Markets have become a ‘monster,’ German president says

BERLIN, May 14, 2008 (AFP) – German President and former IMF head Horst Koehler attacked banks for allowing financial markets to become a “monster” that nearly caused a global collapse, in comments published on Wednesday. “It must by now have become clear to every responsible thinking person in the industry that international financial markets have become a monster that has to be pushed back into the cupboard,” Koehler told Stern magazine in an interview to be published in full on Thursday.

“The excessive complexity of financial products and the possibility to borrow on a large scale with the lowest possible amount of your own capital as security made the monster grow,” Koehler said.

“It had practically no link to the real economy … We came close to a collapse of world financial markets,” he added.

Koehler, head of the International Monetary Fund from 2000 before taking on the largely ceremonial post of German president in 2004, was referring to the crisis sparked last year by US homeowners defaulting on subprime mortgages.

Banks had repackaged these high-risk home loans and sold them all around the world as sometimes opaque financial instruments.

Many banks who took on the investments have been