Federal Reserve Years LIANCHU SUIYUE

Author: Bao Mingyou et al
Publisher:
Publish Date: 2005-04-01
Features: As a former member of the Board of Governors of the Federal Reserve, the author takes readers behind the closed doors of the Federal Reserve for the first time through a series of real-life stories, revealing the inner workings of the Federal Reserve's meeting room and unveiling the mystery of the Federal Reserve and its monetary policy operations. With the talent of a renowned American economist, the author provides a clear and organized description of complex economic issues in the book, offers vivid and easy-to-understand introductions to policy-making, and presents insightful perspectives on irrational exuberance, the new economy, and the global impact of U.S. monetary policy. On the morning of September 9, 2001, as part of the U.S. delegation led by Treasury Secretary Paul O'Neill, I arrived in China as the Federal Reserve's representative. This would be my last official visit to China, and I asked my wife to accompany me so that I could share with her the excitement of this great nation. During a brief meeting, Secretary O'Neill and I paid a visit to Chinese President Jiang Zemin. Afterward, we arrived at the Beijing International Club Hotel, located on a quiet tree-lined avenue in Beijing's embassy district. The next day, we held discussions with our Chinese counterparts all day. The Minister of Finance of China, Xiang Huacheng, delivered the opening remarks, followed by Secretary O'Neill. Then, Deputy Treasury Secretary John Taylor and I moderated a discussion on current issues. The Chinese were most interested in how to expand their capital markets, improve the defects in their banking system, and reform state-owned enterprises. They wanted to know how we regulated banks, how the U.S. securities market complemented the banking system, and how we regulated the activities of capital markets. It was astonishing to me how seriously this socialist country took the capitalist system. The Chinese were very practical. They sought our advice on what they would do in their situation. They were very candid and straightforward. After the meeting, Secretary O'Neill traveled to Japan. My wife and I stayed in Beijing, where I had another day of discussions with Chinese scholars and economists from the country's think tanks. Later, my wife and I planned to visit some local attractions. Visiting the Great Wall was particularly exciting for me. I had visited China four times but had never seen the Great Wall, so on this visit, I was determined to go.
At the end of the meeting, a brief reception was held at the ambassador's residence, which was just a short walk from the hotel. My wife and I walked back to the International Club Hotel. We had planned to have a quiet dinner together. It was almost 9 p.m. Beijing time, which was 9 a.m. on September 11 in New York.
Following our travel habits abroad, we turned on CNN to see what had happened in the U.S. and elsewhere. As I watched the TV screen, I saw smoke rising from the North Tower of the World Trade Center. The anchor's tone was still not overly emotional at that point, merely analyzing the situation. They seemed a bit baffled by what had happened. It appeared that a small plane had crashed into the World Trade Center due to a navigation system failure. I called my wife over to see.
Then, we witnessed a terrible scene firsthand—the moment the second plane hit the South Tower. The commentators couldn’t immediately connect the two hits, but they quickly realized they were the same thing. It was a planned attack, and it wasn’t a small plane that had collided with the building. Instead, a large jetliner had been used as a weapon to strike a symbol of U.S. capitalism.
My reaction was not the role I should have played as a monetary policy decision-maker, but rather the loss of life and the grief that struck my family. But soon, I realized that the Federal Reserve would have a lot of work to do.
Although the Twin Towers of the World Trade Center had not yet collapsed, I immediately began to worry, as there were many financial institutions inside the World Trade Center. Other institutions were also nearby: the New York Federal Reserve Bank and several major domestic clearing banks were just a few blocks away. If these buildings were damaged or destroyed, what would happen to the payment system?
Clearly, plans had to be made, and policy responses had to be considered. But I was in Beijing, and the situation was becoming increasingly clear. The problem I had to solve was how to get home.
I contacted the Board of Governors in Washington and spoke with Vice Chairman Roger Ferguson. Ironically, he was the only member of the Board of Governors in Washington at that time, while the others were either on domestic or overseas trips. Chairman Greenspan was in Basel. Upon learning the news, Chairman Greenspan took a military aircraft back home. Since the cargo plane only had a bench seat at the rear, he returned to Washington from the co-pilot’s seat.