Swatting ‘Locusts’: Germany and the EU Take Aim at Investment Funds
“For the locusts in the finance sector, a new age is dawning.” This is how German Social Democrat and Member of the European Parliament Udo Bullmann commented on the prospect of new EU-wide regulations for hedge funds.
Bullmann is the spokesperson on economic matters for the delegation of German Social Democrats in the parliament. Bernhard Rapkay is the chair of the Social Democratic group, and Rapkay is quoted saying exactly the same thing in his own press release. “It is high time that we get serious about regulating highly speculative funds,” Bullmann and Rapkay continued unisono. “Europe cannot look on without doing anything when financial gamblers are driving whole countries or branches of industry to the wall.” Party discipline in the German Social Democratic Party appears to be very strong indeed!
The comments were made last Tuesday after the parliament’s Committee on Economic and Monetary Affairs voted in favor of a new European Union directive regulating “alternative investment fund managers.” Later that day, the finance ministers of the 27 EU member states likewise gave their nod to the directive. The action had long been resisted by the United Kingdom, where some 80% of Europe’s hedge funds are said to be based. But on the urging of Germany, the matter was now brought to a vote. “That’s the way it is in Europe,” German Finance Minister Wolfgang Schäuble remarked dryly. “There are decisions that are taken against [the will of] a single member state.” A final version of the law has still to be approved by the full parliament.
The move came amidst widespread talk in Europe of a full-blown “euro-crisis” and vague accusations that financial actors were guilty of “speculation” against the securities of highly indebted EU states like Greece and/or against the euro itself.
The Social Democrats’ “locusts” comment harks back to April 2005, when then party chairman Franz Müntefering launched an attack on investment funds, charging that:
Some finance investors don’t waste a moment’s thought for the people whose jobs they are destroying. They remain anonymous, faceless, they descend on enterprises like swarms of locusts, pick them bare and then move on.
Running deficits for ever would work if it weren’t for those darn investors.
Riiiight.
This reminds me of the whining by US unions agains so called corporate raiders back in the 1980′s
Great article. Unfortunately, a lot of the opinions in Germany about “real work” in manufacturing and “suspicious work” like financial services and the service industry in general have not changed much over the last 100 years. I could count on one hand the people I know here who don’t believe that greedy, foreign interests are out to suck Germany bone dry from the outside through hedge funds. It is an amazingly pervasive attitude and as such, makes for an excellent boogeyman. Which is exactly what this is. The Eurocratic elite refuses to backpedal one iota and admit that they have made some massive mistakes regarding, in no particular order, the structure of the Eurozone, the unsustainable welfare dependency, ill-advised immigration policies, government regulation, and the lack of economic growth.
Europe can blame speculators all they want; at the end of the day it is their own low to no growth tax much and spend more social systems that have gotten them in this mess. Until they start attacking them, they’ll never get out of the current crisis.
With the finger pointing taking place between governments and the financial sector, neither wants to own up to the latest manifestation of cooking the books. Banks and bonds, unless they are as solid as the Rock of Gibraltor, are simply not worth what they say is the case.
Now, getting around that, makes nailing jello to the wall look easy by comparison.
What functions do hedge funds have? Do they help the companies involved? In the great old days before hedge funds were allowed in Germany, the managers of companies had to consider the following: The articles the company produced had to be of good quality, they should be easily sold(price accepted by the buyers of article)? Do workers earn enough? Are all social standards considered? What about environmental factors? And last but not least: Is the invested capital a good investment for the person who contributed the capital. In short: Investors have been persons who invested(share holders)…but they never have been seen as owners of the company. Meanwhile Germans have a lot of experience with hedge funds. oh pardon, with people who own the company(share-holders as defined by Americans). It is always the same process: Investors buy a company with practically no own money but cheap money lend by banks, then they give the money back to the bank and charge the account of the company with the debts..oh, the invested money, excuse me). Then the investors sell everything that can be sold, fire most of the workers, then give the rest of the company back with the advice to fire all workers and go to Asia or to Mexico in order to produce articles. Nice investment, really. At home I have a letter of the office of the former chancellor Schröder in which is written that hedge funds will bring Germany forward in economical terms. Good arguments for people whose aim it is to destroy Germany. Yes, the French love to take over German companies, too but they never allow the Germans to take over any French company. Therefore, hedge funds are nothing more than Raubritter and should be treat like Raubritter. Though Americans and British profit most of hedge funds, American workers are not better off than Germans(I am not a worker but I identify with them). Economy is for the well-being of all people and not only for the rich and greedy ones. Just a thought: Are hedge funds behind all those nasty articles written about Germany? No news without the German warriors. Do you want to take over Germany?
“American workers are not better off than Germans”
Yes they are. Starting during the Wirschaftswunder and lasting until about 25 years ago was a trend of convergence; that is, that Germany, the poorer country, was growing quite quickly and was catching up to the American economy. This only makes sense due to the large rebuilding process after WWII and the idea of diminishing returns. Poorer countries should naturally catch up to richer ones. Then in the mid-80′s or so, the trend reversed itself and hasn’t stopped. What caused this divergence between the two? Europe chose to go down a path of lower growth willfully. They maintained much higher levels of unemployment, and the unemployed remained out of work much longer. Wages, due to the pressure of high unemployment, quite naturally sank relative to American wages partially due to the fact that unemployment was about half of what it was in Germany. The difference in wealth between the average German and the average American is quite stark. Look for example at home ownership. Even after the housing crisis, the average American worker classified as poor has a greater chance of owning a house than the average German. Under the continuing divergence, within the next decade, the difference between the United States and Germany will be as large as the difference between West Germany and East Germany at the time of reunification. When the wall fell down, do you remember which way people came running? Same situation here.
I also have issue with another statement you made: “Economy is for the well-being of all people and not only for the rich and greedy ones.” This shows a very interesting point of view on your part. Here you are trying to contrast all people on one side versus “the rich and greedy ones” on the other side. Are you telling me that only the rich are greedy? As Milton Friedmann said, “it’s always the other fellow whose greedy” which pokes quite a whole in your world view. Personally, I think the long-term unemployed are greedy. Why do they think they have a right to live off of someone else’s earnings? Is this not also greed? The greediest people in all of Germany are the so called “work-capable Hartz IV recipients” which represent around 5,5 million people out of a working age population of less than 50 million. If you are looking for greed, why not find it where it is most obvious?: in the group of people who are able to work physically but still accept dole payments for years with little or no intention of seeking or maintaining gainful employment. Would you not call it “greed” that over 10% of people who are physically able to work do not do so and intend on living solely from the taxes of their fellow citizens, rich, middle class, and poor alike? It is more than the “rich” that are greedy. Despite the fact that Germany has so many welfare dependent “robber-barons” leeching off the productivity of others, they still have a standard of living far above what you find in the developing countries. Even though they are not contributing to society, they are reaping benefits from it.
Is this not greed? Or are you less concerned with greed and more concerned with stirring class hatred and helping the professionally unemployed legally jack the productive members of society through wealth distribution policies?
Waiting for you answer.
Who is speaking? And to whom? Jacob, reading your arguments, I might be tempted to say “typical American, indeed”. However, I know that you are living in Hamburg for some years.Therefore you might know more about Hamburg than I ever will do. However, I fear that the way you and I see Hamburg and the world differs widely. Hamburg is a rich city, so is the state I live in – Bad.Württemberg. No, I am not one of those Swabian housewives Frau Merkel loves to cite. The Hausfrau Frau Merkel refers to is deeply embedded in the Protestant culture Max Weber described(work and pray). Well, time flows and the term “pray” might be replaced by the term “save money”. In contrast, Oberschwaben, the place where I live is deeply rooted in the Catholic culture: work hard, save some money, build a house (preferably with your own hands, celebrate a lot but never forget those less lucky than you). Till 1804 or 1806 the small towns here belonged either to Austria or the Catholic Church. While religions do not matter too much nowadays, Weltanschauungen and culture seem to do. That is why I might view the world from a Catholic-conserative-liberal perspective(though this might be a contradiction). 1. workers and other people and houses in the US and Germany. Houses and grounds are far cheaper in the US than in Germany (N.York excluded, the flats are very small and expensive there). The quality of your houses seems to be less good in the US than in Germany. You just build for some years, we for eternity – though eternity was a bit short sometimes. Yes, all people in America have a better chance to own a house than in Germany. By the way, I have never seen so many credit- cards anywhere but in the US. Yes, my husband and I own a house, but one can only ask the bank for 60 -80 per cent of the price of the house, the rest of the money one must have on the own bank account. Here, we must save money some years before we can buy a house – in the US one could lend more than 100 per cent. American virtual money against German cash I would say. Milton Friedman – the master of greed – greed is a virtue – and friend of M. Thatcher. The Brits sold everything and now the money is spent and debts remain. Well, our “elite” is not better. Some towns sold even their electricity and water systems to American “investors”. Prices for consumers did rise and the systems did rot. Now the towns own the systems again. I guess our image of a businessman is rather out of time. Deception is not a virtue in Germany. I respect people who are rich because they worked hard but I dislike people who just tend to take away our fortune and leave behind a mess. I stop here and answer the rest in some hours.
I don’t think you will like what is said about the German Landesbaken here:
Interesting stuff Mr Livesey. Let me try and match up to your standard.
The seizure of Cajasur has not attracted the attention of we bloggers in the way I might have expected, despite a number of mentions by correspondents in these pages. I think it is mightily important.
Banks around the world, and most certainly across Europe, are exposed to many bad debt risks. The Italians have just removed the requirement for mark to market on bond holdings. why, one might ponder, do such a thing. Plainly the only reason can be to avoid Italian banks having to own up to trading while insolvent. The Swiss are famously opaque. French institutions often represent channels for their government to indulge in veiled trading and strategic acquisitions, or the funding thereof undertaken by key French industries. The German Landesbanken have been widely discussed vis a vis having massive undisclosed liabilities which if properly accounted would also render them insolvent. Spain (a country I love and admire) has had serial banking scandals in the boom years and very clearly the cajas must at best be in parlous condition given their property sector has utterly collapsed. add that to horribly high unemployment and it is difficult to see how the Spanish government can magic up the funds to rescue Cajasur, let alone if any others fail. In my work I have done business with European and other international institutions very widely, and can say with great conviction that the accounting perpetrated by most of them, barring usually the Aussies, Kiwis and Yanks, bears negligible relation to reality. Yes, I’m including the Germans in the list of Booker Prize nominees. China? Fantasy central.
My point?
For years, many institutions, including national governments, have lied themselves silly about their finances, sometimes underplaying profit, often refusing to account for losses or accrue for liabilities or bad debts. A prime example of fraud-raddled malfeasance is of course the EU itself. The consequence is that many are in truth bust (they may not even know it themselves), and it is nigh impossible tobe sure which are sound from unsound. That is one reason Uk gilts are seen as a safe haven. whatever else, they are obviously considered to be less prone to false book-keeping than most others.
The further consequence is the inevitable paralysis of markets, and that is why I think there will be a double dip, worse than before and probably accompanied by major civil unrest. I even wonder if we will not see a government overthrown. Extremism foments in just these circumstances.
Just think, all this for the sake of some votes and some bonuses.
Jonathan mercer
on May 26, 2010
at 05:57 AM
Which is found here: http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7765383/Double-dip-fears-over-worldwide-credit-stress.html
Tell me, are you a complete econommic illiterate, or do you just play one on TV?
“The difference in wealth between the average German and average American is quite stark”? Regarding house ownership, o.k., you might be right. What about health care? What about holidays? How many days a year people get paid holidays? How many hours they have to work? I think these questions matter when you are working. Who pays the pensions and how high are they? The cost of living – is it expensive? I think all these issues should be considered. Isn’t there a pension fund for Californian teachers, for example? Who pays into the fund? What about average wages? Do they give some information about the distribution of wealth? Up to 1989 we used to be the second richest country in Europe (behind Luxembourg). Since our re-unification we are well behind Luxembourg and I think even Britain and France. We had to shoulder the whole unification alone and to pay as always most to Europe. I think Poland, Bulgaria etc. and their low wages had a significant negative effect on our economy. Many companies closed here and moved to Poland. Poland could give them money out of the European fund for development(East Germany got a bit money too – we paid for both). Greed, how do you define greed? No, I do not think that Hartz IV people are greedy. When the company my husband worked for invited all over 55 to leave the company my husband was a bit disturbed but then he took the 2o ooo euros and left. Now we are both self-employed and he gets rente – he had to accept a 10 per cent reduction when he left. What should he have done if he had not had another option? Hartz IV is very evil for older people because they get fired but never hired. Our companies love the option that they can hire people for a few Euros some months. Hartz IV is a means for even lower wages, nothing else. I think there should be some dignity left for all people who live in Germany. Twenty years ago, the East Germans cried “We are the people”. Personally I think we are simply the fools. — English masters and other degrees. Since two or three years they are recognized in Germany – they accept it now. I studied Diplom Kaufmann/Frau in Germany with focus on taxes. My master degree from a British University was not accepted ten years ago – but is accepted now. Oh, by the way, in 1974-75 the dollar was so low that people in Bavaria collected money for US soldiers stationed there. The Dollar did fall too, sometimes.
Health care.
Better in the US.
Cost of living, much higher in Germany.
The upper middle class German would have trouble making it into the middle class in the US.
I agree. The cost of living here is astronomical. It is interesting to see naive anglos fresh off the bus in Germany; the vast majority do not make it here one year due to the high CoL combined with low salaries. Many Germans my age (early thirties) are barely able to afford a car unless it is a gift from their parents. A recent description of poverty in America shows that poor Americans stack up quite nicely with the average German in many ways. The average American in the bottom 20% of income is more likely to own a car, their own home, and a computer than Otto Average earning a median German salary.
I would also like to point out that the typical German fallacy that this higher standard of living is built on credit card debt does not hold water. In fact, the typical German has far more debt than the average American. It’s called government liabilities. Middle Class Germans have the purchasing power of poor Americans; poor Germans live on slave wages or on the government gravy train.
In the issue of expediency, I’ll try to keep this short. It seems you have bought into the traditional German argument that “rich” and “greedy” go hand in hand. This is not the case. I was talking about the long term unemployed that do not fall into the category of “arbeitsunfähig”, those who for reasons of health cannot work. What about the low and no skilled workers who prefer to live on Hartz-IV because this provides them with a better standard of living than their abilities can provide them? How can you say that this is not greed?
As far as the eastern expansion of Europe, Germany missed a great opportunity here. Geographically, politically, and economically, Germany should have been in the position to capitalize on the opening of eastern European markets; unfortunately, they did not. As usual, the German government dithered and lost the opportunity through indecisiveness. One of the major reasons that Germany could not reap the benefits of the lifting of the iron curtain is that your labour system is archaically inflexible. I have a British Masters degree as well, speak German and French, and was running a successful business in Germany until your Ausländerbehörde (INS) declared me “ungelernte Kraft” (unskilled labour.) Most of the foreigners I know here have had the exact same problem. Have you ever wondered why Germany only seems to attract unskilled labour? It is because it is not very profitable to be highly skilled here. Amongst other structural problems that Germany has that are not found in America is the extremely low participation of women in the workplace and the difficulty of younger and older workers.
I will certainly agree that the Germans have been fooled; your politicians sold you a bill of goods that failed to deliver. In order to find the appropriate scapegoat, the Germans have again fallen on the trite and useless “„Wir müssen denjenigen Unternehmern, die die Zukunftsfähigkeit ihrer Unternehmen und die Interessen ihrer Arbeitnehmer im Blick haben, helfen gegen die verantwortungslosen Heuschreckenschwärme, die im Vierteljahrestakt Erfolg messen, Substanz absaugen und Unternehmen kaputtgehen lassen, wenn sie sie abgefressen haben. Kapitalismus ist keine Sache aus dem Museum, sondern brandaktuell.“ This is nothing more than a gargantuan load of stupid. My question is this?; in the information age, how can Germans remain so willfully and woefully ignorant about the vastly higher standard of living in the US vis à vis your country? It hurts to admit that your treasured Social Market System™ has failed, but it is time.
Part of the problem is European arrogance (see your first statement and contemplate how that may seriously affect your worldview.) Instead of sitting back and eating three hot, steaming bowls of Schadenfreude daily, I truly do pity Germans. You’ve been lied to, but for some reason, as a people, are unable to rid yourselves of 19th century philosophies that have a track record of failure. Stop passing the blame to someone else. The German system is responsible for your plight, not speculators or international financial boogeymen. And since the German system is the product of the German people, accept the blame this time instead of putting it off on foreigners and financial services and Eastern Europe and America and X and Y and Z.
I have two suggestions for you: One, you need to buy “Cowboy Capitalism” by Wirtschaftswoche writer Olaf Gersemann. (The German title is “Amerikanische Verhältnisse. Die falsche Angst der Deutschen vor dem Cowboy-Kapitalismus”). The second, and a little self serving, is you should swing by my blog where I often discuss welfare/European/German issues. (Click on my name.)
Maybe there has to be new legal ideas about” Social Responsibilty of investors” in the world . Bailouts will be less accepted by populations in the future , and could lead to instability and violence in countries. I agree the locusts of finance have to be elliminated by one means or another . Hedge funds etc have to be seen as antisocial as SUV’s in cities , and the status of the financial system and its employess brought back to where it should be.
Investors and investment groups have to bear the responsibilty of their actions , and if the invested companies are in trouble , the onvestors have to bail them out.
Without major changes in the world financial system , and control of financial locusts , there will be population reaction throughout the world , and this could lead to major instabilty , so governments have to understand this threat .