Never any blackout on Fed's private chats with investment houses


NY Fed's 'Mr. Inside' Dudley Flapping His Gums

By John Crudele
New York Post
Wednesday, January 5, 2010

The president of the Federal Reserve Bank of New York doesn't know when to keep his mouth shut.

The entire Fed regularly observes what it calls a "blackout period" starting one week before Federal Open Market Committee meetings and lasts until the Friday after those meetings.

In case you don't know, FOMC meetings are where the Fed decides whether to change interest-rate policy.

But there is also a communique released just hours after the meeting concludes in which the Fed gives its view of what the economy is doing. It might also hint at unusual moves like quantitative easing in this communique.

Once it is released, that communique goes through a word-for-word analysis by everyone who follows the markets. Even a whiff of something changing could send markets soaring or collapsing.

That's why the Fed muzzles its members. The form on which outside organizations can request a Fed speaker says "please be advised that there are timing restrictions --- including FOMC blackout periods -- for certain types of speeches."

William Dudley, the head of the New York Fed, seems to have his own rules about talking to people during the blackout period.

Dudley's office recently released his daily work schedule for the past two years. That schedule shows Dudley isn't shy about talking during those blackout periods with people on Wall Street who might benefit from his knowledge.

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Take March 11, 2009. The blackout period ran from March 10-18. I know this because those dates are written in capital letters -- "PRE-FOMC BLACKOUT PERIOD" -- right at the top of Dudley's calendar for that day, a reminder, I guess, from his assistant.

Remember, the financial markets were in disarray back then and the FOMC was meeting on March 17 and 18 to figure out what to do. No speeches were allowed.

Still, Dudley decided to have an "informal meeting" from 6 p.m. to 7 p.m. on March 11 with Goldman Sachs chief economist Jan Hatzius at the Pound and Pence restaurant near the New York Fed's headquarters.

I have to give you some factoids here. Before he joined the Fed, Dudley was an executive with Goldman. So he and Hatzius could very well be friends who were talking about their kids' summer plans or their wives' spending habits.

But still, there was a blackout period in effect. And a slip of the tongue by Dudley could have given Hatzius and Goldman valuable information. Even a pained expression on Dudley's face could have told Hatzius too much.

I called the New York Fed and asked for a clarification of the blackout rules. What I wanted to know: Was the rule only for speeches? Could it be possible that private meetings that could benefit small groups are allowed but not public speeches that might help all investors? And what is the penalty for violations?

The Fed never called me back.

There was another blackout period from April 21-28, 2009. On April 22, one day into the blackout period, Dudley held a conference call at 9 a.m. with Jamie Dimon, the head of JPMorgan Chase. At 11:30 a.m. there was a meeting with Jeffrey Carp, executive vice president and chief legal officer of State Street Capital.

There were apparently others at that meeting because there was a notation "et al." accompanying that meeting. At 1:15 p.m. Stuart Bohart, the co-head of Morgan Stanley's asset management unit, had lunch with Dudley in the New York Fed's Washington Room. And at 3 p.m. John Mack, head of Morgan Stanley, met with Dudley for 45 minutes in Dudley's office.

I looked through some 460 pages of Dudley's schedule and he didn't always have such interesting meetings during the blackout periods. During the blackout period from Sept 15-23, 2009, for instance, there were no meetings or phone calls with Wall Street types -- or, at least, none noted on Dudley's schedule.

But there were enough at other times to make me wonder if Dudley was sensitive to the fact that his brain contained valuable information desired by the guys he was meeting. On Dec. 11, 2009, for instance, Dudley had a breakfast meeting with Goldman Chief Executive Lloyd Blankfein and that company's chief financial officer, David Viniar. The Fed's blackout period had begun three days earlier and lasted until Dec. 16.

Goldman is a primary dealer in government securities, so lower-level discussions with the Fed probably occur frequently. But a breakfast meeting? At the Fed? At a time when Dudley was preparing for an FOMC meeting and wasn't supposed to be tipping his hand in public?

Meredith Whitney, the influential bank analyst, was on Dudley's schedule on April 20, 2010 -- the day another blackout period started. During this past September's blackout period, Dudley met with a principal of Woodbine Capital, a hedge fund.

A source of mine who used to work at the Fed says private meetings like these during blackout periods have always been a matter of contention inside the Fed. And, quite frankly, I can't blame the folks who attended these meetings. If an influential member of the Fed like Dudley might have an indiscreet moment, why not listen?

My view? If the Fed doesn't want its people tipping information to the public in speeches, why wouldn't it crack down on private conversations that can be used for huge profits by small Wall Street groups that just happen to have the right connections? How is this fair to the investing public?

And how is this fair to every other investment firm that competes with the guys who lunched and breakfasted with Dudley during these periods when he is supposed to keep his mouth shut and his thoughts to himself?

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