She pulls from her bag the German translation of Alan Dundes’s book. I’d asked her about the title. There is a common German expression, she explains, that translates directly as “lick my ass.” To this hearty salutation the common German reply is, “You lick mine first.” The German version of Dundes is called You Lick Mine First. “Everyone will understand this title,” she says. “But this book, I don’t know about this.”
The last time I’d been in Germany for more than a few days was when I was seventeen years old. I’d traveled across the country with two friends, a bike, and a German phrase book. In my head was a German love song taught to me by an American woman of German descent. So few people spoke English that it was better to assume they did not and deploy whatever German came to hand—which usually meant the love song. And so I assumed on this trip I would need an interpreter. I didn’t appreciate how much the Germans had been boning up on their English. The entire population seems to have taken a total-immersion Berlitz course. And on Planet Money, even in Germany, English is the official language. It’s the language used for all meetings inside the European Central Bank, for instance, even though the ECB is in Germany, and the only ECB country in which English is even arguably the native tongue is Ireland.
Through a friend of a friend of a friend I’d landed Charlotte, a sweet-natured, keenly intelligent woman in her twenties who was also shockingly steely—how many sweet-natured young women can say “lick my ass” without blushing? She spoke seven languages, including Mandarin and Polish, and was finishing up her master’s in Intercultural Misunderstanding, which just has to be Europe’s next growth industry. By the time I realized I didn’t need her I’d already hired her, and so she had ceased to be my interpreter and become my driver. As my interpreter, she would have been ridiculously overqualified; as my chauffeur she is frankly preposterous. But she’d taken on the job with gusto, going so far as to hunt down an old German translation of Dundes’s little book.
And it troubled her. For a start, she refused to believe there was such a thing as a German national character. “No one in my field believes this anymore,” she says. “How do you generalize about eighty million people? You can say they are all the same, but why would they be this way? My question about Germans’ being anally obsessed is how would this spread? Where would it come from?” Dundes himself actually made a stab at answering the question. He suggested that the unusual swaddling techniques employed by German mothers, which left babies stewing in their own filth for long periods of time, might be responsible for their energetic anality. Charlotte was not buying it. “I’ve never heard of this,” she says.
But just then she spots something and brightens. “Look!” she says. “A German flag.” Sure enough, a flag flies over a small house in a distant village. You can spend days in Germany without seeing a flag. Germans aren’t allowed to cheer for their team the way other people do. That doesn’t mean they don’t want to, just that they must disguise what they are doing. “Patriotism,” she says, “is still taboo. It’s politically incorrect to say, ‘I’m proud to be German.’”
The traffic eases, and we’re once again flying toward Düsseldorf. The highway looks brand-new, and she guns the rented BMW until the speedometer tops 210 kilometers per hour.
“This is a really good road,” I say.
“The Nazis built it,” she says. “That’s what people say about Hitler, when they get tired of saying the usual things. Well, at least he built good roads.”
BACK IN FEBRUARY 2004 a financial writer in London named Nicholas Dunbar broke the story about some Germans in Düsseldorf, working inside a bank called IKB, who were up to something new. “The name IKB just kept coming up in London with bond salesmen,” says Dunbar. “It was like everybody’s secret cash cow.” Inside the big Wall Street firms there were people whose job it was, when the German customers from Düsseldorf came to London, to get a wad of cash and make sure the Germans got whatever they wanted.
Dunbar’s piece appeared in Risk magazine and described how this obscure German bank was rapidly turning into Wall Street’s biggest customer. IKB had been created back in 1924 to securitize German war reparation payments to the Allies, morphed into a successful lender to midsized German companies, and was now morphing into something else. The bank was partially owned by a German state bank, but was not itself guaranteed by the German government. It was a private German financial enterprise, seemingly on the rise. And it had hired a man named Dirk Röthig, a German with some experience in the United States (he’d worked for State Street Bank), to do something new and interesting.
With Röthig’s help IKB created, in effect, a bank, incorporated in Delaware and listed on the exchange in Dublin, Ireland, called Rhineland Funding. They didn’t call it a bank. If they had called it a bank, people might have asked why it was not regulated. They called it a “conduit,” a word that had the advantage that no one understood what it meant. Rhineland borrowed money for short periods of time by issuing something called commercial paper. They invested it in longer-term “structured credit,” which turned out to be a euphemism for bonds backed by American consumer loans. Many of the same Wall Street investment banks that raised the money for Rhineland (by selling the commercial paper for them) sold Rhineland the bonds backed by the American consumer loans. Rhineland’s profits came from the difference between the rate of interest it paid on the money it borrowed and the higher rate of interest it earned on the money it lent through its bond purchases. As IKB guaranteed the entire enterprise, Moody’s rating service gave Rhineland its highest rating, enabling Rhineland to borrow money cheaply.
The Germans in Düsseldorf had one critical job: to advise this offshore vehicle they had created about which bonds it should buy. “We are one of the last to get our money out of Rhineland,” Röthig told Risk magazine, “but we’re so confident of our ability to advise it in the right way that we still make a profit.” Röthig further explained that IKB had invested in special tools to analyze the complicated bonds, called collateralized debt obligations (CDOs), that Wall Street was now peddling. “I would say it has proven a worthwhile investment because we have not faced a loss so far,” he said. In February 2004 all this seemed like a good idea—so good that lots of other German banks copied IKB, and either rented IKB’s conduit or set up their own offshore vehicles to buy subprime mortgage bonds. “It sounds like quite a profitable strategy,” the man from Moody’s who had awarded Rhineland’s commercial paper a triple-A rating told Risk magazine.
I met Dirk Röthig for lunch at a restaurant in Düsseldorf, on a canal lined with busy shops. From their profitable strategy IKB has announced losses of roughly $15 billion, though their actual losses are probably greater, as German banks are slow to declare anything. Röthig viewed himself, with some justice, more as victim than perpetrator. “I left the bank in December 2005,” he says quickly, as he squeezes himself into a small booth. Then he explains.