The Ethics of Banking: Conclusions from the Financial Crisis (Issues ...

From Big Bang Deregulation to Big Bailout 171
Europeans to support the American state bailout of American firms by launching a
bailout of the American state by continental European states.
On the contrary, the question that has to be asked is whether the German government
is not doing too much towards the bank rescue, whether it is not over-rescuing,
and bearing too large a share of the international bank rescue packages in comparison
to the rescue of American banks. According to the figures given by Sinn,
the USA is bearing a 32.1% share of bank rescue packages, whereas Germany
is bearing a share of 14%, the second-largest rescue package of the USA. 36 In
relation to the populations of both countries, the share of the German rescue package
of 43.61%, against a German population of 82.310 million – which is just
27.57% of the population of the USA, which numbers 298.444 million people –
is hugely disproportionate and, if anything, too high rather than too low, in view
of the fact that the crisis started in the USA and its banks are affected to a far
greater extent. Krugman must therefore be challenged as to whether his attacks
are scholarship and not part of an effort inspired by American power politics to
co-opt Germany into joining a more comprehensive bailout of failed American
banks, into cross-subsidizing them, in fact. Such an effort would be doubly suspect
because, prior to the crisis, the American banks had been making larger
profits than the German banks – and here we are talking mainly about the public
German regional banks – which were sold the CDOs that turned out to be
distressed. 37
The superiority of the market as a coordination system does not, however, justify
a policy of re-regulation of the finance industry, which would be detrimental to the
financial markets in any situation. A further drawback of this policy is the lack of a
pool of people equipped with superior knowledge to the financial industry’s existing
staff and capable of implementing an optimal form of regulation. Politicians – unless
they happen to be Minister-President of a German regional state – cannot run large
businesses and states simultaneously. Regulation is only justified as a policy which
is based on the assumption that markets, and not political direction, are the basic
Mark, or nowadays the proverbial San Euro della Germania) and is unlikely to be the last. POSNER
(2009), p. 285, talks about Krugman’s “orgy of recrimination against Wall Street”, but the Social
Democrat Steinbrück can hardly be called a Wall Street man.
36 SINN (2009), p. 216.
37 Just as dubious, in its own way, is the German reproach leveled at Washington by no lesser
dignitary than the head of the German Lutheran Church, Bishop Wolfgang Huber of Berlin, (cf.
Wallstreet Journal Europe of 31 March 2009), who accuses Washington of letting the Lehman
Brothers bankruptcy happen in September 2008 solely because the affected investors were mainly
Germans, who were invested especially heavily in the bank, having been drawn by the German
origin of the name Lehman. This same attribute would apply to Goldman Sachs, which was not
left to go bankrupt. It seems a more likely explanation that the then US Treasury Secretary, Henry
M. Paulson, who took the decision (term of office 3 July 2006 – 20 January 2009) was CEO of
Goldman Sachs prior to his appointment to head up the US Treasury. This possible conflict of
interest between his affiliation with Goldman Sachs and his duty of neutrality on competition as
American minister of finance must at least set alarm bells ringing.