BAFIN Claims: "Worst Banking Crisis in Germany Since 1931"

August 2, 2007 (LPAC)--Jochen Sanio, head of the German financial market watchdog agency BAFIN (the equivalent of the US SEC), said that the state Kreditanstalt Bank's intervention to save the IKB Deutsche Industriebank prevented "the worst banking crisis in Germany since 1931." (They ain't seen nothin' yet!) This is the frontpage story in newspapers across Europe today. The interesting thing about this statement is that the intervention occurred on Sunday, during a crisis emergency session between the BAFIN and a number of leading banks and savings banks in Frankfurt, but the media were informed about it only Wednesday night.

The private banks and savings banks of Germany were called upon to join Kreditanstalt in the emergency bridging loan, which reveals how big this affair really is. Also, the attempt to blame the fired CEO of IKB for trying to cover up the "problems," as if this were a local German affair, is nonsense, since the problem at IKB was that its Delaware-based Rhineland Funding fund, which was caught up in the sub-prime debacle, was operating on a real capital basis of only 500 dollars (sic!), but organized a bubble of at least 12.7 billion euros, and that has been known for quite some time.

A delicate detail in this affair: Rhineland Funding called their operation "Loreley Financing" - a reference to the famous old German tale of Loreley, the blonde beauty who lured fishermen onto the Rhine cliffs and into disaster.