Deutsche Bank and Potato Salad

This Financial Times piece about Deutsche Bank — “The Day Deutsche Bank’s Boss Decided on a Radical Solution” — from a bit more than a week ago was a trip. It’s about CEO Christian Sewing’s recognition that the music had stopped under increasingly tawdry circumstances (police raids looking for evidence of money laundering aren’t nice, and earnings had been falling…) “[emboldening him] … to call time on a two-decade attempt to conquer Wall Street.”

Invoking schadenfreude for DB is cliche at this point: a quick search finds three references in headlines, and many more textual references in the substance of articles, commentary, and blog posts. But … come on. How much blame does Deutsche share for the current US president? How about the subprime mortgage crisis? And what about those backdoor bailouts funded by peripheral EMU governments in the context of the Eurozone Crisis? I could be here all week, folks, and I’m barely touching the role this bank (and the other large private ones) played in the indirect hit job on German Landesbanks, the rise of securitization and globalization of finance, and the decline in boring lending by the largest pillars of German finance, exposing German finance and the economy to billions of risky assets that did not fare well after 2007.

This story is something else though! We are set up to pity Christian Sewing for making these tough decisions in the wake of the failed (and maligned) merger with Commerzbank, the bank employees set adrift by Sewing’s decision to unwind, and board members’ annoyance with shareholders’ anger at the meeting revealing all of this information to them, despite the bank’s having provided sausages and potato salad for the meeting.

“‘It would have been nice if the markets had applauded,’ admits one supervisory board member. ‘But Deutsche remains a ‘show-me’ case.'”

Is there a German word for chutzpah?

Other sources, if interested:

Deutsche Bank Signs $7.2 billion Deal with US over Risky Mortgages

Deutsche Bank Mortgage Settlement Steers Away from Helping Distressed Homeowners

Deutsche Bank Faces Criminal Investigation for Potential Money Laundering Lapses

Clement Bank: “Frankfurt’s Double Standard” — Cambridge Review of International Affairs — 2018

Emiliano Grossman: “Bringing politics back in: rethinking the role of economic interest groups in European integration” — Journal of European Public Policy — 2004

Daniel Seikel: “How the EC Deepened Financial Market Integration: The Battle over the Liberalization of Public Banks in Germany” — Journal of European Public Policy, 2013

A thought or two about CBA, but mostly about Frank Ackerman

I took what felt like a more drunken path than many of my grad school peers to what I eventually settled on as my field of study. At different points, I assumed I would work on environmental justice issues, urban dynamics, environmentally sustainable wool production, the New Deal… I couldn’t have predicted a trajectory ending with my work in applied macroeconomics, finance, and political economy. The downside of writing a dissertation, book, and papers that had little to do with my coursework were mainly efficiency related — I learned a lot about finance, political economy, and crisis from books, and I still managed to graduate in the median number of years for my department (somehow).

One upside, though, was learning about Frank Ackerman’s work. I first encountered it in James Boyce’s Political Economy of the Environment class, back when I thought that would be my thing, and then somehow I kept circling back to it, with an internship here, teaching an environmental economics class there, and the beckoning siren call of a career in policy. The book he co-authored with Lisa Heinzerling — Priceless: On Knowing the Price of Everything and the Value of Nothing — left an indelible impression. It confirmed to me that despite the opportunity costs, a PhD of indeterminate length was valuable for teaching the Pareto Optimal underpinnings of Cost Benefit Analysis (CBA) alone.

In brief, CBA argues that policies (or any action) can be evaluated by comparing the costs (however they are measured) with the benefits of a given course of action. This is fine if I’m deciding between getting takeout or cooking dinner when I’m stressed about work, but it gets insidious when costs and benefits accrue to different parties. Taken to its extreme, an action can ‘pass’ CBA if the beneficiaries are well enough compensated that they could compensate the losers for the costs… but there’s no requirement the winners do so. Under this rubric, polluting the environment while I extract its material benefits and then moving my family out of the danger zone will pass, if I could theoretically pay off all the residents for their trouble.

Learning this was a red pill/blue pill moment for me as a first-year grad student who sometimes wondered what I’d gotten myself into. Priceless has much more to recommend it — it takes on the dirty details of how value is ascribed to the priceless, considers political implications, etc etc — and for a sophisticated dive into valuation theory, it’s also a great read. Ackerman’s work — a tiny sampling includes work on recycling, climate change policy, institutional design — is smart, humane, and worthy of your time.

I was also lucky enough to meet Frank on a few occasions. He gave several seminars at UMass while I was there, and they were always smart, funny, and devastating, as soon as you wrapped your head around the implications. He was a kind and brilliant guy, and the world is a poorer place since his passing on July 15, 2019. I miss him already.