Deutsche Bank “Is Probably Insolvent”

Watching ‘The Big Short’ again over the weekend, it seems as much like the shape of things to come as a witty, if poignant, documentary about a historic failure of common sense. Nobody learns anything. It is eight years since Lehman Brothers failed, and the financial system, especially in Europe, would seem to be in no better shape now than it was back then, going by the health of some of the region’s major banks, and also Barclays. This also means that of this correspondent’s quarter century career to date in asset management, at least a third of that period, and probably closer to a half, has seen the industry in a state of acute crisis. The universal onset of crisis fatigue amongst market participants may, then, account for the mood of general complacency that has so far accompanied Deutsche Bank’s slide towards insolvency if not yet outright irrelevance.

“Never let a good crisis go to waste,” Winston Churchill allegedly said. But Europe, for one, squandered all of those eight years. This is just one of many reasons why we voted Out. With luck the UK will manage to extricate itself from the EU chamber of horrors before the roof finally falls in.

On the fifth anniversary of Lehman Brothers’ bankruptcy, itself six months after the bail-out of Bear Stearns cited in the transcript above, Michael Lewis, author of the original ‘Big Short’, was asked in an interview with Bloomberg BusinessWeek whether he thought the company had been unfairly singled out when it was allowed to fail (given that every other investment bank would then be quickly rescued, courtesy of the US taxpayer).

His response:

“Lehman Brothers was the only one that experienced justice. They should’ve all been left to the mercy of the marketplace. I don’t feel, oh, how sad that Lehman went down. I feel, how sad that Goldman Sachs and Morgan Stanley didn’t follow. I would’ve liked to have seen the crisis play itself out more. The problem is, we would’ve all paid the price. It’s a close call, but I think the long-term effects would’ve been better.”

We happen to agree… and it appears so do the professionals… (See CDS chart above)

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A month from now, we’ll publish our new book: ‘Investing Through the Looking Glass: a rational guide to irrational financial markets’. It covers en passant the Lehman crisis, of course, but also the much wider financial landscape: a multi-decade bubble in debt for which Deutsche Bank may yet serve as the terminal pin, the fundamental and seemingly intractable problems with bankers, central bankers, economists, fund managers, and the financial media. Few prisoners are taken. Few deserve to be. Lest this sound like a counsel of despair, ‘Investing Through the Looking Glass’ also offers practical and pragmatic suggestions for protecting and growing scarce investor capital amid the concurrent waves of deflation and inflation crashing against one of the most challenging financial environments that anyone alive has ever seen.

Tim Price is a London-based wealth manager and editor of Price Value International. This article was published on Sovereign Man and edited by