Inner City Press' Federal Reserve Reporter

May - July, 1999 (Archive #2)

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July 26, 1999

    While the establishment business press mechanically praises the Fed for its “new openness,” on actual requests for information under the Freedom of Information Act, the Fed grows worse and worse. As recounted below, FOMC Secretary Kohn now denies requests for FOMC documents by questioning the “expertise” of the requester, and whether Internet publication constitutes the “dissemination of information” under the FOIA statute. Governor Gramlich upholds Mr. Kohn, saying that the FOMC’s actual documents would not reveal anything beyond the Fed’s own public statements (for example, a single page about its “bias” going into the FOMC’s August 24 meeting). The Fed also withholds virtually all documents about its meetings with its Federal Advisory Committee, made up of bankers. The minutes provided to ICP show that the FAC explicitly turns off the tape recorder before certain portions of its meeting, so that there would be no document to get under FOIA, even if a court deemed the meetings to be public.

     Meanwhile, how does the establishment press report it? Well, middle-brow Business Week, in its July 26 issue at page 34, claims that “Greenspan has been one of the most open central bankers ever...”. The Washington Post’s John Berry, on July 21, runs selective interviews with Federal Reserve Bank presidents Boehne, Broaddus, Hoenig and McTeer, then reports other information from “Fed sources.” These unnamed “Fed sources” are clearly not the Reserve Bank presidents who spoke for attribution -- apparently, the Fed’s new rule is that you can’t quote a sitting Governor by name.

     Ex-Governors, however, are fair game. Sue Phillips, who recently left the Board, is now quoted by Bridge News about her guess on the background to the Fed’s most recent neutral bias. Bridge News then lays out its scorecard of Fed players: Governors Meyer, Kelley and Gramlich favoring further raising rates; Reserve Bank presidents Boehne and McTeer favoring leaving rates alone and letting the economy grow; Greenspan in the middle, with his eye on renomination.

     The American Banker quotes Governor Gramlich: “We try to make our announcements very clear, but it’s impossible to correct all misperceptions that may arise.” How can the Fed complain about “misperceptions” -- when it is denying access to all documents about its meetings, and is seeking to charge $48,000 for even heavily redacted copies of the transcripts of its meetings? This public policy question should be answered by Governor Gramlich, whose most recent job was at University of Michigan’s School of Public Policy. Sources at that school say that the yearly skits about Ned Gramlich all involved him falling down, a la Gerald Ford. And playing backroom politics at that rather minuscule school, of only forty students a year. Perhaps a history of backroom dealings, and resistance to open governance, is one of the qualifications for a Fed Governor...

     Meanwhile, the Fed has become a protester. The Federal Reserve Board filed a protest to National Bank of Commerce’s application to the Office of the Comptroller of the Currency for permission for a bank subsidiary to underwrite corporate debt. Since Senator Gramm (R-TX) seems to believe that all public comments against banks’ application are an abuse of process, or attempt to “extort,” one wonders whether the OCC will turn over to Gramm a list of protesters, including the Federal Reserve Board.

July 19, 1999

    On the Fed beat this week: back into the revolving door.

     Ex-vice chairman Dave Mullins, who co-presided over the blow up of the Long Term Capital Management hedge fund (which he joined immediately after leaving the Fed), is now leaving LTCM. While Mullins participated in the telephone calls to the Fed’s William McDonough to ask the Fed to arrange a bail out of the fund, he has yet to answer any questions about his role in the fund, or the legitimacy of this use of access and of the revolving door. Where he will land next -- is anyone’s guess. Wags opine that he should form a joint venture with Frank Newman, another now-free titan of the revolving door.

      Meanwhile, ex-Governor Wayne Angell was quoted by Bridge News of July 15 that he does not believe that the FOMC will raise rates that the upcoming August 24 meeting. “I think they will remain neutral,” Angell said. Wayne talks with the press for free -- but has reportedly charged private clients up to $100 a minute for his “insights” into the government body he once served on.

      The benefits of previous service on the Fed can carry on for quite some time. Currently, the Financial Times (July 14) reports that ex-Fed chairman Paul Volcker is “supporting” Ripplewood’s bed to acquire Long Term Credit Bank of Japan. “The extent of Mr. Volker’s involvement could not be established... Until recently, it had been assumed that the Japanese government would oppose the sale of such a high-profile company at LTCB to a private equity fund. However, the government appears to have warmed to the bid thanks in part to the consortium members it has put together.” Dave Mullins’ “experience” at Long Term Capital Management calls into question whether ex-Fed membership guarantees expertise -- but also tends to indicate these ex-Governor carry with them the ability to... call in a Fed bail out.

     Among current Governors, Ned Gramlich has now taken the anti-public disclosure baton. While Alice Rivlin previously performed the function of signing off on the Fed staff’s Freedom of Information Act denials, she is leaving. A seamless transition: Ned Gramlich, despite the “public policy” and even anti-poverty history he claims, on July 14 signed a letter constructively denying public access to FOMC records, unless the requester pays $48,000. The public, Ned claims, would not learn anything from the documents. Ned also “concurs in” the Fed’s staffs view that the requester couldn’t possibly “understand and process” the FOMC information. Nope, it takes a Dave Mullins to lose $3.5 billion dollars and require a Fed-arranged bail out. Ned’s letter in part reads:

By letter dated April 21, 1999, you requested all records related to the last 40 meetings of the [Federal Open Markets] Committee and any Committee conference calls during that time frame.... The Secretary of the Committee denied your fee waiver request by letter dated May 3, 1999.... You filed an amended fee waiver request on May 10, 1999, which the Secretary denied by letter dated June 8, 1999... You appealed the Secretary’s decision by letters dated June 16 and 29, 1999....

Your present request under the FOIA, which requires extensive review of documents by very senior staff, and which involves documents of a different type than those at issue in your previous requests, leading to a different public interest analysis, is clearly factually distinguishable from your previous FOIA requests to the Board...

The Secretary denied your fee request on three alternative grounds. The first of these is dispositive. Accordingly, although I concur with the Secretary’s determination on the other grounds, I do not believe it is necessary to address these other grounds further.

Edward M. Gramlich
Member of the Board

    Ned, soon you too can blow up a hedge fund, or make $100 a minute (like Wayne Angell), predicting what the FOMC will do. Meanwhile, now-confirmed Larry Summers is playing coy on whether Clinton or Gore would re-nominate Alan Greenspan as Fed chairman. Be looking for some serious arm-twisting, from this purportedly “independent” Federal agency...

July 12, 1999

     The Federal Reserve Board’s lax enforcement of the Community Reinvestment Act and the antitrust laws, and resistance to providing information to the public on a timely basis, remain our themes this week.

     Beginning with the most arcane: Inner City Press has stumbled on a blatantly anticompetitive acquisition proposal which the Fed is considering approving, while withholding information from the public. The application was filed in April by Central Savings Bank of Sault Ste. Marie, Michigan, to acquire branches of Huntington Bank, N.A.. While the acquisition would give CSB a greater than 40% market share in Sault Ste. Marie, CSB is not proposing to divest (or sell off) any branches or deposits. CSB would close 75% of the branches it seeks to acquire. Informed DOJ sources express amazement that the Fed did not direct CSB to include a divestiture proposal in the application, or did not dismiss the application. But CSB’s chairman, “Frenchy” LaJoie, is a director of the Federal Reserve Bank of Minneapolis (DOJ sources were aware of this as well; ICP has confirmed it). On June 24, the Minneapolis Fed gave ICP some of the application, and said that the Board would be providing the rest. Nothing further has been provided. And one day soon, the Fed will haul off and rule on this insane application.

     On CRA and fair lending: issues about the subprime lender Delta Funding, which has settled discrimination charges with the New York State Attorney General, were raised to the Fed earlier this year about Bankers Trust, which does pooling (and foreclosing) for Delta. The Fed refused to act.  Similar issues were raised to the Office of Thrift Supervision, concerning Lehman Brothers (which does underwriting for Delta). As set forth in the report below, of July 6, the OTS required a commitment letter from Lehman on this issue.

      Now, ICP has re-introduced the issue, and the OTS / Lehman precedent, to the Fed, on HSBC’s application to acquire Republic (which has purchased substantial portions of Delta’s mortgage backed securities). The Fair Housing Act clearly applies to a purchaser of securities backed by residential real estate, and Republic buying these securities, while scandals swirled around Delta, reflect a total lack of fair lending safeguards and standards at Republic. What will the Fed do? This will be updated in this space.

     Finally, in terms of the Fed’s compliance with the Freedom of Information Act, ICP on July 8 received a letter from the Fed’s Secretary, denying “expedited processing” of ICP’s FOIA request for the Fed’s communications with the Senate Banking Committee since April 12. The basis of the Fed’s denial? “You ha[ve] not provided any information on how Inner City Press or the Reporters were separate from Inner City Press / Community on the Move... Such information is relevant, particularly in light of ICP’s activities as described on [its] web site...”.

     In order to slow down its FOIA response, the Fed is clinging to a phrase in the E-FOIA amendments of 1996, concerning whether a requester is “primarily engaged in disseminating information.” Because this publication is affiliated with a community and consumers group which engages in activities beyond information dissemination, the Fed repeatedly slows its FOIA responses. But, as ICP has pointed out to the Fed, NBC is owned by General Electric (which among other things makes weapon systems, and issues mortgage and other loans); ABC is owned by Disney (which among other things operates theme parks); etc.. Arguments appear of no use, however. The Fed simply wants to slow its FOIA responses, and provides no procedure for appealing its denials of expedited processing. In fact, on several of ICP’s FOIA requests, the Fed has claimed for itself “several months” in which to respond. Oh, transparency...

July 6, 1999

    Earlier in 1999, ICP raised in detail to the Federal Reserve Bankers Trust’s involvement in predatory mortgage lending, particularly with Delta Funding, a subprime lender based in New York. The Fed, after supposedly “closely considering” the question, refused to act.

      On July 1, the Office of Thrift Supervision issued a press release announcing that it had approved Lehman Brothers’ “emergency” application to acquire Delaware Savings Bank. The Inner City Public Interest Law Center (and the Delaware Community Reinvestment Action Council) had commented to the OTS about Lehman’s involvement in predatory mortgage lending, particularly as an underwriter for Delta Funding, a subprime lending against which ICP has been commenting since November 1998, and which, in June 1999, settled discrimination charges with the NYS Attorney General.

     The OTS stated that Lehman “must fulfill the local and national lending commitments contained in its CRA compliance plan,” and that it had considered “the Applications as supplemented by representations by the Applicants (a copy of which is attached hereto)...”. Attached to the OTS’ approval order was a letter, also dated June 30, from Lehman Brothers to the OTS (reproduced in on ICP's Delaware Beat Report).

July 4, 1999

     For the 4th of July, we run a stream-of-consciousness “Reporter’s Notebook,” State of the Union on the cusp of the millennium:

Federal Open Markets Committee meeting of June 29-30, 1999

     Even when the result is known, or almost certainly known, greed breeds its own suspense, and the business media is on overdrive. Wednesday June 30, the FOMC is supposed to release the results of its two-day meeting at 2:15 p.m.. Reporters are in the lock-up at the Treasury Department, unable to communication with the outside world until the announcement is made. Financial television news cuts back and forth between the floor of the New York Stock Exchange and the Chicago Board of Trade. The twenty-something foot soldiers of the capital markets climb over each other, shouting trades, and then grow silent as the moment of announcement nears. The Dow Jones Industrial Average is down 60 points on the day, on light trading.

   Ex-Fed Governor Lyle Gramley, now a consulting economist for the Mortgage Bankers of America, opines that the Fed will raise rates at least a quarter of a point, and will retain the tightening bias it announced at the last meeting. No one can be found to say that the Fed won’t raise rates at least a quarter point; some traders are saying they favor a full half-point rise, “to get it over with.” A handful of Democratic Congressmen have put out a press release, urging the Fed not to raise rates at all. Reuters runs an analysis piece, headlined, “What the Fed Will Be Looking At,” that breaks down midway through, into an unrelated story about Palestine. It’s media overdrive, bigger than the Superbowl.

     At 2:17, breathless reporters call in their news: the Fed has raised rates a quarter point, but has taken off the tightening bias. The floor of the New York Stock Exchange bursts into pandemonium. Watch as the Dow rises. It’s up 63 points by 2:19; up 85 by 2:20. Lyle Gramley’s expressing his surprise, calling the decision to take off the tightening bias “unwise.” “They’ll put have to raise rates again, at the August 24 meeting” Gramley says, shaking his head. “They’re creating exuberance.”

     By 2:22, the Dow is up 103 point. Television reporters on the floor of the Chicago Board of Trade are being knocked down by young traders running toward the bond pit. “They were booing here,” a reporter whispers into the microphone, before disappearing into the crowd. By 2:29, the Dow is up 155 points, and Gramley’s still shaking his head. Other pundits thrust themselves forward. “Productivity can make up for the lack of unemployment,” says one. “There’ll be no rise in the months before and after January 1, for the Year Two Thousand computer problem,” says another. Another is saying something poetic, about an “inflection point,” but it’s lost in the frenzy of trading. The cusp is hit. At 2:30, the Dow levels off at plus 147, down to plus 112 by 2:44. The Superbowl is over.

    By the next morning, it’s announced that the FOMC decision was unanimous, 11-0. The banks have all raised their prime rate, from 7 3/4 to 8. “An extra twenty-one dollars a month on a mortgage,” says the last of the pundits. But the crowd is no longer paying attention.

* * * *

    On a recent Freedom of Information Act request for transcripts of Federal Open Markets Committee meetings, FOMC Secretary Kohn denied a few waiver request, and asked for advance payment of $48,000 before the FOMC would even begin collecting (and redacting) the documents. The rationale? The Internet is not “dissemination of information,” for purposes of the statute. And, “you have not shown that you can understand or process the information.” Appeal is filed, and continues to pend.

    Finally this week, in Federal Reserve news, the FRB web site now includes a privacy policy. This Reporter had noted the lack of such a policy on the Fed’s site (see below, and Archived Reporter). On June 24, the Fed added a privacy policy. “Conflicted” no more...

June 28, 1999

    The Federal Reserve on June 25 finally responded to Inner City Press’ Freedom of Information Act request of April 12, for the Fed’s communications with the Senate Banking Committee concerning the Community Reinvestment Act.

     The Fed Secretary’s letter to ICP says that “the Board provided 12 cartons (containing approximately 35,375 pages) of information to the Senate Banking Committee in response to various requests for information related to CRA protests.”

    The Fed claims that it never responded to Sen. Gramm’s February 12, 1999, letter to Chairman Greenspan, which stated “I am enclosing for your comment my proposed CRA antiextortion and antibribery language. This is your chance to do a little good for America by supporting this provision. Such an opportunity seldom comes along in this life. Please don’t miss it.” On the letter, as provided to ICP, is the notation “No response -- closed per Don Winn, 4/8/99.” Donald Winn is the Fed’s congressional liaison. It’s noteworthy that Treasury Secretary Rubin did “comment” back to Gramm on this letter, expression opposition to Gramm’s “anti-extortion” proposal. The Fed, as per usual, just let it slide...

     After Gramm’s staff’s March 2, 1999, letter asking for information about four particular mergers, involving “Wells Fargo, U.S. Bancorp, First Union and Summitt [sic] Bank,” the Fed responded on March 9, noting that Summit’s application “did not involve any CRA protests, consequently we do not have any documents responsive to your request.”

      Gramm’s office followed this up on March 12, with a request for “a list of the number of events that have triggered a non-regularly scheduled CRA review” for 1997 and 1998, and “a list of the number of events where protests were filed” in 1997 and 1998. On March 22, the Fed responded:

“Since you already have our list of applications protested on CRA grounds for 1998, I am only enclosing a similar list for 1997. However, in order to respond to the remaining items in your information request, it would help us to know more about what you mean by ‘events.’”

     The 1997 “Protested Applications” list the Fed annexed to its response identifies all protesting groups, and provides a cursory description of the “Principal Reasons for Protest.” For the year of 1997, four protests are listed as “subsequently withdrawn”: ABN-AMRO to acquire Standard Federal Bank in Michigan; two applications by Marshall & Ilsley in Milwaukee; and an application by Old Kent Financial Corporation that was protested by a researcher for nuns and religious orders (Gramm is presumably hot on the case).

     On March 24, the Fed responded by e-mail to a letter from Gramm’s office dated March 10 (the Fed has neglected to provide ICP with a copy of this Gramm letter; ICP is pursuing this). The Fed’s March 24 e-mail makes clear that Gramm had inquired about eleven separate banks. In the spirit of “the journalism of attentiveness” (see, e.g., The Quill, January 1, 1999, Pg. 9), here is the text of the Fed’s response:

“All of these applications were protested on CRA and/or fair lending grounds and each of them were acted on by the Board in the years you have indicated...

1. First Interstate Bank of Commerce (MT) -- 1994...

2. Chase Manhattan Bank (NY) -- 1995

3. Manufacturers & Traders Trust Company (NY) -- 1994

4. Marine Midland Bank (NY) -- 1994

5. Integra Bank/Pittsburgh (PA) -- 1994

    We did not have any CRA protested cases involving Integra Bank in 1994, although the Federal Reserve Bank of Cleveland did application an application under delegated authority on December 2, 1994, for Integra Bank Pittsburgh and Integra Bank South to acquire Lincoln Savings Bank. I do not believe we have any documents that will be responsive to your request.

6. Washington Community Reinvestment Association (WA) -- 1996

    This item appears to be the name of a community group... [Unable] to match it with any protestants we had in 1995. Consequently, I do not believe we have any documents responsive to your request.

7. The Bank of New York (NY) -- 1995

    We did not have any CRA protested cases involving the Bank of New York in 1995. I do not believe we have any documents responsive to your request.

8. First Fidelity Bancorporation (NY) 1995

    I have one application by First Fidelity acted on in 1995: Baltimore Bancorp, Baltimore MD (approved 11/28/94), see item 10 below.

9. Union Bank (CA) -- 1995

    We did not have any CRA protested cases involving Union Bank, San Francisco, CA in 1995, although we did not have on 1996 when the Mitsubishi Bank, Limited, Tokyo, Japan applied to acquire The Bank of Tokyo...

10. First Union (NJ) -- 1995

    We had three applications by First Union Corporation acted on by the Board in 1995: Coral Gables Fedcorp, First Fidelity Corporation and RS Financial Corporation

11. Integra Bank National (PA) - 1995

    We did not have any CRA protested cases involving Integra Bank National in 1995. You may wish to check with the OCC since that agency is the primary regulator of this bank.

    Please let me know if you want me to have staff pull documents on the applications I have listed above.

   Analysis: The Fed is being far more solicitous to Gramm’s anti-CRA inquiries than the Fed is to, for example, members of the public or news media who make requests under the Freedom of Information Act. Here, the Fed is “schooling” Gramm’s staff how to hone in on the documents they want. The Fed identifies protested applications by the banks in years that Gramm didn’t ask about, and directs Gramm to the OCC, for example. The Fed shows itself willing to search its “data base” of protesters for names of groups that Gramm provides.

    Gramm’s inquiry is what’s called a “fishing expedition.” It appears that Gramm has come up with a list of successful protests to banks by doing a news data base or Internet search, and then asks the Fed for all documents (35,000 pages, see above) about these mergers. Gramm also appears interested in (loosely-defined) “events” that triggered “non-regularly scheduled CRA reviews.”

    On March 31, the Fed informed Gramm’s office that “as mentioned in our phone conversation, we do not have any data on the number of ‘events’ that may have triggered a non-regularly scheduled CRA review for 1997 and 1998.”

     By letter dated April 1, 1999, the Fed more formally responded to Gramm’s March 10 letter, supplementing the e-mail reproduced above. Along with this letter, the Fed provided documents from:

First Interstate Bancorp (CA) - 1994

Chase Manhattan Bank (NY) - 1995

Manufacturers & Traders Trust Company/First Empire State -- 1994

Marine Midland Bank (NY) - 1994

First Fidelity Bancorporation - Baltimore Bancorp (the Fed noted that “the protest was withdrawn; consequently, there is no Board Order”)

First Union - Coral Gables Fedcorp (the Fed stated that “the commenter had not provided facts to support her allegations. Her comment letter was considered a consumer complaint and thus forwarded to the bank’s primary regulator for investigation”)

“Copies of the documents concerning CRA protests related to these CRA protested cases are being compiled and will be sent to you separately... I am also enclosing the CRA Public Evaluation for BANKFIRST, Sioux Falls, South Dakota, dated February 2, 1998, as you requested.”

    This last was a bank awarded a “Needs to Improve” CRA rating by the Federal Reserve Bank of Minneapolis in 1998. Gramm appears to be doing some “constituent service,” loosely defined... The Fed’s internal log sheet for responses notes that “no request for Chase-Chemical from Congress.”

    The Fed has provided a list of the mergers it has provided Gramm with copies of protests to -- the Fed sent Gramm 35,000 pages, while providing ICP with a twelve page list, simply naming the mergers..

[Some archival material cut to save server space - with questions, contact us]

June 14, 1999 --  The Fed’s Selective Secrecy

   On June 9, Fed Chairman Alan Greenspan met behind closed doors with representatives of the world’s largest banks, at the IMF conference in Philadelphia. The press was excluded, and the bankers in attendance were told not to reveal what was said. Nevertheless, several banks confirmed that Greenspan’s presentation touched on interest rates, and implicitly on moves the Federal Open Markets Committee may take at its next meeting on June 29-30.

   Question:  how is this legitimate? Why isn’t it viewed as creating possibilities akin to insider trading? The securities markets move on predictions of what the FOMC will do on rates -- and what better source that the controller of the FOMC, Mr. Greenspan? If Greenspan was as coyly enigmatic as he is in public speeches, why close this portion of the session to the public and the press?

    While the Fed regulates (or “supervises,” as the Fed likes to say) the banks, that is quite different from giving the banks (in this case, only the largest banks) an advance indication of Greenspan’s views going into the next FOMC meeting. When publicly-traded companies make a presentation to stock analysts, it is assumed that the analysts will disseminate what they’ve learned, and their predictions based on it. Here, the banks were sworn to secrecy. But these banks have their own proprietary stock trading operations. It doesn’t appear that the Fed sought or gained any commitment that the banks wouldn’t use whatever information was given for trading. This meeting was reported on the wire services and the financial news cable television stations, with none of the critique or questions raised above.

    The Fed disciplines the national newspapers by selectively granting sit-downs with Greenspan to reporters who commit neither to quote him nor use the material, except indirectly as background. A reporter who refuses to follow these manipulative rules -- or reports leaks otherwise obtained from the Fed -- will not be invited back, and will be removed from the Fed beat by his or her editors. If a private, for-profit company exerted this kind of manipulative power over the press, it would be both praised (for its power) and questioned (by other journalists). But the approach is inappropriate for a government agency such as the Fed.

   What else does Greenspan tell the bankers?  The June 9 Philadelphia meeting is only one piece of the puzzle. When this publication recently requested transcripts of the Fed Governors’ meetings with the FRB’s Federal Advisory Council, made up of twelve bankers, the Fed claimed it doesn’t keep transcripts, and denied access to all other documents. The Fed claimed that these were “intra- or inter-agency meetings,” as if for-profit bankers could be converted into government agencies for the convenience of the Fed’s policy of secrecy. But the Philadelphia meeting could hardly be characterized as “inter-agency.” Where are the questions, raised by the free press of which Americans are so proud? Where are the documents from this meeting? Developing...

  Where the Fed has no exemption arguments under the Freedom of Information Act, it relies on pure arrogance, and by seeking to charge thousands of dollars for documents, confident that editors will neither pay the fees, nor pay to sue the Fed under FOIA. On April 21, 1999, Inner City Press requested copies of various documents about recent Federal Open Markets Committee meetings. ICP also asked for a fee waiver, as the Federal Reserve Board has granted ICP for years.

   On May 3, Donald Kohn, Secretary of FOMC, wrote back, claiming (1) that ICP had misdirected its FOIA request to the Federal Reserve Board, rather than the FOMC (even though the FRB’s web site explicitly says that FOIA request for FOMC minutes are to be directed to the FRB and its Secretary), and (2) that the FOMC could not rely on the fee waivers that the FRB had granted ICP.

   On May 10, ICP provided Mr. Kohn with a more elaborated fee waiver request (while disputing that the FOMC could disavow its connection with the FRB, the instructions on the FRB’s web site, and the FRB’s previous fee waivers to ICP).

   After another month’s delay, Mr. Kohn wrote to ICP again, on June 8, denying the fee waiver (and stating that even a search for the documents ICP has requested will not begin unless ICP pays $48,000).

   Most extraordinary are the arrogant arguments Mr. Kohn’s fee waiver denial letter makes. Mr. Kohn states: “If a request of information is to make a significant contribution to the public’s understanding, the requester should have the ability to understand and process the information... The information that would be released is technical economic data, and you have not provided any information regarding your ability to understand and process the data.”

    This is the height of arrogance. The Fed denies access to information, because Inner City Press has not demonstrated in advance, to the Fed’s satisfaction, that it would be able to “understand and process” the information that the Fed has yet to provide. Perhaps that’s why the Fed excluded the press and public from the Philadelphia meeting -- only bankers could “understand and process” the information....

   Mr. Kohn also argues, “You have stated that you intend to publish this information and analysis on your Internet publication, but you have not indicated whether this information will be accessed by the public.” You who read this are presumably not “the public.” Just as, according to the Fed, Internet publication is not “dissemination.” Perhaps this explains why the Federal Reserve’s web site still has no privacy policy, on how visitor information would be shared (which the Office of Thrift Supervision not only has, but has now urged all savings banks to post. See American Banker of June 11, at 2).

   On June 10, Greenspan delivered a commencement speech at Harvard, stating, “in my working life, I have found no greater satisfaction than achieving success through honest dealings and strict adherence to the view that for you to gain, those you deal with should gain as well.” Which may put the closed-door meeting with bankers in context: they too will gain. Greenspan, however, chooses “who he deals with,” in a way inappropriate for the leader of a government agency. As reported by the Washington Post, a number of graduates walked out on Greenspan's speech, saying it represented academic capitulation to finance and greed -- critiques rarely found in the mainstream press' celebratory coverage of Greenspan and the Fed.

   Meanwhile, the Fed’s Dallas Reserve Bank has questioned, in the June 1999 issue of Southwest Economy, “the degree to which the CRA is needed to ensure all segments of our economy have fair access to credit.” Governor Gramlich praised this study in his June 3 speech to the National Economists Club (see below), while adding that he “was surprised to hear that the loan loss rate for CRA lending is a ‘pretty good’ 40 basis points and is on par with non-CRA loans. He would have guessed the rate would be higher, he said.” BNA, June 7. Showing not only Gov. Gramlich’s presumptions, but seeming to call for Gov. Gramlich to correct Senate Banking Committee claims that Gramlich has said CRA’s default rate is six times higher than normal.

June 9, 1999

Hawks and Doves in the Revolving Door:  News Analysis

   The news wires are jumping with prognostications of the Fed’s next move on interest rates, with news bytes relevant to the nominations for the (largely irrelevant) two vacancies on the Federal Reserve Board, and with the good fortune of Fed ex-Chairmen, and the travels of Federal Reserve Bank presidents.

    St. Louis Fed president Bill Poole, journeying east for the Boston Fed’s conference on “global financial architecture,” told reporters that while there are a range of opinions on the Federal Open Markets Committee going into its June 28-30 meeting, “‘at the end of the day, it’s his call’ -- meaning Fed Chairman Alan Greenspan, Poole said.” Bloomberg, June 8, 16:05 EDT.

   And since, even according the Fed insiders, it’s all Greenspan’s call -- who cares who the other Governors are?  The American Banker (June 7) quotes an administration official that “the government needs several more weeks to finish its background check” on Chase Manhattan’s CRA officer, rumored to be the nominee to replace ex-Governor Sue Phillips. To replace Alice Rivlin? New York Fed president Bill McDonough’s in the running, but his “enthusiasm for the vice chairmanship would depend on whether Chairman Alan Greenspan is appointed to a fourth four-year term next year -- and how much of it he might plan to serve.” Poole, McDonough -- “it’s all Greenspan’s call.” And that, it is said, is why Alice Rivlin is leaving.

    Back in Beantown, Boston Fed president Cathy Minehan, opining about the aforementioned “global financial architecture,” says “the pain of severe developing country downturns... seems to have faded.” Bloomberg, June 8, 15:27 EDT. Whose pain is she referring to? The pain of stock traders and speculators like Long Term Capital Management, and its principal, Fed ex-Vice Chair Dave Mullins?  The pain for the majority of people in the developing countries doesn’t “seem to have faded” -- see ICP’s Global Inner Cities page...

   Since Dave Mullins when he left the Fed was given a stake in LTCM (his advice didn’t help to keep LTCM from blowing up, but he did help arrange a bail out) -- the question arises what Alice Rivlin might get, when she leaves the Board in July. Rivlin is more the public service type. Fed ex-Chair Volcker, on the other hand, has just been pointed to the nine-member International Advisory Board of (Fed-regulated) Fuji Bank. The board will advice Fuji on... “the role of banks.” Reuters, June 8, 1:31. There’s no mention of what compensation Volcker will receive. Volcker previously was on the Board of Bankers Trust, just taken over by Deutsche Bank. Can Volcker effectively serve two foreign masters? Or is he part of the exodus from Bankers Trust?

    Back in the pre-revolving door world of current Fed governors, Gov. Meyer June 3 said that the Fed is not guilty of breaking ranks with the other bank regulators, who have each expressed concern about a FASB directive that appears to urge banks to reduce reserves for loan losses. (Rep. Roukema, R-NJ, has made this issue the topic of her June 16 hearing, canceling the previously-scheduled topic: CRA. Marge might want to check out, for example, Fleet’s declining lending in New Jersey [see WSJ of 6/8 at B11, or click here for a summary] before denouncing the CRA too strenuously. But back to Meyer--)  In a verbal flourish, Meyer acknowledged that the other bank regulators are “less sanguine” that the Fed about the intent of FASB’s recent guidance. That’s it -- this choice of words confirms that Meyer is the best nominee to replace Rivlin as Greenspan’s Number Two.

[As Doctor Evil said in the first Austin Powers movie: “This is my number two, Mister Number Two” -- and then pushed a button dropping another of his Governors -- oops, cabinet members -- into the fires beneath the board room. Hey, what would summer be without movie references?]

    Only slightly less surreal, the “real” world of the Congress: the administration’s nominations to the Fed may be blocked, anyway. Senator James Inhofe (R-OK -- that is, “are you O.K.?”) declared Tuesday on the Senate floor that “I am putting holds on every single nomination that comes from the White House” -- allegedly, in anger at Clinton’s nomination “of a gay philanthropist to be ambassador to Luxembourg.” AP, June 8, 16:30 EDT. Trans-Atlantic differences come to mind: on June 5, Bank of Scotland canceled its deal with Pat Robertson, after Robertson said Scotland was a country “where homosexuals have incredible power.”   Click here for a summary. Perhaps that’s Inhofe’s claim about the United States... That’s all for now.

June 7, 1999

     Alice Rivlin on June 3 announced her resignation from the Federal Reserve Board, leaving President Clinton with two spots to fill during his remaining term. It appears unlikely that the Senate Banking Committee, led by Phil Gramm (R-TX) would hold confirmation hearings on Clinton’s nominees. Nonetheless, it is said that the “vetting” of Chase Manhattan’s Community Reinvestment Act officer (see below) continues, and newspaper profiles are being prepared. Frankly, given how Greenspan-controlled the Board has become, it appears to make little difference whether the Board has seven, or five, or three Governors. A Bloomberg terminal and a car and driver. Not a bad retirement, one supposes...

    The San Antonio Express-News of June 5, at 1D, reports, as to CRA, that "[a]gain, the Fed is becoming a Gramm ally.  Dallas Fed researchers recently produced a report arguing that increased competition and new information and banking technologies have removed the conditions that led to the CRA in 1997."  Purportedly unrelated, the article quotes Gramm:  "'Greenspan and I have talked about it alot.  We have some ideas (that may be discussed in conference committee) if we cannot win it outright."  Something about Greenspan's and the Fed's fast friendship with Phil Gramm brings to mind the Bank of Scotland's recent relations with Pat Robertson (click here for a summary). ...

June 4, 1999

     In a speech to the National Economists Club on June 3, Federal Reserve Board Governor Ned Gramlich said “the Fed has no stance in the fight over the lending law.” “Gramlich said it was unclear whether the practice of redlining or denying credit in some areas was widespread and whether banks would make loans to low- and moderate-income areas without the prodding of the CRA. ‘I don’t have any definitive answers about it but I think these are interesting questions and I would put this on the list of things that I think would be fun to study,’ he said.” Dow Jones, June 3.

   Having “no position” on the CRA places the Fed at odd with all three other federal bank regulatory agencies, all of which have spoken out in favor of the CRA. Governor Gramlich’s statement to the National Economists Club is also different than the statement Gramlich made at a meeting of the Fed’s Consumer Advisory Council, on June 25, 1998:

GOVERNOR GRAMLICH: So just a personal note, I'm now the Chair of the Board Committee on Consumer and Community Affairs. This, in a way, is both an old and a new thing for me. I did, have worked in the poverty business a long time ago. I was at Office of Economic Opportunity back in the early '70's, when it still existed. But I've done a few other things, and so I'm coming back to these issues now and some of them, as you know, are a little bit complicated. So I don't promise to be fully up to speed on every one.

But we do have a committee, Alice is on it, Larry Meyer who was up here earlier is on it.... And let me just use CRA to tell you, just to illustrate that.

There are a lot of CRA loans. There, this Federal Financial Institution's Examination Council has reports on CRA loans and it's a little bit difficult to wade through those, but the, there seem to be at least 200 billion, perhaps 300 billion of CRA loans in 1996. That's a lot of loans. And it's a significant share of the loan market in whatever you look at. Whether it's small business lending, mortgage lending, farm lending, community development lending.

But there are, you know, when you go behind those figures, which seem very positive, exactly what are these loans? And it's a little hard to figure out exactly what they are. Are these loans incremental or would they have been made anyway? I mean because the case without these laws should not be that zero such loans would be made, but some amount. There has probably been an increase, but it's very hard to tell how much of these loans are truly incremental and how much are, would have been made otherwise....

Have they undercut redlining? Have they diminished redlining at all? And for the economic development loans, have they worked? Have they succeeded in developing certain areas of low and moderate-income areas of cities or of rural counties? And so it strikes me that for all of these numbers, that we could do a better job of trying to figure out that, if I could use the word, the true economic impact of these loans...

So that, that is something that I, will be a special hobby horse of mine. It's probably natural because before I got here, what I taught, I was a teacher at a university, and what I taught was evaluation. And so it strikes me that we ought to do a little better on that side. That's not to criticize the efforts that have been made already, because the first issue is to get the program out there. And the program does seem to be out there and it seems, on one level, to be working well.

But I think we could still make progress in understanding better at a deeper level, what's going on. So that, I just warn you, that's going to be kind of a special interest of mine and hope we can make some progress on it. I think, frankly, it will show very good things, just from the limited amount of projects I've seen. But obviously you never can tell until you actually do it. So with that, let me close.

                                                   Emphasis added.

   To the Consumer Advisory Council, Gramlich implied that redlining does exist, that CRA has led to an increase in loans, and that “the program seems, on one level, to be working well.” Beyond that, Gramlich promised to study it more.

    Eleven months later, Gramlich tells a group of economists that he and the Fed have no view on CRA, which Senate Banking Chairman Gramm is now attacking, but that it would be “fun to study.” Why the apparent change in position? (Other than the Fed’s need for Gramm’s support to expand the Fed’s jurisdiction in financial modernization legislation?). And why is Gramlich is less certain in June 1999 than he was in June 1998? CRA presumably was “fun to study” in the intervening year? Whatcha been up to, Ned?

     The “Alice” referred to in Gramlich’s comments quoted above, Alice Rivlin, has just announced she is leaving the Federal Reserve Board. As noted by Bloomberg, she is the fourth Vice Chair to leave, under Chairman Alan Greenspan, “more than first among equals.” Previous ex-Vice Chair Blinder says that Rivlin’s departure will have “no effect” on monetary policy. Some might ask: why even pretend that it’s a seven-member board? “And then there were five...”.

June 1, 1999

    Inner City Press recently obtained the transcripts of the last three meetings of the Federal Reserve Board’s “Consumer Advisory Council,” whose members the Fed chooses to advise it about consumer issues including the Community Reinvestment Act. Given that the Fed already has a Federal Advisory Council made up of twelve bankers, it seems strange that the Consumer Advisory Council is chaired by a banker from BankAmerica, and that its Regulations Committee is chaired by a banker from Chase -- Carol Parry, now reportedly being considered for a Fed Governor seat. The explanation may be that the Fed only want to hear -- what it wants to hear.

     At the CAC’s most recent meeting, held March 25, 1999 in Washington, D.C., Governor Rivlin posed this question:

At the risk of stirring up a hornet’s nest, perhaps, we’ve been dealing with here with the good Senator from Texas, Senator Gramm who feels very strongly that CRA is a bad thing and has led to extortion and I forget what his other words are, but his concept is that there is a great deal of sort of blackmail in which community organizations hold up the banks for contributions. I just would like to have a little comment on that, if we could.

    Chase’s Carol Parry answered the question:

We actually in the Chase Chemical transaction did not make any agreements with any community group to do anything. We still made an $18 billion, five year public commitment to do lending that we felt was needed in low and moderate income communities... We did it to reassure the public.... Since there were no real negotiations, there clearly was no extortion and no blackmail.

    While this position -- that Chase doesn’t negotiate -- might now be convenient given the issues Sen. Phil Gramm (R-TX) is raising in 1999, it is hard to square with Ms. Parry’s earlier statements. For example, the American Banker of July 29, 1997, reported:  “Ms. Parry alleges [an activist] refused to negotiate. ‘I asked him repeatedly to put on the table what he wanted the bank to do, and instead he filed a CRA protest,’ she said.”  Emphasis added.

    It is difficult to square Ms. Parry’s complaint about a community group which “refused to negotiate” with Chase with her more recent statement that Chase did not and does not negotiate. Is this an attempt to ease possible nomination hearings before the Senate Banking Committee chaired by Phil Gramm? An attempt to distinguish Chase from the banks to which Gramm and his staff are now making subpoena threats? Despite Ms. Parry’s more recent statement, during the Chase-Chemical merger, Chase did announce a new home counseling program with a prospective challenger. That was convenient for Chase at the time; now Ms. Parry claims that “we actually in the Chase Chemical transaction did not make any agreements with any community group to do anything.” Chase’s own submissions to the Fed during the merger process say otherwise -- and were submitted to allow the Fed to say that Chase’s programs were expanding.

    On May 24, 1999, Chase issued its second annual press release of its performance under its $18.1 billion, 5-year pledge. The first annual press release, dated May 13, 1999, broke down the numbers by geography, stating that “in 1997... $1.1 billion was invested in New York State, and $775 million in New York City.”  The May 1999 press release, reporting on 1998, contains no such break-out, for New York or any other area. It is also noteworthy that first release claimed $26 million in grants in 1997, and the second release claims on $24 million in grants in 1998. In the interim, Chase’s asset size (and stock price) have risen. Is the decline in grants intended to convince Senator Gramm that Chase is not a grant-giver, as Ms. Parry in March stated that Chase did not and does not negotiate? These and other questions might have been raised at the Fed Consumer Advisory Council meeting with Ms. Parry made her claims -- but weren’t. The Fed wants to hear -- what the Fed wants to hear.

     While the Fed was more than willing to provide full transcripts of its most recent Consumer Advisory Council meetings, the Fed has refused to provide even minutes of any of its Federal Advisory Council’s meetings since May 1996. The Fed provided ICP with five computer disks of FAC files -- for all post-May 19996 meetings, listing only the attendees, followed by “[Remaining Text Redacted].”

May 26, 1999

    The walls of secrecy at the Federal Reserve grow thicker by the day, despite some in the compliant financial press’ recent praise for the Fed announcing its “tightening bias” just after the last Federal Open Markets Committee meeting.

    Inner City Press has just received a letter from the Fed, responding to ICP’s Freedom of Information Act request for transcripts and minutes of the meetings of the Fed’s Federal Advisory Committee (the “FAC”), made up of executives of the banks the Fed regulates. The Fed Secretary’s (that’s, SECRET-ary’s) May 19 letter states:

We have determined, however, that the FAC meeting documents [Fed footnote: The FAC meeting are not recorded or transcribed] are inter-agency or intra-agency memorandums [sic] or letters... We have reviewed the meeting documents and have determined that disclosure of such documents would inhibit candor in the Board’s deliberative process.... The information being withheld in full comprises approximately two linear inches of paper.

As a matter of agency discretion, FAC meeting documents are made available to the public three years after the particular meeting occurs. Accordingly, we will provide you with copies of the meeting documents from May 1995 to May 1996. Comments made in the FAC meetings on proposed regulations are placed in the public comment file of the regulation. Such comments were made in meetings on September 8, 1995, September 6 and November 8, 1996, September 5, 1997, and February 5, 1999, and these will be provided to you.

We also have found electronic documents relating to the meeting from May 1995 to February 1999. Some of these documents will be provided to you in their entirety. We have determined, however, that the remaining documents contain personnel and medical files and similar files the disclosure of which would constitute a clearly unwarranted invasion of personal privacy. Such information will be withheld from you...

    [ICP note: Not only are documents arbitrarily withheld -- the documents the Fed’s May 19 letter said were being released, have still not been provided to ICP, a week later. This story will be updated when we receive the documents. But the denial letter itself is significant:]

    The Fed has established a committee, made up of twelve executives of the banks the Fed regulates, to hear the industry’s view. However, the Fed wants to keep everything it has recently heard, and presumably acted on, secret. How is this different that the health care task force the First Lady tried to set up, then fell under attack by right wing advocates for violating the open meeting laws?

[Some archival material cut to save server space - with questions, contact us]

May 19, 1999 -- Transparency or Politics?  Or, Transparency For Whom?

    Earlier today the Fed’s Open Market Committee announced that they left the overnight bank lending rate unchanged at 4.75%, but are adopting a “bias” toward raising interest rates.

    This same-day announcement of future bias was hailed in many quarters as a sign of a new “transparency” at the Fed.   Stamford economics professor John Taylor (he of the eponymous Rule) said the Fed Governors are trying “to be more informative about their policy tools... If they feel the need for a potential rate increase later, it’s better to inform the market of that.” Princeton professor Mark Watson opined, “The Fed is reacting in a very responsible fashion by making the most out of greater openness.”

    Where, however, is this “greater openness”? Contrary to its previous commitments to releasing FOMC transcripts, still the most recent transcripts on the Fed’s / FOMC's web site are from 1992.  A recent Freedom of Information Act request for more recent transcripts has been delayed based on the argument that the FOMC “is a separate entity” from the Federal Reserve Board -- despite the Fed’s Web site’s instructions to send FOIA requests for FOMC transcripts to the FRB Secretary (see below).  As reported elsewhere on this web site, the Fed meet privately with Fleet and BankBoston, without providing any notice, or detailed minutes or notes, to the public.

    Given these contradictions, one view is that the Fed’s statement of its tightening bias for its next meetings, rather than representing an acceptance of open government principles, represents an attempt by the FOMC, and especially Chairman Greenspan, to have their cake and eat it too. The April Consumer Price Index rose much higher than expected.   The Fed does not want to be seen, however, reacting to a single indicator. That would make the process -- too transparent (and make monetary policy look too easy, undermining the reverence in which the Governors, particularly Greenspan, are held). And so a message is sent, without actually raising rates. Greenspan may hope not to actually raise rates in the next meetings -- particularly given that his term is expiring. Clinton has nothing more to gain from reappointing Greenspan.  Gore’s views are unknown, and, interestingly, Bradley was one of only two Senators to vote against Greenspan’s confirmation in the first place.

   Transparency or politics? One disclosure standard for the market, and another for the public? These are questions that need to be answered, and that ICP is pursuing, through its FOIA request for up to the moment FOMC transcripts, the results of which will be reported in this space. Stay tuned....

* * *

   Click here to view ICP's current Federal Reserve Reporter.

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