Former International Monetary Fund (IMF) Managing Director Dominque Strauss-Khan (DSK) walked free from a French court earlier today, acquitted of all the charges that had been brought against him. It had been four years of turmoil for DSK, all starting on 15th May 2011 when he was abruptly hauled off a plane readying for take-off at New York’s JFK airport. Within days, he had resigned from the IMF, leaving things in the hands of his Deputy, a former Wall Street economist called John Lipsky.
I remember wondering at the time whether DSK’s demise might somehow have a negative impact on the world economy, somehow. After all, the world economy in early 2011 was still a fragile place, never mind the financial system. And never mind the situation in Europe.
And it wouldn’t be the first time that an unanticipated personnel change would potentially turn out to have significant ramifications. Just a year before the Great Crash in 1929, New York Federal Reserve President Benjamin Strong had died, robbing the Federal Reserve System of its most influential leader at what would turn out to be a pivotal moment in financial history. Economists often wonder: would the Great Depression have been quite so bad if Ben Strong had still be alive, given his experience and international connections?
It wasn’t just DSK who (in May) was on his way out from the IMF in 2011 either, because so was his Deputy – John Lipsky – in August. In July, Christine Lagarde took over as IMF Managing Director, as did the gentleman who ultimately became her Deputy in September, David Lipton.
It may have been unfortunate, but it looks like a really bad case of succession-planning by the IMF, to say the least.
And it probably didn’t help Greece. Because within weeks of taking office, the IMF signed up to a bond-swap in which Greece’s creditors would be converted from bondholders to other Eurozone governments, and ‘institutions’. Not only that, but Greece’s debt burden after its bond-swap was well above historic levels that the IMF had previously considered as delineating solvency versus liquidity.
Who knows: would DSK have sanctioned the Greek debt swap in 2011 that left Greece with such a high debt burden? And what price should the IMF be paying for getting things so badly wrong? No one contemplates a write-down of the IMF’s debts to Greece, do they (only the Somalias & North Koreas of the world do that, supposedly)?
But shouldn’t someone at the IMF be accountable for this unholy Greek mess?