The Federal Reserve last week published oral interviews with more than 50 policymakers and staff that were conducted in conjunction with its centennial in 2013.
The trove includes conversations with former chairs Paul Volcker, Alan Greenspan, and Janet Yellen, governors and senior staff, whose recollections span a half century of steering the world’s most powerful central bank.
Here are some of the memories that caught our eye:
Laurence Meyer, a Fed governor appointed by President Bill Clinton who served from 1996 to 2002, got a question he did not expect during his FBI background check.
“When I met the FBI agent, the very first question he asked was, ‘Have you ever smoked marijuana?’ The question came out of the blue. I never thought he would ask that question. I sat there and I paused for a second and thought, ‘What should I say?’ I could say ‘no’ and nobody would ever find out. I was at a party once or twice, and I had a puff. It wasn’t important. But I said to myself, ‘No, you don’t want to lie here.’ So I said, ‘Yes.'
“I explained the context. Honestly, I had sleepless nights wondering whether that was going to be important. Then I dreamed that I honestly saw the headline in the paper: ‘President Clinton Withdraws Nomination from Pot-Smoking Professor.’ And then I said, ‘Clinton? Not a chance.’ ”
It was 1965. President Lyndon Johnson was in the White House and Fed governor Dewey Daane was heading home from the airport in Washington when his driver informed him that he was wanted over at the U.S. Treasury for a quick word with an official who “wanted a few minutes” of Daane’s time.
“I walked into his office. This official looked up at me and said, ‘If you vote for the discount rate increase, the president will see to it that you never have another job, and I’ll help the president.’ That was his greeting.”
He voted for the increase anyway.
Frederic Mishkin, a governor from 2006 to 2008, thought of dissenting over monetary policy decisions but decided against it after talking with then-chairman Ben Bernanke, because “if I dissented it would create a lot of problems for him and for the institution. My view in that context was that you provide your views, but you’re part of a team.’’
The Fed’s 12 regional bank presidents, though, felt no such obligation and Mishkin called them out for talking in public about interest rates and for caring “more about getting their name in newspapers,” which he argued made the Fed look bad and hurt its credibility.
Lack of message discipline was less of a problem under Greenspan, who had the ability to really embarrass colleagues to keep them in line. Mishkin said it was “like watching a Kill Bill movie’’ as Greenspan “sliced up’’ dissenters during meetings.
Edward Gramlich, a Fed governor from 1997 to 2005, raised an early alarm over subprime lending abuses, well before the housing crisis began to gather steam. But his warnings failed to stir action to head off the coming credit crunch that triggered a global financial crisis.
“We have to fix this problem, and we have to fix the problem before the next cycle,’’ Gramlich said he told the Kansas City Fed’s conference in Jackson Hole, Wyo.
But Greenspan had little interest in consumer issues and “he didn’t trust me,” Gramlich said, foiling his efforts to boost scrutiny of mortgage lenders.
It was October 1979 and Chairman Paul Volcker was about to take a massive step toward getting inflation back under wraps by adopting a new approach to policy that would raise interest rates aggressively. In a sign that this was something special, the Fed called a highly unusual press conference on Saturday night. But the central bank back then didn’t operate under quite the same glare of media scrutiny that it does now. Head of public affairs Joseph Coyne rang around to make sure the reporters turned up. CBS asked him, “Is it important?’’ In the event, the rarity of the occasion ensured that the press showed up in force.
Gerald Corrigan, who ran the Minneapolis Fed from 1980 to 1984 before taking over in New York until 1993, cheerfully remembered instructing Citibank chief John Reed that his bank was in trouble and needed to raise $5 billion in fresh equity “or I’m going to do it for you. Let me know what your decision is.”
It was November 1989 and the Fed was getting seriously worried about bank exposure after a series of massive leveraged buyouts. Reed called Corrigan a month later and said that Saudi Prince Al-Waleed bin Talal was ready to put up $1.5 billion. But Washington wanted Corrigan to make clear to the prince that there would be restrictions on the capital raising.
“So I went to Saudi Arabia. I was met at the airport and driven off into the desert, literally. I didn’t know where we were. I ended up in this tent out in the desert, with all the rugs and pillows, and the prince and I had a little heart-to-heart talk.”