkassen don't have the expertise to give credit to corporations? State owned banks count for ~1/3 of all banking activity in Germany. These banks can simply get new equity by the gov't to expand there operations.
And on some political items, e.g. EADS stocks, the gov't has the expertise it needs.
On other, very big items, probably foreign banks have the expertise. Sound credits may simply be sold to other banks.

I don't say there wouldn't be temporary problems, but I'm pretty convinced, that one can let DB fail, without getting too much sustained trouble - although probably if DB is just some dozen billion short of money, one would first try to rescue them.
I would definitivly disagree with any plan to back the DB debt fully by the gov't.


Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Mon Sep 22nd, 2008 at 11:24:03 AM EST
[ Parent ]
KfW has just last week been dubbed "the dumbest bank in Germany"...

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Tue Sep 23rd, 2008 at 05:55:00 AM EST
[ Parent ]
Yes, and they are. In the meantime it has become clear, that they transfered 350 million Euro to Lehman, because they were not willing to finish a discussion on friday afternoon about the credit worthyness of Lehman, because nobody wants to be late at home on weekend.

But an insolvency administrator for a bank is potentially easier than investmentbanker in a bank. They just have to look on the conditions, DB has given an enterprise and take the credit line over.

Most credits in Germany are credits to enterprises. If those credits would be similar distressed as the housing credits in the US, we wouldn't simply have a financial crisis, the whole economy would just have been gone bust. If Deutsche Bank would get bankrupt, it would be due to adventurism on foreign markets, not because of the debt lying on the German economy.

The problem in the US currently is as well not, that there is one big bank, that is bankrupt, but that all banks are under pressure.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Tue Sep 23rd, 2008 at 11:59:39 AM EST
[ Parent ]
The problem in the US currently is as well not, that there is one big bank, that is bankrupt, but that all banks are under pressure.

The LB's are already suffering losses  courtesy of the financial crisis in the US due to their buying of toxic paper and exposure to US banks. If DB were to fail, so would they due to exposure to DB.

by MarekNYC on Tue Sep 23rd, 2008 at 12:43:19 PM EST
[ Parent ]
The LB's are already suffering losses  courtesy of the financial crisis in the US

Negligible for the scenario. Their losses are big, compared with their earnings(in the hundreds of millions range), the numbers are very small compared with the German GDP. I argue, that the state in case of a banking crisis could recapitalise the LBs massivly, let's say with overall 300 bn Euro. A couple of billions lost by the LBs on the toxic waste is really peanuts compared with that.
As the LBs are state owned, there is no stock holder moral hazard. The biggest problem wouldn't be the underlying economic facts, but the EU commision. In case of a severe crisis, I doubt, that the EU commision would stop a rescue of the banking system, even if it requires measures, which are competition distorting.

Even without knowing details of micro economy, it is difficult for me to believe, that a nation, in which banking is not a major branch, which has a savings rate above 10% and low private debt to income levels, should get into severe trouble, because of a single bank failure, while the US with its consumers in debt above their head should be able to manage a bankrupcy of a thousand of their banks(which would happen without any help plans), just because every single of these banks has a balance sheet smaller wrt the GDP than DB to the German GDP.

The fears for DB were because of the 60 times leverage. So a break down of DB wouldn't mean they have losses of 2 trillion, but maybe 40 bn (as USB so far). That's peanuts for rescuing the banking system anyhow. If taking over the 2 trillion balance sheet would count as 2 trillion bail out, then taking over F&F in the US was a more than 5 trillion bail out, but it is counted as 200 bn bail out so far, as this are the funds, which are likely needed to keep the GSEs up.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Tue Sep 23rd, 2008 at 01:37:31 PM EST
[ Parent ]

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