August 20, 2007 (LPAC)--The LB Sachsen (Landesbank Sachsen) crisis is the leading news item in the economic press of Germany. Herbert Haasis, head of the savings banks association (Sparkassenverband), reveals that the Saxon state bank would have run into default on 1.5-2.0 billion euros of debt maturing by the end of this week. Hence the urgency of last Friday's emergency session which agreed on a credit-line of 17.3 billion euros ($23 billion). The website of Der Spiegel reports that LB Sachsen suffered losses on the US market in the range of 500 million euros ($675 million), which the bank denies. The problem for banks like LB Sachsen is, that while the bank maintains that the triple A ratings of its securities mean that it is still solvent, the fact is that the triple A rating has ceased to mean anything, because no one will buy them.

The Saxon crisis finally woke up Chancellor Angela Merkel, just returned to Germany from her sightseeing tour of Greenland's melting glaciers. She called in an interview with Bild am Sonntag, August 19, for transparency of financial markets, as she had proposed at the June G-8 summit. "We must, for example, know where hedge funds get their capital from, and how big the credit risks are. Often, we are faced with a non-transparent chain of leveraging of credit risks, which in the end burden all of us." The rating agencies have to be reviewed as well, Merkel said, because their ratings "cannot be a black box from which something comes out that nobody can understand." Since the financial market crisis has deepened considerably since June, Merkel's remarks are significantly out of date. As acting head of the G-8 for 2007, she should call for a New Bretton Woods conference to be attended by the most important countries.