Columbia Journalism School

WERT Federal Reserve

The Unique Role of the Federal Reserve Bank/NY in the Federal Reserve System: A Landmark Discussion with Its Former Presidents

Monday, September 25, 2006
Program Notes:
Annual Women’s Economic Round Table of the Knight-Bagehot Fellowship Program,
Graduate School of Journalism, Columbia University

Presidents of the Federal Reserve Bank/NY, in order of their tenure:
Paul A. Volcker, 1975-1979
Anthony M. Solomon, 1980-1984 (Unable to attend)
E. Gerald Corrigan, 1985 – 1993
William J. McDonough, 1993 – 2003
Timothy Geithner, 2003 –
Read more... Bios of the presidents

Consuelo Mack, Anchor, “Consuelo Mack WealthTrack” PBS/TV

John Authers, Investment Editor, Financial Times
Chrystia Freeland, US Managing Editor, Financial Times (Unable to attend)
Heidi Miller, CEO, Treasury and Securities Services, JP Morgan Chase
Terri Thompson, Director, Knight-Bagehot Fellowship Program

Dr. Amelia Augustus, Director, Women’s Economic Round Table of the Knight-Bagehot Fellowship Program, Columbia University Graduate School of Journalism

Bloomberg Headquarters in New York City

“Because of its location in the center of the nation’s financial system, the Federal Reserve Bank of New York often must address and manage imminent dangers before other banks in the Federal Reserve System may even be aware of them,” noted Dr. Amelia Augustus, Director of the Women’s Economic Round, as she convened the evening’s discussion. After remarking that the presidents of the FRB/NY have often become the guardians who protected our nation’s economy from sudden and unforeseen financial threats, Dr. Augustus summarized some of the challenges that confronted recent New York Fed presidents. In order of their tenure: Paul Volcker – the Franklin Bank failure; Anthony M. Solomon – the Iranian Gold crisis; E. Gerald Corrigan – the Stock Market crash in 1987; and William J. McDonough – the Long Term Capital Markets Hedge Fund threat.

As she introduced Timothy Geithner who succeeded Mr. McDonough when he stepped down to become the first Chairman of the Public Company Accounting Oversight Board, Dr. Augustus noted that, “Given the unforeseen financial threats mentioned above, I think you will agree that we wish Mr. Geithner a continued very calm and uneventful tenure at the New York Fed.” The audience erupted into the laughter of nervous recognition, setting the tone for a collegial discussion of issues of vital importance to the U.S. and world economies.

Geithner’s Tribute to His Predecessors

Recognizing that it was “a remarkable accomplishment to bring these men together because they rarely sit in a room on the same stage,” Timothy Geithner, FRB/NY president since 2003, said that Volcker, Corrigan, and McDonough, along with Alan Greenspan, helped define the modern doctrine of central banking that has brought great benefits to the U.S. economy and is hugely influential around the world. Among the tenets of this doctrine and the elements of their tenure, Geithner pointed out that the past four FRB/NY presidents recognized that: Central Bank credibility is vital and costly to lose. It depends on the confidence that the Fed will keep inflation low and more complicated factors, including our capacity to understand the forces that are operating on our economy, and on how – not just whether – we achieve price stability.

The Fed has important responsibilities beyond monetary policy. The Fed was given - at its inception - the very important role in the financial system in defining the appropriate balance between innovation and resilience, between efficiencies and stability, and our capacity to contain systemic risk… and that this depends on how wisely we are executing our supervisory responsibilities and how robust we make the infrastructure of the financial markets, and how close we are to markets and understanding innovation at the frontier, and how willing we are to act with speed and force.

While monetary policy is critical to how well the U.S. economy performs, the overall level of economic performance – the quality of growth in the United States – depends on policies outside the province of the Federal Reserve. It depends on the environment the government creates for risk-taking and innovation, on the quality of education, on how open we are to the rest of the world, on their personal credibility, even if the governments they served did not always defer to their judgment.

US policy impacts the rest of the world and that the fortunes of the world matter more and more to the fortunes of the United States. They made huge personal investments in building a strong network of relationships with financial officials and market participants around the world. Their tenures in office were defined in important ways by what they did to help resolve financial crises outside as well as inside the United States.

Central Banks like all public institutions depend on the capacity to attract and retain talented people, and to use those talents well. The New York Fed is distinguished today by the strength of the people who work there today - by their experience, by the quality of their ideas and judgment, by the power of initiative that originates in that building at Liberty Street. That’s one of the less visible but most of the legacies of these men.

Geithner added one more tribute, “Finally, although this list does not do them justice, these presidents were strong and effective not just because of the force with which they acted and their remarkable achievements in office; they were effective also because of their appreciation of uncertainty and of the limits of our knowledge. This appreciation made them more demanding in the standards they set and more able to build consensus and support for sensible policies.” He concluded that “Al Greenspan commented on the eve of his departure from the Fed that confidence in central banking had risen to exceptional high levels. He asked whether this was entirely healthy. He didn’t ask if it was deserved, just if it was entirely healthy. I don’t know the answer to that question, but I’m sure that these men contributed in ways that few can really appreciate to the performance of the economy and the financial system. They deserve a large part of the credit for the greater confidence the central banking system has achieved over the last twenty-five years. It’s a privilege to be here with them and standing in their shadows.”

Welcoming the Moderator to the podium, Dr. Augustus said one of the rewards of working with the Round Table for almost three decades, was the chance to watch and encourage women’s accomplishments. She first knew Consuelo Mack when she was the first woman to host a financial program on cable television – “and the men had to watch her because the program was on ESPN.” Now she anchors and edits her own program – WealthTrack– on PBS that is carried by more than one hundred stations throughout the country. (See has local channel listings and schedules.)

Consuelo Mack opened the discussion by saying that, as a business journalist, she felt reassured by two counts: “first of all, the panelists would not be here if something were seriously amiss in the financial system at the moment. And second, if a financial crisis develops in the next hour, we will be the first to know.” She thanked them for stabilizing her blood pressure for at least one hour. She introduced the discussants, Terri Thompson, Director of the Knight-Bagehot Fellowship in Economics and Business Journalism and co-host of the program with Dr. Augustus; Heidi Miller, Chief Executive Officer of JP Morgan Chase Treasury and Securities Services; and John Authers, the Investment Editor of the Financial Times. She also set the ground rules for the questioning by the discussants and then the audience: “No Fedspeak by people on either side of the podium… or a loud buzzer will go off!”

Terri Thompson (Director, Knight-Bagehot Program): “Central Bankers are often characterized as the overprotective mothers of the global economy because they worry so much. What are the two or three things that worry you most today?

William J. McDonough (FRB/NY President, 1993-2003) was first to concern: global imbalances. Pointing out that, “the US last year imported $800 billion in other people’s savings, representing 6 ½% of gross domestic product. In days of yore, rich countries exported savings to poor countries.” Today, he pointed out, countries like China, Brazil; others are not investing enough in their own societies and instead are sending money to the United States. Because the US has very developed financial markets, Mr. McDonough pointed out that, “We are the importer of last resort – the place to invest of last resort. We are, however, a country with a very serious problem of an aging population.” He pointed out that the Social Security system and Medicare system on an actuarial basis are both in deep bankruptcy. “Therefore, it is not appropriate for us as a society to be living higher than we should.”

Mr. McDonough gave the statistics - for example, China has 400 million people below the poverty line, 800 million living in poor rural areas – and noted that, “It makes no sense that they have a trillion dollars in reserves and that we the people of the United States are living better as a result of that. We have to do a better job; they have to do a better job of managing their economies. This is a situation which left to its own devices, is one that will hit a brick wall. The only question is, when?”

Next, E. Gerald Corrigan (FRB/NY President, 1985-1993) with three concerns: 1) U.S. savings rate is zero - potentially very dangerous not just financially but also for the well-being of citizens; 2) Financial imbalance. “There’s a small risk that the inflation genie will get out of the bottle. I want to emphasize that’s a very small risk. But I’ve learned that once the genie is out, it is very, very expensive to put it back in the bottle”; and 3) Financial instability, because a lack of savings and the possibility of inflation are problems that have the potential to generate financial instability. “We can’t anticipate the timing and the triggers of financial shocks.” Mr. Corrigan explained why it is so important that we must get the fundamentals right.”

Paul A. Volcker (FRB/NY President, 1975-1979) said, “I should resist the temptation to say what burns me most is that I’m not in Washington!” After a burst of laughter at this unexpected honesty (and supportive applause), the large audience of about two hundred seemed to become a small group of friends gathered round for an informal conversation with friends who just happened to be presidents of the New York Fed. In a more serious tone, Mr. Volcker saw more to worry about than the economy. “There are an awful lot of things going wrong that are more important than monetary policy.” Then he got down to his main economic concern: “I’m more worried about inflation than Mr. Corrigan.” He discussed the fact that people seem under psychological and political pressure not to do anything about inflation. “A lot of people on Wall Street and Main Street are operating on the assumption that nothing very startling will happen in terms of restraints. Once many people are convinced of this, inflation will creep up on you” and then becomes very difficult to get it under control.
Heidi Miller (CEO, Treasury Securities Services, JP Morgan Chase): “I am at the unique disadvantage in representing the only entity regulated by the Fed – so do I incur the wrath…? I’ve also had the unique distinction of being in each of the Fed;s offices during many of these crises in the last couple of decades as a small “bit” player. I think about Long Term Capital in terms of what happened last week. I wonder, if in retrospect Mr. Corrigan – do you think that intervening in Long Term Capital was a wise decision? And, if so, do you think it made any difference, long term, in the evolution of the hedge fund market?

“First of all, I would take exception to the term ‘intervention’ being a problem,” began Mr. Corrigan. More laughter from the audience and a supportive “Bravo!” from Mr. McDonough, Mr. Corrigan continued. “If, every time we held a meeting with financial institutions, it was called ‘intervention,’ I would have made Attila the Hun look like a pest.” He explained that what the Fed essentially did was to provide a setting, bringing together “a cross-section of leaders from the private sector to sit down together – no white smoke or black smoke going up the chimney – and sort out what they collectively thought was in their best interest and for the public interest. And to stabilize what potentially could have been a very, very, very nasty situation.” He went on to discuss moral hazard of doing nothing and the risks involved. As a result of asking financial institutions to figure out how to deal with the hedge fund crisis, the private sector pledged $3 ½ billion to deal with the problem. “That’s a powerful anecdote to a moral hazard.” By bringing institutions together to come up with their own solutions, the Fed did right for the well-being of the system.”

Asking if he could add a footnote, Mr. McDonough said: “I’m a public servant. The psychic income of serving the nation as a patriot is mine.” Addressing Ms. Miller directly, he added, “You all are responsible for deciding if what may be in the public interest is also in the interest of your shareholders. Whatever you do has to be for that reason. The Federal Reserve owes you nothing. The government owes you nothing. And I owe you nothing. There’s nothing but a private sector solution for a private sector problem.” He said he stated that view point every time he had meetings like the ones Mr. Corrigan mentioned. Private sector people are paid by shareholders to represent their shareholders. They’re not paid to be patriots. It’s nice if they’re patriots. But what they should be doing in making the kind of decision to recapitalize Long Term Capital Management was because they thought their shareholders would be better off to recapitalize rather than to let it fail and have a real question about what damage that failure would do to them.”

The collegiality of the evening was strong enough to handle disagreements. “I disagree,” said Mr. Corrigan, explaining that,“The leaders of the financial system are not just responsible to shareholders. They are concerned about what’s good for the public, too.”

Mr. Volcker commented that he had reservations about that particular operation at the time and still holds steadfast to his reservations today. He discussed what is or is not part of the Fed’s legal supervision and oversight responsibility as an institution. The Fed cannot provide money, but can provide a meeting room and use moral persuasion. The question is, whether this particular institution at that particular time was justified? Mr. Volcker did not consider the representation at that meeting broad enough because many were large investment banks, although McDonough pointed out that 17 were commercial banks. Mr. Volcker was also concerned that if institutions think that any performance is possible and an institution that gets into trouble will be rescued, many will just go out and do it again. “And some did.”

John Authers (Investment Editor, Financial Times), after saying that he was standing in for Chrystia Freeland who could not attend, explained that the Credit Derivatives market has expanded dramatically in the last five years. The total outstanding debt now is a $12 trillion market. Today, the New York Fed invited forty leading credit dealers in the last year and told them to clean up your act or we will do it for you. He said he would be interested at what point is it appropriate for the Fed to step in and do it for them. He was also interested in how comfortable the presidents are with the progress made by the financial industry on its own, specifically “What do you think are the acceptable borders of intervention, moral suasion, or with the trading of credit derivatives and the re-trading/re-packaging of credit risk?”

Mr. Corrigan discussed the importance of taking into consideration the context, and discussed the integrity of the infrastructure, supporting operation of the over-the-counter market in credit derivatives. When he was involved in putting together an industry report in May ‘05, he was taken aback – shocked - to discover the severity of the problems because, if there had been a major financial disturbance for other reasons, the condition of the infrastructure supporting the derivatives market would have made for an extremely difficult situation. In the report, “We made a series of recommendations – what I would call, ‘housekeeping recommendations’ with a capital H. After the report was published, there was immediate consensus that involved not just the Federal Reserve Bank of New York but every major regulatory body in every industrialized country. This was a broad consensus among industrialized countries and in the US, the SEC, FSA, DIS, Treasury, Interest Stability Forum -. that getting this cleaned up was a very, very high priority.”

Mr. Corrigan explained that the Fed provided another forum and basically said to the industry, come up with comprehensive plans, operational targets to get this under control. The SEC and the FSA insisted there be a plan, but industry came up with the specifics of the plan. Their plan was an extremely ambitious agenda with hard targets that were to be accomplished within 6-12 months. They immediately ended the practice of assigning trades to others without telling the first party. That was fixed by October 2005. I thought this was the high water mark of constructive public/private sector cooperation to deal with a very pressing public problem. “I should add, we’re not exactly finished dealing with it.”

Mr. Volcker pointed out that, “I thought I had a deal with Amy that was we would talk about long term institutional factors, not this up-to-date stuff.” After the laughter subsided, he discussed the de facto responsibility of the New York Fed to maintain close contact with the market and its institutions. Only the Fed in New York can do this. Washington is more or less distant and focused on other issues. There is no other Federal Reserve Bank that has the tradition, manpower and ability to monitor the markets and institutions in the same way that the Federal Reserve Bank of New York. Therefore, it is very important for the New York Fed to take on this primary, de facto responsibility and to intervene, if necessary. He added that he realizes “things look different from inside when deciding whether or not to intervene than they do from the outside. But it’s a basic function of the institution.”

Mr. McDonough had no comment.

Mr. Geithner said he can’t improve on what Mr. Corrigan and Mr. Volcker said, but pointed out that, “This has worked reasonably well. This market has grown by 50% in the last twelve months and the number of the unnamed trades has been reduced by three-fourths.” He then discussed some other, similar problems in other parts of the OTC derivatives market. In two days, he said the group would meet at the New York Fed to outline how they plan to tackle those problems. It’s an encouraging model. We left it to the market to define the solution.” He said the Fed set up a fairly, clear, transparent approach and had remarkable cooperation and communications where the Fed served as a catalytic force for collective action. Not every issue can be resolved so collaboratively.

Mr. Authers: Just “hypothetically” - when would you clean up?

Mr. Geithner: “We never said it was a choice between you solving it or we’d solve it for you, because this was all only going to be solved by the participants in the market - by making substantial investments in people and systems to clean this up. They had a compelling interest in solving this. And they had a compelling interest in proving to us that they could solve it quickly without waiting for us to come in and tell them how to do it.”

Ms. Thompson introduced the second round of the discussants’ questions by saying that Walter Bagehot, for whom the Knight-Bagehot Fellowship Program was named, was a real proponent of clear, precise, concise writing for journalists. That’s what we’re teaching our journalist students at Columbia. She was interested in how important are clear communications to the Fed and how have communications and their requirements changed over the years. Particularly, Ms. Thompson asked, “Do you believe the markets and the media misread comments by the Fed’s chair – and if so, why?” (The question was greeted by laughter by the panel as well as throughout the room.)

Mr. McDonough began his comment with,It is important that the Fed speak very clearly on matters on which clarity is possible.” The audience greeted this with another burse of laughter. Mr. McDonough explained that a statement like “Monetary policy will depend on incoming data” is clear. The market can decide how to interpret the data. That is a function of being able to read the market future, which is always difficult, particularly at a turning point, which is where I think we are. How deep the softening will be, you never know. For the Fed to say “We think the economy will do exactly this” would be silly and a great disservice to society. He pointed to the clarity of comments just made about the role and responsibility of the Fed in problems like the ones faced by the credit derivatives market as an example of issues that the Fed can discuss clearly. He summarized by saying, “When you can be clear, be as clear as you can be. But do not pretend you have knowledge of the future when in fact, the Federal Reserve does not have such knowledge.”

Mr. Corrigan added one more concern about the belief “that the central bank can and should telegraph in advance any change in the funds rate or other policy target seems to be very short-sighted.” At the extreme, if the Fed does that, he said one could make the case that the Fed is basically turning responsibility for monetary policy over to the financial markets.

Mr. Volcker added a personal example of communications. The day after he spoke to a House Committee, the Wall Street Journal reported he said “tightens” and the New York Times reported he said “easing.” (Another burst of laughter from the audience.) “All I was trying to do was explain the complexities of the real world.” Mr. Volcker went on to say that “actions speak louder than words. Words shouldn’t confuse,” adding more examples and ending by wondering whether “the market should be spoon fed or make up its own mind? But maybe I’m old school.”

Mr. Geithner added that “I’m willing to be associated with the old school on this issue as on many issues.”

Ms. Miller mentioned some of the preceding discussion of the Fed as guardian of economic policy with a responsibility to monitor the markets and their institutions. She then asked, In a world where non-bank financial institutions are becoming increasingly involved in creating derivative instruments and trading those instruments where capital moves, what has changed – or needs to change – in the Fed’s roles and responsibilities?

Mr. Geithner responded by saying the NY Fed has ample authority to supervise and regulate but added that there has been enough change in the financial system over the last few decades that it may in the future be useful to reassess the balance between supervision and regulation, and between efficiencies and stability to make sure the balances work. “I don’t think you can look at balance today and say it’s clearly wrong, clearly inadequate. But we may come to a point in the future that we reassess the basic design.”

Mr. Volcker called the changes in the market a “big, big issue.” He said he had defended the Federal Reserve’s leadership in the regulation of banks and of being the lender of last resort. He pointed out that it was enough to control banking when 60 -70% of the financial systems were commercial banks. That was enough. But today we’re a long way from that. The so-called big commercial banks aren’t commercial banks any more. They are more often subsidiaries of larger financial institutions or want to become investment banks, insurance companies. He discussed the possibility that a case may need to be made for changing the distribution of supervision authority and the role of the Fed in regulation to reflect the changes in the industry. He cited, but did not recommend, the example of Great Britain, where the central bank does not have any regulation authority.

Mr. McDonough discussed the likelihood that in the fairly distant future, the Congress of the United States and the president of the day will decide to look at the present system where the Federal Reserve supervises directly only banks, the securities firms are sort of regulated by the SEC, and the hedge funds not regulated by anybody. They may decide that is a situation that can’t work. But it invariably demands now that the Federal Reserve interest itself in institutions other than the banks more than it had to in the past. He explained “that’s why Paul Volcker and I have a little difference of opinion.” He discussed the lead-up to 12-31-99 and concern about whether the computers would work. It didn’t matter whether it was a bank’s computer or an investment bank’s computer that didn’t work. It still would have been a problem and the Fed would have had to be in the middle of it, if only supplying liquidity through the banking system to the market in general. He said it’s a system that works almost despite the design which is very much inherited from the past. “One would hope that we won’t wait until a crisis that is truly a mess for the Congress and the president to look at the structural issue and decide to put in place a supervisory system that is more appropriate.” He added that he would be loathe to have a system like the one in England where the Bank of England is not involved, noting that he could not imagine a regulatory system in the U.S. in which it would not be better for the Federal Reserve to had a very powerful and important position.

Mr. Volcker noted that Congress will be involved, for better or worse.

Mr. Corrigan expanded the discussion to include the jurisdictional question with global markets. In addition to considering responsibilities for monitoring the various types of financial institutions within the United States, he commented that coordination and cooperation across borders is of equal importance. Saying he had been away fourteen years. How is it working now?

Mr. McDonough said it is working very well – “informal, but it works.”

Ms. Miller added that the coordination of regulatory agencies within the U.S. is “creaky.” The level of disclosure between the agencies is not seamless and recommendations of the various bodies that are helping to regulate us are practically contradictory. She said it is worse when you go overseas. Some years the FSA in England has had good coordination with the U.S. or at least has a healthy level of respect. That totally disintegrates when you go to some other countries where, if the U.S. Fed says one thing, they go entirely in the opposite direction.

Mr. Geithner acknowledged the realities, saying that we live in a world of sovereign states and will for a long time. Sovereign states want some capacity to set conditions of how they operate in the markets. The reality is we operate with a multiplicity of different regulators with somewhat different objectives, preferences and regulatory standards. He acknowledges it is quite a challenge for financial institutions as well as for the Fed. The foreseeable solution to the problem will not be one single neat solution for global regulation.

Mr. Auther: asked about monetary policy. In addition to inflation, how important are assets and asset prices for monetary policy? For example, the investment markets, the housing markets?
Mr. Volcker, in discussing the Importance of assets and what the Fed can do, gave an example – he called it a “parable” – of the analysis of what went wrong in Japan. The common lore was that the interest fell by half a percent. But in the same period, there was a 75% drop in both the real estate market and the stock market. He pointed out that the Japanese financial system is dependent on real estate and Japanese banks are depended on stock. A drop in both those assets created a big drag on the economy. Because of the focus on banking, the tools of monetary policy were used too late and exacerbated the crisis. Mr. Volcker discussed the difficult judgment of when to intervene, particularly when the risk of global reaction is great – at some point between the two extremes of waiting too long to intervene or intervening with every blip.

Mr. Corrigan answered the question with two questions. Should central banks target asset price bubbles in housing and stocks? The answer is no. But are there circumstances in which emerging condition in the form of asset price developments might warrant a “tilt” in monetary policy; for example, a little more firm or easy? The answer is yes, in some circumstances. “There’s no cookbook or rulebook.”

Ms. Miller asked, “Current circumstances?”

Mr. McDonough: Policy instruments available to the Fed do not lend themselves to aiming right at a financial bubble. He discussed the period of about three years between irrational exuberance and a market correction. During that time, stock prices look rather heady. But to attack the asset prices, would also be to attack the real economy. He commented that, “You can have monetary policy be a little firmer than it might otherwise be or a little more accommodative. I don’t think there’s any way in the world in which it would be justified for the Central Bank to say the equity price is higher than we’d like it to be or housing prices are too high, so let’s put in a very firm monetary policy and slow down the economy and create unemployment. That simply is not what the laws of the United States say we should be doing.” He said that leaning against it, as Mr. Corrigan suggested, is very appropriate. “But a direct attack on asset prices – I just don’t think we have the tools. And the use of those tools would be very detrimental to the well being of our people.”

Ms. Mack asked Mr. Geithner – if he wanted to add anything but he said it sounded pretty good.

Several of the questions from the audience included:

Negative savings rate cause for concern… How can we get consumers in the black?
Mr. McDonough considered the question of what to do about household savings, now negative, one of the toughest questions facing us. Many consumers increased expenditures by taking equity value from their homes. This will be difficult if they have a break-even cash flow. When the interest rate is reset, mortgage companies will have to decide whether to dispossess or work with borrowers. He hopes they will work with borrowers. Consumer confidence surveys show that people realize that their spending was greater than it should have been. He feels the economic adjustment will be gradual and not have a lot of people suffering and on the streets. It could get worse. It’s very much a question of mass psychology. Are the American people going to be very traditional, happy and think that tomorrow will always be a better day? The answer to that will impact consumer spending.

What can the Fed do about the impact on the future of the American economy of rising U.S. government deficits?(The questioner: John Brademas former president of New York)

Mr. McDonough: Comptroller General of the US, David Walker’s report on the total fiscal picture of the US included not just the budget, but also Medicare/Medicaid, Social Security. Assume that Medicare/Medicaid and Social Security are the same and then make some assumptions about the budget – does it grow with GDP? Or a lower rate due to inflation? Do tax cuts remain or end? Assume the budget will grow with GDP and the tax cuts will be continued, then in the year 2040, according to David Walker, the total income stream to the federal government will be 18-20% of GDP and the total expenditures of the federal government will be 45% of GDP. The math doesn’t work. John McCain was very forceful in speaking to The Economic Club on this topic. Whether or not he is the Republican candidate in 2008, he is powerful enough that since he is serious about it, all candidates must take it seriously. And they’ll claim to be the guy who can handle it. They’ll create a commission to figure out what we do. But the mathematics makes it undeniable that the American people must adjust to a stern reality. The longer we wait to adjust; the rule of compound interest says the price will be greater than nasty.”

Mr. Corrigan added that this is not a Federal Reserve problem to solve, but it is important for the Fed to keep a steady hand on the helm, not let monetary policy capitulate. He asked a larger question: “When will we see the beginning of a bipartisan spirit in the Executive and Congress to solve this problem? I don’t see a wave of bipartisanship around the corner.” He discussed the fact that no one in our democracy is worried about the future, saying, “The waves lapping up on shores of NY in global warming. It’s is too far off to motivate anyone to stop the process.”

Mr. McDonough said that’s why it is so important politically that McCain is taking a position on savings.

Keeping her promise to participants, Dr. Augustus ended the discussion on time, reinforcing her view of the New York Fed presidents as the guardians of our economy. She thanked them for giving us a very rare opportunity and thanked the discussants and the audience for joining in the evening. Comments could be heard throughout the fully booked auditorium from people wishing they could listened for hours more as lines began forming to speak individually with the presidents and discussants at the podium.


(in order of tenure)


Mr. Volcker became president of the Federal Reserve Bank/NY on August 1, 1975, at the age of 47. As president, he also served as vice chairman of the FOMC. Previously he served in a variety of positions with the Treasury, Chase Manhattan Bank, and the New York Fed.

Mr. Volcker earned a BA, summa cum laude, from Princeton and a MA degree in political economy and government from Harvard University Graduate School of Public Administration. From 1951 to 1952, he was Rotary Foundation Fellow at the London School of Economics.

Mr. Volcker’s experience with the New York Fed began when he worked as a research assistant in the research department during the summers of 1949 and 1950. He returned to the New York Fed as an economist in the research department in 1952, and became a special assistant in the securities department in 1955. Two years later, he resigned to become a financial economist at Chase Manhattan Bank.

In 1962, he joined the Treasury as Director of the Office of Financial Analysis, and in 1963 he was appointed Deputy Undersecretary for Monetary Affairs. In 1965, he rejoined Chase Manhattan as vice president and director

From 1969 to 1974, he was Undersecretary of the Treasury for Monetary Affairs. His five-and-a-half-year tenure covered a period of rapid change in international and domestic financial affairs.
After leaving the Treasury, Mr. Volcker became senior fellow at the Woodrow Wilson School of Public and International Affairs at Princeton for the 1974-75 academic year.

He was named chairman of the Board of Governors of the Federal Reserve System by President Carter, and was sworn in on August 6, 1979. He served until August 11, 1987.


Mr. Solomon became president of the New York Fed and vice chairman of the FOMC on April 1, 1980, at the age of 60, capping long service in the federal government.

Mr. Solomon graduated from the University of Chicago in 1941, with a bachelor’s degree in economics and soon afterwards joined the American financial mission to Iran.

He entered Harvard University in 1946, and he received a MA degree in economics and public administration in 1948 and a doctorate in 1950.

Mr. Solomon spent the next ten years in Mexico, as a publisher, and then as president of a Mexican food company. In 1961, he joined the faculty of Harvard University.

He returned to government service two years later as chairman of various missions, and was later appointed Deputy Assistant Secretary of State for Latin America.

From 1965 to 1969, Mr. Solomon was the Assistant Secretary of State for Economic Affairs, and a member of President Johnson’s five-man task force on the reform of the international monetary system.

In 1969, he established the International Investment Corp. for Yugoslavia at the request of Robert McNamara, president of the World Bank. He left in 1972 to become an adviser to the chairman of the U.S. House of Representatives Ways and Means Committee, and assisted in the development of trade legislation.

Mr. Solomon served as Undersecretary of the Treasury for Monetary Affairs from March 1977 to March 1980.

He stepped down as president of the New York Fed in 1984.


Mr. Corrigan became chief executive officer of the New York Fed and vice chairman of the FOMC on January 1, 1985.

Prior to his appointment, Mr. Corrigan was president of the Minneapolis Federal Reserve Bank for four and a half years.

Mr. Corrigan earned a bachelor of social sciences degree in economics from Fairfield University, Fairfield, Connecticut in 1963. He received a MA degree in 1965 and a doctor of philosophy degree in 1971, both in economics, from Fordham University.

His career at the New York Fed began in 1968 when he joined the domestic research division as an economist, after teaching at Fordham University in 1967-68. From 1968 to 1979 he served in a variety of staff and official positions including vice president for planning and domestic open market operations.

In August 1979, he went on leave from the Bank to become special assistant to Federal Reserve Board Chairman Paul Volcker in Washington, DC. While there, he was named chairman of the Basle Committee on Banking Supervision by the governors of the central banks of the Group of Ten countries.

Mr. Corrigan was instrumental in establishing, and also served as co-chairman of, the Russian-American Banking Forum. It was set up in June 1992 to assist Russia develop its banking and financial system infrastructure.

After nearly 25 years of service in the Federal Reserve System, Mr. Corrigan stepped down as president of the New York Fed on July 19, 1993. In July 1993, President Clinton appointed him to head the newly established Russian-American Enterprise Fund


Mr. McDonough served as the eighth president and chief executive officer of the Federal Reserve Bank of New York for ten years--from July 19, 1993 to June 10, 2003. On June 11, 2003, he became the Chairman of the Public Company Accounting Oversight Board (PCAOB) at the Securities and Exchange Commission. The PCAOB is a not-for-profit organization created by the Sarbanes-Oxley Act to protect investors in U.S. securities by ensuring that public company financial statements are audited according to the highest standards.

As president of the New York Fed, McDonough served as the vice chairman and a permanent member of the Federal Open Market Committee (FOMC), the group responsible for formulating the nation's monetary policy. Mr. McDonough also served as a member of the Board of Directors of the Bank for International Settlements and chairman of the Basel Committee on Banking Supervision.

Mr. McDonough began his career at the New York Fed in January 1992 as executive vice president, head of the bank's markets group, and the manager of open market operations for the FOMC.

Mr. McDonough retired from First Chicago Corp. and its bank, First National Bank of Chicago, in 1989 after a 22-year career there. He was vice chairman of the board and a director of the bank holding company from 1986 until his retirement. Before joining the New York Fed., Mr. McDonough served as an advisor to a variety of domestic and international organizations.

Prior to his career with First Chicago, Mr. McDonough was with the U.S. State Department from 1961 to 1967 and the U.S. Navy from 1956 to 1961.

Mr. McDonough earned a MA degree in economics from Georgetown University in 1962, and a BA degree, also in economics, from Holy Cross College in Worcester, Mass, in 1956.

At present he is Vice Chairman and Special Advisor to the Chairman of Citigroup.


Timothy F. Geithner became the ninth president and chief executive officer of the Federal Reserve Bank of New York on November 17, 2003. In that capacity, he serves as the vice chairman and a permanent member of the Federal Open Market Committee, the group responsible for formulating the nation's monetary policy.
Mr. Geithner joined the Department of Treasury in 1988 and worked in three administrations for five Secretaries of the Treasury in a variety of positions. He served as Under Secretary of the Treasury for International Affairs from 1999 to 2001 under Secretaries Robert Rubin and Lawrence Summers.
He was director of the Policy Development and Review Department at the International Monetary Fund from 2001 until 2003. Before joining the Treasury, Mr. Geithner worked for Kissinger Associates, Inc.
Mr. Geithner graduated from Dartmouth College with a bachelor’s degree in government and Asian studies in 1983 and from the Johns Hopkins School for Advanced International Studies with a master’s in International Economics and East Asian Studies in 1985. He has studied Japanese and Chinese and has lived in East Africa, India, Thailand, China and Japan.
Mr. Geithner serves as chairman of the G-10’s Committee on Payment and Settlement Systems of the Bank for International Settlements. He is a member of the Council on Foreign Relations and the Group of Thirty, a member of the board of directors of the Center for Global Development in Washington, D.C., a member of the board of trustees of the RAND Corporation and a trustee of the Economic Club of New York.

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