Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

Among the European sponsors, German financial institutions were particularly prominent, and what was remarkable was the kind of German bank that was involved. Germany’s giant, Deutsche Bank, was a leading player on Wall Street. It is not for nothing that it featured as prominently as it did in Michael Lewis’s bestselling narrative of the crisis, The Big Short, or in the subsequent Senate investigation.9 Dresdner Bank, Germany’s number two, was also heavily involved in the United States. But it was Germany’s smaller regional banks, the Landesbanken, that threw themselves head over heels into the American adventure. In the early 2000s, at the insistence of Brussels, the Landesbanken were stripped of the local state guarantees that lowered their funding costs. They responded by taking a punt on adventurous financial engineering. Banks from the former industrial heartland of Germany, such as Sachsen-Finanzgruppe, WestLB and IKB of Düsseldorf, took huge gambles on real estate investments in the United States. At least four German sponsors—Sachsen, WestLB, IKB and Dresdner—had ABCP exposure large enough to wipe out their equity capital several times over.