Banksters Lose BIG Case in Germany
The quick summary is that the German equivalent of our Supreme Court has ruled against Deutsche Bank in a crucial case related to the ongoing financial collapse. DB is the largest German bank, and is also a prime dealer for the U.S. Federal Reserve, a recipient of bailout funds from U.S. authorities, and just as nasty a predator as J.P. Morgan Chase or Goldman Sachs. Speigel Online reports:
Germany's highest civil court has ruled that Deutsche Bank should have warned its customers of the risks of an exotic investment product it sold in the run-up to the financial crisis. The landmark ruling has huge implications for the banking industry and could unleash a wave of similar cases, with compensation possibly running into the hundreds of millions.
But I want to place this news in its proper context: comparing the justice rendered in a country in which the rule of law thankfully still applies, because it has NOT yet completely succumbed to the theology of Shock Doctrine "neo-liberalism" economics. In other words, in Germany, there is still a semblance of industrial capitalism, instead of what you find in the United States and Britain: unregulated, predatory financial capitalism, that "makes money" by simply looting the wealth the rest of the economy has already produced in the past.
Or, as Jon Larson at Real Economics (who found the news item in the German media and has a nice selection of quotes from various German sources) puts it:
This ruling was only possible because Germany still has a large and important fraction of its economy tied to the principles of Industrial Capitalism. I am NOT going to hold my breath waiting for such a ruling in the English-speaking world where defrauding industry is considered standard operating procedure and the practitioners of Finance Capitalism own the banks, schools, government, and media.
If you are curious as to the distinction between industrial capitalism and financial capitalism, or want to know more about why it is sanity still finds a home in Germany, while it goes homeless in the U.S., I highly recommend you read Larson's 1992 book, Elegant Technology: economic prosperity from an environmental blueprint, which Larson has made available entirely online as a pdf file. In a few paragraphs in the book, Larson points out that the process of losing World War Two forced both Germany and Japan to cleanse themselves of most of their Leisure Class predators, and allowed the ascendancy of real industrialists over banksters and financial wheeler-dealers.
According to Spiegel Online:
The amount of money at stake is peanuts for a bank that made over €2.3 billion ($3.3 billion) in profit last year. But the repercussions of the €541,074, plus interest, that Deutsche Bank will now have to pay in compensation to Ille Paper Service could be large enough to keep financial executives awake at night. The bank's lawyer even went so far as to warn of a "second financial crisis."
On Tuesday, Germany's Federal Court of Justice, the country's highest court for civil cases, ruled that Deutsche Bank had to compensate Ille, a medium-sized German paper company, for losses it suffered on a complex investment product that the bank sold it in 2005. Ille had sued the bank, claiming it had not been adequately informed about the risks that the financial product entailed.
The presiding judge, Ulrich Wiechers, ruled that Deutsche Bank had abused its obligation to give its customers proper advice. The product, called a "spread ladder swap," was essentially a bet on how interest rates would develop in the future. The judge said that the bank did not explain the risk of the product properly, particularly given the fact that the risk to the customer was unlimited if they lost the "bet."
There was also a conflict of interest, the court ruled, as the bank was effectively betting against its own customer and giving them advice at the same time. Wiechers also said that the bank had deliberately structured the product to the customer's disadvantage, in order to make a profit from the deal.
Speigel Online went on to paraphrase Ille's lawyer, Jochen Weck, to note that there are about 700 other potential suits in Germany, with average damages of around €1 million per case. "Eight similar cases are already waiting to be heard by the Federal Court of Justice." (Just like U.S. banksters, Deutsche Bank and other large German financial institutions raked in billions in profits before the 2008 crash by selling complicated and risky financial derivatives to legions of city and municipal governments.)
Larson notes that Frankfurter Allgemeine Zeitung reacted to the ruling by
crude screeching about how unfair it is to characterize Germany's largest financial institution as a "semi-criminal gang of rascals." Why do you suppose this is so? I would speculate it is because Frankfurt is the financial center of Germany and most of their important readers belong to one (or more) of the gangs of rascals. To be brought down in court by a company that makes toilet paper is too much to bear for these arrogant rulers of finance.
Anyone who has followed the story of the financial collapse since 2008 knows that American banksters have done exactly the same thing, and a whole lot more of it, than what Deutsche Bank has been nailed for. So, what are the chances that we might see a similar legal result in the United States? As I noted at the beginning, it's important to understand the context we are dealing with, as highlighted by the differences between the extent of "Leisure Class" dominance of the U.S., and of Germany. Or, as Senator Dick Durbin so memorably put it two years ago, "Frankly, they (the banksters) own the place."