Author Archives: ECB Watch

     

 

 

The Blind Spot Surrounding the 2005 'Major Restructuring' of the Goldman/Greek Secret Loan

The EU Commission was at the forefront of the response to the revelation in 2010 of irregularities in Greece's government statistics and in particular the 2.8 billion Euros secret loan it received from Goldman Sachs in 2001 (see this article at Bloomberg).

Has it delivered and has parliamentary oversight been adequate?

We tried to answer in a December 2011 article by comparing the results of a thorough audit from Eurostat with initiatives from legislative bodies in the EU and the UK and Goldman Sachs' communication (see MarketOracle). In short, there were serious lapses that point to a deception.

We revisit the issue based on additional material, an April 2010 hearing in the EU parliament (video footage included in this article) and the work of the special committee in charge of studying the causes of the financial crisis, CRIS.

The time is opportune following Nick Dundbar's recent report which reveals important details about the imbalanced relationship between Greece's debt agency and the bank (see Bloomberg). That reinforces our case that EU's officials have limited their reach to regularizing the accounts, not investigating the actions of the parties involved.

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The ECB-G30 conflict

In November 2011, Corporate Europe Observatory (CEO), a Brussels based lobby watchdog, asked Mario Draghi to withdraw from the group of G30 because it conflicts with his duties as ECB President. According to them the ECB's press office dodged their criticism and, in February 2012, they referred the matter to the ethics officer of the ECB.

This referral comes as it is uncovered that Draghi stated in writing that there were no relevant personal factors to be taken into account in considering his nomination in June 2011. It is  misleading because it fails to disclose a conflict of interest (Nouvel Observateur). Specifically, his son has been working for some years as an interest rate trader at Morgan Stanley (LinkedIn). The code of conduct of the ECB warns against "potential advantage for [the] families [of the Governing Council]". It's a real risk. In January 2012 the president of the Swiss National Bank was forced to resign after it was found his wife traded on insider knowledge, reported The Telegraph.

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Irregularities in the nomination of Mario Draghi

The Committee on Economic and Monetary Affairs was in charge of evaluating Mario Draghi's credentials on behalf of the European Parliament. Keep in mind that, while independent,the European Central Bank is accountable to the European parliament via this Committee. The view of the Committee was described in a 36 pages report concluding to a favourable opinion to appoint Mario Draghi as President of the ECB. 75% of the MEPs approved, resulting in his appointment for a term of office of eight years with effect from 1 November 2011 by the European Council. The report ignores some strong reservations of some Committee members about his alleged role in the falsification of Greek debt. This, and other evidence, indicates a possible ethical failure. The contentious transactions were engineered by Goldman Sachs International in 2001. They were subsequently managed while Mario Draghi held the position of vice chairman and managing director of the bank's London office (European headquarter), and a member of the firm-wide management committee, from 2002 to 2005. In particular, a significant increase in the debt hiding scheme, engineered in 2005, has yet to be addressed in relation with this nomination. 

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Greek/Goldman 2001 deal, overlooked aspects, and open questions

In 2001 the Greece ministry of finance hired Goldman Sachs to enhance its books using derivatives. This became known in 2003. Two noticeable events occurred in  2010. 

First, the EU mandates audits into Greece’s national accounts, uncovering huge irregularities, including those related to the 2001 deal. This received financial media coverage (Wall Street Journal…). It was suspected, then, that, in addition, Goldman Sachs shorted Greek debt which, on the face of it, is a market abuse. The final audit, however, came at a time when the media coverage had dissipated: we will see that it's unfortunate. 

Second, Goldman Sachs’ wrongdoing in the subprime crisis was made official by the SEC and congressional investigations. The EU authorities and the UK (Gordon Brown) declared that they would carry out due diligence checks on this issue, in cooperation with the US.

 

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