The Crisis as a Teacher

Politicians live comfortably with their contradictions. Those now throwing billion-dollar subsidies and bailout packages around had probably been telling speculators so interested in gaining quick advantages about the clever, calculating Swabian housewife who is horrified by the thought of anyone living beyond their means.

Both the businessman and the housewife now watch the government’s candy rain falling in the form of billions of dollars in bailout money with some worry because they know that in the future it all must be somehow repaid. But as the public watches the image of the super-smart investment banker looking increasingly like that of a common criminal, the virtues of the businessman and the housewife have, in the wake of the financial crisis, risen in estimation and are now on the threshold of a renaissance.

In spite of all the alarmist news, the German economy is in pretty good shape when compared with other countries. Those Anglo-American inventors of the shimmering soap bubble of turbo-capitalism that has now burst are the ones hurting the most, along with those who gambled at their tables. The often-ridiculed, halting cautiousness of the average German who didn’t jump head over heels into the borrowed-money-and-make-believe-values game have proven to be assets in the crisis.

A dear teacher

But the lesson has to be paid for. Banks that believed they could turn a quick profit by gambling with gaily packaged bundles of toxic assets now stand at the precipice. Communities that fell for the siren song of American tax shelters in the form of “cross border leasing” where they sold their infrastructures to American companies and leased them back in order to share the tax shelter advantages with the investors now have to admit to their fellow citizens that they screwed it all up.

Companies who bought into the Anglo-American credo of replacing their supposedly unproductive capital with cheaper borrowed money in the form of loans from foreign countries are the first to spin out of control. Traditional companies like Boss and Märklin that were acquired by financial investors only to be flattened and sucked dry now look like an embodiment of the biblical plague of locusts.

The crisis has produced unexpected insights. Lending institutions are now viewing private savers and investors as the guarantors of more modest, but also more dependable liquidity, when dealing with the less exciting middle class economy. Savings and loans as well as credit unions that clung to their roots and didn’t fool around with risky and opaque investments were barely touched by the financial storm and are now celebrating new popularity in the form of increased membership.

The healthy core of the German economy

It hasn’t escaped politicians’ notice that the newly abolished government guarantor liability for public sector financial institutions, done away with because of European Union pressure in the name of competition, are in the long run safer, more efficient and cheaper than giving banks money to bail them out or nationalizing them. The introduction of international accounting standards based on the Anglo-Saxon International Financial Reporting Standards, so highly touted when introduced to standardize Europe and intended to enhance company credit margins via pegging property evaluations to daily rates in good times, is increasingly being seen as a fire accelerant; recommendations are already being made to endangered financial institutions to return to the tried and tested German Commercial Code book values.

The still robust core of the German economy visible behind the crumbling mirage is based on the middle-class entrepreneur who still thinks and plans in terms of years and generations rather than quarterly balance sheets; the businessman who views his workforce not as an item of expense but as his partners for success with whom he has reciprocal responsibilities; the businessman who knows that mutual trust and responsibility with his employees is more important than any fleeting momentary advantage he might gain over them at any cost.

The fact that middle-class heavyweights like the Schaeffler family or the Ratiopharm patriarch Adolf Merckle gambled their businesses away in no way negates this opinion. It was unscrupulous investment bankers who destroyed billions of dollars of wealth and still demanded hundreds of millions in bonuses for their failures.

Consumer subsidies and nationalization solve nothing

Politicians are only reluctantly learning lessons and drawing policy conclusions from this economic crisis. America, under its new president, is also racing headlong into a dead end street: trying to fight a debt-induced crisis by taking on even more record debt reminds one of trying to extinguish a fire by pouring gasoline on it. The best thing one can say about Merkel’s economic recovery plan is precisely that for which it’s being criticized: It’s not as large as the American plan and there’s still a great deal of opposition to escalating it.

Nevertheless, consumer subsidies and nationalization can save nothing; they foster higher prices, over-production and outdated concepts instead of heralding the much needed introduction of new ideas.

A respectable businessman or a CEO aware of his responsibilities expects no government bailout. He expects, instead, a reliable system, freedom from needless bureaucracy and tax burdens, equitable basic regulations under which a competitor can’t expect preferential treatment just because he’s larger, unconditional respect for private property and the fruits of one’s own labors, and protection from private or public confiscation.

The first major step toward a change in values would be to quit glorifying consumption and rehabilitating the merits of thrift, once the basis of the German economic miracle. Only savers can invest, create permanence and increase prosperity. Businesses need values – and a regulative government leading by good example.