Posted by: Dirk | December 13, 2008

Finanzmarktstabilisierungsfonds – a short critique

The Finanzmarktstabilisierungsfonds in Germany is the equivalent of Paulson’s bailout plan in the US. This plan has been very obscure from the beginning, and the idea of how to spend the money has already changed from buying toxic assets to recapitalizing banks. The plan has been criticized heavily (The Nation):

A kindred critic, Josh Rosner of Graham Fisher in New York, defined the sponsors of this stampede to action: “Let us be clear, it is not citizen groups, private investors, equity investors or institutional investors broadly who are calling for this government purchase fund. It is almost exclusively being lobbied for by precisely those institutions that believed they were ‘smarter than the rest of us,’ institutions who need to get those assets off their balance sheet at an inflated value lest they be at risk of large losses or worse.”

That critique does also apply to the German Finanzmarktstabilisierungsfonds. Last week I attend a symposium on the financial crisis at the University of Oldenburg, with law professor Götz Frank talking about the subject. He was very critical about the role of advisers (so-called Sachverständige). After one of the biggest banking crisis in Germany, caused partly by German banks buying assets with risks they did not understand, who would be called for as an adviser to the law maker? Yes, right. The banking industry. And that was it. No representatives of tax payers, unions, or anybody else from the non-banking community was asked to give an opinion. This is actually not illegal, but then it is not democratic either.

What might have been illegal was the way the law passed through the political system. A reasonable amount of time has to pass between introducing the law and passing it, so that media and the general public have time to discuss the law. This has not happened. The law was put on fast track.

Another similarity to the Paulson bailout plan is that minister of finance, Peer Steinbrück, is the 500 billion euro man. That is a huge responsibility. Just a week later, the federal budget for 2009 was passed. It is only 290 billion euro. But, we had a discussion, there are checks and balances, and the responsible people are legitimized by democratic vote.

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