David Dodge was in one of his giddy moods in the fall of 2003 when he had lunch with his friend Eddie Goldenberg, a top aide to former prime minister Jean Chrétien.
"I just hired my successor," Mr. Dodge said triumphantly, according to the Liberal power broker. "It's this great guy I just got from Goldman."
The central bank governor filled in Mr. Goldenberg on how he had lured away a deal maker, Mark Carney, from a plum job at one of the world's leading investment banks, Goldman Sachs. He was thrilled with his coup. But like many people in Ottawa, Mr. Goldenberg had never heard of Mr. Carney. The young Albertan who had spent most of his adult life outside the country was still a mystery man around the capital. More importantly, Mr. Goldenberg felt, he still had a lot to prove before he could be selected by the government and by the central bank's board of directors to be the next governor.
Four years later, Mr. Carney has convinced the power elite in Ottawa that he is ready for the most important and challenging economic job in the land. Next Friday, he formally takes over from Mr. Dodge as governor of the Bank of Canada.
But at 42, and with only a modest degree of training in central banking, Mr. Carney has barely begun to taste his challenge, which comes hurtling at him - and the country - with every lurch and surge in the world's turbulent capital markets. As he takes over, the U.S. economy is hovering on the brink of recession, and the spillover into Canada is already eating into exports, manufacturing activity and consumer confidence.
In the weeks leading up to the transition, Mr. Carney has shuttled between Ottawa, Bay Street and the world's financial capitals to assure any doubters that he is up to the job, which comes with a seven-year term.
He also is letting it be known that, well beyond the current market turbulence, he has a new vision for a 21st-century Bank of Canada. In short, he aims to modernize the staid, old institution, not least by introducing BlackBerrys to senior staff for the first time but also by directing their attention to the global markets that now shape almost every aspect of the Canadian economy.
Based on a series of interviews with senior government officials and people close to Mr. Carney, it is clear he wants to refocus the bank to pay closer attention to financial markets and investments. The Carney years may mean restructuring the way Canada regulates financial institutions. They could also mean replacing the inflation framework that has successfully guided the Bank of Canada for over a decade.
But is he up to the twin challenges of crisis management and reshaping a central bank?
With just over four years working in public policy, Mr. Carney is the youngest and least-experienced of the developed world's central bankers. He has never worked as a deputy minister, a chief executive officer or leader of an institution.
There are no doubts that he has the intellectual heft and the market savvy to give Canada some sharp analysis at an opportune time. But there are also unsettling whispers questioning whether his abundant self-confidence and lack of experience might rob him of the wisdom a central banker often needs.
"What he may not yet have is the wisdom that comes from being around there [at the central bank]" said Chris Ragan, an economics professor at McGill University who has spent time as an adviser at the Bank of Canada. "Mark doesn't have that, but Mark has something else. He's spent 15 years behind the scenes, making deals. I think that's valuable experience." Theory into practice
Mark Carney likes to say Canada can succeed when it has well-researched, well-thought-out positions, since Canada can then be universally respected as objective.
The same philosophy applies to his own approach to problem solving. He researches, reads, consults - usually at breakneck speed - and then lines up the facts to create a formidable argument that commands attention.
"It's the big picture that really fascinates him. It's not about money.
"It's about taking the theoretical and actually putting into practice what he sees is right," said one Ottawa friend.
Flawless logic is one thing, and fending off a recession is another.
As Canada's top central banker, Mr. Carney will sit behind a big, heavy, wood desk in a sombre fourth-floor office overlooking Ottawa's Wellington Street, where he can watch the frequent buses and the civil servants trundle by like clockwork every day.
He'll have no time to settle in. With Mr. Dodge announcing this week that the bank's key interest rate needs to come down significantly, and soon, Mr. Carney will have to figure out by March 4 whether another small rate cut of a quarter percentage point will do, or whether he should take a page from the play book of the U.S. Federal Reserve and opt for more aggressive cuts.
He'll also have to decide how much support the central bank wants to give to Canadian financial institutions struggling to deal with a ballooning subprime mortgage meltdown and volatile credit conditions.
Mr. Carney was a strong proponent of beefing up the central bank's term-lending facilities to help banks deal with the global credit crunch, but he is leery about anything that would resemble a bailout for companies that have made poor investment choices.
"What we're trying to do is make sure that current issues in the financial system do not propagate into the broader economy and impact the broader economy. But there is a principle that market participants should bear the consequences of their actions," Mr. Carney recently told the House of Commons finance committee."So we need to strike the right balance between those two very important principles." The up-and-comerOttawa's economic policy circle sat up with a jolt when Mr. Carney came to town in the summer of 2003. He didn't know many people, but he quickly made his presence known by thrusting forward his point of view - welcome or not.
He had been living in the upscale Forest Hill neighbourhood in Toronto with his wife and two young daughters after more than a decade of top international jobs at Goldman Sachs. He was contemplating a change.
Goldman was scaling back in Canada at the time, and Mr. Carney was tired of Toronto's materialistic side. He had always harboured an interest in public policy, too, inspired partly by his father's years as a senior school board official in the Northwest Territories, and by years of intensely debating current events and politics with his friends and family.
"He's had all the sizzle and dash that comes from big private sector success, but he is profoundly interested in public policy," said Liberal MP Ralph Goodale, who depended heavily on Mr. Carney for advice when he was minister of finance. "It's that drive for good public policy and positioning Canada as the best in the world, seeing the nation succeed."
At the same time, the Bank of Canada was shopping for a new deputy to join its governing council.
Mr. Dodge needed someone who could handle the central bank's international relations. He was doubly concerned about rejuvenating the institution's greying staff and making sure he was grooming the next generation of central bankers.
Top civil servants in Ottawa were also well aware that the public service needed to lure more people from the private sector, to broaden the bureaucracy's perspective.
So when Mr. Carney, then 38, put his name forward for the deputy governor's job, Mr. Dodge was immediately intrigued. The two economists hit it off, and Mr. Dodge has been a mentor to Mr. Carney ever since.
But that didn't mean that landing the job of central bank governor was a sure thing. The rest of Ottawa wasn't such an easy sell.
In the culture of the Ottawa civil service, where bureaucrats put in years - decades, even - of paper pushing and kowtowing before they are promoted to senior levels, Mr. Carney's attitude ran against the grain. He was too ambitious, too self-confident and not to be trusted.
"There's an inborn suspicion of those who move up the ladder quickly," said Scott Gilmore, an Ottawa friend and former civil servant who now heads up a non-governmental organization.
He also made no secret of the fact that he had been enormously successful in the private sector, joking frequently to friends and colleagues about the major salary cut he took to move to Ottawa. And he was straightforward about expressing his view that the federal government had a weak understanding of financial markets.
But Mr. Carney (who declined to be interviewed for this story) was not deterred, and the senior levels at the central bank and the Department of Finance were soon hooked on his deep understanding of financial markets, his rigorous logic and his passion for practical solutions.
Within 14 months of moving to the central bank - a blink of an eye, in a normal civil service career - Mr. Carney was seconded to the Department of Finance to temporarily fill in as Ottawa's deputy at the Group of Seven leading industrial countries.
That job quickly morphed into something much broader, and soon Mr. Carney was helping then-finance minister Mr. Goodale sell the government's share in Petro-Canada for $3.1-billion.
Traditionally, a government auctioning off assets would hire an investment bank or a group of banks, which in turn take all the risk of selling the deal to investors. Mr. Carney went for a more novel approach. He set up a blind bidding process to hire the investment firm, and made part of their fee contingent on performance. Then he had the dealers and Petrocan management hit the road for three days to sell their story, after the transaction was announced. The marketing campaign boosted the oil company's stock, putting more cash into government coffers.
It was a risky but shrewd way to tap into a strong U.S. buying interest, raking in probably an extra $700-million more than a traditional approach would have netted.
At the same time, Mr. Carney was devising market-friendly ways to tackle climate change, beginning to examine income trusts, representing Canada at the G7 and spearheading the budget process.
All that, and with a big smile on his face, according to Mr. Goodale.
"He seems to be thoroughly enjoying himself. That helps when you're dealing with serious issues," the former minister recalled in an interview. "There's no glowering cloud over his head. He has a great smile."
Political acumen
Mr. Carney clearly had his eye on more prestigious jobs, however, and let it be known around Ottawa that he had no plans to stick around unless he became the deputy minister of finance or went back to the central bank to replace Mr. Dodge.
But his pitch had to start all over again when the Liberals lost the election in January, 2006. While Mr. Carney has, by all accounts, steered clear of identifying himself with any political party, he was so entrenched in Mr. Goodale's budget process that he had to prove himself a neutral adviser once again when Conservative Finance Minister Jim Flaherty took over.
Mr. Carney may not be political, but he is politically astute, friends and colleagues say, and winning the Conservatives' trust was not an obstacle for him.
"It's because Mark is a professional and he makes sure he gives the best professional advice to whoever he's serving," Mr. Flaherty said in an interview.
Mr. Flaherty, whose political experience was at the Ontario level, was more of an Ottawa neophyte than Mr. Carney. The senior official's advice soon became indispensable as the Finance Minister set about dealing with income trusts, getting to know and understand financial market players, and gauging the effect of a soaring currency and hurting manufacturing sector.
Mr. Carney was a hawk on income trusts, and felt strongly that they were a counterproductive blight in Canada's economy, holding Canada back in an increasingly competitive global economy. His arguments were crucial in convincing Mr. Flaherty and Prime Minister Stephen Harper that trusts should be taxed before some of the country's biggest companies opted to convert to tax-free income trusts.
The decision provoked a bitter and ugly backlash that continues to this day.
An insider's view
Mr. Carney became so instrumental to Mr. Flaherty's grasp on fiscal policy that many Ottawa observers assumed the minister would not allow him to be in the running for Bank of Canada governor.
But Mr. Carney had aspirations beyond remaining a second-in-command with a narrow focus on the federal budget. He sees fiscal policy as a tool for broader social policy ends, his friends say, and was itching to stretch his legs.
In a town where turning down a promotion is usually career suicide, Mr. Carney rejected overtures to become the deputy minister at both the departments of Industry and Natural Resources, sources say. He was holding out for the top job at the central bank, and his gamble proved successful.
When it came time to choose Mr. Dodge's successor, Mr. Dodge didn't actually have an official say in the matter. The decision was left to the bank's board of directors and the federal government.
Mr. Carney was obviously in the running. So too was Paul Jenkins, the respected senior deputy at the bank. He represented a safe choice for a Conservative minority government - someone who wouldn't rock the boat. Mr. Jenkins was the embodiment of quiet wisdom and conservative central banking. Mr. Carney was the face of markets and modernity.
While the bank's search committee pondered its choice last summer, Mr. Carney did not sit by idly. In August, as financial markets descended into turmoil around the world, parts of the Canadian commercial paper market threatened to implode, with serious implications for business in Canada and internationally. Mr. Carney sprang into action.
He had actually spent considerable time trading such commercial paper, but also had an insider's view of the big picture since he was the top Finance official for Canada at the G7. He cobbled together a plan for a standstill in the Canadian asset-backed commercial paper market, and together with Mr. Dodge, persuaded financial institutions to sign on, Mr. Flaherty said. The intervention prevented a possible market meltdown.
Mr. Carney's appointment to the helm of the central bank, it seemed, was clinched.
Brains and family
The most notable things about Mr. Carney, say his friends and colleagues, are his brains and his family. It's always been that way.
He was born in March, 1965, in Fort Smith, NWT, where his father was a high-school principal. He moved as a six-year-old to Edmonton, where he, his older brother Sean, younger brother Brian and sister Brenda grew up.
His father, Bob, became a professor of education history at the University of Alberta. His mother, Verlie, had been an elementary school teacher, but stayed home with the kids.
Their household was an active and stimulating one, where Catholicism, international affairs, current events, public policy and sports were discussed intently and frequently, recalls Greg Schmidt, a family friend for the past 30 years.
All three Carney boys went to Harvard, and while it was already obvious that the middle boy was destined for a life of critical thinking, no one pegged him for an investment-banker-to-be.
Yet after graduating from Harvard with high honours in economics, Mr. Carney - like many Ivy League grads at the time - wanted to be part of the go-go 1980s in the financial world. He went to work for Goldman Sachs in London and then in Tokyo.
But after a few years with the firm, he returned to academia and the more cerebral stream of economics.
By 1995, he was finishing up his doctoral thesis in economics at Oxford, and had just married his wife, Diana, an economist specializing in Third World development who shared his passion for hockey. (Mr. Carney had been a backup goalie on the Harvard hockey team, and as he likes to tell his friends, he couldn't help but be drawn to the star of the Oxford women's team, watching as she scored a hat trick in a 4-3 win over Cambridge.) But his academic life was disrupted when Goldman Sachs came calling again, offering a tantalizing job in London as head of sovereign risk for Europe, Africa and the Middle East.
Mr. Carney agreed, and quickly found himself at home in the fast-paced, lucrative world of privatization and emerging market debt. His fingerprints were all over South Africa's first post-apartheid foray into global bond markets, and in his firm's contending with the Russian meltdown in 1998.
By 1998, Goldman Sachs transferred him to New York, where he stayed for two years before asking to move to Toronto to start a family - a family that has gradually taken on an astounding resemblance to the one he grew up in.
Now with four children - all girls, ranging in age from 1 to 7 - and living in Ottawa's well-heeled Rockcliffe neighbourhood, the Carneys are close.
Part of the allure of becoming the governor of the central bank was that he could delegate enough of his work to actually drop his kids off at school once in a while.
"He melts in the presence of his kids. The power of those children!" Mr. Schmidt says.
'Three steps ahead'
Mr. Carney is the type of person who has the self-confidence to think he can run a marathon without training, and the determination to actually pull it off.
"He stretched for a couple of days and then ran the [New York]marathon," said former colleague Doug Guzman, who worked with Mr. Carney at Goldman in New York and Toronto, but who now heads up investment banking at RBC Dominion Securities.
(Mr. Carney's marathon time? The first half in a respectable one hour and 50 minutes, but the full 42 kilometres in a long and painful four hours and 20 minutes.)
That self-confidence can come across as arrogance to people who join in a debate with Mr. Carney after he has already formed his opinion. He can destroy an argument or dismantle a point of view with alarming ease and speed.
"He's not without a healthy self-concept," Mr. Schmidt says.
But he approaches public policy issues and economic problems with an open mind, and makes an effort to absorb all sides, review the literature and refer back to the basics, before making up his own mind, his friends insist.
"He's a guy who wants to get to the right answer on things. So he'll sit and listen to what everyone on the team says" and then form his opinion, Mr. Guzman says.
At Goldman, such an approach was key to Mr. Carney's success as an investment banker, he explained.
"The core of investment banking is earning the confidence of your clients, and having your clients trust your judgment," he says.
It's a talent that Mr. Carney - who can adeptly work a room with the help of his dry, self-deprecating sense of humour and a twinkle in his eye - will find useful as a central banker in charge of a board that makes decisions by consensus.
A more useful talent for central banking is Mr. Carney's clarity of thought, says Tim Adams, the former undersecretary for international affairs at the U.S. Treasury who worked closely with Mr. Carney for the past three years.
"He's three steps ahead of everyone else and very effective at wielding a well-thought-out discussion," Mr. Adams said in an interview.
A pragmatist
At the G7, Mr. Carney was asking probing questions about the macroeconomic effects of subprime mortgages long before others had gone down that road, Mr. Adams says.
Still, some central bank watchers fear that the naming of Mr. Carney as governor symbolizes the supremacy of financial markets over the interests of employment and general economic health when it comes to central banking.
And there's no doubt Mr. Carney believes that markets should largely be left unhindered to determine the direction of the economy.
His doctoral thesis, for example, argues that a country should not coddle its big companies in the hopes that they will become more competitive internationally. Rather, unfettered domestic competition makes national champions stronger, in turn making the country's economy stronger.
"Domestic product market rivalry promotes an industry's and a nation's competitiveness," he wrote.
"As a result, industrial policies which have the creation of national champions at their heart are a misguided answer to the siren call of national competitiveness."
But Mr. Carney is above all a pragmatist, his friends say, and would not argue for laissez-faire approaches in every circumstance. His involvement in brokering a standstill in the asset-backed commercial paper market is a case in point.
"There are times when you have to stop the mania that markets can take when people are running for the exits," Mr. Adams says. "It's about helping the markets act more reasonably."
The age question
Not all Mr. Carney's forays into public policy have been successfully executed, however, despite his relentless logic.
He designed a detailed, market-based solution to help Canada cut greenhouse gas emissions, but only bits and pieces of his work have seen the light of day. And he had a role in Mr. Flaherty's initiative to eliminate the deductibility of interest on foreign investments, which is undergoing deep revisions because it has proved to be unworkable as first announced.
The only thing lacking in Mr. Carney's résumé, jokes his former boss Mr. Flaherty, is 10 years of junior experience. Some observers don't think his lack of experience is funny, and are not certain he has the wisdom to be an effective top central banker.
Central banking in Canada, indeed in most industrialized countries, has been a domain almost exclusively of men over 50, steeped in the ways of boardrooms and politics. (The only younger governor was Graham Towers, who was 37 when he started his 20-year tenure in 1934.) There is a general recognition Canada's central bank needs a more modern understanding of financial markets and globalization, and no one doubts Mr. Carney will deliver. At the same time, however, central bankers are increasingly seen as saviours of economies in trouble, unlike a decade ago, when Canadians looked to government spending for support when times were tough.
The top central banker is expected, as in times past, to make sure inflation stays in check, but this time there is also an expectation he will make tumultuous markets run smoothly, banks stay healthy and the currency trades at a reasonable level.
Confidence factor
The last time Canada fell into recession, Mr. Carney was 26 and toiling away in academia.
With any luck and a few more rate cuts, today's slowdown and credit crunch will right itself in a couple of quarters. Economic growth will rebound, the Canadian dollar will stabilize a few cents below parity and inflation will stick to the bank's target.
But even under the leadership of the very capable David Dodge, the Bank of Canada has underestimated the increasing momentum of the U.S. slowdown, and has been too quick to declare the end of the credit crunch and housing problems in the United States.
As Mr. Carney takes over, he has the confidence of the government, of Mr. Dodge, and of many people in the financial markets. And he certainly has confidence in himself.
But as a relatively unknown, untested central banker handling the prosperity of the country at a precarious time, he'll have some work to do in winning the confidence of the nation.