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August 27, 2011

Win the Culture. [ArthurK]

Michael Lewis (The Blind Side, Money Ball, Liar's Poker) has a typically long and typically brilliant article in Vanity Fair. It's about the European financial crisis, Germany's role in it, the sub-prime catastrophe and the German bank's role in that.

Normally, I'd just link it in the sidebar but there's a paragraph I want to highlight. This is in reference to what Germans did during the boom period before the bottom fell out of the sub-prime market.

"There was no credit boom in Germany," says Asmussen. "Real-estate prices were completely flat. There was no borrowing for consumption. Because this behavior is rather alien to Germans. Germans save whenever possible. This is deeply in German genes. Perhaps a leftover of the collective memory of the Great Depression and the hyperinflation of the 1920s." The German government was equally prudent because, he went on, "there is a consensus among the different parties about this: if you’re not adhering to fiscal responsibility, you have no chance in elections, because the people are that way."

And my point?

Recall day 10 of After America Blogging.


I do not believe that the solution to our problem is simply to elect the right people. The important thing is to establish a political climate of opinion which will make it politically profitable for the wrong people to do the right thing. Unless it is politically profitable for the wrong people to do the right thing, the right people will not do the right thing either, or if they try, they will shortly be out of office. - Milton Friedman

See! See! It didn't matter what the laws or regulations said about that type of speculation. The German fiscal culture didn't allow it so it didn't happen.* Remember that as we try and recover America. We need to change the culture so it doesn't matter if we elect the right people or not.

*As you'll see in the article, they got screwed in a far different way. Doesn't make my point look flawless...

Back to Lewis. Like I said, it's a great article - you should read it. Here's a couple of tidbits to pique your interest.

Extremely smart traders inside Wall Street investment banks devise deeply unfair, diabolically complicated bets, and then send their sales forces out to scour the world for some idiot who will take the other side of those bets. During the boom years a wildly disproportionate number of those idiots were in Germany.

and

This preternatural love of rules, almost for their own sake, punctuates German finance as it does German life. As it happens, a story had just broken that a division of a German insurance company called Munich Re, back in June 2007, or just before the crash, had sponsored a party for its best producers that offered not just chicken dinners and nearest-to-the-pin golf competitions but a blowout with prostitutes in a public bath. In finance, high or low, this sort of thing is of course not unusual. What was striking was how organized the German event was. The company tied white and yellow and red armbands to the prostitutes to indicate which ones were available to which men. After each sexual encounter the prostitute received a stamp on her arm, to indicate how often she had been used. The Germans didn’t want just hookers: they wanted hookers with rules.

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posted by Open Blogger at 03:23 AM

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