Fed fights for its privacy

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The Independent Online
HENRY B GONZALEZ has been stalking the US Federal Reserve Board for years. This Texas Democrat, a protector of minorities and strident foe of the eastern establishment, is one of the few remaining old-fashioned populists in the US Congress. In an earlier era, when Paul Volcker could squeeze the US money supply at will and make the rest of the world contract, Mr Gonzalez began demanding more accountability from the US central bank. His voice in Congress was much weaker then, allowing Fed officials to treat him more like an annoying pest than a serious foe. But through tenacity and political staying power, he has risen to the top as chairman of the powerful House Banking Committee. His crusade has not let up.

Last week, Mr Gonzalez struck. Summoned before him were 16 senior officials of the central bank. They were lined up like school children in a single row as Gonzalez peered down from his chairman's perch. The first witness was Alan Greenspan, the urbane Fed chairman, who explained patiently that Mr Gonzalez might single-handedly ruin US monetary policy and indeed the entire economy if he persisted in requiring less Fed secrecy. The 15 other Fed officials chimed in like a well-orchestrated chorus. Their message was much the same: if you strip the Fed of its clandestine meetings, force it to stop communicating in 'centralbankese', and worse, hold members accountable for their votes, you risk injury to a well-functioning system.

Mr Gonzalez was unmoved. With a bulldog determination honed in the Latino barrios of Texas, he asserted repeatedly that it was time for the Fed to open up. Ordinary citizens as well as markets have the right to know within a week how their economic fates have been decided, and by whom, Mr Gonzalez said. Currently, the Fed releases a sanitised summary of the meetings of its policymaking committee, six weeks after they are held. Often, bits and pieces of the proceedings are leaked, mainly to the professional Fed 'watchers' in the private sector who by and large are former employees of the Fed. 'Accurate information does not undermine markets. Partial information and leaked information undermine market efficiency,' Mr Gonzalez said.

Furthermore, it would be a good idea to require videotaping of all such sessions. These would be made public within 60 days.

Although it is hard to imagine huge public demand for films of central bankers at work, Gonzalez is probably right that many in the international investment community would find a spirited exchange between Mr Greenspan and David Mullins of the Fed riveting. But the big question is whether videotaping is responsible. Judging from the televising of US House and Senate proceedings, it would not raise the level of discourse.

Disbelieving Fed officials predicted outcomes far worse. Mr Greenspan said videotaping would 'so seriously constrain the process' that the meetings would become unproductive. The candid airing of views would disappear. Another casualty, according to Lawrence B Lindsey, a Fed governor, would be the use of hypothetical or speculative examples to explain points. Fed decision takers would fear these examples could be misinterpreted, causing unnecessary volatility in financial markets.

It is hard to know if Mr Gonzalez is deadly serious about videotaping. But he is certainly determined to extract more rapid and complete disclosure of key central bank decisions and to make Fed members more accountable.

These demands for the 'democratisation' of the Fed are likely to result in significant legislation over the next year. Mr Gonzalez and his committee are flirting with a proposal, for example, to require that the Fed's regional bank presidents be chosen by the president, as the governors now are, or by the Federal Reserve Board itself rather than panels of local bankers. Failing this, the committee might strip the regional presidents of their votes on the key open market committee. Fed officials were particularly adamant that sensitive material from dealings with other central banks be omitted from the minutes. But if Mr Gonzalez has his way, Eddie George and his European and Japanese counterparts had better watch out.