I'm Right Again Dot ComA new commentary every Wednesday — Aug 31, 2016
Why a problem in a German bank could spell trouble for everyone
Deutsche Bank (DB) is not just a German Bank for Germans. With offices in 47 countries, it is a major player in the global economy, and has been almost since its inception in 1881. I pay little attention to world markets until it affects my Coca Cola stock, so I was surprised to learn that this staid Teutonic institution might be in a slight bit of trouble...or maybe more that just slight.
It will not be the first time that the wounds to the German people were self-inflicted. Hitler and Deutsche Bank carried on an incestuous financial relationship through Nazi Reich Minister of Finance Lutz Graf Schwerin von Krosigk almost until VE Day. DB facilitated the theft of Jewish gold. Little is said about that today, but it's my view that there is such a thing as bad kharma.
Deutsche Bank played an important part in the resurgence of the German economy after WWII.
DB subsequently acquired Morgan Grenfell Bank in Great Britain in 1989 and Banker's Trust in the USA in 1998, both members of the high-flying class of investment banks. In 2001, Deutsche Bank began trading on Wall Street.
Then it struck oil— Russian oil, in the form of a surplus of rubles from a bunch of Ruski Billionaires who wanted to hide their gains from the tax collector in Moscow—expatriate their money, so to speak. A group of co-conspirators in Russia and in DB's London offices employed a solution called a "mirror trade."
Stock Brokers in the USSR initiated simultaneous trades in DB's London office using innocuous names as "Motherhood & Apple Pie Fund," at the same as secret offshore depository accounts were opened in paper banks in the Caribbean and elsewhere. Owners of offshore "laundries" took tiny cuts for helping facilitate, in this instance, multi-billion Deutschmark money-laundering schemes.
The details on how this all came about are explained in exhaustive detail in the August 29th edition of New Yorker magazine. It is apparent to the least informed reader that DB was not vigilant or diligent supervisors of their trading associates. Financial myopia must be endemic in great financial institutions.
Now, how could this affect you and me? When the scheme collapsed, as most do, and in this instance, it was when regulators in Great Britain discovered the identical buy and sell orders and suspended the license of one of the shell trading companies. Consequently, the Russian side of a mirror trade could not be completed for about ten million dollars. This turned out to be the tip of a hidden financial iceberg, and the beginning of losses for Deutsche Bank.
The Russian counterpart of our SEC, the Federal Financial Markets Service, discovered that two mirror trading companies were illegally using the stock market to send millions of Rubles overseas, convert them into dollars, and hide all of it. This was sapping the country of capital when Putin and company had an Olympics to finance. I certainly wouldn't want to be any part of the Russian apparatus accused of participating in this scheme, unless of course I had a very close personal relationship with Vladdie.
It is yet to be determined how much Deutsche Bank was bereft of stock for which it never received a pfennig. It did cause the British Financial Conduct Authority to notify DB that that the institution's UK branch had "serious anti-laundering, terrorist financing and sanctions failings." (The Brits were taught how to use our language so nobly by Churchill that the word "terrorist" almost disappears when one reads it.)
Deutsche Bank could very well have the resources to survive this emerging scandal, and if not, it might possibly persuade Merkel and Company to provide a bailout. Either way, the great global marketplace is at risk of taking another gigantic hit. I rush to add that since this writer understands so little of the workings of the global marketplace, we cannot yet say it could be "Lehman Brothers," all over again.
I only know what I
read in the papers, or see on TV and discount half of everything I see
on the Internet, and thus far there has not been a great amount of
information about this imbroglio on TV or in my local newspaper. There
has to be a reason for this silence. Perhaps everyone is afraid they'll
upset the cabbage cart.
-Phil Richardson, Observer of the human condition and storyteller. "He goes doddering on into his old age, making a public nuisance of himself." - Joseph L. Mencken
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