Charles Brown CharlesB at
Tue Nov 9 09:23:44 PST 1999

So, do we or don't we have a central bank in the U.S. ?


>>> Doug Henwood <dhenwood at> 11/09/99 12:14PM >>>
Brad De Long wrote:

>There is a question: did the NY Fed implicitly give promises of
>future regulatory *forbearance* if the investment banks cooperated,
>or did it implicitly threaten to drop the regulatory hammer on banks
>that did not cooperate?
>I don't know. The people who do know don't tell. Probably it was as
>vague as "we hope that you all will be helpful..."

The Fed doesn't have to say things like that, does it? Isn't that part of where its head-knocking power comes from? They can make life difficult for those who don't play along (e.g. Drexel in the late 1980s), or easy for those who do.

A friend of mine who used to work at the NY Fed said that one way they get what they want is by becoming very inquisitive with troublemakers. Years ago, there was a currency trader at Bankers Trust who was playing games the Fed didn't like. So they asked to watch operations, asked for files, etc. BT ended up firing the guy. That's one of the reasons it's ludicrous when the authorities claim they just don't have the power to regulate the capital markets. If they wanted to, they could do a lot. They just don't want to.


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