Sunday, February 05, 2012

Stupid Germans In Düsseldorf

Extremely smart traders inside Wall Street investment banks devised deeply-unfair, diabolically-complicated bets, and then sent their sales forces out to scour the world for idiots willing to take the other sides of those bets.

During the boom years, wildly disproportionate numbers of those idiots were in Germany.

As a reporter for Bloomberg News in Frankfurt, Aaron Kirchfeld, put it to me, “You’d talk to a New York investment banker, and he’d say, ‘No one is going to buy this crap. No one . . . 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 might bet against them, the main buyers were German.

When Goldman Sachs helped 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, IKB.

IKB, along with another famous fool at the Wall Street table, West Landesbank, is based in Düsseldorf—which is why, when you ask a smart Wall Street bond trader exactly who was buying all this garbage during the boom years, he will say, “Stupid Germans in Düsseldorf.”

Michael Lewis, writing about how American investment firms managed to shove much of the risk from default-prone, private-issue bonds and specially-created bond derivatives onto German financial institutions

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