President Biden: The NEW one and only politics thread

So two things about this, again. They didn't move him to private banking. The relationship was formed independently. Rosemary Vrablic was the private bank, and she brought him in. It wasn't a huge business for DB, but she was single-handedly bringing millions of dollars of revenue a year, which gave her a lot of autonomy. It's the point I was trying to make. You'd think it would have been absurd for Deutsche Bank to do any business with him after he had stiffed their investment bank and then sued them when the financial crisis blew up that Chicago loan, but the right hand and left hand are totally disconnected in a place like that.

You also keep talking about their "due diligence," which to me implies that they didn't do the work they needed to understand his income and the value of his assets. What I was trying to say earlier is that they clearly did do their due diligence. They had access to all of his corporate and personal records, saw the income he was getting from royalties and licenses and even rejected the valuations he was putting on real estate he owned. The problem wasn't that: 1) they were lied to (even if he did put silly valuations on assets; they didn't take his BS at face value), or 2) they didn't do the work to value his assets. The problem was that thanks to the ECB, they were being forced to engage in risky behavior (and then rationalize it) because traditional, safe banking activities didn't earn enough in net interest margins for them to stay on the treadmill they were stuck on.

 

They should have been bankrupt. When you decide that a bank is too big to fail, and 1) leave billions of dollars of toxic debt on its balance sheet, but 2) in order to allow it to survive you artificially reduce their funding costs to zero (creating massive misallocations of capital in the process), and 3) that makes it impossible for them to engage in the traditional banking activities that would be necessary for them to earn money to service that debt. ... yeah, when you do that, you are forcing them into reckless, dodgy, risky and even illegal behavior in order to survive. It never should have come to that, because they shouldn't have even been around after 2008. But when the decision was made to ensure survival of the unfittest, but do it in a half-assed way, and that put them on a treadmill that was cranked up to 15 mph? Call it whatever you prefer, but the way they have operated is exactly how they have been incentivized to operate. Their choices have been fairly binary: do risky and dodgy things to try to earn money to service a massive debt load, because there are no net interest margins to be had doing safe banking activities. ... or default and say goodbye to their business.

 

The NYT piece covered this pretty well. They revalued his whole real estate portfolio based on non-bullshit appraisals. They knew who they were dealing with (he had stiffed their investment bank and then sued them for good measure). And at the time, it still would have been entirely possible for Rosemary Vrablic to justify even hundreds of millions of dollars worth of loans.

1) Sure he's a scumbag and a deadbeat, but we valued his corporate and private assets and he personally guaranteed the loans, so we have collateral backing the loans (of course it required them to overlook past personal guarantees that he had wiggled out of).
2) The guy is actually less indebted than other real estate types I deal with (because he had stiffed so many people on past loans, he couldn't find people willing to lend to him, so he didn't have that much debt at the time).
3) He earns a lot of money (the Apprentice royalties, licensing fees), so there is a steady stream of income from which to service the loans.

It wasn't that outrageous at the time for a bank that couldn't earn anything (and actually lost more than $7 billion one year while this was going on). They just needed to find ways to rationalize the risks. Lord knows, anyone who could actually earn anything in that place wasn't going to get much pushback.