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 : "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?
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 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 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 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.
Dear Readers! We are happy to report that we have reached our turn-of-the-year funding goal and want to extend a special thank you to all of you who have chipped in. We are very grateful for your support! As a general remark, according to usually well informed circles, exercising the donation button in between funding drives is definitely legal and highly appreciated as well.
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
Most read in the last 20 days:
- Alan “Bubbles” Greenspan Returns to Gold
Faking It Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. […] The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. — Alan Greenspan, 1961 He was in it for the power and the glory... Alan Greenspan gets presidential bling...
- End of an Era: The Rise and Fall of the Petrodollar System
The Transition “The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros. The sooner the better.” Ron Paul A new oil pipeline is built in the Saudi desert... this one is apparently destined for the Ghawar oil field, one of the oldest fields in Saudi Arabia...
- Writing on the Wall
Time to Sell... Maybe BALTIMORE – Yesterday, the S&P 500 hit a new all-time high. And the Dow just hit a new record close as well. If you haven’t sold yet, dear reader, this may be one of the best times ever to do so. It's still flying... sorta. Meet Bill Bonner's tattered crash flag Image credit: fmh We welcome new readers with a simple insight: Markets are contrary, pernicious, and downright untrustworthy. Just when the mob begins to bawl most loudly...
- Gold – Eerie Pattern Repetition Revisited
Gold Continues to Mimic the 1970s Ask and ye shall receive... we promised we would update the comparison chart we last showed in late November in an article that kind of insinuated that it might be a good time to buy gold and gold stocks (see: “Gold and Gold Stocks – It Gets Even More Interesting” for the details). We are hereby delivering on that promise. A Lydian gold stater from the time of the famously rich King Croesus, approx. 570 BC. It seems they already had this...
- A Fully Automated Stock Market Blow-Off?
Anecdotal Skepticism vs. Actual Data About one month ago we read that risk parity and volatility targeting funds had record exposure to US equities. It seems unlikely that this has changed – what is likely though is that the exposure of CTAs has in the meantime increased as well, as the recent breakout in the SPX and the Dow Jones Industrial Average to new highs should be delivering the required technical signals. The bots keep buying... Illustration via...
- The Central Planning Virus Mutates
Chopper Pilot Descends on Nippon Readers are probably aware of recent events in Japan, the global laboratory for interventionist experiments. The theories of assorted fiscal and monetary cranks have been implemented in spades for more than a quarter of a century in the country, to appropriately catastrophic effect. Amid stubbornly stagnating economic output, Japan has amassed a debt pile so vast since the bursting of its 1980s asset bubble, it beggars the imagination. A...
- Destination Mars
Asset Price Levitation One of the more preposterous deeds of modern central banking involves creating digital monetary credits from nothing and then using the faux money to purchase stocks. If you’re unfamiliar with this erudite form of monetary policy this may sound rather fantastical. But, in certain economies, this is now standard operating procedure. The “Tokyo Whale” Haruhiko Kuroda explains his asset purchase madness with a few neat little slides. Photo credit:...
- America Has Become a “Parasitocracy”
Dread and Denial So, let’s return to the discussion you can’t have with your congressman, your mailman, or your barmaid. It’s the important one. It concerns what the Fed is really up to. Eight years after achieving independence, a State modeled after the British merchant state was established in the US. It took a while for the Deep State to consolidate itself within it, a process that was accelerated greatly in the run-up to and aftermath of WW I. Illustration by Ana...
- Fat People for Trump!
Alphas and Epsilons BALTIMORE – One of the delights of being an American is that it is so easy to feel superior to your fellow countrymen. All you have to do is stand up straight and smile. Or if you really need an ego boost, just go to a local supermarket. Better yet, go to a supermarket with a Trump poster in the parking lot. The protest vote attractor with the funny hair. Image credit: Liberty Maniacs Trigger warning: In the following ramble, we make fun of...
- Long Term Market Perspectives
Methuselah Tree When looking for a good theme for this post I pondered for a while and then decided to use a picture of a bristlecone pine, which are widely considered to be the oldest living trees in the world. Ye olde bristlecone Photo credit: Kosta Konstantinidis You can find them near the Nevada/California border and if you wind up traveling in the area then I strongly recommend that head over to Bishop and from there head up high up into the White...
- EU Sends Obsolete Industries Mission to China
“Tough Negotiations” The European press informs us that a delegation of EU Commission minions, including Mr. JC Juncker (who according to a euphemistically worded description by one of his critics at the Commission “seems often befuddled and tired, not really quite present”) and European Council president Donald Tusk, has made landfall in Beijing. Their mission was to berate prime minister Li Keqiang over alleged “steel dumping” by China and get him to cease and...
- Celebrating 45 Years of Phony Money
$300 Trillion in Debt DUBLIN – After our trip to Las Vegas, we spent one night in Baltimore and then got on another airplane. Standing in line, unpacking bags, getting zapped by X-ray machines – it has all become so routine we almost forget how absurd it is. Get ready to be invaded, citizen... Photo by David McNew / Getty Images While armies of TSA agents pat down grandmothers and Girl Scouts, ex-soldiers take aim at the police... nutcases run...