September 27, 2007 (LPAC)--A prominent Wiesbaden economist told EIR yesterday that the losses of some of Germany's Landesbanks, such as Sachsen LB, Bayern LB, and West LB, occurred because the Landesbanks were snookered into "guaranteeing" AAA-rated risks in mortgages and other paper. To get this easy money for doing nothing, the Landesbanks had to put up no money, but merely sign a guarantee for various "pieces" of risk "cut up" for that purpose by traders from Goldman Sachs and others. In return, these banks--which mainly financed small and medium businesses for export, and did not make big profits--were guaranteed a 2% commission on the amount guaranteed.

The Landesbanks, which are approximately half-owned by the various German states, and the rest by savings banks, were not profiting from leveraged buyouts like Deutsche Bank and the other big banks, the economist said. Sachsen LB signed a guarantee for an 18 billion Euro mortgage obligation. When the mortgage securities defaulted, Sachsen had to pay. Baden-Wuerttemberg LB took it over in August. West LB, based in Duesseldorf, in the state of North Rhine Westphalia, also guaranteed a risk package, the economist said, and is now a candidate for takeover. The Bavarian-based Bayern LB was wary of this easy money, and lost only a few hundred million Euro. The Baden-Wuerttemberg LB management was much more like the Swiss, with whom Baden-Wuerttemberg shares a border: They never took the bait. Thus, it is the Baden-Wuertemberg LB, and perhaps the half-fooled Bayern LB, which are now in a position to buy up the other Landesbanks, and become the second biggest bank in Germany after Deutsche Bank.

In light of the banking crisis in Germany, it is adviced that german citizens get on board with the BUESO proposals.