[Congressional Record Volume 140, Number 55 (Monday, May 9, 1994)]
[House]
[Page H]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: May 9, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                   MY ADVICE TO THE PRIVILEGED ORDERS

  Mr. GONZALEZ. Mr. Speaker, today I continue by way of accountability 
as chairman of the U.S. House of Representatives Committee on Banking, 
Finance and Urban Affairs. I said before to my colleagues that I would 
commit myself to doing this just 3 days after I was formally sworn in 
as chairman in January 1989, and I continue to do so but with increased 
problems of a complexity and difficulty that heretofore the Nation has 
not faced. That is, there has been no awareness.
  I have been compelled to come a little bit more often in order to 
bring to the attention of my colleagues what I brief every member of 
the committee. As chairman, I have said from the beginning that it has 
always been my philosophy and my belief and based on the rules and the 
precedents of this great body, since the first Congress, that the real 
power and, actually, I believe, the exclusive and only power of a 
chairman was to set the agenda, set the course, mark the course and 
lead.
  For years, this has not been done and particularly on this level. I 
am not now casting aspersions on predecessors. I am just saying that 
because of many other factors, mostly ones which I think infected us 
Americans and made us victims of our hubris or pride, that history will 
show was so misbegotten and so much in error; that is, that we are the 
greatest and would be forever and a day, that prosperity was here to 
stay forever and a day.

                              {time}  1210

  Also, our system governing our financial institutions, one which was 
actually sort of jerry-built since the depression and before the war, 
the complacency led to not keeping up with the exponential pace of 
change, and particularly the tremendous technological breakthrough 
since the war, where instantaneous communication is today making the 
world a very, very small village.
  Today I rise because of the disturbing news that efforts were being 
made unilaterally by the government, that is, the Treasury and the 
Federal Reserve Board, in their words to ``shore up the dollar,'' the 
value.
  I have been trying to alert not only my colleagues, in fact, my 
colleagues first, as long ago as the middle 1970's, and with more 
intensity since 1979, when it was apparent and the statistics showed it 
and the correlation of events as they were happening, and those of us 
on the committee, charged with knowledge, it was obvious that our 
country was headed for a very different world from that in which it had 
thrived since the war, and particularly in the decades of the 1950's 
and 1960's.
  However, it was disturbing even in the 1960's, and I spoke out there. 
But so much for history. The thing is that now, as I had so much wanted 
to avoid, there is tendency to have a knee-jerk reaction on the part of 
our managers in this very difficult area in which, as I have told my 
colleagues, we in the Congress have little direct power to control, not 
only constitutionally, but traditionally and in precedent.
  The disturbing thing about the events was that after the intervention 
with somewhat massive input of dollars on the part of the Treasury and 
the Fed, the dollar still is in anemic condition. I have pointed out 
that this is the biggest danger that has confronted out Nation since 
its founding, even the Civil War.
  When I say that, naturally I lost a lot of people that seem to think 
that this is a gross exaggeration. I wish it were, and I pray I am 
wrong, but nevertheless, up to now there has been no credible rebuttal.
  The events of last week and the week before clearly show that what 
used to be a joint effort, for instance, in 1970 when there was a 
massive--in fact, it was not so massive compared to the tremendous 
exposure of the so-called Euro dollar at that time, just a fast 
movement of what I call hot money from the markets in London, France, 
into the German mark created a minor emergency. At that time, though, 
there was a joint venture of the part of these countries and their 
central banks to invest in trying to support the dollar.
  Then came the 1970's and the 1980's, in which, incredibly, sitting on 
that committee, I heard all of the outstanding economists, 
international, national, and everybody else, saying that the reason we 
were having a negative balance of trade, or even a current account 
imbalance, was that the dollar was being artificially held too high.
  I asked in one of the brief periods of time I had this panel of the 
outstanding economists, not only of the United States, I said ``Okay, 
so you are saying and advocating that the dollar should be allowed to 
drop? But how far? What is your estimate?'' Oh, they did not know. All 
they knew was let it drop, because that will stimulate the purchase of 
our exports.
  I said ``What if you have a free-fall? You don't control it, once it 
drops to a certain level, and it keeps going?'' Well, there was no 
answer to that, but I was looked upon, and in fact one whispered and 
said ``Who is this guy?'' Remember, that was 19--the middle 1980's. I 
was not chairman yet.
  Today I have directed letters to Secretary Bentsen and Chairman 
Greenspan inviting them to testify on the exchange rate policy at a 
banking hearing on May 18, that is next week, as well as a suggested 
summary of the proposed additions to the Humphrey-Hawkins Act which I 
intend to submit and will submit, and over which we intend to have the 
hearings.
  Last March, Mr. Speaker, I put this question:

       Under the following circumstances, would you vote today to 
     give the Federal Reserve a $30.1 billion line of credit that 
     will be used to loan money to foreign countries, no strings 
     attached, no conditions, no nothing, but in accordance with 
     the Federal Reserve's, not the Treasury, the Federal 
     Reserve's judgment and politics, it will choose and pick 
     where it wants to send all or part of that $30.1 billion?

  Over 3 years ago, in fact, almost 4 years ago, shortly after I had 
become chairman, I called a hearing of the committee. Unfortunately, 
the turnout was very poor. Like last year's three different hearings on 
the so-called NAFTA on chapter 14, that had to do with banking and 
financial activities, which was really the engine, not free trade, but 
this year, banking and finance, we were totally censored. There was not 
any coverage of the three hearings.

  I am speaking now because all of this is on the record, and 
therefore, available to your perusal and study. What if I tell you 
further that you, my colleagues, not only on this side but on the other 
side of the rotunda, have nothing to say about who gets the money, what 
country gets the money? You can put no conditions on the loans, and you 
have to abdicate your congressional oversight role, which in fact and 
indeed has happened, as we brought out in these hearings almost 4 years 
ago, in which at that time there was talk, and later implemented by the 
so-called Brady plan.
  This is something I would like to come back and report, once I have 
brought my colleagues on the committee up to date, because there again 
the U.S. Treasury is a guarantor of billions of billions of dollars of 
bonds issued by other countries, such as Mexico, and now other 
countries in South America.
  In addition to this--that is, you having no say-so--contrary to the 
Constitution, the General Accounting Office will be prevented by law 
from any examination of ``transactions of the Federal Reserve for or 
with a foreign central bank.'' And the records of the expenditures will 
be intentionally vague, and even at times purposely misleading.
  This came up, and there was an election year, 1992, 2 years ago, and 
all of a sudden what we could not even get attention on the committee 
level, much less on the information disseminating responsible agencies 
to even report, all of a sudden it became an issue. The Italian agency 
bank in Atlanta, the BNL, then with greater furor and headlines for 
days, the BCCI--and I want to remind my colleagues that I have not 
closed out as chairman of this committee either one of those two, 
because we still have to perfect the laws to protect the American 
national interests and the integrity and safety and soundness of our 
financial system, which still continues at risk, as was seen clearly in 
the case of those two much-publicized, for a while, spectacular cases.

                              {time}  1220

  But now we have by law our only agency that is our watchdog agency 
and the only one we have in order to ride herd on the executive branch 
by law prohibited from even asking or even trying to locate the records 
of these expenditures.
  My colleagues will agree with me, I am sure, that if they were put to 
a vote, they would say, I am not going to have any part of that. But 
yet, in effect, the Congress has.
  Mr. Speaker, this is not a conjecture or a bizarre scenario. This is 
what is going on and has been going on now for some time at great cost 
and jeopardy to the Treasury, if not the more fundamental stability and 
well-being of our financial institutions. The Fed has been now for 
years making what are essentially loans to foreign countries without 
any congressional input or consent. It does it through this $30.1 
billion fund known as a swap fund, and despite the Federal Reserve's 
keep-your-nose-out-of-my-business attitude, I am putting our central 
bank on notice that we in the Congress have not relinquished our 
oversight responsibilities, especially when it comes to billions of 
dollars of taxpayers' money which are at risk and which may be used for 
purposes contrary to the national interest as expressed by the 
administration that the people may have at a particular time duly 
elected into office.

  Mr. Speaker, I posed these questions in March here on the House floor 
and elsewhere. Since then the Federal Reserve has formally joined the 
Secretary of the Treasury and the finance ministers and the central 
bank governors of Mexico and Canada in a permanent trilateral agreement 
involving a $6 billion line of credit to Mexico.
  Mr. Speaker, there are two issues here: First is the right of 
Congress to control spending. The Constitution says there shall be no 
expenditure other than that which is based on an appropriation and 
thereby also with a respective authorization and only upon that basis. 
That is what the Constitution says. Of course today we live in a day 
and time when the Constitution, well, my goodness, my colleagues, even 
if the Ten Commandments today, one of the most powerful individuals in 
America, controls today the most substantial disseminating electronic 
communication just last year, some time ago, said the Ten Commandments 
were out of vogue, they were not valid any longer. So if we have that, 
what is the Constitution, among friends, as somebody wrote a book 
entitled in that way.
  So that, Mr. Speaker, the first issue is the right of Congress and 
responsibility under the Constitution to control spending. Where are 
all of these budgeteers that want to balance the budget with a 
constitutional amendment as long as they do not come out on this very 
basic question?
  Mr. Speaker, second and equally profound is a question of how world 
monetary systems are to be structured and controlled. This is a 
question we have evaded for over 23 years, ever since the so-called 
fixed exchange rate system was effectively ended by the closing of the 
U.S. so-called gold window. Let me say, that was 1971, it was August 
15, and it was President Richard Milhous Nixon who made that decision 
and brought it about. Yet there was not one American newspaper calling 
it a devaluation of 10 percent of the dollar and much less saying what 
this means is the United States is going off the gold exchange system, 
meaning that it was going to go into what I protested at the time as a 
lowly Member down in the committee, but still by that had 
become chairman of the Subcommittee on International Finance, so I felt 
I had some knowledge. But, Mr. Speaker, when a snowball starts sliding 
faster and faster down that slope, there is not much one can do about 
standing in its way. But the record is there and it will show that I 
predicted that anytime you leave something stable, to a certain extent, 
and go into something unstable, unpredictable, that unpredictability 
and instability is the enemy of financial doings and marketing.

  Mr. Speaker, this is the reason why we were the only creditor Nation 
in two world wars, today we are the biggest debtor Nation in the world, 
and that happened also as of September 16, 1985, and at that time 
officially our Government said, we are a debtor nation for the first 
time since 1914, before World War I.
  Mr. Speaker, it is dangerous, because at the heart of the matter, and 
this is what I said over 25 years ago, the target is ``the vaunted 
American standard of living.'' The main avenues are to doing what can 
be done to destroy or at least debauch the currency of a country, and 
this is where we are today, because on that day, also, what in effect 
happened was that the center of gravity of financial power which had 
gravitated during World War II and immediately thereafter to New York, 
went from New York to Tokyo.
  Mr. Speaker, this may surprise some, but let me say that I have a 
good memory, and I remember in college when Franklin Roosevelt made his 
speech on quarantining nations like Japan, that was 1937, and the big 
flare-up was the sinking of the Panay gunboat, the American gunboat on 
the Yangtze River or wherever it was, in China. There was not anybody 
in America that said then, why, if those Japanese dare try to do 
anything, we would shoot them out of the water in 4 days.
  Mr. Speaker, that is where we are today financially. We hear the 
boasts about how the United States is the one and only still remaining 
great power now that Russia is supposed to have collapsed in its 
dismemberment of the Soviet Union. What an illusion, or delusion. What 
a fallacy. What hubris. What hubris. It is not true. We are vulnerable. 
We are America, the vulnerable.
  Mr. Speaker, at the heart of the matter is our economic and financial 
freedom and liberty, without which what is political?
  Mr. Speaker, the first of these two issues that I spoke about, this 
line of credit, is, of course, the right of Congress to control.

                              {time}  1230

  After all, you are the one that has to go before the people every 2 
years, not Chairman Greenspan or now Secretary Bentsen, and you are the 
one that has to answer the question about the debt overbuild and the 
deficit.
  And how do we stand up to answering the question, ``Well, how can the 
Fed do this?'' We thought it was a creature of Congress, not the master 
of the country.
  But the second and equally profound question is the one of how the 
world monetary system and systems are to be governed and controlled and 
structured. As I said, we have evaded that question, went into this so-
called floating exchange. Well, floating itself means instability, and 
we reached the end of the rope as far as that system is concerned, and 
that has been true for some time now, as should have been clearly 
evidenced, and I said so in the middle and late seventies.
  From 1945 until 1971, world exchange rates were controlled by tying 
all currencies to the dollar. The dollar, in turn, had a fixed 
relationship to gold. Now, you can argue about gold and whether or not, 
like the leaders at that time said, the day of gold was gone, we should 
demonetize is the fancy word they used. It does not make any difference 
whether it is gold or maybe platinum, as long as you have a consensual 
agreement that that is the fixed objective against which you are going 
to have some standard of evaluation.
  Now, the idea was to stabilize currencies and to force countries with 
trade imbalance to follow economic policies that would create balance 
and thus maintain stable currency values.
  My question was: How can you say that when you say that the thing to 
do now is to go into floating exchange rates? How can you say that you 
are doing that in order to stabilize? And, of course, I was ridiculed, 
and mostly, really, in all truthfulness, ignored. As long as the United 
States dominated world trade, now, this could work, but as other 
economies grew, our policies did not change. We assumed that a U.S. 
trade deficit could last forever without upsetting the balance, But, of 
course, that was impossible. And I said so.
  If any of my colleagues are interested, they can look up the Record 
from the late sixties through the seventies and eighties, what I said 
then, not now.
  And finally, the price of the dollar in relation to gold could no 
longer be sustained. President Nixon, as I said, and repeat, closed the 
gold window, and the world moved into the new era of floating exchange 
rates. As the time the Secretary of the Treasury argued that in a 
floating-rate system countries would have to take steps to stay in a 
trade balance. If they did not, their trade would dry up or they would 
suffer other bad consequences. Japan, for instance, would be forced to 
reduce its trade surplus or see the yen go up, and its exports 
destroyed by rising prices. The U.S. could reduce its imbalance, 
because our goods would be cheaper, and so on and so on.
  It was to no avail to point out the contradictions inherent in that 
argument. So that did not work either. And today our trade deficit is 
larger than ever despite this vastly devalued dollar where within the 
last 15 years it has lost two-thirds of its value to the Japanese yen 
and the German deutsche mark continues the slide.
  And last week's intervention was meant to restore confidence in the 
dollar. Otherwise, a declining dollar will mean a quick rise in 
interest rates, because we need those foreign dollars to finance our 
deficit, and particularly since 1985. Why, up until very recently the 
Japanese owned 35 percent of our Treasury, that is, that they were 
funding our debt. As soon as they start withdrawing is when we start 
getting these pains, and other countries have done likewise.

  In other words, intervention is needed, because a structural change 
is needed. The ones that were supposed to be automatic have not 
happened, but ultimately it is the condition in the economies of 
different countries, their price levels, interest rates, and levels of 
output that will determine the exchange rate.
  We do not want to finance meaningless interventions that do not have 
lasting effects on exchange rates and only provide a profit for the 
speculators who are reaping billions and billions of dollars of profit. 
I believe all of my colleagues want to know the intentions of these 
interventions.
  The worldwide foreign exchange market grew from about $800 billion a 
few years ago to more than a trillion dollars in trading each day at 
present. When the United States put in $5 billion, as it did by selling 
off part of its inventory of foreign currencies and buying U.S. 
dollars, as it did last week, billions of dollars of taxpayers' money 
are at stake. I am very concerned that the result may compromise the 
best interests of taxpayers and benefit, as it has up to now, only the 
crafty and foxy speculators who have no nationality.
  I said in my last report here that the old Latin saying is true now 
as ever it was, ``Ubi pecunia, ubi patria,'' very simple Latin, ubi 
pecunia, money, ubi patria, country: ``Where my money is, there is my 
country.'' These are the jet-set speculators. They have no allegiance 
to any one sovereign nation. They are profiting.
  When one of the major investors in the world, George Sorrels, who 
controls Sorrels Fund Management, testified before the House Banking 
Committee on April 13, this last month, he said he did not like fixed 
exchange rates or floating exchange rates. He said he preferred what he 
called a dirty float, where governments try to change the international 
price of currency.
  I think it is appropriate to try to dissect. Let us analyze this for 
you.
  Also, government interventions are sometimes needed, perhaps may be 
appropriate in the United States under the proper circumstances. They 
have be viewed with extreme caution. The end result could mean big 
profits for speculators when the Government drops $5 billion into the 
foreign currency markets, especially when the Government's action is 
expected to have only temporary effect.
  There are billions of dollars for speculation, but very little for 
those in low-paying jobs or waiting in the employment lines in the 
United States. I would like to know if the Treasury's present policy is 
to maintain or raise the international price of the U.S. dollar by 
small currency interventions and increase in interest rates by the 
Federal Reserve.
  I strongly object to a monetary policy aimed at changing exchange 
rates by raising interest rates so that the U.S. economy stagnates and 
declines even further than it has already.
  The labor markets in this country are still very weak, and I invite 
my colleagues to particularly in some of the sections of the country 
just talk to their constituents. In my area, to me it is not only 
disturbing, it is excruciatingly hurtful to see young, and they are not 
unprepared, they are college-trained, and I mean young, in their 
thirties, for more than a year, a year-and-a-half, have not been able 
to find gainful employment, not through the fact that they do not want 
to work. They will take a job. But where are they?

  And when at the same time you hear these people talking about 
recovery, when the major industrial employers have been downsizing and 
every week thousands of employees thrown out, mostly now white-collar. 
This cannot continue for long without having its social repercussions. 
This is what I have been reminding my colleagues on the committees.
  So that our labor markets in the country are weak, and average hourly 
earnings, adjusted for inflation, if you want to call it that, are 
still much too low to forget our first priority, and that is to 
achieving economic health and growth.

                              {time}  1240

  We, the Members of the U.S. House of Representatives, including the 
House Banking Committee, which has oversight responsibilities over the 
Federal Reserve operations and the foreign currency operations of the 
Treasury, do not have full details of this recent intervention in 
foreign currency markets. How do you think I feel, a Depression-era 
child, when just 3 years ago we had occasion to go to the great State 
of Rhode Island, one of the most historic original States and colonies; 
in distress, in bankruptcy, where banks were closed, S&L's were closed, 
and credit unions. We had a hearing in Providence, and over a thousand 
people showed up. I had not seen anything like that since my childhood 
memories of the Depression. And it hurt to see the elderly say, ``We 
live on the proceeds from our pensions'' or ``our annuities, and they 
are tied up, they are frozen.''
  Well, I asked the Federal Reserve--which it did--why the Federal 
Reserve could not intervene for a sovereign State? But did it? 
Absolutely not. But it will for a foreign sovereign nation like Mexico. 
Where is our sanity, my colleagues?
  Well, I had the other agencies, like the OECD and banking 
institutional agencies; they could have extended a guarantee if they 
wanted to enable the sovereign State of Rhode Island to issue bonds. 
And did they do it? No. We had to come back and, on June 28, in the 
Banking Committee, pass out a loan guarantee that finally, less than a 
year later, the State of Rhode Island took advantage of; issued its 
bonds, opened the doors and restored some of this money to these 
people.
  The relief rolls between January and May, when we had the hearing on 
May 25, had grown 50 percent. This is the cause-and-effect of their 
policies. Now, that could have been solved. The Federal Reserve, under 
the Federal Reserve Act of 1913, could have acted if it had wanted to, 
as it has done on some other occasions. Why, when Charles Keating was 
floundering with his Lincoln S&L, what happened? Astounding, the 
Federal Reserve let him have $100 million; between April 1989, when 
that institution was declared insolvent, and July 1, when it was 
finally closed down. Where do you think that money went to? Oh, the 
Federal Reserve said, ``Well that was our emergency window opening.'' I 
said, ``What do you mean? You do that for banks, but what other S&L 
have you ever done that for?'' None other. And yet did anybody cover 
that? No. That was brought out in committee hearings and all.
  If the Federal Reserve can intervene with $100 million to help 
Charlie Keating's institution, and you know now the sorry history 
there, you mean it could not intervene to help the sovereign State of 
Rhode Island? Not to give it money but to give it the line of credit it 
needed as a sovereign State, pledging its revenues in order to redeem 
those bonds, as it finally did with the guarantees that we structured.

  That was not necessary for Congress to do. It was intended in the 
Federal Board Act that such would be ultimately the lender of last 
resort--but only in one case where it exercised that judgment, and that 
was in Charlie Keating's cheating activities.
  According to the Constitution of the United States, we have the right 
to insist on a full accounting of these operations. Article 1, section 
9 states:

       No money shall be drawn from the Treasury, but in 
     Consequence of Appropriations made by Law; and a regular 
     Statement and Account of the Receipts and Expenditures of all 
     public Money shall be published from time to time.

  Now, my colleagues, that is the Constitution; that is the fundamental 
law. That is the prime oath of office we take when we are sworn in to 
uphold and defend and protect the Constitution against all enemies, 
foreign and domestic. Have we done that? You answer that question.
  The Federal Reserve does not use appropriated funds and has the right 
to order unlimited amounts of U.S. currency and coins from the 
Treasury.
  In fact, look into your pockets, dig into your pockets and pick out 
the dollar note or the $5 or $10 note. What do you see? ``Federal 
Reserve note.'' It used to be ``U.S. Treasury Note.'' But that is 
another story. The point I am making right now is it is the Federal 
Reserve that has the money printing presses, not the Congress, not the 
politicians, as they have argued.
  The Fed has bought over $330 billion in Government securities from 
which it earns interest. All income in excess of expenses is returned 
to the Treasury and thus is supposed to reduce the Federal deficit. 
However, the Federal Reserve does not have the right to enter into 
these foreign currency swaps, loans and lines of credit, without giving 
a full and a prompt accounting to the Congress. The Constitution, in 
section 8, gives the Congress the right to coin money, but I do not 
believe that legislation gives the Federal Reserve the right to make 
loans and grant credit lines to foreign countries without complete and 
timely accounting to the House and to the Senate Banking Committees, 
which have oversight authority.
  I asked Federal Reserve Chairman Alan Greenspan on April 21,

       What is your basis for your entry into the foreign exchange 
     markets and your ability to grant loans without 
     congressionally authorized funds? What is the legislative 
     basis and the constitutional basis?

  I am still waiting for a reply.
  I urge the Federal Reserve not to play games and to respond quickly. 
I anticipate that the Fed will deny that its $3 billion line of credit 
to a foreign country and past exchanges of U.S. dollars for Mexican 
pesos, that were expected to decline, have anything to do with loans. 
But we know better. Clearly, taxpayer funds were and still are at great 
risk.
  It is essential that the Congress and the American public have 
complete accountability for the use of their tax dollars. Extending 
lines of credit to foreign governments and diving headlong into foreign 
waters in order to shore up a country's sagging currency could prove 
risky to the American taxpayer. The Congress has a right to know 
whether our central bank is putting taxpayer moneys into jeopardy. For 
this reason I am proposing to modify the reporting requirements of the 
Full Employment and Balanced Growth Act of 1978, also known as the 
Humphrey-Hawkins Act, which requires the Federal Reserve Chairman to 
report to the House and Senate Banking Committees twice a year about 
the domestic economy.
  The Congress needs a full accounting of the Federal Reserve's and the 
Treasury's international transactions. My legislation will require both 
the Federal Reserve and the Treasury Chairmen to report during the 
semiannual Humphrey-Hawkins hearings about these transactions and about 
how the two agencies coordinate their foreign currency policies.
  I have invited Treasury Secretary Lloyd Bentsen and Federal Reserve 
Chairman Alan Greenspan to appear before the House Banking Committee on 
May 18 to discuss their agencies' recent foreign exchange activities. I 
also plan to ask them for suggestions for improving their 
accountability to the Congress and the American public about these 
activities. Unfortunately, it is currently very difficult to get a 
complete accounting of the Federal Reserve foreign exchange activities.
  The FED persists in refusing to release in a timely manner the 
complete minutes of its Federal Open Market Committee [FOMC] meetings, 
the next one being held May 17. During this decisionmaking committee's 
meeting, the FED's SWAP fund activities are discussed. Unfortunately, 
only an incomplete summary of the meeting with no attribution of 
individual members' views are publicly released within 5 or 6 weeks.
  I ask you, my colleagues, is this our constitutional democracy, or is 
it a warmed-over feudal kingdom in which we have the all-powerful and 
unaccountable master of all, the Federal Reserve Board, saying, ``We 
don't have to tell you anything. We don't have to report to you. We 
don't have to account to you,'' meaning the American people. ``We are 
so independent that we are independent of the Government and the 
Constitution.''

                              {time}  1250

  The GAO is not allowed to examine transactions of the Federal Reserve 
for or with a foreign central bank.
  Now I brought this out 3 years ago, when nobody was paying any 
attention to BNL, and I was trying to get information from the Federal 
Reserve Board about these foreign banking activities, and they said, 
``We can't tell you. First,'' they said, ``the Attorney General has 
entrusted us not to answer you. Secondly, we can't tell you because 
this has to do with our very, very critical and protected relationships 
with these entities that are really central bank, our government's 
own.''
  Most, if not all, of the Foreign banks doing business in the United 
States of any consequence are really government owned by those 
countries' government. BNL was Italian, government owned.
  Now, they would not give us even elementary information on that 
basis. They will not even tell the Congress whether or not, through the 
central bank of Iraq, in New York, in a corresponding bank, old Saddam 
Hussein himself has not squirreled some funds there protected by the 
secrecy that is involved. I ask, ``You think that's not possible?'' Let 
me say it is not only most possible, but it is very possible.
  During this decision making committee's meetings the Fed's swap fund 
activities are discussed, as I said, but remember they call it the open 
market committee because it is secret. They meet behind closed doors, 
and they are saying that they are above the law.
  Now the Congress created the Fed. The Fed did not come heaven sent as 
in the words of Old John Adams referring to George Washington. I say to 
my colleagues, ``If you think that there wasn't bitter acrimony between 
our leaders then and that modern-day acrimony is only modern day, well 
you ought to read what old John Adams thought of General George 
Washington.''
  That tall Virginian, who thinks he is like the ancient Hebrew Jews, 
selected by their height and not their ability, and who considers 
himself heaven sent, booted, spurred, and ready to ride on the hapless 
backs of mankind; that is what John Adams thought of George Washington.
  Now that is what the Federal Reserve Board thinks, that it is heaven 
sent, not created by Congress, booted, spurred, and ready to ride on 
the hapless backs of American citizens. Therefore, until we have 
complete disclosure in a timely fashion of the open market committee--
  Incidentally, the way it operates, it has the power to determine, as 
former Secretary of HUD, Jack Kemp, used to say, the existence or 
disappearance of any given administration. The British used to have a 
similar system, and it was the Chancellor of the Exchequer who, by the 
same manipulations, could determine whether a particular government 
endured or did not be controlling the price for what they called the 
gills over there or the treasuries over there.
  Well, it is true today in America. Do not think the Congress is doing 
this, my colleagues. If the people were to know this, would they not 
rise in arms angrily and demanding that there be accountability? Oh, I 
think so. I think inevitably, it will happen unfortunately. It will 
come about in a time of pressure, and distress and crisis, and we 
cannot do our good thinking.
  Mr. Speaker, this is why I have been anticipating for more than 25 
years and trying to erect our safeguards in protecting this national 
interest and, above all, the safety and soundness. But that is just one 
person's attempt. I would like the GAO to investigate the mechanism for 
intervening used by the Federal Reserve and the U.S. Treasury that 
involves release of exploitable inside information to some people. More 
information, not less, about intervention by governments and foreign 
exchange markets significantly aids policymakers.
  According to Kathryn M. Dominguez and Jeffrey A. Frankel in their new 
book, ``Does Foreign Exchange Intervention Work?,'' U.S. intervention 
has a greater impact when the Federal Reserve ``lets the market know it 
is intervening.'' Their research showed that the ``official 
announcements regarding exchange rate policy have far more impact than 
intervention that is quietly disseminated.'' They add, ``By 
preannouncing the limits, policymakers can get speculators working for 
them rather than against them.''
  Equally important in supporting the need for information and 
accountability is the need to transmit information about interventions 
to everyone at the same time. The attempts at secrecy--secret 
government has brought about the sad and dreary days that we are going 
through, and always that would be the case. My answer to those that 
have made request to have closed-door meetings and all this:
  ``Well, wait a while. If what you're espousing is so good, then we 
ought to brag about it. We ought to shout it from the rooftops instead 
of hiding behind closed doors and windows. Now why would you want to 
hide it if it's good?''
  That is my simple question.
  We now live in a global economy with global financial markets and 
instant information in which now this tremendous overbill I have spoken 
to my colleagues about, and I will not go into it this morning, 
endangers like never before, since before 1929, not only the United 
States stability, but worldwide. Now it is essential that we start 
here, that the reporting requirements of the Federal Reserve and the 
Treasury be brought up to date to reflect all their international 
currency operations that may one day not only put taxpayers' funds in 
jeopardy, but bring about a collapse around our ears.
  Will this all end up in, like I consider most of our mundane 
activities, and again, using the Latin and the old ascetic philosophers 
and teachers:

  Vanitas, vanitatum. Vanity, vanity, all is vanity.
  But worse than that, Mr. Speaker, it is reflected in what Shakespeare 
said in his famous play of Antony and Cleopatra, and he has Brutus 
saying these words:

       Antony, you have been a boggler ever, and, when a nation 
     becomes arrogant, and smug, and complacent, and actually 
     indecent in its own dirt, it then becomes a laugh-at to the 
     world, strutting and prancing to the jest and the laugh of 
     all.

  I would hate to say that the history will write that those of us 
inheritors of the greatest democratic and freedom of environment ever 
would have traded our inheritance for a mess of potage.

         House of Representatives, Committee on Banking, Finance 
           and Urban Affairs,
                                      Washington, DC, May 6, 1994.
     Hon. Alan Greenspan,
     Chairman, Board of Governors of the Federal Reserve System, 
         Washington, DC
       Dear Chairman Greenspan: The Committee on Banking, Finance 
     and Urban Affairs will hold a hearing to discuss how the 
     Administration's exchange rate policy affects monetary 
     policy, and the adequacy of Congressional reporting on the 
     exchange rate policy on May 18, 1994, at 10:00 a.m., in Room 
     2128, Rayburn House Office Building. You are invited to 
     testify at the hearing.


                     Goals of Exchange Rate Policy

       The Federal Reserve, at the request of the Treasury 
     Department, recently intervened in the foreign exchange 
     markets to support the dollar versus the yen and the deutsche 
     mark. The Committee is interested in learn more about how the 
     Administration's exchange rate affects the conduct of 
     monetary policy. Accordingly, please describe in your 
     testimony how the Administration's exchange rate policy 
     affects the conduct of monetary policy, and whether or not 
     the policy exchange rate policy will compel the Federal 
     Reserve to alter the course of its monetary policy.


             Reporting to Congress on Exchange Rate Policy

       International trade and investment are now vital to the 
     health of the U.S. economy. Consequently, the exchange rate 
     of the dollar has become an increasingly important factor in 
     setting and conducting monetary and fiscal policy.
       Given the implications of the exchange rate, I am concerned 
     that the Congress receives insufficient and untimely 
     reporting on the Administration's exchange rate policy, and I 
     have directed my staff to develop legislation that would 
     require the Federal Reserve to report additional information 
     on how exchange rates affect monetary policy and other 
     economic variables.
       Attached, please find a summary of the proposed legislative 
     changes. I would appreciate receiving your comments on the 
     proposed changes in its testimony.
       Thank you for your time and consideration of these 
     important issues. The Committee looks forward to your 
     testimony.
           Sincerely,
                                                Henry B. Gonzalez,
                                                         Chairman.
         House of Representatives, Committee on Banking, Finance 
           and Urban Affairs,
                                      Washington, DC, May 6, 1994.
     Hon. Lloyd Bentsen,
     Secretary of the Treasury,
     Washington, DC.
       Dear Secretary Bentsen: The Committee on Banking, Finance 
     and Urban Affairs will hold a hearing to discuss the 
     Administration's exchange rate policy and the adequacy of 
     Congressional reporting on the exchange rate policy on May 
     18, 1994, at 10:00 a.m., in Room 2128, Rayburn House Office 
     Building. You are invited to testify at the hearing.


                     goals of exchange rate policy

       The Treasury Department recently ordered several rounds of 
     foreign exchange intervention apparently aimed at supporting 
     the dollar versus the yen and the deutsche mark. The 
     Committee would like to learn more about the Administration's 
     exchange rate policy, including the reason(s) for the recent 
     interventions. Accordingly, please describe the goals of the 
     Administration's exchange rate policy and the success, to 
     date, in achieving those goals.


             reporting to congress on exchange rate policy

       International trade and investment are now vital to the 
     health of the U.S. economy. Consequently, the exchange rate 
     of the dollar has become an increasingly important factor in 
     setting and conducting monetary and fiscal policy.
       Given the policy implications of the exchange rate, I am 
     concerned that the Congress receives insufficient and 
     untimely reporting on the Administration's exchange rate 
     policy, and I have directed my staff to develop legislation 
     that would require the Treasury Department and the Federal 
     Reserve to report semi-annually on the Administration's 
     exchange rate policy.
       Attached, please find a summary of the proposed legislative 
     changes. I would appreciate receiving your comments on the 
     proposed changes in your testimony.
       Thank you for your time and consideration of those 
     important issues. The Committee looks forward to your 
     testimony.
           Sincerely,
                                                Henry B. Gonzalez,
                                                         Chairman.

             Outline of Exchange Rate Policy Reporting Act


            i. amendments applicable to the federal reserve

       A. The Humphrey-Hawkins monetary policy reporting 
     requirements are amended to require the Federal Reserve to 
     report information on how the conduct of monetary policy 
     affects the exchange rate of the dollar, and how the exchange 
     rate impacts domestic interest rates, employment, inflation, 
     wages, and economic growth, the current account, and the 
     capital and financial account of the United States;
       B. The Chairman of the Federal Reserve Board is required to 
     appear, simultaneously with the Secretary of the Treasury, 
     and report on the expanded Humphrey-Hawkins requirements.
       C. The Chairman shall describe all actions taken to adjust 
     or stabilize the exchange rate of the dollar, and how those 
     transactions impact monetary policy.
       D. The Chairman's report shall contain information on 
     currency swap agreements, changes in inventories of 
     currencies, foreign loans and lines of credit, from or to 
     foreign entities, detailing the names of the foreign entities 
     and all conditions of the swap agreements and currency 
     transactions, and the reasons for, and benefits of, such 
     transactions.
       E. In formulating the semi-annual report to Congress, the 
     Chairman shall consult on exchange rates with groups 
     representing labor, agriculture, consumers, manufacturing, 
     and services.


          ii. amendments applicable to the treasury department

       A. The Treasury Secretary shall make semi-annual appearance 
     before the House and Senate Banking Committee's 
     simultaneously with the Federal Reserve Board Chairman to 
     report on exchange rate policy. The report shall contain:
       1. objectives and plans--
       A. the development of a flexible target zone for the 
     exchange rate of the dollar against our major trading 
     partners.
       B. a statement of the Administration's objections and plans 
     with respect to the exchange rate of the dollar for the 
     calendar year during which the report is transmitted.
       C. a status report on the success in achieving the 
     objectives and plans with respect to the exchange rate of the 
     dollar since the last reporting date.
       D. as a part of the mid-year report, a statement of the 
     Administration's objectives and plans with respect to the 
     exchange rate of the dollar for the calendar year following 
     the year in which the report is submitted.
       2. the relationship of the aforesaid objectives and plans 
     to the short-term goals set forth in the most recent Economic 
     Report of the President pursuant to section 1022(a)(2)(A) of 
     Title 15 and to any short-term goals approved by the 
     Congress.
       3. an analysis of the factors that determine the exchange 
     rate of the dollar and an analysis of the impact of the 
     exchange rate of the dollar on--
       A. employment, production, inflation, wages, and economic 
     growth, the current account and the capital and financial 
     account of the United States;
       B. the international competitive performance of United 
     States industries and the external indebtedness of the United 
     States;
       4. an analysis of the relationship between the dollar and 
     the currencies of our major trading partners.
       5. a description of all actions taken to adjust or 
     stabilize the exchange rate of the dollar;
       6. the results of negotiations conducted pursuant to 
     section 3004 of the Omnibus Trade and Competitiveness Act of 
     1988;
       7. key issues in the United States policies arising from 
     the most recent consultation requested by the International 
     Monetary Fund under article IV of the Fund's Articles of 
     Agreement.
       B. Consultations
       1. In formulating the semi-annual report to the Congress 
     the Secretary shall consult with the Chairman of the Federal 
     Reserve, the Chairman of the Council of Economic Advisors, 
     the Chairman of the National Economic Council, the Secretary 
     of Labor, the Secretary of Commerce, and the United States 
     Trade Representative to consider exchange rate developments 
     in light of trends in monetary policy, fiscal policy, 
     consumer prices, labor costs, the trade balance, and 
     productivity.
       2. In formulating semi-annual report to Congress, the 
     Secretary shall consult on exchange rates with groups 
     representing labor, agriculture, manufacturing, and services.
       C. Not labor than 24 hours after intervening, and/or 
     directing a Federal Reserve intervention in the currency 
     markets, the Secretary of the Treasury, shall make a report 
     to the Congress describing the factors prompting the 
     intervention, the objectives of the intervention, and the 
     success in achieving the intervention.
       D. The Secretary's report shall contain information on 
     currency swap agreements, changes in inventories of 
     currencies, foreign loans and lines of credit, from or to 
     foreign entities, detailing the names of the foreign entities 
     and all conditions of the swap agreements and currency 
     transactions, and the reasons for, and benefits of, such 
     transactions.
       E. Nothing in this section shall be interpreted to require 
     that the objectives and plans with respect to exchange rate 
     policy disclosed in the reports be achieved if the Secretary 
     determines that they cannot or should not be achieved because 
     of changing conditions: Provided, That in the subsequent 
     reports to the aforesaid Committees of the Congress pursuant 
     to this section, the Secretary shall include an explanation 
     of the reasons for any revisions to or deviations from such 
     objectives and plans.

                          ____________________