Friday, September 15, 2006

Troubles at the BaFin

Odds are that very few of you (well, let's be honest--there are very few of you) have heard of the Bundesanstalt für Finanzdienstleistungsaufsicht. And if you have, you are wrong--it's not a disease or psychological condition, or Heidegger's existential concept of "being-there" (that's "Da-sein"). The BaFin, as its fans like to call it, is the German Federal Financial Services Authority, Germany's combined financial regulator.

An Economist article this week ("The biter bit") details problems at the BaFin, which may present questions about how long the BaFin's chief, Jochen Sanio, retains his job. As the Economist article points out, technically the head of the BaFin cannot be fired, but those kinds of technicalities rarely mean much politically. The BaFin's problems are operational--apparently there may have been embezzlement to the order of $5 million on information-technology purchases, some padding of employee expense accounts, and nepotistic hiring.

Sanio is a politician, and a charming, intelligent one at that. He's the kinda guy who will quote Rolling Stones' lyrics to prove his point in a debate (An SEC commissioner once said to a group of Europeans complaining about Sarbanes-Oxley that, "As the Rollings Stones once said, 'You don't always get what you want.'" Sanio replied, "You've forgotten the rest of that lyric: '...but if you try hard sometimes, you just may find, you get what you need.'") That said, Sanio has made some enemies, both in the German cabinet and among the German financial community.

This situation matters to the U.S. financial community. Sanio is a politician and he is willing to make the kinds of regulatory noises that the German Left demands (you know, things like calling hedge funds and investment banks "locusts" and attacking credit rating agencies), but he is also fundamentally reasonable and understands finance. There is a chance his replacement won't be, and that could create issues for American financial firms.

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