Fed Years: What I Know About the Federal Reserve

Author: Lawrence H. Meyer
Publisher:
Publish Date: Not available
Features: On the morning of September 9, 2001, as a representative of the Federal Reserve in the U.S. delegation led by Treasury Secretary Paul O'Neill, I arrived in China. This would be my last official visit to the country, and I brought my wife along so that I could share with her the excitement of being in 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 International Club Hotel in Beijing, situated on a quiet tree-lined avenue in Beijing's embassy district. The next day, we spent the entire day discussing with our Chinese counterparts. The Minister of Finance of China, Xiang Huacheng, delivered the opening remarks, followed by Secretary O'Neill. Then, Deputy Secretary of the U.S. Treasury John Taylor and I moderated discussions on current issues. The Chinese were most interested in how to expand their capital markets, improve 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 capital market activities. It was astonishing to me that this socialist country took the capitalist system so seriously. The Chinese were very practical. They sought our advice on what they should do in their situation. They were very candid and straightforward.
After the meeting, Secretary O'Neill traveled to Japan for a visit. 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 trip, I was determined to go.
At the end of the conference, 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 hoped to have a quiet dinner together. It was nearly 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 in the world. As I watched the TV screen, I saw smoke coming 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 confused about what was happening. It appeared that a small plane had crashed into the World Trade Center due to navigation system failure. I called my wife over to see.
Then, we witnessed the horrifying moment in real time as the second plane hit the South Tower. The commentators couldn’t immediately connect the two hits, but they quickly realized they were part of the same event. It was a deliberate act, and it wasn’t a small plane that had struck the building—it was a large jetliner used as a weapon to attack 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 clearing banks were just a few blocks away. If these buildings were damaged or destroyed, what would happen to the payment system?
It was clear that plans had to be made and policy responses considered. But I was in Beijing, and the situation was becoming increasingly clear, and 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 Federal Reserve governor in Washington—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 to the U.S. Since the cargo plane only had a bench seat in the rear, he returned to Washington from the co-pilot’s seat.