It’s the Economy, Dummkopf!
August 10, 2011 4:58 AM Subscribe
"For the Germans the euro isn’t just a currency. It’s a device for flushing the past—another Holocaust Memorial. " Vanity Fair's Michael Lewis checks in with Europe's savior.
As Kinky Friedman once said, "Germans are my second favorite people in the world . . . right after everyone else."
Well yeah, but then Kinky Friedman is a. . . Texan.
posted by Herodios at 5:36 AM on August 10, 2011 [3 favorites]
Well yeah, but then Kinky Friedman is a. . . Texan.
posted by Herodios at 5:36 AM on August 10, 2011 [3 favorites]
I think that's because Germany is the wealthiest country in the Eurozone.
For fuck's sake, what's with the 17 pages? Does it really take 10,000 words to say "Germans are culturally fastidious and thus harbor a fascination with the unclean, and also don't mention the war."?
posted by gjc at 5:50 AM on August 10, 2011
For fuck's sake, what's with the 17 pages? Does it really take 10,000 words to say "Germans are culturally fastidious and thus harbor a fascination with the unclean, and also don't mention the war."?
posted by gjc at 5:50 AM on August 10, 2011
Is there any way to get this thing on one page so I can run it through ReadItLater/Instapaper? It looks interesting but given the length I think it's going to have to wait for the train home later today.
posted by Kadin2048 at 5:52 AM on August 10, 2011
posted by Kadin2048 at 5:52 AM on August 10, 2011
@Kadin -there is a single page button in small type at the bottom of the page - or just add this URL to instapaper
posted by Another Fine Product From The Nonsense Factory at 5:57 AM on August 10, 2011
posted by Another Fine Product From The Nonsense Factory at 5:57 AM on August 10, 2011
So many words, so little content... is the 'shit' detour just because the first guy he talks to is named 'As(s)mussen'?
What I would like to know, is with a radically different regulatory climate, finanical underpinning, housing policies, than the US, why did so many euros go into inflated real estate in the eurozone?
posted by ennui.bz at 6:08 AM on August 10, 2011 [1 favorite]
What I would like to know, is with a radically different regulatory climate, finanical underpinning, housing policies, than the US, why did so many euros go into inflated real estate in the eurozone?
posted by ennui.bz at 6:08 AM on August 10, 2011 [1 favorite]
gjc: For fuck's sake, what's with the 17 pages? Does it really take 10,000 words to say "Germans are culturally fastidious and thus harbor a fascination with the unclean, and also don't mention the war."?
Well, Michael Lewis is a peddler in national stereotypes. The two articles he wrote about the Greek and Icelandic economic crashes can be boiled down to: "Greeks are lazy cheats who don't want to work and Icelanders are inbred elf-fuckers!"
posted by Kattullus at 6:12 AM on August 10, 2011 [5 favorites]
Well, Michael Lewis is a peddler in national stereotypes. The two articles he wrote about the Greek and Icelandic economic crashes can be boiled down to: "Greeks are lazy cheats who don't want to work and Icelanders are inbred elf-fuckers!"
posted by Kattullus at 6:12 AM on August 10, 2011 [5 favorites]
For fuck's sake, what's with the 17 pages?
Because you can't justify a trip to Europe for a half dozen paragraphs, of course. Bigger paycheck for the author, readers think they're getting the goods, more advertising revenue. Much as I like Michael Lewis when he's on, I'm not sure he's the right person for this job. Germany's an odd country.
The notion that Germany (and not just Germany) saw the Euro as a building block for continental unity rather than a mere currency is not new. Though I suppose it is if you've never heard it before.
(Of course, the British have a taste of toilet humor as well, it might be pointed out. For whatever it's worth, and frankly it's not really worth - )
posted by IndigoJones at 6:14 AM on August 10, 2011
Because you can't justify a trip to Europe for a half dozen paragraphs, of course. Bigger paycheck for the author, readers think they're getting the goods, more advertising revenue. Much as I like Michael Lewis when he's on, I'm not sure he's the right person for this job. Germany's an odd country.
The notion that Germany (and not just Germany) saw the Euro as a building block for continental unity rather than a mere currency is not new. Though I suppose it is if you've never heard it before.
(Of course, the British have a taste of toilet humor as well, it might be pointed out. For whatever it's worth, and frankly it's not really worth - )
posted by IndigoJones at 6:14 AM on August 10, 2011
Germany had been bankrolling these Euro bailouts.
No one has yet bankrolled anything. A lot of loans has been advanced by most EU states. Loans that are expected to be paid back with interest. That is more like an investment than a gift. The loans come with high risk and that can be construed as a 'saviour' like behaviour, but only in a certain light.
posted by Catfry at 6:18 AM on August 10, 2011 [3 favorites]
No one has yet bankrolled anything. A lot of loans has been advanced by most EU states. Loans that are expected to be paid back with interest. That is more like an investment than a gift. The loans come with high risk and that can be construed as a 'saviour' like behaviour, but only in a certain light.
posted by Catfry at 6:18 AM on August 10, 2011 [3 favorites]
Ok, maybe my definition of bankrolling is not correct, but the rest of my comment still makes sense.
posted by Catfry at 6:20 AM on August 10, 2011
posted by Catfry at 6:20 AM on August 10, 2011
Apparently, the Germans bought bad bonds on Wall Street because Americans are slick and Germans are suckers... or shitters or something. God that was stupid.
I'd still like to know what was driving all of the bad eurozone investments. It seems to me that, on the surface, the problem is exactly the same (in the US and the EU): the unwillingess to put all the bad debts on the books and take the consequences.
But still, I'd like to know what was driving the bad investments?
posted by ennui.bz at 6:21 AM on August 10, 2011
I'd still like to know what was driving all of the bad eurozone investments. It seems to me that, on the surface, the problem is exactly the same (in the US and the EU): the unwillingess to put all the bad debts on the books and take the consequences.
But still, I'd like to know what was driving the bad investments?
posted by ennui.bz at 6:21 AM on August 10, 2011
What I would like to know, is with a radically different regulatory climate, finanical underpinning, housing policies, than the US, why did so many euros go into inflated real estate in the eurozone?
This is a flawed assumption. The EU's regulations and policies are not radically different.
The notion that Germany (and not just Germany) saw the Euro as a building block for continental unity rather than a mere currency is not new. Though I suppose it is if you've never heard it before.
Yeah - even the most cursory review of post WWII european history would tell you this was one of the goals of any of the institutions that evolved into the EU.
posted by JPD at 6:23 AM on August 10, 2011 [1 favorite]
This is a flawed assumption. The EU's regulations and policies are not radically different.
The notion that Germany (and not just Germany) saw the Euro as a building block for continental unity rather than a mere currency is not new. Though I suppose it is if you've never heard it before.
Yeah - even the most cursory review of post WWII european history would tell you this was one of the goals of any of the institutions that evolved into the EU.
posted by JPD at 6:23 AM on August 10, 2011 [1 favorite]
Yeah, that silly trope going on an on about the German's fascination with shit made the whole piece almost unreadable.
For a while I wondered whether the author is British - as British journalists are famous for their inability to do decent pieces on anything to do with Germany, it's all panzer this and blitzkrieg that, especially when reporting on soccer. It turns out that Lewis grew up in New Orleans but got his MSc in economics from the London School of Economics and worked extensively for the BBC, so I guess I wasn't that far off.
posted by sour cream at 6:23 AM on August 10, 2011
For a while I wondered whether the author is British - as British journalists are famous for their inability to do decent pieces on anything to do with Germany, it's all panzer this and blitzkrieg that, especially when reporting on soccer. It turns out that Lewis grew up in New Orleans but got his MSc in economics from the London School of Economics and worked extensively for the BBC, so I guess I wasn't that far off.
posted by sour cream at 6:23 AM on August 10, 2011
the Germans bought bad bonds on Wall Street because Americans are slick and Germans are suckers... or shitters or something. God that was stupid.
uh no. There is actually pretty big precedent over the last 20-30 years of German banks - especially the Landesbanks being just about the biggest marks around. Add in things like the Metallgesellschaft options losses, and really that isn't a stupid comment. Its not just the mortgage crisis where they showed themselves to be foolish.
posted by JPD at 6:25 AM on August 10, 2011
uh no. There is actually pretty big precedent over the last 20-30 years of German banks - especially the Landesbanks being just about the biggest marks around. Add in things like the Metallgesellschaft options losses, and really that isn't a stupid comment. Its not just the mortgage crisis where they showed themselves to be foolish.
posted by JPD at 6:25 AM on August 10, 2011
But still, I'd like to know what was driving the bad investments?
Greed. If AAA government bonds are at 2%, and CDOs and MDSs are also at AAA but return 4%, what are you going to invest in? (Provided you trust the ratings agencies, of course.)
The "point" of the article seems to be that the Germans believed the ratings agencies a bit more than the rest of us.
posted by gjc at 6:25 AM on August 10, 2011 [3 favorites]
Greed. If AAA government bonds are at 2%, and CDOs and MDSs are also at AAA but return 4%, what are you going to invest in? (Provided you trust the ratings agencies, of course.)
The "point" of the article seems to be that the Germans believed the ratings agencies a bit more than the rest of us.
posted by gjc at 6:25 AM on August 10, 2011 [3 favorites]
The Germans also basically funded the Spanish Real Estate bubble by buying covered bonds - which are basically RMBS with added coverage from banks (which will probably end up worthless if the RMBS end up worthless, but whatever)
posted by JPD at 6:28 AM on August 10, 2011
posted by JPD at 6:28 AM on August 10, 2011
Greeks are still refusing to pay their taxes, in other words. But it is only one of many Greek sins. “They are also having a problem with the structural reform. Their labor market is changing—but not as fast as it needs to,” he continues. “Due to the developments in the last 10 years, a similar job in Germany pays 55,000 euros. In Greece it is 70,000.” To get around pay restraints in the calendar year the Greek government simply paid employees a 13th and even 14th monthly salary—months that didn’t exist. “There needs to be a change of the relationship between people and the government,” he continues. “It is not a task that can be done in three months. You need time.” He couldn’t put it more bluntly: if the Greeks and the Germans are to coexist in a currency union, the Greeks need to change who they are. (emphasis added)
Stereotypes aside, it is fair to say that Greeks and Germans are culturally rather different. It is unreasonable to expect Greeks to become German and this has always been the fundamental flaw in European economic union. Unlike "The United States", the banner of "Europe Union" is still not so grand as to entice Germans into paying for a European West Virginia.
Americans have less problem with enormous transfers of wealth between states, but if the Euro is going to work, then Europeans have to get used to it too.
posted by three blind mice at 6:34 AM on August 10, 2011 [3 favorites]
Stereotypes aside, it is fair to say that Greeks and Germans are culturally rather different. It is unreasonable to expect Greeks to become German and this has always been the fundamental flaw in European economic union. Unlike "The United States", the banner of "Europe Union" is still not so grand as to entice Germans into paying for a European West Virginia.
Americans have less problem with enormous transfers of wealth between states, but if the Euro is going to work, then Europeans have to get used to it too.
posted by three blind mice at 6:34 AM on August 10, 2011 [3 favorites]
German pensioners were specifically targeted as customers. All that money sitting there doing nothing - can't have that! Bad bonds were sold to them as completely secure by bank employees who had no idea what they were selling, except that they received commission for it and were under pressure from superiors who also didn't know what they were selling .
posted by Omnomnom at 6:35 AM on August 10, 2011 [3 favorites]
posted by Omnomnom at 6:35 AM on August 10, 2011 [3 favorites]
Greed. If AAA government bonds are at 2%, and CDOs and MDSs are also at AAA but return 4%, what are you going to invest in? (Provided you trust the ratings agencies, of course.)
The "point" of the article seems to be that the Germans believed the ratings agencies a bit more than the rest of us.
But, if the the bankers are only making $100K... it's not personal greed? Who was greedy and what was driving it?
The Germans also basically funded the Spanish Real Estate bubble by buying covered bonds - which are basically RMBS with added coverage from banks (which will probably end up worthless if the RMBS end up worthless, but whatever)
Yes, so it had little to do with Wall Street salesmanship. Is it just that the scrupulous, methodical Germans didn't have the institutional culture to deal with being flush (with cash)? Or, was it not being able to make the numbers work out for tech/manufacturing investments?
I guess, my opinion is that what was driving the desire for easy "bond" money was a lack of viable investments elsewhere.
posted by ennui.bz at 6:41 AM on August 10, 2011
The "point" of the article seems to be that the Germans believed the ratings agencies a bit more than the rest of us.
But, if the the bankers are only making $100K... it's not personal greed? Who was greedy and what was driving it?
The Germans also basically funded the Spanish Real Estate bubble by buying covered bonds - which are basically RMBS with added coverage from banks (which will probably end up worthless if the RMBS end up worthless, but whatever)
Yes, so it had little to do with Wall Street salesmanship. Is it just that the scrupulous, methodical Germans didn't have the institutional culture to deal with being flush (with cash)? Or, was it not being able to make the numbers work out for tech/manufacturing investments?
I guess, my opinion is that what was driving the desire for easy "bond" money was a lack of viable investments elsewhere.
posted by ennui.bz at 6:41 AM on August 10, 2011
I guess, my opinion is that what was driving the desire for easy "bond" money was a lack of viable investments elsewhere.
without getting into a discussion of the cultural reasons for why, as I'm not qualified in the least to participate... Of the big developed countries Germans historically have the lowest rate of equity ownership across all wealth cohorts. I'd argue that's a sign they are the most risk averse. Why that is would get into things I can't speak to, but I can tell you that the financial crisis was not about risky assets being worthless, but about supposedly riskless assets being more risky than advertised - so a cohort that hates risk is much more likely to be a proportionately larger loser in that situation. To take the 2% vs 4% example, someone less risk averse isn't going to be as interested in making 4%, when they can take equity risk and make 8% (or whatever, not arguing about return numbers), so they would not have been as interested in chasing "Free" return.
Professional investors are another story, as they managed to add risk to the 2% vs 4% angle by using leverage.
posted by JPD at 6:48 AM on August 10, 2011 [1 favorite]
without getting into a discussion of the cultural reasons for why, as I'm not qualified in the least to participate... Of the big developed countries Germans historically have the lowest rate of equity ownership across all wealth cohorts. I'd argue that's a sign they are the most risk averse. Why that is would get into things I can't speak to, but I can tell you that the financial crisis was not about risky assets being worthless, but about supposedly riskless assets being more risky than advertised - so a cohort that hates risk is much more likely to be a proportionately larger loser in that situation. To take the 2% vs 4% example, someone less risk averse isn't going to be as interested in making 4%, when they can take equity risk and make 8% (or whatever, not arguing about return numbers), so they would not have been as interested in chasing "Free" return.
Professional investors are another story, as they managed to add risk to the 2% vs 4% angle by using leverage.
posted by JPD at 6:48 AM on August 10, 2011 [1 favorite]
A few pages in and so far its averaging 2 groans a paragraph.
"Wurst case scenario"
"To no one but a German is Hamburg an obvious place to spend a vacation."
Really slapping my knees here...
posted by tempythethird at 6:50 AM on August 10, 2011 [1 favorite]
"Wurst case scenario"
"To no one but a German is Hamburg an obvious place to spend a vacation."
Really slapping my knees here...
posted by tempythethird at 6:50 AM on August 10, 2011 [1 favorite]
I loved the Big Short, but Michael Lewis' previous two articles felt lazy and poorly researched. Is this one any different?
posted by pmv at 6:51 AM on August 10, 2011
posted by pmv at 6:51 AM on August 10, 2011
Americans have less problem with enormous transfers of wealth between states, but if the Euro is going to work, then Europeans have to get used to it too.
Actually, that sort of imbalance exists within Germany and some states have just about always taken in money and some have contributed more money. (I think Bayern switched from being subsidised to doing the subsidising relatively recently, but I can't figure out what to google for data to double check.) Reunification threw the traditional (im)balance out of whack a bit as money was pumped into the new states, but it remains the case that the traditionally subsidised states are still the subsidised states.
When the Euro came in, everyone (the man on the street) knew that their country's economy was being tied to the economies of everyone else, be those economies stronger or weaker. But if you're committed to the great European project, or whatever, you do it anyway. (And if you're not so committed, you kick in your heels and avoid signing up. Sweden has managed to stall the timeline of their conversion to the Euro by failing to join the currency exchange mechanism.)
posted by hoyland at 6:52 AM on August 10, 2011
Actually, that sort of imbalance exists within Germany and some states have just about always taken in money and some have contributed more money. (I think Bayern switched from being subsidised to doing the subsidising relatively recently, but I can't figure out what to google for data to double check.) Reunification threw the traditional (im)balance out of whack a bit as money was pumped into the new states, but it remains the case that the traditionally subsidised states are still the subsidised states.
When the Euro came in, everyone (the man on the street) knew that their country's economy was being tied to the economies of everyone else, be those economies stronger or weaker. But if you're committed to the great European project, or whatever, you do it anyway. (And if you're not so committed, you kick in your heels and avoid signing up. Sweden has managed to stall the timeline of their conversion to the Euro by failing to join the currency exchange mechanism.)
posted by hoyland at 6:52 AM on August 10, 2011
But, if the the bankers are only making $100K... it's not personal greed? Who was greedy and what was driving it?
Their job is to make profitable investments for their employer. If they see an opportunity to make better investments for seemingly no more risk, they will. The greed is in ignoring the obvious fact that something that pays more interest is by definition more risky. Otherwise, why would they pay more?
There have been plenty of studies that show that gigantic salaries don't really change behavior. Aggressive sales people are going to be aggressive whether they are selling appetizers, pit groups or investments. High salaries are offered to try to entice the most talented people to that particular employer. If the Germans have a culture where you can't make more than $100k no matter where you go, nobody is going to pay a heck of a lot more.
Greed takes a lot of forms, and one's personal paycheck is just one of them.
posted by gjc at 6:57 AM on August 10, 2011
Their job is to make profitable investments for their employer. If they see an opportunity to make better investments for seemingly no more risk, they will. The greed is in ignoring the obvious fact that something that pays more interest is by definition more risky. Otherwise, why would they pay more?
There have been plenty of studies that show that gigantic salaries don't really change behavior. Aggressive sales people are going to be aggressive whether they are selling appetizers, pit groups or investments. High salaries are offered to try to entice the most talented people to that particular employer. If the Germans have a culture where you can't make more than $100k no matter where you go, nobody is going to pay a heck of a lot more.
Greed takes a lot of forms, and one's personal paycheck is just one of them.
posted by gjc at 6:57 AM on August 10, 2011
When the Euro came in, everyone (the man on the street) knew that their country's economy was being tied to the economies of everyone else, be those economies stronger or weaker. But if you're committed to the great European project, or whatever, you do it anyway. (And if you're not so committed, you kick in your heels and avoid signing up. Sweden has managed to stall the timeline of their conversion to the Euro by failing to join the currency exchange mechanism.)
I think another impetus was figuring out (or deciding) that currency arbitrage was more of a drag on the economy of Europe than not. It is easier to trade between Germany and France if they all know exactly what the price of the part is, without having to do complicated math. If the Mark rose against the Franc in the middle of a deal, the French side has to pay more through no fault of their own.
I think they learned a lesson from the US, which is that having a unified currency makes things better. (Both in the formation of the nation, and later with the USD becoming the reserve currency.)
I mean, if the PIG countries were still on their own sovereign currencies, imagine how horrible the situation would be? Wars wouldn't be out of the question, I think.
A strong currency requires a lot of wealth backing it up. Large numbers of people make that easier to do.
posted by gjc at 7:08 AM on August 10, 2011
I think another impetus was figuring out (or deciding) that currency arbitrage was more of a drag on the economy of Europe than not. It is easier to trade between Germany and France if they all know exactly what the price of the part is, without having to do complicated math. If the Mark rose against the Franc in the middle of a deal, the French side has to pay more through no fault of their own.
I think they learned a lesson from the US, which is that having a unified currency makes things better. (Both in the formation of the nation, and later with the USD becoming the reserve currency.)
I mean, if the PIG countries were still on their own sovereign currencies, imagine how horrible the situation would be? Wars wouldn't be out of the question, I think.
A strong currency requires a lot of wealth backing it up. Large numbers of people make that easier to do.
posted by gjc at 7:08 AM on August 10, 2011
...but about supposedly riskless assets being more risky than advertised - so a cohort that hates risk is much more likely to be a proportionately larger loser in that situation.
So, the scrupulous, honest, methodical Germans couldn't see that "safe"-paper was ultimately backed by risky bets on real estate? Given the scale of things I find that really hard to believe...
posted by ennui.bz at 7:08 AM on August 10, 2011
So, the scrupulous, honest, methodical Germans couldn't see that "safe"-paper was ultimately backed by risky bets on real estate? Given the scale of things I find that really hard to believe...
posted by ennui.bz at 7:08 AM on August 10, 2011
Germans need the EU just as badly as the other countries. It is very true that if it all broke up, the Germans would still be living much better than say the Greek or Portuguese. However, without access to the european markets, and without the influx of immigrants, the german economy would suffer greatly, and the germans naturally don't want that.
posted by CautionToTheWind at 7:09 AM on August 10, 2011
posted by CautionToTheWind at 7:09 AM on August 10, 2011
(and I also believe that if I were a German banker, that's exactly the story I'd try to sell.)
posted by ennui.bz at 7:10 AM on August 10, 2011 [1 favorite]
posted by ennui.bz at 7:10 AM on August 10, 2011 [1 favorite]
I mean, if the PIG countries were still on their own sovereign currencies, imagine how horrible the situation would be? Wars wouldn't be out of the question, I think.
If they weren't in the euro, though, Greece could restore competitiveness by devaluing. Ireland could have avoided such a massive bubble by raising interest rates ten years ago. etc.
posted by kersplunk at 7:18 AM on August 10, 2011 [1 favorite]
If they weren't in the euro, though, Greece could restore competitiveness by devaluing. Ireland could have avoided such a massive bubble by raising interest rates ten years ago. etc.
posted by kersplunk at 7:18 AM on August 10, 2011 [1 favorite]
... to the point of how the Landesbanks got into this pickle, that was the only part of the article that was not lame: in short, the banks set up a Corp to do the trading. They set up criteria within which these Bo ds could be bought. They only made sure the bonds they were buying fell within those criteria, not that they were also, you know, objectively, beyond what they were being told they were, sound. He didn't make the connection but he seemed to be saying the Germans had their heads up their asses - get it?
posted by From Bklyn at 7:19 AM on August 10, 2011
posted by From Bklyn at 7:19 AM on August 10, 2011
As for the article, same as the others in the series, it's good when it sticks to the numbers and events and bad when it tries to explain everything as a function of collective national trauma and character.
posted by kersplunk at 7:19 AM on August 10, 2011
posted by kersplunk at 7:19 AM on August 10, 2011
something that pays more interest is by definition more risky. Otherwise, why would they pay more?
This is only an assumption which is sensible to make about a fully transparent and developed market. One of the very purposes of actors on financial markets is to seek out high paying but low risk investments. There is not some law of nature that states that return and risk must be inversely linked, that is merely the outcome after buyers and sellers have been at it and done their jobs of pricing risk. People and societies do not naturally arrange things to their best advantage, it takes an aware actor to recognise profit potential and in exploiting them, changing the price/risk relation towards a sensible link of higher risk, higher return.
posted by Catfry at 7:22 AM on August 10, 2011
This is only an assumption which is sensible to make about a fully transparent and developed market. One of the very purposes of actors on financial markets is to seek out high paying but low risk investments. There is not some law of nature that states that return and risk must be inversely linked, that is merely the outcome after buyers and sellers have been at it and done their jobs of pricing risk. People and societies do not naturally arrange things to their best advantage, it takes an aware actor to recognise profit potential and in exploiting them, changing the price/risk relation towards a sensible link of higher risk, higher return.
posted by Catfry at 7:22 AM on August 10, 2011
I thought that the article was not well written. At it's core, the point seems to be that the German identity includes a propensity to be gullible (meanwhile to be American means to accept hucksterism). I don't know about any of this.
There seems to be an even deeper dynamic underlying this article (and the crisis generally). When it comes to money, most people are risk-averse. Many of us that can pile up money:
The "rules" that this article talks about (regarding IKB) seem to be about suspending judgement, much like savers suspend judgement and expect a return. This doesn't seem to be culturally-based. Instead it seems to be a common human tendency.
posted by Hypnotic Chick at 7:22 AM on August 10, 2011 [1 favorite]
There seems to be an even deeper dynamic underlying this article (and the crisis generally). When it comes to money, most people are risk-averse. Many of us that can pile up money:
A. don't want to think too much about "investing", butIt seems that if you are a high-powered saver, you can tell yourself that you are morally superior to those dastardly "debtors" who are wrecking the economy. But as Steve Waldman writes: "Capitalism wasn’t supposed to work like this. Savers were supposed to be investors who monitored how the wealth they put aside was used to generate future wealth. They were supposed to take responsibility for their choices, however the cookie crumbled. That risk ensured that investment decisions were made with care, and that the costs of poorly chosen investments were borne first by the careless."
B. still want to our money to "work for us".
The "rules" that this article talks about (regarding IKB) seem to be about suspending judgement, much like savers suspend judgement and expect a return. This doesn't seem to be culturally-based. Instead it seems to be a common human tendency.
posted by Hypnotic Chick at 7:22 AM on August 10, 2011 [1 favorite]
So, the scrupulous, honest, methodical Germans couldn't see that "safe"-paper was ultimately backed by risky bets on real estate? Given the scale of things I find that really hard to believe...
Really? Some of the supposedly "smartest" people in the world got caught up in making that mistake. I think you are taking the stereotype of Germans a bit too far.
Remember - those bets only looked risky in hindsight. If you believed heretorfore correct statements like "Real Estate has never gone down on a national basis in the US" and "People will go hungry before they default on their homes" then that higher yield looked awesome. Actually it was almost the perfect setup for someone overly analytical and data driven. To figure it out you had to realize that the changes in mortgage finanace meant that the old rules didn't apply. The only overt hint that this was the case was the yield premium of RMBS over other similarly rated assets. But ironically it was the yield premium that made them attractive to people.
(The clear parallel btw would be the Junk Bond boom of the 80's where Drexel/Milken made their arguments predicated on the historic returns of Fallen Angels)
posted by JPD at 7:26 AM on August 10, 2011
Really? Some of the supposedly "smartest" people in the world got caught up in making that mistake. I think you are taking the stereotype of Germans a bit too far.
Remember - those bets only looked risky in hindsight. If you believed heretorfore correct statements like "Real Estate has never gone down on a national basis in the US" and "People will go hungry before they default on their homes" then that higher yield looked awesome. Actually it was almost the perfect setup for someone overly analytical and data driven. To figure it out you had to realize that the changes in mortgage finanace meant that the old rules didn't apply. The only overt hint that this was the case was the yield premium of RMBS over other similarly rated assets. But ironically it was the yield premium that made them attractive to people.
(The clear parallel btw would be the Junk Bond boom of the 80's where Drexel/Milken made their arguments predicated on the historic returns of Fallen Angels)
posted by JPD at 7:26 AM on August 10, 2011
“Due to the developments in the last 10 years, a similar job in Germany pays 55,000 euros. In Greece it is 70,000.”
Beware of any pay comparison between countries that does not mention what other benefits and perks are in play and what taxes and other expenses are involved. Do both have the same health care at the same cost? Are both quoted before or after income taxes?
We won't even go into "similar job" issues.
posted by eriko at 7:32 AM on August 10, 2011
Beware of any pay comparison between countries that does not mention what other benefits and perks are in play and what taxes and other expenses are involved. Do both have the same health care at the same cost? Are both quoted before or after income taxes?
We won't even go into "similar job" issues.
posted by eriko at 7:32 AM on August 10, 2011
This doesn't seem to be culturally-based. Instead it seems to be a common human tendency.
If that were true everyone would have bought up subprime derivatives. The fact is that only Germany fell for the very worst of the scam "AAA" material. Not America, not France, not Britain. When nobody else would take it, the Germans did. If it's not cultural then it's a huge coincidence.
posted by shii at 7:36 AM on August 10, 2011
If that were true everyone would have bought up subprime derivatives. The fact is that only Germany fell for the very worst of the scam "AAA" material. Not America, not France, not Britain. When nobody else would take it, the Germans did. If it's not cultural then it's a huge coincidence.
posted by shii at 7:36 AM on August 10, 2011
Stereotypes aside, it is fair to say that Greeks and Germans are culturally rather different. It is unreasonable to expect Greeks to become German and this has always been the fundamental flaw in European economic union.
Germans have an endless fascination with ancient Greek history. And if what this articles says about German culture is true (aside from the shit tangents), then Germans are a lot more like the ancient Greek philosophers than modern Greeks.
But this is what you need to understand about modern Greeks: the way they are now is not the way they were 60 or 70 years ago or 600-700 years before that. Proof? Go talk to old Greek immigrants in the US and Australia. These people shuffle around like pensioners barely above the poverty line, they commiserate about how hard life is. You look at them and they don't have two pennies to rub together.
Then you get a look at their books. They sit on a mountain of cash, they own several business in networks with friends or relatives, have sent their numerous kids to private universities, med schools, law schools etc. Then you ask them about it and they shrug, as if to say "Hey, I don't know how this happened any more than you do."
What has been a part of Greek character for centuries is an antipathy towards hubris. Maintain a low profile, don't stand out. Don't attract attention to yourself. Arrogance and pride invite attention, and attention invites trouble.
They way they are now is very much a product of socialism and decades of cold war bribery from both Americans and Russians. This very recent history broke this longstanding part of the culture: be humble.
In a way, if the only problem is collecting back taxes, then Greece doesn't really have a problem. If that is the assumption, then it also presumes the money is still around to collect. But that isn't the problem. The problem is the Greeks didn't pay their taxes, but then also spent the money. On the same predictable list of nonsense that ruined everyone else. Cars, boats (Greek love their boats), houses. They knew the money wasn't theirs and they spent it anyway on precisely the kinds of things that would have embarrassed their grandparents.
What has happened in Greece is not a failure of Greek character, it's a failure of socialism. Greeks forgot "hubris", and now they are being forced to remember another Greek word-- "austerity."
posted by Pastabagel at 7:39 AM on August 10, 2011 [1 favorite]
Germans have an endless fascination with ancient Greek history. And if what this articles says about German culture is true (aside from the shit tangents), then Germans are a lot more like the ancient Greek philosophers than modern Greeks.
But this is what you need to understand about modern Greeks: the way they are now is not the way they were 60 or 70 years ago or 600-700 years before that. Proof? Go talk to old Greek immigrants in the US and Australia. These people shuffle around like pensioners barely above the poverty line, they commiserate about how hard life is. You look at them and they don't have two pennies to rub together.
Then you get a look at their books. They sit on a mountain of cash, they own several business in networks with friends or relatives, have sent their numerous kids to private universities, med schools, law schools etc. Then you ask them about it and they shrug, as if to say "Hey, I don't know how this happened any more than you do."
What has been a part of Greek character for centuries is an antipathy towards hubris. Maintain a low profile, don't stand out. Don't attract attention to yourself. Arrogance and pride invite attention, and attention invites trouble.
They way they are now is very much a product of socialism and decades of cold war bribery from both Americans and Russians. This very recent history broke this longstanding part of the culture: be humble.
In a way, if the only problem is collecting back taxes, then Greece doesn't really have a problem. If that is the assumption, then it also presumes the money is still around to collect. But that isn't the problem. The problem is the Greeks didn't pay their taxes, but then also spent the money. On the same predictable list of nonsense that ruined everyone else. Cars, boats (Greek love their boats), houses. They knew the money wasn't theirs and they spent it anyway on precisely the kinds of things that would have embarrassed their grandparents.
What has happened in Greece is not a failure of Greek character, it's a failure of socialism. Greeks forgot "hubris", and now they are being forced to remember another Greek word-- "austerity."
posted by Pastabagel at 7:39 AM on August 10, 2011 [1 favorite]
I think you are taking the stereotype of Germans a bit too far.
The point I was making is that the 'stereotype" here doesn't really fit the story Lewis is trying to sell, unless he's saying that the Germans secretly knew it was all shit in some sort of weird ethno-stereotyped code..
Was the Spanish real-estate bubble really about novel securitization?
posted by ennui.bz at 7:41 AM on August 10, 2011
The point I was making is that the 'stereotype" here doesn't really fit the story Lewis is trying to sell, unless he's saying that the Germans secretly knew it was all shit in some sort of weird ethno-stereotyped code..
Was the Spanish real-estate bubble really about novel securitization?
posted by ennui.bz at 7:41 AM on August 10, 2011
I wanted to say the financial information in this article was intriguing, but considering the rest of it was "No really, they're ALL like this, guys! It's cool, I have a German friend!" I'm not sure why I should finish all SEVENTEEN pages of it.
posted by Uther Bentrazor at 7:45 AM on August 10, 2011
posted by Uther Bentrazor at 7:45 AM on August 10, 2011
Was the Spanish real-estate bubble really about novel securitization?
Covered bonds weren't novel, but yes that's how it was mostly funded, and most of the buyers of those covered bonds were Northern Europeans chasing yield.
The Spanish bubble was also a lot about corruption at the municipality level. Spain basically financed its municipal governments off of fees from development - so it was pretty much "build, baby, build" so long as you could find someone to finance the operation.
Also the savings banks in Spain played a big role - not on the mortage side of things, so much as on the construction loan side of things. In that respect its pretty similar to the US where the non-Money Center banks had most of their exposure to construction lending not mortgages.
posted by JPD at 7:47 AM on August 10, 2011
Covered bonds weren't novel, but yes that's how it was mostly funded, and most of the buyers of those covered bonds were Northern Europeans chasing yield.
The Spanish bubble was also a lot about corruption at the municipality level. Spain basically financed its municipal governments off of fees from development - so it was pretty much "build, baby, build" so long as you could find someone to finance the operation.
Also the savings banks in Spain played a big role - not on the mortage side of things, so much as on the construction loan side of things. In that respect its pretty similar to the US where the non-Money Center banks had most of their exposure to construction lending not mortgages.
posted by JPD at 7:47 AM on August 10, 2011
The author seems to have two points: Germans are (a) gullible and (b) obsessed with faeces.
I have no idea whether one or the other is true, but I don't see any link between them, so smushing them into one article suggests that the author has little of value to say about either.
posted by hankmajor at 7:47 AM on August 10, 2011
I have no idea whether one or the other is true, but I don't see any link between them, so smushing them into one article suggests that the author has little of value to say about either.
posted by hankmajor at 7:47 AM on August 10, 2011
If that were true everyone would have bought up subprime derivatives. The fact is that only Germany fell for the very worst of the scam "AAA" material.
This isn't true. American state pension programs also bought CDOs. FWIW, there were CDO products that were lower-grade than AAA...many of which were bought by US banks themselves (effectively duping themselves). AIG sold insurance policies on the CDOs. The point is that loads of investors across many nations (including the US) were duped by what they thought were safe products.
posted by Hypnotic Chick at 7:55 AM on August 10, 2011 [1 favorite]
This isn't true. American state pension programs also bought CDOs. FWIW, there were CDO products that were lower-grade than AAA...many of which were bought by US banks themselves (effectively duping themselves). AIG sold insurance policies on the CDOs. The point is that loads of investors across many nations (including the US) were duped by what they thought were safe products.
posted by Hypnotic Chick at 7:55 AM on August 10, 2011 [1 favorite]
No but it probably is fair to say that the Germans bought a disproportionate amount of the worst sort of structures. Also it was the Germans who were on the losing end of things like the Paulson and Magnetar CDO's designed to fail. It isn't accidental that they were Goldman and JP Morgans first phone calls to get that stuff sold.
(By definition any CDO has tranches that aren't AAA - thats how it works.)
posted by JPD at 8:04 AM on August 10, 2011
(By definition any CDO has tranches that aren't AAA - thats how it works.)
posted by JPD at 8:04 AM on August 10, 2011
Hard to understand why Vanity Fair would pay for a story that leads off with how much Germans love shit. Can't see the New Yorker printing a crappy piece like this.
posted by KokuRyu at 8:04 AM on August 10, 2011
posted by KokuRyu at 8:04 AM on August 10, 2011
It's been a long time since I read it, but I think I remember gullible Germans in Liar's Poker as well (where Lewis sells them dodgy bonds). Maybe that's where he picked it up from.
posted by kersplunk at 8:05 AM on August 10, 2011 [1 favorite]
posted by kersplunk at 8:05 AM on August 10, 2011 [1 favorite]
kersplunk, I was just thinking that. You are right. In Liar's Poker Michael Lewis's best bond customer is a German Banker who Lewis sticks with all kinds of crappy bonds.
posted by Fuzzy Monster at 8:12 AM on August 10, 2011
posted by Fuzzy Monster at 8:12 AM on August 10, 2011
By definition any CDO has tranches that aren't AAA - thats how it works.
I know. My point is that the shii used the phrase the "very worst of the AAA material", but there seemed to be even crappier products that the banks bought. I mean, I get it, buying up that other crap was part of the con, but the point is that investing requires hard work and the desire (need?) to relegate that work (via investing rules and/or ratings) isn't culturally-based.
posted by Hypnotic Chick at 8:14 AM on August 10, 2011
I know. My point is that the shii used the phrase the "very worst of the AAA material", but there seemed to be even crappier products that the banks bought. I mean, I get it, buying up that other crap was part of the con, but the point is that investing requires hard work and the desire (need?) to relegate that work (via investing rules and/or ratings) isn't culturally-based.
posted by Hypnotic Chick at 8:14 AM on August 10, 2011
the point is that investing requires hard work and the desire (need?) to relegate that work (via investing rules and/or ratings) isn't culturally-based.
Well this brings up an interesting point if you compare how the the actively managed fund space differs between the US and Europe. European based firms are almost exclusively GARP/Quality investors while the US seems to foster an array of options from deep-value to pure momentum. I've never seen it adequately explained to me.
I mean I've joked for years that the best stock tip is to ask every Paris based broker what his clients least favorite CAC 40 stock is and then buy that stock.
posted by JPD at 8:18 AM on August 10, 2011
Well this brings up an interesting point if you compare how the the actively managed fund space differs between the US and Europe. European based firms are almost exclusively GARP/Quality investors while the US seems to foster an array of options from deep-value to pure momentum. I've never seen it adequately explained to me.
I mean I've joked for years that the best stock tip is to ask every Paris based broker what his clients least favorite CAC 40 stock is and then buy that stock.
posted by JPD at 8:18 AM on August 10, 2011
> 17 pages
I'm pretty sure the article is excerpt/adaptation from his book about to come out. It's not 17 pages long, but 17 pages short.
posted by stbalbach at 8:44 AM on August 10, 2011
I'm pretty sure the article is excerpt/adaptation from his book about to come out. It's not 17 pages long, but 17 pages short.
posted by stbalbach at 8:44 AM on August 10, 2011
JPD:
There is actually pretty big precedent over the last 20-30 years of German banks - especially the Landesbanks being just about the biggest marks around.
Mad skillz.
posted by uncanny hengeman at 8:51 AM on August 10, 2011 [2 favorites]
There is actually pretty big precedent over the last 20-30 years of German banks - especially the Landesbanks being just about the biggest marks around.
Mad skillz.
posted by uncanny hengeman at 8:51 AM on August 10, 2011 [2 favorites]
...German banks...being just about the biggest marks around.
Yeah, I saw that, too. Is it still funny since they switched from the Deutschmark to the Euro?
posted by wenestvedt at 9:08 AM on August 10, 2011
Yeah, I saw that, too. Is it still funny since they switched from the Deutschmark to the Euro?
posted by wenestvedt at 9:08 AM on August 10, 2011
Yeah, I saw that, too. Is it still funny since they switched from the Deutschmark to the Euro.
[threatingly] We Germans aren't all smiles und sunshine. Stop, sir. Please stop the "pretending you are scared" game, please. Stop it! Stop it! Stop it. Stop it, wenestvedt. Please stop pretending you are scared of us, please, now. wenestvedt, STOP IT!
posted by uncanny hengeman at 9:19 AM on August 10, 2011
[threatingly] We Germans aren't all smiles und sunshine. Stop, sir. Please stop the "pretending you are scared" game, please. Stop it! Stop it! Stop it. Stop it, wenestvedt. Please stop pretending you are scared of us, please, now. wenestvedt, STOP IT!
posted by uncanny hengeman at 9:19 AM on August 10, 2011
17 pages short.
Respectfully, no, it's 17 pages, very long.
posted by From Bklyn at 10:04 AM on August 10, 2011
Respectfully, no, it's 17 pages, very long.
posted by From Bklyn at 10:04 AM on August 10, 2011
1. seventeen pages? burn in hell.
2. it's ok to mention the war. both even. Wirklich!
3. germans loved the Deutsche Mark and were quite weary of abandoning it for the Euro. The DM was stable.
4. we're not making gifts. you can bet your firstborn we're gonna make money in the end. I know those fucks.
posted by krautland at 10:07 AM on August 10, 2011
2. it's ok to mention the war. both even. Wirklich!
3. germans loved the Deutsche Mark and were quite weary of abandoning it for the Euro. The DM was stable.
4. we're not making gifts. you can bet your firstborn we're gonna make money in the end. I know those fucks.
posted by krautland at 10:07 AM on August 10, 2011
Really? Some of the supposedly "smartest" people in the world got caught up in making that mistake. I think you are taking the stereotype of Germans a bit too far.
well, I don't see a recession here. how's it going where you are?
posted by krautland at 10:08 AM on August 10, 2011
well, I don't see a recession here. how's it going where you are?
posted by krautland at 10:08 AM on August 10, 2011
well, I don't see a recession here. how's it going where you are?
Hmm - don't think that was part of the argument. Say who exactly are you selling all that stuff to? When you live in a straw house its not so smart to just stare at your neighbors burning yard.
posted by JPD at 10:17 AM on August 10, 2011
Hmm - don't think that was part of the argument. Say who exactly are you selling all that stuff to? When you live in a straw house its not so smart to just stare at your neighbors burning yard.
posted by JPD at 10:17 AM on August 10, 2011
krautland, are you defending as sensible the German banks' purchases of junk CDOs? What upside do you see?
posted by Coventry at 11:47 AM on August 10, 2011
posted by Coventry at 11:47 AM on August 10, 2011
The difference between the Germans and the Greeks is not that the Germans work harder and take less holidays - in fact they don't - it's that the Germans have a civil society with a high degree of cohesion and the Greeks don't. One aspect of this lack of cohesion is an unwillingness to sacrifice something for the greater good, such as paying taxes. Why pay taxes when only suckers pay taxes?
A Greek friend of mine explained it with hundreds of years of Ottoman rule that have left their mark, but I'm not sure whether this is not just another instance of putting the blame elsewhere.
On the other hand, the high level of cohesion in German society leads to a generally high level of trust - which might also explain the gullibility when it comes to falling for CDOs and similar scams.
posted by sour cream at 3:23 PM on August 10, 2011 [1 favorite]
A Greek friend of mine explained it with hundreds of years of Ottoman rule that have left their mark, but I'm not sure whether this is not just another instance of putting the blame elsewhere.
On the other hand, the high level of cohesion in German society leads to a generally high level of trust - which might also explain the gullibility when it comes to falling for CDOs and similar scams.
posted by sour cream at 3:23 PM on August 10, 2011 [1 favorite]
A recent study [pdf] shows that people in regions controlled by Austria-Hungary are still, a century after the dissolution of both empires, more trusting of bureaucracy than in regions controlled by the Ottoman State. So your Greek friend might be onto something, sour cream.
posted by Kattullus at 6:31 PM on August 10, 2011
posted by Kattullus at 6:31 PM on August 10, 2011
“Due to the developments in the last 10 years, a similar job in Germany pays 55,000 euros. In Greece it is 70,000.”
>Beware of any pay comparison between countries that does not mention what other benefits and perks are in play and what taxes and other expenses are involved. Do both have the same health care at the same cost? Are both quoted before or after income taxes?
This "similar job" is probably cherry-picked, as the average Greek income is lower than the average German income. This is corroborated by the constant outflow of graduates (cf. the articles about people in their 30s who cannot afford to move out of home due to low wages). Even though in Greece we have supposedly-free education and healthcare, they are paid dearly in practice to make up for shortcomings in their quality.
posted by ersatz at 7:19 PM on August 11, 2011
>Beware of any pay comparison between countries that does not mention what other benefits and perks are in play and what taxes and other expenses are involved. Do both have the same health care at the same cost? Are both quoted before or after income taxes?
This "similar job" is probably cherry-picked, as the average Greek income is lower than the average German income. This is corroborated by the constant outflow of graduates (cf. the articles about people in their 30s who cannot afford to move out of home due to low wages). Even though in Greece we have supposedly-free education and healthcare, they are paid dearly in practice to make up for shortcomings in their quality.
posted by ersatz at 7:19 PM on August 11, 2011
Say who exactly are you selling all that stuff to?
feel free to wish all the misfortune you have onto me. we'll see if it works out.
coventry> did I? you might want to reread what I wrote.
posted by krautland at 4:25 AM on August 24, 2011
feel free to wish all the misfortune you have onto me. we'll see if it works out.
coventry> did I? you might want to reread what I wrote.
posted by krautland at 4:25 AM on August 24, 2011
The Economist responds to this article. Excerpt:
posted by Kattullus at 7:12 AM on August 24, 2011
In small countries, Mr Lewis’s attention often flattered. His article on Ireland, published just after a general election was called, made headlines there. His keenness to spin a good yarn sometimes pushed him into the realm of cliché. His Iceland story, for example, found space for a digression on elves. Yet if some bristled, most agreed that his pieces combined readability with insight.The Economist is here finding out that Michael Lewis articles operate on the same principle as Wikipedia: "The more you know about a subject, the more errors you find in its Wikipedia article." The uncomfortable inference to that is that articles about subject you don't know much about are rife with errors.
Now Mr Lewis has turned to the more complex subject of Germany. The results are less persuasive. The opening paragraph seems to contain a howler about a non-existent “newly elected Spanish government”. Irrelevant, often gratuitous Nazi references are littered through the text. Oddest of all is the repeated suggestion that the willingness of the country’s banks to buy up the dirty debt of others can be explained by an ingrained German fascination with faeces. Hitler, the article claims at one point, enjoyed having women “poop” on him.
posted by Kattullus at 7:12 AM on August 24, 2011
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Not "Europe."
posted by uncanny hengeman at 5:22 AM on August 10, 2011