Top Fed Lawyer Says '95 FOMC Transcript Misquoted Him. - By Joseph Rebello - Dow Jones Newswires
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 "ourletter-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.