[Congressional Record Volume 140, Number 65 (Monday, May 23, 1994)]
[House]
[Page H]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


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

 
                         FEDERAL RESERVE BOARD

  The SPEAKER pro tempore. Under the Speaker's announced policy of 
February 11, 1994, the gentleman from Texas [Mr. Gonzalez] is 
recognized for 60 minutes as a designee of the majority leader.
  Mr. GONZALEZ. Mr. Speaker, I have been speaking out consistently and 
as a result of the commitment I made when I was elected chairman of the 
U.S. House of Representatives Committee on Banking, Finance and Urban 
Affairs to report. Hitherto, committees acting within their own 
parochial ambit seldom, unless a bill comes up in general debate in the 
House from that particular committee, seldom shares with others outside 
of the committee. But I think that the issues are so grave and have 
been and are so ominous, of such ominous shape as far as the future 
financial and economic independence of the American people is 
concerned, that I have spoken.
  Today, I would like to bring out and enlarge on what I have lately 
been relating as far as the Federal Reserve Board is concerned. There 
is no question that upon assuming a top decisionmaking position at this 
Federal Reserve, which is throughout the world the equivalent of a 
central bank or a country central bank, there is no question when that 
person reaches that position he is entrusted with decisions that 
literally involve trillions of dollars each year, and the fate or level 
thereof of such things as standard of living, unemployment, and, 
frankly, at this point, whether or not after the Continental Congresses 
and the Confederation following the initial period of nationhood and 
finally the resolution with the first Constitutional Congress and 
resolution by the executive branch and the appointment of Alexander 
Hamilton as the Secretary of the Treasury, the true independence and 
ability to regain fiscal integrity and thereby insure the independence 
from England or Great Britain.
  Today, fate shows that time has turned full scope and our country, 
believe it or not, despite the boasts of it being the prime, No. 1, 
strongest, richest, only world power, despite that we are confronted 
with a real crisis as to the worth or integrity of our currency; that 
is, our money.
  That is what has been worrying me more than anything else, and 
particularly since 1979. I have spoken on that by way of parentheses, 
and it is all in the record; it is not what I am saying now in looking 
backward. But speaking from that record and as I have reviewed it, I 
wish I had been wrong and I wished then that I would be wrong; 
unfortunately that is not the case. Those decisions that will decide 
whether or not our currency will be debauched and therefore, for the 
first time in our history, obligated to pay a huge overhang of debt in 
somebody else's currency.
  As I have said, in my special orders, to my colleagues repeatedly, we 
are the only country in history that has ever been permitted or allowed 
or has indeed paid its debt in its own currency.
  Now, that may not sound like much, yet it means everything because it 
means that should our hallmark of value, the dollar, be replaced--in 
effect, it has, to a certain extent--but fully replaced as the 
international currency reserve unit, you can say that we have returned 
to the mercantile system where our country was dependent upon the 
European powers and Great Britain as well and never have removed itself 
from that umbilical cord, from the mother country, and that fate shows 
a little over 200 year after the beginning of this form of Government 
the Constitution, which again by way of parentheses, that we have been 
in trouble in the last three decades in direct proportion as we have 
strayed from that basic and fundamental law, the Constitution.

                              {time}  1420

  So, we have created this organism, organization, with powers that at 
no time has any country given such an organization, believe it or not, 
except if we were to go back to the beginning, when the Constitution 
was adopted and in a world in which every country was governed either 
by kings saying that their sovereignty; that is, their source of power, 
came from God or potentates, czars or oligarchs, selected and full of 
people that claim to be above mankind, and, unless they were chosen, 
why there would be no answer to the problems confronting the country's 
end. The Founding Fathers of our country had the temerity in that world 
in which every country was governed by divine right to say, 
``nonsense,'' and in the first preamble, the first words of the 
Constitution, they spelled it out.
  Mr. Speaker, they said, ``All sovereign power. It doesn't come from a 
king. It comes from the people.'' So, the first words in our preamble 
are: We, the people of the United States. Not the Congress, not the 
President, not anybody else, but: We, the people, in order to form a 
more perfect Union, secure the blessings, et cetera, et cetera.
  So, we must come back to that, because lately to say that, up until 
recently, why one would have been considered a Communist if they said 
that the source of power came from the people and not from these big, 
big oligarchical, powerful plutocrats who know what is best for us, so 
they say.
  So, here we are in this select group, and these persons are privy to 
advanced knowledge of the orders to the New York Federal Reserve Bank, 
the trading desk they call it, that buys or sells billions of dollars 
of securities each day. More importantly, U.S. treasuries. To have 
knowledge of the extension of billions of dollars in loans and credits, 
also to foreign countries, and to supervisors' knowledge of the 
operations of most of the country's commercial banks, and all of the 
foreign banks operating in the United States is quite some power one 
could say. This inside information becomes extremely valuable to 
outside individuals who could become instant millionaires if they get 
the information ahead of the crowd.
  Now, the Federal Reserve Board says it is above question. It must be 
so completely independent that it is independent of the Government and 
the people. Therefore, it must claim infallibility, that they would 
never do anything wrong, but, as I have pointed out since 1979, 1980 
and 1981--in fact, before that time, I have given cases in the record 
where through leaks, indeed special interests, two powerful banks in 
New York made millions of dollars by being able to get those leaks, and 
after 4 years of insisting and being refused any kind of answers to the 
questions I raised then, finally the chairman said:
  ``Well, tell you what we'll do.'' This is the chairman of our 
committee then. ``Why don't you, Chairman of the Federal Reserve, why 
don't you answer this once and for all.''
  He said, ``All right,'' and they appointed an in-House committee to 
investigate.
  One year later I had to insist to find out what had become of the 
investigation. Well, let me tell my colleagues what happened even 
though it is repetition because I put this in the Record. We went and 
hired a lawyer, who also happened to be a lawyer for one of the two 
banks that profited improperly, and finally they came out with a report 
and said, ``No, it wasn't a leak. It was an accidental mistake that was 
made by a clerk,'' and they let it go at that.
  I was incensed. I placed all of that, including what they call a 
record, in the Record. Any of my colleagues interested in finding out 
about the infallibility of the Federal Reserve, I welcome them asking 
where in the Record they can find it and read it for themselves.
  So, I am sure that today I am not shocked, but I think my colleagues 
would be, as I learned that some top Federal Reserve decisionmakers, 
soon after leaving the central bank, and I mean almost immediately 
after leaving the central bank, immediately sold a private client their 
access to privileged information for big bucks. I was appalled at the 
March 24, 1994, Wall Street Journal report that Wayne Angell, who had 
just left his position as one of the seven Federal Reserve Governors, 
was selling interest-rate information at $100 per minute. That is 
interest-rate information for those gambling in the futures market on 
international interest rates and currency rates. A Wall Street stock 
analyst said she talked to Mr. Angell for 13 minutes and received a 
bill for $1,300. Shortly thereafter, on March 28, my staff contacted 
Mr. Angell. He made no secret and offered no apologies for the 
exorbitant fees he charges. He justified the fees saying they are 
necessary if he is to discourage clients from asking for his insight on 
Federal Reserve monetary policies.

  Now, this is certainly disingenuous and, to me, most disturbing, and 
I think any reasonable minded person would tend to agree with me. The 
former vice chairman of the Federal Reserve's Board of Governors, David 
Mullins, resigned in the middle of his term on February 14, 1994, 2 
years before he would have ended on January 31, 1996, to join several 
former Salomon Brothers, Inc., executives in a new hedge fund venture. 
Now we had hearings on these so-called hedge funds; very complicated, 
yes, sometimes deliberately made to seem complicated, but, to me, 
simply put, they are gambling. It is just a giant casino that just 
happens to be out of Las Vegas.

                              {time}  1430

  What troubles me is that banks are going into that, and I would not 
care if the banks are not insured, but they are. They are guaranteed by 
the taxpayers' dollars. And I think that it would be not only an act of 
misfeasance but a criminal action on my part were I not speak out.
  But here we are. Mr. Mullins is going to get together with these 
traders, and here are these people who are with the firm, Salomon 
Brothers, that got into that huge scandal in 1991, when it was charged 
with making $13.5 billion in false bids. On what? On Treasury auctions, 
between August 1989 and May 1991, causing the firm to exceed the 35 
percent limitation on bidding. Salomon paid $290 million in fines, but 
it took the Treasury for $13.5 billion.
  What a slap on the wrist. And to compound matters, the fellow who was 
supposed to have straightened it out for Salomon quit last year, and 
where did he go? This is the fellow who was doing the investigation for 
the SEC in this multi-billion-dollar scam on the Treasury. It was all 
done by these great panjandrums of finance, security bankers. And what 
happened? He quit the SEC last year, and he went and got a fat high-
paying job. With whom? With Salomon Brothers, the firm that he was 
supposed to have investigated and gave the report about that led to the 
$290 million fine after the $13.5 billion robbery.
  These are sad and distressing days we live in today. My colleagues 
may think, ``Oh, well, it's not our doing. That's the Fed.''
  I ask my colleagues, do you think your citizens and mine believe that 
we have no responsibility? Well, sooner or later the day or reckoning 
will be here, for I say to all of you, ``Beware of the patient when the 
patient loses his or her patience.''
  Now, Governor Mullins quit the Fed, and he now works with the former 
vice president of the firm. And this one happened to be one of those 
who was responsible for all the fixed income trading. This particular 
trader that Mr. Mullins has gone in with was charged in the 1991 
scandal without admitting or denying the charges of the Securities and 
Exchange Commission. But he also accepted the SEC sanctions of paying a 
fine, and he temporarily quit work in the securities industry. He quit 
temporarily.
  Mr. Mullins' resignation reduced the Board of Governors to five 
members, the minimum number needed for crucial votes for direct loans 
during emergencies under the Federal Reserve Act of 1913.
  All this makes one wonder if the Fed is attracting decisionmakers who 
just view their position as a way station to lucrative private jobs. 
The public interest is apparently not of paramount concern.
  But should we be surprised at that? What is the Fed? It is not a 
Government agency elected by the people or even elected by the 
Congress, which is elected by the people. They are a private 
corporation, of which the stockholders are all banks, not the 
Government. So, who do you think bankers sitting as directors are going 
to be thinking when it comes to a push and shove? The people or their 
pocketbooks and the interests of the banking community? Well, I say if 
you believe it would be the people, then I am sure you believe in the 
tooth fairy.
  I believe that former employees should be barred from using any 
inside information that they have or from discussing any confidential 
information, just as other Government agencies require of their former 
employees who possess exploitable or sensitive information.
  The Federal Reserve has taken some steps to tighten security and to 
ensure that all Americans receive information about monetary policy 
changes at the same time, that is, to a certain extent. Only after 
pressure and after being pushed and shoved and kicked and shouted at, 
and just resisting every inch of the way, finally they said, ``Well, we 
will announce as soon as we can when we have made a decision on 
interest rates.'' But they will not divulge their deliberations, they 
will not say who was for what on that board. Why? What are the reasons? 
If that is not lack of accountability, I just do not know the 
definition of the word.

  But even this brief experience with what I call the ``American 
Glasnost'' by the Federal Reserve has proved to be a success. Even this 
brief excursion into open fresh air has proven to be a success. Many 
people familiar with financial markets, including professional traders, 
have said that these announcements have allowed the markets to more 
rapidly discount new information, reduce the volatility, and 
substantially eliminate the leaks that frequently occurred when the 
Federal Reserve kept the formal announcements secret for 5 or 6 weeks, 
and that was except when they wanted to leak it to their favorite 
media, and they kept it for 5 or 6 weeks at least.
  I have introduced what is known as H.R. 28, the Federal Reserve 
System Accountability Act of 1993. I introduced it last year. Members 
might recall the strident rejections at our committee's hearing on 
October 19 last year of my proposal for promptly accouncing monetary 
policy changes. The Fed's Governors and the presidents appeared before 
the House committee to discuss the provisions of H.R. 28 this last 
October. Chairman Greenspan immediately gave us a warning, and I am 
going to quote to my colleagues what he said:

       Immediate disclosure of the directive would change the 
     nature of monetary policymaking and it would not be a change 
     for the better.

  Clearly he was wrong, and it must be admitted today. The markets are 
better served by the new disclosure policy, and monetary policy is 
transmitted more effectively. I do not like the policy itself, but the 
prompt announcement makes sense and works. But the Fed trembles at the 
thought of it. And it did shake and tremble at the thought of this 
simple reform.
  Former chairman and vice president of the Board of Governors, David 
W. Mullins, Jr., submitted testimony in which he said the following:

       Before I arrived in Washington, I taught and conducted 
     research in financial economics for over a decade. Many of my 
     professional writings explored the estimable ability of 
     financial market participants to absorb and interpret 
     information and then reflect that knowledge in market 
     prices.* * * From my experience, the monetary policy process 
     is open where it counts. Our actions matter, not our 
     deliberations. It is our actions that affect interest rates 
     and the economy, and those actions are made public 
     immediately. Changes in reserve conditions are transparent to 
     the market by 11:30 a.m. on the day of the change in the open 
     forum of the financial markets * * * the current process 
     works well. * * *

                              {time}  1440

  That is what he said in October.
  Yes, he could claim his years of academia, of study, essays and 
research, and the credentials of a fine university at which he taught. 
But when it came to advising Congress that in this case the financial 
markets work best with less information, he was not only wrong, he was 
dead wrong.
  Former Governor Wayne Angell, to whom I referred awhile ago, and who 
is now selling his advice at that enormous price per minute, stated, 
``on balance the markets and the public are better served by more 
detail and more openness with delayed publication.'' That is what he 
said in October. Naturally, the Federal opposed, and it still does, any 
greater detail or specificity, even with the delayed publication of the 
so-called Open Market Committee.
  Mr. Angell must believe early information has value and importance. 
He certainly must believe that early information is valuable, because 
why is he selling it at such a dear price now?
  Governor Edward W. Kelley, Jr., said, ``I believe that the existent 
procedure for release of FOMC decisions are responsible to the public's 
right to be informed.''
  Last October he said this. He was wrong. He was wrong to testify that 
the public's right to know monetary policy changes can be properly 
delayed. How could delayed information be responsive to anyone's needs?
  I could go on and quote, and I will, other Governors who still are 
there, like John P. LaWare. He was wrong. And they all missed the 
point. I could go on and include Governor Lawrence B. Lindsey, who is 
still there. He was wrong in the statement he gave our committee.
  So how could anyone argue then that more information, promptly given, 
provides no help to the public or the people? All I can say is that 
George Orwell would never have imagined such a fantastic and 
contradictory world.
  I could go on and mention the other Governor, Susan M. Phillips. She 
was wrong. One of the presidents of the Federal Reserve Bank of 
Philadelphia, Edward J. Boehne, the same thing, he was wrong.
  So, therefore, as we push on, every inch of the way screaming and 
resisting the Federal Reserve, we must pursue this, for the sake of 
just the elementary well-being of the people of this country.
  All I can say is that if we depend on these judgments that I have 
just placed in the Record, we are lost as far as this country is 
concerned and its future independence and freedom. And without economic 
and financial freedom, what do you have? Yes, we will be, as somebody 
said, either equally all free or equally all slaves, as it would be 
interpreted by some of the philosophy and belief and actions of these 
reflected in the minds of these powerful people who have been arrogated 
to a power never before given in any country.
  It is claimed that we in the United States have relative freedom and 
autonomy for our central bank. But in other countries, even in the 
industrialized world, no people have tolerated that grant of power over 
their destiny and well-being, from Germany, to Great Britain, to Japan. 
So that even through we can say that by speaking out consistently, and 
it has taken several years, I introduced H.R. 28 last year. But for the 
32 years that I have been on the Committee on Banking, Finance and 
Urban Affairs, since I came here, I have introduced and been 
introducing similar legislation. Of course, it was considered so 
ridiculous in the beginning or initial period that it was not until we 
entered this period here of the late eighties and nineties and began to 
face the inevitable that questions then began to be asked by others, 
questions of a similar nature, not with the insistence with which I 
have conducted it on a sustained basis for these 32 years. But being on 
the committee and having the facts and the statistics and using my own 
ability to reason and conclude and figure out, I felt apprehension, 
even in the seventies, and spoke out.

  There was not much awareness of the crisis in 1968, when the so-
called Bretton Woods arrangement was obviously not holding up. But the 
people were not informed, any more than they are being informed today 
as to the extent, the nature, the depth, the gravity of this problem 
and danger confronting us.
  I have always said that should we wait until a crisis is upon us, 
then we are reacting to crisis, and the best thinking is not there. I 
have always subscribed to the belief of anticipatory action and 
thought, anticipating what from deductions and calculations presently 
made one can conclude that certain things and events will happen. 
Therefore, as long as the danger is not only there, but clear and 
limpidly so, then one must prepare. But that is not what has prevailed 
in our country for the last 35 or 40 years, perhaps a little bit longer 
than that, going back to President Franklin Roosevelt.
  Still, in my book, that does not excuse one speaking forth, if 
charged with knowledge. The French philosopher and writer and in fact 
hero, because he died in the First World War in the Battle of the 
Marne, Charles Peguy, said, ``He who knows the truth and shouts it not 
from the rooftop is an accomplice with cheats and liars and frauds.'' 
And I must speak out and say we are in mortal danger of our losing our 
financial and economic well-being, faced by the loss of integrity, 
stability, and safety and soundness in our financial banking and other 
institutional life in the country.

                          ____________________