Michael Lewis in top form

Michael Lewis (author of Liar's Poker) wrote a marvelous article about German stupidity. His style is a bit out of the ordinary (to put it mildly) but apart from that, the article is just great.

http://www.vanityfair.com/business/features/2011/09/europe-201109



My favourite quotes:

“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!’ ” When Morgan Stanley designed extremely complicated credit-default swaps all but certain to fail so that their own proprietary traders could bet against them, the main buyers were German. When Goldman Sachs helped the New York hedge-fund manager John Paulson design a bond to bet against—a bond that Paulson hoped would fail—the buyer on the other side was a German bank called IKB. IKB, along with another famous fool at the Wall Street poker table called WestLB, is based in Düsseldorf—which is why, when you asked a smart Wall Street bond trader who was buying all this crap during the boom, he might well say, simply, “Stupid Germans in Düsseldorf.”

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.

“The name ‘IKB’ just kept coming up in London with bond salesmen,” says Dunbar. “It was like everybody’s secret cash cow.”

The American bond traders may have sunk their firms by turning a blind eye to the risks in the subprime-bond market, but they made a fortune for themselves in the bargain and have for the most part never been called to account. They were paid to put their firms in jeopardy, and so it is hard to know whether they did it intentionally or not. The German bond traders, on the other hand, had been paid roughly $100,000 a year, with, at most, another $50,000 bonus. In general, German bankers were paid peanuts to run the risk that sank their banks—which suggests they really didn’t know what they were doing.

As it collapsed, the German media wanted to know how many U.S. subprime bonds these German bankers had gobbled up. IKB’s C.E.O., Stefan Ortseifen, said publicly that IKB owned almost no subprime bonds at all—which is why he’s recently been convicted of misleading investors. “He was telling the truth,” says Röthig. “He didn’t think he owned any subprime. They weren’t able to give any correct numbers of the amount of subprime they had because they didn’t know.

Interestingly, I had a conversation with two London bankers several years ago, right after "the shit hit the fan". Their comments about German banks perfectly support Lewis' article.

What Michael Lewis misses however, is the particular problem of German arrogance. I don't think that it ever occurred to any of these people working at IKB, WestLB, ... that they could be conned.

For the Germans the euro isn’t just a currency. It’s a device for flushing the past—another Holocaust Memorial. The German public-opinion polls are now running against the Greeks, but deeper forces run in their favor.

Another reason to have a look at this article is that he seems to be an excellent observer. The fact that he hasn't been in Germany for a long time allows him to see what most Germans and many Europeans are too blind to realise.