Dialog International

Subprime Crisis Deepens in Germany

The subprime mortgage crisis grows more serious evey day in the US, and is beginning to affect sectors outside of financial insistitutions. Apparently the banks have not been upfront with the investment community about the extent of the problem on their balance sheets.  Each day, the write-offs are revised upward and have claimed the CEOs of Merrill Lynch and Citi (even though the disgraced managers were handsomely rewarded for losing $$billions at their respective insitutions). But the shockwaves are being felt in the real estate market, as prices fall at historic rates. SInce Americans have been encouraged for years to borrow against the "equity" in their homes through home equity loans, the next big crisis will involve second and third mortgages and lead to a another, much larger, wave of home foreclosures, which in turn will collapse prices further. Lawrence Summers (former US Treasurer and ex-president of Harvard) is one of the few who has sounded the alarm at the growing economic crisis:

Several streams of data indicate how much more serious the situation is than was clear a few months ago. First, forward-looking indicators suggest that the housing sector may be in free-fall from what felt like the basement levels of a few months ago. Single family home construction may be down over the next year by as much as half from previous peak levels. There are forecasts implied by at least one property derivatives market indicating that nationwide house prices could fall from their previous peaks by as much as 25 per cent over the next several years.

We do not have comparable experiences on which to base predictions about what this will mean for the overall economy, but it is hard to believe declines of anything like this magnitude will not lead to a dramatic slowing in the consumer spending that has driven the economy in recent years.

Nor are we anywhere near the end of the subprime disaster: another $500 billion of adjustable rate mortgages will reset by March 2008. The impact will severely weaken banks and depress the credit card, car loans, and commercial property markets.

The downward spiral is being felt in Germany.  Earlier I wrote about the forced taxpayer bailout of IKB Bank - one of the first German banks ensnared in the subprime crisis.  In August the cost of the bailout was about €3.1 billion, but now it looks like the bailout has nearly doubled to €6.1 billion. But is that the end? What is the total exposure of German investors and banks in the US commercial real estate market, and what will happen if there is a 25% "correction" in real estate values over the next 3 years?  Of course, the situation is made worse as the value of these investments on German balance sheets decline with the weakening US dollar.

Why did the German banks put so much of their capital at risk in the US mortgage market?  My old boss, Klaus Peter Mueller - the smartest banker I know - points to one reason in an interview with the International Herald Tribune:

Beyond that, Müller said, banks need to think about what pushed them into the subprime market. In most cases, he said, it is home banking markets that lacked the effervescent returns of these investments.

"Effervescent returns" is a euphemism for Greed. Beyond this K-P Mueller points to a conflict of interest which now, in hindsight, seems so blindingly obvious:

Müller said he did not yearn for a European ratings agency to counter the influence of Standard & Poor's and Moody's Investors Service, both based in New York. But he said the agencies should no longer help banks put together packages of securities, and then rate those investments.

Leftward Ho!

German and American voters are shifting dramatically to the left, and the major political parties are peddling furiously to catch up.  This report just in on the German Green Party annual conference taking place in Nuremberg this weekend:

"Germany's Green Party voted for an increase and extension of social security spending Saturday, partly rejecting some of the reforms the party itself approved when in government.

At the party's three-day annual conference in Nuremberg -- which started Friday -- more than half the 800 delegates voted in favour of extending benefits for the long-term unemployed."

This comes after the recent conference of the Social Democrats in Hamburg which was characterized by a "leftist turn" away from the neo-liberal Agenda 2010 implemented by the former SPD/Green coalition under Gerhard Schroeder.  Actually, the SPD had no choice, since it was being badly outflanked on the left by the Left Party ( Die Linke) which has lately attracted both voters and political defectors from the SPD. The trend was already clear after the national election in 2005 when the Greens,SPD and Left Party captured collectively the majority of the votes cast. Up to now, the Social Democrats have treated the Left Party as "untouchables". But there are signs that this isolation-policy may be changing.  A couple of weeks ago the weekly magazine Freitag featured a 3-way conversation between leaders of the SPD, Greens and Left Party.  André Brie of the Left Party made the following observation:

Wir haben - erstmals in der bundesrepublikanischen Geschichte - die Möglichkeit einer strukturellen und kulturellen Mehrheit jenseits von CDU, CSU und FDP. Für meine Partei kann es jedoch nicht einfach um ein numerisches Bündnis gehen. Auch nicht darum, einen Mindestkatalog, wie ihn Oskar Lafontaine beschrieben hat - Rente mit 67, Mindestlohn, Afghanistan und so weiter - abzuarbeiten. Es müsste ein strategisches Projekt sein - es geht um gravierende Veränderungen in der gesamten Sozialpolitik, der Beschäftigungspolitik, der Umweltpolitik, der Außenpolitik und der Demokratie in diesem Land. Dazu brauchen wir einen Wandel im geistigen Klima, weil es nur dann eine gesellschaftliche Bewegung geben kann, die ein solches Bündnis trägt.

In the US there is also a chance to achieve "a structural and cultural majority" (Brie) on the left.  After seven years "Bush fatigue" has set in as independent voters reject the neo-conservative foreign policy abroad and the massive transfer of wealth to the very rich at home. On every issue, from the Iraq War. to healthcare, to social security, to the environment, public sentiment leans heavily in favor of the Democrats. The hot-button social issues of previous elections such as abortion and gay rights have receded in importance for all but the extreme "Christian" conservatives.  There are indications that we will see a major "tectonic shift" in the 2008 presidential election that will usher in a long period of Democratic rule reminiscent of the 1932 election that brought FDR to power:

"Democrats believe they are on the cusp of what Schumer calls a "seminal election" that shifts the "plate tectonics" of the political map, shoring up a lasting Democratic majority for the next political generation. Schumer likens next year to 1932, a political watershed that led to Democratic control of the White House for 28 of the next 36 years and a Democratic majority in Congress over most of that period."The numbers are at record levels for Democrats," Schumer said, pointing to most recent polling data favoring his party over Republicans on many issues.On five key issues -- the Iraq war, healthcare, the economy, taxes and immigration -- Democrats hold advantages ranging from 6 to 27 percentage points over Republicans in terms of which party is more trusted. Only on combating terrorism do Republicans hold an edge, 42 to 41 percent, over Democrats"

The only question in both Germany and the US is: will the political leaders have the courage to keep pace with the electorate?

The Last Gasp of Günter Grass

Here is a sad coda for a brilliant literary career in decline: the Associated Press reports:

Nobel laureate Guenter Grass has filed a lawsuit against the publisher of his biography for claiming that he voluntarily joined the Nazis' murderous Waffen-SS unit during World War II, his lawyer said Friday.

Attorney Paul Hertin said he filed a request for an injunction against Random House — which owns the biography's publisher Goldmann Verlag — earlier this week at a regional court in Berlin. It contained an affidavit by the 80-year-old writer in which he contends he was drafted to the SS and did not join the service voluntarily, Hertin said.

The unfortunate lawsuit calls attention once again to writer's decades-long unconscionable silence concerning his role in the SS as he was serving as the self-proclaimed moral scold of postwar Germany. Grass' literary legacy is now undergoing a critical reassessment, and the results are not positive for the 80-year old writer.

When I first read Die Blechtrommel as a college student it was an exhilerating experience.  Grass' Danzig was an epic creation that could stand along side Joyce's Dublin and García Márquez's Macondo as a masterpiece of literary imagination.  The imaginative power was sustained through Hundejahre and Katz und Maus. But then Grass appears to have read too many of the critical reviews of his work, and he began to see himself as the mouthpiece for social justice, which could only be achieved through the programs of the SPD.  His work became tendentious, self-righteous - a platform for making a political statement.

I met Günter Grass once - at a Goethe Institue event in Boston where he read excerpts from his novel Der Butt. In his comments after the reading, Grass made condescending comments about America (he obviously made the US book tour only at the insistance of his publisher) and mocked the earnest questions from some of the students in the audience.  It was then that I began a serious reappraisal, and I was not shocked when I learned last year about his SS secret.

I now feel that Wolfgang Koeppen's postwar trilogy is a greater literary achievement than Grass' entire oeuvre. And the reputation of Walter Kempowski - a writer Grass dismissed while he was alive - will only grow over time.  Kempowski made it his life's work to uncover the truth in history - to make the past vivid and chronicle the present- while Grass' primary objective - we now know - is concealment.

"9/11 Changed Everything"

Earlier this month the German Bundestag passed a controversial data retention and wiretapping legislation which empowers the state authorities to indiscriminantly collect phone and internet communications of German citizens. The reaction of the opposition parties was rather fierce:

"Spokesman on legal policy for the Greens Jerzy Montag described it a "pitch-black day for civil rights in Germany" upon embroiling in a fierce exchange of words. All arguments put forward by Zypries in defence of the bill "are materially wrong and untrue". For example, even criminal offences sanctioned merely by a pecuniary penalty could trigger access to the powers. The protection of key aspects of the right to privacy in developing one's lifestyle with view to phone conversations "can never be achieved" based on the chosen wording. Therefore, "regarding your statute it is made out that you intend to eavesdrop constantly". The protection of journalists and informants would be "undermined" by the statute."

The situation in the US is much worse.  We've known for some time that the Bush administration has authorized illegal, warrantless wiretapping of American citizens.  Today we were greated with another depressing headline in the Washington Post. So now - without probable cause - the US government can eavesdrop on conversations and pinpoint locations of American cell phone users.

Dr. Dean takes us back to a time in the not too distant past when Germans and Americans could use thier cell phones and landline telephones with the presumption that the communication was private  - the days before Stasi 2.0.

In fact the German Bundestag even conducted a public relations campaign heralding the absolute privacy of all German citizens in their communication.

Translation: Flirt, malign, gossip. And nobody is listening in. 

Helmut Schmidt: US More Dangerous than Russia

Former German chancellor Helmut Schmidt told Die Zeit earlier this week that the United States is a greater danger to peace than Russia.  I cannot find the original interview with Schmidt, but Gabor Steinart has a lengthy discussion of this in Der Spiegel (English version here). Certainly, you could make the argument that Putin's Russia is a vastly diminished military force and therefore does not have the capacity to launch foreign military adventures. But that is not what Schmidt is saying here.  He sees Vladimir Putin as "an enlightened potentate" who has wisely avoided regional conflicts.  Steingart recaps:

According to Helmut Schmidt, the Russian military has not entered any foreign territory since Gorbachev came into power. The Russians, says Schmidt, have not engaged in any aggressive acts, even allowing Ukraine and Belarus to break away from the former czarist empire. And this was done without so much as a civil war, which, in Schmidt's view, is an astonishing achievement.

The track record of the US under George W. Bush is, of course, much different, with one disasterous pre-emptive war launched and much loose talk now of World War III.  But Bush is isolated, his policies discredited, while Putin has a great deal more flexibility and credibility on the world stage.  An isolated America is certainly more dangerous than a diplomatically robust Russia. But the Bush era is rapidly coming to a close, and - except for core Republican supporters - there is not much interest among Americans in waging new wars.  On the contrary, there is a hunger to reverse the damage done over the past 7 years.

But maybe Schmidt simply has a soft spot for "potentates", he told Die Zeit that Leonid Breschnev was the "most human potentate". " He showed his emotions and could shed a tear."

Misery of the German Freelancers

For the past year and a half or so Germany has been in a rare Aufschwung - a period of economic growth leading to a decline in unemployment. But who are the beneficiaries of the Aufschwung?  Not, evidently, the Freiberufler - the highly educated professional self-employed such as lawyers, architects, and journalists.

I watched this program on WDR Monitor: Frei, Selbstaendig, Arm: Das neue Alademikerproletariat(video available here). This was pretty surprising to me: architects without income, freelance journalists who work seven days a week averaging EURO 1200 per month.

Rolf Lindlar, Architekt: "Ich würde sagen, vom Aufschwung bekommen wir Kleinen groß nichts mit. Der geht hauptsächlich in den Export. Das ist auch bei Kollegen der Fall. Wenn wir da zurück kalkulieren bei dem immensen Arbeitspensum, was wir zu leisten haben, um so ein Objekt zu realisieren, arbeiten wir teilweise für Stundenlöhne unter zehn bis fünfzehn Euro."

In the US nobody cries over the fate of lawyers; they average well over the median income. But in Germany, where 80% of the lawyers are self-employed, most are earning barely enough to get by:

Gabriele Rittig, Rechtsanwältin: "Wenn man diesen Beruf macht, weil man denkt, bloß weil ich jetzt Akademiker war und hab natürlich die Jahre, in denen andere schon Einkommen bilden können zwischen 20 und 30, investiert in meine Bildung und das rentiert sich irgendwann, das rentiert sich nicht." Gabriele Rittig arbeitet jetzt auch als Buchhändlerin, um ihr Einkommen aufzubessern. Weil ihr Job sie nicht mehr ernähren kann, werden viele Freiberufler notgedrungen zu Multijobbern.

Education is supposedly the key to success in this "knowledge economy", but for these professional a long and arduous university study has led to nothing but misery.

They would have been better off becoming train drivers (Lokführer).

Forgotten Glory

JD Bindenagel, former acting US ambassador to German makes a good point that I've often pondered: eighteen years after the fall of the Wall the history of the Wende (turning point) which led to German unification, has been forgotten:

"So quickly have we forgotten those Germans in the German Democratic Republic, who in the fall of 1989 took to the streets for freedom and risked their lives and careers for their beliefs.

East Germany’s real three contributions were a revolution for freedom — disparaged as a “turnaround” in politics — a free and fair election displacing the communist regime and accession to the West German Basic Law to achieve German unity. Demonstrators pressed for the freedom to travel, while carefully avoiding confrontations with the People’s Police, the East German armed militia and their Army, which they would surely have lost.

They championed Gorbachev’s call for political openness (“Glasnost”) to help them defy Honecker. They counted on Gorbachev’s statement that those who come too late will be punished by history.

The East German revolutionaries wanted history to punish Honecker, and they marched until the East German Communist party, the SED, ousted him from office. They formed political parties under the noses of the East German Ministry for State Security (Stasi), which led to the abolition of the SED monopoly on power in the constitution. "

It wasn't chancellor Kohl - reunification was not on the agenda in Bonn, indeed, many German intellectuals such as Guenter Grass were openly hostile to the idea; it wasn't President George HW Bush, although he cetainly was supportive; and it wasn't even Gorbachev, although he unleashed the forces that sparked the transformation.  Reunification was achieved by ordinary citizens in East Germany who took to the street, risking everything in the process, demanding an end to an inhuman and corrupt system.

How many Wessis, now vaguely resentful of the Ossis for the massive federal subsidies to the new states, acknowleged the bave and peaceful actions of their fellow citizens?  Bindenagel points to Poland as a negative example of what happens when history is forgotten.  German must acknowledge the historical roots of its reunification if it is to avoid this pitfall:

Is the omission of the stories of its revolutionary birth of the Berlin Republic — daring Germans willing to confront and throw off their oppressors — not a compelling story of the fight for liberty that needs to be told and re-told?

Incidentally, I am only aware of one novel - Novembermärchen: keine bleibende Stadt by Otto Emmersleben - that deals with Die Wende from an eastern German perspective.  Any other reading suggestions greatly appreciated.

Honeymoon from Hell

Welcome to Wolfgang Schäuble's Germany, where neighbors are encouraged to spy on each other and the state monitors every e-mail and cell phone call.  This time Schäuble's tactics have hit close to home - affecting our blogging colleague Omar Abo-Namous, a good friend of Dialog International. What should have been a joyous occasion turned into a nightmare for Omar and his bride. Omar exchanged vows with Kathrin Klausing (a convert to Islam) in Hannover and wanted to spend a brief honeymoon at a cottage in the idyllic Lüneburger Heide. Since they don't own a car, the newlyweds took a train and taxi to the rented house. After a quiet game of Scrabble, Omar and Kathrina were preparing to retire for the evening. 

What happened next was something out of a wet dream of Rudy Giuliani.  Kathrin describes it detail on her blog. The house was surrounded by the local police; two officers enter the cottage and search the bedroom for "evidence" and check the couple's identification papers with the "authorities".  Kathrin asked the commanding officer why they were being searched. Evidently the police had received a report from a "concerned citizen" that an "middle-eastern" looking couple had arrived in the village "without an automobile". That was enough to raise suspicions of "terrorist activities". Actually, Kathrin and Omar got off rather easily: the police apologized for disturbing their honeymoon and left when they realized they had made a mistake. Under a Giuliani Administration they would have undoubtedly been subjected to waterboarding harsh interrogation techniques (verschärfte Vernehmung).

The unfortunate incident was reported in the local and international press, and Omar is considering legal actions against the police for the unwarranted intrusion.

What stands out for me was this exchange between Kathrin and the police while they were conducting their search.

Kathrin: What kind of a country is this?  Police: A safe country.   

That brings to mind this statement of Benjamin Franklin: "A nation that exchanges liberty for security deserves neither"

Uncomfortable Truths

Some things are perhaps better left unsaid. 

Wolfgang Thierse (SPD), vice president of the Bundestag, caused an uproar today with his comments concerning ex-chancellor Helmut Kohl in an interview with the Leipziger Volkszeitung. Speaking about the decision of Franz Müntefering to resign his position as vice-chancellor to spend time with his terminally-ill wife ( NY Times story here) Thierse said the following:

Es ist eine unpolitische Entscheidung, dass Franz Müntefering seine Frau in der letzten Phase ihres Lebens direkt begleiten will. Seine Frau im Dunkeln in Ludwigshafen sitzen zu lassen, wie es Helmut Kohl gemacht hat, ist kein Ideal. Ohne dass das vergleichbar wäre. Die Politik ist nicht das Allerwichtigste. (it was not politics that made Franz Müntefering decide to accompany his wife during the final phase of her life. Leaving one's wife in the dark in Ludwigshafen like Helmut Kohl did is not the ideal. Without trying to make comparisons.  There are more important things in life than politics.)

The key phrase that gave offense was "in the dark" (im Dunkeln).  Let's look back to July 2001:

Hannelore Kohl, the wife who stood by Helmut Kohl during a long political career that peaked when he became German chancellor, committed suicide out of despair at a painful allergy that forced her to avoid daylight, Kohl's office said Thursday. She was 68.

Hannelore Kohl's body was found by the wife of Kohl's chauffeur at the family's bungalow-style house in the western city of Ludwigshafen, authorities said.

Kohl's wife had suffered for years from a sunlight allergy that recently worsened, forcing her to spend the last 15 months avoiding daylight. ''She could only leave the house in the complete darkness,'' a statement from Kohl's office said.

Helmut Kohl was not with his wife in her final moments of despair. In fact, he was far away in Berlin conducting politics as usual.  All throughout her awful illness Kohl was away from his wife:

Hannelore Kohl was at the side of her husband during his 1982-98 tenure as chancellor - culminating in German reunification in 1990. She supported him during the slush fund scandal that threatened his reputation afterward. The couple had been married since 1960, drawn together by a common love of the tango. When Kohl lost the chancellorship, his wife thought they would have more family time. But Kohl kept his parliament seat and vigorously fought the corruption allegations, spending much of his time in Berlin while she stayed at home 630 kilometres away and her condition worsened.

I think most people at the time thought that Kohl's treatment of his wife was at best callous. So factually there is nothing to dispute with Thierse's comments.  But now many in the CDU/CSU are outraged and yellling for Thierse to resign.  Chancellor Angela Merkel has called the comments "disgraceful".  Thierse has been forced to backtrack and apologize. 

Reminds me of this line uttered by Jack Nicholson in A Few Good Men:  You can't handle the truth!

Nuclear iPods

On the eve of Chancellor Angela Merkel's visit to the US last week, Die Welt published an editorial which still has me scratching my head.  Read Alle Wege führen nach Washington.  The editorial ends with this incredible statement:

Es wäre ein Fehler zu glauben, Amerikaner hätten Freude daran, ihre Kinder in Übersee fallen zu sehen. Aber man bekommt nicht den iPod ohne Stealth-Bomber. Die Unbekümmertheit des einen gehört zur Unbedingtheit des anderen. Sie sind Ergebnis einer Freiheit, die Amerikaner glauben verteidigen zu müssen. Und wenn sie das tun, haben sie einen drohend langen Atem.(It's a mistake to believe that Americans take any pleasure in seeing their children die overseas. But you can't get an iPod without a stealth bomber. The carefree nature of the one goes together with the necessity of the other. They are both the result of the freedom that Americans believe must be defended. And when they defend it, they have frighteningly large amounts of stamina.")

There may be some who really believe that engaging in unnecessary, pre-emptive wars is somehow connected to the development of the iPod. But innovation is happening all over the world in nations that promote peace and that spend a fraction of their GDP on their military compared to the US. How to explain the success of Nokia in Finland or Research in Motion in "socialist" peace-loving Canada?  It is true that the US leads the world in the production of WMDs and innovation in instruments of death ("smart bombs").  And there may be some that actually believe that the mis-adventure in Iraq has something to do with "defending freedom". But the vast majority of Americans do not - they are out of "stamina" for misguided military adventures that are tearing apart families and ruining lives across the nation. Maybe the editors of Die Welt, safely ensconced in Hamburg, don't have a clue concerning the pervasive anger that one can easliy perceive in nearly every community in America just now.

Is this the dumbest editorial to appear in Die Welt? No, that honor belongs to this piece by Roger Koeppel in which he makes the claim that the Weimar Republic fell because it banned the practice of torture.