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                                                                        Who Will Bail out the German Banks?

By Shlomo Maital       

             Allianz

 As Europe’s biggest, wealthiest and most influential nation, Germany has played a dominant role in bailing out failed European banks and failed European governments in Greece, Spain, Portugal, Cyprus and Ireland.   Germany and its leader Angela Merkel have frequently and sternly lectured the deadbeat southern European nations for overspending and over-borrowing,  neglecting to mention that it was largely the German banks who did the lending.    

   Now it turns out that the German banks themselves are endangering Europe.  According to Jack Ewing, in the Global New York Times, “where in Europe is one of the worst banking systems, with bad management, corruption, loans to political insiders that cost taxpayers billions of euros?  Not Italy, Greece or Spain, but – Germany…  the German banks invested in almost every bad asset they encountered —  American subprime mortgages to Greek Govt. bonds”.  According to the EU,  $860 b. were spent in bailing out German banks from 2008 through Sept. 2012.   Only the UK spent more taxpayer money on bank bailouts.  Even Spain and Italy spent less.

    Ewing reports that German banks lend 50 euros for every euro in capital they hold.  This is considered excessive leverage.   Perhaps the German government has been reluctant to bail out Greece, Portugal or Ireland, because it needed (and will need in future) to bail out its own banks. 

     Germany’s banks are enormous. According to the Global Fortune 500,  the largest German banks are Allianz ($130 b. in revenues, in 2012), Deutsche Bank ($87.5 b.),  Landesbank Baden Wurttemburg ($53 b.) (the Landesbanks are controlled by politicians), and Oz Bank ($34 b.).    Their saving grace has been the strong German economy, and its huge export surplus, which kept their balance sheets strong because few loans had to be written off.  But all agree that German banks need radical reform, and many still carry toxic assets on their books. 

     If I were the Prime Minister of Greece, Portugal or Spain,   I would offer to advise the German government on fiscal reform, austerity and bank reform.  All that “friendly advice” by Germany, to Greece and Cyprus,  should first be applied at home.

     Physician, heal thyself.

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Governments DO do good things!

By Shlomo Maital     

     good-gov

 American Republicans would have us believe that nothing, nothing about government is any good.  We need less government, maybe even (if you’re a Tea Party fan) NO government, they say. 

  But Clyde Prestowitz (Reagan’s trade advisor), in his latest Foreign Policy blog, says otherwise. 

     “… the truth is that virtually none of America’s great inventors and entrepreneurs did it on their own. In the overwhelming majority of cases, they received taxpayer supported federal help along the way.   For example, sometimes I ask audiences if any of them know who invented the Internet.  Answer: the Defense Advanced Research Projects Agency (DARPA) which was the real inventor and developer of the basic Internet technology.   Nor does anyone ever mention the National Science Foundation’s long years of nurturing the Internet before it became commercially viable.  

   Shale gas, too, could not have happened without government help, as Prestowitz shows.

     “… the U.S. government spent billions over three decades to make shale gas and oil a reality. The effort began in the 1970s as a somewhat quixotic, patriotic undertaking by the government’s energy agencies and then the Department of Energy to respond to the oil crises of the time and to prevent the United States from becoming dependent on imported energy. Long known as lacking in innovation, the private companies of the energy industry showed little or no interest when the feds showed up offering them funds for joint research and development. Mostly, the oil and gas companies turned it down and told the feds to get lost.   [The Government played a key role, providing:  *The Eastern Gas Shales Project, a series of public-private shale drilling demonstration projects in the early 1970s in response to the energy crisis;  * Collaboration  with the Gas Research Institute (GRI), an industry research consortia that received partial funding and R&D oversight from the Federal Energy Regulatory Commission;  * Early shale fracturing and directional drilling technologies developed by the Energy Research and Development Administration (ERDA, later the Department of Energy), the Bureau of Mines, and the Morgantown Energy Research Center (later the National Energy Technology Laboratory); *  The Section 29 tax credit for unconventional gas production, in effect from 1980-2002;  *  Public subsidization and cost-sharing for demonstration projects, including the first successful multi-fracture horizontal drilling play 1986 and Mitchell Energy’s first horizontal well in 1991; *   Three-dimensional microseismic imaging, a geologic mapping technology developed by Sandia National Laboratories.

    Prestowitz reminds us to  pause for a moment to thank our great bureaucrats,  as well as  of course the late George Mitchell,  the entrepreneur whose passion created the natural gas generated by ‘fracking’ in America. 

 

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
August 2013
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