Olaf Scholz is outraged – the financial scandal surrounding the DAX-listed company Wirecard is “a scandal without equal”. The Finance Minister hastily announced “reforms” and called for critical questions “to the management, but also the auditors”. However, critical questions should now also be answered by the Financial Supervisory Authority and its chief employer Olaf Scholz. For years, the authorities not only looked away, but actively helped Wirecard to defend itself against justified accusations. In a crude mixture of patriotism and misunderstood solidarity with Germany as a financial centre, one has even made oneself an accomplice, at least indirectly. Anyone looking for those responsible for the billion-dollar bust should therefore also look at the Financial Supervisory Authorities and the Federal Ministry of Finance. A committee of inquiry could probably bring clarity here.

If you want to understand the actions of the supervisory authorities in the Wirecard case, you first need to know what short sales are and how to classify this financial instrument. When talking about short sales, it is usually about so-called covered short sales. And this works as follows: on the stock exchange, you can bet not only on rising prices, but also on falling prices. For example, anyone who speculates that the price of the Siemens share will fall in the next few days or weeks will borrow a share package from a Siemens shareholder for a fee and immediately sell it back on the stock exchange. If the price has fallen – as predicted – the speculator buys the shares at a then lower price and returns them to the lender. If today’s price stands at 100 euros and falls in one week to 90 euros, the speculator has made a profit with this deal 10 euros (minus loan fee). However, if the price rises to 110 euros, the speculator makes a mirror image 10 euros (plus loan fee) loss.

Such transactions are anything but unusual, but are usually viewed very critically in public and political debate. And that has its reason. In naive theory, shares are still just a special form of trading shares in a company and spreading them widely among many small shareholders. Shareholders, of course, always have an interest in rising prices, so speculators who have an interest in falling prices lead this simple and completely contradictory narrative of the nature of the stock market ad absurdum. As understandable as the criticism of short sellers is, it is counterproductive in real existing financial capitalism, in which shares are bought and sold every nanosecond and only a small fraction of the transactions originate from persons or companies that rely on rising prices in the long term. The example Wirecard shows this excellently.

The Wirecard share has been pushed for years more than any other share by financial media, online and offline, and financial trolls in forums and Blogs. The payment service provider from Aschheim was praised as the next big thing with the active support of the cocky company boss Braun; and which Shareholder does not dream of being one of the early shareholders of a global corporation á la Apple, Cisco, Tesla or Amazon? However, the steeper the prices went up, the clearer it became that there was something wrong with the company’s numbers. However, the German media became disinterested. In US financial blogs and forums, however, Whistleblower-based accusations were repeatedly made that Wirecard would make air bookings, invent customers and sales, and show profits that were not actually achieved at all, especially in the Asian business. Today we know that these accusations were probably true, at least at that time we should have guessed it. Of course, all these allegations were also known to the German supervisory authorities. However, they looked away at first. After all, they did not want to put the fin-Tech miracle made in Germany in danger. His success story was too good – too good to be true.

Instead, they followed a language that Wirecard himself designed to distract from the accusations. Wirecard presented himself as a victim; as a victim of short sellers who made false accusations in order to crash the share price of the innocent company and then cash in. This Story is quite clever, it relies on exactly those prejudices that many investors, media and apparently also the Supervisory Authority of the – and this is indeed so – money-greedy hedge funds from London, which are big in the business with short sales. However, one has obligingly failed to imagine another, much more plausible reading. A company that works really cleanly and whose share price has not been mercilessly driven up by interested parties is a very unsuitable target for short sellers. They like to throw themselves on the “rotten eggs” in the basket, on bubbles that will soon burst. And Wirecard was the laziest egg in the basket of the German stock market; a found food for the hedge funds from London, who bet on a burst of the Wirecard bubble. At the peak of the attack at that time, every fourth(!) Wirecard share awarded to short sellers. However, they did not expect the German supervisory authorities to make common cause with their rotten egg.

This leads to those memorable events in spring 2019. once again the British Financial Times had pointed out massive irregularities; once again they had received papers from whistleblowers from the company, once again it was about air bookings, invented customers and sales in Asia. And what did the German Financial Supervisory Authority do? It was not investigating Wirecard, but the FT journalists who had exposed the scandal. Allegedly they were part of a conspiracy whose aim was to manipulate the price of Wirecard in the sense of the short sellers. Even the public prosecutor’s office in Munich had Wirecard arrested and began investigations not against Wirecard, but against the journalists. Even the Supreme supervisory authority BaFin did not investigate the FT’s allegations, but enforced a ban on short sales for the Wirecard share. In doing so, it also prevented the much-needed downward price correction and played its part in making the bubble even bigger and the few unsuspecting shareholders who were really deceived now have to record even higher losses. And the Federal Ministry of Finance waved this procedure through as the highest Supervisory Authority. If Olaf Scholz now complains of errors by the authorities, one must also ask why he, as the highest official at that time, did not have these processes checked, which could not have passed him by simply because of the media coverage. BaFin and Co.have failed at all levels, but Olaf Scholz bears the political responsibility for this.

Why are these events from spring 2019 so important? Today, one wonders how a company can be so stupid as not to realize that 1.5 billion euros just disappear like that. This question is wrong. More correct would be the question, where these – de facto not existing – 1.5 billion euros actually come from? The answer is likely to be related to the FT’s allegations. Anyone who undertakes air bookings, invents sales and returns, must book the resulting sums somewhere. The 1.5 billion euros in trust funds in Asia are therefore very likely to be precisely these fictitious business proceeds from the fictitious transactions that were reported at the time. Over the years, Wirecard has thus made € 1.5 billion in bogus profits; no wonder that the shares went up so much. Without the active omission of the German supervisory authorities, such a shortfall would never have occurred. Not only the management of Wirecard and the auditors of Ernst & Young are responsible for this financial scandal, but also the German supervisory authorities and, ultimately, their chief executive Olaf Scholz.

The Wirecard scandal also shows that German politics has learned nothing from past scandals. While every baker has to give the tax office an account of every single Euro in his books during an audit, you look away at a supposed fin-Tech Wonder company, which corresponds so beautifully to Bavaria’s motto of Laptop and lederhosen, so strained that you do not notice that over years 1.5 billion in fictitious revenues accrue … and that could only be the tip of the iceberg, it is likely that there are other bodies buried in the books of Wirecard.

Anyone who knew or needed to know when and what on the part of the authorities and politicians is very difficult to prove on the basis of publicly available information. The amount of the damage alone requires that a committee of inquiry be established here. Whether one learns from this scandal and draws the right conclusions, however, can be doubted confidently. Criminals with white shirt collars always have an easy time in Germany.