Source stringclasses 1
value | Date int64 1.98k 2.01k | Text stringlengths 2 27.1k | Token_count int64 1 5.57k |
|---|---|---|---|
fomc | 1,995 | My reading of the statute is that the funds of the ESF are to be used by the Secretary of the Treasury with the approval of the President. The ESF is under the exclusive control of the Secretary of the Treasury. | 45 |
fomc | 1,995 | It is relevant to your question as to where the legal authorities lie. | 14 |
fomc | 1,995 | I endorse what you are saying. We should get as much as we can in terms of assuring our sources of repayment. I would think in a narrow legal sense the credit we are looking at probably is the ESF and not the Treasury. Otherwise, we get into questions, if it is a guaranteed obligation, about our extending credit to the... | 70 |
fomc | 1,995 | I agree, but either way, whether narrowly or broadly construed, the commitment would come from the Secretary of the Treasury because he has the authority, subject to the approval of the President, to do this. | 41 |
fomc | 1,995 | There is no mention in here of the oil payments that you described yesterday. | 15 |
fomc | 1,995 | My way of thinking about this, but that again is something one could debate, is that in some sense our backstop is the Treasury. How they backstop themselves is their business. | 37 |
fomc | 1,995 | So, if this oil payments backup got set up, that is not really an issue for us? | 20 |
fomc | 1,995 | Right. The Treasury has said they will ask for oil to back up their loans to Mexico, which would include the operations that they may take over from us. | 32 |
fomc | 1,995 | But under this arrangement that becomes their business and not ours, and the swap is in effect an unsecured swap with a put to the Treasury or a put to the ESF? | 35 |
fomc | 1,995 | You could do it either way, but I think it is probably cleaner to do it as I explained. If they take over our obligation to the Bank of Mexico, the funds from the oil facility would first come to them. | 45 |
fomc | 1,995 | As fiscal agent it will be my problem to deal with their oil accounts and all that, but that is changing our participation entirely to that of just being the Treasury's agent. The New York Fed will still be used, but it is not the System's exposure. | 53 |
fomc | 1,995 | The oil proceeds would flow from that account. | 9 |
fomc | 1,995 | Under that arrangement, what is locked up at the New York Fed now in effect gets released? So, for us that is not an issue? | 29 |
fomc | 1,995 | Let me be clear. Nothing can be locked up in the New York Fed. The only point at which something can be taken from the New York Fed is--. Oh, do you mean locked up in the sense we were discussing last night? | 49 |
fomc | 1,995 | Yes. | 2 |
fomc | 1,995 | I think Tom meant locked up oil money. | 9 |
fomc | 1,995 | Yes. | 2 |
fomc | 1,995 | Okay. Let me ask a couple of quick questions about the warehousing. | 15 |
fomc | 1,995 | There are a couple of points I did want to make going through this. | 15 |
fomc | 1,995 | Are we still on the first item? I'm sorry. I was out of the room when you started. | 21 |
fomc | 1,995 | He was on background from last night. | 8 |
fomc | 1,995 | Yes, on general questions and now we are going to go to the specifics. Mr. Chairman, do you want me to say something about the specifics for both or for each separately? | 37 |
fomc | 1,995 | Go ahead on both. | 5 |
fomc | 1,995 | I just want to amplify a few points on the swap arrangement first. Basically, the first point on the piece of paper I handed out says that we would have essentially two swap arrangements: One would be the regular $3 billion swap arrangement; the other would be a special swap arrangement. The Bank of Mexico would be abl... | 496 |
fomc | 1,995 | What is the size of the ESF? | 9 |
fomc | 1,995 | The usable funds in the ESF today, counting the foreign exchange as usable, amount to roughly $25 billion. | 23 |
fomc | 1,995 | Can you say how it is broken down? | 9 |
fomc | 1,995 | About $5 billion is invested in Treasury securities and the balance is roughly equally divided between marks and yen. I think they have slightly more yen than marks. | 31 |
fomc | 1,995 | Thank you. | 3 |
fomc | 1,995 | Is any of it obligated in any way beyond what we are talking about with Mexico? | 17 |
fomc | 1,995 | It is obligated only in the sense that they have one other swap arrangement with the Bundesbank. So, in some sense if they wanted to advance dollars to the Bundesbank they would use some of the dollars for that. But nothing is obligated in a current commitment. One of the Treasury's concerns is that this operation does... | 107 |
fomc | 1,995 | Vice Chairman. | 3 |
fomc | 1,995 | Ted, I have two questions. One has a preamble. Since we are an independent central bank dealing with the Executive Branch and because we are a bank, the analogy would be that we are a bank dealing with an affiliated company--something that we take very seriously as regards the way it is done by the banks we supervise. ... | 95 |
fomc | 1,995 | Certainly. We intend to have a letter from the Secretary of the Treasury to the Chairman of the Federal Reserve on that matter. | 25 |
fomc | 1,995 | The second question: If a bank says to a customer, we are making a line of credit available to you but as soon as you repay any of it, it goes away, that discourages the customer from repaying until the last minute. So I am not sure that that particular piece described on the first page, paragraph 4, is really in our i... | 82 |
fomc | 1,995 | There are two sides to that. Peter and I discussed it this morning. I decided that between the two choices the Committee would be happier saying that once the drawings got repaid the total would get subtracted and a separate decision would have to be made about putting the funds out again. If I may piggyback a bit on t... | 134 |
fomc | 1,995 | But in fact we have always structured each rollover as subject to mutual consent. | 15 |
fomc | 1,995 | We are committing ourselves in advance to provide that consent. | 11 |
fomc | 1,995 | But to whom are we committing? Are we committing to the Treasury or we are committing to the Mexicans? I think the whole thing does hang on the difference there. We can agree with the Treasury and within the Committee as to what the rules are, but vis-a-vis our relations with the Mexicans and how we rewrite the swap ag... | 71 |
fomc | 1,995 | The rewrite probably would say the maturity is three months with renewal-- | 13 |
fomc | 1,995 | Three months and we have to agree to renew. So, that may be the discipline which squares the circle. | 22 |
fomc | 1,995 | However, I doubt that we'd want to get to the situation where we use it. What we would end up doing is using moral suasion at the end of three months rather than whatever the alternative is-- | 41 |
fomc | 1,995 | "Immoral" suasion! | 7 |
fomc | 1,995 | --actually calling the loan. | 6 |
fomc | 1,995 | May I just ask a question on mechanics? They have the right to draw for a period of up to 12 months. So let's say they draw on January 30th of 1996; that drawing could be outstanding three months and could be rolled over three times. Is the agreement with the Treasury that no matter how new the drawing is we get taken ... | 100 |
fomc | 1,995 | The latter. | 3 |
fomc | 1,995 | Then in this hypothetical case we would not be repaid until January 31, 1997? | 20 |
fomc | 1,995 | By 1997, yes. | 7 |
fomc | 1,995 | Two years from now. | 5 |
fomc | 1,995 | Okay. Second question: On the monitoring side, going back to March of last year--I think it was March when we first expanded the swap line under the NAFTA-related agreement--at that time Mexico had something like $25 billion in reserves and everybody was pretty satisfied that repayment was not an issue. From March to D... | 91 |
fomc | 1,995 | That is the other side of the monitoring question. | 10 |
fomc | 1,995 | Yes. | 2 |
fomc | 1,995 | Would we have a firmer handle on this than the Treasury or the IMF? | 16 |
fomc | 1,995 | We would have a responsibility, and the Treasury certainly feels it has a responsibility, because the Treasury will have a lot vested in the success of this. That is what I meant when I said in answer to Governor Lindsey's question that I think we have no choice but to be involved in the monitoring--whether our role is... | 149 |
fomc | 1,995 | And one final question on the $40 billion in guarantees: I think I understood how those would be used--essentially to lower the interest rate on new tesobono securities by replacing the Mexican guarantee with that of the U.S. government. | 49 |
fomc | 1,995 | It would not have been linked. Basically what would have happened under the previous arrangement is that the Bank of Mexico would have gone out with the U.S. government guarantee and raised, for example, $5 billion in the international capital markets. They would have used those funds to meet the pressure on the exchan... | 98 |
fomc | 1,995 | Right. Are these drawings basically going to be used in the same way except that the international capital markets do not get involved? They just use the cash? | 31 |
fomc | 1,995 | As long as they do not use the guarantee with it. What would be necessary for the Treasury, and I would assume we'd be somewhat involved in an advisory role, would be to require the Mexicans, as under the contemplated legislation, to come up with a financial plan. That financial plan presumably would say: These are the... | 156 |
fomc | 1,995 | I can add something that at least supports what Ted is saying, and I am being quite candid about some of the problems that Mexico has going forward, which you are both talking about. Mexico has an independent central bank. But, going back to the issue Ted raised about Bill's views and mine on the need to get their mark... | 199 |
fomc | 1,995 | You mentioned the financial plan. I think you tied it into the legislation. Is that going to be tied into this agreement, too? | 27 |
fomc | 1,995 | Yes. The Treasury will insist that in order to implement this program, an agreement or a series of agreements will have to be worked out with the Mexicans about what they are going to do. And I am using the term "financial plan" to refer to that. The Ttreasury needs to think about these things before it dribbles $14 bi... | 76 |
fomc | 1,995 | Can I ask for a short recess? I have to consult with our utility hitter. | 17 |
fomc | 1,995 | On another aspect of this problem! | 7 |
fomc | 1,995 | This will take just a couple of minutes. | 9 |
fomc | 1,995 | Mr. Truman. | 4 |
fomc | 1,995 | My expectation is that we will get a commitment from the Secretary of the Treasury to do what is required to take this loan off our books after 12 months. Exactly how we are going to specify that, I do not know. It is my personal view that having a 52-page legal document between the Federal Reserve and the Treasury on ... | 77 |
fomc | 1,995 | I'm not sure how many pages are appropriate. Tom Melzer used the term "put," but is the Treasury committing to a legal obligation to take us out of this? You used the word "take-out" and I know what a take-out is. Is this a take-out or is it not a take-out? | 64 |
fomc | 1,995 | Yes, it is a take-out. The issue of precisely how it will be constructed is something which our General Counsel and their General Counsel will work on. The principle of the agreement is that it is a take-out. Basically, the agreement is that the Federal Reserve has zero credit risk and zero market risk; that is the pri... | 220 |
fomc | 1,995 | I would like to make one other point on this. President Melzer asked a question earlier about the oil mechanism. Even I, with a reputation for exuberance, if that's the right word, would not go so far as to give up the current arrangement that lies behind our $4-1/2 billion swap line before being satisfied that we have... | 92 |
fomc | 1,995 | President Moskow. | 4 |
fomc | 1,995 | Ted, I would like to ask you to sort of step back from this for a second. We have talked a lot about the details, and the Chairman has just said that the principle involved is for the Federal Reserve to have zero credit risk and zero market risk. What are the risks to the Federal Reserve here? What kind of scenario cou... | 78 |
fomc | 1,995 | My answer to that question would be that the problems we are likely to have with this are least likely to be financial. It seems to me that there are essentially two risks. One lies with what might go on in Mexico if the overall program does not work. If the Mexican situation spirals out of control and we are involved-... | 197 |
fomc | 1,995 | Ted, can I go a little further than that? The response to your question might be that, as best we can judge, the risks from this new agreement to the Federal Reserve from a financial point of view are reduced because of the take-out issue. The real risks relate to the issue that Larry Lindsey is raising and implicitly ... | 415 |
fomc | 1,995 | That was earlier; yesterday he spoke with Ted. | 10 |
fomc | 1,995 | So I heard what was involved, but I was asked only after the fact--as if it could be pulled back after a public release. That is the sole official request that I have gotten from anybody. I have heard a lot of rumors about all of this. Ted tells me about the different initiatives that are going on and what pieces of pa... | 167 |
fomc | 1,995 | Even though you have not been asked, it has been reported that you have agreed! | 17 |
fomc | 1,995 | Agreed to what? | 5 |
fomc | 1,995 | To umpire zipswitch. [Laughter] | 11 |
fomc | 1,995 | Terrific! In answer to your question, Ted is exactly right. The risk is not a financial risk that we have here, but we do have a risk. The risk is essentially political--not in the sense that we are subjected to political pressures. It is in the fact that people are trying to get us to do things that I suspect cannot p... | 158 |
fomc | 1,995 | If I could just follow up on this for a second. I do not know the game of zipswitch. I think there clearly is a very significant risk. The other risk that Ted mentioned first is that the overall program in Mexico will not work. | 51 |
fomc | 1,995 | If it does not work, that is a major economic problem. | 13 |
fomc | 1,995 | Of course. | 3 |
fomc | 1,995 | But it does not create more credit risk for us. | 11 |
fomc | 1,995 | No, but it has the potential for drawing us in further down the road. | 16 |
fomc | 1,995 | It could conceivably. That would be related to how we position ourselves with respect to this monitoring issue. The crucial thing that we have to do, no matter how we get involved in this, is to review Mexico's forthcoming plan. We were fully aware when this began that we were dealing with a serious problem. We knew th... | 228 |
fomc | 1,995 | Have no standing or are from a different political party. | 11 |
fomc | 1,995 | It is not a question of their standing or even being in a different political party; As a consequence of that, what happened was that the Congressional leadership and the Secretary of the Treasury told me I had to go up to the Hill and talk about this. Was I going to say that I had to remain Simon-pure and not be invol... | 485 |
fomc | 1,995 | Mr. Chairman, I think you have described the situation very accurately. The credit risk to the Federal Reserve, as I view it, has been removed. Certainly, Virgil and our other legal colleagues can draft the documentation to be sure that it is removed and stays removed. I believe very firmly that you had no choice but t... | 178 |
fomc | 1,995 | Before we get there, I think Tom Melzer still has a few questions. | 16 |
fomc | 1,995 | Let me just ask a couple of quick questions on the financial side because I think it could be helpful as you work out these arrangements to be sure we all understand. As I understand it, of the $20 billion in the warehouse facility, the most that would be advanced to the Mexicans would be $14 billion. Then $6 billion-- | 69 |
fomc | 1,995 | That is one way of thinking about it. | 9 |
fomc | 1,995 | And $6 billion would be retained in the ESF. When it is time to take our swap out, we in effect warehouse that remaining $6 billion and pay ourselves off. | 36 |
fomc | 1,995 | That would be one scenario. | 6 |
fomc | 1,995 | It seems to me that we have to have some requirement that the ESF retains good collateral of $6 billion so that transaction can get effected and we can get taken out. I am sure you will take care of that. I don't know whether it makes any sense to establish any expectations. I know we have annual reviews by this Commit... | 196 |
fomc | 1,995 | That is one of the reasons why we are bringing it up. | 13 |
fomc | 1,995 | Can I just say something quickly? If they want to do that, they have to get authorization for new appropriated funds from the Congress. That has nothing to do with us. | 36 |
fomc | 1,995 | I was talking about expectations with respect to our willingness to warehouse anything beyond this $20 billion. | 19 |
fomc | 1,995 | You mean in the future? | 6 |
fomc | 1,995 | I see what you are saying; the ESF will have used up its assets. | 17 |
fomc | 1,995 | Yes, there would be nothing left. | 8 |
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.