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fomc | 1,995 | Well, following up on yesterday's discussion, I want to add two separate thoughts. One, as far as warehousing pesos, we have said no. I think that is important to the consistency of this operation. As a technical matter, the ESF will still have some limited capacity to acquire foreign exchange, more yen or DM, in the m... | 373 |
fomc | 1,995 | One last question and then I have just a couple of comments that I would like to make. This has to with the excess collateral in terms of backing U.S. currency. I recall that when we warehoused a lot of foreign currencies for the ESF before, we got into a problem with fairly narrow excess collateral. If we do this $20 ... | 151 |
fomc | 1,995 | I do not know what the current situation is. My guess is--and it is a wild guess--that if the warehousing got up to $20 billion, we could be in that situation. | 40 |
fomc | 1,995 | I don't think we have an obligation to announce to Congress. We have an obligation in the sense that Governor Partee once said to Congress that we would use our foreign exchange holdings last to collateralize our Federal Reserve notes. | 44 |
fomc | 1,995 | If we get to that point, we can always do an off-market swap with the Japanese or the Germans. | 22 |
fomc | 1,995 | I am just trying to understand all the implications of this. | 12 |
fomc | 1,995 | There are balance sheets implications. The last time it happened was five years ago, as I recall. | 20 |
fomc | 1,995 | Yes, it was a seasonal thing, but there was a time of the year when we got very close to exhausting our regular note collateral--I think when we had $9 billion of warehousing on our balance sheet. | 44 |
fomc | 1,995 | What we do not know is whether the scale of things has increased enough since then combined with the fact that reserve requirements have come down so that we would have the room. | 34 |
fomc | 1,995 | Brian Madigan said he thought the projection of free collateral was $8 to $10 billion over some indefinite period. | 23 |
fomc | 1,995 | In terms of my own feelings about this, Alan, while I respect your point of view on this, I really have not heard anyone make a case that what we are facing here is some sort of financial crisis in the United States that has systemic implications. I think what we are really talking about--when I say we, I am saying tha... | 350 |
fomc | 1,995 | I seriously doubt that, Tom. I am really sensitive to the political system in this society. The dangers politically at this stage and for the foreseeable future are not to the Federal Reserve but to the Treasury. The Treasury, for political reasons, is caught up in a lot of different things. Republicans up on the Hill ... | 203 |
fomc | 1,995 | I am not surprised to hear you say that because obviously you would not have gotten involved if-- | 19 |
fomc | 1,995 | I would not have gotten involved, exactly. | 9 |
fomc | 1,995 | I understand that and I think people can disagree on these issues. I just felt it was important to say that. | 23 |
fomc | 1,995 | I was just trying to say that, if I can possibly talk you out of this concern, it is one that I think frankly is really de minimis. If you want something to worry about, I have lots of things that I would like you to worry about. This is not one of them. President Hoenig. | 65 |
fomc | 1,995 | Mr. Chairman, I think my questions have been answered. I have a general understanding of what is proposed here. There are two aspects to this: One is to contain the immediate crisis and the other is to assure that it does not recur in two years or whenever. I am very unclear on the process to assure that it does not re... | 76 |
fomc | 1,995 | You bet! | 3 |
fomc | 1,995 | In another sense, I think it is unprecedented for us to come into this process with so much uncertainty. I will defer to your judgment. This is important and must go forward. But I have a lot of sympathy for what Tom is saying. I am uneasy about it. If it weren't for the magnitude of this crisis and your involvement, I... | 83 |
fomc | 1,995 | I am going to be the last to deny that there are problems here. Let me say this, however. Those who believed that the Mexican situation was containable, short of something of this nature, did not have their fingers on the structure of things as they were falling apart. One can argue quite credibly that the fault is the... | 257 |
fomc | 1,995 | I would like to endorse almost everything the Chairman said and then ask two questions, one of which I think you can't answer. And when you say you can't answer it, I am going to have a very specific request, because I do agree with the Chairman. First of all, I do not have any problem with what is on these two pieces ... | 151 |
fomc | 1,995 | We are going to do that. | 7 |
fomc | 1,995 | This is not a hostile question. I can imagine your coming back with a list that I would be perfectly happy with and not have the slightest bit of a problem. I can also imagine a list that I would not be happy with. | 47 |
fomc | 1,995 | We can have a situation where we are required to oversee and enforce and where there is no way for us to know what it is. | 27 |
fomc | 1,995 | Exactly. I would like to attach some urgency to that request. Several of us were buzzing informally about that around here. The longer it reverberates in the press--that the Federal Reserve will do this or will do that--the worse it gets, if we do not want to do it. If we do want to do it, that is all perfectly fine. | 75 |
fomc | 1,995 | Let's find out what this is. | 7 |
fomc | 1,995 | Let me give you a two-part answer. | 9 |
fomc | 1,995 | As a sidebar to the question, I would like to know, and hopefully this could be known soon, when it says, "the Federal Reserve will monitor" whether that means the Board of Governors of the Federal Reserve, the Chairman of the Board of Governors of the Federal Reserve, the Federal Open Market Committee, or maybe some o... | 75 |
fomc | 1,995 | I think there are a lot of things we are going to have to decide today or very quickly. | 20 |
fomc | 1,995 | I really would like to know the answer to that. | 11 |
fomc | 1,995 | The first thing I am planning to do after this meeting is to address that question by talking to the Treasury and others involved in the process. | 28 |
fomc | 1,995 | The second question--I guess this really is a question--is just for information since we are at least peripherally involved as an agent. Do we have any understanding of what the putative strategy is? Presumably, when someone goes into a deal like this, there is some notion of a strategy. Of the $20 billion, $6 billion ... | 160 |
fomc | 1,995 | On the legislative plan, there was still the question of what the Mexicans were going to do with the money. I think this is a question similar to the one that President Minehan was asking earlier: How are they going to use the money, whether the funds are short-term or longer-term funds? That is where it seems to me th... | 156 |
fomc | 1,995 | That only bothers us directly if we pledge to monitor something so that something does not happen. But the Treasury is lending money, and for political reasons we are not. We have no responsibility for monitoring; I don't think we have any business with it. I can name eighty-seven things in U.S. trade policies that I t... | 83 |
fomc | 1,995 | Well, I can name eighty-seven, too. | 10 |
fomc | 1,995 | You can name more than eighty-seven! | 8 |
fomc | 1,995 | Still, even if those trade policies go wrong, when they do go wrong, their impact on the Federal Reserve or the financial system is relatively minor. If Mexico has economic and financial policies that go wrong for the next millenium, or more immediately for the next two or three years, I think that will have a major im... | 142 |
fomc | 1,995 | I agree on your first question that I do not have a answer. I will tell you one small element of this, however--or give you my position. With respect to the International Monetary Fund, we are in a somewhat similar position, though on a slightly different scale, as we are relative to the Congress. The International Mon... | 579 |
fomc | 1,995 | Governor Lindsey. | 3 |
fomc | 1,995 | Mr. Chairman, I had two points: the big "P" political point and the small "p" political point. First, I find myself uncomfortable disagreeing with you. Pat Buchanan had a good quote in The Wall Street Journal the other day. He was talking about the collapse of the Mexican bailout bill. He said that this was the first c... | 128 |
fomc | 1,995 | Pat Buchanan is with the governing elite, too. What is he doing? | 15 |
fomc | 1,995 | Well, he is running against us. Our political risk is not going to come from the chairmen and the senior members of the current majority. Our political risk comes because people in the country are damn mad. A bill that they opposed was defeated, and now the governing elite, to use Pat Buchanan's phrase, has said in eff... | 124 |
fomc | 1,995 | They will if it works and they won't if it does not work. | 14 |
fomc | 1,995 | If it does not work we--and I cannot imagine a greater governing elite group than this institution--and all governing elites are going to be under a microscope. I very much agree with the point made earlier that because we are so obviously an elite, if the elites come under question, then our functions are going to be ... | 262 |
fomc | 1,995 | I disagree with that. I think our bargaining power has not changed. I think our bargaining power is essentially our ability to say that we will not engage in, we will not accept, the monitoring of x, y, or z. We have a veto on what it is. These documents are basically facilitating the United States Treasury and the Uni... | 363 |
fomc | 1,995 | Mr. Chairman, just very briefly, I certainly respect your point of view, and I think I understand fully the very difficult position that you and the System have been put in. I take that in consideration. But I still just have to make a brief comment in general support of Tom Melzer's position and Larry Lindsey's positi... | 215 |
fomc | 1,995 | I'm not sure I think it is as remote as I think it is either! [Laughter] Governor Phillips. | 23 |
fomc | 1,995 | My question is not meant to reflect on these two propositions because I actually agree with them. But what would happen if the Fed did not go along either with the increase to $6 billion or the warehousing? Is the Treasury contemplating covering it and going elsewhere for their warehousing? What would be the mechanics? | 62 |
fomc | 1,995 | As a technical matter, if we declined to do the warehousing or pulled out of the existing swap agreement, leaving aside for the moment just hypothetically that we are already involved for $4.5 billion, the Treasury presumably would do it all alone! Our collateral would be improved by this arrangement, but let's suppose... | 351 |
fomc | 1,995 | Okay, Jerry Jordan, go ahead. | 8 |
fomc | 1,995 | Last March when we entered into the agreement on the swaps, part of that agreement was that there would be a three-country consultation process quarterly and so on. I certainly do not feel that I have had either the quantity or the quality of information as feedback from whatever consultation was taking place to alert ... | 191 |
fomc | 1,995 | I'm sorry you have not had sufficient information. I think this upsets everybody; everybody feels that way. We have made a very serious effort at the staff level to improve the reports. You may not read the weekly reports from the Federal Reserve Bank of New York but since shortly after last April, when this consultati... | 337 |
fomc | 1,995 | Okay, may I request the Vice Chairman to make individual motions. We need two votes. | 18 |
fomc | 1,995 | Mr. Chairman, I move that we approve the increase in the Federal Reserve swap arrangement with the Bank of Mexico as detailed in the document that Mr. Truman presented to the Committee. | 36 |
fomc | 1,995 | Is there a second? | 5 |
fomc | 1,995 | Second. | 2 |
fomc | 1,995 | We need a recorded vote. | 6 |
fomc | 1,995 | Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Blinder Yes President Hoenig Yes Governor Kelley Yes Governor LaWare May I ask a question? | 31 |
fomc | 1,995 | Why are we voting? Aren't we already committed to this program? This document says that we are committed to this program, and Mr. Camdessus says we are committed to this program and that we are going to do certain things. The vote is a kind of formality, isn't it? | 60 |
fomc | 1,995 | No, it's a legal requirement. | 7 |
fomc | 1,995 | If the Committee decides to keep the swap line at $4-1/2 billion, the Treasury understands that. The Chairman made it very clear in his conversation at the Treasury that we might stay at $4-1/2 billion. If the $4-1/2 billion is where the Committee wants to draw the line, that is where it can draw the line. | 76 |
fomc | 1,995 | Let me just say that when the issue was raised with me, I said that I did not have an FOMC vote and that I did not know how the FOMC was going to come out. I indicated that one possibility was that the FOMC would keep the swap line at $4-1/2 billion. I said I would request an increase, because I thought that was the ri... | 104 |
fomc | 1,995 | I will vote "yes," but only because we improve our credit position as a result of doing so. | 21 |
fomc | 1,995 | That is the reason why I said I would make the recommendation. | 13 |
fomc | 1,995 | Governor Lindsey I feel committed; I'm going to vote No. President Melzer No President Minehan Yes President Moskow Yes Governor Phillips Yes Governor Yellen Yes | 31 |
fomc | 1,995 | Can we get a second motion? | 7 |
fomc | 1,995 | Mr. Chairman, I further move that the Committee approve the expansion of the warehousing agreement to $20 billion as established and set forth on the second page of Mr. Truman's submission to the Committee. | 41 |
fomc | 1,995 | Do we have a second? | 6 |
fomc | 1,995 | Second. | 2 |
fomc | 1,995 | Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Blinder Yes President Hoenig Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey No President Melzer No President Minehan Yes President Moskow Yes Governor Phillips Yes Governor Yellen Yes | 48 |
fomc | 1,995 | When is our next meeting? | 6 |
fomc | 1,995 | March 28. | 4 |
fomc | 1,995 | Since the next meeting is such a long time from now, I think it would be worthwhile to have periodic telephone conferences on Mexico to keep everybody up to date as best we can. See you all next time. | 42 |
fomc | 1,995 | Would somebody like to move approval of the minutes? | 10 |
fomc | 1,995 | So move. | 3 |
fomc | 1,995 | Without objection. The Committee has received a memorandum on the delegation of responsibility for appeals of staff decisions to deny access to Committee records under the Freedom of Information Act. The need for this delegation stems from the vacancy that was created when David Mullins resigned from the FOMC. The reco... | 126 |
fomc | 1,995 | So move. | 3 |
fomc | 1,995 | Without objection. I turn to the Vice Chairman for a nomination to elect a Deputy General Counsel from the Federal Reserve Bank of New York. | 27 |
fomc | 1,995 | Thank you, Mr. Chairman. Ernie Patrikis, who has been serving in that position, has been elected with the approval of the Board of Governors to the position of First Vice President of the Federal Reserve Bank of New York, effective June 1. His successor as the General Counsel of the New York Bank and the person we reco... | 132 |
fomc | 1,995 | Would somebody like to move that nomination? | 8 |
fomc | 1,995 | Move it. | 3 |
fomc | 1,995 | Would somebody second it? | 5 |
fomc | 1,995 | Second. | 2 |
fomc | 1,995 | Without objection. Next we move to the election of an associate economist from the Federal Reserve Bank of Chicago. President Moskow, would you like to address that? | 32 |
fomc | 1,995 | Mr. Chairman, I would like to nominate William Curt Hunter as the associate economist representing Chicago. He is now Senior Vice President and Director of Research. | 30 |
fomc | 1,995 | Is there discussion? Would somebody like to move it? SEVERAL. So move. | 18 |
fomc | 1,995 | Moved and seconded and approved without objection. The next agenda item is a review of the Committee's Program for Security of FOMC Information. There are a number of items in the memorandum you received. I don't want to go over them necessarily. Does anybody have any questions with respect to them? I thought they were... | 153 |
fomc | 1,995 | Mr. Chairman, since it is proposed to increase the access to Class I from 4 to 7, that means the same number of people can have access to Class I and to Class II as you noted. It might be of some value, at least to us, if we could also move up by 3 the access to Class II. I don't know if there would be any problem with... | 93 |
fomc | 1,995 | The reason for the proposal to increase staff access to Class I is basically that Jerry Jordan and I think some others among you have raised questions about the current limit and have suggested moving it up from 4. The Secretariat, I assume in its exuberance, said "Well, 4 is an exotic number so why not try 7?" I wonde... | 111 |
fomc | 1,995 | No. | 2 |
fomc | 1,995 | President Jordan's,suggestion was to go from 4 to at least 6. | 17 |
fomc | 1,995 | How much higher do you want to go? | 9 |
fomc | 1,995 | I am not sure why it is helpful to have access to Class I and Class II differ. | 19 |
fomc | 1,995 | The basic presumption is that there are fewer people designated "top secret" than "secret." Now, whether that is a valid judgment--[Laughter] | 32 |
fomc | 1,995 | I think it would be desirable to allow a few more people to have access to less important information for the experience of reading it and understanding it. | 29 |
fomc | 1,995 | I think the issue here is basically not the Class II; it's the Class I. Since the proposal is to give all those who now have access to Class II access to Class I as well, is there any status to having Class I clearance? I don't know. Mr. Secretary, do you have any suggestions on this? I got away a very long punt! [Laug... | 77 |
fomc | 1,995 | I'm sorry I made my suggestion! | 7 |
fomc | 1,995 | When it comes to returning punts, I am no Brian Mitchell, I can tell you that! I would suggest that you let me poll the rest of the Committee to see whether people really want to move from 7 to 10 on access to the Greenbook. This is a pretty sensitive document; that is what we are talking about. I don't know if Mike ha... | 79 |
fomc | 1,995 | We are talking about Part I. | 7 |
fomc | 1,995 | Yes, Part I of the Greenbook. | 9 |
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