The United States Senate has released a scathing bi-partisan report on the origins of the global financial crisis that plunged the US and world economies into the worst recession since the 1930s. The 650 page report - Wall Street and the Financial Crisis: Anatomy of a Financial Crisis - can be downloaded (warning: pdf) here. The report in partcular singles out two financial institutions - Goldman Sachs and Deutsche Bank - for reckless, unethical and, in my opinion, criminal activities which disrupted capital markets around the globe and exacerbated the crisis as it unfolded. The Deutsche Bank "Case Study" can be found on pp. 330 - 374, and makes for fascinating reading. The Case Study , documented with interviews with the principals and e-mails sent by Deutsche Bank, provides an inside view of the banks CDO (Collateralized Debt Obligation) juggernaut that earned the bank $billions in fees while sticking global investors with high-risk junk securities which quickly became totally worthless.
At the heart of the Case Study is a $5 billion dollar short position Deutsche Bank built against the very securities it was aggressively selling to its institutional client base. E-mails document how the bank's chief CDO trader - Greg Lippmann - convinced Deutsche Bank's senior management to build the short position, even has he called his group's activities "a giant ponzi scheme". That short position netted Deutsche Bank $1.5 billion in profits, as the subprime market began to tank. The $5 billion short was so successful that a trader who worked for Deutsche Bank even wrote a song about it. It's called "CDO Oh Baby," and it's set to the Vanilla Ice song.
Is Lippmann sitting in prison together with that other notorious ponzi schemer Bernie Madoff? Hardly. Greg Lippmann left Deutsche Bank last year to start LibreMax Capital LLC, an investment firm based in New York.
Left out of the report is how Deutsche Bank set up another lucrative business during the crisis - serving as trustee for its own CDOs as well as for Goldman's and others'. In that line of business, Deutsche Bank has earned $millions in fees by foreclosing on commercial and residential properties in the US - forcing tens of thousands of Americans from their homes. The bank has used its position as America's Foreclosure King to acquire properties at fire-sale prices and selling these at a profit to other real estate investors.
But that would be the subject of another investigation.