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fomc | 1,995 | We would come in front of the Exchange Stabilization Fund, not the Treasury. | 16 |
fomc | 1,995 | It is the Exchange Stabilization Fund. The point, you know, is that this is not an either/or situation. For example, the Treasury can validly pay us off with a note. Treasury obligations are on our balance sheet right now. If they took us out with a special Treasury security, we would put it on our balance sheet. | 69 |
fomc | 1,995 | There are two issues about whether we are dealing with the Treasury itself or with the ESF. | 19 |
fomc | 1,995 | Let me put it this way: If the ESF loses its whole balance sheet, we have more problems than we know! | 25 |
fomc | 1,995 | But 80 percent of their balance sheet is going to be pesos! | 14 |
fomc | 1,995 | The Treasury is very conscious of the fact that if they make this arrangement--that is the reason for the warehousing of up to $20 billion--they would need to allow for the fact that we had advanced $4, $5, or $6 billion. Therefore, we would have to have a contingent claim on them for that $6 billion--if that's the amo... | 127 |
fomc | 1,995 | Could I just formally respond to Governor Lindsey? There is a question here of whether or not the amount the United States Treasury gives us has to be appropriated funds, which I think is really where our examination of the issue has to be. In examining the take-out, we ought to make certain that we talk to them with r... | 82 |
fomc | 1,995 | Mr. Chairman, the Exchange Stabilization Fund does not have appropriated funds. | 16 |
fomc | 1,995 | Are we going to be getting a take-out from the Exchange Stabilization Fund? | 16 |
fomc | 1,995 | I think that is what is in the program. | 10 |
fomc | 1,995 | Okay. | 2 |
fomc | 1,995 | That is not the same as the Treasury. | 9 |
fomc | 1,995 | Even if we didn't, the precedent in the 1960s--I think there was a question then about whether the Treasury could engage in foreign exchange operations outside of the ESF--was the use of Roosa bonds in the 1960s. The Treasury floated Roosa bonds to obtain foreign currencies and used some of those currencies to take us ... | 101 |
fomc | 1,995 | Since we have double collateral, if you will excuse the word, the interesting question is: If there is a default, do we go first to the oil proceeds or to the Treasury? | 37 |
fomc | 1,995 | I would suggest, though maybe it's not the right thing to suggest, that we would go first to the Treasury. If the Treasury went to the oil collateral, if I may use that word, that source of repayment would go first to us. | 49 |
fomc | 1,995 | When you say "go first to the Treasury," the Treasury then is providing the backing, not the ESF? | 23 |
fomc | 1,995 | I said the "Treasury;" I meant the ESF. | 13 |
fomc | 1,995 | Okay. | 2 |
fomc | 1,995 | President Boehne. | 5 |
fomc | 1,995 | I will forego my question. | 7 |
fomc | 1,995 | If I may, Mr. Chairman, I just want to make sure I have the numbers straight. We now have a $3 billion swap line. SEVERAL. $4-1/2 billion. | 42 |
fomc | 1,995 | Right, $4-1/2 billion. I want to make sure I understand. Is the $20 billion package on top of the $18 billion total package we have now? | 37 |
fomc | 1,995 | No. | 2 |
fomc | 1,995 | Then it is the same thing? | 7 |
fomc | 1,995 | It subsumes the $9 billion that we have now. The $18 billion is comprised of $9 billion from the United States, $1 billion from the Canadians, $5 billion from the BIS, and $3 billion from the commercial banks. | 50 |
fomc | 1,995 | Let me just cut through and ask what our exposure would be including the amount of warehousing we would be contemplating in the total package? | 27 |
fomc | 1,995 | I don't consider warehousing to be exposure, but--. | 12 |
fomc | 1,995 | Okay. | 2 |
fomc | 1,995 | The figures would be what the Mexicans draw from us and our warehousing with the Treasury. | 19 |
fomc | 1,995 | It's $6 billion for the Mexicans with a take-out from the Treasury. | 16 |
fomc | 1,995 | Yes, with a take-out from the Treasury. Essentially it's $26 billion with the Exchange Stabilization Fund. | 22 |
fomc | 1,995 | $26 billion? | 4 |
fomc | 1,995 | The $6 billion would be part of the $20 billion, so it would be-- | 18 |
fomc | 1,995 | It's twenty minus six, is it not? | 9 |
fomc | 1,995 | Six billion dollars would be dedicated to taking us out. The twenty includes both what we advance in the short run and what the ESF advances. The maximum exposure to Mexico of the ESF and us that is now contemplated, matches, so to speak, the $20 billion of the warehousing. | 60 |
fomc | 1,995 | Is the new amount from the IMF in addition to the stand-by arrangement they have already--the $7-3/4 billion? | 27 |
fomc | 1,995 | They haven't approved that stand-by arrangement for Mexico yet; they will consider that tomorrow. | 17 |
fomc | 1,995 | If they do, is it in lieu of that $7-3/4 billion or in addition to it? | 23 |
fomc | 1,995 | The two are added together. So it will now be $17-3/4 billion rather than $7-3/4 billion. | 28 |
fomc | 1,995 | Let me just ask: How big is the ESF right now in terms of its assets? | 19 |
fomc | 1,995 | Roughly $25 billion in liquid assets, of which $5 billion is in dollars and $20 billion is in foreign currencies. It also has about $9 billion of SDRs, but most of that is matched on the liability side of the balance sheet by liabilities to the Federal Reserve. | 59 |
fomc | 1,995 | How have the markets reacted to this announcement today? | 10 |
fomc | 1,995 | Ted, how did the markets close? | 8 |
fomc | 1,995 | Quite positively. The last time I looked the peso was about 5.70, having weakened earlier to a new low of 6.55. | 30 |
fomc | 1,995 | When I spoke to Governor Mancera he said it got as low as 6.70 to 6.80. | 24 |
fomc | 1,995 | It closed today at around 5.70 to 5.80 and their stock market was up about 9 percent. It's very positive after yesterday. I caution that the peso level is only at Friday's close. | 44 |
fomc | 1,995 | What happened in Brazil and Argentina? | 7 |
fomc | 1,995 | I don't have the closing levels in front of me. The stock market in Brazil was up strongly. | 20 |
fomc | 1,995 | What about the U.S. market? | 8 |
fomc | 1,995 | In the U.S. the Dow was up about 14 and the dollar was up about 2 pfennigs. | 24 |
fomc | 1,995 | The bond market was up 25/32. | 10 |
fomc | 1,995 | The long bond closed at 7.69 percent. | 11 |
fomc | 1,995 | Any further questions for Ted? I'm sorry; go ahead, Cathy. | 14 |
fomc | 1,995 | The amount of funding that was initially suggested for commercial banks and investment banks was a small amount of the original $18 billion, $3 billion or so. My understanding of that from banks in our own District was that it was being made contingent on the $40 billion. Now that the $40 billion is gone, is there any ... | 81 |
fomc | 1,995 | I don't think it was ever contingent on the $40 billion because it was put into the market before the $40 billion in guarantees was announced. But it was contingent on the BIS facility that existed. It was to be paid out pari passu with the BIS part of the package. The truth of the matter is, speaking frankly, the bank... | 78 |
fomc | 1,995 | Right. | 2 |
fomc | 1,995 | My guess is that once this situation stabilizes, there will be some effort to suggest that the banks could be a little more supportive. One of the dominant themes on Capitol Hill has been the question of who peddled this paper, and although a lot of it is not on the balance sheets of the banks, they did a lot of peddli... | 72 |
fomc | 1,995 | Is the way to add up these numbers 20 plus 15 plus 10 plus 1? | 20 |
fomc | 1,995 | Twenty plus-- | 3 |
fomc | 1,995 | If the IMF is preparing an expanded support package totaling $15 billion, should that be $17 billion? | 21 |
fomc | 1,995 | $17 billion! | 4 |
fomc | 1,995 | Twenty, 17, 10, and 1? | 12 |
fomc | 1,995 | Yes. Well, 2 would be the last number. | 12 |
fomc | 1,995 | Oh yes, I forgot that. Okay, a total of $49 billion. | 16 |
fomc | 1,995 | Someone will throw in another billion. | 7 |
fomc | 1,995 | A billion here, a billion there. | 8 |
fomc | 1,995 | We usually manage to double count one of these things. | 11 |
fomc | 1,995 | Yes. | 2 |
fomc | 1,995 | The amount now contemplated, whether it is $49 billion or $50 billion, is now some $10 billion over the $40 billion that was in the proposed legislation, which seemed like a big number to begin with. | 44 |
fomc | 1,995 | On the other hand, the number before was the $40 billion plus the $7 billion plus the $5 billion. So, the two totals are broadly commensurate. | 35 |
fomc | 1,995 | Okay. | 2 |
fomc | 1,995 | Ted, credibility has been a problem all along. I want to ask two questions. First, you said that Governor Mancera wants $2 billion so he can pad his balance sheet before it is released tomorrow. Now, one of the things that would be most useful in the long term would be for the Bank of Mexico to provide an honest descri... | 90 |
fomc | 1,995 | Absolutely! | 2 |
fomc | 1,995 | After we pad his balance sheet tomorrow is this going to stop? | 13 |
fomc | 1,995 | Governor Mancera is very conscious now that he has a commitment to announce his reserves after the end of every month. My understanding from the people I have talked to is that his intention would be to say, as he did the last time the Bank announced its reserves--and this is a small but significant step forward--that ... | 82 |
fomc | 1,995 | But they are not releasing the Bank of Mexico's balance sheets? | 13 |
fomc | 1,995 | Not yet, but I think that will be part of the Treasury-- | 14 |
fomc | 1,995 | I think we will find, after Governor Mancera reported all his money supply and reserve numbers in the Wall Street Journal today, that it is going be difficult for them to say the drawings do not exist. | 41 |
fomc | 1,995 | That is right. | 4 |
fomc | 1,995 | They existed--and that was the problem! | 9 |
fomc | 1,995 | Could I clarify something? What Governor Mancera said just a couple of hours ago was that, if before the end of the day today he is informed that we the United States are willing to make these $2 billion available, he would envision when he announces his reserve figures to say that they have X, say $2.4 to $2.8 billion... | 125 |
fomc | 1,995 | I think the major concern--and that is only partly addressed by this since we tentatively plan, at the moment anyhow, to lock up funds--is that announcing he has $2.4 billion in reserves, given the kind of problems he is up against, does make him look rather naked. | 60 |
fomc | 1,995 | My second question has to do with our credibility. I don't know what questions to ask, and I hope you will help me out in that regard. I have this document in front of me, which includes a page entitled "What is the Exchange Stabilization Fund?" The document came from Treasury International Affairs. I gather it was wri... | 207 |
fomc | 1,995 | The language before the dots is-- | 7 |
fomc | 1,995 | I am talking about the third paragraph. I will go to the second paragraph in a second. I'm sorry. I am running a little out of order. It is saying the ESF has done all these things. | 43 |
fomc | 1,995 | The legislation governing the objectives of the ESF was changed, I think for the most part in the mid- to late-1970s. The changes included the language that the government of the United States and the International Monetary Fund have the obligation to promote orderly exchange rate arrangements leading to a stable syste... | 84 |
fomc | 1,995 | So that has happened before? | 6 |
fomc | 1,995 | Yes. They have made loans to or financial arrangements with at least 37 countries around the world over the last 50 years. | 26 |
fomc | 1,995 | I think we all will be asked questions about this. Can you read this paper and tell me that there is not something missing that I should know about, meaning that this is not only the truth but the whole truth? | 44 |
fomc | 1,995 | I can only say that Treasury lawyers have looked into the question of whether these operations are legal under this broad authorization of what they can do and what the purpose is-- | 33 |
fomc | 1,995 | If I can help out? | 6 |
fomc | 1,995 | Yes. | 2 |
fomc | 1,995 | It's pretty clear that these ESF operations are authorized. I don't think there is a legal problem in terms of the authority. The statute is very broadly worded in terms of words like "credit"--it has covered things like the gold swaps--and it confers broad authority. Counsel at the White House called the Treasury's Ge... | 102 |
fomc | 1,995 | Is there anything missing on this page? | 8 |
fomc | 1,995 | No, there is not. If you look at the last paragraph, for example, that is part of the statute. | 24 |
fomc | 1,995 | About notifying Congress in writing in advance? | 8 |
fomc | 1,995 | The statute says that with the permission of the President they can make loans. | 15 |
fomc | 1,995 | In the penultimate paragraph, what is the identified source of repayment? | 14 |
fomc | 1,995 | The Mexicans historically have been very sensitive about that. Now the whole world is informed that there are oil payments as an assured method of repayment. The Mexicans, for reasons with which you would be very familiar given Mexican history, have been rather sensitive about that being quite so open as it is now. | 61 |
fomc | 1,995 | Does this legislation contemplate taking 100 percent of a country's oil payments for four years to insure repayment? | 20 |
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