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Look who's talking, too.

For years, House Banking Chairman Henry Gonzalez has accused the Federal Reserve System of being, in effect, a secret government more elaborate than anything Oliver North could dream up. He's not far off. Although the Fed manages the nation's money supply and thus helps determine the costs of home loans, car loans, credit card rates, bonds, and every other type of debt, including the federal deficit (in other words, all economic activity in the country), the only information about the Fed's momentous decisions is issued in fuzzy summaries Gonzalez calls "boilerplate reports on the economy that anyone could copy out of government and newspaper reports."

So Gonzalez has set out to make the Fed videotape the meetings of the Federal Open Market Committee (FOMC), the Fed's most important policymaking body, and release transcripts of the meetings after 60 days. In fighting the reform, Fed Chairman Alan Greenspan and the Fed's governors repeated longstanding claims that no verbatim records are currently kept and that to release more than a cursory outline of a meeting's minutes might cause damaging financial speculation.

The first is a lie; the second, a bureaucratic argument meant more to protect the Fed's mystique than to serve the interest of good public policy.

At the end of 1992, Gonzalez wrote Greenspan and the FOMC members--seven of whom are appointed by the president and confirmed by Congress; the others are the presidents of the 12 regional Federal Reserve Banks who are chosen largely by commercial bankers--to ask whether they knew FOMC meetings are currently taped and transcribed for a permanent record. Thomas C. Melzer, president of the Federal Reserve Bank of St. Louis, wrote a typical response, clearly implying FOMC meetings are not recorded: "I would be strongly opposed to any literal record of FOMC deliberations."

At an October 19 Banking committee hearing, Greenspan acknowledged that FOMC meetings are tape recorded "to assist in the preparation of the minutes that are released to the public."

"Those tapes are then taped over so that no permanent record exists in that way?" asked Rep. Maurice Hinchey of New York. "Is that correct?"

"There is no electronic record, that is correct," Greenspan answered. "We obviously have rough notes." Here Hinchey committed a classic Washington blunder: The congressman was not well enough prepared to ask the right question. Because Greenspan, deep in written testimony submitted before the hearing, had noted that what he verbally called "rough notes" was actually "an unedited transcript... prepared from the tapes" that is "kept under lock and key by the FOMC secretariat"--verbatim FOMC transcripts which date back to 1976.

Bizarrely, Greenspan's written candor was not matched by his FOMC colleagues, who continued to maintain that there was no record. On October 15, four days prior to the hearing at which he and other FOMC members testified, Greenspan convened a conference call. The call, Greenspan acknowledges, was "mostly to inform the FOMC of the existence of these transcripts." (One of the call's participants noted, "AG (Alan Greenspan) not as confident as previously that Fed is not at risk. Fed vulnerable if mishandle transcript matter.") But even after being briefed en masse by Greenspan, who characterized the audiotaping as "common knowledge" around the Fed, FOMC members did not admit they knew about the recordkeeping.

"I have no personal knowledge of any records that others may have made at FOMC meetings," William McDonough, president of the New York Federal Reserve Bank, told the committee after Greenspan had told him about the taping. He went on to give disingenuous testimony about how he didn't realize that the green light under the Fed's board room microphones meant that a tape recorder was operating in the room next door--precisely what was happening.

The upshot? There is 17 years' worth of verbatim economic history that the Fed is trying to hide. But the FOMC revelations didn't make the evening news; the networks devoted no coverage to the fall banking hearings. Even The Washington Post, which put the transcript revelation on the front page of its business section, illustrated the story with a graphic depicting "A Fed Reading List," including its budget reviews and semiannual reports to Congress, as if the story were about how much information the Fed puts out, not what it has been withholding.

In November, a nervous Fed offered to edit the existing transcripts of past meetings and make them available--after they have aged five years. This means we will get to see 1988's records early next year. Sound like a great leap forward? It's not, because the Fed is currently debating whether to unplug the tape recorders altogether now that the word is out. So unless Gonzalez's bill becomes law, the Fed could unilaterally decide to stop recording the meetings. Its Nixonian response to the mere possibility of a little sunshine underscores just how much that sunshine is needed.
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Title Annotation:taping of Federal Reserve System meetings
Author:Greenblatt, Alan
Publication:Washington Monthly
Article Type:Cover Story
Date:Dec 1, 1993
Previous Article:Why Alan Greenspan should show you his hand.
Next Article:John Maynard Keynes, vol. 2, The Economist as Savior, 1920-1937.

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