Friday, February 11, 2011

Western Banks Pushing Out Hawks - Presumed Next Head of ECB Axel Weber and Kevin Wash of Fed Both Headed Out the Door

Some pretty amazing developments in the past 48 hours in the world's 2 largest "easy money" central banks, that very few are talking about.  If you are a conspiracy theorist this is one you are going to enjoy....

First over in Europe, the ECB's head Trichet is facing the end of his term soon.  It has been long thought German hawk (hawk = favors fiscal discipline and tighter money) Axel Weber was the shoo in for the job.  But he is against handing money out in every direction to any country with its hand out (Greece, Ireland, Portugal, Spain... and someday Italy, France).  I was actually fascinated to see how Weber would handle what Europe is doing (which is some combination of TARP + QE lite) since much of it seemed to go against his personal beliefs.  But now there will be no opportunity to see how it would have played out.  Out of the blue this week, he has withdrawn his name from a job that was presumed to be his.

Via Bloomberg:
  • The campaign for the top job at the European Central Bank was thrown open as the sudden and unexplained withdrawal of German front-runner Axel Weber cleared the way for a slew of candidates to replace Jean-Claude Trichet.
  • Central bankers Mario Draghi of Italy, Luxembourg’s Yves Mersch and Erkki Liikanen of Finland saw their chances of winning Europe’s top economic post rise as did Germany’s Klaus Regling, who runs the region’s bailout fund. Trichet’s non- renewable eight-year term expires in October.
  • The top candidate is now out of the game,” said Marco Valli, chief euro-area economist at UniCredit Global Research in Milan. “We can now focus on alternative candidates and the political push behind appointing the next ECB president.”
  • The fate of Bundesbank President Weber whipsawed the euro, forcing the debate over the world’s second-most important monetary post after U.S. Federal Reserve chairman into the spotlight just as European leaders grapple with how to put an end to the sovereign debt crisis that has shaken the single currency’s foundations.
  • Unsourced media reports yesterday of a pullout by Weber shattered German efforts to steer the ECB nomination behind the scenes, prompting a telephone confrontation with Merkel and subsequent confirmation by Weber associates.  Weber, 53, plans to quit the Bundesbank in a decision that would rule him out of the ECB running, said a person who spoke with him yesterday. He will leave about a year before his term ends in April 2012.
  • Until his exit, leaders would have had to balance Weber’s two-decade academic record and citizenship of Europe’s largest economy with his outspokenness and opposition to the ECB’s bond- buying program, a key part of Europe’s crisis-fighting strategy.
  • Weber summoned the Bundesbank board to a hastily scheduled meeting late on Feb. 8 to announce plans to quit after one term, the Financial Times reported today, without citing sources. Merkel, learning the news from the media, pressured him to delay a public statement until she taps a successor, the newspaper said.

In the U.S., hawks are a rare breed.  But there was one sitting very close to Ben B by the name of Kevin Warsh.  He is a guy who has been vocally against QE infinity.  Yesterday he decided its time to take his services elsewhere.  Hmmmmmm.....

Via Washington Post:
  • Kevin Warsh, a Federal Reserve governor and key lieutenant to Chairman Ben S. Bernanke during the financial crisis, is leaving the central bank at the end of March, giving President Obama a chance to continue reshaping the Fed. 
  • Warsh's departure will leave the governing board of the powerful central bank almost entirely in the hands of Obama appointees. Obama will have named six of seven governors once the Senate confirms nominee Peter Diamond to a vacant slot and Warsh is replaced. 
  • Warsh has been a skeptic of Bernanke's policy to try to boost the economy by buying hundreds of billions of dollars' worth of Treasury bonds, and Fed watchers think it likely that a new Obama appointee would be more supportive of the strategy.
  • You lose a forceful internal advocate for ending QE and trying to renormalize policy quicker,” said Reinhart, referring to the stimulus program known as quantitative easing. 
  • Warsh was one of a small number of Bernanke's closest collaborators during the most intense phase of the 2007-09 financial crisis. Often working all night, he helped decide which financial companies to bail out and, more broadly, how to keep the entire financial system from unraveling.  
  • While he has perhaps been Bernanke's closest adviser on financial market issues, the two men have been less closely aligned on questions of monetary policy. Warsh was a reluctant supporter of Bernanke's plan to try to strengthen the economy by buying $600 billion in Treasury bonds, announced in November. He voted in favor of the measure. But he explained in a speech shortly afterward that he had no great confidence that the action would help the economy.  "I am less optimistic than some that additional asset purchases will have significant, durable benefits for the real economy," said Warsh in a Nov. 8 speech. "There are significant risks that bear careful monitoring." 

One wonders if talking like this caused him to "pursue new opportunities".

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