Sue the Germans to Save our Economy! Well..maybe not.

I know we all want a villan in this financial meltdown we have experienced the last 5 years.  We would love that villan to be an entity we can dispise and can easily never do business again. 
Hey, I know, lets blame the Germans…our old enemies from the last two world wars!  That’ll be an easy one for everyone to jump on the bandwagon to hate!  I hope this sounds as rediculous to you as it does to me…but that appears to be just what our federal government is doing us right now as they proceed to begin a lawsuit against Deutschebank. 
The lawsuit claims that Deutschebank made a $5 Billion worth of bad loans that they sold into government backing (FHA) and then didn’t continue to track those loan’s default rates after they initiated them.  In short…Deutschebank is accused of making the same loans that every American bank was making (which, by the way, conformed to the overly loose underwriting guidlines that were established by the federal government during that time to encourage home ownership for “all” and economic growth) and then after it was too late to revoke those loans they weren’t “doing enough” to track them and stop them from defaulting further after they sold the loans to investors (again like every other bank was doing at the time). 

When this exact same scenario happened with Bank of America, Wells Fargo, Chase, Citi, and hundreds of other American banks showed similar losses and have caused mortgage giants Fannie Mae and Freddie Mac to hemorrage money like a politician with a hankering for pork, we decided to give the banks $700 Billion in bailouts to help them get back on their feet (and off the books the Federal Reserve has pumped Billions more into keeping Fannie Mae and Freddie Mac afloat).  The American banks made the same Billions in bad loans, stuck taxpayers with the bill, sold them to investors in toxic packages that were destined to fail (but somehow were still rated as safe investments by the rating bureaus…those same rating bureaus who have yet to face any repercussions or regulation changes in this meltdown) and once they started failing were extremely slow to start doing anything to try to save or track any of the loans defaults to prevent more of them.  Hmmm…sound familiar to anyone?

The only real difference in this entire scenario that I can see is that the American banks, if they fail, have to have the FDIC pay back all of their account holders up to $250,000 of lost money.  The FDIC almost went broke over the last few years handling those payouts for banks like IndyMac and the hundreds of others that closed their doors over the last 5 years.  The FDIC could hardly have afforded to protect the money of account holders for banks like Citi, Wells, Chase, or BoA  without going bankrupt…they are too big (which is why they are “too big to fail.” If FDIC failed to back the accounts on one collapsing bank it could cause a real great-depression-like meltdown of our ENTIRE financial system).  So these banks we bailed out.  Since Deutchebank is a foreign bank, only their American divisions receive FDIC protection (Deutschebank has two American Trust divisions that are set up to be covered under FDIC but their international operations beyond our borders would not be).  While Duetschebank is one of the world’s largest banking institutions if we sue them into oblivion our goverment would only have to cover a small portion of their account holders losses.  The rest of the losses would have to be dealt with by people in other parts of the world.  I know we want to blame someone for this mess, but I just don’t see how Deutschebank is really the one to shoulder the blame for all of this while the rest of the banks (and the rating agencies) get off scott free…but then again I didn’t feel blaming the loan officer and cutting his/her pay for helping people getting loans that followed every rule of the day was really the right way to go either (but that’s just what we did 4/1/11 with the Frank-Dodd Bill). 

I could be off base with this analysis, but I don’t think so.  If you have a different opinion, voice it in the comments. 

I look forward to the debate, and Keep Dreaming!