[Congressional Record Volume 140, Number 21 (Wednesday, March 2, 1994)]
[House]
[Page H]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: March 2, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
 FEDERAL RESERVE BOARD: TRANSCRIPT OF PAUL VOLCKER'S AND ARTHUR BURN'S 
           RESPONSE TO THE HOUSE BANKING COMMITTEE'S REQUEST

  The SPEAKER pro tempore (Mr. Cooper). Under a previous order of the 
House, the gentleman from Texas [Mr. Gonzalez] is recognized for 5 
minutes.
  Mr. GONZALEZ. Mr. Speaker, yesterday I discussed how the Federal 
Reserve proclaims itself above politics, even as it carries on an 
elaborate, sophisticated, and very effective political operation. But 
the Fed does not merely lobby Congress; it feels its influence is so 
great and Congress so in its thrall, that it can bend the truth and 
mislead us if our questions get uncomfortable or the facts may be 
embarrassing.
  I recently discovered a particularly illuminating conversation 
between Arthur Burns and Paul Volcker, which reveals how the former 
Chairman of the Federal Reserve and the former President of the New 
York Federal Reserve Bank, respectively, plotted and conspired to try 
to mislead the Congress. They hoped that by releasing only portions of 
the Federal Reserve documents requested by the Banking Committee, that 
the committee would not notice the omission. This subterfuge is 
revealed in the FOMC minutes that Federal Reserve Chairman Burns left 
at the Gerald R. Ford Presidential Library in Ann Arbor, MI. Does this 
sound familiar? These were the same tactics the Fed used just last year 
to cover up its records.
  This particular deception was openly discussed during the November 
16, 1976, FOMC meeting. At that time, the Banking Committee was trying 
to obtain 3 years' worth of minutes from the Board of Directors 
meetings with the 12 Federal Reserve banks to learn about the immense 
power that the banking industry wields by way of these Federal Reserve 
banks.
  The regional Federal Reserve banks are run by Boards of Directors, 
two-thirds of whom are elected by the very banks they regulate. These 
Directors have great power to regulate the industry that elects them. 
They initiate actions related to bank holding companies, such as 
permission for acquisitions of competing banks, and the Directors 
approve Federal Reserve loans through the discount window to banks in 
their districts. This setup provides fertile ground for possible 
conflicts of interest, since the Fed can pass out favors and 
punishments to those it wants to keep in line.
  For decades, the Fed has orchestrated and executed a full-scale 
lobbying effort on Capitol Hill, conscripting the very banks it 
regulates to act as its chorus. This lobbying has been going on for 
decades. But the Fed has been able to hide this because the minutes of 
the Directors meetings are pitifully incomplete and not publicly 
available. It is also something the Fed camouflages whenever it defends 
its right to continue regulating the banks and bank holding companies 
instead of turning these duties over to the new, autonomous bank 
regulatory agency currently being proposed by the administration.
  Today, the Fed promises its flock that it will continue to be the 
friendly regulator--and that is reason enough to oppose reform.
  The Fed does not just lobby--it feels free to lie. The transcript of 
the November 16, 1976, FOMC meeting reveals that President Volcker and 
Chairman Burns decided to omit the attachments to the minutes that were 
delivered to the House Banking Committee.
  Fed Governor Lawrence K. Roos asked:

       How do we protect ourselves from the reverse of giving 
     meaningful information to him [former House Banking Chairman 
     Henry Reuss of Wisconsin]?

  New York Federal Reserve Bank President Volcker said:

       Well, the important thing to protect here is the 
     attachments to the minutes, in our case they're very long 
     minutes and they include a great many sensitive, as well as a 
     great many dull things.

  Chairman Burns replied:

       Well, you see if a question were raised about attachment, 
     later on, then these understandings, if they hold and I 
     assure you that I'll do everything in my power to achieve 
     that objective that would apply to the attachment.

  The counsel to the Chairman of the Federal Reserve, Thomas J. 
O'Connell, then warned that it might be necessary to include some 
attachments because they are referred to in the minutes.

       If you start including some attachments, but not others 
     then to the extent that Mr. Reuss' [Committee] staff is less 
     imaginative than I hope they will be, you will ignite [the] 
     imagination of one or another of his numerous troublemakers.

  The 1976 pattern of deception is alive and well today. In 1992 I 
asked for and received minutes of the Boards of Directors meetings of 
the 12 Federal Reserve banks from recent years. Were complete documents 
sent? What can the public and the Congress expect from the Federal 
Reserve? I have to wonder, because the record is not encouraging.
  It is long past time to put an end to the secrecy that allows the 
Federal Reserve to escape accountability. I recently shared the notes 
of the Burns-Volcker discussion with former House Banking Committee 
Chairman Henry Reuss. He expressed shock at the fact that the Fed 
attempted to mislead him. Who can blame him? The Fed similarly tried to 
deceive me about its FOMC records.
  This is why I am urging you, my colleagues, to support legislation 
mandating complete disclosure of what is said at the Fed's eight annual 
monetary policy meetings. To do any less is to give the Fed license to 
pull the wool over the Congress' eyes, something the central bank is 
appearently willing to try if the facts are embarassing to the Fed.
  My bill, H.R. 28, the Federal Reserve System Accountability Act of 
1993, requires prompt release of FOMC monetary policy changes and 
timely release of a detailed record of FOMC meetings. The bill also 
calls for the GAO to examine substantial parts of Federal Reserve 
operations which are now restricted from inspection. Anyone who wants 
to drop a curtain of secrecy over the kind of stealth the Fed engages 
in, does not understand how the Fed has abused and misused its 
privileged position. Accountability is the first duty of 
responsibility. For as Lord Acton observed, those who need not be 
accountable eventually become corrupt.
  (The material referred to follows:)

       TJOC. Mr. Chairman, may I urge then that to the extent 
     executive committee minutes would be included, that the same 
     right and function of withdrawal and exclusion from those be 
     followed.
       CB. Oh yes, absolutely.
       Roos. How do we protect ourselves from the reverse of 
     giving meaningful information to him, if he has too little 
     information, he comes back and says one of two things either 
     we're highly, say in the case we do nothing or we are so 
     secretive in our activities that we don't dare put down our 
     nefarious activities. I mean, it seems to me he's got us 
     either way if he wants to play that game and I don't know it.
       CB. Well, I don't know if there is any protection and I 
     would not be at all surprised if a by-product of this fishing 
     expedition turned out to be a strong recommendation by Mr. 
     Reuss, possibly by his entire committee, possible a piece of 
     legislation that he would introduce as to the character of 
     minutes. I would not be surprised in the future. First, a 
     condemnation, and then laying the basis you see for this 
     request as to the future. Well, gentlemen, that's the kind of 
     world we live in and I don't think that this environment in 
     which we function, that it's going to change very quickly nor 
     am I ready to predict that it's going to improve this year. 
     Any question, comment, criticism of this procedure. I haven't 
     sent this letter yet.
       Bartee. I would consider it very fortunate if you can, get 
     it off, and get it accepted----
       Volcker. Well, the important thing to protect here is the 
     attachments to the minutes, in our case they're very long 
     minutes and they include a great many sensitive, as well as a 
     great many dull things.
       CB. Well, you see if a question were raised about 
     attachments, later on, then these understandings, if they 
     hold and I assure you that I'll do everything in my power to 
     achieve that objective that would apply to the attachments. 
     In other words, if let's say Reuss asks later on for the 
     attachment, these categories of exclusion and separate 
     filings, it would--these attachments would be handled in 
     exactly the same way as the body of the minutes. But let's 
     not anticipate too much. There is still, I've said this 3, 4, 
     5, times already, there's still a possibility Mr. Reuss will 
     acquire other interests in the course of the year. One of the 
     difficulties, of course, here is you know that's part of the 
     world we live in. Mr. Reuss may well acquire other interests. 
     He has a very large staff. I think they've put in long hours 
     thinking up ways you see of harassing, etc.
       Volcker. The trouble is he's got a big enough staff so one 
     of them could make this his personal interest.
       CB. Oh, yes.
       TJOC. Before closing, may I touch on a matter that Mr. 
     Volcker has remarked about the attachments again. It's quite 
     possible that a board of directors minutes will contain a 
     reference to that board's recent action in recommending a 
     discount rate for the Board and the Board's response thereto 
     attached as exhibit A. Mr. Chairman, it's quite possible 
     that's the very type of attachment you would want to exhibit 
     to Mr. Reuss, consistent with the position you've taken all 
     along with respect to the roll that the Bank directors play 
     in this action of monetary policy. So that at the very outset 
     we may be including specific attachments as we review these 
     minutes. I didn't * * *
       CB. Well, let's think very carefully about that. If you 
     start including some attachments, but not others then to the 
     extent that Mr. Reuss' staff is less imaginative than I hope 
     they will be, you will ignite imagination of one or another 
     of his numerous troublemakers.
       TJOC. In a way you've done that when you've included the 
     executive committee minutes, Mr. Chairman.
       CB. Well executive committee meetings are different, as I 
     think that Mr. Volcker explained that better than I did, that 
     there are executive committee functions for the Board and at 
     times meetings of the executive committee are virtually 
     indistinguishable from full board meetings.
       TJOC. All right sir.
       CB. Any thing else, gentlemen? On this we've had two 
     unsavory subjects for discussion and if there is no further 
     question or comment, let's drink coffee and that would 
     fortify us perhaps for----

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