Fed could have denied gold swaps but didn''t

Section:

3:53p ET Monday, July 23, 2001

Dear Friend of GATA and Gold:

A Federal Reserve lawyer's repudiation of his agency's
meeting minutes in regard to gold, publicized by GATA
yesterday, today was the subject of a major news story
distributed by Dow Jones Newswires. The story is
attached here. Thanks to the help of everyone who has
been writing to members of Congress and to journalists,
we just might be breaking through. Let's keep at it. The
U.S. government's policy on gold cannot stand scrutiny.
It's our job to apply that scrutiny everywhere we can.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Top Fed Lawyer Says
'95 FOMC Transcript Misquoted Him.

By Joseph Rebello
Dow Jones Newswires
July 23, 2001

A top lawyer at the Federal Reserve has disavowed remarks
attributed to him about the U.S. Treasury's use of gold swaps
in foreign economic bailouts and currency-stabilization efforts,
saying he was misquoted by the central bank's transcribers.

Virgil Mattingly, general counsel to the Federal Open Market
Committee, wrote Fed Chairman Alan Greenspan last month
that he couldn't recall making the remarks attributed to him in
transcripts of a January 1995 FOMC meeting. Those remarks
were seized upon by the Gold Anti-Trust Action Committee,
a private group that contends the Fed and the Treasury
secretly have been selling gold to suppress prices.

Greenspan, in a June 25 letter to Sen. Jim Bunning, R-Ky.,
denied that allegation for the second time in 18 months.
"The Federal Reserve owns no gold and therefore could
not sell or lease gold to influence its price," Greenspan
wrote. "Likewise, the Federal Reserve does not engage in
financial transactions related to gold, such as trading gold
options or other derivatives." His letter included Mattingly's
memo.

Bunning's office released Greenspan's letter and Mattingly's
memo Monday, saying they were responses to a routine
query Bunning made to Greenspan on behalf of a
constituent. The gold committee, which has sued the Fed
and the Treasury in federal court in Boston, described the
documents as "interesting results" from "our letter-writing
campaign to Congress."

"I think this new correspondence suggests that the Fed
is trying to push onto the Treasury Department all
responsibility for the scheme to suppress the gold price
and to cover up the traces of the Fed's own awareness
of the scheme," Chris Powell, the gold committee's
secretary, told supporters in an e-mail message. Last
year Powell asked Sen. Joseph Lieberman, D-Conn., to
query Greenspan about the matter. Greenspan's
response was identical to the one he sent to Bunning.

FOMC transcripts show Fed policymakers spent part
of their meeting on Jan. 31, 1995, discussing how the
Fed and the Treasury ought to respond to Mexico's
traumatic peso devaluation the month before. Because
Congress had rejected President Clinton's request for
loan guarantees to the Mexican government, the
Treasury decided to use its $40 billion Exchange
Stabilization Fund to aid Mexico. Under laws passed in
1934, the Treasury secretary may use the fund to
stabilize the U.S. currency or stabilize foreign
economies -- without prior approval from Congress.

At the FOMC meeting, Fed Gov. Lawrence Lindsey,
who is now President Bush's top economic adviser,
asked Mattingly whether the use of the ESF to aid
Mexico was unprecedented. According to the
transcript, Mattingly said:

"It's pretty clear that these ESF operations are
authorized. I don't think there is a legal problem in
terms of the authority. The statue is very broadly
worded in terms of words like 'credit' --it has
covered things like the gold swaps -- and it confers
broad authority."

In his memo to Greenspan, Mattingly said he had
"no clear recollection" that he had referred to gold
swaps. "I believe that my remarks, which were
intended as a general description of the authority
possessed by the secretary of the Treasury to utilize
the ESF, were inaccurately transcribed or garbled,"
Mattingly wrote. He said Greenspan had accurately
stated the facts in his letter to Lieberman last year.

The Fed and the Treasury have asked to judge to
dismiss the gold committee's lawsuit. The Treasury
has said it has not held any gold in the ESF since
1978, and the Fed has said it has not engaged in
gold-related transactions.

"The Federal Reserve is in complete agreement with
the proposition that any such transactions on our part,
aimed at manipulating the price of gold or otherwise
interfering with the free trade of gold, would be wholly
inappropriate," Greenspan wrote in his letter to
Bunning.