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The fallout from the 2008 global financial crisis revealed that some of the world's most powerful banks were involved in reckless financial dealings. Germany’s Deutsche Bank took a particularly aggressive approach -- the consequences of which are still playing out now, more than a decade later. Paul Solman talks to The New York Times’ David Enrich, who has written a new book on the subject.
The fallout from the 2008 global financial crisis revealed that some of the world's largest and most powerful banks were deeply involved in an array of risky and reckless financial dealings that helped bring down the economy.
As Paul Solman tells us, Germany's giant Deutsche Bank took a particularly aggressive tack, the consequences of which are still playing out today.
His conversation is part of our regular series on business and economics, Making Sense.
Deutsche Bank began by funding German industry and risky railroads in the 19th century, helped bankroll the Nazis in the 20th. From the end of World War II to the '90s, it was a traditional lender.
But as global finance went high-tech, high-risk, Deutsche Bank joined the game, becoming a banker to Russian oligarchs, Iran, and the principal lender to Donald Trump before he ran for office after he'd gone bankrupt.
By 2008, it had become one of the three largest banks in the world.
David Enrich, finance editor at The New York Times, has been covering the bank for years. The story is now in one place, "Dark Towers: Deutsche Bank, Donald Trump and an Epic Trail of Destruction."
David Enrich, welcome.
So, start us off with. The bank's beginnings?
The bank was founded in 1870.
As you said, it was usually doing — lending to big German companies and European companies that were trying to spread their wings internationally. It was a very traditional, kind of conservative, not very interesting lender for most of its first 12 decades.
It's running with the Nazis and help for the Nazis was kind of the exception that proved the rule during that period.
You say — you write that it helped fund Auschwitz.
It helped fund the construction of Auschwitz. It helped fund the construction of the factory that manufactured poison gas that was used in Auschwitz.
It helped with the Aryanization process, taking over Jewish-owned businesses throughout Europe.
And it got rid of its own Jewish bankers.
Yes. I mean, that was the first thing it did. So, it was very much a party to the genocide.
When did it become a high-risk high roller?
This started in the 1990s.
So, Deutsche Bank's leaders had watched as one big American bank after another started developing a huge Wall Street franchise that was competing internationally and starting to win business, not only from German companies, but even in some cases from the German government.
And Deutsche Bank, which is the national champion in Germany, obviously, it looked at the situation and said, if the Wall Street firms are coming to Germany, we should be going to Wall Street.
And so they acquired a couple of investment banks. They hired thousands and thousands of investment bankers from kind of the most aggressive firms in Wall Street at the time, Merrill Lynch, Lehman Brothers, Bankers Trust.
And they built, virtually from scratch and virtually overnight, one of the biggest, most aggressive trading — sales and trading operations that Wall Street had ever seen. And it just went head over head over heels, I think very recklessly in hindsight, trying to compete.
Lots of people, lots of banks went recklessly at that point.
The two ahead of it — I looked it up — and by 2008, the only two that were larger actually don't exist anymore.
Yes, that is absolutely true.
This was — it was very much a creature of the era in which it was operating. And this was a period in the '80s and then in the '90s and into the — obviously into the 2000s, where all the rage, in Washington and London and many capitals of the world, were very much operating under this assumption that big private companies can look after themselves, and the government doesn't need to interfere in how they're being run.
OK. So why the relationship with Donald Trump, and when, exactly?
So, the relationship started in the late 1990s.
Deutsche Bank at that time was trying to make a name for itself on Wall Street, trying to build its brand in the United States. And there are all these other, much more established banks out there.
And Donald Trump at the time had defaulted over and over again — or his businesses had — on loans from a wide array of banks. And so he was basically off-limits to the mainstream financial industry.
Donald Trump needed banks that had higher tolerances for risk and less interest in their client's reputation. And Deutsche Bank needed clients who were essentially unbankable to normal financial institutions. So they were kind of made for each other.
Both Trump and Deutsche Bank's loans to Trump made money, right?
Well, it depends how you calculate it.
And over the past 20 years, Deutsche Bank has lent on the order of about $2 billion to Trump. He's defaulted on two of those, at least. And one of those is — was a bond offer and that the Deutsche Bank did for its clients, so that cost the Deutsche Bank's clients money, not the bank itself.
And the other was a huge loan to finance the construction of a Chicago skyscraper in 2005…
Oh, yes, right.
… which Trump defaulted on in 2008.
As it turned out, another arm of the bank came and essentially bailed out its other arm by making another loan to Donald Trump. And so that essentially wiped out the losses the bank would have faced.
So, by my accounting, this has not actually been a money-losing exercise for Deutsche Bank.
And, in fact, Deutsche Bank can afford to charge higher fees because Trump was completely unbankable by any other institution.
So there was nowhere else really for him to turn. And from Trump's standpoint, this has been enormously helpful. I mean, he — no other bank would touch him, and he wouldn't have the business empire that he has today, he probably wouldn't be in the White House today, were it not for this relationship.
Would he really not be President Donald Trump if not for the relationship with Deutsche Bank?
I mean, that's obviously an impossible thing to measure, even though I keep saying it.
And I think the reality is that Trump wouldn't have been able to go on the building-and-buying spree that he went on the past half-dozen years were it not for Deutsche Bank, whether it was converting the old post office building here in Washington into a luxury hotel, which is something he used repeatedly as a prop on the campaign trail.
Building this huge skyscraper in Chicago, purchasing the Doral golf resort in Florida.
And so the list of things that Trump has built or bought due to Deutsche Bank, it's a very long list. He also — he would use Deutsche Bank as a prop on the campaign trail, pointing — when people would — like Hillary Clinton, would say, you have a horrible record as a businessman, no banks will touch you, he could accurately say, wait just a second. One of the world's biggest banks is very happy with me as a customer.
And this was during the era of innumerable — well, I guess there are numerable scandals, but there are a lot of them, all associated with Deutsche Bank, right?
They had more money-laundering schemes than I can even count off the top of my head. They were evading taxes. They were bribing people. They were violating international sanctions. Look at any major financial scandal in the past 10 or 15 years, Deutsche Bank has been at or near the center.
Executives at Deutsche Bank knew what was going on, right, with all these scandals?
Yes, they knew about, and in some times — in some cases, participated in these scandals, and, in other cases, really tried to deal with the bad behavior.
And one executive named Colin Fan, who was one of the top executives of the bank, went so far as to give a video message to all of its — all of the bank's employees, telling them to watch how they communicate about the wrongdoing they're committed.
And that became a bit of a viral sensation on the Internet, because people noting that Colin Fan wasn't saying, stop misbehaving. He was saying, stop communicating in writing about your misbehavior.
But it was saved, wasn't it, by one of its — or several of its employees in 2008? It didn't go under in 2008.
A number of traders made a huge bet that the U.S. housing market was going to collapse. And they engineered these gigantic transactions, where they stood to profit on the collapse of that market. And those bets largely, I think, did save Deutsche Bank at the time.
The book is "Dark Towers."
David Enrich, the author, thank you very much.
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Paul Solman has been a business, economics and occasional art correspondent for the PBS NewsHour since 1985.
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