In 1870, six months before a retreating French army was defeated by Prussian troops at Sedan, the Deutsche Bank was established in Berlin.
Although Britain was still the pre-eminent world economic power, the US and Germany were starting to take the giant strides that would soon enough see them leave the former “workshop of the world” in their wake.
Within two generations, Germany’s industrial exports, which had been less than half of Britain’s, had surpassed them. However, in 1870, Germany was captive to British and French banks. Deutsche Bank, specialising in foreign trade, was established to remedy this.
The founding of the bank was a deliberate challenge to the hegemony of British and French banks in world markets – one that succeeded spectacularly. But along the way Deutsche developed a dark side.
Among other things in its murky past, it loaned the funds to build the Auschwitz concentration camp. During the course of World War II, it also profited from managing the National Bank of Greece when the country was under German occupation.
In more recent times, Deutsche was a major promoter of financial derivate products known as Collateralised Debt Obligations (CDOs). According the Bank of International Settlements in mid-2008 it accounted for US$90 trillion of the derivatives market which fuelled the global financial crisis (GFC).
Two of the recipients of these CDOs were the US mortgage lenders Fannie May and Freddie Mac. They had to be bailed out by the US government in the biggest nationalisation in history when their debts reached $1.6 trillion.
Deutsche was eventually forced to pay the US Finance Housing Agency $1.93 billion in settlement for bundling and selling bad real estate loans to Fannie May and Freddie Mac.
The fallout from the GFC in the US was not all bad news for Deutsche. When the insurer American International Group (AIG) sold credit protection on CDOs that effectively bankrupted the company, it was rescued by the largest government bailout of a private company in US history.
As a result of its insurance arrangements with AIG, Deutsche received $11.8 billion of US taxpayers’ money for a financial crisis that it was largely responsible for starting in the first place.
The US Federal Reserve was entitled to be a little disconcerted at this settlement. This may be why it began scrutinising Deutsche Bank’s US financial systems, which it roundly criticised in 2013.
In April, Deutsche was obliged to pay $2.5 billion to settle with US and British regulators for alleged Libor rate-rigging in which it admitted wrongdoing.
The Libor (London Interbank Offered Rate) is an average interest rate calculated daily on data provided by the world’s big banks. It is used around the globe as a reference rate for mortgages, loans, financial products and derivative contracts.
Just how much can be gained by Libor manipulation is demonstrated by Citigroup, the third biggest bank in the US. In early 2009, Citigroup had interest rate swaps with a notional value of almost $50 trillion.
On its own admission, it would make $936 million in net interest if the Libor rate fell by 0.25 percentage points in the first quarter of 2009 alone.
Deutsche Bank operates in more than 70 countries, which is why the US and British regulators were able to investigate their market manipulation. In Germany, financial regulation is the responsibility of the Federal Financial Supervisory Authority, more commonly known as BaFin from its German acronym.
It took a month for BaFin to send a report to Deutsche of its investigation into the company’s dodgy banking practises.
The report was not officially made public, but was leaked. It criticised four of Deutsche’s management board, together with two other senior executives, for negligent oversight and selective or inaccurate disclosures to BaFin officials investigating their Libor manipulation. In June, the bank’s two co-chief executives resigned.
BaFin is an unusual regulator, with little bark and no bite. It has the power to remove executives and issue written reports criticising them, but is unable to impose large financial penalties.
The kid-glove handling of German banks stands in stark contrast to Germany’s demand for fiscal rectitude in Greece.
Deutsche Bank is reported to have exposure to $75 trillion in derivative contracts — an amount larger than the entire global GDP, which would send the world economy into depression if the bets went sour. Greece’s debt is just 0.5% of Deutsche’s derivative debts.
From the date of its founding, there was enduring enmity between France and Germany, which led to the two world wars in the 20th century. The European Union was, at its inception, a project aimed to end this conflict.
What it has succeeded in doing is creating a continuous conflict between its unelected leaders and the EU’s citizens in the straitjacket of neoliberal theocracy that none of them voted for.
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