Alan Grayson (Big D-FL08): "Did the Federal Reserve ever try to manipulate the U.S. stock market?"
Federal Reserve General Counsel Scott Alvarez: "No, sir, not that I'm aware of."
Grayson: "Not that you're aware of, but, you're the attorney, right?"
Alvarez: "That's right."
Grayson: "So, you might not even know, right?"
Alvarez: "I would expect to know if there were something like that being done. I am not aware of that at all."
Grayson: "And if you did know you'd be bound by attorney/client priveledge and you wouldn't be able to tell us, right?"
Alvarez: "Uhh, sir, if there were something the Federal Reserve were doing outside it's legal authority I would have an obligation to say something about that."
Grayson: "Alright, so we agree that any participation by the Federal Reserve in the stock marhet or the futures market is outside the Federal Reserves legal authority, right?"
Alvarez: "The Federal Reserve has some authoruty to regulate various aspects of markets and, uhh, participate in markets in certain ways, so, I think your question is too categorical,but . . . "
Grayson: "I think not, actually. Why don't you answer it."
Alvarez: "I don't know what, I don't know. Your question is so, uhm, overbroad, I don't know whhere to begin to answer it."
Grayson: "I don't think it's that overbroad. I'd like you to tell me if whether it's in the Federal Reserve's legal authority to try to manipulate the stock market or the futures market."
Alvarez: "Sir, I don't believe the Federal Reserve , uh, tries to manipulate the stock market."
Grayson: "Tries? Tried."
Alvarez: "No, sir."
Grayson: "Do they?"
Alvarez: "The Federal Reserve's, uh, obligation and what it does in monetary policy is try to influence interst rates, and in that way to, uh, maximize employment and to stabilize prices."
Grayson: "Now, if in fact the Federal Reserve were trying to do that, or doing it, isn't thhat something that we'd want to know?"
Alvarez: "And, to the extent that the Federal Reserve influences interest rates, it does make announcements of that decision immediately."
Grayson: "That's not what I said."
Attempted answer by Mr. Alvarez cut short
Grayson: "I said manipulate the stock market or the futures market, what do we want to know."
long pause
Grayson: "Yes or no?"
Alvarez: "Could you define what you mean by . . ."
Grayson: "I think you know what I mean Mr. Alvarez. Now wouldn't it be very helpful to have a GAO (U.S. Government Accountability Office) audit on that subject? Wouldn't it?"
Alvarez: "I don't know what it is that you are seeking to audit, sir."
Grayson: "But I just said."
Alvarez: "It would be helpful if you could . . . "
Grayson: "So let's go on to something else. Does the Federal Reserve actually posess all the gold that is listed on their balance sheet? Do they actually posess it?""
Alvarez: "Yes."
Grayson: "Has that been audited by the GAO?"
Alvarez: "Uh, I believe that is within the GAO's authority to audit, it's certainly something that our independant accountant is able to verify and does."
Grayson: "So, if I go ahead and ask for GAO audit you won't oppose it, right?"
Alvarez: "To auditing the presence of the Gold on the facility? I don't see any reason to object to that."
Grayson: "Good. Now there's been all sorts of claims of insider trading and front-running by the people who execute the trades for the Federal Reserve in the market. By the way, who is that? Who actually executes the trades for the Federal Reserve in the markets?"
Alvarez: "I haven't heard of any allegation of front running in the . . . "
Grayson: "Well that's funny, because you're the General Counsel, so if anybody would know that you would think you would know about it."
Alvarez: "The Federal Reserve Bank of New York is responsible for effecting the transactions and implementing monetary policy."
Grayson: "Ok, so, then answer the question."
Alvarez: "The Federal Reserve Bank of New York."
Grayson: "That's your answer?"
Alvarez: "You wanted to know who uh, implements the . . . "
Grayson: "You have people sitting in seats at the Federal Reserve Bank actually executing those trades? You don't delegate that to anyone else?"
Alvarez: "No, the Federal Reserve Bank of New York, of course, it's a process where there are several steps, the Federal Reserve Bank of New York executes transactions through primary dealers."
Grayson: "AHA! Okay, who are the primary dealers?"
Alvarez: "The list of primary dealers is on our website."
Grayson: "Do you know any of them? Can you name a single one?"
Alvarez: "Uh, uh, sure, JPMC."
Grayson: "Go ahead. What?"
Alvarez: "J.P. Morgan-Chase."
Grayson: "Okay. Do you mind if we have a GAO audit to see whether there has been front running or insider trading by them? Do you mind? Is that okay with you?"
Alvarez: "I'm not sure I have any decision making authority . . ."
Grayson: "Well, you're the General Counsel. I want to know if you're not going to try and stop it."
Alvarez: "The GAO, the GAO audits Government agencies, if you want an audit of a private sec, a private entity, I think that is something that Congress would have to change the authority of the GAO to allow."
Grayson: "Alright, now let's say, you're right, that's what we're doing right here, by the way, lets say that the Federal Reserve gave a billion dollars to a very promising fledling institution called the Dick Cheney savings and loan, whose only asset is an un-numberbed Swiss bank account, don't you think it would be a good idea for the GAO to have the GAO have authority to look into that?"
Alvarez: "So, under the GAO authority as written, a specif . . , a loan by the Federal Reserve to a specific entity, say, a particular bank as you've pointed out, would be subject to GOA audit, we don't oppose that."
Grayson: "Alright, now, the Federal Reserve has given 1 Trillion dollars out, 1 Trillion dollars in the past twelve months, that's how much the increase in it's assets and liabilities in it's balance sheet has been. Who got the money? This, by the wqay, is a question that was sent to me by Beatrice Delgado. She just wants to know who got the money. Will you tell me?"
Alvarez: "So, the, uh, most of the increase in our balance sheet has been the purchase of U.S. Government securities and the purchase of agency, uh, guaranteed securities in the open market from market participants broadly."
Grayson: "And what about the rest . . . "
Chairman: "The Gentleman's time has expired."
Grayson: "Thank you, Mr. Chairman, but I really think we need answers to these question and the only way to get answers to these questions is to have the GAO audit the Federal Reserve. Thank you very much."
Chairman: "I just want to make the point that if the Gentleman has more questions there will be an opportunity to submit them in writing, and that opportunity will be available. Uh, the Gentleman . . . "