other than yourself. No need to stir things up unnecessarily.”
“I understand.” God, these Fed guys never stop with the secrecy, do
they?
Sawyer thought. “Why don’t you give them to me now.”
Tiedman cleared his throat and began. “There were five such instances.
December nineteenth, 1990, was the first change. The others occurred on
February twenty-eighth of the following year, September twenty-sixth,
1992, November fifteenth of the same year, and finally April sixteenth,
1993.”
Sawyer wrote them down. “What was the net effect? After all five
changes?”
“The net effect was to add one-half a percentage point to the Fed Funds
Rate. However, the first reduction was one percentage point.
The last increase was three-quarters.”
“I take it that’s a lot at one time.”
“If we were in the military discussing weapons systems, one percentage
point would easily equate to a nuclear bomb.”
“I know if early word leaked out about the Fed’s decision regarding
interest rates, then people could make enormous profits.”
“Actually,” said Tiedman, “advance notice of the Fed’s action on
interest rates is, for all intents and purposes, worthless.”
Mother of God. Sawyer closed his eyes, slapped his forehead and leaned
back in his chair so far he almost toppled over. Maybe he should just
plant his trusty ten-millimeter against his temple and save himself
additional misery. “So, excuse my French, but why all the goddamned
secrecy?”
“Don’t misunderstand me. Unscrupulous people could certainly profit in
innumerable ways from learning inside information about the Fed’s
deliberations. However, advance information of Fed action is not
typically one of them. The market has an army of Fed watchers who are
so adept at their job that the financial community usually knows well in
advance whether the Fed is going to lower or raise interest rates and by
how much. In effect, the market already knows what we’ll do. Is that
clear enough for you?”
“Very.” Sawyer exhaled audibly. Then he jerked up in his chair.
“What happens if the market is wrong?”
Tiedman’s tone showed he was very pleased with the question.
“Ah, that is an entirely different matter. If the market is wrong, then
you could have enormous swings on the financial landscape.”
“So if somebody knew ahead of time that one of these unexpected changes
was coming down the pike, he could make some nice profits?”
“That’s considerably understating it. Anyone with advance information
of an unanticipated Fed change in interest rates could potentially make
billions of dollars seconds after the Fed action was announced.”
Tiedman’s response left Sawyer momentarily speechless.
He wiped his brow and whistled under his breath. “There are innumerable
vehicles in which to do so, Lee, the most lucrative probably being
Eurodollar contracts trading on the International Monetary Market in
Chicago. The leverage is thousands to one. Or the stock market, of
course. Rates go up, the market goes down, and vice versa, it’s that
simple. You can make billions if you’re right, lose billions if you’re
wrong.” Sawyer was still silent. “Lee, ! believe there is one more
question you want to ask me.”
Sawyer cupped the phone receiver under his chin while he hurriedly wrote
down some notes. “Only one? I was just getting warmed up.”
“I think this query may make unimportant anything else you may want to
know.” Although Tiedman seemed on the surface to be toying with him, the
agent sensed a true grimness behind the tone. He pushed himself to
think. He almost yelled into the phone when it hit him. “The dates you
just gave me, when the rates changed–were they all ‘surprises’ to the
market?”
Tiedman paused before answering. “Yes.” Sawyer could almost feel the
electricity coming over the phone line. “In fact, they were the worst
kind of surprises for the financial markets, because they did not occur
as the result of regularly scheduled Fed meetings, but by Arthur’s
unilateral actions as Fed chairman.”
“So he can raise rates by himself?”
“Yes, the board can give the chairman that power. It’s often been done
over the years. Arthur lobbied hard for it and got it. I’m sorry I
didn’t tell you that before. It didn’t seem important.”
“Forget it,” Sawyer said. “And with those rate changes, maybe somebody
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