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There will be a setting in order: first the mine, then the Church, then the state, then the nation. They will be brought up short like a wild colt at the snubbing post.

John Jordan's List #36

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Germany Shocked as Subprime Gets Worse PDF Print E-mail
Friday, 18 April 2008 14:42

Germany is mired so deep in the subprime crisis that its entire banking structure is under threat of collapse. As writedowns continue to mount and government guarantees wear thin, experts warn that losses could soon reach ?30bn (£24bn) - and possibly more.

It is the long-suffering German taxpayer who will be handed the final bill, just at a time when German industry and employment as a whole is on the up.

'The subprime meltdown has caused the deepest financial crisis in Germany in decades,' wrote the influential news magazine Der Spiegel this week.

To a people with memories of another crash, that of 1929, helping to propel the Nazis to power and Germany to ruin, the spectre of a replay of those dark times is grim indeed. Throughout the crisis, banks and politicians have sought to downplay the scope of the losses, but the risks continued to mount.

Just weeks ago the governor of the state of Bavaria, G¸nther Beckstein, put on a brave face about the state-owned bank BayernLB. He talked about the 'unpleasant burdens' borne by the bank, which is half-owned by the state of Bavaria, and of the 'painful downside'.

Anyone who is active in the international capital market, Beckstein said, should expect 'to lose money sometimes'. The same day, the bank reported writedowns of nearly ?2bn. Days earlier WestLB in North Rhine-Westphalia needed a government guarantee of ?3bn to stay open.

Now BayernLB has exposed its true losses: ?4.3bn. Beckstein had to go cap in hand to his own parliament to ask for a loan. Saxony-based Sachsen LB has subprime debts to the tune of ?2.8bn while the government-owned industrial lender IKB Deutschland is in the subprime hole to the tune of ?7.2bn.

Germany's Landesbanks were in trouble before the subprime earthquake hit: now they are in danger of imploding.

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