The New York Fed Bailed Out Deutsche Bank in 2008; or, Why Berlin Needs the U.S. Congress
May 24, 2013 • 9:33AM

Deutsche Bank, now the number one derivatives- and currency-trading bank in the world through its City of London operation, survived to become what it is now — a monster with a $72 trillion derivatives portfolio — because it was massively bailed out in October 2008 by Timothy Geithner and the New York Fed.

In an article by Marc Jursulic and Simon Johnson in the New York Times blog, they point out that the New York Fed pumped $66 billion into Deutsche Bank's New York City subsidiary, Taunus Corp., just weeks after the Lehman Brothers bankruptcy. Deutsche Bank was highly leveraged, which means it funded its speculative gambles by borrowing short-term money from inter-bank markets, as in London. Those markets were already freezing up long before the September 2008 Lehman bankruptcy, but with Lehman, the New York Fed immediately had to prevent meltdown of both Deutsche Bank and the entire system with massive money pumping. In addition, the Fed made dollar currency swaps with the European Central Bank in Frankfurt, where Deutsche Bank could also convert euros to dollars to help cover the estimated $294 billion in short-term dollar borrowings that continually needed refinancing.

A primetime documentary called "Unheimliche Geschäfte" [Sinister Dealings], about the Deutsche Bank scandals, aired on German ZDF-TV on May 21. It managed to mention the 2008 U.S. taxpayer payout of $11.2 billion to Deutsche Bank for AIG's worthless credit default swaps (CDS), as well as former employee Eric Ben-Artzi's allegations of accounting fraud, both of which assisted the bank in avoiding bankruptcy, but it failed to mention the massive Fed injections.

The moral of the story? When the U.S. Congress passes Glass-Steagall and thereby ends such hyperinflationary bailout practices for London and Wall Street bankers, Deutsche Bank is finished. A good reason for Germany to get serious now about Glass-Steagall, and work with those pushing the Congress to act on passing Glass-Steagall immediately.