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?
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.
Emigrate While You Can... Learn More
Dear readers - we want to once again thank all of you who have supported us with donations.
To donate Bitcoins, use this address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
Thank you for your support!
Most read in the last 20 days:
- Gold and Gold Stocks – It Gets Even More Interesting
Technical Backdrop If only we could get a dime for every bearish article on gold that has been published over the past two weeks...but one can't have everything. When a market is down 83% like the HUI gold mining index is, we are generally more interested in trying to find out when it might turn around, since it is a good bet that it is “oversold”. Of course, it if makes it to 90% down, it will still be a harrowing experience in the short term. We like these catastrophes because...
- The Greatest Racket of All Time
The Successes of the Global War on Terror One would think that the so-called “Global War on Terror”, which has been given fresh impetus by the Paris attacks, must be going swimmingly. What else could explain the great enthusiasm with which it is pursued? It may be recalled that it started in earnest after the WTC attack – also a declaration of war, as it was put at the time. As is often the case when Islamist fundamentalists strike, the actual attackers immolated themselves on...
- The Long, Cold Winter Ahead
Not Immune Cold winds of deflation gust across the autumn economic landscape. Global trade languishes and commodities rust away like abandoned scrap metal with a visible dusting of frost. The economic optimism that embellished markets heading into 2015 have cooled as the year moves through its final stretch. Photo credit: David Byrne If you recall, the popular storyline since late last year has been that the U.S. economy is moderately improving while the...
- How Do People Destroy Their Capital?
There is no Santa Claus I have written previously about the interest rate, which is falling under the planning of the Federal Reserve. The flip side of falling interest rates is the rising price of bonds. Bonds are in an endless, ferocious bull market. Why do I call it ferocious? Perhaps voracious is a better word, as it is gobbling up capital like the Cookie Monster jamming tollhouses into his maw. There are several mechanisms by which this occurs, let’s look at one...
- Junk Bonds Under Pressure
While the Stock Market is Partying ... There are seemingly always “good reasons” why troubles in a sector of the credit markets are supposed to be ignored – or so people are telling us, every single time. Readers may recall how the developing problems in the sub-prime sector of the mortgage credit market were greeted by officials and countless market observers in the beginning in 2007. Photo credit: Getty Images At first it was assumed that the most highly...
- The Plane Incident in Syria
A Strange Event The topic of the SU-24 Russian plane shot down by Turkey over the weekend in Syria has been discussed all over the media ad nauseam by now, but we want to add a few observations and suggestions of our own. Some have perhaps not received the attention they possibly deserve. Image of Russian jet shortly after it was hit by a Turkish missile. Luckily someone was promptly at hand to make a qualitatively acceptable video of the incident. As is well known, cameramen...
- Angry Belgian Muslims and the Price of Welfare Statism
Ill-Tempered Mohammedans in the Socialist Paradise In the wake of recent revelations about the identities of the morons involved in the horrific Paris attacks (happily, most of them shuffled off the mortal coil as well, thereby improving the aggregate degree of moral clarity and intelligence in the world), a friend pointed us to an article at Unz Review that asks: “Why Does Belgium Have Such Angry Muslims?” Our instinctive, immediate reaction was to argue that the bland, boring...
- Can Investors Trust the New Gold Fixing?
Statistical Analysis of the New Gold Fixing Since 20 March 2015 a new gold price fixing organized by the London Bullion Market Association has been in operation. It has replaced the previous price determination process, which was in place for more than a century and became subject to criticism as it was highly vulnerable to manipulation. Has manipulation now ceased? Gold fixing at N.M. Rothchild and Sons offices in London. The first fixing took place there on 12 September...
- Giant “Green Energy” Boondoggle Flops in Spain
$29 billion Vaporized As is well-known, Spain is one of the countries in the euro area's periphery that has been thoroughly bankrupted by its decision to join the euro area and enjoy an artificial credit expansion-induced boom as its interest rates initially collapsed. This was aided and abetted by the ECB, which sat idly by as the euro area's true money supply exploded into the blue yonder with annualized growth rates ranging from 6% to 18% during the boom years. Tower at...
- US Money Supply Growth Finally Begins to Crack
Breaking Below the Shelf In our recent missive on junk bonds, we inter alia discussed the fact that the growth rate of the narrow money supply aggregate M1 had declined rather noticeably from its peak in 2011. Here is a link to the chart. As we wrote: “We also have confirmation of a tightening monetary backdrop from the narrow money supply aggregate M1, the annualized growth rate of which has been immersed in a relentless downtrend since peaking at nearly 25% in 2011....