FED RESERVE allows RED CHINA in SECRET MEETING barred to Congress

[pe...@thenavy.com]

Foreigners get to sit
in on secret Fed
rate talks

By Patrice Hill
THE WASHINGTON TIMES

he Federal Reserve Bank of Kansas
City has allowed 28
banking officials from China and the
formerly communist
countries of Eastern Europe to observe
critical meetings where
the bank made interest-rate decisions.
. . . . The Missouri bank is the same Fed
branch that invites
Fed watchers and reporters to hobnob each
summer with Fed
governors at an exclusive resort in
Jackson Hole, Wyo.
. . . . A spokesman said the breach of
the usually strict secrecy
surrounding rate decisions is part of a
program to show foreign
banking officials how a central bank
functions in a free society.
. . . . Many of the 11 other Fed regional
banks and the Fed's
headquarters in Washington regularly
employ financial scholars
and private economists to provide advice
and, in some cases,
sit in on meetings where Fed bank
presidents are prepped to
make rate decisions. But, unlike the
foreign visitors, they aren't
permitted to sit in on the banks' board
meetings, where votes
are taken.
. . . . These and other details of the
privileged few the Fed has
allowed to observe sensitive policy
discussions, including the
8-year-old daughter of a Fed staffer on
Take Our Daughters to
Work Day, were disclosed in an April 25
letter from Fed
Chairman Alan Greenspan to the House
banking committee.
. . . . "We find it troubling that where
the door is closed for
congressional oversight, many people who
are not even
employees of the Federal Reserve are
welcome," Reps. Henry
B. Gonzalez of Texas and Maurice D.
Hinchey of New York
said in releasing the letter Monday.
. . . . The two Democrats are frequent
critics of the Fed. Mr.
Gonzalez, a former chairman of the
banking committee who
loves to throw the spotlight on secretive
Fed practices, is
widely credited with pressuring the Fed
to release, with a
five-year delay, detailed minutes of the
Fed committee
meetings in Washington where the final
call on interest rates is
made every six weeks.
. . . . The two congressmen charge that
the visitors entertained
in the Fed's regional boardrooms get
inside information they
can use to become instant millionaires in
the financial markets.
Aides to the two Democrats acknowledge
they have no
knowledge of fraud or abuse in the Fed's
foreign-exchange and
visiting-scholars programs.
. . . . "Do I have access to information
I could use to harm the
system? The answer is no," said Steven
Smith, a finance
professor at Georgia State University who
has provided advice
to the Atlanta Fed bank's president and
sat in on his monetary
briefings the past five or six years.
. . . . Critics say Mr. Smith and a few
other consultants discuss
bank presidents' views on rates at those
meetings and are privy
to the options being considered in
Washington, but Mr. Smith
denies those charges.
. . . . "I don't think there is any kind
of information someone
can make money off of," he said, adding
that, like other
consultants, he has signed a
"confidentiality agreement" with the
Fed that prohibits him from making
private investments or
having conflicts of interest.
. . . . Barry Robinson, a spokesman for
the Kansas City bank,
dismissed charges that foreign visitors
could exploit what they
learn from sitting in on the bank board
meetings, where
directors vote every two weeks on the
level of interest rates
they recommend to the Fed in Washington.
. . . . "Among the fraternity of central
bankers there is a level of
trust and understanding about policy
matters," he said, so the
bank does not even ask the visitors to
sign confidentiality
agreements. "We assume they are
principled people or they
wouldn't be employed by a central bank."
. . . . The Kansas City bank believes
that the foreigners'
one-time experience of observing board
votes is "a classic
example of how we can demonstrate how
economic policy is
made in a free and democratic society,"
Mr. Robinson said.
"They hear the discussion and even hear
the vote being
counted."
. . . . But congressional aides noted
that the knowledge of even
one bank's vote on interest rates can be
valuable to traders
who control billions of dollars in the
stock and bond markets.
. . . . Last summer, a news report that
several regional Fed
banks had asked the Fed to raise the
discount rate it charges
banks for last-resort loans fueled a
conviction in the financial
markets that the central bank was about
to raise rates.
. . . . As often happens with such
discount-rate requests, the
Fed board in Washington ignored the bank
presidents and did
not raise rates until this year. But that
didn't keep traders from
making and losing millions of dollars on
the rumor.

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