IKB, a specialist lender based in Düsseldorf, was bailed out by the German government. According to the Financial Times, Jochen Sanio, head of Germany’s financial regulator, is said to have warned of the worst banking crisis since 1931."
IKB had invested heavily in sub-prime investments.
Along with the German government, DeutscheBank (DB) and Commerzbank invested in the bail-out.
The arrangement raises the question of whether the US central bank would do the same thing? Clearly Bear Stearn (BSC) has problems in some of its hedge funds and most large banks and investment banks have loans out on billions of dollars in LBO and private equity deals. It is just a matter of time before one or more of these implodes.
And, that raises the question of whether the government here would step in if it saw a series of failures of US financial companies or it it would let the market sort out the quick from the dead.
That could be dangerous, but it is the American way.
Douglas A. McIntyre
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