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Subprime debacle hits Deutschland

Stephen Beard Sep 24, 2007
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Subprime debacle hits Deutschland

Stephen Beard Sep 24, 2007
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TEXT OF INTERVIEW

Bob Moon: Oh yeah, that subprime thing. It hasn’t gone away. Word today that Deutsche Bank could be the next big loser.

Marketplace’s Stephen Beard is watching that story in London. Good morning, Stephen.

Stephen Beard: Good morning, Bob.

Moon: So what are you hearing in terms of how bad the damage might be?

Beard: Well, Reuters is reporting that the bank — one of the largest investment banks in the world — as suffered a $2.4 billion fall in profits because of the credit crunch. I should say the bank is refusing to comment on this story and confirm it.

Moon: Well, this wouldn’t be the first German casualty of the subprime meltdown. And yet, German banking has a reputation for being conservative, not taking on too much risk, right?

Beard: Absolutely. This is really ironic. I mean, these financial innovations that are at the heart of the crisis, things like the securitization of loans, were pioneered by American investment banks. And yet, some U.S. investment banks, like Goldman Sachs and Lehman Brothers, have emerged virtually unscathed from the crisis, whereas we see German banks taking quite a hit. And this is doubly ironic, given the fact that Germany is the one country that’s been most critical of these innovations. One analyst put it to me like this, he said, “It’s exactly the same in politics. Often, the most puritanical, moralistic politicians who regularly denounce sin and vice, are precisely the ones who turn out to be the ones most deeply immersed in it.

Moon: We’ve heard a lot of calls for a crackdown here in this country. You think we’re gonna be hearing louder calls for regulation in Europe?

Beard: We’re hearing that already. But it may well be that in the present market conditions, regulation is not really required. Banks are already showing a marked reluctance to lend to hedge funds and private equity firms.

Moon: Marketplace’s Stephen Beard in London. Thank you.

Beard: OK, Bob.

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