If I have seen further it is by standing on the shoulders of giants.

Friday, December 30, 2011

GREAT INTERVIEW: 'Money Needs Laws' with Former Deutsche Bank CEO

As the former head of Deutsche Bank, Hilmar Kopper was once the most powerful banker in Germany. In an interview with SPIEGEL, the 76-year-old takes stock of his career and the current crisis shaking Europe. The three main constants he has seen in the world, he says, are "money, avarice and greed."

SPIEGEL: Mr. Kopper, to this day, you are still viewed as one of Germany's most accomplished financial professionals. When was the last time you were berated as a banker?

Kopper: Oh, it happens all the time. But sometimes people also ask for explanations. At any rate, I try to grapple with their accusations, even though they are often irrational, full of resentment and almost devoid of any knowledge about the subject. I am an old man and no longer have to worry about offending people. Of course, that doesn't mean that I have become the apologist of my profession. After all, I've been a banker for more than 55 years, and I still like doing it!

SPIEGEL: Then you ought to be worried, because resentment toward your industry now extends into the upper classes.

Kopper: Since when is the upper class a benchmark of judgment? I admit that banks haven't done everything well and correctly. There were excesses, like unnecessary financial products and false incentives. In short, mistakes were made, the kinds of mistakes that have been inherent in every innovation and every bubble from time immemorial, and that emerge when the bubble bursts. Everything has its price.

SPIEGEL: National lawmakers can hardly keep up with the pace of monetary transactions. And there are hardly any international controls.

Kopper: There was a promise of better international regulation. But this promise hasn't been kept, at least not until now. I certainly find fault with that. We mustn't forget that regulators, custodians and rating agencies also bear some responsibility.

SPIEGEL: Many of your active colleagues tend to duck away whenever someone asks for an explanation or even an opinion.

Kopper: I can understand the reluctance of my younger colleagues. The level of discussion is simply too flat. And then they're afraid of being asked the question: What have you yourself done? It resembles the question that my generation still asked its fathers: Where were you in this war?

SPIEGEL: People don't die in the financial crisis ...

Kopper: ... but values do -- in every sense of the word.

SPIEGEL: A letter bomb addressed to your successor, Josef Ackermann, was recently received at Deutsche Bank. That too is an expression of anger.

Kopper: Such actions have also taken place in the past. One shouldn't take this sort of thing so seriously, particularly as the people pulling the strings are apparently always willing to sacrifice the "wrong ones": secretaries, messengers, postal workers. But it also shows where the hatred that has been stirred up can lead. And besides, "the banker" as such doesn't really exist.

SPIEGEL: There's one sitting in front of us.

Kopper: I'm old school, so to speak. Often, when people are berating "the banks," they're really talking about completely different things: derivatives, commodities trading, foreign currency.

SPIEGEL: These are all businesses in which banks are involved.

Kopper: But usually just on behalf of pension funds, very large hedge and sovereign funds and wealthy investors. Never in the history of mankind has there been so much money in circulation, and never before was it possible to trade with it so quickly. And never before has this money used the entire planet as a playing field, as is the case today in the era of globalization. That's the way it is and the way it will remain. There can be no turning back the clock. How shortsighted people must be when they hold bankers responsible for this development!

SPIEGEL: Who do you think is primarily responsible for the crises?

Kopper: We're dealing with multi-causal failure. It didn't just start with the American central bank, the Federal Reserve, which permanently made money cheap after the attacks of Sept. 11, 2011. It was the declared goal of American policy, under Presidents Bill Clinton and George W. Bush, that every American was to own his own home. Many poor people, in particular, were lured in, people who couldn't afford this dream at all. The banks turned this into a huge business, the rating agencies provided incorrect ratings, and many countries -- both the United States and in Europe -- did not have their debt under control before the financial crisis erupted.

SPIEGEL: Do you have any sympathy for the new Occupy movement?

Kopper: Forgive me for being so direct, but I've hardly heard it utter a single reasonable sentence so far. It's all vague criticism of capitalism, markets and the market economy in general. I'm not interested in political correctness and I'm not about to pretend to have any sympathy for this movement now. It isn't just politicians of all stripes who have been doing this lately. No, I really don't understand the Occupy people.

SPIEGEL: It seems to us that the main problem is that many people don't even understand what the issues are that concern the European Central Bank (ECB), the European Financial Stability Facility (EFSF) and the International Monetary Fund (IMF) in the fight against swaps and bonds, and for bailout funds and leverage.

Kopper: Well, I can easily explain the leverage for increasing the size of the EFSF: What does a mother do when the doorbell rings and the relatives are standing outside? She goes into the kitchen, and you hear the sound of the water she is adding to the soup to make it last longer. That's how leverage works. It makes the soup thinner.

SPIEGEL: Comprehensibility would also create confidence.

Kopper: You know, I still receive a very small pension from the British government. I was a member of various boards of directors there, which meant I was automatically included in the social security system. It comes to about seven pounds a week. And whenever the amount is adjusted, I receive a wonderfully short and clear letter from the British government agency. We have to return to that in all respects. To comprehensibility. Then people will be enthusiastic.

SPIEGEL: There is actually money available to finance goods and services. But nowadays, it often simply generates more money.

Kopper: Whether you like it or not, the goal, everywhere and always, is to turn money into more money. What other purpose do foreign currency reserves have? In the past, they were truly intended to collateralize currencies like the deutsche mark. But today? The Bundesbank's gold is nothing more than a slice of the nation's assets and, at the same time, the basis for speculation. That's why politicians always want to get their hands on it.

SPIEGEL: Every year, real goods and services worth about $70 trillion (€54 trillion) are created worldwide. In the same time period, turnover on the foreign currency markets amounts to $1.007 quadrillion. The virtual world is completely disconnecting itself from reality.

Kopper: Of course this is seen as a discrepancy, which some like to connect to the demand that banks become more involved in the real economy and issue commercial loans. But that is precisely what they do, most of all.

Continue reading - SPIEGEL - Former Deutsche Bank CEO Hilmar Kopper: 'Money Needs Laws'

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