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The Seventeen-Year Lie

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The following is an exclusive adaptation from Deception and Abuse at the Fed: Henry B. Gonzalez Battles Alan Greenspan's Bank

The Senate Banking Committee has a unique opportunity on Thursday to get real answers from Federal Reserve Chairman Ben Bernanke. He'll be testifying for his job, after all. Here's one query that ought to come his way: When will the Fed stop shredding the unedited source transcripts of their policy making committee’s meetings they had sent to the National Archives and Records Administration?

Vice Chairman Donald Kohn informed me they had begun destroying these records in 1994 and planned to continue. My investigation of this particular travesty is one problem described in Chapter 6 shown here, “The 17-Year Lie,” of my book, “Deception and Abuse at the Fed.” I assisted former House Financial Services Committee Chairman/Ranking Member Henry Gonzalez in investigations of the Fed while the institution was lying, year in and year out, to Congress.

What would happen to unelected officials in a governmental bureaucracy with immense economic powers, which include controlling the country's money supply, regulating large parts of the financial system, and making loans to foreign countries, if they perpetuated a lie for seventeen years about the existence of records of their deliberations? What would happen if, when the lie was finally uncovered, they began destroying their source records? The press and the public would be outraged and would demand that these unelected officials, who have violated the public trust in a great democracy, be, at the very least, fired. They would demand an end to all these practices.

That did not happen at the Federal Open Market Committee (FOMC). When Gonzalez invited Fed officials to testify about their records in 1993, Greenspan and some Fed officials planned and participated in diversionary tactics, even if that meant misleading Congress about seventeen years' worth of secret Fed transcripts. In some cases, the statements that officials sent Congress for insertion in the hearing record were false, and they knew this before they testified.

When Gonzalez uncovered the seventeen-year lie, it drew a few press stories but no sustained coverage. The endless stream of superlatives for Greenspan continued. For seventeen years the Fed had lied, but its chairman remained deified.

Early Revelations of the Secret Transcripts

The Fed began preparing paraphrased transcripts of FOMC meetings in 1936 for internal use. Each was called a "Memorandum of Discussion" (MOD). Fed chairman William McChesney Martin threatened to end this practice in 1964. He threatened the wrong congressmen: two outspoken Democrats who would later become chairmen of the House Banking Committee. Wright Patman and Henry Reuss did not blink when confronted with this threat. The House Banking subcommittee chaired by Patman voted (6 yes, 1 no, and 1 present) to demand the verbatim transcripts for 1960, 1961, 1962, and 1963. The Fed sent Congress these records and began issuing paraphrased transcripts they called the MODs, with a five-year lag. Milton Friedman and his coauthor Anna J. Schwartz believed that the publication of their classic history of U.S. monetary policy in 1963, which was very critical of the Fed, along with the congressional requests for FOMC records, induced the Fed to begin publicly issuing the MODs in 1965.

Valuable information was obtained from these records, since all statements were attributed to specific individuals. An example is the questionable legality and propriety of beginning a so-called "swap" facility in 1962 by which the Fed gave itself the power to make loans to foreign governments without congressional authorization.

Fighting for Longer Delays and Less Sunshine

Fourteen years later, in 1976, two attacks on Fed secrecy created high anxiety at the Fed. First, David Merrill, a law student at Georgetown University, brought a legal action challenging the forty-five-day delay in releasing the "Directive" on monetary policy. It is a short report on policy actions authorized at an FOMC meeting.5 The federal district court agreed with Merrill. The Fed appealed up to the Supreme Court, which remanded it back to the district court. Lacking funds for further extensive adjudication, Merrill could not pursue the case. The Fed has more than all the money it needs--an "unlimited purse"--to hire private law firms and fight any legal action for a long time. Adjudication of charges of alleged racial discrimination at the Board of Governors (described in Chapter 8) had been in a federal court for a decade in 2007.

The second attack on the Fed's secrecy came from the Government in the Sunshine Act, which was signed into law September 13, 1976. According to the statute: "The agency shall make promptly available to the public, in a place easily accessible to the public, the transcript, electronic recording or minutes . . . of the discussion of any item on the agenda." (In this case, "agency" refers to any body in which most of the members are appointed by the president and confirmed by the Senate--like the Fed Board of Governors.) The Fed frantically tried to protect itself from such transparency and individual accountability. FOMC meeting transcripts from 1976 and other documents reveal that Fed officials devoted considerable time to preparing memoranda and discussing the dreaded timely release of their FOMC deliberations to the public. The staff reported on April 7, 1976, that they could be subject to a court order to produce part of the MODs: "Second, it is becoming increasingly evident that, so long as the memorandum of discussion exists, many of us will have to spend a large amount of time in the effort to comply with Court orders to make portions public."

The Mock Funeral

The seventeen-year lie began. Fed chairman Arthur Burns notified House Banking chairman Wright Patman in 1974 that he could not give Congress the FOMC transcripts because "they are routinely disposed of after the Committee has formally accepted the memorandum of discussion for the meeting in question," adding, "currently we are employing a combination of note-taking and tape recording. In any event, the materials are disposed of when they have served their purpose, as noted above." Three years later, in testimony before the House Banking Committee, Burns maintained the fabrication: "In the absence of express statutory protection against premature disclosure of the memorandum, we would feel compelled to object to a proposal of returning to the practice of keeping extensively detailed minutes of FOMC meetings."

The FOMC voted 10-1 to discontinue the MODs in 1976. That vote began the official seventeen-year lie. Among those voting to discontinue was the president of the New York Fed Bank, Paul Volcker, who would become Fed chairman. Philip Coldwell, president of the Dallas Fed Bank, was the only dissenting vote.

The Fed's announcement of the end of the MODs produced a firestorm at House Banking. Hearings were held. Laws were proposed to restart the MODs. The chairman of the Subcommittee on Domestic Monetary Policy, Stephen L. Neal (D-SC), contacted many distinguished academics and people from the financial community, requesting their opinion concerning how FOMC meetings should be documented and made public. A preponderance of seventy respondents wanted either the transcripts or the MODs restored, and many wanted timely publication. Milton Friedman, the Nobel laureate, wanted publication with only a few days' delay. "

A Devious Way to Get around the Law"

Burns outfoxed some people by announcing a substitute for the transcripts. Ninety days after the FOMC meetings, the public would get something called the "Minutes of the Federal Open Market Committee." These minutes would not contain statements for attribution to FOMC members. They would not even record a member's individual views except for a very brief description of any recorded nay votes. Since the Fed tries to make the publicly recorded vote unanimous, generally little or no individual responsibility can be divined from these remnants.

Burns told Congress that the minutes recorded the votes responsibly: "The new policy record does not attribute individual opinions to committee members by name; but the record always reports the votes of the members by name and their accountability is preserved." Each time the padded but anemic substitute was published, it was received with great gusto and given wide press coverage by the Fed-watchers industry. Entrails are better than a complete record for those employed to interpret them.

As Burns led the committee members to the funeral for the MODs, David Eastburn, president of the Philadelphia Fed Bank, warned, "It seemed to me that we incur certain costs in cutting out the memorandum of discussion in terms of implications to others on the outside that we're being more secretive if you want to put it that way, that this is a devious way to get around the law" (emphasis added). A page from the MOD containing Eastburn's remarks is shown in Figure 6-1. It is less tidy than the transcripts from future periods, when computers had replaced typewriters. Notice that Chairman Burns ("CB") replied by saying, "That depends how we present it. Now I would want to present this, I would want to make a virtue of this, and never mind how we arrived at it. We were not seeking virtue for the sake of virtue."

Burns was dismissive when doubts about the lack of a full record were raised at an FOMC meeting. He replied: "I think you credit individuals who follow the Federal Reserve with more knowledge than I think many of them really have. . . . those who feel that it merely repeats that which they already know will have no difficulty skipping paragraphs or pages." Denying for the record that the minutes should be padded, he ordered more pages: "We're describing this document as an expanded policy record. . . . Now on that basis of this concept the document should be longer, you see, must be longer, and this is a formal consideration that cannot be neglected, and we need some additional pages. I'm not going to tell you how to add additional pages, and I'm certainly not going to say that we should do anything that remotely resembles padded, but produce several additional pages" (emphasis added).

Secrecy and Videotapes

Sixteen years later, alarm bells went off at the Fed as Gonzalez began asking about the records of FOMC meetings. During 1992 and until October 1993, officials of the Greenspan Fed answered Gonzalez's inquiries with warnings about the harmful effects of openness at the nation's central bank. The videotaping of FOMC meetings, proposed in Gonzalez's legislation (HR 28), triggered extreme irritation in Fed officials. For many of them, and for other admirers of the Fed's "independence," it was an insolent intrusion that would lead to blatant transparency and individual accountability. Fed officials said the quality of their meetings would be severely impaired. As late as 1998, Greenspan was still warning the FOMC: "If we went to the fullest extent in that direction [more information], then Henry Gonzalez's approach of live transmission of this meeting obviously would be the most ethical and most directly available source of information to the market, but it also would be the most useless." He misrepresented Gonzalez's bill, which provided for a sixty-day delay before the release of the videotape of a session. The bill also prevented pulling the plug on the tape recorder when an FOMC quorum was present.

Behind the public rhetoric of disdain for the Gonzalez legislation, Greenspan and other Fed officials reached for additional political muscle. The chairman of this politically powerful governmental bureaucracy traveled to Little Rock, Arkansas, in 1992 to talk with the president-elect. Reporting to the FOMC about his meeting with Bill Clinton, Greenspan interpreted Clinton's "body language and peripheral comments" as "consistent" with Fed independence. (For further details, see Chapter 10.)

During the first year of his presidency, Clinton notified all governmental agencies to comply with the Freedom of Information Act in his "Memorandum for Heads of Departments and Agencies." The Justice Department would implement this new administration policy. Greenspan reacted by warning FOMC members: "The trouble, unfortunately is . . . the Department of Justice would not under the Freedom of Information Act be on our side in the court to protect these particular transcripts and prevent [their release]."

In pursuit of FOMC records, Gonzalez used the White House directive and comments from numerous scholars who had responded in 1976 to the request by Congressman Neal for their views. Many were opposed to the discontinuance of the MODs. John Kenneth Galbraith wrote: "The effort at secrecy has only one source: That is the long-standing effort of those having to do with banking and central banking to feel that they are above the procedures ordinarily required of other individuals and agencies. . . . There is no good reason why full minutes should not be published and why the obligation should not be fully on the Chairman to see that all discussion is on the record."

The Fed Can't Afford It

The statements issued by the FOMC in 1976 on why the MODs should be discontinued included the following transparently inapplicable rationale: "The decision to discontinue the memoranda [the MODs] reflected the Committee's judgment that the benefits derived from them did not justify their relatively high cost."

In an FOMC conference call on October 15, 1993, Chairman Greenspan made a similar suggestion to justify eliminating a verbatim record of FOMC meetings. It cost too much. In the Fed's wasteful, bloated bureaucracy, which has an operating budget exceeding $2 billion, this rationale is a meaningless excuse for secrecy.

Doodles and Rough Notes

Much to their assumed consternation, an impressive array of the nation's central-bank officials assembled behind a long, continuous row of tables in the Wright Patman Chambers of the House Banking Committee, with Greenspan in the middle. They looked up at Henry B. Gonzalez, House Banking chairman. Gonzalez had sent each of the twelve Fed Bank presidents and the seven members of the Board of Governors specific requests for information. The letter sent to Fed governor David W. Mullins, Jr., is shown in Figure 6-2. They were directed to submit statements for the record on "any notes or records that you have made in connection with FOMC meetings" or "others have made at any FOMC meetings and the location and disposition of any such material."

According to their prearranged plan, nearly all the witnesses deferred to Greenspan, who did not disclose the most important fact concerning the FOMC records, which had seemingly shocked some of them four days earlier: the existence of FOMC transcripts from many prior years. The committee did not know that most of the witnesses had decided not to change their formally submitted written statements even after being told, four days before the hearing, that prior transcripts existed. Thus, some of them let stand written statements that misled Congress on the areas about which they had been instructed to testify.

Robert McTeer, former president of the Dallas Fed Bank, testified: "I doodle during discussions and occasionally write down a word or phrase for reference when I speak. I don't write down decisions because they are simple and easy to remember, and normally come at the end of the meeting. My doodles and notes all mixed up would be of no use to traders or journalists. I destroy them after the meeting and rely only on official documents for future reference."

Did McTeer seriously think that when he was asked about FOMC records, Gonzalez would be satisfied to learn about his discarded doodles? What official documents was McTeer talking about? Greenspan testified that the FOMC kept "rough notes." These answers appeared evasive and misleading.

With artful sleight of hand, Greenspan, in his prepared statement, emphasized the temporary nature of FOMC records: "The meetings are recorded electronically by the FOMC secretariat. . . . the tapes are recorded over . . . In the process of putting together the minutes, an unedited transcript is prepared from the tapes, as are detailed notes on selected topics."

Gonzalez then inquired of all the witnesses: "In the questions that I had directed, I did ask and each of you responded, as to their notes or records that you are aware of. But today's testimony by Chairman Greenspan reveals to me, at least, that the FOMC meetings are tape-recorded. . . . What I am going to ask is if any of you knew or know about these recordings being made when you submitted your written testimony for today's hearing. . . . I will be glad to hear from any of you."

As previously planned, the Fed officials let Greenspan answer. He drew attention to tapes and notes rather than the existence of years of transcripts: "The FOMC staff, in the preparation of the minutes, takes a recording for purposes of getting a rough transcript, but the tapes are taped over." Greenspan then emphasized: "In other words we don't have the actual tapes themselves. We don't have electronic recordings of our meetings." Gonzalez said he was a "little bit confused here. In other words you have no tape recordings of the actual proceedings." Greenspan injected his own uncertainty about what his staff does: "We have them only--as far as I know, what the staff does is, in order to assist its presentation and preparation of the minutes, it takes recordings but then tapes over them so they are not available thereafter."

Congressman Maurice Hinchey (D-NY ) probed further: "And in the interim [before the minutes are issued], those tapes are taped over, so that no record exists in that way. Is that correct?" Greenspan replied: "There is no permanent electronic record, that is correct. We obviously have rough notes." The neatly typed FOMC transcripts I later viewed were not rough notes.

Jim McTague, then the Washington bureau chief for American Banker and now the Washington editor of Barron's, attended the hearing. He reported: "In a performance that would have made professor Irwin Corey weep with admiration Mr. Greenspan avoided drawing attention to the existence of transcripts during appearances before the House Banking Committee on Oct. 13 and Oct. 19 to discuss FOMC record keeping." Corey has famously performed as a double-talking comedian.

David Skidmore, an Associated Press reporter who was later employed at the Fed, wrote an article entitled "Greenspan Defends Secrecy Surrounding Key Central Bank Committee": "Federal Reserve Chairman Alan Greenspan warned lawmakers today that forcing central bank policy makers to operate with less secrecy would hurt the economy. . . . Disclosing the committee's directives, which are often conditioned on future economic events that may or may not happen, would cause changes in interest rates even when the panel intended no immediate change, he said."

The Lie Revealed

Skidmore also reported that Gonzalez said: "There appears to be conflicting statements, less than forthright responses, and possibly some jointly arranged understanding with regard to the testimony."

Gonzalez was not convinced that the nation's central monetary-policy committee destroyed the verbatim records of its meetings and maintained only rough notes of members' statements, as Greenspan had testified. Gonzalez ordered that letters be faxed immediately to all the witnesses, asking if they had been forthright in their testimony and demanding details of their knowledge of FOMC records.

The pressure from Gonzalez, a legislator who would not reach an "accommodation," did elicit a break in what Gonzalez called the "code of silence." In response to the post-hearing letters that Gonzalez sent to witnesses, the House Banking Committee received information regarding an FOMC conference call that had occurred four days before the hearing. David Wessel reported in the Wall Street Journal about this break in the Gonzalez investigation: "Fed Chairman Alan Greenspan saw this coming, according to the extraordinary notes of an hour-long Oct. 15 conference call among Fed officials: 'AG [Alan Greenspan] not as confident as previously that Fed is not at risk,' an official of the Cleveland Federal Reserve Bank recorded. 'Fed vulnerable if mishandle transcripts matter.' The notes were obtained and released by the House Banking Committee, which has demanded unedited copies of the transcripts as well as the public release of edited transcripts older than three years" (emphasis added). Pointing to the sudden change in the Fed's public stance, Wessel added: "As recently as last month, Mr. Greenspan testified that releasing a transcript of Fed deliberations 'would so seriously constrain the process of formulating policy as to render those meetings unproductive.'"

Seven days after the hearing, on October 26, the Fed liaison phoned a House Banking Committee staff member (me). He said that a courier would deliver a letter from Greenspan to Congress that would be made public in one hour. It is customary to allow the recipient member of Congress adequate time to read a letter from a governmental entity before making it public. Discourteous, preemptive disclosure may be used to jump ahead of the expected news coverage of the recipient's public reply, the news value of which would be diminished.

Greenspan's Memory Problems and Admission

As Greenspan admitted in this letter to Congress: "Unedited transcripts exist for each regular meeting of the FOMC held after the meeting of March 15-16, 1976." Greenspan explained that he had some memory problems: "I was aware from the beginning of my tenure that the meetings were being taped. Several years ago, staff informed me of the existence of transcripts. . . . I gave the matter of these procedures no further thought until recently. Indeed, until a staff member jogged my memory in the last few days, I had been under the impression I first learned about a year ago that transcripts were being retained."

The congressional publication The Federal Reserve's 17-Year Secret summarized Greenspan's responses to the committee in a column of a table labeled "Date of first knowledge of FOMC transcripts": "Knew in 1987, then forgot. Told FOMC members on October 15, 1993 that he remembered one year ago. Several days before he sent 10/26/93 letter staff had reminded him that he knew two years ago."

Anna Schwartz, a distinguished scholar and coauthor of books with Milton Friedman on the history of the Fed and monetary policy, was quoted in the Washington Post the day after Greenspan's letter was made public: "Whether there has been a deliberate attempt to pull the wool over people's eyes, I don't know. But obviously they have not been truthful all these years." The mock burial was now revealed. The transcripts were never discontinued. Transcripts did exist. The transcripts from the Burns Fed are part of the papers Arthur Burns bequeathed to the Gerald R. Ford Presidential Library. They have been lightly edited by archivists from the National Archives and Records Administration. In the 1980s, Fed Chairman Volcker reportedly prevented Fed staff from destroying FOMC transcripts that were being secretly maintained.

The Submission of Incorrect Testimony to Congress

Gonzalez drew attention to Fed responses that "clearly do not reveal the existence of tape recordings or transcripts." It was difficult to understand how Fed officials did not know or forgot that they were being taped or that FOMC transcripts were being maintained. Meanwhile, Gonzalez asked the same group of witnesses to send any material related to an FOMC conference call on October 15, 1993. Some of the nineteen Fed decision makers responded. Silas Keehn, president of the Chicago Fed Bank, admitted, "At the time of the October 15 conference call, I expressed concern about the possibility that my testimony as then drafted might be viewed as inaccurate," adding, "Others expressed similar views but I am unable to recall who did so or their comments in any detail."

It should be mandatory for officials of the nation's central bank to give accurate replies to Congress rather than to merely express their concerns to one another. A table from The Federal Reserve's 17-Year Secret, entitled "Responses of Presidents Who Refused to Submit Their Notes on the October 15, 1993 FOMC Conference Call," is shown in Figure 6-3. The report also tabulated an interesting summary of when the Fed officials admitted they knew about the transcripts. One indicated being aware of transcripts as far back as 1989. Most indicated they had not known until immediately before the hearings. "If We Keep Stonewalling, We're in Trouble".

Chairman Gonzalez demanded the transcripts of the FOMC conference call during which the Fed had planned its testimony. The Fed resisted. Gonzalez reluctantly agreed to an alternative procedure, in which congressional staff members would go to the Fed and listen to the tapes of that call.

On January 13, 1994, a group of Democratic and Republican staff members from the House Banking Committee, including me, went to the Board of Governors. We listened to a tape recording of the conference call. The room was crowded with Fed and congressional staffers. Over the objection of senior Fed staffers, I turned the tape recorder off after short intervals so that the congressional staffers could make a verbatim record of the conference call.

During this FOMC conference call, some FOMC members displayed an anxious tone: they had been informed that transcripts existed and that the secret might be uncovered at the hearing four days later. Robert McTeer appeared to know what they were doing when he said, "If we keep stonewalling, we're in trouble." A top staff person who would become Fed vice chairman, Donald Kohn, explained what Greenspan intended to do, a clear policy to mislead Congress about the written records of the FOMC, which had been specifically requested in writing: "The Chairman is not highlighting these transcripts . . . We're not waving red flags." Greenspan said he took some solace from his recent testimony experience, on October 13, before House Banking: "I would say Fed-1, House-0. We were on very safe ground earlier this year, and presumed threats to the Federal Reserve System were considerably far less six to nine months ago . . . We can become very vulnerable if this is not handled properly."

Virgil Mattingly, general counsel for the Fed, tried to soften the idea of possible public disclosure of the transcripts: "Well, I don't know what the Justice Department would say, but my suspicion is that they would probably say that we are fully able to put a disclaimer on those transcripts saying that they are rough and unedited and they may or may not reflect what the person actually said." Greenspan replied: "You know, that's like taking the National Enquirer and putting that on the front of it. [Laughter]" Governor Wayne Angell added: "And every newspaper that quoted it would run the full disclosure as the lead!"

A Fed Bank president inquired whether Gonzalez knew about the transcripts or leaks of information. A Fed congressional liaison replied: "I don't have any sense that they have any knowledge whatever of what we've been talking about."

A Fed Bank president stated that some Fed officials had submitted false written statements to Congress: "Some members of the FOMC who happen to be members of the Board of Governors knew about the transcripts. Other members who happen to be Reserve Bank Presidents didn't know and now have submitted to Washington statements saying that they didn't know. And that's going to come out on Tuesday [at the hearing] and that's awkward." Although "awkward" is a gross understatement for describing the submission of false written statements to Congress, Greenspan did not see a problem. His reply bypassed the whole issue of sending knowingly false written statements to Congress.

Edward Boehne, president of the Philadelphia Fed Bank, confirmed the Fed's seventeen-year lie:

Let me just [say], since I may be one of the few people who was around when the Memorandum [of Discussion] was still being done and when the change was made, that to the very best of my recollection I don't believe that Chairman Burns or his successors ever indicated to the Committee as a group that these written transcripts were being kept. What Chairman Burns did indicate at the time when the Memorandum was discontinued was that the meeting was being recorded and the recording was done for the purpose of preparing what we now call the minutes but that it would be recorded over at subsequent meetings. So there was never any indication that there would be a permanent, written record of a transcript nature. And I think that.

Virgil Mattingly added, "That accurately describes what Chairman Burns told the Congress."

"I Hope They Didn't Think That When the Green Light Went on It Meant Raise Interest Rates"

The congressional staff members examined the meeting room used for FOMC and Board meetings. The recording systems were extensive. A voice-activated green light before each member who sat at the large conference table was part of the recording system. An adjacent room contained recording equipment. During FOMC meetings, a cable extended from this adjacent room to a string of microphones that were placed along one wall to make a backup recording. A staff member seated at the head of the conference table next to Greenspan assisted in operating the recording system. Just around the corner of the L-shaped hallway passage from the offices of Greenspan and the other governors was an office with a secretary and a file cabinet containing the FOMC verbatim transcripts.

This array of recoding equipment raised questions. How could any of the nineteen decision makers who had attended many meetings in this meeting room fail to know they were being recorded? How could any of them, including Greenspan, fail to comprehend that the recordings were being carefully typed and stored in an office around the corner from the conference room? How could any of them in carrying out their extremely important decision making, which affected the economic welfare of the nation, fail to ask the Fed staff if the transcripts were being retained? At a later Banking Committee hearing, Chairman Gonzalez asked one FOMC member, William McDonough, these questions. He had submitted a statement that declared that he did not know he was being recorded at FOMC meetings. Gonzalez quipped: "I hope they didn't think that when the green light went on it meant raise interest rates."

Governor Wayne Angell testified at this later hearing about Greenspan's memory problems: "He said he [Greenspan] forgot about the transcripts. He never forgot about the recording. . . . And I want you to know that in my view, Chairman Greenspan is one of [the] world's most accurate people; and he would never, ever want someone to believe what wasn't the case." That did not seem to explain the memory problems Greenspan said he had, as described in the congressional report.

Shredding Fed Records and Turning Off the Tape Recorder

Obviously, Chairman Greenspan's memory of the unedited transcripts was acute when he orchestrated an unrecorded vote to shred them. When, as a result of the Gonzalez hearings and investigations, the transcripts of the FOMC meetings from 1995 were placed on the Fed's Web site in 2001, it was astounding to find that the Fed officials had voted to destroy the unedited transcripts. As a professor of public affairs at the University of Texas, I wrote to Chairman Greenspan on September 3, 2001, praising him for his admission that transparency had not impaired their deliberations. Greenspan had acknowledged at a 1995 FOMC meeting that any prior reluctance to publish the transcripts was ill founded: "I believe there was some strong support within this Committee a year or so ago, mainly on the grounds that we thought the taping inhibited the deliberative process . . . I think the conclusion, with perhaps a qualification [a subpoena for early release of the transcript] . . . is that there is very little evidence that the quality of our discussions have been reduced."

My letter also contained some specific questions. A timely reply was not expected, because the terrorist attacks of September 11, 2001, occurred eight days after the letter was sent. However, Greenspan's senior staff member, Donald Kohn, who became a Fed governor in 2002 and vice chairman in 2006, replied in a letter to me on November 1, 2001. He confirmed that the FOMC members had voted to destroy their unedited transcripts for 1994, 1995, and 1996.

FOMC members were told in 1995 that even though they were "not permitted" to discard "raw transcripts" of meetings before 1994, future unedited transcripts would be "thrown out," and only transcripts edited by the Fed would be retained. FOMC members were also told to move some discussions to the lunch period, when "the tape is not on."

The 1995 transcripts also revealed that FOMC members agreed to pull the plug on the taping system used at their meetings without agreeing on the subjects that should be "off the tape." The term "organizational subjects" was suggested for off-the-tape discussions, although there was little consensus on what that constituted. A subcommittee of the FOMC reported on its deliberations. The subcommittee chair, Governor Alan Blinder, characterized the discussion at the FOMC meeting: "I did not hear any consensus--maybe someone else heard a consensus. Maybe we should just have a vote on whether there should be an 'off the tape' portion. Do you agree?" Greenspan replied: "I agree." He later added: "I am not going to record these votes because we do not have to. There is no legal requirement." The vote was taken without recording members' names. Greenspan announced: "The 'Ayes' have it."

Greenspan's anonymous voting scheme removed the Fed officials' individual fingerprints from the vote to pull the plug on the recording of their meetings for undefined reasons--which means whenever they wanted to block the public or anyone else from finding out what they were saying.

"Unredacted" Does Not Mean "Unedited and Unredacted"

A final deceptive practice on shredding Fed records should be emphasized for the interpretation of Greenspan Fed records. Future Fed governor Kohn indicated in his 2001 letter to me that the Fed had notified Congress in 1995 that it would destroy the unedited FOMC transcripts, noting that the Fed "is not obligated to retain draft transcripts." He said that the minutes of the meeting held on January 31-February 1, 1995: reads as follows: "As permitted by the National records Act, the recordings and unedited transcripts will be discarded after all the participants at the meeting have reviewed and corrected, as necessary, the transcripts prepared by the Secretariat." In keeping with the National records Act and with the concurrence of officials at the National Archives, the FOMC is not obligated to retain draft transcripts or any meeting recordings used in their preparation. What must be retained are the edited transcripts, i.e., those that incorporate member corrections in both their redacted and unredacted versions. The redacted versions are released to the public after five years; the unredacted versions will be sent to the National Archives after 30 years.

Notice the word "incorporate," which is emphasized. The law, according to the letter, says "incorporate" not "shred." The corrected page from the FOMC MOD of April 20, 1976 (Figure 6-1), from the Burns Fed, was lightly edited by archivists at the National Archives. It is very different from the destruction of source FOMC transcripts, which the FOMC approved in a nonrecorded vote in 1995. Regardless of how the law cited above can be interpreted or twisted or even broken without consequence, Fed officials, who are unelected agents serving the public, should diligently preserve their source records for full accountability. That did not happen in the 1990s, and the practice may be continuing.

Kohn also said that Greenspan had sent a letter to six members of Congress in 1995 with this information. This congressional notification was in a class with the previously discussed 1962 Fed plan for using an obscure announcement that would not be fully perceived or properly understood to notify Congress about the new foreign-exchange operations it was undertaking.59 This was how the deception worked in 1995. A 1995 Greenspan letter looked as if it heralded the new procedures for openness at the Fed, but there was a terrible caveat: "I [Greenspan] am writing to bring to your attention recent decisions of the Federal Open Market Committee (FOMC) on disclosure of its policy and deliberations. As may be seen in the enclosed press release of February 2, 1995, the FOMC has formalized the procedures for greater openness in policy making that it has been using for the past year. We believe these procedures will make our policy intent as transparent as possible to market participants without losing our flexibility or undermining our deliberative process."

Greenspan announced the implementation of a formal practice that would require FOMC transcripts to be released after a five-year lag. This appeared to be the Fed's formal statement of its transparency rules. Then Greenspan used sleight of hand. With the shredding card up his sleeve, he held up the transparency card: "A complete, unredacted version of the transcripts of each FOMC meeting" would be retained, and then turned over to the National Archives after thirty years. Hail the rules for transparency: they will continue a policy of retaining the unedited transcripts!

No, that is wrong. On the second page of his letter, Greenspan states that unedited transcripts will be discarded: "As permitted by the National Records Act, the tapes [recordings of FOMC meetings] and unedited transcripts will be discarded when all the participants at the meeting have approved the lightly edited written transcript." So the Greenspan Fed is really shredding the unedited FOMC transcripts. A new distinction has been added to the vocabulary of deceptive record shredders: "unredacted" does not mean "unedited and unredacted."

Transparency, accountability, and trust are sharply curtailed by this practice, cleverly hidden by Greenspan, who publicly displayed his strong support for transparency and accountability: "It cannot be acceptable in a democratic society that a group of individuals are vested with important responsibilities, without being open to full public scrutiny and accountability."