Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, July 2, 1994 TAG: 9407040109
SECTION: BUSINESS PAGE: A6 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
Despite their reassuring public pronouncements, they also confessed privately to an inability to foresee the economy's future with any certainty, according to previously secret transcripts released Friday.
In the middle of it all they could still joke with Fed Chairman Alan Greenspan about missing baseball's pennant race.
But Greenspan underscored the seriousness of the situation, saying at one point that the nation was closer to a monetary collapse ``than we would like to believe.''
The transcripts provide an extraordinary glimpse into the inner sanctum of the central bank during crisis. The Fed released some 600 pages of what it described as lightly edited transcripts from the period between Aug. 18, 1987, and July 19, 1988.
On Oct. 19, 1987, stock markets around the world plunged. The Dow Jones industrial average tumbled a record 508 points.
The Federal Reserve and its chairman, Greenspan, are widely credited with helping contain the damage by swiftly lowering interest rates and prodding banks to lend to strapped financial market investors.
At the time, policy-makers suspected - but had no assurance - they would be successful in preventing the crash from setting off a worldwide economic downturn, as the 1929 stock crash did.
The Fed's chief policy-making group, the Federal Open Market Committee, held telephone conferences each workday from Oct. 16 to Oct. 30, 1987.
However, only one telephone transcript survives, a partial one from Oct. 20. Federal Reserve spokesman Joseph Coyne said Fed officials did not know why the other meetings weren't recorded.
Under pressure from Rep. Henry Gonzalez, D-Texas, chairman of the House Banking Committee, the Fed has been releasing transcripts more than 5 years old. In a statement, Gonzalez said the missing telephone transcripts illustrate the need for legislation requiring the Fed to make and release detailed records of its meetings.
On Oct. 20, Fed policy-makers were in what Greenspan called ``a crisis environment'' and were focusing on the ``immediate period of chaos.''
An anxious E. Gerald Corrigan, then president of the Federal Reserve Bank of New York, reported on conditions on Wall Street. ``It's quite clear that a lot of people are not entirely sure where they are,'' he said.
By the time policy-makers met face to face, on Nov. 3, they were breathing a bit easier but were still worried about a recurrence of market trouble and about the crash's impact on the broader economy.
Greenspan and others spoke about the possibility the crash would turn out to be a blessing in disguise by lowering interest rates and dampening inflationary pressures - which is what happened.
Still, Greenspan laid out a worst-case scenario - what he called ``a flight from the future'' - with investors dumping long-term bonds and stocks, and the value of the dollar collapsing, forcing the Fed to raise interest rates by two or three percentage points at once.
``We would have all these crazy, horrible events that none of us thinks can happen until we see them,'' he said. ``We would get into the types of problems that a historic monetary collapse always creates. We are far from that at this stage, but I suspect a lot nearer than we would like to believe.''
by CNB