“Excessive” is the word that Jeroen Dijsselbloem, the Dutch president of the Eurozone countries, used for the Obama Justice Department’s decision in mid-September to seek mammoth fines from Deutsche Bank. The German bank’s various mortgage-underwriting violations were committed in the days before the financial crisis of 2008, and with the encouragement of U.S. housing regulators. The Obama administration is in a class of its own when it comes to collecting fines: $200 billion and counting, from a variety of business actors. In the autumn of 2013 it collected the largest fine in corporate history—$13 billion—from J.P. Morgan. Morgan Stanley paid $2.6 billion in a Madoff-related affair. Citibank paid $4 billion.
Now the administration wants $14 billion from Deutsche Bank. Even if that figure gets negotiated down, the fine is high enough to be worrisome. DB is both rickety and systemically important—the world’s sixth-largest investment bank, and the top European clearinghouse for derivatives. Now the cost of DB’s credit insurance is rising and hedge funds are circling. DB’s share price has fallen over the last year from $28 to $12. The fine the Obama administration has in mind is thus is equal to the company’s entire market capitalization.
Deutsche Bank will need an infusion of money. The simplest way to get it—and the one most often discussed in the press in recent days—would be to ask for a bailout from the government of Qatar, which already holds 8 percent of DB and could increase its stake as high as 25 percent. The simplest way consistent with the German financial industry’s continued autonomy would be for the German government to bail DB out. The former chief economist of Deutsche Bank, Thomas Mayer, called the fine “a hostile act against the German taxpayer, who would pick up the tab if Deutsche Bank had to be bailed out.” Stripped of the bureaucratese, what the Obama administration is asking for is a tribute.
Mayer is right. He may overestimate the international stakes at the expense of the domestic. One wonders whether European public opinion even crosses the mind of administration officials. The purpose these leviathan fines serve is largely internal to the United States. At a time when Congress will appropriate the funds for almost nothing the administration wants, here are billions the president can redeploy as he sees fit, without resorting to the ordinary appropriations process. In an administration full of lawyers, the Justice Department has become a rainmaker.
