The Masters of the Universe on Wall Street, and in financial capitals around the world, will be holding their breath today. They’re waiting to see what happens to Germany’s mighty Deutsche Bank, the latest big bank to fall into crisis and roil the international markets.
If you are unfortunate enough to own Deutsche Bank shares, you know what I mean. The value of its common stock has fallen more than 65 percent in the past year, and a credit rating agency has moved its outlook to negative. The Department of Justice has demanded that Deutsche Bank pay $14 billion to settle an investigation into residential mortgage-backed securities, although the Bank hopes to negotiate down to a lower payment figure. Deutsche Bank has been removed from European blue chip stock index because its share price has fallen so far, so fast, and now there are reports that some hedge funds are moving holdings out of Deutsche Bank to other banks.
Why should we care? Because earlier this year the International Monetary Fund issued a report that found that Deutsche Bank “appears to be the most important net contributor to systemic risks in the global banking system.” “Systemic risks in the global banking system” — there’s a phrase that should send shivers down your spine. The bank has substantial exposure in derivatives . . . and equally important, it has significant connections to the big banks in America, Great Britain, China, Japan, and other countries around the globe. In our modern, globalist world, that’s just how the huge financial concerns work. That means that any serious problem at Deutsche Bank will have a ripple effect in America — an effect that is already being felt in the markets here.
So once again we are faced with the prospect of a big bank that has engaged in risky behavior teetering on the brink, with calls for a national government — in this case, Germany — to come forward and say that it is ready to step in and rescue the bank from the consequences of its own actions.
Sound familiar? Hey, I thought this was supposed to have been fixed in 2009.