Saturday, October 22, 2011

Revisiting the case of Mario Draghi (ECB) and the fraudulent Greek swaps

According to Wikipedia:
Mario Draghi [became] vice chairman and managing director of Goldman Sachs International and a member of the firm-wide management committee (2002–2005). [...] Pascal Canfin (MEP) asserted Draghi was involved in swaps for European governments, namely Greece, trying to disguise their countries' economic status. Draghi responded that the deals were "undertaken before my joining Goldman Sachs [and] I had nothing to do with" them, in the 2011 European Parliament nomination hearings.
While it is not disputed that the deal was initiated before he joined the company, should he have had any supervisory role over the team that arranged it, it would have been expected that he rectify the wrongdoing, starting by disclosing it to the public. Not only that, but the maturity of the deal was extended in 2005, before he took up a new appointment at Bank of Italy, which was not given due attention. During the hearing, this career public servant provided an interesting explanation supporting his claim that he had no connection to the deal and its follow up : out of personal preference, he did not interact with the public sector. This is contradicted by an official statement from his employer. Oddly, a request by a renowned news agency to have access to some relevant documents were blocked by the ECB shorty before the scheduled hearing.

This audition took place on June 14th, 2011. A recording is available here. The relevant part start at 2'35''. The official transcript is here. It is not, in our view a full transcript. We will rely on our own transcript, which we believe is more faithful. The MEP's reaction (not good) to the hearing is here.


2001 : A currency swap transactions is agreed between GS and Greece, that allows the latter, just after being admitted to the European Monetary Union, to artificially shave a few % of GDP off its debt figure. An ulterior investigation (2010) will reveal that
A senior Goldman Sachs banker said "It is clear with hindsight that the standards of transparency could have been and probably should have been higher.". No mention was made of the swap in sales documents for the securities in at least six of the 10 sales the bank arranged for Greece since the transaction, according to a review of the prospectuses by Bloomberg. See here.
2002: MD becomes vice chairman and managing director of GS and a member of the firm-wide management committee. At that time, GS is lead manager for the greek treasury. See here.

2005: The 2001 contract is renegociated as shown by an ulterior audit (2010) by the european government agency Eurostat (see here):
iii) The Eurostat analysis of the swaps with Goldman Sachs [...] In August 2005 [...] maturity was extended from 2019 to 2037 […] must be considered in substance as a new swap agreement
January 2006 : MD joins Bank of Italy, according to an ulterior (2010) official statement by the latter.

2010: The European Commission investigates the dubious 2001 transaction. See here.

February 2010: Bank of Italy defends MD against allegations of connection to the 2001 deal, stating that "The transaction with Greece was executed prior to the arrival of Draghi at GS", which is not disputed. See here.

May 2011: The ECB asked the EU’s General Court to dismiss a lawsuit seeking the disclosure of documents showing how Greece used derivatives to hide loans and triggered the region’s sovereign debt crisis. See here.

June 2011: MD heard before European Parliament committee. He denies any connection to the wrongful deal and its follow up but adds a new piece of information to the case: his actual duties excluded dealings with public sector entities, which is contradicted by an official statement by his employer.

End of June 2011 : EU parliament approves MD's nomination. Here's the breakdown of votes: 499 (75 %) voted yes, 72 (11%) voted no, and 89 (14%) abstained.

MD will soon head the ECB in replacement of Trichet.

Exchange between MD and MEP

MEP Pascal Canfin (PC) speaks:
En 2003 vous étiez au board, managing director avec la personne Antigone [Addy] qui a mis en place le swap entre la Grèce et Goldman Sachs. Vous aviez donc nécessairement connaissance de cet accord, même si vous n'en étiez pas l'initiateur. Qu'avez vous à nous dire de plus que le rapide communiqué comme quoi vous n'aviez aucun rapport avec cette affaire, ce qui me semble faux.
This says that MD already issued a statement (we assume the one of February 2010) saying he had no connection to the 2001 deal. It also hints at some business proximity between MD and Addy, who had been in charge of the deal, so he must have known of it. He is asked to elaborate on that statement because, as it is, it seems to be false. Here's MD's answer:
My work at Goldman Sachs… Hum The the hum The deals between Goldman Sachs and the greek government had been undertaken before my joining Goldman Sachs. I've said this on and on and on.
Second, I had nothing to do with these deals, neither before, nor after.
This statement does not deny that he knew of it. It denies any connection to it. He has, thus far, only rehashed what he has indeed said "on and on and on", which is feeble. Notice that "neither before" makes no sense. Here's the next part:
Third, I think your intelligence is not entirely … intelligence in the sense of amount of information, is not entirely correct. I was not in charge of selling stuff to the governments. In fact, I worked in the private sector. And even though Goldman Sachs were expecting me to work with the public sector when I was hired, I told them that frankly, having been in the public sector before I had no interest or taste or care for working with the public sector.
Why use the word intelligence, rather than simply information? According to the MEP his employer made an official statement contradicting his (see here): he was involved with government agencies. This statement is probably this one, at GS's wesbite:
LONDON – Goldman Sachs today announced that Mario Draghi is joining the firm as a Managing Director. He will serve as Vice Chairman of Goldman Sachs International, as a member of the Group's Commitments Committee.

Based in London, Professor Draghi will work with the firm's senior management in Europe and New York on European strategy and on developing and expanding the firm's business globally. Specifically, he will help the firm develop and execute business with major European corporations and with governments and government agencies worldwide.
Isn't it strange, for someone who has chosen public service as a career, to suddenly feel that, "frankly", he has "no interest taste or care" for dealing face to face with the heads of states of Europe, particularly at a historic time when the mark is officially ceasing to be legal tender (see here)? Does it sound like a normal carreer path to have headed the Italian treasury, held high office at the World Bank, but then begin "selling stuff" exclusively to corporations?

Can we believe that GS who is known (notorious?) for the power of its network in governments around the world, would taylor suit a job for MD that would contribute nothing to the strength of that network? The only way GS's statement and that of MD, above, are compatible, is if they renegociated his work responsibilities after he was officially hired. Sounds professional?

Let us end with these words spoken by MD at the beginning of the hearing:
I also firmly believe that as a counterpart to its independence, the ECB must ensure that, in the exercise of its responsibilities, there is the highest degree of transparency and accountabililty.
Already compromised?


Previous nominations for the helm of the ECB were no paragon of democracy. According to Wikipedia,
[Duisenberg of the Netherlands was appointed] in 1998 as the first president of the new European Central Bank in Frankfurt, much to the chagrin of France, who wanted a French candidate. A compromise was agreed upon (although publicly denied by all parties) whereby Duisenberg would serve for at least four years, upon which the Frenchman Jean-Claud Trichet director of the Banque of France, would take over. Duisenberg announced he would retire on 9 July 2003 (his 69th birthday), but he remained in office until Trichet was cleared of charges of fraud in connection with the collapse of the French bank Crédit Lyonnais. Trichet took over presidency of the ECB on 1 November 2003.
Jean-Trichet is now a member of the French Academy of Moral and Political Philosophy (see here), thereby following in the footsteps of this predecessor at Banque de France, Jacques de La Rosière...

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