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  October 28, 2011

Deutsche Bank Vegas Exposure Equals Eurozone

Leo Panitch: Deutsche Bank owns Vegas investments that equal its exposure in Greece, Spain and Portugal
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Leo Panitch is the Senior Scholar and Emeritus Professor of Political Science at York University. He is the author of many books, the most recent of which include UK Deutscher Memorial Prize winner The Making of Global Capitalism: The Political Economy of American Empire, In and Out of Crisis: The Global Financial Meltdown and Left Alternatives, , Renewing Socialism: Democracy, Strategy and Imagination and The End of Parliamentary Socialism: From New Left to New Labour. He is also a co-editor of the Socialist Register, whose 2017 volume, which will be released in time for the Labour Party Conference and launched in London in November, is entitled Rethinking Revolution


PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Washington. The Financial Times recently reported that Deutsche Bank, Germany's biggest bank, that its exposure to its casino investments in Las Vegas have reached $4.9 billion. It also reports this is about the same size as its exposure to its eurozone debt. So if a bunch of investments in Vegas are the same size as its eurozone exposure, then why the heck are they putting it to the people of Greece and Spain and Portugal and across Europe? What exactly is this crisis about, and just what is the scale of this? Now joining us to try to make sense of all of this is Leo Panitch. Leo is Canadian research chair in comparative political economy at York University. He edits The Socialist Register. Its new issue is called The Crisis and the Left. Thanks for joining us, Leo.

LEO PANITCH, PROF. POLITICAL SCIENCE, YORK UNIVERSITY: Hi, Paul. Very good question. That's a great question.

JAY: So what's the answer?

PANITCH: I've been puzzling over it as well, because, you know, the exposures, the losses, were far, far greater in 2008, including for European banks, who were bailed out at that time by the world central bank, the Fed. Really good question. I think this partly has to do, ironically, with the reforms that are being introduced so as the banks that are too big to fail don't come back to the public purse again. What's being required of them is that they have higher capital ratios, so they can't leverage as much. And what that means is, you know, what you call a capital ratio, the safest debt is what is known as sovereign debt. It's the debt issued by governments, because governments can always tax their populations to pay off the bankers. Now, amongst those debts, amongst those sovereign debts, of course, the United States is the most sovereign, as it is indeed--being the imperial power in the world, it's the most sovereign. But all government debts are counted in this system of capital ratios as at the highest level. When you have to write down the debt that governments owe you, take--put it down at 50 percent its value, that lowers--that gives you a lower leverage for all your other loans. And that means that the loans you have out to Las Vegas you might have to start calling, because you aren't able to hold that ratio. Now, the banks are fighting tooth and nail over how--what that ratio should be, and they don't want to have that large a ratio. That's one thing. The second thing is that the American banks, and banks generally, but the American banks who were lending money overnight to the European banks as this crisis developed all through the year have stopped lending the money. They're afraid they're going to go under and they won't get paid back the next day in the interbank market. What--you know, what we know as quantitative easing in the United States, which was designed to stimulate the economy in the United States without a fiscal stimulus, because of these yahoos who were elected in the Republican Party blocking every attempt at this, and, of course, Obama's own mealy-mouthed lack of conviction on this, that quantitative easing wasn't so much sponsoring American banks to lend money inside the United States, but they were lending money to European banks, and the Fed intended them to lend money to European banks as a way of getting them out of this crisis. They've stopped doing that. And therefore the European banks are really in a squeeze. They find it difficult to raise the funds, and moreover to raise the funds to buy the kinds of assets that are considered safe capital assets. And heaven knows a lot of European government debt is no longer safe assets. The Greeks certainly are defaulting. There's no question. So, you know, that's what's going on here. You're right. They need to squeeze the pips out of whatever governments they can, not so much, you know, because they're evil, but because they want to ensure that whatever spending the Greek or any other government does is spending to pay off the bondholders, it's not spending going to the unemployed, going to students, going to education, going to social services. They want the first dibs. They--those people who are bondholders want their money. Now, I have to tell you, Paul, some of those bondholders are pension funds. They are union pension funds. They're workers' pension funds. And we've got this enormous contradiction in this increasingly irrational capitalist system, where it's by workers' pension funds who are putting pressure on the banks to get paid back. That's the crazy system we live in.

JAY: So even though you have this enormous exposure in Las Vegas, you can't force the casinos and the people that you've loaned the money to--even if you've taken over the casinos, there's no way to force that back. But there is a way to force the Greek government, so you go after the governments to get repaid, because all your other gambling, you can't make anybody pay you back.

PANITCH: That's right. They can just go bankrupt. But a government can always tax, it can always shift its expenditure from social expenditures to paying off the bondholders. Now, I don't want to--you know, I may have put too much an emphasis on pension funds. They are big bondholders, insurance companies, etc. But it's also, of course, the 1 percent, who are always the bondholders, including the owners of the banks, and they're greedy, and they want to make sure that their ridiculous lifestyles are reproduced.

JAY: So in terms of any kind of public policy that would be a way out of this, there's no way out of it as long as these private banks are controlling the capital markets.

PANITCH: No, absolutely. The trouble is, though, you know, for the Greek government to take over the Greek banks doesn't amount to much. It's only going to amount to much if that type of transformation in Greece would kick off a similar transformation in Germany and in France. In a sense we're in the same position that we were in when you had the Russian Revolution in 1917, and it really was only going to work if it was the weakest link in a chain that would lead to similar revolutions in Germany and the rest of Europe. It didn't. And [incompr.] looking for not only protests, therefore, of the type we see every day in Greece, but the type of movements in--at the center, at the core of Europe that would indicate that there would be corresponding developments inside those countries.

JAY: Well, maybe the Greek government should--this money that they're squeezing out of the Greek people, they should take it to the Cosmopolitan Casino in Vegas, which is now owned by the Deutsche Bank, and put the whole thing on a red or a black bet on a roulette wheel, 'cause at least they'd have a 50-50 chance of getting out of this, 'cause right now it looks like it's about about a zero chance.

PANITCH: Well, I mean, you have to realize that what all this is happening for, and it's being upped every day, is that they're trying to get this $8 billion out of the troika--out of the IMF and the European Central Bank and this European financial fund that was set up. They aren't giving them that $8 billion until they show that they shift their expenditure from civil servant salaries and social services to paying off bondholders so the bondholders don't take as big of a haircut. They're taking a haircut no matter what. The Greeks are actually doing this in order to get money, rather than anything else. And, you know, I think one has to say they might take that $8 billion and buy a Las Vegas casino with it and, yeah, hope that that turns into $40 billion, and then they won't have to be so beholden to the people who are lending them the money.

JAY: Well, the people in the streets of Athens are certainly not going to--don't look like they're going to put up with the way things are going. Thanks very much for joining us, Leo.

PANITCH: Good to talk to you, Paul.

JAY: And thank you for joining us on The Real News Network.

End of Transcript

DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.


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