
Germany Says No Bailouts for Deutsche Bank or Any Other Struggling Lenders - csomar
http://fortune.com/2016/09/29/deutsche-bank-germany-bailout/
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mrweasel
While I understand why have Deutsche Bank fail could be a huge issue, I also
believe it's necessary to show that banks are responsible for their own bad
decisions.

In at least the US and Denmark we have the concept of systemically important
banks. Bank that are to big to fail. These banks will, currently always be
bailed out by the tax payers. So far it seems to have worked out for the
benefit of the tax payers, because the governments have managed to make money
on bailing out these banks.

What I however don't understand is why governments allow "to big to fail"
banks to exist. The Danish government have actively encouraged people to
choose bigger banks, arguing that there are to many banks in the country. It
seems like what they should do is break up banks that are large enough to harm
the nations economy, should they fail.

~~~
ig1
In this case it's messy because DB problems are caused by a US government
fine, a fine that realistically they wouldn't have imposed on a major US bank.
So it's less about individual bank performance but rather international
politics and trade barriers.

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isolli
"In a similar case, rival Goldman Sachs agreed in April to pay $5.06 billion
to settle claims that it misled mortgage bond investors during the financial
crisis." [1]

I don't know why the fine is lower, but it's the same order of magnitude...

[1] [https://www.theguardian.com/business/2016/sep/16/deutsche-
ba...](https://www.theguardian.com/business/2016/sep/16/deutsche-bank-must-
pay-14bn-fine-to-settle-us-mortgage-case)

~~~
_Codemonkeyism
Thanks for the link,

though isn't it 5,1x10e0 vs 1,4x10e1 and doesn't that mean it's not the same
order of magnitude (I might misunderstand the concept)?

~~~
mdda
Are they different by a factor of 10 or more? If not, then they're within an
order of magnitude (base-10).

~~~
isolli
Thanks, this is my definition too!

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cs702
I'm all for wiping out bank shareholders to zero and sending corrupt
executives to jail... but if the financial system and the public lose
confidence in Deutsche Bank, one of the world's largest banks, we could end up
with another global financial panic like the one we saw in 2008.

By many accounts, the second leg of the Great Depression of the 1930's started
with the failure of an Austrian bank, Creditanstalt, in 1931, triggering
financial panic and a wave of bank failures that ultimately affected everyone.
See
[https://en.wikipedia.org/wiki/Creditanstalt#First_Republic](https://en.wikipedia.org/wiki/Creditanstalt#First_Republic)
, [http://www.bloomberg.com/news/articles/2011-04-20/lessons-
fr...](http://www.bloomberg.com/news/articles/2011-04-20/lessons-from-the-
credit-anstalt-collapse) and
[http://www.cambridge.org/catalogue/catalogue.asp?isbn=052103...](http://www.cambridge.org/catalogue/catalogue.asp?isbn=0521030293)
, for example.

The world cannot afford to have another global financial panic. The outcome
could be catastrophic. Lenders, including depositors like your Aunt Tilly and
Jack the plumber, should not have to worry about the safety and liquidity of
their money.

The financial system is _infrastructure_ \-- like the electricity grid and the
Internet. We cannot afford to have this infrastructure come to a halt due to
the fear or stupidity of greedy executives. Businesses and consumers depend on
this infrastructure every day.

~~~
ethanbond
So how about we bail out the institutions and throw the executives in jail?
That seems like a good compromise.

~~~
atmosx
Amen. Bringing accountability in the banking sector? That's a refreshing
thought and a decisive step forward to save, whatever can be saved from the
EU.

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superplussed
This might be a silly question, but as a customer of Deutsche Bank what would
the likely outcome be to your money and account if the bank is allowed to
fail? Is it just that another bank takes over the account?

~~~
JacobH
You lose all of the money over the amount that isn't insured. If the bank even
has insurance.

~~~
mrweasel
What I find interesting is that you lose all money over the insurance amount,
but you're guaranteed that someone will buy up any debt you may have,
regardless of the amount. While I understand why that is, it hardly seems fair
that the customers can only lose money.

~~~
mathiasrw
Its working as designed. "Fair" was never part of the plan...

~~~
asciihacker
Yes, a bank is a business not a charity. Customer service is important but
saving their own skin appears to matter more.

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slv77
The challenge in 2008 with the Lehman collapse and AIG's later struggles is
that there was no method to wind down non-bank financial institutions except
through the bankruptcy courts.

After the financial crisis regulators were given authority to take over non-
bank financial institutions and also created the concept of bail-in where a
large bank or financial institution that was in financial trouble could raise
equity over night through forced conversion of some of its bonds to equity.
This would of course dilute existing shareholders and result in potential
losses for bond holders but the bank continues to function which removes the
systematic risk. As part of the reform the banks were also required to hold
more liquid capital to reduce the risk of runs and to go through stress tests
to validate that bail-in capital was adequate.

The politics are that in Italy the banks bonds that would be subject to bail-
in are held mostly be retail investors (granny and grandpa) and a bail in
would be politically costly and they want to bailout banks using tax-payer
funds.

At the end of the day losses due to bad loans have to be allocated. Those
losses can be allocated to bank equity and bond holders through bail-in;
depositors through bail-in or lower interest rates; tax holders through bail-
outs; or to savers through Central Bank inflation and fiscal stimulus. Each
one of those scenarios creates winners and losers with vested interests. There
is also strong cultural memory with Germany looking back to the hyperinflation
of the 30's that gave rise to the Nazi Party and the US looking back to the
30's and the Great Depression when losses were allocated to banks and
depositors.

The alternative is extend and pretend which is to ignore bad debt and because
in the future "we're all dead." This was used in Japan after its financial
crisis and creates and interlocking group of zombie companies and banks which
seem to feed on the rising generation.

Pick your poison I guess.

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f_allwein
It is important to remember that the reason many countries are out our cash/
deep in debt is because so much money has been spent on bailing out banks.
E.g. in the UK, this was more than a trillion pounds at the peak of the
crisis.

[https://www.theguardian.com/news/datablog/2011/nov/12/bank-b...](https://www.theguardian.com/news/datablog/2011/nov/12/bank-
bailouts-uk-credit-crunch)

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cies
We should all learn from how Iceland did it. Take the power back.

~~~
AnthonBerg
Icelander here. The popular story is very inaccurate.

However: I encourage everyone to do like the popular story of how Iceland says
we did :)

~~~
cies
Please explain, or link to an article that you believe show the more accurate
story.

For all I know: Iceland let its banks fail and jailed some high-ups in said
banks, while bankers worldwide said Iceland was going to have an endless
recession because of it, which did not happen.

~~~
AnthonBerg
Please link to a story which you based your original words on so I may try to
offer a POV which seems more correct seen from the ground here?

~~~
kafkaesq
Don't know what the original commenter had in mind, but the vague, popular
impression seems to be, in so many words:

 _" The brave people of Iceland decided they had enough, and formed a lynch
mob and put a few dozen perpetrators in a real, actual jail. Which didn't
reverse the damage caused, by any stretch, but at least they got sliver of
self respect back after being taken for a ride by these assholes."_

Not sure how accurate that is, but any qualification (or just any articles at
all you feel give a more grounded summary of events) would be very helpful.

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jbmorgado
"Germany Says No Bailouts for Deutsche Bank"

These are basically the famous last words before any bank goes bankrupt and
consistently get's a government bailout in Europe.

~~~
lordnacho
And this time the taxpayer will have the privilege of paying a fine levied for
improper behaviour. Absurd.

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dogma1138
While Germany might not step up now, the ECB will not let DB fail, it would
send a shock wave through the euro block that can cause it to implode.

This is especially important now when countries like Poland have the Euro
hanging over their heads.

~~~
yulaow
Germany, imho, is doing whatever it can to avoid to put money in a failing
institution because they promoted so much the "be responsible, no buyouts" in
the whole EU area. Now that they are in trouble if they go for a buyout there
will be _a_lot_ of states who will ask to definitely stop all the austerity
measures they so hard promoted [and that, honestly, never worked for any
south-west country in EU, they just worsen the situation].

~~~
atmosx
No. That was the case for Greeks and PIIGS in general.

The Greek bailout, was an indirect bailout of Franco-German banks[1]. Ms
Merkel was not able to ask for a second bailout, so she masked the bailout as
a _solidarity_ towards Greeks.

Of course Greece's public debt sky-rocketed (from 120% of the GDP to 180% in 6
years) but the worst part was the total disintegration of the Greek economy.
Since, throwing money in failed banks never works, we're back in square one.
Oh, in the process she also destroyed the Eurozone, but that's just a side
effect.

[1] [http://www.keeptalkinggreece.com/2016/05/04/german-esmt-
stud...](http://www.keeptalkinggreece.com/2016/05/04/german-esmt-study-5-of-
bailout-money-went-to-greeces-state-people-95-went-to-european-banks/)

~~~
jbmorgado
Exactly this. We already saved DB in 2010, and by we, I mean, southern Europe
and Irish taxpayers. It's well documented that the bulk of the debt contracted
by southern European and Irish governments ended up mainly in DB and to a
lesser part in the Bank of Scotland backed by the money of German taxpayers.

It's no wonder that Schauble was pressing so hard 2 years ago for a big part
of Greek Assets to be held abroad as guarantee the debt payments would be
made... where? In DB non the less.

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kukx
Says who? - "a senior lawmaker in Chancellor Angela Merkel’s conservative
bloc". Germany will do what it has to do to keep its economy afloat. If they
have to bail out their banks, my bet is they will.

~~~
JMCQ87
Michelbach is not even well-known, actually.

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neximo64
Its worth pointing out banks in the EU haven't yet deleveraged like the banks
in the UK and US. Deutsche bank falls under this list of being too leveraged.

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lordnacho
The only meaning of such a statement is to say that DB is in deep trouble.

It's just like when there's a big company meeting and the boss tells everyone
you're going through hard times but everyone's job is safe. Or that the last
round of redundancies was the final one.

Whether the government does bail them out can only be tested in one way.

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hs77812871
It could be an attempt to put pressure on the U.S. to reduce the fine. I'm
sure DB _will_ be bailed out if the situation is there.

