Michael Lewis visits Germany for his latest piece of financial-disaster travel journalism. It's in this month's Vanity Fair. His take on German traders is particularly interesting:
On the surface IKB's German bond traders resembled the reckless traders who made similarly stupid bets for Citigroup 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 $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.
So how do these dangerous bets affect Germany's status as the eurozone's only potential savior:
What Germans did with money between 2003 and 2008 would never have been possible within Germany, as there was no one to take the other side of the many deals they did which made no sense. They lost massive sums, in everything they touched. Indeed, one view of the European debt crisis—the Greek street view—is that it is an elaborate attempt by the German government on behalf of its banks to get their money back without calling attention to what they are up to. The German government gives money to the European Union rescue fund so that it can give money to the Irish government so that the Irish government can give money to Irish banks so the Irish banks can repay their loans to the German banks. "They are playing billiards," says [German economist Henrik Enderlein]. "The easier way to do it would be to give German money to the German banks and let the Irish banks fail." Why they don't simply do this is a question worth trying to answer.
We spoke with Lewis on the podcast in February about his current series of financial disaster stories.