While the planet’s air, water and land are heating to dangerous levels because of human pollution, the world’s trade is cooling off, slowing down and coagulating in the deepening chill, threatening the well-being of every country and virtually every person. I remember very well in 2008 watching the most powerful members of Congress emerge from a come-to Jesus meeting conducted by the Treasury Secretary on what was about to happen to the world’s financial institutions and America’s economy. They had the pale faces and staring eyes of people who had just been introduced to the angel of death.
The world of trade and finance is confronting such a moment now, and is every bit as much in denial as it was in 2008. This time it’s not America’s Lehman Brothers tottering into an early grave and pulling half the world in with it; it’s Deutsche Bank.
Germany’s largest bank is not doing well. Its operating loss last year was almost seven billion Euros; its share price has fallen almost 70% since April of 2015, and dropped over seven per cent in a single day this week, to just over 10 Euros. Go back to September of 2008 and read the news reports about Lehman, and feel the burn.
If Deutsche Bank’s share price drops another Euro, the total capitalization of the bank will be less than 14 billion Euros, which is the amount of a fine the U.S. Department of Justice has proposed to levy against the bank for its sins in handling subprime mortgage derivatives leading up to the deadly financial eruption of 2009. It’s not the only trouble the bank is in; it’s under investigation for transgression in currency trading, precious metals trading, and money laundering. It recently settled a massive case alleging manipulation of interest rates. (That’s it, I’m moving my money to Wells Fargo. Oh, wait….)
Masters of the Universe are talking openly about — and betting massively on — a Deutsche Bank failure (yes, it’s another Big Short). The German government has vowed not to bail it out, but the bank’s assets, ravaged though they may be, represent nearly 60% of Germany’s gross domestic product. This is the very definition of too big to fail.
Meanwhile Germany’s second-largest bank, Commerzbank, which has lost nearly 40% of its market value this year, has just announced a desperate reorganization plan. It’s firing 10,000 people and downsizing operations in a manner that strikes some as more like butchery than surgery. Moreover, the seven Landesbanken are hemorrhaging capital because the global shipping industry, in which they are heavily invested, is imploding.
Germany is hardly the only country whose banks are deeply troubled right now. This week the Organization for Economic Cooperation and Development — comprising 34 member democracies committed to improving world trade — issued a stern warning about pursuing toward the brink of disaster the policies that led to the crash of 2009. The warning was not only to Germany, but to Japan and the United States as well.
“These developments [i.e. the awful performances of banks and corporations] exacerbate the challenges to improving well-being of people in both advanced and emerging economies.” The problem for the OECD is this: people are consumers, and if consumers don’t do well, they can’t consume enough, and in consumption-based economies, that’s a cardinal sin.”
The central banks, it seems to me, are trying to feed the wrong end of the horse; stuffing perfectly good hay in places where it doesn’t belong, while the animal starves. Making sure the banks and corporations have tons of money to play with, when they don’t use it to make products or hire people, helps no one but people who do not need help.
Of course, enormous forces are at work propping up these zombie banks and their pretensions, staving off any day of reckoning until the day after tomorrow, just as they were doing in 2008. How did that work out for them, anybody remember? But whatever they do, they cannot change the fact that out where stuff is manufactured, and shipped, and sold, the temperature is falling, the pipes are freezing up, and a new Ice Age has taken hold. Stop expecting us to congratulate you for giving away free ice cubes.
[Now, as the world churns, we return you to our regularly scheduled news programs, featuring Donald’s sniffles, Hillary’s emails and who’s running for president in 2020?]