Boomerang: Travels in the New Third World (18 page)

By the middle of 2007 every Wall Street firm, not just Goldman Sachs, realized that the subprime market was collapsing, and tried frantically to get out of their positions. The last buyers in
the entire world
, several people on Wall Street have told me, were these willfully oblivious Germans. That is, the only thing that stopped IKB from losing even more than $15 billion on U.S. subprime loans was that the market ceased to function. Nothing that happened—no fact, no piece of data—was going to alter their approach to investing money.

On the surface the IKB’s German bond traders resembled the reckless traders who made similarly stupid bets for Citigroup and Merrill Lynch and Morgan Stanley. Beneath it they were playing an entirely different game. 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 one hundred thousand dollars a year, with, at most, another fifty-thousand-dollar bonus. In general, German bankers were paid peanuts to run the risk that sank their banks, which strongly suggests that they really didn’t know what they were doing. But—and here is the strange thing—unlike their American counterparts, they are being treated by the German public as crooks. The former CEO of IKB, Stefan Ortseifen, was given a jail term (since suspended) and has been asked by the bank to return his salary: 805
thousand
euros.

Dirk R
ö
thig had enjoyed a ringside seat not only to IKB but to the behavior of its imitators, the German state-backed banks, the Landesbanks. And in his view, the border created by modern finance between Anglo-American and German bankers was treacherous. “The intercultural misunderstand
ings were quite intense,” he says, as he tucks into his lobster. “The people in these banks were never spoiled by any Wall Street salesmen. Now there is someone with a platinum American Express credit card who can take them to the Grand Prix in Monaco, takes you 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!
’
” He completes the thought. “The American salespeople are much smarter than the European ones. They play a role much better.”

At bottom, he says, the Germans were blind to the possibility that the Americans were playing the game by something other than the official rules. The Germans took the rules at their face value: they looked into the history of triple-A-rated bonds and accepted the official story that triple-A-rated bonds were completely risk-free.

This preternatural love of rules almost for their own sake punctuates German finance as it does German life. As it happens, a story had just broken that a German reinsurance company called Munich Re, back in June 2007, or just before the crash, had sponsored a party for its best producers that offered not just chicken dinners and nearest-to-the-pin golf competitions but a blowout with prostitutes in a public bath. In finance, high or low, this sort of thing is of course not unusual. What was striking was how organized the German event was. The company tied white and yellow and red ribbons to the prostitutes to indicate which ones were available to which men. After each sexual encounter the prostitute received a stamp on her arm to indicate how often she had been used. The Germans didn’t just want hookers: they wanted hookers with
rules.

Perhaps because they were so enamored of the official rules of finance, the Germans proved especially vulnerable to a false idea the rules encouraged: that there is such a thing as a riskless asset. After all, a triple-A rating was supposed to mean “riskless asset.” There is no such thing as a riskless asset. The reason an asset pays a return is that it carries risk. But the idea of the riskless asset, which peaked about late 2006, overran the investment world, and the Germans fell for it the hardest. I’d heard about this, too, from people on Wall Street who had dealt with German bond buyers. “You have to go back to the German mentality,” one of them had told me. “They say, ‘I’ve ticked all the boxes. There is no risk.’ It was form over substance. You work with Germans, and—I can’t emphasize this enough—they are not natural risk takers. They are genetically disposed to fucking it up.” So long as a bond looked clean on the outside, the Germans allowed it to become as dirty on the inside as Wall Street could make it.

The point R
ö
thig wants to stress to me now is that
it didn’t matter
what was on the inside. IKB had to be rescued by a state-owned bank on July 28, 2007. Against capital of roughly $4 billion it had lost more than $15 billion. As it collapsed, the German media wanted to know how many U.S. subprime bonds these German bankers had gobbled up. IKB’s CEO, Stefan Ortseifen, said publicly that IKB owned almost no subprime bonds at all—which is why he’s now charged with misleading investors. “He was telling the truth,” says R
ö
thig. “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. The IKB monitoring systems did not make a distinction between subprime and prime mortgages. And that’s why it happened.” Back in 2005, R
ö
thig says, he proposed to build a system to track more precisely what loans were behind the complex bonds they were buying from Wall Street firms, but IKB’s management didn’t want to spend the money. “I told them you have a portfolio of twenty billion dollars, you are making two hundred million dollars a year and you are denying me six point five million. But they didn’t want to do it.”

FOR THE THIRD
time in as many days we cross the border without being able to see it, and spend twenty minutes trying to work out if we are in East or West Germany. Charlotte was born and raised in the East German city of Leipzig, but she is no less uncertain than I am about which former country we are in. “You just would not know anymore unless you are told,” she says. “They have to put up a sign to mark it.” A landscape once scarred by trenches and barbed wire and minefields exhibits not so much as a ripple. On the outside, at least, it’s perfectly clean. Somewhere near this former border we pull off the road into a gas station. It has three pumps in a narrow channel without space to maneuver or to pass. The three drivers filling their gas tanks need to do it together, and move along together, for if any one driver dawdles, everyone else must wait. No driver dawdles. The German drivers service their cars with the efficiency of a pit crew. Precisely because the arrangement is so archaic, Charlotte guesses we must still be in West Germany. “You would never find this kind of gas station in East Germany,” she says. “Everything in East Germany is new.” She also claims she can guess at sight whether a person, and especially a man, is from the east or the west. “West Germans are
much
prouder. They stand straight. East Germans are more likely to slouch. West Germans think East Germans are lazy.”

“East Germans are the Greeks of Germany,” I say.

“Be careful,” she says.

From
Düsseldorf
we drive to Leipzig, and from Leipzig we hop a train to Hamburg to find the mud wrestling. Along the way she humors me by parsing her native tongue for signs of anality. “
Kackwurst
is the term for feces,” she says grudgingly. “It literally means shit sausage. And it’s horrible. When I see sausages I can’t think of anything else.” She thinks a moment. “
Bescheissen
: someone shit on you.
Klugscheisse
r
: an intelligence shitter.

“If you have a lot of money,” she continues, “you are said to shit money:
Geldscheisser.
”
She rips a handful of other examples off the top of her head, a little shocked by how fertile is this line of thinking, before she says, “And if you find yourself in a bad situation, you say, ‘
Die Kacke ist am dampfen
the shit is steaming.’” She stops and appears to realize she is encouraging a theory of German national character.

“It’s just in the words,” she says.

“Sure it is.”

“It doesn’t mean it applies.”

Outside of Hamburg we stopped for lunch at a farm owned by a man named Wilhelm N
ö
lling, a German economist now in his seventies but with the kick and bite of a much younger man. He has the chiseled features and silver hair of a patrician but the vocal cords of a bleacher bum. “The Greeks want us to pay their lunch!” he bellows, as he gives me a tour of his private goat pen. “That is why they are rioting in the streets! Baaa!” Back when the idea of the euro was being bandied about, N
ö
lling had been a governor of the Bundesbank. From the moment the discussion turned serious he has railed against the euro. He’d written one mournful pamphlet called “Good-bye to the Deutsche Mark?” and another, more declarative pamphlet called “The Euro: A Journey to Hell.” Together with three other prominent German economists and financial leaders he’d filed a lawsuit, still wending its way through the German courts, challenging the euro on constitutional grounds. Just before the deutsche mark got scrapped, N
ö
lling had argued to the Bundesbank that they should just keep all the notes. “I said, ‘Don’t shred it!” he now says with great gusto, leaping out of an armchair in the living room of his farmhouse. “I said, ‘Pile it all up, put it in a room, in case we need it later!
’
”

He finds himself stuck: he knows that he is engaged in an exercise futile and pointless. “Can you turn this back?” he says. “We know we can’t turn this back. If they say, ‘Okay, we were wrong, you were right,’ what do you do? That is the hundred-thousand-million-dollar question.” He thinks he knows what should be done but doesn’t think Germans are capable of doing it. The idea he and his fellow dissident German economists have cooked up is to split the European Union in two for financial purposes. One euro, a kind of second-string currency, would be issued for, and used by, the deadbeat countries—Greece, Portugal, Spain, Italy, and so on. The first-string euro would be used by “the homogenous countries, the ones you can rely on.” He lists these reliable countries: Germany, Austria, Belgium, the Netherlands, Finland, and (he hesitates for a second over this) France.

“Are you sure the French belong?”

“We discussed this,” he says seriously. They decided that for social reasons you couldn’t really exclude the French. It was just too awkward.

As he presided over the Maastricht treaty, which created the euro, the French prime minister François Mitterrand is rumored to have said privately that yoking Germany to the rest of Europe in this way was sure to lead to imbalances, and the imbalances were certain to lead to some crisis, but by the time the crisis struck he’d be dead and gone—and others would sort it out. Even if Mitterrand didn’t say exactly that, it’s the sort of thing he should have said, as he surely thought it. At the time it was obvious to a lot of people, and not only Bundesbank governors, that these countries did not belong together.

But then how did people who seem as intelligent and successful and honest and well organized as the Germans allow themselves to be drawn into such a mess? In their financial affairs they’d ticked all the little boxes to ensure that the contents of the bigger box were not rotten, and yet ignored the overpowering stench wafting from the big box. N
ö
lling felt the problem had its roots in German national character. “We entered Maastricht because they had these
rules
,” he says, as we move off to his kitchen and plates heaped with the white asparagus Germans take such pride in growing. “We were talked into this under false pretenses. Germans are, by and large, gullible people. They trust and believe. They
like
to trust. They
like
to believe.”

If the deputy finance minister has a sign on his wall reminding him to see the point of view of others, here is perhaps why. Others do not behave as Germans do: others
lie.
In this financial world of deceit Germans are natives on a protected island who have not been inoculated against the virus carried by visitors. The same instincts that allowed them to trust Wall Street bond salesmen also allowed them to trust the French, when they promised there would be no bailouts, and the Greeks, when they swore that their budget was balanced. That is one theory. Another is that they trusted so easily because they didn’t care enough about the cost of being wrong, as it came with certain benefits. For the Germans the euro isn’t just a currency. It’s a device for flushing away the past. It’s another Holocaust Memorial. The Greeks may have German public opinion polls running against them, but deeper forces run in their favor.

In any case, if you are obsessed with cleanliness and order yet harbor a secret fascination with filth and chaos, you are bound to get into some kind of trouble. There is no such thing as clean without dirt. There is no such thing as purity without impurity. The interest in one implies an interest in the other. The young German woman who had driven me back and forth across Germany exhibits interest in neither, and it’s hard to say whether she is an exception or a new rule. Still, she marches dutifully into the world’s largest red-light district, seeking out a lot of seedy-looking German men to ask them where she might find a female mud wrestling show. Even now she continues to find new and surprising ways in which Germans find meaning in filth. “
Scheisse glänzt nicht, wenn man sie poliert
: Shit won’t shine, even if you polish it,” she says, as we pass the Funky Pussy Club. “
Scheissegal
: it just means ‘I don’t give a shit.
’
” She laughs. “That’s an oxymoron in Germany, right?”