On July 30, 2007, the financial crisis came to Germany with a loud bang: The IKB Deutsche Industriebank, a little-known bank that specializes in financial services for Mittelstand firms, shook the country out of its summer indolence when it announced it was badly affected by the US subprime mortgage crisis. It was the first of many German banks that teetered on the verge of collapse over the next years. Jörg Asmussen orchestrated the bank bailout at the German finance ministry. Today, as an investment banker at Lazard, he advises European financial service providers and governments.
Handelsblatt: Mr. Asmussen, you were at the forefront of the fight against the financial crisis. How did you live through those days?
Jörg Asmussen: If you truly asking me about how I felt, I have to say in all honesty: tired, very tired. Especially in the first phase, we had our hands full trying to cope with the operational aspects of crisis situations at banks like IKB and later SachsenLB.
How do you explain that hardly anyone predicted such a serious crisis? After all, there were very few warning voices.
There are several reasons. I believe that all people, whether they are bankers, politicians or journalists, have a tendency towards herd mentality. Since the mid-1990s, it was more or less the consensus that deregulation of the financial markets was a good thing. In addition, we underestimated the interconnectedness of the financial system and the resulting risks of contagion. Suddenly risks from a subsegment of the US real estate market, the so-called subprime loans, were turning up at German state-owned banks. And, finally, we underestimated the correlation between markets. When things are headed sharply downward, it doesn’t matter how diversified you are, because all markets are moving in the same direction.