Economic Information 3 / 2008 Berlin ver.di federal economic policy area - July 2008 www.wipo.verdi.

de Financial crisis How inventive banks have brought sophisticated financial products and greedy inv estors the financial markets into a tailspin Just before the meltdown? .................................................. ... ............ 2 trigger: the U.S. mortgage crisis ............................... ............ ........... 3 In the center of the crisis: Structured financial ins truments ..................... 5 Why is the crisis had come .................... ....................... ....... 9 impact on the real economy ................... .......................... .... 15 points for an effective financial market regu lation ............... 19 ver.di proposals ..................................... ....... ..................................... 21 United Services Union - federal - Paula-Thiede-Ufer 10 - 10179 Berlin Division 1 - Frank Bsirske - area of economic policy: Michael Schlecht (Division), Ralf Kr amer, Dr. Sabine Reiner, Dr. Norbert Reuter, Anita Weber Contact: economic @ ver di. en courtesy of IG Metall, FB-economy-environment technology __________________ Economic Information - ver.di federal Berlin - Page 2 Just before the meltdown? Around the globe, since the U.S. mortgage crisis in the summer of 2007, banks, f inancial investors and stock markets in a crisis. After the Asian crisis in 1997 , the bankruptcy of the hedge fund LTCM in 1998, the Argentine crisis of 2001/20 02 and the 2001 stock market crisis, it is now the fifth serious financial crisi s in just ten years. Unemployment for millions of people, poverty, loss of savin gs for retirement, for example, insolvency to credit obligations - these are con sequences that individuals are being felt directly. There are also the costs for all who pay taxes, you must share the losses incurred by state grants for ailin g banks, as well as tax losses because of depreciation and value adjustments in the public coffers. In so far almost 400 billion U.S. dollars, the losses add up worldwide in July 2008, a year after the outbreak of the U.S. mortgage crisis. In addition, finally, given the immense uncertainty about the risks of further e conomic development for the U.S. slipping into recession was predicted, instead, is the U.S. economy grew unexpectedly strongly in the spring of 2008. One reaso n might be that of the U.S. government quickly laced stimulus package amounting to almost 170 billion dollars. Another reason for the continuing weakness of the dollar, making American products more expensive in the world. To what extent U. S. growth even after the expiry of the economic program still bears is open. The European economies were robust, however, so far as right and by the financial c risis affected less. After Ex1 pertenmeinung are in the summer of 2008, but Spai n and Ireland already in recession and the danger for Germany is also considered to be large. Although the full extent of the crisis in the summer of 2008 still is not obvious, there are increasing signs that they are __________________ Economic Information - ver.di federal Berlin - Page 3 developed for the biggest global financial crisis with yet unforeseeable consequ ences. From the "beginning of the end of the crisis," which is the head of Deuts che Bank, Josef Ackermann, had announced yet on the meeting of Deutsche Bank in May 2008, at the latest after the collapse of the U.S. mortgage lender Indymac a nd further will the crisis in the world's largest U.S. mortgage lenders Fannie M ae and Freddie Mac in July 2008, at least no more talk. Only government guarante es for Fannie and Freddie have prevented the meltdown in global financial market s again.

Trigger: the U.S. mortgage crisis The background, as it has come to the recent financial crisis, are increasingly transparent: banks, hedge funds and other investors have gambled mightily with U SHypotheken and securitized loans. "The first great financial crisis of the 21st Century has to do with esoteric financial instruments, amateur regulators and i nvestors say unpredictable, "the U.S. economist Carmen Reinhard and Ken Rogoff. At the same time follows the old patterns crisis. There is still the chronic exc essive U.S. current account deficit. And as in the past before the crash, the as sets have risen sharply. 2006 there were prices for U.S. real estate and equitie s on historical peaks. Almost a decade after the New Economy bubble, the U.S. ha d a new speculation bubble. This time on the property market. 2 By the Fed policy, the U.S. Federal Reserve (Fed) inflation favors the assets in directly. For years she had carried out economic policy reasons, a low interest rate. Thus, although the U.S. economy was booming because consumers could buy ch eaply on credit. But the low interest rates also boosted the demand for housing __________________ Economic Information - ver.di federal Berlin - Page 4 Real estate. To the middle of the decade, home prices rose year after year of do uble-digit rates. Although the central bank began in 2005 to raise interest rate s, they could not stop the real estate boom. That came only in 2007 by the "subp rime crisis" to an abrupt end. As a "subprime" that part of the U.S. mortgage ma rket is known, assigned on the loans to home buyers with low incomes were: Despi te overpriced real estate prices have U.S. mortgage lenders in recent years, inc luding those home builders given loans that could not afford a home. In reliance on ever-attractive property prices, they were convinced that the banks could ha ppen to the mortgage on the house of the debtor's nothing. Since 2004, the award of bad real estate secured loans - subprime loans has tripled -. To over two bi llion U.S. dollars of such low quality scope is estimated mortgage today. But wh y were so imprudent lending to people who have not even had to prove a steady in come? One reason lies in the specificity of the U.S. mortgage market. There, the banks have in most cases not directly related to the debtor, but the real estat e loan - as more and more in this country - arranged by a mortgage broker. The l ives of the placement fee and checks the credit is not as accurate as it used to be made the main bank, which had a special interest in ensuring that the mortga ge could be operated verläss3 Lich. Flexible credit with interest rates rising i n the second or third year and from 2007 stagnant and falling home prices led to more and more customers use their mortgages no longer could. U.S. real estate l enders like Freddie Mac and Fannie Mae mortgage institutions and the British __________________ Economic Information - ver.di federal Berlin - page 5 Northern Rock and Paragon Mortgages came early difficulties. In the fourth quart er of 2007 the share of arrears to the total mortgage had already been increased from 5.59 to 5.82 percent in the first quarter of 2008 to 6.35 percent. In the center of the crisis: Structured financial instruments From the U.S. mortgage crisis never would have become a global financial crisis, had it not been for the last two decades, a massive deregulation of the financi al markets. Outside of the financial innovations of all kinds flourished specula tive financial Nobody would the poor mortgage borrowers nachweinen a tear fell t heir mass bankruptcy not coincide with the bursting of the bubble. Frédéric Lordon in Le Monde diplomatique, 14 March 2008 When the housing bubble burst in the summer of 2007, playing new financial instr uments, so-called "structured finance", a central role. Structured finance can b e defined by three distinct characteristics: 1 The pooling of assets - mainly ba nk loans - in pools. 2nd The transfer of these receivables to a special purpose

company with limited life span. The SPV holds as assets (assets) the collateral pool. They refinanced the assets by issuing securities. They are liabilities (li abilities) of the SPV. 3rd The splitting (carving) in liabilities in different c redit risk classes respectively. The whole thing works like this: When a bank pr eviously awarded a credit, they kept the loan until the end of the term in her b ooks. However, recently it has become practice, loans to keep up to the end of t he term but to bundle them to transform into tradable securities and selling the m to interested investors. This process is called securitization. __________________ Economic Information - ver.di federal Berlin - Page 6 Exactly who made the banks with their mortgage loans. They kept it does not on i ts own books, but sold the mortgage loans to special purpose companies, which mi ght appear in its balance sheet. They have thus deprived themselves of their obl igation to risks with equity. The regulators have approved,€that the banks have special purpose entities as a "straw man" set up for their risky business! A maj or problem is the complete lack of financial market regulation, particularly in the U.S.. Special purpose entities are outside the "official institutions" of fi nancial markets, namely the banks. They are subject to no supervision and must n ot be inferior to high-risk transactions with equity. The purpose entities combi ne mortgage loans with different credit ratings to a pool of receivables. The re venues of the SPV are from interest payments and repayments of the ultimate borr ower, that is, the home builder, depending. The SPV in turn buys the mortgage lo ans by the bank not their own money. They re-financed by selling bonds to invest ors. The purpose entities combine mortgage loans with different credit ratings t o a pool of receivables. The revenues of the special purpose entities are of int erest payments and redemptions four of the final borrowers, that is, the home bu ilder, depending. The SPV in turn buys the mortgage loans by the bank not their own money. They re-financed by selling bonds to investors. For structured financ ial instruments can be __________________ Economic Information - ver.di federal Berlin - Page 7 distinguish two basic types: These are the first asset-backed securities (ABS). ABS mean in the literal sense: by assets - such as land - covered securities. AB S are the great underlying pool, where the U.S. mortgage loans were bundled. The purpose entities have sold to pay claims - interest, repayment - from these poo ls to investors. This payment claims against the SPV will be through the existen ce of the claims - such as mortgages - covered the SPV. ABS are still the harmle ss form of structured securities, as the SPV, the underlying security so really has in its possession. A subtype of the asset-backed securities, collateralised debt obligations (CDOs) are. A CDO is an investment securitization second stage, based on an ABS and other securities already in circulation. It works like this : A special purpose vehicle - Special Purpose Vehicle - buy a combined loan port folio of several banks and sold rights to the cash flows from this portfolio to investors. __________________ Economic Information - ver.di federal Berlin - Page 8 There are three differences from the traditional ABS. First, the special purpose of this stage have no direct mortgage loans as assets. It has only securities, securitized So already from a first special purpose products. Second, the underl ying collateral pool consists of various types of credit, for example, ABS, corp orate bonds, emerging market bonds, auto loans, consumer loans and other claims. Thirdly, a CDO securities, only a smaller backup substance. Essential character istic of a structured financial instrument is that in different risk classes (tr anches) is divided. So you can buy more or less (un-) safe securities. If in the underlying asset pool and the SPV are failures, then the senior tranches "of th e remaining proceeds will be served first. Then only the "junior tranches" and m ost recently the "equity tranche", which have the greatest risk of default. The

three asset classes although relating to a single asset pool of the SPV. But the y have different risks, which is supported by five different rates bill. The pri nciple is: the higher the default risk of the underlying exposure the higher the risk premium, so the interest rate for the investor. Only the senior tranche is protected by the underlying security really. The essential problem is the indir ectness of the process. As a cascade of building a business on the other. __________________ Economic Information - ver.di federal Berlin - Page 9 The first securitization Society - Special Purpose Vehicle, SPV buys - and build s it into a mortgage securities (ABS). This they sold to investors, mostly other purpose entities. They buy up securities of different places, take them as coll ateral for a new investment (CDO) and resell it. Thus securities to investment p ackage is packed package. The first stage of securitization is the second and po ssibly a third and fourth.€And so on and so on ... In the end, building a "super structure" of new financial vehicles on the original mortgage loans on the home builder. Since there was no longer possible to estimate the quality of an under lying portfolio of several thousand loans, the banks, or the CDO manager, the pr oducts simply rated themselves - with the help of internal, unverifiable Bewertu ngsmodellen.1 The buyers of such papers had to rely on the self-made prices or o n the rating of these securities by the rating agencies. But the value of securi tized products several times, only the thumbs are aiming - and have lost heavily . Example: In a normal bond with a total of $ 100,000,000 would be distributed a payment default on the original owner on all holders of the bond evenly. In a C DO transformed an entire portfolio of low credit of $ 100 million in a "highly t oxic" high interest lowest tranche of five million dollars, five medium-sized in stallments totaling twenty million U.S. dollars and a high-quality installment o f over $ 75,000,000. Because combining the lower tranches much higher risk of de fault on, they shield the upper portion. The rating agencies periodically review the grant of the upper tranche rated AAA, even if the subject had only a bad cr edit rating. Why it had to come to the crisis Financial market experts have established the benefits of such securitization of loans so that they are an important source of liquidity first, and that remain second, the risks to hang such as mortgage loans, not like in the good old days at a bank, but to the various buyers of these so-called " are innovative financi al instruments "(ABS, CDO distributed). 1 see ECB Monthly Report 2 / 2008 __________________ Economic Information - ver.di federal Berlin - Page 10 The argument applies to many of the traditional papers also. Thus, for example, to securitize an automotive company through innovative financial instruments, th e possibility of trade receivables to the automobile manufacturers and sell to t hird parties. It can quickly obtain liquidity. Also for the client to make joini ng a pool of receivables, the risk spread better than if he only buys bonds from a single company. Risks are multiplied Simpler financial instruments have not b een risk free. Among the exotic, highly speculative CDO, the risks outweigh the benefits quite substantially: Because the banks have no more loans on their book s, they must not, as normal practice, be backed with equity of the bank. The det our via special purpose entities gives them the opportunity to new and even more risky lending. The system has distributed so not only risks, but had created mo re and more risky loans, which are then distributed to investors. Transparency i ssues, the new "structured financial instruments" have made the financial market s not only risky, but completely opaque. The distance between the initial exposu re to a home builder or a company and the security that this house or other prop erty as collateral has become more and more. The new financial instruments have

the claims from the local rinsed, for example, in Ohio awarded credit for any po int on the globe. Finance Manager even large banks 6 __________________ Economic Information - ver.di federal Berlin - Page 11 had admitted that the new products that were being traded, no longer understand. The capital market expert Alexandre Lamfalussy is like: "Today it is almost imp ossible to know who is the ultimate creditor. When, in August 1982 broke the Mex ican crisis, the Bank for International Settlements (BIS) uses a couple of hours to locate the 40-50 large banks that Mexico had given loans. "2 The financial m arket was just as overwhelmed. Because CDO and ABS will not be sold once, but, a s described above, constantly change hands, it's no wonder that half a year afte r the outbreak of the financial crisis, its dimension is still unclear. No one k nows what are the risks and is not detected as high risk. Liquidity risks are fo r standing outside any supervisory purpose entities are no capital requirements. Bought purpose entities, long-term assets such as ABS and CDO, do not do this w ith private capital.€As a rule (about 90 percent of cases) they are refinanced b y selling short-dated commercial papers to investors. Commercial papers are debt securities with a maturity of usually 30-90 days. When collapsed, the market fo r ABS in 2007, the special purpose entities were sitting on their unsaleable bec ome long-term sub-prime paper, but had to repay the short-term loans. Alexandre Lamfalussy: Looking beyond the current credit crisis. Speech to the Eu ropean Parliament, 23 January 2008. 2 7 __________________ Economic Information - ver.di federal Berlin - Page 12 When the rating agencies downgraded the credit ratings of CDOs and ABS, suddenly dried up the market for commercial paper. All investors sold in short-term comm ercial paper at once their papers. Thus the owner of the long-term ABS and CDO w ere illiquid. They had to squander their papers at any price, and drove to a mas sive loss. Because of the loaded high-risk "assets" is often no follow-up financ ing was to get more. Since mid 2007, there was thus a crisis of confidence betwe en banks. Since they did not know whether they could count on timely repayments, no bank would give the other with short-term money market securities loan. Desp ite the banking crisis on the resale of loans available through many steps away the risks in different ways but ultimately returned to the bank balance sheets. Banks have taken over in part for their purpose entities liquidity guarantees. T he purpose has become illiquid companies have taken these liquidity facilities s ince the summer of 2007. Banks are therefore a part of the long-term decrease in the value of assets must buy back from the special purpose entities, or they ha ve their purpose vehicles bought from their short-term commercial paper, which w ould otherwise have none. Such actions have on the one hand, the liquidity posit ion of the banking sector deteriorated. On the other hand came back the bad risk s in the balance sheet. The result: High Value adjustments, particularly among U .S. banks, which are in structured financial instruments have been particularly active. But in the last quarter of 2007 made the U.S. banks Citigroup, morning S tanley, Merrill Lynch and JP Morgan Chase because of the horrendous depreciation huge losses. But the Citigroup had to write off 19 billion U.S. dollars. Liquid ity and indebtedness problem: what is the difference? An illiquid company is no longer in a position to meet its payment obligations. This is particularly dicey for banks because many deposits can be immediately deducted. That must mean not that it is indebted. This is the case when a company has used up its capital an d thus de facto has become worthless. Finance Professor Reinhard Schmidt, Frankfurter Rundschau 18th March 2008 __________________ Economic Information - ver.di federal Berlin - Page 13

This got the U.S. banks also an equity issue that is at least as serious as the liquidity problem. Four U.S. banks had already in 2007 - to fall back just as th e Swiss UBS - after losses to mortgage products on the grant of foreign sovereig n wealth funds. Earlier this week, the U.S. bank crisis marks the near-collapse of Bear Stearns mid March 2008. The 85-year-old financial house of JP Morgan Cha se competitors at a price of over 93 percent below the market value - after it h ad been previously supplied by the regional central bank liquidity. Also for the other investment banks on Wall Street danger ahead - especially as their stock prices have fallen massively in the stock market since summer 2007. The problem in bank failures: the failure of a bank is in contrast to other corporate failur es contagious. If a bankrupt construction company, its competitors are looking f orward to more business. "Flips Bear Stearns, all financial institutions are afr aid that their business partners get cold feet and withdraw their money," Profes sor Schmidt said 18 financial March 2008 interview with the Frankfurter Rundscha u. German banks affected differently. In addition to industry (IKB) in Germany, several regional banks are particularly affected by the financial crisis, as the y have invested in highly risky financial products. The taxpayer it will cost 1. 2 billion euros to rescue IKB to bankruptcy. Further, not to quantify costs incu rred by the high demand and the depreciation risk protection for the affected st ate banks by the public shareholders. Public-sector banks, savings banks and reg ional banks have a public mandate. This includes: the promotion of capital forma tion,€the promotion of small and medium-sized enterprises and the financing of p ublic duties and public service orientation. The scandal is not just that the re gional banks with billions tax money must be stabilized. Worse is that the wor kers lose their jobs as the banks involved, although they have as those who oper ate the core business of banks with the crisis to do anything at all! __________________ Economic Information - ver.di federal Berlin - Page 14 Public sector banks should be speculative transactions in structured finance ins truments prohibited. Its central task is to take over the financing of small and medium-sized enterprises, such as an alternative to private equity. The German private banks had substantial write-downs on its subprime assets no longer valua ble to make. The German bank had to write off 2.25 billion euros from such specu lations in the U.S. Nevertheless, net income before tax was in 2007 with almost 8.4 billion the previous year. At Commerzbank, net profit was even 20 percent over the previous year. For her, the sub-prime write-downs amounted to 583 milli on euros. Tax money does the crisis of the private sector. The speculation losse s and thus reduce the profit tax revenues of the state. The prospects: fear of i nsolvency of banks, credit markets in a panic! In the first quarter of 2008, Ger man banks had to make other adjustments, which hung with the housing crisis in t he USA. But the German bank had in the first quarter of 2008 to cope with 2.5 billion more writedowns on structured products and leveraged acquisitions than i n the whole year 2007. In the wake of the subprime crisis, banks have been perfo rmed worldwide and depreciation allowances of nearly 400 billion U.S. dollars, t he financial state secretary Joerg Asmussen in July 2008. The International Mone tary Fund (IMF) returns to his warning that losses from the credit crisis could cost a total of one trillion U.S. dollars, a particularly bleak assessment. Eith er way, many banks have to sooner or later raise their capital. If it is the par t of shareholders and sovereign wealth funds are no fresh capital, is the fear o f bank insolvency are for now. The equity base of German banks is not better tha n the USInstitute. So much depends on whether reasonable adjustments have been m ade now or whether further write-downs will reduce the equity. At their meeting in April 2008, the finance ministers of leading industrial nations (G7) all mark et players again __________________ Economic Information - ver.di federal Berlin - Page 15 asked to indicate their demand for illiquid securities valuation allowance to qu

ickly implement known. Impact on the real economy U.S. mortgage crisis impacts the construction industry and puts more financial p roducts to the serious crisis of confidence in the financial markets has a direc t impact on the U.S. economy. What has emerged in the summer of 2007 as the cris is in the U.S. mortgage market, has infected many other financial products. A co ntagion channel were the big credit insurers, the so-called monolines. The speci alized insurance companies have also guaranteed a lot of mortgage-backed financi al products. She has cost so much money during the crisis, that investors doubt that enough is left to stand for other securities now. Long time since the subpr ime crisis has also reached other credit transactions. American companies or com munities that want to raise money through bonds suddenly have difficulty for ord inary consumers borrowing to be found - even though their credit rating is no wo rse than before the financial crisis. Investors are holding back. In total credi t scarcer and more expensive. Not only speculative products are affected. And fi nancial market products of good credit quality under pressure. This can be seen on the risk premiums on interest rates on loans to enterprises. They have increa sed sevenfold since the outbreak of the subprime crisis. In the U.S., could also additional financial products are drawn into the crisis. So say ahead of many a nalysts credit crisis and / or an automobile loan crisis. The fear is that U.S. consumers who are already suffering under the burden of high mortgage rates, the consumer credit can no longer operate. With security, the drastic decline of th e U.S. housing sector and the difficult conditions of the lead lending banks in the future with a slowdown of U.S. growth.€The Negativnachrichten, that is, the number of foreclosures among homeowners who can not operate their loans, doubled in January 2008 compared with the previous year. With each __________________ Economic Information - ver.di federal Berlin - page 16 Enforcement, the number of free housing, delaying a turnaround in the housing ma rket. Credit crisis leads to loss of growth, the U.S. economist Paul Krugman see s three reasons that lead why the crisis in the housing market and financial mar kets to lower growth and less employment in the U.S. are: "First: It is built al most nothing, and suffers from the construction industry, the million people. Se condly, it is common in the U.S., that people take mortgages on their homes in o rder to buy other things. That happens less now, so be on the consumer. Many peo ple now have debts that exceed the value of their homes. Third: For the insuranc e institutions is a serious blow, because there will be many, many people who ca n no longer serve their loans, which hurts credit. This leads to a difficult sit uation on capital markets. We already have the worst credit crisis in 17 years. "(Taz, March 7, 2008) It is true that U.S. government and central bank tries to bring the real economy, with strong interest rate cuts and a fiscal package of a lmost 170 billion U.S. dollars back on the road. The fiscal package is, relative ly speaking, small. And it provides tax breaks primarily help the rich. The inte rest rate cuts to help businesses and consumers. Large department store chains r eport Soaring and crashing - House prices in the U.S. Change from the end of the previous year ver.di federal economic area 9.4% 9.6% 7.6% 6.9% 6.0% 5.6% 6.8% 7.6% 4.1% 3.5%

-0.3% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 __________________ Economic Information - ver.di federal Berlin - page 17 again rising sales. From the Fed will signal that they will continue the policy of falling interest rates. But because of the crisis of confidence in the financ ial markets, it creates it just does not cut the interest rates of banks really. Recession forecasts and relatively robust real economic data alternate - first with an increasing trend towards recession. In the summer show, however, surpris ingly positive data for the first and second quarter of 2008. How to turn a deep economic setback may be, is anyone's guess. European Union and Germany: fear of rise of the euro in the European Union seemed to have better fundamentals. Stil l go on the uncertain growth in the U.S., by the financial crisis and high commo dity prices, risks, which led the EU Commission to cut in February 2008 its grow th forecast for the euro zone for the current year by 0.4 points to 1.8 percent . For Germany, the majority of economists expected a slowdown in growth over 200 7, but no recession. In the summer of 2008, experts have reinforced fears that e ffect. The causes of the weak economy in Germany are not so much in the financia l crisis, but the fact that the upturn is not gone ahead of the private demand s upported ".3 The impact of the financial crisis will be different than in the U. S.: • Unlike in the U.S. has no place in Germany in the real estate price explos ion, followed by price collapse and crisis triggered by the construction industr y. It is therefore not a fall in house prices and a resulting reduction in consu mption to be expected. Less than ten percent of the population own shares in Ger many, so that even a greater decline in the stock market hardly express themselv es in a reduction in private consumption. The debt financing of consumption in G ermany is of minor importance. • • • See ver.di Economic Information 1 / 2008 to hedge: "upswing" and Verdi Economic Information 2 / 2008: spring reports - Theme missed. 3 __________________ Economic Information - ver.di federal Berlin - Page 18 As possible routes of infection for the real economy and thus remain for growth and employment: • • a possible credit crunch and credit prices and the effects o f a growth slowdown in the U.S. and the weak dollar on exports. Also German corporate bonds can not remain by the significantly increased risk p remiums on the international capital spared.€After initial surveys in Germany co nsider themselves the most affected by the crisis, banks in lending also decline d. From the quarterly survey by the Bundesbank for German banks, it appears that the financial crisis in the third and 4 has had a quarter of 2007 to the lendin g standards in business with companies. The banks demanded higher interest margi ns and awarded fewer loans to businesses. The banks justified their behavior by the increased funding costs on money markets and the worsening liquidity positio n. The lending policy towards private households has not changed it. In February 2008, the German Bundesbank is of the opinion that keeping the overall impact o f the financial crisis on the German economy within narrow limits. According to the most respected sentiment indicators, the financial crisis, the German compan y had initially rather cold. So wanted to German managers, according to Handelsb latt Business Monitor 2008 increase both their investment and the number of thei

r employees. The Handelsblatt Barclays indicator shows for the first quarter of 2008, a good Wachstum.4 Meanwhile, the indicators point but with skepticism: "Th e euphoria of the top managers shrinks", Handelsblatt overwrites the first July 2008, the results of the Business Monitor. As a cause inflation, called the high euro-dollar and high oil prices. In addition to relatively little direct impact of the financial crisis, there are indirect effects on the foreign trade with t he dollar area. Here it is not only the development of the U.S. economy, which a ffects the German foreign trade. Because the Fed boosts the economy with low int erest rates, while the Euro4 See Handelsblatt, 15 April 2008 and 10 March 2008. __________________ Economic Information - ver.di federal Berlin - page 19 European Central Bank interest rates holding up in inflation fears, a growing in terest rate differential between the two currency areas. That weakens the U.S. d ollar and the euro strengthens. The value of a euro fluctuates around $ 1.60, th e highest ever since the start of European Monetary Union. Overall, go only nine percent of German exports to the United States. For the aircraft, some mechanic al engineering firms and the exporting in the dollar area auto industry could be a sustained dollar weakness, however, be uncomfortable. Still maintain currency hedging of large corporations, but a continued rise of the euro will hurt Germa n exports. However: A depreciation of the U.S. dollar is a latent danger for yea rs, which could break without a financial crisis because of the huge deficit in U.S. trade at any time. Under these conditions, it is foolish, when the German e conomic policy continues to focus only on exports. Even representatives of a str ict policy of supply now admit that the German economy needs more domestic deman d to keep destabilizing influences from outside state. This may contribute to a tariff policy with verteilungsgerechten wage increases. On the other hand need t he European and the German economy, a future investment program and a change of the European Central Bank. Starting points for effective financial market regulation Crisis management, the trend towards exotic securitizations of all types and the ir placement in special purpose entities has contributed significantly to the di ssemination of the current financial crisis. Is the crisis only because, central banks can respond only by driving the breakdown in the markets with low interes t rates or the banks directly provide liquidity, as did the Fed in the U.S.. In order not to restrict bank lending to companies is, it must go first of all a ma tter of maintaining the viability of the financial system and strengthen it. The U.S. central bank has tried by all means, bring the financial markets moving ag ain. In addition to their low interest rates has given them the twenty largest U SBanken the opportunity for 100 billion U.S. dollars U.S. government bonds to __________________ Economic Information - ver.di federal Berlin - page 20 obtained. As security increases, the central bank to barely salable mortgage loa ns! This provides liquidity to banks and aims to build trust - so they are at th e end again equity investors. Should the government save the banks? Pro A bank c risis is a crisis of confidence. The insolvency of a large bank can lead to all investors pull their money. Then it can come to a crisis like in the thirties Co ntra A bank that loses due to speculation their equity like any other insolvent companies must withdraw from the market.€Greed of speculators should not be rewa rded with state money. Bank shareholders want ever higher returns. It is logical that they will lose money now, because their shares are worth less. Rescue oper ations by the state lay the seeds for the next crisis. But what if the banking c risis is so bad that the U.S. government buy up the bad loans of banks in order to save them from insolvency? That would be a huge subsidy for the banking syste

m, which would be quite a challenge to the banks to make, as before. But exactly what does the bank lobby. Of all German-Bank-Chef Ackermann is now demanding st ate intervention to strengthen the banks. "It takes state intervention to stabil ize the market," he said at a conference in Frankfurt in March 2008. For central banks and governments, there is a balancing act to get the credit markets back up and running, but the State at the end of the bank decreases its losses. Finan cial market regulation, the current crisis has sharpened awareness that excesses must be avoided preventive in financial markets. The Financial Stability Forum (FSF), 12-13. April 2008 announced its recommendations, how can the resilience o f the financial system should be improved. The Forum is __________________ Economic Information - ver.di federal Berlin - Page 21 The representatives of central banks, the financial supervisory authorities and finance ministries of certain countries, together with representatives of the IM F and World Bank. Central proposals relate to: • Stricter supervision of the ban ks in terms of their capital, their liquidity and their risk management. During the year 2008 should be made with more detailed proposals. Better transparency o f financial market players in terms of their risks and their assessment. The acc ounting standards of SPEs are to be improved. In addition, ways should the valua tion of securities in the case of inactive markets are found. Improvements in cr edit rating and improved responsiveness and cooperation of central banks and sup ervisory authorities in a crisis. • • • • The proposals are supported by finance ministers of the G7 are a step in the rig ht direction. However, the majority of proposals will be concretized in the cour se of the year. This will show whether there are really radical steps in the dir ection of regulation or whether supervisors and governments are yet to yield aga in. ver.di Vorschläge5 "TÜV" for new financial and investment products Structured financial products ar e so complicated that not intimated to the buyers. Neither the bank nor the Bank ing Supervision know where the risks lie in the end. In order to identify new ri sks early on can be a kind of "TÜV" necessary to examine what new financial prod ucts are approved. Finally, it should not be any self-made car on the market. See, and especially on proposals to restrict the activities of Hedgeund Private equity funds' financial policy: the regulation of financial markets ", Decision of ver.diBundeskongress 2007;" financial capitalism. Greed at its best! "Ver.di Economic Area, October 2007; uni global union: Claims of UNI-Europa Finance on f inancial regulation, May 2008. 5 __________________ Economic Information - ver.di federal Berlin - Page 22 Increase transparency - strengthen supervision, all risks that a financial servi ces company has entered into must be recognizable in the balance sheet. It may n ot be possible to do business through other companies such as special purpose en tities, without them appearing in the balance sheet. All actors in the financial markets here have the same obligations, controls and transparency rules are sub ject, such as banks and insurance companies. Financial transactions of, for exam ple, European companies and companies with off-shore financial centers that are

not subject to control as in Europe, must be prohibited. The supervisory authori ties in different countries need to strengthen their international cooperation. Independent rating agencies to the current world oligopoly of rating agencies mu st be lifted. It must be prevented from rating agencies that the development of financial products and subsequently issue a credit ratings for these products. S uch conflict of interest is damaging. We are asking the federal government an in itiative for a public rating agency in Europe. This must be required to assess t he risks carefully and take into account social and environmental criteria.€As a n immediate measure, a strict separation of consulting and business valuation is to be regulated by law. Capital requirements exacerbate All loans and credit co mmitments must be backed by corresponding with underlying equity. Higher risks a re supported with corresponding higher capital ratios. This credit-risky activit ies are less rewarding. This can be added to the mandatory provisions of Basel I I rules done (Basel III). Credit constraints with better capital requirements ca n also be the use of credit for speculation and to acquire companies, especially as it is used by hedge funds and private equity funds that restrict massive. It must be prevented in the future, that financial investors with a multiple of th eir equity __________________ Economic Information - ver.di federal Berlin - Page 23 may speculate. In addition, should loans from companies to companies that are to be taken to be prohibited, with the purpose of financing the purchase price the reof. Financial Transaction Tax A sales tax on all financial transactions would increase speculative capital flows and reduce considerably this way. The financi al transaction tax goes beyond the existing in several countries raised stamp du ty and the call for a Tobin Tax, by all purchases and sales of securities and cu rrencies of all kinds (except for new issues) included, in particular all specul ative financial products like derivatives. Employees at the center of super retu rns that are achieved in the financial markets are not worthy of protection by t he State Good! Functioning financial markets are useful as and if they encourage investment in the real economy and hence growth and employment sustainable. Thi s is ensured by the staff of the financial sector. Regulators and companies must ensure that working conditions and wage systems that promote the regulatory obj ectives and outstanding customer service and not about preventing. Basic element s are programs for education and lifelong learning to enable workers to gain the necessary qualifications.