From: SPIEGEL ONLINE
10/08/2008 05:48 PM
By Dirk Kurbjuweit
Trust capitalism and shun government interference we were told. But irresponsible bankers saw a chance to get rich quick and went for it. Their failure has become ours -- and the promise of a common good has evaporated along with faith in democratic capitalism.
Germany has taken to the skies. It is 9:00 a.m. on Thursday, Oct. 2 and the Luftwaffe Airbus A310 -- Germany’s equivalent of Air Force One -- took off half an hour ago from Berlin’s Tegel Airport. The plane is heading east, destination Saint Petersburg, Russia. Crew members are serving the usual copious breakfast, including omelets, meat, cold cuts, cheese and honey.
The gamblers have eroded confidence in both capitalism and democracy.
The gamblers have eroded confidence in both capitalism and democracy.
On board are many of the people who determine Germany’s position in the world: the German chancellor and six ministers, the heads of major German corporations like Siemens, Deutsche Bahn and E.on, and a number of journalists. There are no bankers on the plane, but they play the leading role in everyone’s mind and in the discussions taking place.
After breakfast, German Chancellor Angela Merkel invites the journalists up to the front of the aircraft for an off-the-record chat with the press. Everyone squeezes into a small room, 25 people in all, standing, sitting cramped together, some of them even on the floor. “The microphone isn’t working again,” says the chancellor to start things off.
She talks about Russia and then addresses the financial crisis. The sound of a toilet flushing can be regularly heard. The aircraft’s lavatory juts into the conference room. It is an earnest discussion. The journalists ask questions in a serious manner and the chancellor responds in kind. Every word resonates concern.
Poker for the Politicians; Blackjack for the Journalists
At the same time, Economics Minister Michael Glos is conferring with the heads of German companies. Here as well everyone is deadly serious, solemn and concerned. The atmosphere on board this Airbus is enough to imbue an observer with confidence: Germany seems to be in good hands and the problems can be solved.
But we could also paint a very different picture. We could throw out the rows of seats and replace them with gambling tables, poker up front for the politicians, roulette in the middle for the corporate executives, and blackjack in the back for the journalists. Everyone has taken off their jackets and loosened their ties. Beads of sweat have formed on some foreheads and tension fills the air. Nobody wants to land. They will play until they crash.
Would this picture be entirely wrong? Or does it contain a kernel of truth?
One thing is clear: The world seems to be teetering on the brink of disaster because a few people have been on a big-time gambling binge. They have lost their stake on bad loans and now banks are collapsing, companies are facing a liquidity crunch, investors are losing their savings and a recession is looming.
This time around, though, there is more hanging in the balance than just the cyclical ups and downs of the economy. This time fundamental issues are at stake. Is a market economy nothing more than an invitation to engage in excessive gambling? And what about the democratic principles that are so closely linked with the market economy, a concept that was used by the West to achieve dominance over the world? This vision of democracy is also at risk.
Suddenly, everything seems possible. Nobody knows which banks will suffer a meltdown and what will be the consequences for the real economy. Nobody knows how big a risk the Wall Street gamblers have taken. That’s what makes the situation so frightening. It’s as if we were riding in a small dinghy on an African lake. They passengers know that crocodiles are lurking in the water, but they don’t know how many there are, nor can they determine the size of the beasts.
Welfare for Banks
Now the challenge is to keep people from losing all faith in the markets, to prevent panic from erupting. Success here also depends on whether the actors and observers of global events -- company executives, politicians and journalists -- take things seriously or whether they too are basically just gamblers.
These days, it is hard to recognize the world as we thought we knew it. A large number of American financial institutions have sought protection from the state, and now the US government has taken action to keep the country’s entire financial sector above water. An entire country, Iceland, threatens to go bankrupt. In Germany, Finance Minister Peer Steinbrück has had to save Hypo Real Estate in a hastily organized bailout operation, and Josef Ackermann, the CEO of Deutsche Bank -- a man who was once a high-flying champion of capitalism -- has been calling for the government to launch a rescue package, which is paramount to providing welfare to banks.
Who would have thought that Ackermann would one day join the ranks of Germany’s unemployed and low wage earners in asking for government aid? The poor had long hoped that the state would help them out of their economic plight. People like Ackermann though -- those who place a great deal of faith in the power in the power and freedom of the individual -- blasted them. Now, taxpayers are expected to help Ackermann's industry out of a jam.
The insanity of the situation becomes clear when we look back to the years 2003 to 2005. At the time, then-German Chancellor Gerhard Schröder of the center-left Social Democrats pushed through his Agenda 2010 reform package. Long-term unemployment payments were scrapped. Those who lost their job knew that time was short before benefits would shrink to those mandated by the new welfare plan known as Hartz IV.
During those years, the economic debate was dominated by true-blue capitalists who sought to limit government intervention. This was the heyday of a neo-liberal ideology that placed its faith in the strengths of the individual and the free market. The word “government” became virtually synonymous with harassment, suffocation, inefficiency and a lack of freedom. Deregulation was the magic formula of the day.
This was the theme music -- played by politicians, business people and journalists -- that accompanied Agenda 2010, an orgy of black-and-white thinking that glorified the individual and demonized the state.
But Agenda 2010 was the right approach. The reforms didn’t go too far; actually, they should have gone even further. They should have harnessed the political momentum at the time to prepare Germany's healthcare and convalescent care systems for the challenges of the future.
Agenda 2010 was a deal between politicians and industry on the one side and the unemployed and workers on the other side. The deal went like this: It might be painful, we are taking away some safeguards, but you will receive something in return. Waiving those benefits will boost the economy, trigger growth and create jobs. Trust us, trust this deal, said the politicians and the captains of industry.
At first, it looked as if this new deal would be a success. Over the past few years, Germany’s economy has been growing stronger again and the number of unemployed has fallen from 5.2 million in February 2005 to 3 million in September 2008. This success can be attributed to Agenda 2010 and to workers’ willingness to settle for lower wages.
The Crocodiles Below the Surface
Nevertheless, doubts started to creep in over the fairness of the deal’s implementation. Real wages stagnated while investment income and corporate profits soared. At the same time, the gap between rich and poor continued to grow, causing the middle class to shrink.
The gamblers have eroded confidence in both capitalism and democracy.
People were increasingly outraged over the injustice of the situation when a number of managers negotiated golden handshakes worth millions, despite weak performances. The head of Deutsche Post, Klaus Zumwinkel, will have to face criminal charges for allegedly depositing money in a Liechtenstein foundation to evade taxes in Germany.
In the German press, the word "American" became shorthand for greed. Many managers demanded “American” salaries of over $10 million (€7.25 million) a year. They targeted “American” earnings for their companies. Ackermann aimed for profits of 25 percent. German savers were recommended to take an “American” approach to their investments. Saving accounts and government bonds were passé and investing and gambling with stocks was all the rage because it held out the promise of higher returns.
German business practices were frowned upon as conservative and narrow-minded. Sexy investments required a no-holds-barred attitude and a willingness to play the markets and take risks. Let’s be like Americans -- that was the guiding principle for German banks and top company executives. They gleefully played along with what was done on the other side of the Atlantic. Not surprisingly, they also purchased those wonderful securities that had something to do with American homeowners and promised such rewarding returns.
A Gigantic Bubble
German bankers became gamblers. They joined the investment game that had begun in America. They bought securities that had long since lost any connection to economic realities. They flourished in their own world, a virtual world of numbers that continuously grew and created a gigantic bubble.
The players in the game lost touch with reality. Many Americans wanted to own homes, although they couldn’t afford them. When these people received loans, it was a dodgy business. That is actually not difficult to understand, but it failed to sound the warning bells for gamblers who were out to make huge profits out of those risks.
That’s one side of the greed. The other side is the desire to break new ground regardless of the consequences.
A caller to a Berlin radio station recently ranted about “29-year-old banking snobs.” This immediately calls to mind a certain image: well-dressed people with perfectly styled hair who are intelligent and eager to change the world. But there was so much out there already, all kinds of derivatives and securitizations -- those products that have a direct connection with the real world were, by definition, invented long ago.
Anything new had to be even further away from reality. But it wasn't difficult for those eager new bankers to come up with something new once they set their minds to it -- and soon the world had another product that nobody needs, hardly anyone understands. But one that was floated on the market for the sole reason that it was there -- and, of course, because it promised to generate wealth. That is how a brave new world is created.
What followed, though, was a horror scenario of a globalization process taking place on two levels. There is a real level that consists of a greater exchange of goods which comes along with a more intense competition for jobs, prosperity and the rights to use the world’s resources. This may seem frightening enough for the individual, although it may be unavoidable and legitimate.
Clandestine Masters of Globalization
But the other level is truly uncanny. This is the lake with the crocodiles. You can’t see a thing; the surface of the lake is smooth. But a lot is happening down in the murky water. The banking snobs have surreptitiously spun their web; they have used sales in countries around the globe to forge links -- silently, uncontrolled, electronically. They are the clandestine masters of globalization. They have created another world, a secret one.
It is not until this world collapses that we notice that its existence. By then, of course, it’s too late. Since everything is interconnected, the catastrophe immediately takes on global proportions.
At least some of the banking snobs are brought down by the calamity. There are pictures of them walking out of their office skyscrapers with boxes in their arms. But the bankers who manage to remain quickly adjust. They have learned to be flexible, and what was true yesterday is simply no longer true today. They require protection, they need help from the government and, of course, they have no qualms about asking for it.
A number of German bank managers are outraged that the German government has not immediately launched an initiative to save them all. They have never been modest, so why start now? They of course know that there is an enormous fear of a huge crash. So they brazenly dance on the limb that they themselves have started to saw. And naturally they have no problems with the fact that Depfa, a bank that moved to Ireland to lower its tax bill, should now be saved with German tax money.
Now the greatest skeptics of government intervention will receive state aid, which is probably even a wise move because nobody knows what would happen if a large German investment house were to collapse. Buy why is there no humility, no modesty, no apology for all these monstrosities?
And what does someone think who has lived on a modest income over the past five years and has been unable to shake off his fear of unemployment? He has kept his side of the 2003 deal; he didn't really have a choice. A low income amid rapidly rising energy prices, a life on the edge of Hartz IV, a real hard life.
The End of the Deal
But now the virtual world is flowing into the real one and the crocodiles are crawling onto land. A recession is looming. It could be that the banking snobs have gambled away this man's job. That is tantamount to a deal breaker for an agreement that was already fairly shaky. It would spell the end of the deal of 2003.
What would be the consequences?
This man will never become a friend of globalization. It will remain a total mystery to him, a dark force. Now he won’t want to help shape globalization.
Nor will he agree to a new deal. Why should he? He has lost his faith in the system. But there will have to be another deal because the next recession will throw the budget into turmoil again and increase the cost of providing social services. If there is an attempt at a new deal, he will take to the streets and demonstrate.
It was hard enough pushing through Agenda 2010. But the current crisis is making Germany virtually unreformable. Now nobody will follow politicians who say that you have to do good things for the economy so that everyone benefits. People will laugh out loud should anyone say that freedom leads to the best results.
It is no coincidence that gamblers have created this chaos, people who fabricate unreal worlds where they can seek their happiness. The gambler is one of today’s most predominant types. He is the Internet freak who blasts away in online games or writes love letters under a false identity. He is the athlete who takes performance-enhancing drugs although he knows about the doping controls.
Politicians, though, are also gamblers -- ones who take pleasure in gambling with power. That, though, is particularly worrisome because it is now up to the politicians to clean up the mess left by the financial gamblers.
Political games go like this: Last Thursday in Saint Petersburg, German Foreign Minister Frank-Walter Steinmeier was unhappy when he came back from the working lunch of the German and Russian delegations: “The protocol of the chancellery has its way, don’t ask me how.” He was upset because he wasn't allowed to sit at the table with Russian President Dmitry Medvedev and the chancellor.
A Landing in the Real World
Steinmeier felt insulted, and perhaps the chancellery actually did pull a fast one, but don’t they have other problems? Now? In a time of crisis?
Politicians are also very skilled at building their own world, a virtual world of power plays where they feel so at home that progress in the real world becomes difficult. Of course power struggles belong to politics, but with the current governing coalition pairing the Social Democrats with Merkel's conservatives, the ruling parties sometimes give the impression that politics consists of nothing else.
It would be a disaster if the chancellor and her foreign minister -- who is also the SPD candidate for chancellor in the general elections next fall -- were to get caught up in a tiny little game over some telltale advantage. They should conduct a fair debate on how to prevent the real world from falling into a recession or how they can establish a new deal for Germany’s labor market. The election campaign will come soon enough in the summer of 2009.
And of course, the criticism comes from a glass house. In the media there are also plenty of gamblers who are not necessarily interested in fairness and accuracy.
While we teeter on the brink of disaster we might reflect on the fact that for politicians, bankers, business people and the media, there is a second challenge more important than that of rising up the career ladder: We also need to secure democracy and the free market economy.
Bringing the state and the world of business and finance into balance with the right amount of control and freedom would be an important step toward attaining this objective. But none of this is possible without a word that is not particularly exciting, and even a bit old-fashioned: seriousness.
So, out go the gambling tables and in with the rows of seats again in the Luftwaffe’s Airbus A310, and fasten your seatbelts for landing -- in the real world.