• Greenspan gossip
• Alan – Art throb
• When Alan popped the question…
• Maestro’s immortal quotes
• OR
• Where does the maestro keep HIS money?
• The maestro at Jackson Hole
• Krugman on the warpath
• King checked
• Fazio – PRESSURE GROWS
• Prodi outlines reform ideas
• Modest pay, one term for governors?
• Robbery! Brazil ’s central bank loses $68m
• PETER Bakstansky to RETIRE
• Enter Calvin Mitchell
• CHRISTIAN Burckhardt for the Buba
• KLAUS Regling for Frankfurt ?
• PARK SEUNG pledges wealth to education
• Argentina 's deputy dismissed
• PBOC’s new vice governor
• Iraqi central banker seized
• RBI readies for a 'Reddy Era'
• Staff costs compared
• Central Banking makes the news

Greenspan gossip
We start with a few stories about the maestro.

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Alan – Art throb

Painting Alan Greenspan’s portrait many times, the artist Erwin Crowe says she has sought to “explore the connection between art and economics”. As an artist, she takes into account “supply, demand and the flux and sway of the market” in order to find a niche in which to prosper.

Alan Greenspan’s work “moulds societies”, she said. “He carves out his vision of America ’s economic future, acting individually to affect society at large”. In a bitter twist of irony, the artist becomes the mercenary economist while Alan “touches the souls of every day people” like an artist should.

For some people, the mere image of Mr. Greenspan is pleasing. “Walking into a room filled with Alan raises questions and eyebrows. Who is this man? Who is this artist? Why would someone paint him so many times?” said Ms. Crowe. Good question.

The paintings have been on exhibition at the Sag Harbour art gallery in the Hamptons ,Long Island . The inaugural exhibition reportedly sold out within a few days, mostly to hedge fund managers, paying $1,000 to $4,000 a piece. Crowe is due to arrive at London 's Goldsmiths College in October, not far from the Bank of England …

Maestro’s immortal quotes

"I know you believe you understand what you think I said, but I am not sure you realise that what you heard is not what I meant.”

OR

"If I say something which you understand fully in this regard, I probably made a mistake."

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Where does the maestro keep HIS money?

Financial disclosure forms released by the Federal Reserve recently show that chairman Alan Greenspan plays it safe when it comes to his own investments. All Greenspan’s holdings are kept in US money market accounts and treasury securities, which are considered the world’s safest investments, the forms revealed. The value of his assets last year totalled between $3.3 million and $6.4 million, roughly the same as in 2003, according to new disclosure forms. Greenspan also was paid a $174,500 salary as Fed chairman last year. This year his salary rose to $180,100.

Andrea Mitchell had separate investment holdings valued at between $1 million and $2.5 million in 2004.

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Krugman on the warpath

But for Paul Krugman the warnings come too late. Writing in the New York Times on August 29, he said that he had never forgiven Greenspan for his role in creating America ’s massive budget deficit and now he was playing the same tricks with the US housing bubble: ”If Mr. Greenspan had said two years ago what he's saying now, people might have borrowed less and bought more wisely. But he didn't, and now it's too late.

There are signs that the housing market either has peaked already or soon will. And it will be up to Mr. Greenspan's successor to manage the bubble's aftermath.”

http://www.nytimes.com/2005/08/29/opinion/29krugman.html

Which all goes to prove, Alan, that when you are in a Hole, stop digging!

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King checked

Mervyn King, governor of the Bank of England, was outvoted at last month’s monetary policy committee, when it was decided by a majority to cut rates. This was the first time in the history of the MPC that the governor has been in a minority. His most senior Bank executives voted with him, and all found themselves outvoted by the external members – reinforced the Bank’s economist. Oh dear.

In the United States this would be unthinkable but the British system is proudly different. The Bank’s line is that this shows the system is working as intended, with individual members of the MPC being personally responsible and accountable for their positions. King has only one vote in a nine-member committee. All the same, there were raised eyebrows in the City. Here is a roundup of comment:

Simon Rubinsohn of Gerrard told the Financial Times that he found it “sensational” that Mervyn King opposed the rate cut and that “the governor of the Bank does not seem to buy into his chief economist’s view”.

John Butler, chief UK economist at HSBC, was quoted in a Times Online story as saying: “This is a key moment in the MPC’s history and illustrates a major division not only in terms of the inflation outlook but also on tactics”.

The FT quoted Eddie George as telling parliament in 2003 that he was “sorely tempted … to cross that Rubicon” for his successor and vote in the minority.

The FT’s economics editor, Chris Giles, pointed out that some of the arguments put forward by those who voted against the cut – that it would be difficult to explain why rates would have to go back up (if future data showed that this were needed) so soon after being cut for the first time in two years – were a departure from the usual Bank of England message. He argued that the Bank is usually keen to emphasise that rate decisions are taken on the basis of that month’s data alone.

From Bloomberg: “King's vote underlines the differences in his style of governorship from that of his predecessor, who was a more consensual figure,” said Danny Gabay, an economist at Fathom Financial Consulting in London . “It's a different form of chairmanship of the committee.”

The Daily Telegraph sternly told the majority who voted for the cut to stop ignoring inflationary dangers: “The members need to think more like bankers; their governor has showed them the way”.

The Guardian was in a sporting mood: “The joke going around the City yesterday was that Mervyn King voted against cutting interest rates this month because, as a diehard Aston Villa fan, he feels comfortable being on the losing side”.

However, its headline was critical: “Old Lady is dazed and confused”. The piece concluded: “This month’s quarter-point reduction looks like fine-tuning, which was supposed to be a thing of the past – one that makes little difference to the real economy but sends out the message to the public that the Bank is confused and operating pretty much in the dark”.

Our view?

The Bank can get away with its top brass being outvoted once, but this shouldn’t become a habit.

Fazio – PRESSURE GROWS

Although Antonio Fazio defended his conduct at a three-hour meeting of government ministers on August 26 (which meant he couldn’t attend Jackson Hole – just as well perhaps) pressure on him to resign has steadily increased. At the meeting, he argued that he had acted correctly and without bias in his handling of two competing bids for Banca Antonveneta ,Italy ’s ninth-largest bank. He told the committee that the capital ratio of the bank he favoured, Banca Popolare Italiana, was large enough to permit its takeover of Banca Antonveneta.

However, it is widely recognised that, with Fazio’s reputation tarnished, the credibility of the central bank has been sadly damaged by this affair. Perhaps he has been in office for so long that he is blind to the damage. No doubt dimly perceiving this, he has indicated that he is be ready to accept a reform of the central bank and the introduction of limited tenure for his post, although he has tried to argue that he should remain in post during a “transitional period” leading to the introduction of limited tenure. He even told friends that this “transitional period” should last about as long as a new tenure period would!

However, pressure on him to step down increased on Wednesday August 31:

Fazio “should consider, in the primary interest of the state and of the Bank of Italy, the possibility of tendering his resignation,'' Cabinet minister La Malfa said in an editorial.

It is indeed about time somebody brought this Italian farce to an end.  

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Prodi outlines reform ideas

Italy ’s opposition leader Romano Prodi has outlined a number of reform proposals for the beleaguered Bank of Italy and the country's other financial institutions. Recent scandals were damaging Italy ’s image abroad and needed to be fixed, he said.
Prodi spoke with financial daily Il Sole/24:

"Today, the governor can make decisions in perfect solitude, without being obliged to involve anyone or any other organ of the institution," Prodi was quoted as saying. "The governor of the Bank of Italy must be (held to) a system of checks and balances befitting the times."

"Abroad, all this is costing us dearly," Prodi told Il Sole. "We have returned to 20 years ago, when Italy was an incomprehensible anomaly. All this concerns me a lot. We need to react with ideas and programs."

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Modest pay, one term for governors?

A new study says that Europe ’s central bank chiefs should receive only modest pay and serve just a single term in office to avoid self interest creeping into interest rate decisions. It also found that limited terms and confidential interest rate decision-making was the best way to maximise the public good.

Current wages and terms of office vary widely among the 18 people who set eurozone interest rates - 12 national central bank governors and six ECB Executive Board members. Bank of Italy Governor Antonio Fazio earns more than 600,000 euros a year, about double his Dutch counterpart Nout Wellink and about 150,000 euros more than ECB President Jean-Claude Trichet. Fazio is unique in the eurozone and among the Group of Seven top economic powers in being appointed for life.

Researchers Hans Gersbach and Volker Hahn from the University of Heidelberg said in the paper from the CEPR that EU central bankers should all be paid the same salary scale and serve fixed terms:
“High wages destroy incentives for central bankers to behave optimally from a European perspective, as central bankers become too focused on seeking reappointment,” they said. “Term limits also induce central bankers to focus on monetary policy and less on individual reappointment.”

But who would want to be a central bank governor if they are to be treated as petty functionaries?

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Robbery! Brazil ’s central bank loses $68m
How do you lose $68m? The central bank of Brazil is asking itself the same question after thieves tunnelled in to bank and made this massive withdrawal. The thieves dug a 260 foot (80 metre) tunnel under the bank vault instead of trying to break through two metre thick walls and made off with $67.8 million in Brazil’s biggest ever robbery. The funds were not insured because they were already in the bank's vault:. "That is normal procedure; we only insure money when we have to transport it," said a spokesman. "We are looking into several aspects of the crime, including why the cameras and motion detectors inside the vault did not function and if the thieves had any inside help," said bank spokeswoman Beatriz Dornelles.

"It's something you see in the movies. They dug a tunnel ... that goes underneath two (city) blocks. They've been digging for three months," police investigator Francisco Queiroga told Reuters by telephone.
"The tunnel was dug right underneath the vault," Queiroga said. "We've never heard of so much money being stolen from a bank in Brazil ."

But if they had inside help, then why burrow for 80 metres underground?

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PETER Bakstansky to RETIRE

There cannot be many senior officials in the Federal Reserve System who go back further than Greenspan - he has been chairman since 1987. One of them is Peter Bakstansky who has been the spokesman for the New York Fed for 30 years. Now it is time for him also to hang up his boots.

Peter has had a ringside seat at many of the great financial events of the past generation. He joined in 1976 after gaining journalistic experience at the New York Herald Tribune and his first boss was Paul Volcker, then president of the New York Fed. So when it came to explaining the sea-change in monetary policy announced by Volcker (who in the meantime had become chairman of the board in Washington ) in October 1979 Peter knew the background and knew what Volcker wanted to achieve – to get a grip on the inflationary pressures that were destroying confidence in the US dollar. That was one of the decisive moments of 20th century monetary history – though few realized it at the time.

Then came a spell of very high interest rates and recession, the Latin American debt crisis of the 1980s, the Drexel and Solomon Brothers bond trading scandals of 1990-91, the LTCM affair in 1998 and the Asian crisis that started that year. All brought criticisms of the actions of the Federal Reserve and raised risks for the Fed’s reputation. Trying to get the public and media to understand that the Fed had not “bailed out” Long-Term Capital Management, but that it had merely convened a meeting at which a private sector solution could take place, was among the toughest tasks he has faced.

For some of us, getting used to the New York Fed ex Peter will be almost as hard as getting used to the Washington Fed ex Alan.

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CHRISTIAN Burckhardt for the Buba

From September 1, Christian Burckhardt will be the Bundesbank’s spokesperson and head of communication. His predecessor, Wolfgang Mörke already left his position on July 1 after seven years in office. He is now head of international relations.

Christian Burckhardt has been monetary correspondent of Börsen-Zeitung in Frankfurt . In his new job, he will be fortunate in having a highly experienced team already in place, especially Dr. Pohl, Head of Internal Communication, and Wolf-Rüdiger Bengs, head of external communication. Until September 1, Rudiger Bengs has served as temporary head of communication and will remain head of external communication until 2007.

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KLAUS Regling for Frankfurt ?

There has been much speculation during the summer in Germany over the successor of German ECB chief economist Ottmar Issing who will resign from the bank’s executive board in 2006. After his expected defeat in general election, Chancellor Gerhard Schroeder’s favourite candidate Peter Bofinger will be out of the race. Alternatively, Bundesbank boss Axel Weber and his deputy Juergen Stark are seen as possible successors to Issing.

A future government coalition of Christian Democrats and Liberals may also nominate Gert Haeusler or Klaus Regling. Haeusler is IMF director of the international capital markets. Regling is director general for economic and financial affairs at European Commission. Both men may also be suitable successors to Germany ’s finance secretary Caio Koch-Weser. However, CDU member and Bundesbank executive board member Hans Reckers could also become finance secretary.

Recently, it seems that the able and affable Klaus Regling has emerged as a front runner, which could lead to a diminution of German influence in Brussels .

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PARK SEUNG pledges wealth to education

The governor of the Bank of Korea, Park Seung, said that he is willing to donate his personal wealth to help the nation's education when he dies. In a meeting of 40 middle and high school teachers at the central bank, Park, 69, said the haves and large conglomerates must give back to society.

"When I pass away, I will offer most of my riches," he said. His assets are estimated at 4.5 billion won ($4.4 million).

In a speech to the teachers, Park said parents must be induced to reduce their spending on private institutes and tutoring through an improvement in public education.

He argued that Korea still lags behind developed countries in managing public education.

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Argentina 's deputy dismissed

Argentine President Nestor Kirchner has removed central bank vice-president Ricardo Branda from office. Branda is under investigation for alleged corruption. Branda, 55, a deputy vice president and one of nine directors at the bank, said Kirchner fired him to gain more control of the bank and said he's innocent of any wrongdoing. Luis Corsiglia, a Buenos Aires stock exchange official Kirchner put on a state-company board, will replace Branda, Cabinet Chief Alberto Fernandez said in a televised speech from Buenos Aires .

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PBOC’s new vice governor

Hu Xiaolian has been appointed vice governor of the People’s Bank of China (PBOC). Hu took up a position as director of the State Administration of Foreign Exchange (SAFE) in March this year and has acted as an assistant to the governor of the PBOC. Reuters said she was expected to remain as the director of SAFE as well as central bank vice governor. At 46 Hu is an expert in currency management following experience at the foreign exchange regulator. The central bank currently has three vice governors – Wu Xiaoling, Su Ning and Xiang Junbo.

Iraqi central banker seized

Gunmen kidnapped the general manager of the Central Bank of Iraq in front of his home in eastern Baghdad last month. Iraq Television quoted an interior ministry official as saying that "armed terrorists" abducted Haseeb Kazem Jaweed shortly after he left his home in al-Mustansariya in the capital and took him to an unknown destination. No one claimed responsibility for the kidnapping of the bank official, but UPI reported that neighbours expected that a ransom will be demanded for his release. Jaweed was abducted outside his house in eastern Baghdad by men in two cars.

Staff costs compared

How do central banks’ staff costs compare? Central Banking Publications has compiled some figures for a group of countries (mainly OECD) using central banks’ annual reports. The full results will be published in a forthcoming issue of Central Banking. Here are a few interim findings.

The differences in per capita spending on central banking staffing costs are dramatic. Staff costs at the Banque de France alone are higher than the entire Federal Reserve system, and those of France ,Italy and Germany top a billion dollars a year.
The Euro system spent $4,471 million on staff costs in 2004 ($14.57 for every man, woman and child in the euro area), the Federal Reserve spent $1,604 millions ($5.47 per capita) and the United Kingdom $201 million ($3.34 per capita). On a per-capita basis, the smaller countries understandably work out most expensive, with Iceland , for example, spending over $25 per person on central bank staff.

However, the other end of the scale is not populated by the biggest countries, as might be expected, but by a range of countries including New Zealand, the Czech Republic and Canada, which spend less than $3 per person per year on their central bank staff.

The central bank which spends least per capita on its staff is Poland , which has undergone substantial efficiency cuts in recent years. The difference between similar sized countries such as France and Italy on the one hand, and the UK and Japan on the other is striking, even when different responsibilities are taken into account.

Central Banking makes the news

From reporting news, it is strange to find oneself making news. But suddenly last week the latest issue of Central Banking got top billing in the UK media. What grabbed their attention was the interview with Kenneth Clarke, former Chancellor of the Exchequer and now candidate for the Tory leadership. In the interview, Clarke argued that the euro has had a mixed record since its introduction six years ago. He regarded the euro as a “technical success”, but admitted that its introduction had not driven economic reforms and efficiency gains to the extent that he had anticipated.

Regarding the prospects for Britain joining the euro, Clarke said: “I doubt if it is possible for ten years or more.”

This remark was reported as a dramatic about about-face. Clarke has long been one of the euro’s strongest backers within Conservative ranks and commentators viewed his latest comments as part of a strategy to improve his prospects in the race to become the next Tory leader. Nigel Morris of The Independent wrote of “a remarkable renunciation of deeply held beliefs”, while on July 23 the story led The Daily Telegraph’s front page under the banner headline: “I was wrong to back to euro, says Clarke”. It remarked upon Clarke’s “Damascene conversion to the joys of sterling”. The Times ran a story under the headline: “Ken Clarke: I was wrong … the euro is a failure”.

The BBC more soberly commented that his remarks “are seen as the strongest hint that he intends to stand for the Tory leadership.”

Meanwhile, Central Banking’s staff have been besieged with questions from journalists asking: “How did you get this scoop?” Some saw the fact that the message had been given to Central Banking as part of Clarke’s Machiavellian manoeuvring. The Economist moodily pondered why Clarke had signalled his intentions “in code”:

“Mr Clarke’s code, given to Central Banking , which does not enjoy a large readership in Tory circles, was so deep it had been published a week before it was even deciphered”.

Cheeky! They are all just envious.

To read the interview, visit the website at: www.centralbanking.co.uk