-->By John Crudele
New York Post
Thursday, May 27, 2004

http://www.nypost.com/business/21675.htm

Call the cops: The Federal Reserve broke the law.

It amazes me when people volunteer information that
could get them into trouble. Case in point: Robert
McTeer, head of the Federal Reserve Bank of Dallas.

At the World Affairs Conference last week in Houston,
McTeer was explaining how the Fed had learned from
past mistakes and was getting better at containing
recessions by turning on the money spigot.

"We won't make the tremendous errors in judgment
that turned some of the past recessions into
depressions," McTeer boasted.

Then McTeer told about one trick the Fed has used.
His own words work best here:

"I mean, look at what happened in 9/11. We just flooded
the market with liquidity because of all the damage in
New York.

"You know, all these New York banks and investment
banks, they're receiving billions in payments every day
and they're making billions in payments," he continued.
"Just a hitch or two in that system can bring the thing
down."

To remedy this, McTeer said, the Fed put a lot of money
into the banking system. So far, so good.

Then he continued:

"We decided to give credit for checks deposited with us
on the next day, when it would normally be done, even
though all the planes" carrying the checks"were on the
ground.

"We couldn't collect the checks," he noted,"but we
pretended we were collecting the checks and we gave
credit for those checks, [and] created [an] enormous
amount of float — which by law we're supposed to treat
as a real cost to us." (My emphasis.)

"But since we're more a public institution than a private
institution, we decided not to put our cost situation
ahead of the public good," McTeer concluded.

OK, so maybe the Fed can be forgiven for breaking the
law in a time of national crisis. But since McTeer claims
that the central bank learned a lesson from 9/11, just how
often does it plan to use this newfound -- and illegal --
tactic?

Also, did the Fed eventually correct its intentional
bookkeeping errors or did it just leave the extra money
in the banks?

No wonder private accountants think they can fudge
their numbers.