Michael Lewis’s tour of Europe lands him in Germany this week, where he writes an unbelievably raunchy epic and relies on an elaborate metaphor to justify some sightseeing that Tabitha Soren might not otherwise approve of:
The Hamburg red-light district had caught [anthropologist Alan] Dundes’s eye because the locals made such a big deal of mud-wrestling. Naked women fought in a metaphorical ring of filth while the spectators wore plastic caps, a sort of head condom, to avoid being splattered. “Thus,” wrote Dundes, “the audience can remain clean while enjoying dirt!” Germans longed to be near the shit, but not in it. This, as it turns out, was an excellent description of their role in the current financial crisis.”
We are not the only ones to find this metaphor a little strained. In any case, when he’s not looking for shitshows of the literal variety, he’s in town to try to figure out why German state-owned Landesbanks lost so much money on subprime CDOs peddled by American banks:
The global financial system may exist to bring borrowers and lenders together, but it has become over the past few decades something else too: a tool for maximizing the number of encounters between the strong and the weak, so that one might exploit the other. Extremely smart traders inside Wall Street investment banks devise deeply unfair, diabolically complicated bets, and then send their sales forces out to scour the world for some idiot who will take the other side of those bets. During the boom years a wildly disproportionate number of those idiots were in Germany. As a reporter for Bloomberg News in Frankfurt, named Aaron Kirchfeld, put it to me, “You’d talk to a New York investment banker, and they’d say, ‘No one is going to buy this crap. Oh. Wait. The Landesbanks will!’ ”
And why would the Landesbanks buy crap? The explanation is not really the alleged scheisse fixation. Rather, it's reminiscent of why U.S. municipalities fall over themselves to pay investment banks for sometimes dubious advice after a couple of steak dinners: the Landesbank guys were underpaid, unused to the glamorous big-city lights of Frankfurt, and therefore suckers for any salesman with a pretty face and a couple of David Hasselhoff tickets:
“The people in these banks had never been spoiled by any Wall Street salesmen. Suddenly, there is someone with a platinum American Express credit card who can take them to the Grand Prix in Monaco, takes them to all these places. He has no limit. The Landesbanks were the most boring bankers in Germany, so they never got attention like this. And all of a sudden a very smart guy from Merrill Lynch shows up and starts to pay a lot of attention to you. They thought, Oh, he just likes me!”
Sadly, no. The slick salesmen just used the Landesbankers like so many Brazilian soap opera stars and left them to dream of what might had been, lost in their boring provincial lives with nothing to show for their whirlwind romance but some heavily marked-down CDOs.
And why were they so willing to fall for the first Merrill Lynch salesman who remembered their name? Commerzbank’s chairman tells Lewis:
“We are not a prop-trading nation,” he says, getting to the nub of where German banks went so wildly wrong. “Why should you pay $20 million to a 32-year-old trader? He uses the office space, the I.T., the business card with a first-class name on it. If I take the business card away from that guy he would probably sell hot dogs.” He is the German equivalent of the head of Bank of America, or Citigroup, and he is actively hostile to the idea that bankers should make huge sums of money.
Nobody exactly looks like a hero in the subprime securitization industry - but as Lewis might remember, some people got it right. Those people largely had pretty good incentives to get things right, so they did their analysis and made lots of money that they could plow back into BofA shares. The Landesbanks, not so much - possibly because they hired people who might be better suited to selling hot dogs, or possibly because they paid those people too little to afford a platinum card of their own.
The lesson here may be that if you pay traders (or municipal treasurers, or regulators) like hot dog vendors, you get traders who are maybe more qualified to sell hot dogs than to take the other side of trades from big banks.
By the way, just putting this out there, if you buy a hot dog from a former Commerzbank trader it’s probably not going to be kosher. Lewis wants to make sure you know that Germany differs from Dealbreaker HQ in some notable ways, such as “there are no Jews in Germany, or not many.” Which has its pluses and minuses:
The only financial disaster in the last decade German bankers appear to have missed was investing with Bernie Madoff. (Perhaps the only advantage to the German financial system of having no Jews.)
Read the whole thing - if only to assure yourself that we're not overstating the amount of space devoted to coprophilia.