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To: SeaViewer who wrote (25675)	10/7/2000 3:38:43 PM
From: patron_anejo_por_favor	Respond to of 436258

Interesting points here (article on the Euro intervention leak/front-running): washingtonpost.com Who Spilled the Euro Beans . . . By David Ignatius Sunday, October 8, 2000; Page B07 A mystery is lurking in the simple chart that chronicles the movement of the euro in the hours before the world's central banks intervened to boost the value of the European currency two weeks ago. In great secrecy, the U.S. Treasury and Federal Reserve had agreed the night before to join the central banks of Europe, Japan and England in the rescue operation. The intervention was supposed to begin at 7 a.m. Washington time on Friday, Sept. 22. The key to success was catching the financial markets off guard. But a funny thing happened on the way to I-hour. The value of the euro began rising sharply several hours before the intervention was supposed to begin. That much is obvious from the chart that appeared on the front page of the International Herald Tribune the next morning. Somebody made a lot of money in the process: The euro started the day at about 85.8 cents. By the time of the intervention, it had risen to 87.1 cents. The coordinated wave of buying pushed the euro's value even higher--and it crested at nearly 90 cents before falling back to about 87.9 cents late in the day. The premature rise in the euro produced consternation among the finance officials who gathered that weekend in Prague for the joint meeting of the International Monetary Fund and the World Bank. While they were patting each other on the back in public, some officials were privately questioning what had happened in the markets--especially in Frankfurt, where the suspect trading seemed to have taken place. U.S. officials complained to their colleagues about two possible problems: First, they worried that one of the European banks had, in effect, been "front running" the intervention--buying up euros in advance of the coordinated buying effort. Second, they worried that private currency traders in Frankfurt had been tipped off. These were serious allegations. For in the world of international finance, where billions of dollars hang on the ability to keep a secret, leaks and front-running are among the ultimate sins. Some indignant Europeans initially countered that the United States was to blame for the leaks. A story in the German press claimed that Citibank traders in Frankfurt had been tipped off by no less a personage than former Treasury secretary Robert Rubin, who is now a Citibank director. Citibank firmly denied that rumor, saying no one at the bank had any advance knowledge of the intervention. Europeans also complained that the Bank of England had made a tidy profit off the intervention. That turned out to be true. The Brits bought euros at I-hour and sold them near their peak later that day. British officials later apologized to their colleagues, saying the sales had been dictated by a requirement that they maintain a fixed ratio of dollars, yen and euros. They hadn't meant to profit from the euro's misery. The European Central Bank launched a quiet leak investigation of its own, and late last week, its officials reported to the U.S. Treasury some preliminary findings. Yes, they said, there had indeed been rumors about the intervention in European markets prior to I-hour and, yes, the rumors probably originated from the European side. To prevent such leaks in the future, the Europeans said, they planned to narrow the circle of people with sensitive information. The squabbling over leaks illustrates some strains in the global financial system--including tensions between two financial superpowers, the United States and Germany. "Relations are not nice and smooth," said Adolf Rosenstock, European economist for Nomura International. "There are tensions all over the place. My fear is that the tensions are seeping through, and the markets will realize it." Not to worry, say the Americans. The Sept. 22 intervention was a success, despite the leaks. Any problems stemmed mainly from the growing pains of the new Europe, rather than from venality or incompetence. The next time, everything will work more smoothly. Beyond the flap over leaks stands a much larger problem: the imbalance in the world financial system that made the euro rescue effort necessary in the first place. The simple fact is that the United States has become too strong for its own good. An overvalued dollar is riding for a fall, and the U.S. stock market is sucking in too much of the world's capital. Such imbalances can seem fine when you're on the upside of the seesaw. But the higher the United States goes, the harder and faster it will fall when the momentum inevitably shifts. Those "tensions" are worth watching. Methinks the BagHolers are getting restless....