György Matolcsy and Goldman Sachs: November 17, 2011

Exactly a month ago I wrote a post about Helga Wiedermann’s forthcoming book under the title “‘Secrets revealed’: Memoirs about the financial attacks on Hungary.” Wiedermann, about whom nobody knew much, turned out to be György Matolcsy’s chief-of-staff when he was minister of national economy. At the time I had to rely on a fairly lengthy excerpt from the book that appeared in Magyar Nemzet because the book was set to be released only about three weeks later. The excerpt concentrated on the heroic work of Matolcsy against bankers, speculators, and western politicians who wanted to see Hungary in ruins and Viktor Orbán toppled. Since then the book has reached bookstores, and now the talk is about something else: the incompetence and irresponsibility of György Matolcsy.

So, what happened? Chess and Poker: Chronicle of the Victorious Battles of the Hungarian Economic War of Independence was released with great fanfare on March 11. Present at the book signing were Viktor Orbán and György Matolcsy as well as members of the Monetary Council. We learned that the idea of writing a book about Hungary’s economic battles came from Viktor Orbán himself. He thought that the Hungarian people should know more about the heroic efforts “we undertook together in defense of the country.” György Barcza, who used to be a respected financial analyst at ING Bank, today is the editor-in-chief of Napi Gazdaság, recently acquired by Századvég, an economic and political think tank close to the government. At the book signing Barcza hailed Chess and Poker as a reference book on how a government should negotiate with the IMF. He emphasized the importance of “economic independence” and cited Turkey and Russia as good examples.

But after the high-profile book launch people went home and actually read the book. And this is where the troubles started. It didn’t take long to discover that one of the leaders of Hungary’s war of economic independence committed a serious indiscretion if not a criminal act. On November 17, 2011, four hours before the Hungarian government’s official announcement that it had after all decided to turn to the IMF for a loan, Matolcsy had lunch with three representatives of Goldman Sachs. He told them that in the morning the Hungarian government had approached the IMF for a loan. According to the detailed description of Wiedermann, one of the three visitors immediately excused himself to go to the rest room, not to relieve himself but presumably to inform, directly or indirectly, Goldman’s forex trading desk of this piece of news. The lunch, Wiedermann recounts, was unusually short. The guys from Goldman had gotten their inside information and presumably had more follow-up work to do.

The EUR/HUF chart from that day shows the immediate buying pressure after Matolcsy’s indiscretion. When the official announcement was made at 3:52, forex traders not privy to its early “release” piled on. There were thus two waves of buying, with the early buyers having a decided advantage.

Teletrade

Source: www.index.hu

Matolcsy, who a couple of days earlier had been praising the book as an accurate chronicle of events, found himself in an uncomfortable position. He changed his tune and now claimed that “Helga Wiedermann wrote nothing but fiction in her economic novel. Naturally the head of the National Economic Ministry did not inform the investors about Hungary’s plans concerning the IMF. Instead he told them that this was one of the possible options.” This is pretty much of an admission as far as I’m concerned.

There are many questions one can pose in connection with this sorry affair. In my post a month ago I set forth the possibility that György Matolcsy himself may have written the book, at least in part. After all, Helga Wiedermann was not present at many of the meetings she talks about in detail. But whatever Matolcsy’s role in writing the book, I think one can be certain that he read the manuscript before it went to press. The scene at the restaurant with the Goldman Sachs people is quite detailed:

After ordering, Matolcsy mentioned in passing that at 8 a.m. he had informed the IMF delegation that Hungary is beginning negotiations with the International Monetary Fund and the European Union. Moreover, we already sent the letter to Washington and Brussels. The butter knives froze in the hands of the guests. One of the guests immediately said that he was in need of a restroom and got up. It is not known how many telephone calls he made, but after he returned they finished lunch in record time. Instead of the normal one and a half hours, they finished all the courses in 40-50 minutes.

After this meeting Matolcsy became convinced that all the paranoid rumors were true: the big international investors had launched a life threatening attack against Hungary. What can one say after reading this? Is Matolcsy that ignorant of the financial world in which he is supposed to operate? From the description this seems to be the case, because the message is that Matolcsy thought he had tricked the men from Goldman Sachs into revealing the true intentions of the entire international financial world toward Hungary. This really boggles the mind.

The guys from Goldman did what any smart employee would have done: having received information about an official move of the Hungarian government that hadn’t yet been made public, they rushed to tell their friends in London and/or New York that it was time to buy the forint. There is nothing sinister about this. As Boris Schlossberg, managing director of FX Strategy for BK Asset Management, said, “If your biggest Japanese client, who also happens to golf with the governor of the Bank of Japan, tells you on the golf course that BOJ is planning to raise rates at its next meeting, you could go right ahead and buy as much yen as you like.” This is not illegal; there is no such thing as insider trading in the forex market. Moreover, in this case Goldman Sachs’s purchase of forints was not an “attack” on Hungary. In fact, it helped to strengthen the Hungarian currency, which was to the advantage of the Hungarian government.

I think we can safely say that Hungary had an economics minister and today has a governor of its central bank who not only is unqualified but talks too much. Until the news was officially released, it was a state secret which you don’t talk about to anyone, especially not to representatives of Goldman Sachs.

News travels fast nowadays and yesterday at a press briefing by Gerry Rice, director of communications for the International Monetary Fund in Washington, a reporter asked him about this affair.

QUESTIONER: On Hungary, this is kind of a book that came out this week saying that the previous economy minister spoke to Goldman Sachs before making public that it was going to the IMF for a program, and that this resulted in currency trading that some people, rightly or wrongly, are attributing to this sort of speaking in advance to an investment bank. So it just made me want to ask you whether the IMF — obviously there’s Hungarian legal issues that exist or don’t– have any rules on the ministers and governments that it speaks with how they should convey that information? Either if they could trade on it, for example, or if they can convey it to others and then in turn could trade on it?

MR. RICE: I don’t have any information at all on the case you’re referring to, so I don’t have any comment on that. But we do have, of course, confidentiality understandings on information that we would consider confidential in the discussions that we undertake with any authority.

Although the opposition wants to see Matolcsy resign, nothing of the sort will happen. Especially since it would be the task of the governor of the central bank, György Matolcsy, to investigate the case of György Matolcsy, the minister of national economy. The oddity of the whole situation is well illustrated by the fact that the denial of the particulars of the affair came from the Hungarian National Bank, which had nothing to do with it.

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Guest
An
March 14, 2014 5:07 pm

This story illustrates very well how incompetent Matolcsy is… and the scariest part is that he is the head of the national bank right now.

Guest
bank employee
March 14, 2014 5:14 pm

“The guys from Goldman did what any smart employee would have done: having received information about an official move of the Hungarian government that hadn’t yet been made public, they rushed to tell their friends in London and/or New York that it was time to buy the forint.” Fortunately the blogger has zero understanding of economic matters as evidenced by this nonsense. If the sentence was serious by someone serious, then it would constitute an insider trading accusation against the Goldman Sachs firm. The above sentences clearly state that Goldman employee’s acted on the information. While having possession of said information is no crime, trading on it as the blogger claims is in fact a crime. Such criminal accusation (if it were made willingly, by someone who understands what they are saying) would be able to damage Goldman’s reputation, standing in business or market value. Which in turn would lead to criminal charges against the blogger, or a civil suit to pay damages. Goldman Sachs is an interesting position here. In any case I have already notified them about statements of fact on this blog about their company, with the appropriate screen shots of this blog attached. Let us hope… Read more »

Guest
An
March 14, 2014 5:21 pm

@bank employee: I guess investpedia is wrong, then

“If your biggest Japanese client, who also happens to golf with the governor of the Bank of Japan tells you on the golf course that BOJ is planning to raise rates at its next meeting, you could go right ahead and buy as much yen as you like. No one will ever prosecute you for insider trading should your bet pay off. There is no such thing as insider trading in FX; in fact, European economic data, such as German employment figures, are often leaked days before they are officially released.”

http://www.investopedia.com/articles/forex/06/sevenfxfaqs.asp

Guest
March 14, 2014 5:25 pm

bank employee : “The guys from Goldman did what any smart employee would have done: having received information about an official move of the Hungarian government that hadn’t yet been made public, they rushed to tell their friends in London and/or New York that it was time to buy the forint.” Fortunately the blogger has zero understanding of economic matters as evidenced by this nonsense. If the sentence was serious by someone serious, then it would constitute an insider trading accusation against the Goldman Sachs firm. The above sentences clearly state that Goldman employee’s acted on the information. While having possession of said information is no crime, trading on it as the blogger claims is in fact a crime. Such criminal accusation (if it were made willingly, by someone who understands what they are saying) would be able to damage Goldman’s reputation, standing in business or market value. Which in turn would lead to criminal charges against the blogger, or a civil suit to pay damages. Goldman Sachs is an interesting position here. In any case I have already notified them about statements of fact on this blog about their company, with the appropriate screen shots of this blog attached.… Read more »

Guest
An
March 14, 2014 5:37 pm

I hope that if GS find an issue with their name thrown around, they’ll find an issue with the original source of the the information, Helga Wiedermann’s (Matolcsy’s) book that Eva was reporting on.

Guest
kommentelo
March 14, 2014 5:41 pm

I am completely confused. Quote from the article:

“Goldman Sachs’s purchase of forints was not an “attack” on Hungary. In fact, it helped to strengthen the Hungarian currency, which was to the advantage of the Hungarian government.”

If the purchase really happened, then the action helped to strengthen the forint as it is written above. Strong forint was something which Hungary badly needed at the time, right? So why is it bad then if this happened, if the result was good for Hungary?

Guest
An
March 14, 2014 5:47 pm

kommentelo: If it really happened, it was really good for those who received the info ahead of the official announcement and could earn big money on it.

The story is also here:

http://www.portfolio.hu/en/economy/hungarys_former_state_secretary_denies_minister_blabbing_to_goldman_sachs_about_imf_help.27499.html

Member
March 14, 2014 5:57 pm

@bank employee: Dear bank employee. LOL Eva (the blog) is actually talking about a book that was published by the request of Viktor Orban via Matolcsy. Eva simply letting us know what the book claims. We will be discussing all the possible outcomes for Hungary of Matolcsy’s (and Orban’s) incompetence. Since at one point Matolcsy and her writer, Wiedermann said that the book is true, we, you and everyone else has every right to discuss it and play along with the possibilities. At the same time we wish you luck (honestly) to make Goldman take actions against the Hungarian government accusing them of illegal practices. Please, do come back and tell us what will they do against Matolcsy and Wiedermann.

Guest
kommentelo
March 14, 2014 6:07 pm

An, the link you posted has a full denial of the whole thing:

Pleschinger “who had been present at that business lunch, was asked about the validity of that story.

“Contrary to what Helga Wiedermann’s novel ‘Chess and Poker’ no confidential or insider information had been revealed during the business lunch, and so it had never been said either that Hungary turned to the International Monetary Fund or the European Union,” Pleschinger, an external member of the Monetary Council, told origo.hu. ”

this just makes it more confusing to follow this story. Can’t it be somehow looked up exactly what type of trades took place that day? And what was Goldman trading exactly during that day? It is a very narrow time period to look up as probably the exact names of persons who participated in the lunch on Goldman’s side.

Guest
An
March 14, 2014 6:14 pm

@kommentelo: look at the chart, somebody was trading the forint before the official announcement.

Guest
An
March 14, 2014 6:15 pm

the chart in Eva’s post, I mean

Guest
petofi
March 14, 2014 6:16 pm

@bank employee

“Let us hope they will not bring charges in this case…”

So, let’s examine this so-called ‘bank employee’, shall we: he hopes that no charges are brought yet he’s the one attempting to instigate some action by sending in parts of the blog…
How does this fit together? Perhaps the intent of all this is later in the sentence: “… chalk it up to an economic illiterate speaking nonsense.” Aha! This is it: the writer wants to discredit
the writer. How sneaky. Troll ‘porkolt’, anyone?

Guest
petofi
March 14, 2014 6:17 pm

correction: “…the writer wants to discredit the blogger…”

Guest
spectator
March 14, 2014 6:44 pm

“bank employee”?
Once again a lousy attempt to discourage anybody, but particularly Eva to publish anything about the total dilettantism of the ruling “elite” of Hungary, hoping to keep secret, that the bragging idiots proudly disclosed themselves again.

Just how stupid one really must be to do so?

One thing what Hungary really does “perform better”, the number of self possessed, delusion of grandeur ridden so called politicians.

Guest
March 14, 2014 7:06 pm

I’m sure @BankEmployee is getting paid to monitor what is written on this blog and make similarly inane comments in (lame) defense of a completely corrupt and largely incompetent (but not so incompetent that they haven’t assured their victory in the next election) regime.

Member
March 14, 2014 7:22 pm

THe interesting question is how much money can Matolcsy or Fidesz make by leaking such info? I wish there would be a chart about some of the Fidesz buddies Forex trading activities around that day. If Matolcsy claims that he could easily blurt out such comments (As he obviously has no idea that this is a “no”) I would love to see his circle of fiends Forex transactions for the last three years.

Guest
Paul
March 14, 2014 7:42 pm

Some1 :
THe interesting question is how much money can Matolcsy or Fidesz make by leaking such info? I wish there would be a chart about some of the Fidesz buddies Forex trading activities around that day. If Matolcsy claims that he could easily blurt out such comments (As he obviously has no idea that this is a “no”) I would love to see his circle of fiends Forex transactions for the last three years.

Given Matolcsy’s history, I doubt very much if he was trying to be clever, or that his mates even knew what he was doing. He was just being his usual bombastic, stupid self.

In true dictatorial style, Orbán has surrounded himself with idiots.

This could be our one hope for the future. Were Orbán to succumb to an act of God, there would be no competent successor. Fidesz would soon lose all credibility as it collapsed into internal feuding, and the country headed for financial collapse.

The way things are, with our gloriously incompetent ‘opposition’, the only hope for Hungary is if Fidesz shoot themselves in the foot.

Guest
Paul
March 14, 2014 8:03 pm

A bit OT, but worth a read.

What makes this especially interesting is that it’s from Australia:

Democracy distorted in Hungary

http://www.abc.net.au/radionational/programs/lawreport/5315660

Member
March 14, 2014 8:39 pm

Paul :
A bit OT, but worth a read.
What makes this especially interesting is that it’s from Australia:
Democracy distorted in Hungary
http://www.abc.net.au/radionational/programs/lawreport/5315660

I love the subtitle: “Ultra-nationalism, anti-Semitism, censorship and violent intimidation: Michael Shirrefs reports on how Hungary went from having one of the most admired legal systems in the world to the most worrying symbol of democratic decline in Europe.”

Guest
Shinobi
March 14, 2014 8:51 pm

Bank Employee is actually right on one thing: it would be indeed insider trading if it was true and if it could be proven (of course we know that investments banks have never acted upon insider info – this would be the first case, right?). From then on though his (assuming he is a he) comments are a free fall straight into the abyss. The accusation is clearly made in the book itself and this blog was just dissecting it. No one (especially GS) is/are going to sue a private blog commenting on a book. On the other hand, I’m hoping that they are going to bring everything they have out against the book’s authors and their backers. They are not going to be stupid to do this openly though. If there has not been a coordinated international effort to bring this non-sense to an end, I’m hoping there will be now. Our only hope – as Paul mentions – is that this circus of clowns really shot themselves in the foot this time (opposition? – what opposition?). GS should just buy and annex the whole country. It would not necessarily lift the ethical standards of the country but at… Read more »

Guest
hólabda
March 14, 2014 9:39 pm

Shinobi : Bank Employee is actually right on one thing: it would be indeed insider trading if it was true and if it could be proven (of course we know that investments banks have never acted upon insider info – this would be the first case, right?). From then on though his (assuming he is a he) comments are a free fall straight into the abyss. The accusation is clearly made in the book itself and this blog was just dissecting it. No one (especially GS) is/are going to sue a private blog commenting on a book. On the other hand, I’m hoping that they are going to bring everything they have out against the book’s authors and their backers. They are not going to be stupid to do this openly though. If there has not been a coordinated international effort to bring this non-sense to an end, I’m hoping there will be now. Our only hope – as Paul mentions – is that this circus of clowns really shot themselves in the foot this time (opposition? – what opposition?). GS should just buy and annex the whole country. It would not necessarily lift the ethical standards of the country… Read more »

Guest
Shinobi
March 14, 2014 10:20 pm

“In many jurisdiction” – what you are describing above is the very definition of insider trading, in any jurisdiction GS operate (not sure about their dealings in Zimbabwe though);
“It would be absolutely normal” – not going to disagree here. It would be absolutely normal, for GS :);
“after consulting their compliance officer” – no compliance officer in his/her right mind would authorize such a trade, risking a backlash, for the “quick” profit of a trader. Don’t think we are talking about a volume here that would have brought GS to its knees should it have gone south. Not that I think there was any compliance officer ever consulted.

Anyway, I’m hoping I’m wrong. I’m also hoping they’ll challenge the incompetent co-author/love-bird duo because they would win, regardless of the truth :).

Member
March 14, 2014 11:09 pm

The tricky part is that in Forex trading there is no “insider trading” as simply there are no insiders. Insider trading in the form of currency can only happen when selling security. Simply said if anyone dumped or purchased Hungarian Forint based on any info received from Matolcsy that is not insider trading. There are no insiders in the currency market. At the other hand Matolcsy would be in “breach of his fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the Hungarian government’s actions.

Guest
holabda
March 14, 2014 11:42 pm

Shinobi : “In many jurisdiction” – what you are describing above is the very definition of insider trading, in any jurisdiction GS operate (not sure about their dealings in Zimbabwe though); “It would be absolutely normal” – not going to disagree here. It would be absolutely normal, for GS :); “after consulting their compliance officer” – no compliance officer in his/her right mind would authorize such a trade, risking a backlash, for the “quick” profit of a trader. Don’t think we are talking about a volume here that would have brought GS to its knees should it have gone south. Not that I think there was any compliance officer ever consulted. Anyway, I’m hoping I’m wrong. I’m also hoping they’ll challenge the incompetent co-author/love-bird duo because they would win, regardless of the truth :). Shinobi, I agree that the GS trades do seem to be covered by insider trading rules, at least that is a natural reaction to assume so. Having said that, in Hungary, to use one admittedly imperfect example, it is still not covered (see: section 410 of Act C of 2012 on the criminal code). That is because the insider trading in Hungary, according to this brand… Read more »

Guest
March 15, 2014 3:35 am

Who is bank employee working for? Orban´s friends or Orban’s enemy the International Capital?

Guest
Andres
March 15, 2014 5:00 am

Off topic, but I found this in The Guardian. Surely it makes photographic journalism impossible http://www.theguardian.com/world/2014/mar/14/hungary-law-photography-permission-take-pictures

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