[Congressional Record Volume 140, Number 16 (Wednesday, February 23, 1994)]
[House]
[Page H]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: February 23, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                 FEDERAL RESERVE RISE IN INTEREST RATES

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentleman from Texas [Mr. Gonzalez] is recognized for 5 minutes.
  Mr. GONZALEZ. Madam Speaker, the Federal Reserve's ability to 
befuddle observers and manipulate the press is clear. Yesterday, 
Federal Reserve Chairman Alan Greenspan's monetary policy statement 
provided no meaningful clue of our Nation's policy and perpetuated the 
Fed Chairman's reputation as ``the master of ambiguity.'' The Fed's 
message is always ``Trust us to do the right thing and don't ask why.''
  As usual, Chairman Greenspan provided no rationale for raising 
interest rates for an inflation no one can see. He asks us to rely on 
concepts that have shown little or no relationship to inflation, such 
as the low level of the real Federal funds rate. This is simply more 
Fed-speak, that says little and forces everyone to guess what the Fed 
is really doing and why.
  Even though the Fed's record of monetary policy is a long series of 
mistakes and miscalculations, the Fed enjoys the status ordinarily 
reserved for demigods. Critics are few and far between.
  More often than not, the Federal Reserve receives positive press for 
bad policy--and there may be a reason for this. The Fed carefully 
nurtures its public image by cultivating friends in the media and 
bludgeoning critics. I have found evidence of this in former Federal 
Reserve Chairman Arthur Burns' papers in the Gerald Ford Presidential 
Library in Ann Arbor, MI.
  The paper from which I will quote reveals a plan to use the office of 
one of the most powerful positions in our Government, Federal Reserve 
Chairman, to retaliate against a reporter who was critical of the 
Federal Reserve by appealing to the publisher of the Washington, DC, 
newspaper where he was employed.
  Nicholas von Hoffman, who had appeared regularly as a commentator on 
CBS and today is a writer for the New York Observer, was a columnist 
for the Washington Post in 1974. He had the temerity to write a number 
of columns that were critical of the Federal Reserve.
  The criticism undoubtedly provoked a note from Joseph Coyne--a 
Federal Reserve official who still handles press relations for the 
Federal Reserve--to Federal Reserve Chairman Arthur Burns on December 
6, 1974. I quote from the note:

       Concerning our conversation yesterday about Nicholas von 
     Hoffman, Bart Rowan [Washington Post columnist] thinks it 
     would be an excellent idea for you to discuss the matter with 
     Katherine Graham [the owner of the Washington Post]. He said 
     he has discussed von Hoffman on several occasions with Ben 
     Bradlee, the Post's executive editor. He is certain that Mrs. 
     Graham would approach Bradlee on the question if you 
     discussed it with her.
       There are, of course, certain dangers in this approach. 
     Bart, of course favors it strongly because you would be 
     supporting his view against von Hoffman. Additionally, Ben 
     Bradlee's reaction to an approach of this nature might be: 
     ``Washington officialdom is squirming: keep up the good work, 
     von Hoffman.''

  This kind of manipulation of the press certainly is not an isolated 
incident. The Fed, to this day, feeds valuable morsels to its friends 
and freezes out its critics to ensure positive coverage.
  At the October 19, 1993, hearing before the Banking Committee, 
substantial evidence was presented that the Federal Open Market 
Committee that manages the Nation's money supply, frequently leaked its 
so-called super-secret policy changes.
  The Federal Reserve officials at the hearings all said they knew 
nothing about leaks even though the Banking Committee found that the 
president of the St. Louis Federal Reserve Bank had cancelled 
publication of an article after receiving my invitation to testify, 
because the article contained extensive information about leaks from 
FOMC meetings.
  At this Banking Committee hearing, Cleveland Federal Reserve 
President Jerry Jordan testified in rather strident tones, ``We are the 
central bank. Central Banks don't leak.'' But at the same hearing, 
Chairman Alan Greenspan was not singing from the same sheet of music 
when he said the ``problem of leaks is behind us.''
  Chairman Greenspan and colleagues of the pristine monetary temple, 
please explain the article in the Saturday, February 12, 1994, 
Washington Post by John Berry that describes your last FOMC meeting 
which he said he obtained from ``Fed and administration sources.'' One 
the first day of the FOMC meetings, Thursday, February 3, 1994, 
according to that story, the members of the FOMC ``adjourned that 
evening without formally taking up the question of rates but with a 
consensus forming.''
  Did Mr. Berry receive some psychic waves from the Fed building at 
20th and Constitution or did one of the monks who knew nothing about 
leaks again break the code of silence?
  I ask my colleagues to support my bill, the Federal Reserve System 
Accountability Act of 1993 (H.R. 28) which would require prompt release 
of monetary policy changes, timely release of a detailed record of FOMC 
meetings, and allow the General Accounting Office [GAO] to examine 
substantial parts of Federal Reserve operations which are now 
restricted from inspection. This is not legislation aimed at political 
interference of short-run monetary policy; it is legislation that 
provides for individual accountability for powerful Government 
officials whose decisions affect the economic well-being of all 
Americans.

              [From the New York Observer, Feb. 28, 1994]

Greenspan Glasnost: Fed Springs a Leak--Gonzalez Unearths Transcripts; 
                     Donaldson Quaffs Rooftop Beers

                       (By Nicholas von Hoffman)

       If Indiana Jones had been clued in, he wouldn't have 
     traveled halfway around the world to the Temple of Doom to 
     test his skills at wresting treasure from formidable places. 
     In Washington, there is a castle keep they call the Temple of 
     Money, from which no word nor whisper ever escapes. It is the 
     Federal Reserve Board, dwelling opaquely behind the bronze 
     doors of an inhospitable, Art Deco, marble sanctuary built 
     near the Lincoln Memorial in 1937--an organization famous 
     inside the Beltway as the one leakfree institution in the 
     national capital. Now, for the first time, there is hope that 
     the musty files and fabled secrets of the Fed will see the 
     light of day.
       While fact, blabber, gossip and rumor pour forth from the 
     C.I.A. and the National Security Agency, only silence has 
     ever emanated from the Fed, the complex Government entity 
     charged with controlling inflation and carrying out other 
     important if MEGO-causing activities (MEGO being, as you may 
     already know, an acronym for the expression ``mine eyes glaze 
     over,'' as yours surely will should they fall on the contents 
     of the warehouses full of statistical information contained 
     in the Fed's files). The Fed, because it decides how much 
     money will be in circulation, what interest rates shall be 
     and whether the mightiest financial institutions stand or 
     fall, also has a decisive influence on whether we have boom 
     times or bad times, or which ones of us can buy a home and 
     which ones of us cannot. It was the Fed's refusal, until only 
     a few months ago, to act on discrimination in mortgage 
     lending that prevented countless thousands of blacks and 
     other minorities from becoming home owners.
       A recent attempt by Paul Starobin of the National Journal 
     to use the Freedom of Information Act to obtain the minutes 
     of a meeting of the Fed's central decision-making organ, the 
     Open Market Committee, earned him a stack of the blacked-out, 
     censored pages familiar to frustrated investigative 
     reporters. But whoever redacted the minutes failed to ink out 
     one line from the committee's proceedings, which quoted 
     Federal Reserve Chairman Alan Greenspan adjuring his 
     colleagues on Dec. 22, 1992: ``Let's be very careful about 
     sneezing in this room!''
       In an institution where even the allergies are classified, 
     it's small wonder that the world outside the Fed has had no 
     knowledge of the Open Market Committee's decisions, aside 
     from whatever can be gleamed from the brief and delphically 
     incomprehensible statements issued monthly by the priests of 
     the temple.
       The battle to find out what's going on behind the temple 
     doors and why--mostly waged by a succession of frustrated 
     House Banking Committee chairmen--has been going on for 
     decades. Even powerful legislators have been at a 
     disadvantage, though, because the Fed doesn't have to go to 
     Congress for appropriates. It lives off the profits of the 
     hundreds of billions of dollars in Government securities it 
     trades every year, setting its own budgets and living, rather 
     like the late, not completely great Nicolae Ceasusescu of 
     Romania, a happy, unaudited and unsupervised existence. At 
     $161,000 a year, members of the senior professional staff at 
     the Fed make $13,000 a year more than anyone in President 
     Clinton's cabinet.


                     gonzalez gets knife into clam

       Only now does it appear that the tip of the knife has been 
     successfully inserted into the clam. Representative Henry B. 
     Gonzalez of Texas, the Banking Committee's current chairman, 
     has scored a lucky hit comparable to the discovery of the 
     Nixon tapes during Watergate. He has brought to light the 
     existence of verbatim transcripts of the Open Market 
     Committee's meetings dating back to 1976. Only some of the 
     contents of those transcripts have yet seen the light of day, 
     but enough is now in the open to offer a picture of how the 
     people in what may be our most important government 
     organization hang on to power by controlling information.
       Here we have the late Arthur Burns, then chairman of the 
     Fed, reacting in 1976 to a Freedom of Information suit 
     demanding the minutes of the Open Market Committee: ``* * * I 
     can see that the document [the minutes] is not going to stay 
     with the plaintiff. It'll be on Capitol Hill before long and 
     I can [imagine] the derogatory statements that might be made 
     * * * They [the House Banking Committee] sit around, and they 
     talk and what they know and the number of facts they consider 
     is very scanty. It's a talking committee and that would cause 
     some mischief * * * I see also the very real possibility that 
     after all is done, there'll be individual statements that 
     will be picked up by members of Congress or the press or 
     both, that will cause us additional work and, what is worse 
     than that, embarrassment.''


                          `we'd look very bad'

       A year later, Burns, a massively fawned-over and deferred-
     to public figure throughout his career, was warning his 
     colleagues about the consequences if the public got wind of 
     how much money the Fed spends on itself: ``You see, this 
     question about Federal Reserve budgets disturbs me * * * All 
     right now, you have an open meeting [about the Fed budget] 
     and there may be some newspaper fellows there and * * * 
     Common Cause and * * * Ralph Nader's crowd and whatnot. Here, 
     let us say we take up a budget coming to $600 million plus, 
     and we do that within an hour, and, well, we'd look very bad. 
     Therefore * * * I would consider it my duty to just stretch 
     it out over a day. Well, that's terrible * * * Now there must 
     be an answer to that. Well, we have enough ingenuity in this 
     room, I think, to find the answer * * *''
       The answer was a practiced use of force and favors to 
     control criticism not unlike the strategy used by J. Edgar 
     Hoover during his long reign at the F.B.I. For instance, the 
     Banking Committee staff unearthed a 1974 memo to Burns from 
     Joe Coyne, now the Fed's head flack, offering suggestions 
     about how to deal with me when I was writing unflattering 
     articles about the temple for The Washington Post.
       ``Concerning our conversation yesterday about Nicholas von 
     Hoffman, Bart Rowen [a Post financial writer] thinks it would 
     be an excellent idea for you to discuss the matter with 
     Katherine Graham.'' The memo goes on to ponder the dangers of 
     also approaching Ben Bradlee, the now-retired legendary Post 
     editor. Was there any chance of getting him to silence this 
     critic? Or would ``Bradlee's reaction to an approach of this 
     nature * * * be [that] Washington officialdom is squirming, 
     keep up the good work.''
       Another memo from Mr. Coyne in the same period, dated Dec. 
     22, 1976, indicates that, like Hoover's, the Fed press policy 
     has been to cultivate certain favorites with flattery and 
     scoops. This teacher's pet system apparently continues in 
     place. John Berry of the Washington Post is one of those 
     smiled upon by Mr. Greenspan, who also makes hospitable 
     gestures such as inviting ABC's Sam Donaldson and PBS's Judy 
     Woodruff to drink beer and watch the Fourth of July fireworks 
     on the roof of the Fed's well-situated building on the 
     Capitol mall.
       There are other goodies to be had for good will. In the 30 
     months ending last June, the Fed stuffed almost $3 million in 
     consultant fees into the pockets of 290 academic economists. 
     For other members of ``Club Fed,'' as Mr. Starobin refers to 
     the place, there are winter golfing sprees in Florida paid 
     for under the heading of ``conferences.'' Under the 
     circumstances, it is amazing that any criticism of the Fed 
     ever appears--although, under Mr. Greenspan, its record is by 
     no means all negative.
       In an era when bean counters and pathological algorithmics 
     get to the top, it is fitting that Mr. Greenspan, who comes 
     across as a remote numeroholic, should gain great power. He 
     is a speaker of such unalleviated dullness that even short 
     exposure to the anesthetic vapors exhaled with his words 
     causes instant narcosis. But history talks to whoever answers 
     the phone, and on Oct. 19, 1987, it rang in Mr. Greenspan's 
     Dallas, Tex., hotel room. The stock market had crashed 500 
     points and seemed poised to crash 500 more, burying half the 
     major banking and brokering institutions of the nation in a 
     trillion dollars' worth of bankruptcies and losses. Mr. 
     Greenspan became the man of the moment, staying on the phone 
     through the night, arranging for mountains of money to save 
     Wall Street and the securities industry.
       The next morning, the nation's financial institutions 
     opened for business with cash in the drawer, ready to meet 
     all demands and obligations. Annuities, pension funds, 
     insurance policies remained solvent, paying out to the 
     millions who depend upon them. The same wearying qualities 
     that make Mr. Greenspan less than a barrel of chuckles stood 
     him in good stead when the crisis came.
       Since that time, it's been suspected that, thanks to a 
     certain unannounced policy decision, Wall Street can't crash 
     past a certain point because the Fed will sustain the market. 
     The Fed's critics think that such momentous policies, good or 
     bad, should not be decided in secret. The problem is not that 
     Mr. Greenspan himself is afflicted with agoraphobia, this is 
     a man who's performed in public since he was a kid, a man 
     long since accustomed to the searching eyes of strangers.


                         did greenspan inhale?

       Before he threw himself into the turgidities of economics 
     at New York University and Columbia, he studied at Juilliard 
     and became, by most accounts, an excellent saxophone player. 
     As a musician, he swung both ways, classical and jazz, and 
     was good enough to play bebop professionally with Henry 
     Jerome's band in the 40's at the long-since-closed Childs' 
     restaurant.
       Many years afterward, Jerome recalled those days for jazz 
     historian Bill Crow that Dorothy Kilgallen's column had once 
     run a blind item about his ensemble, asking, ``What name 
     bandleader had his whole bank smoking marijuana in phone 
     booths?'' If that other political saxophonist, Bill Clinton, 
     had been playing with Jerome, he probably would have been 
     holding his breath so he wouldn't have to inhale, but Mr. 
     Greenspan never got that close. While his fellow bank members 
     were getting high during the breaks, he was downstairs doing 
     the payroll.
       Appointed to the Fed chairmanship by Ronald Reagan in 1987 
     after a career of faithful Republican Party hackery dating 
     back to the 1960's, this transparent personality has been 
     around for decades. ``Alan Greenspan has probably been a key 
     player in more Republican Presidential campaigns and 
     Republican Party platforms and Republican administrations 
     than any other economist in the country,'' according to Mr. 
     Reagan's domestic policy adviser, Martin Anderson.
       But the Fed chief has always had his wild side. Years ago, 
     Mr. Greenspan took up goldbuggery under the influence of Ayn 
     Rand, the wild-eyed anti-Communist Russian emigree, who wrote 
     The Fountainhead and Atlas Shrugged and founded a political 
     cult best described as a melange of Nietzsche and Adam Smith. 
     When she died in 1982, Mr. Greenspan came to the funeral, 
     where he found his guru resting in her coffin under a large 
     dollar sign.
       His gold-loving, inflation-fighting dedication to the sound 
     dollar endures, as his recent ratcheting up of interest rates 
     shows, but Mr. Greenspan at least has opened the temple door 
     a crack. In the last few weeks, he has said more about Open 
     Market Committee goings-on than any chairman in memory, but 
     there are still plenty of mystical secrets within the Fed for 
     Indiana Jones to make off with--if he can only figure out how 
     to get his hands on the booty.

                          ____________________