250th anniversary of the Pfandbrief: Greetings from Fabio de Masi
Happy Birthday, Pfandbrief – you’re 250 years old! You have outlived them all, even the stock market geniuses who promised a land of milk and honey.
There is an old adage on the stock exchange that goes: when your priest and your grandmother start giving you investment tips, it’s time to get out. But the Pfandbrief has been around since the days of Frederick the Great, who wanted to provide loans for the nobility.
The Pfandbrief is a slowcoach, and that’s a good thing, as short-termism on financial markets is no good for long-term investment.
The balanced federal budget and inadequate public investment mean that safe government bonds are in short supply. Yet it is more important than ever to ensure a supply of safe bonds to guarantee financial stability. Here too, the Pfandbrief has a role to play.
The Pfandbrief is an over-collateralised debt instrument that is often compared with German government bonds. If there had been any doubt, Hypo Real Estate’s insolvency administrators would have come away empty-handed: even if the bank had not been bailed out, the Pfandbriefe would have been serviced first.
An English-speaking investor may well think: Pfandbrief? That sounds like German angst. The Wolf of Wall Street would have barely raised an eyelid. Yet in times of uncertainty, the Pfandbrief and covered bonds are an export success.
What with climate change, wealth concentration and social disparity, we must not allow our economy to get caught up in the scramble for high yields. Instead, we should turn it in a different direction. This also means channelling capital into a sustainable economy that will protect the environment and resources and create green jobs. Greenwashing and consumer protection risks must also be minimised.
Ten years after the financial crisis, we again hear siren calls for more anonymous capital market products and less corporate financing by banks. I am far from convinced by this. However, the Pfandbrief is an interesting hybrid: a capital market instrument – but an extremely patient one.
As with financial markets everywhere: there is no such thing as absolute safety – not even with Pfandbriefe, so the Pfandbrief market requires appropriate regulation, too. The harmonisation of Pfandbrief regulations at EU level must not come at the expense of high collateralisation standards. Then we can look forward to celebrating the Pfandbrief's 300th birthday!