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.

While CEO's criticism is purely based on principle, we point out that Mario Draghi is one of four members of the G30 who are connected to the Goldman-Greece (off-market currency swaps) affair.

The CEO complaint

Here's the response of the ECB to CEO's letter asking Draghi to leave the G30:

“part of the President's tasks to represent the ECB in international conferences, fora and groups to exchange views on international economic and financial issues and to communicate the ECB's positions and policies. When representing the ECB in such conferences, fora or groups, the President of the ECB acts in accordance with the principle of independence and integrity.”

CEO says that his answer is unsatisfactory because it does not specifically address the group in question, the G30, and it offers no guarantee as to the observance of the "principle of independence and integrity". In their complaint to the ECB, CEO lists multiple provisions of the code of conduct of the Governing Council and, more specifically, the Executive Board, that discourage this sort of affiliation.

 

The ECB President

He's our take on the problem: 

Would removing Draghi from the G30 shield him from influence from his peers and the international bankers that make the bulk of the G30? 

Everything else (such as meeting privately for golf outings etc.) equal, probably not. And some might argue the influence works both ways. But it would make a great deal of a difference this way : the ECB Presidency would not be lending its credibility/respect to that organization. Symbols matter, at that level of power.

 

The relevant question, therefore, is:

Should the ECB Presidency support the G30?

Some might answer that Draghi's British homologue (in active duty, that is, unlike Volcker), Mervin King, is also a member. But just because a practice is established doesn't make it right.

Admittedly, there are adversarial positions in the G30. Consider, for instance, this recent headline: "Goldman Sachs, Morgan Stanley say Volcker rule could raise risk". All three are represented (self, in the case of Volcker). But is the right balance struck between the parties?

 

Big finance

In a press release, CEO cites research that says that the G30 has the characteristics of a lobby group and has contributed to ineffective banking regulation, in association with the Institute of International Finance (see Simon Johnson's April fool take on them). In the last couple of years, the latter has gained prominence in its negotiations with the Troika and Greece on country's debt restructuring.  Perhaps related, Nobel prize laureate Joseph Stiglitz recently alleged in an op-ed that Draghi's ulterior motive for having pushed for a voluntary restructuring was to spare a "few banks" losses on the CDS they sold. In fact, it's perhaps wrong to call it an ulterior motive because it was openly claimed by Draghi at his nomination hearing, according to an MEP (interview at 1:40, English subtitles), albeit not a defensible one, thought the same MEP.

Big finance has quite a representation in the G30. For brevity, let's keep it to Goldman Sachs. It includes William C. Dudley, former Managing Director of the firm,  who replaces another a former MD of the same firm, Mario Draghi, as Chairman of the Financial Stability Board (FSB). E. Gerald Corrigan is currently Managing Director at, and could become the next chairman of, the same firm (NY Times). He is also chair of the Counterparty Risk Managment Policy Group (CRMPG). A former Commodity Futures Trading Commission (CFTC) official recalls in a PBS interview that the CRMPG was set up in the 1990s to lobby Clinton's administration to keep the OTC-derivatives market exempt of "all the fundamental templates that we learned from the Great Depression [in order to] have markets function smoothly", a.k.a as the Brooksley Born vs Summers, Greenspan & Rubin episode.

 

Central bankers and economists

The the allegedly less than prophetic Martin Feldstein and Larry Summers, whose alleged selective memory recently made headlines, were singled out in Inside job. According to The Telegraph, Phillip Hildebrand, former chairman of the Swiss National Bank, was forced to resign because his wife traded on insider knowledge about a market intervention of the SNB.

If Greenspan replaced Trichet as head of G30, would you think it's a viable organization for impulsing reform in banking regulation, at a time when we're grappling with the legacy of the financial crisis? If the answer is no, that is, it would be far from the best choice, then consider reading Greenspan vs Trichet, a tie? as a follow up to this article.

 

The Goldman-Greece connection

The Draghi connection is covered in Goldman-Greece-Draghi-Morgan-Stanley. E. Gerald Corrigan took a public role in defending Goldman Sachs in 2010. Jean Claude Trichet, now chairman of the G30, kept details of the transactions that were in the custody of the ECB confidential, against a legal proceeding by Bloomberg to release them. After Goldman Sachs' role in the US mortgage crisis was exposed, Gordon Brown, then UK prime minister, called for a special investigation of the firm's practices (BBC). The Goldman-Greece deal should have been on the radar of FSA, directed since 2008 by Lord Adair Turner, but it doesn't appear to have been the case. 

 


 
 

Emigrate While You Can... Learn More

 
 

 
 

Dear Readers!

It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding a little value to your life!

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Perfect-InvestmentInsanity, Oddities and Dark Clouds in Credit-Land
      Insanity Rules Bond markets are certainly displaying a lot of enthusiasm at the moment – and it doesn't matter which bonds one looks at, as the famous “hunt for yield” continues to obliterate interest returns across the board like a steamroller. Corporate and government debt have been soaring for years, but investor appetite for such debt has evidently grown even more.   The perfect investment for modern times: interest-free risk! Illuustration by Howard...
  • Factories, new vs oldUS Economy – Something is not Right
      Another Strong Payrolls Report – is it Meaningful? This morning the punters in the casino were cheered up by yet another strong payrolls report, the second in a row. Leaving aside the fact that it will be revised out of all recognition when all is said and done, does it actually mean the economy is strong?   Quo vadis, economy? Image credit: Paul Raphaelson   As we usually point out at this juncture: apart from the problem that US labor force participation has...
  • TurmoilInvesting in Gold in 2016: Global Paradigm Shifts in Politics and Markets
      Crumbling Stability In the past few months, we have witnessed a series of defining events in modern political history, with Britain’s vote to exit the EU, (several) terror attacks in France and Germany, as well as the recent attempted military coup in Europe’s backyard, Turkey.   Global stability continues to be undermined   Uncertainty over Europe’s political stability and the future of the EU keeps growing. These worries are quite valid, as geopolitical...
  • CorporateMediacontrolTrump's Tax Plan, Clinton Corruption and Mainstream Media Propaganda
      Fake Money, Fake Capital OUZILLY, France – Little change in the markets on Monday. We are in the middle of vacation season. Who wants to think too much about the stock market? Not us! Yesterday, Republican presidential candidate Donald Trump promised to reform the U.S. tax system.   This should actually even appeal to supporters of Bernie Sanders: the lowest income groups will be completely exempt from income and capital gains taxes under Trump's plan. We expect to hear...
  • mania1The Great Stock Market Swindle
      Short Circuited Feedback Loops Finding and filling gaps in the market is one avenue for entrepreneurial success.  Obviously, the first to tap into an unmet consumer demand can unlock massive profits.  But unless there’s some comparative advantage, competition will quickly commoditize the market and profit margins will decline to just above breakeven.   Example of a “commoditized” market – hard-drive storage costs per GB. This is actually the essence of economic...
  • Mark Carney starts work as Bank of England governor in Dave Simonds cartoonBank of England QE and the Imaginary “Brexit Shock”
      Mark Carney, Wrecking Ball For reasons we cannot even begin to fathom, Mark Carney is considered a “superstar” among central bankers. Presumably this was one of the reasons why the British government helped him to execute a well-timed exit from the Bank of Canada by hiring him to head the Bank of England (well-timed because he disappeared from Canada with its bubble economy seemingly still intact, leaving his successor to take the blame).   This is how Mark Carney is seen by...
  • old friendsAn Old Friend Returns
      A Rare Apparition An old friend suddenly showed up out of the blue yesterday and I’m not talking about a contributor who had washed out and, after years of ‘working for the man’, decided to return for another whack at beating the market. Instead I am delighted to report that I am looking at a bona fide confirmed VIX sell signal which we haven’t seen for ages here.   Hello, old friend. Professor X and Magneto staring each other down in the plastic...
  • TMS-2 fast versionA Date Which Will Live in Infamy
      President Nixon’s Decision to Abandon the Gold Standard Franklin Delano Roosevelt called the Japanese “surprise” attack on the U.S. occupied territory of Hawaii and its naval base Pearl Harbor, “A Date Which Will Live in Infamy.”  Similar words should be used for President Nixon’s draconian decision 45 years ago this month that removed America from the last vestiges of the gold standard.   Nixon points out where numerous evil speculators were suspected to be...
  • tortoiseThe Fabian Society and the Gradual Rise of Statist Socialism
      The “Third Way”   “Stealth, intrigue, subversion, and the deception of never calling socialism by its right name” – George Bernard Shaw   An emblem of the Fabian Society: a wolf in sheep's clothing   The Brexit referendum has revealed the existence of a deep polarization in British politics. Apart from the public faces of the opposing campaigns, there were however also undisclosed parties with a vested interest which few people have heard about. And...
  • storming the storeRetail Snails
      Second Half Recovery Dented by “Resurgent Consumer” We normally don't comment in real time on individual economic data releases. Generally we believe it makes more sense to occasionally look at a bigger picture overview, once at least some of the inevitable revisions have been made. The update we posted last week (“US Economy, Something is Not Right”) is an example.   Eager consumers storming a store Photo credit: Daniel Acker / Bloomberg   We'll make an...
  • The CongressThe Fed’s “Waterloo” Moment
      Corrupt and Unsustainable James has been a big help. Trying to get him to sleep at night, we have been telling him fantastic and unbelievable bedtime stories – full of grotesque monsters... evil maniacs... and events that couldn’t possibly be true (catch up here and here).   He turned his head until his gaze came to rest on the barred windows of the main building. Finally, he spoke; as far as I was aware these were the first words he had uttered in more than five years....
  • Zimbabwe_$100_trillion_2009_ObverseGood Money and Bad Money
      Confidence Gets a Boost OUZILLY, France – Last week’s U.S. jobs report came in better than expected. Stocks rose to new records. As we laid out recently, a better jobs picture should lead the Fed to raise rates. This should cause canny investors to dump stocks.   Canny investors at work (an old, but good one...) Cartoon via Pension Pulse   But the stock market paid no attention. It follows logic of its own. Headlines told us that last Friday’s report “boosted...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com