The Gods of Money – German style

May 31, 2010

F. William Engdahl: The German banks played casino with Wall Street and now demand austerity from Greece

F. William Engdahl: The German banks played casino with Wall Street and now demand austerity from Greece



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Story Transcript

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Washington. And joining us now from Frankfurt, Germany, is William Engdahl. He’s the author of the new book God’s of Money: Wall Street and the Death of the American Century. Williams [is] also a regular contributor to The Real News Network. Thanks for joining us, William.

WILLIAM F. ENGDAHL, ECONOMIST, AUTHOR: Thank you, Paul.

JAY: So the gods of money certainly include some gods living in Germany, where you are now. They play casino with the New York members of Mount Olympus, and they certainly played a big role in helping create this mess. Talk about this.

ENGDAHL: Well, if you look at a banking map of Europe, you’ll find that over the last 20 to 30 years their primary institutions, banking institutions, in every country, whether it’s Société Générale (SocGén) in France, certain banks in Italy, and so forth, and in Germany it’s the premier bank, Deutsche Bank. And Josef Ackermann, the head of Deutsche Bank for the last several years, came from a quasi-American bank called Credit Suisse in Switzerland, which was developed by Wall Street. This is a little unknown history. It was developed by Wall Street in the ’50s—there were Senate investigations, actually—as a money laundry for certain American financial interests in this secret Swiss banking system. Well, no one gets to the top of Credit Suisse, I’m told by my Swiss banker friends, unless they are vetted first by certain interests in Wall Street. So Ackermann comes to Deutsche Bank, a premier German institution historically, and he gets into the casino big-time. Deutsche Bank during the peak of the real estate bubble in the states, Deutsche Bank was bankrolling billion-dollar casino construction in Las Vegas as the largest lender to building new casinos in Vegas. Now, Las Vegas is a great place for ordinary mom-and-pop vacation time to play the slot machines, but it’s also one of the world’s biggest laundry machines, money laundering machines, according to intelligence agencies [inaudible]

JAY: And also not a great bet in terms of putting money into Vegas real estate, because Vegas real estate’s down the—more or less, residential down the toilet, and the casino business is half-empty. So it was another way they played casinos on casinos.

ENGDAHL: Yeah, exactly. But Deutsche Bank—just to give a sidelight on the whole subprime crisis in ’07, it started when a tiny little bank—. You know, these global crises tend to start on the periphery, like Creditanstalt in Vienna in 1931 started a whole chain reaction of European bank crises that led to the global depression. Well, in August of 2007, it was a bank in Düsseldorf, Germany, called EKB Bank, industry credit bank [IKB Deutsche Industriebank]. And EKB Bank bought some billions of dollars worth of high-yielding bonds from Deutsche Bank a few months before, and those high-yielding bonds were, of all things, US subprime securitized mortgage bonds. And that blew up in their face, and the bank subsequently went into bankruptcy, had to be bailed out by the German government. So Deutsche Bank has played a role in this thing from the beginning to the end that is parallel to that of Goldman Sachs or Citigroup or JPMorgan Chase. They’re up to their eyeballs in the casino business on this financial scullduggery.

JAY: And Deutsche Bank also got a big payoff from AIG, did they not? A lot of American taxpayers’ money wound up in saving their rear ends, as it did Goldman’s.

ENGDAHL: Deutsche Bank did. SocGén in Paris did as well. Of course, the main beneficiary was Goldman Sachs, as you point out.

JAY: It’s a little ironic, I guess, that the Deutsche Bank now, as the symbol of German austere policy, is in on telling the Greeks, oh, you guys have too much retirement income, after they’ve thrown away billions, if not trillions, in their own gambling ventures.

ENGDAHL: Yeah. Well, Deutsche Bank is playing a double role here very much, I think. And it’s starting to create a huge backlash within Germany politically. The finance minister, Schäuble, something that’s almost unheard of for a German politician, faced up against the CEO of Deutsche Bank, Josef Ackermann, last week about the Deutsche Bank’s handling of this whole Greek situation. So one of the sacred cows of German finance is actually starting to feel, a little bit, the domestic pressure.

JAY: So it’s a big controversy in Germany whether to have, quote-unquote, "bailed out" Greece or not. Now they have, together with the IMF. But for a long time this weakness in the peripheral countries of Europe, as they call them—Greece, Portugal to some extent, Spain, and Italy—has really been quite profitable for Germany. But why does Germany want to save the euro now?

ENGDAHL: Well, I think it’s a calculation that the German establishment made sometime around the latter half of the 1990s, when the euro was already on track to be brought into life in 1999 and 2000. And the German establishment at that point—and I have this on good report from the highest sources in the European commission in Brussels at the time—they made a calculation that the euro can create a zone of currency stability across Europe, of several hundred million potential consumers, that would allow German industry, and indirectly German banking, to come out the strongest player in the game. And that more or less is what has happened with the euro. So I don’t think, for all its very severe flaws in terms of construction and lack of political decisiveness centrally to parallel the central currency, that the German establishment is about to go renege on the euro. I think that the euro is here to stay, with all its warts and flaws, and it’s a question what kind of political reform is hammered out within the European union member countries right now. And what’s most interesting, I find—and this has caused a hornets nest to be stirred up—last week the Merkel government in Berlin and BaFin, the financial regulatory agency, imposed a ban on certain naked shortselling and certain other positions by hedge funds and others that caught absolutely everybody, including the French government, by surprise. And I don’t think this was because the German government expects that one country unilaterally going against short selling on a global market is going to stop the practice, but I think they were signaling that they are no longer going to play by the rules of a game whose rules are written in Wall Street and by the US rating agencies, the credit rating agencies—Moody’s, Standard & Poor’s, and so forth. So I think there’s a big, big pressure building up in Europe, but especially in Germany, to change the rules of the game that the gods of money, if you will, in Wall Street have written in the postwar period.

JAY: But within Europe itself, Germany has been the real god to most of the other countries of Europe, particularly the weaker countries. Some people have suggested that having the euro, versus just the Deutsche Mark, has given Germany a relatively lower valued currency than it might otherwise have had, and it’s been a tremendous boom for German exports. I think everyone was surprised to find out last year was the first year that China actually surpassed Germany as the biggest exporter in the world. So can you talk about how that works?

ENGDAHL: Well, quite simply, the German economy has, and still remains, the export engine, with the exception, as you point out, of China last year in terms of dollar volume. But German steel exports, machinery exports, automobile exports are still in world-class demand. And as the—one beneficial effect of the weakening of the euro from hedge fund speculation since this—beginning of this year has been a tremendous boost in the competitiveness of euro-valued exports from Germany. So Germany benefits on that front quite nicely. And they’re not talking about it too openly, but it doesn’t hurt the job situation here in Germany in the last couple or three months.

JAY: So why is this so controversial, the quote-unquote "bailing out" of Greece in Germany? We’re told that Merkel, you know, her political career might be on the line here.

ENGDAHL: Oh, it’s regarded very seriously. If you keep in mind what happened in Germany, which is still in the living memory of older Germans—back in 1923 hyperinflation and the Weimar period, and what happened in Germany after World War II, when the Deutsche Mark was created in 1948, and so forth—you know, you’ve had a country who almost by instinct is conservative in terms of money and savings and so forth, and especially the generation above 50 or above 60. And they regard the bailout of Greece—. First of all, Greece, from a fiscal standpoint, is a basket case. There’s no question about it. Goldman Sachs knew that in 2002, when they went in there as adviser to the Greek government on hiding its new debt off balance sheet with derivatives. But the Greek taxation system is reminiscent of that of someplace like Kyrgyzstan. The Greek pension obligations are among the most generous in the entire world. So if you don’t have a taxation system that functions effectively, nobody in Greece that I know—I have a lot of Greek friends—nobody bothers to pay taxes.

JAY: Including the corporate sector, which apparently pays next to no tax at all.

ENGDAHL: Yeah. Yeah, yeah. It’s quite a remarkable thing that it’s kept on as long as it has. And one thing they were eager to do was get on the inside of the euro zone so that they could benefit from the low interest rates and the low risk ratings of all euro zone member countries. So that’s why they got into this scam with Goldman Sachs in the first place. Ironically, Goldman Sachs is still the adviser to the Papandreou government today, and that gives him a very nice window on everything that’s going on with Greece.

JAY: Goldman Sachs reminds me of the way [Basil] Zaharoff used to sell arms to every side in Europe in the leadup to the First World War: play every side of the game. Well, in the next segment of our interview, let’s talk about the future of the euro, and the euro and the US dollar. Please join us for the next segment of our interview with William Engdahl.

END OF TRANSCRIPT

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