Bailout backlash
August 20, 2009
The government rescue of the struggling Hypo Real Estate (HRE) mortgage lender prevented a "global financial meltdown," according to Finance Minister Peer Steinbrueck.
The Social Democrat, answering questions from a parliamentary enquiry investigating the bailout of HRE, described the German government's actions as "appropriate and correct."
"We made the right decisions," Steinbrueck said. "It wasn't us politicians who caused this financial crisis, but we were the ones who mastered it."
Hypo Real Estate needed a series of state bailouts to keep it from going under. The loans and credit guarantees offered to HRE total 102 billion euros ($145 billion), with 87 billion coming from the government in Berlin and the remainder from other German banks.
"We had to make decisions in real time, contending with enormous time pressures. And we didn't always have all the relevant information at our disposal."
Steinbrueck also dismissed criticism that his right hand man at the time, state finance secretary Joerg Asmussen, was unprepared during the negotiations and allowed the banks to pull the wool over his eyes.
"That is absurd and has been disproven," he said. "Therefore, I'm not going to even discuss it." Steinbrueck said that Asmussen hadn't negotiated poorly, but rather he'd fought "tooth and nail - right up to the pain barrier."
Triggered by Lehman collapse
When asked about the tipping point for Hypo Real Estate, Steinbrueck pointed to the collapse of US lender Lehman Brothers in September 2008, dismissing the political opposition's claims that the bank was already headed for trouble much earlier in the year.
He said that the Lehmann Brothers bankruptcy put a dramatic stop to inter-bank lending, thus crippling Hypo Real Estate. HRE and its Irish subsidiary Depfa had been relying on loans from other lenders in order to keep supplying mortgages for months before Lehmann Brothers went under.
"Between September 15 and October 5 the financial world stood millimeters away from the cliff edge," Steinbrueck said.
The German finance minister also questioned the US decision to let Lehmann Brothers fall, describing it as a test with disastrous consequences. After the bankruptcy, leading industrial nations committed not to let similar large financial institutions go bankrupt. The German government decided that HRE - with a value of around 400 billion euros - qualified as an irreplaceable money lender.
msh/AP/dpa
Editor: Nancy Isenson