Deutsche Breeds Scandal After Scandal

Department of Justice proposed a 14-billion dollar fine for Deutsche’s mortgage backed securities scandal (you’re thinking, “you’re going to have to be more specific; which one?”)  Wall Street J. 

Deutsche’s stocks took a tumble late yesterday and continuing today. 

Before that, last week it was reported in the New Yorker that Deutsche had a newer 10 billion dollar scandal related to the bank’s  apparent willingness to launder Russian money.

But in the New Yorker piece,  I liked this little capsule review of Deutsche’s role in the housing crisis, and how a former risk analyst explained that the bank was “structurally designed by management to allow corrupt individuals to commit fraud.”

In 2007, the bank’s share price hit an all-time peak: a hundred and fifty-nine dollars. But as it grew fast it also grew loose. Before the housing market collapsed in the United States, in 2008, sparking a global financial crisis, Deutsche Bank created about thirty-two billion dollars’ worth of collateralized debt obligations, which helped to inflate the housing bubble. In 2010, Deutsche Bank’s own staff accused it of having masked twelve billion dollars’ worth of losses. Eric Ben-Artzi, a former risk analyst, was one of three whistle-blowers. He told the Securities and Exchange Commission that, had the bank’s true financial health been known in 2008, it might have folded, as Lehman Brothers had. Last year, Deutsche Bank paid the S.E.C. a fifty-five-million-dollar fine but admitted no wrongdoing. Ben-Artzi told me that bank executives had incurred a tiny penalty for a huge crime. “There was cultural criminality,” he said. “Deutsche Bank was structurally designed by management to allow corrupt individuals to commit fraud.”