Markus Klier

Culture Cash and Asset Trash

Since the early nineties of the last century (with a significant exception of 9/11) Wall Street was the power house of the world economy. It was a remarkable success story driven by liberated financial markets, a booming investment banking sector with seemingly everlasting growth, and continuous double-digit profits and massive bonuses for company executives.

And then this: Lehman Brothers - gone! Washington Mutual - split and overtaken! Morgan Stanley - teetering every day! The ongoing financial turmoil leaves deep scars not only on Wall Street, but in the world economy. The whole free financial market religion appears to be coming to an disasterous end, triggered by the sub-prime disaster as one investment bank after the other falls apart.

How could this happen? Who is responsible? Is it primarily an American and Anglo-Saxon problem? Germany‘s Finance Minister Peer Steinbrueck told the German Parliament just that. He continued in unusually sharp words to say that the global financial crisis was spawned by a blind drive for higher profits and that the U.S. will consequently lose its financial superpower status.

Is there any truth to that? If a permanent failure in the financial system is to be assumed, what could have prevented it? Has the spirit of free market completely lost its appeal?  Will it be replaced by the holy grail of a completely different kind such as a complex and strictly regulated global financial system, possibly controlled by the IMF?

From a Continental European perspective (usually referred to as "Rheinisch Capitalism"), it is clear that there have to be checks and balances to oversee abuses in the financial markets.

This has deep cultural roots. American and English governments usually strive for a near perfect absolute freedom of the markets; while countries like Germany and France choose a much more regulatory approach. In other words, they pick "control" over "freedom". This approach has multiple consequences. Firstly, Germany and France are growing much more slowly economically than free market driven Anglo-American countries. The job market is less volatile, but the downside is that it is also much less flexible, resulting in a subtle job creation in boom periods.

Also finance centers like Frankfurt and Paris lost even more ground to New York and London who co-shared the top spot in the financial world for many decades. France and Germany social mores could not and would not follow the free wheeling philosophy of market liberalism without control originated by Reagan and Thatcher and expanded by Bush Jr. and Blair.   

When the markets took a hike into unknown growth and consequently staggering profits in New York and London, Frankfurt and Paris were left the crumbs on the table. With the market walls tumbling, the effect in New York and London is devastating. In Germany and France to date are mildly stirred, but not shaken to the core by the turmoil.

The two world financial capitals may lose their position due to this crisis. It will most certainly not be the European centers to pick up the scraps; more likely Asia will develop into the strongest financial center in the months to come. Especially if the 700 Billion bailout plan falls short and the U.S. consequently falls into another Great Depression.

An old German limerick states if you point with one finger at someone at least three fingers point back at you. Greed and irresponsibility are common in the Swiss, French and German banking elite too. The sad examples of the Hypo Real Estate and UBS show this clearly. However, in Continental Europe a strong opinion is present that the rush for short term profit needs to be put in handcuffs while we still can.   

So what‘s the plan? From a German perspective these steps should be taken:

● The world financial market needs clear cut global rules of conduct and economic safety standards.

● There needs to be a control system for all financial institutions, including private-equity-firms and funds, as well as for all financial instruments.

● The practice to redistribute credits to institutions in countries mainly in the Caribbean without functioning departments for financial supervision has to be prohibited.

Will all this shrink profits? In the short term, sure. Yet these steps can create a safer and more secure financial system with a long term stabilizing effect on the world economy. So, how about we begin that process right now?

mk 20081003

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Markus Klier is a Software Entrepreneur and Educational Counselor from the vibrant German capitol of Berlin. He contributes the Central European perspective to the world of GoodB. Markus is a former German filmmaker and Political Science commentator. He holds a Master's in Political Science from Frei Universitat in Berlin. He is currently a marketing maverick of cutting-edge Central European technology.