Why Mario the Messiah is really Draghi the Devil
As head of the Bank of Italy from 2005-11, Mario Draghi was directly responsible for regulating the country’s banks. The seeds of Montei dei Peschi di Sienna’s (MPS) demise were sown at the time. Draghi had the information and the powers to stop what was happening – and block the deal that sealed MPS’s fate. But he chose to do nothing about it.
In fact, The Bank of Italy under Mario Draghi in 2010 spotted the very accounting irregularities that allowed Banca Monte to mask losses, and later forced it to restate profit. In December 2008, MPS borrowed €1.5 billion from Deutsche Bank AG (DBK) as part of a derivative deal codenamed Project Santorini, that helped it disguise losses. Draghi has since contended that Monte Peschi hid documents, impeding his analysis of the “true nature” of the company’s dealings. But both corporate and academic opinion-leaders have gone on the record to assert that this defence is weak and incredible: Draghi, they argue, must have known.
My reliable source in Madrid insists that the end of any belief in Draghi’s honesty came when he subordinated the bondholders as part of the second Greek rescue: “What [Draghi] did was fraud, pure and simple. Going that obligatory route was simply a crooked way of avoiding Greek default. There’s nothing he wouldn’t do to save the euro, and every bond buyer and dealer now knows that.”
Mario himself has never denied his commitment. “There is no going back to the lira or the drachma or to any other currency,” he told reporters last year, “It is pointless to bet against the euro. It is pointless because the euro will stay and it is irreversible.”
But alongside the dishonesty there is also an unpleasant craftiness about the ECB boss. Those of us commenting on the Cyprus crisis were aghast at the way in which Draghi shut himself away and avoided all comment for nearly three weeks; and this too raised suspicions:
“He was a driving force behind the annihilation of Nicosia,” a senior UK wealth-manager insists, “he was at all the key meetings. And then like a cloud, he was gone. For the markets, this gives off all the wrong signals”.
So to sum up, the top man at the European Central Bank signs up to American Friedmanism, is a political Machiavelli reborn, is answerable to nobody, probably played a corrupt role in covering up Montei dei Peschi di Sienna’s illegalities, illegally avoided a Greek default, is happy to suppress wages for profit, has gaily stolen depositor money from Cypriot citizens, prefers others to take the blame….and suppresses all data that might get in the way of his euro steamroller.
Perhaps some of you may find that last point a tad harsh. Well, Mark Grant – author of Out of the Box and a regular contributor to Zero Hedge – is super-bright, well-informed and writes accessible prose. So it was good to note yesterday that he agrees with me about the information blackout taking place at the European Central Bank: so it isn’t just me imagining it after all. As Mark notes in his latest piece:
‘Many people have little or no understanding of what is presently taking place in Europe. This is because it is reported nowhere, discussed in public by no one, and carefully hidden in the data supplied by the European Central Bank.’
I remain astonished at how almost nobody in the old media set is commenting upon the brazen dereliction of reporting duty taking place at the ECB right now. The equivalent failure would be the UK’s ONS suddenly deciding to drop all reporting about employment rates by region, or simply blanking anyone who asks about our balance of payments situation. But then, if you are f**kwitted enough to set up a central bank where the boss is unaccountable to anyone but God (and probably decided long ago that God works for him) this sort of behaviour is going to result. The Sproutian bureaucratic mentality never, ever considers the public responsibility dimension of anything, and this partly explains why Mario Draghi sits atop a banking leviathan….a Goliath of Gath with no David to smite him with just the one clinically aimed slingshot. The rest of the explanation involves the muddled genius of Draghi himself.
Once it became obvious in early 2011 that Tricky Trichet couldn’t wait to hand over to his Italian protegé, I asked a former very senior Goldman Sachs colleague what he made of Supermario. His response was incredibly prescient:
‘There is no operator on the planet as politically adept as Mario. He is extremely intelligent, and unassailably smart at the politics. You watch: he will make himself independent very quickly, cut out the Germans, and make himself supremely powerful. He is just what the EU needs”.
The closing part of that observation above was also probably correct in the context of the time, but all things are relative. Trichet was incompetent…but he gave way to Draghi….and in so doing, I think, created a monster.
Talking to a valued US contact last Saturday afternoon, I remarked that Draghi’s sangfroid is comparable to that of Neil Armstrong when landing Apollo 11 on the Moon. With 35 seconds to go to landfall, Armstrong realised that the NASA computer was about to put him down in the middle of a meteor crater. He took over manual control immediately, and lifted it above the walls of the crater towards a safe landing beyond it. While doing this, the Houston sensors logged his heartbeat at a steady 85 bpm, and his bp at 122/80. That’s what Tom Wolfe called The Right Stuff. Mario Draghi has it too: when he faces a potentially antagonistic audience of sceptical financial journalists, he displays zero signs of discomfiture, keeps his voice very steady in that medium range he has, and sends everyone away if not happy, then at least impressed. The difference is that, whereas Neil Armstrong had a pretty clear idea about HTF he was going to get off the Moon again, it seems highly unlikely that – as yet – Draghi knows what to do about the storm of bad derivative calls about to hit the eurozone….and then all stops to Hell via bucket transport Inc.
Forty-four years after the first Moon landing, we have a very clear idea about the early influences upon the world’s most famous astronaut. About Mario Draghi, we know almost nothing. He was born in Rome 66 years ago, went to University there, moved to America to take a further degree at MIT, and graduated in 1977. He was Director general of the Italian Treasury from 1991-2001, after which he spent three years in a senior post at Goldman Sachs International, London. He was appointed Head of Bank of Italy, in December 2005, and then boss of the ECB in November 2011. However, beyond the fact that he has been married to his wife forever and has two adult children, details about his private and early life are extremely sparse.
But be in no doubt: Signor Draghi is ruthless. For some reason bottling out of the ECB job after February 2011, the original favourite Axel Weber was then marginalised by Draghi after his appointment as Big Chief. He soon resigned and now works in the US private sector of banking….where he never misses an opportunity to suggest that Draghi’s guarantees and “loose monetary policy” are doomed to end in tears: he is still firmly of the Austrian economics school, whereas the Italian boss of the EU’s central bank is far more American influenced about debt, leverage and growth.
But if the ClubMed rebellion continues to infect even Germany itself – or Berlin succeeds in getting to FiskalUnion with Schäuble in charge of it – Mario’s wings would be clipped somewhat. And as and when Germany decides enough is enough and herself leaves the eurozone, Draghi will quickly become an Icarus tumbling from Sun to Earth at breakneck speed.
His rock is Germany, and his hard place a growing disenchantment with the “irreversible” single currency. But the main problem with Mario Draghi for the rest of us is that he lacks the ethical alarm system that yells “Stop Now”. He is a man whose job is suffused with moral hazard, but who refuses to see anything beyond one objective: the ultimate triumph of the euro.