When we were children, we often heard stories about the town of Gotham, where the inhabitants did foolish things. This is how we learned what a Gothamite is, which we found a rather good joke when we were kids. Later in life, we learned that it was not at all a good joke.
Now we have HRE, the Hypo Real Estate bank in Germany. As we recently learned, the HRE was kicked to the sidelines years ago as “bad bank” outsourced by two formerly highly respected banks that merged, namely the “Bayerische Hypotheken- und Wechselbank” and the “Bayerische Vereinsbank”. Wishing to get rid of its status as “bad bank”, HRE started a full-power campaign on the world financial market with borrowed money – according to the slogan “if you have nothing left to loose, you have a fool’s freedom”. The mentality of the roulette player who has lost all he had and now risks everything in order to get wealthy again became the economic principle. If the reports are correct, then the game was even partly played on the wrong side of the account books. A basically unbelievable idea! What is worse, it seems that HRE was not alone. Just think of the BayernLB. Lately, news about it are suspiciously scarce.
Now the discussion is about dispossessing the HRE. Just imagine: they want to take over an enterprise that has a balance minus of one billion Euros (a German billion, that is not a typing mistake, we are talking 12 zero digits, twelfth power of ten, as the mathematicians say)! And now they even quarrel about whether or not dispossessing this kind of thing is legal.
This strongly reminds me of Gotham. It is quite possible that the takeover of HRE by the state after several billions of sureties will eventually be known in history as the biggest “Gothamite folly of all times”.
Personally, I always believed that “controlled” insolvency is the only way for banks with financial problems. Usually “the fast step is the least expensive”. Over the last few weeks, I spoke in front of competent and wise managers several times. The following discussions always lent extra strength to this belief of mine.
But in Berlin, as everywhere else in this world, it seems like the prevailing absurd dogma is: “No relevant bank must be allowed to go into insolvency, because this would be the downfall of the (financial) world”. Where is the origin of such a dogma? We humans – and it goes without saying that politicians are included – tend to invent dogmas and then follow them blindly. In doing so, we avoid the effort of having to ask questions and think harder about what is allegedly self-evident.
Personally, I do not believe in the dogma that bank insolvencies ruin the economic system. To be sure, the Lehman insolvency has eaten up a little of the exorbitant riches formerly owned by some people. On the other hand, I have witnessed some not-at-all-that-rich people I personally know accepting their losses with dignity according to the motto “easy come, easy go”. I take my hat off to that. In case of a “controlled” insolvency, detrimental effects concerning the important savings of “your average citizen” can certainly be avoided by special sureties given to some of the creditors. And the problem with bonds is also one that could hardly have been solved worse than with all-out mega-sureties. Now the avalanche is rolling.
It is a task for new and enlightened concepts to do away with today’s false dogmas. In my opinion, the current situation has fatal parallels with the middle ages. In those days, people also believed that the sun rotates around the earth. People were burned. Fortunately, today it is only money that burns.
RMD
(translated by EG)
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