Germany, Sub-Prime Mortgage Backed Securities, and Scatology

Germany, Sub-Prime Mortgage Backed Securities, and Scatology

Michael Lewis continues his around the world tour of the 2008 financial crisis from the view of Germany: It's the Economy, Dummkopf!. The story in the September issue of Vanity Fair seems to be all about excrement. We heard that there were big chunks of the mortgage securities business that were terrible. There is the famous email describing the Timberwolf as on sh*tty deal.

Lewis did great job offering some insight from Ireland, Greece, and Iceland. In this story he seems distracted by feces and Nazis. The biggest insight I took away was:

At bottom, he [Dirk Röthig, of the German financial institution IKB] says, the Germans were blind to the possibility that the Americans were playing the game by something other than the official rules. The Germans took the rules at their face value: they looked into the history of triple-A-rated bonds and accepted the official story that triple-A-rated bonds were completely risk-free.

IKB and many of the other German banks thought they were getting a good return on the mortgage-backed securities with little risk, but were actually getting a sh*tty deal. I get it. But I think he belabors the metaphor.

Michael Lewis could write about the economics of a paper bag and I'm sure it would be interesting story to read. In fact, I paid for a subscription to Vanity Fair just because of his articles. This one came up a bit short. Maybe he just thought the underlying story was not interesting enough so he spiced it up with lots of stories about German scatology. He layers in some Jewish alienation in Germany for some spice in his the discussion of feces.

It's the Economy, Dummkopf! is still worth reading and still offers a few great insights into the 2008 financial crisis.


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