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JAKE GARN, Utah, Chairman
JOHN HEINZ, Pennsylvania
SLADE GORTON, Washington

DONALD W. RIEGLE, Ja., Michigan
ALAN J. DIXON, Illinois
JIM SASSER, Tennessee

M. DANNY WAU, Staff Director
KBNNBTH A. McLEAN, Minority Staff Director
W. LAMAR SMITH, Chief Economist

TUESDAY, JUNE 19, 1984

t==~~~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..

Opening statement of Chairman Garn ....................................................................... .
Opening statements:

Senator Proxmire .................................................................................................... .
Senator Sarbanes..............................;.................... ,................................................. .
Senator Hecht .......................................................................................................... .
William S. Broomfield, U.S. Representative in Congress from the State of
Michigan ............................................... ·....................................................................... .





Martha Remayne 8e¥er:
Details of intervJ.ew ................................................................................................. .
Shooting for same target........................................................................................ .

Lack of information for committee review ......................................................... .
Article from the Detroiter magazine ................................................................... .
Difference on budget forecast ............................................................................... .
Question of monetary restraint ............................................................................ .
Importance of deficit reduction ............................................................................ .
Teacher and lecturer .............................................................................................. .
Full professor at Central Michigan University ................................................. .
Opening statem~roblem ................................................................................. ..
14-year term is
emic ....................................................................................... .
Job of the Federal Reserve .................................................................................... .
Fed's power to cluuu{e reserve requirements ..................................................... .
Published article of June 6, 1984 ......................................................................... .

l1!~~~~f:~::~. ~~~~.: : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : :

Assertions still accurate ......................................................................................... .
Credibility of different views................................................................................. .
Potential danger of leverage buyouts .................................................................. .
Cycles of high unemployment ..............................................;................................ .















Rehash of letter ....................................................................................................... .
Impact of deficits on interest rates ...................................................................... .
Economic downturn could raise deficit ............................................................... .
Stipulation of Senate resolution ........................................................................... .
$200 billion deficit starting tremors .................................................................... .
Support deficit reduction ....................................................................................... .
Congress' need to be advised by Fed policy .........................................................
How nomination came about ................................................................................ .

Need to be sensitive of position ............................................................................ .
Power to issue and regulate money ..................................................................... .
Fed as lender of last resort .....................................................................................
Bailout of Continental caused hue and cry ........................................................ .


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Martha Romayne Seger-Continued
Cap on interest rates .............................................................................................. .
Standing firm ........................................................................................................... .
Differences of opinion ............................................................................................. .
Views are basically unknown ............................................................................... .
Letter to the editor of the Record-Eagle dated May 4, 1984 ................................... .
Published letter to the editor article from the Record-Eagle, dated June 6,
1984 ................................................................................................................................ .
The "Women's Assembly III," news release .............................................................. .
News article from USA Today, dated October 6, 1983 ............................................. .
News releases from the Detroit Free Press ............................................................... .
Letter to Senator Riegle from Helen Milliken and Elly Peterson ........................ .



Opening statement of Chairman Garn........................................................................



Martha Romayne Seger:
Banks should be given additional powers............................................................
Close the South Dakota loophole...........................................................................
Equal credit opportunity.........................................................................................
Credit life insurance................................................................................................
Safety and soundness laws.....................................................................................
Equal rights amendment........................................................................................
Meeting with Treasury Secretary.........................................................................
Big improvement in auto industry........................................................................
Support State deregulation ....................................................................................
Distinction between commercial and investment banking..............................
Supported tax cuts in 1981.....................................................................................
Do deficits affect interest rates..............................................................................
Taxes at record high level......................................................................................
5-percent growth rate on target ............................................................................
Financial markets assessment of the auto industry..........................................
E~tr~ordi~a!'Y situation with ~uto industry.......................................................
D1dn t anticipate severe recession.........................................................................
High employment/low rate of interest possible.................................................
Fed policy in 1981 and 1982 ...................................................................................
Fed is a creature of Congress.................................................................................


Opening statement of Chairman Garn........................................................................


Martha Romayne Seger:
Need dual banking system .....................................................................................
Concentrate on fundamental economy.................................................................
Story relates to nomination ...................................................................................
Firm belief in independent Fed.............................................................................
An attempt to change Fed's composition.............................................................
Off-the-off speech................................................................................................ ......
A period of recovery.................................................................................................
Size of middle class shrinking................................................................................
Sense of apprehension.............................................................................................
Biographical sketches of the current Board of Governors of the Federal Reserve System:
Paul Volcker .............................................................................................................
Nancy Teeters...........................................................................................................
Preston Martin .........................................................................................................
Emmet Rice...............................................................................................................
Lyle Gramley ............................................................................ ................................
Henry Wallich...........................................................................................................
Charles Partee..........................................................................................................

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Biographical sketches of the current Board of Governors of the Federal Reserve System-Continued
Qualifications of seven present members ........................................................... .
F'ed should be independent in deliberations ...................................................... .
Act requires fair representation ........................................................................... .
Banking is a tough business .................................................................................. .
Problem of international lending ......................................................................... .
Believe in market approach .................................................................................. .
Interest rates are too high ..................................................................................... .
Mexico's austerity program ................................................................................... .
Some overvaluation of the dollar ......................................................................... .


FRIDAY, JUNE 22, 1984
Opening statement of Chairman Garn........................................................................
Statement of Senator Boschwitz ...................................................................................



Martha Romayne Seger:
Deregulation in three areas .................................................................................. .
Legalizing interstate compacts ............................................................................. .
Treatment of balance sheets on foreign loans ................................................... .
Independence of the Fed ........................................................................................ .
Views on banks getting into securities ............................................................... .
Response to written questions of Senator Cranston ......................................... .
Weekly Ml statistics ............................................................................................... .
Inflation under control ........................................................................................... .
Double-digit inflation problem .............................................................................. .
Fed uses w~ole s~trum o.f adjustment ............................................................. .
Current price earnings ratios ............................................................................... .
Voluntary limits expire next spring .................................................................... .
Dollar/yen relationship .......................................................................................... .
Japanese could capture larger share of the market ......................................... .
Negative impact on employment .......................................................................... .
GM spends $6 billion to modernize ...................................................................... .
Industry will get its house in order ..................................................................... .
Built-in competitive disadvantages ...................................................................... .
Dealing with problems on ongoing basis ............................................................ .
Broader base than GM ........................................................................................... .
Need of a coordinated effort .................................................................................. .
Catastrophic if interest rates go through the roof.. .......................................... .
Eminently qualified ................................................................................................ .





Detroit people will inform on issues.....................................................................
Markets don't think it will last.............................................................................
~nt~n~ntal. ~as very vulnerable ..........................................................................
L1qu1d1ty cr1s1B ..........................................................................................................
Franklin National Bank crisis...............................................................................
Middle class shrinking in size................................................................................
Unemployment is big part of the problem..........................................................
Article from the Wall Street Journal...................................................................
Need for insight and perception............................................................................
. l arge cities
· · ............................................... ,...................... .
.1 10n greate.r. m
nnking profitability............................................................................................
Oprcrtunity to earn fee income ............................................................................
FD~licy with failing banks..............................................................................
clearly the unfairness .................................................................................
Operate on higher standards .................... .............................................................

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27 4









Allen, Kenneth, F ........................................................................................................... .
Bentley and Bentley, P.C ............................................................................................... .
Capitol Federal Savings & Loan Association ............................................................. .
Central Credit Union of Michigan ............................................................................... .
Citizens Trust & Savings Bank .................................................................................... .
Credit Union National Association, Inc...................................................................... .
Detroit Area Economic Forum ..................................................................................... .
Detroit & Northern Savings ......................................................................................... .
Eaton Federal Savings & Loan Association ............................................................... .
Empire of America ......................................................................................................... .
First Federal Savings & Loan Association of Kalamazoo ....................................... .
First Federal Savings & Trust Bank ........................................................................... .
First Federal of Michigan .............................................................................................. .
Ford Motor Co ................................................................................................................. .
J.G.P. Public Relations, Inc .......................................................................................... .
Jagt, Guy Vander, U.S. Representative in Congress from the State of Michigan ...........••............................•.•..•.•.•.•..•........................................................•.................

LaSalle Federal Savings ................................................................................................ .
LOF Plastics, Inc ............................................................................................................. .
The MacRitchie Agency ................................................................................................. .
Michigan Bankers Association ..................................................................................... .
Michigan Credit Union League .................................................................................... .
Michigan Retailers Association .................................................................................... .
Mutual Savings & Loan Association ........................................................................... .
National Association of Women Business Owners, Capital Area Chapter .......... .
Peoples Savings Bank ................................................................................................... ..
Peoples Savings & Loan Association ........................................................................... .
Security Savings & Loan Association.......................................................................... .
Small Business United ................................................................................................... .
Steinborn, Stanley, D., chief assistant attorney general, Lansing, Mich ............. .
Sturgis Savings & Loan Association ............................................................................ .
Swaney, Russel Alger ..................................................................................................... .
United Savings & Loan Association ............................................................................ .
United States Trust Co .................................................................................................. .
Vermeulen ........................................................................................................................ .

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TUESDAY, JUNE 19, 1984

Washington, DC.
The committee met, at 11 a.m., in room SD-538, Dirksen Senate
Office Building, Senator Jake Garn (chairman of the committee)
Present: Senators Garn, Gorton, Hecht, Proxmire, Riegle, Sarbanes, and Sasser.

The CHAIRMAN. The committee will come to order.
The purpose of this morning's hearing before the Banking Committee is to consider the President's nomination of Martha Seger to
be a member of the Board of Governors of the Federal Reserve
I might say at the outset a little bit of background, not particularly on this nomination or on you personally-but a little background about some of the conflicts we have had over previous Federal Reserve nominees and where they came from.
I am sure that everyone knows that the Federal Reserve Act has
· a provision in it which requires that not more than one member of
the Federal Reserve Board be from any one Federal Reserve district. Over the years, this has caused a good deal of controversy. It
has been discussed on the floor on several occasions and certainly
in this committee, and back in 1979 and 1980 I joined a number of
members of this committee in announcing that we would oppose
any future nominees if they did not fit both the letter and the
spirit of the law. This is because we had found that a lot of nominees for the Fed may have gone to school in California and may
have resided temporarily in other Federal Reserve districts and
any excuse the President could find was used for putting someone
in a particular Federal Reserve district. We essentially found that
we were developing a Federal Reserve Board that was coming from
the Washington establishment and they were traded from the
Council of Economic Advisers, Treasury, and the Fed, or from Fed
staff. So I made a very strong statement in this committee and on
the floor to put President Carter and any future President on
notice that, without regard to personal qualifications of an individual, I would oppose nominees of that kind in the future. That with(1)

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out any equivocation that I would insist, on my own behalf, and
that of many other members of the committee, and the Senate,
that the Federal Reserve Act be followed.
I only give you that background to indicate that in this case the
law has been followed. Dr. Seger is not only from Michigan, but
also she has been there all the time and certainly fits the letter
and the spirit of the law, which some previous nominees have not.
I would also say that this policy will be continued in the future,
as vacancies occur, and that it is necessary for this President or
any other President to comply. I will continue to insist that that
geographical distribution be followed.
I wanted to say that at the outset because there have been some
discussions on that during the last few months. The insistence of
this committee is that the Fed certainly fit the geographical situation.
I may also say, before I turn to Senator Riegle, and Congressman
Broomfield to introduce you, that I feel the President has made an
excellent nomination. Beyond the fact that you fit the law, that
you have a very fine background and experience and I personally
favor your nomination and believe you will make an excellent
member of the Federal Reserve Board.
Senator Riegle.

Senator RIEGLE. Thank you, Mr. Chairman.
First of all, let me acknowledge the presence of Congressman Bill
Broomfield from Michigan who, among other things, is the senior
Republican in the House of Representatives and a very distinguished Member and a very dear friend of mine and colleague. And
I'm just delighted to see him over here today and shortly he will
have some remarks to make about Dr. Seger himself.
I had the opportunity to meet with the nominee recently and we
talked at some length privately and she asked also if I would join
in this introduction and I was pleased to accept.
So let me take this opportunity to introduce to the committee Dr.
Martha Romayne Seger of Michigan. Dr. Seger is a native of Michigan with experience in business, banking, and government. She is
the former commissioner of financial institutions for the State of
Michigan and most recently has taught finance at Central Michigan University. Prior to that, she worked at General Motors, the
Federal Reserve Bank of Chicago, the Federal Reserve Board here
in Washington, DC, in the capital markets section, and the Detroit
Bank & Trust, now Comerica-Detroit.
She has also taught at a variety of institutions, including, in addition to Central Michigan University, Oakland University, and
the University of Michigan.
From 1976 to the present time, she has pursued, as she herself
has described it, "a flexible schedule of teaching, research, lecturing, consulting, and public service."
Mr. Chairman, Dr. Seger has a reputation for frankness and
even outspokenness, which I think the committee will find illuminating as the Senators pose their questions to her, and at the ap-

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propriate time I will have some additional personal comments to
make but I will reserve that until the appropriate time.
The CHAIRMAN. Congressman Broomfield, we are very happy to
have you here today and please proceed.

Mr. BROOMFIELD. Thank you very much, Senator Garn. I also
want to thank my good friend, Senator Riegle, for his generous
comments. We have been good friends over the years and I appreciate them very much.
Mr. Chairman, it is a very high honor for me to appear on behalf
of my constituent, Dr. Martha Seger, one of the most distinguished
women in the field of banking and economics who's been nominated by President Reagan for this important position on the Federal
Martha has an extensive and very exceptional background as a
financial economist, including a 2-year term as Commissioner of Financial Institutions of the State of Michigan. I found it interesting
that back in 1976, Business Week selected her as one of the top 100
corporate women in America.
Also, in addition to her experience in the public sector, she has a
long and varied career in banking and in the academic community.
Currently a professor of finance at Central Michigan University,
she has served as an officer of some of Detroit's largest banking institutions and also worked for 3 years early in her career on the
staff of the Federal Reserve Board.
She has been nominated to fill the seat being vacated by Nancy
Teeters, the only woman on the Federal Reserve Board, and in
many ways it is the perfect replacement.
Mr. Chairman, I wholeheartedly endorse her candidacy and
highly recommend her confirmation.
The CHAIRMAN. Thank you very much.
Do any of my colleagues wish to make any opening statement
before we proceed?

Senator RIEGLE. Mr. Chairman, I might just do so because I have
an intense interest in what goes on at the Fed and obviously I have
a related connection here with respect to the fact that the nominee
comes from my home State. We ve had an opportunity to talk
about some of the issues, but by no means exhaustively, and I hope
that we will have that opportunity in the course of the hearings.
I do want to say, however, that I have considerable concern
about a 14-year appointment coming this late in the Presidential
term and literally on the eve of a Presidential election where the
country will express itself in a sense on all the issues at once.
I think, quite apart from the specifics of this nominee-and I
want to make that clear-it seems to me that if we were talking
about a nomination for a term that would run to the end of the
year, a term that might even run through a second Reagan term,
that that would be one kind of situation for us to weigh. What we
are looking at here, however, is something which is quite different.

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We_ are loo~ing at a 14-year ~~rm which. in some respects is nearly
a hfe appointment. I mean, 1t s an appointment that will take the
nomi!)-ee close to what _we wo~ld think of as retirement age and so
that 1s a very long period of time. So much so that if one assumes
say, that President Reagan were reelected-I don't know that that
will be the case-I hope not-but should he be, and this nominee
were confirmed, not only would she serve through that term but
she would then serve through the next two terms of whoever was
serving as President at that time.
So this is a very, very important fact and I think an important
decision that we are called upon to make here with respect to the
length of time that this particular nominee will serve.
So I think that very particular reason, which is quite apart from
this particular nominee, attaches to this nomination and the
timing of it, a special burden on this committee to be particularly
diligent in understanding precisely what the nominee's views are
and to understand clearly what we might expect out of such a long
period of time in terms of the 14-year appointment.
I recall that during the 4 years that I had the responsibility to
nominate Federal judgeship candidates for Michigan, which my colleague Congressman Broomfield will appreciate because he's been
involved in that mixed blessing himself, that the task of examining
nominees for what in fact in the case of Federal judges are lifetime
appointments carries with it an inordinate burden of responsibility
to be very meticulous and very careful in assessing, in those cases,
Federal judges.
I think, in a sense, a member of the Federal Reserve Board at
this time is holding a public policy position as important, if not
more important, than a Federal judgeship, and particularly for
such a lengthy period of service.
So for that reason, I think our hearing record becomes very important to the Senate as a whole and so I'm going to ask a number
of probing questions and I trust that the witness-and I feel this
based on my previous conversations with her-will be quite forthcoming so that we have an opportunity to hear her views and understand her background fully and to weigh that in this context.
One other thing I would mention is this, and that is that I asked
Dr. Seger for her written views, her published views on economic
and financial issues as they would extend over a period of years,
and I was struck by the fact, as I mentioned to her and I want to
share it with the committee today, that what I viewed as sort of an
unfortunate fact that Dr. Seger has not written and published her
views on economic issues, or monetary policy, or a range of related
financial and economic subjects that one might expect would have
been the case.
That by itself doesn't necessarily mean anything except that we
don't have that body of information available to us to review as we
have had previously with other nominees, and what I tend to do in
a case like this on a serious policy appointment is take t~e published thoughts, the ideas, the articles, the newspaper stones, the
presentations that have been made in other forms, and I review
that material thoroughly so I have a basis for understanding what
the viewpoints are or what the range of thought is and so forth
represented by a nominee.

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I asked Dr. Seger if she would submit to the committee and
make available to me before the hearing today any materials like
that that were written materials that would give some insight into
her views, current, recent, past, or over the years. She indicated
that basically there was no such material and with the exception of
one news article or an interview which has been submitted and
which I have here and which I will refer to later, and this is dated
November 1983. But to date, the only written item that would reflect on her views and opinions on these matters is this single item.
That by itself is quite unusual, I might say. In addition, there is
an op-ed feature that Dr. Seger wrote, I guess very recently, it was
in the Traverse City paper issued on June 6 of this year. So that is
something that is current to this month, and so this is the second
item that we have to take a look at. This was on quite a different
issue that really has no direct relationship at all to the monetary
and financial policy issues that one would be concerned about with
respect to the Fed, but the article for other reasons I think is something that I think we will have to examine in the period when we
have the chance to raise questions with the nominee because I
have tried to understand this and talked to some others about it
and there's some concern that although this is unrelated to the
subject matter of the Fed, it contains some assertions that may not
be accurate. At least I am told by people named that they are not
accurate and so I am going to want to inquire about that.
So I will just finish by saying, Mr. Chairman, that for a 14-year
term and the seriousness of the policy decisions that the Fed has to
make, the fact that there is no written record to examine leaves us
really with the task of developing the record and I intend to do
that quite fully, not any more so or less so because of the fact that
the nominee is from Michigan, but because I think it is absolutely
critical that we make the most prudent judgments possible at this
time about who is going to serve on the Federal Reserve Board and
who is going to serve for terms as long as 14 years.
So I will want to make sure, Mr. Chairman, that I have sufficient
time, and I think that Senator Proxmire, the ranking member
who's on the floor right now speaking but who will return shortly-I know that he has a number of questions of consequence that
he wants to develop fully, as do I, and I can't speak for the other
members of the committee, but I would say I think it is very important that we take whatever time is necessary to go through this
from A to Z so that we have a hearing record that we can present
to the Senate that we are sure is complete.
I thank the chairman.
The CHAIRMAN. Well, let me just make an observation. I would
agree with almost everything the Senator from Michigan has said
about the importance of these nominations, whenever they coincide
with the beginning of a President's term, in the middle of it or at
the end of it. It is always an important policymaking position.
But, I don't think that the 14-year term is that important. As I
look at the record, I don't know of anyone who has served 14 years.
It's an academic situation. We can check on that. My guess would
be that the average is probably not more than about 4 years. So I
don't really think that's a factor.

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I agree with what you're saying about how we ought to examine

~1;1Y nominee for this importan~ p<>sition, but I don't think whether

Its a 14-year term or whether Its at the end of a President's term
is really a factor because they just don't serve that long. That has
not been the case at all.
I would make one other observation on the amount of writing by
Dr. Seger. In the 10 years that I have served on this committee it is
not an unusual amount, and we certainly reviewed the Vice Chairman from Florida who is a businessman who had no writings. Bill
Miller, who was appointed by President Carter to be Chairman of
the Federal Reserve Board was a businessman who did not have
extensive writing or academic background. We certainly were not
able, other than in the hearing process, to question either one of
those Carter nominees other than during the process here. There
was no extensive background of writing to do that.
So I don't disagree with what you said on the reasons and the
importance of examining nominees. I do disagree, however, that
the 14 years is anything but an academic thing because nobody
serves that long. They just haven't, and the published writing-we
could find all kinds of examples of the two most recent that I
talked about where there was not a written background to go
through either.
Senator RIEGLE. Would the chairman just yield on that point
Senator RIEGLE. I would just make two points. One, in Dr.
Seger's submission of her statement that has to be filed with the
committee, there is a question here that's stated: "Do you expect to
serve the full term for which you have been appointed?" Her
answer to that is yes. I take that to be a factual answer, so I
assume it is her intention to serve a full term.
I might just say with respect to Bill Miller, that appointment, as
I recall-I don't recall the precise timing, but it was relatively
early in the Carter administration when that appointment was
made. It was here before the committee a long time because it was
a controversial appointment, particularly on this side of the aisle
as you may recall. There was a difference among Democrats, although he was a Democratic nominee.
But there's another very fundamental fact, and that is that Bill
Miller functioned for a period of time as the chief executive officer
of one of the major international companies in the United States
who had a very, very distinguished business record at the highest
level, was well known publicly, had spoken any number of times in
any number of settings, and therefore was by no means an unknown quantity.
I don't mean to try to make any one-for-one relationships here,
but I think that's quite different than the situation we find here
when there is really very considerable absence of a record that one
can get their hands on for study. That's what I'm saying.
The CHAIRMAN. My point was that there was no record of Chairman Miller's economic background or his feelings. Yes, he had run
a business, but you have here a very successful educator .from a
Michigan financial institution. I would disagree that th~re IS not a
public record of achievement, background, or educational back-

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ground in this area. But my purpose is not to debate before we
have even heard the nominee, only to point out the 14-year term,
which most nominees say that they intend to serve for the whole
term. We even have Congressmen and Senators who intend to
serve full terms but don't.
But let's get on with the hearing so that you do have the opportunity to ask whatever questions you would like.
Dr. Seger, could I first have you rise and be sworn.
[Whereupon, the witness was duly sworn.]
The CHAIRMAN. Do you have an opening statement you wish to
Dr. SEGER. No; I don't.
Senator SASSER. Mr. Chairman, are other members going to be
precluded from an opening statement at this time?
The CHAIRMAN. No; at the time I asked the only one that I saw
was Senator Riegle, but if you would like to make an opening statement you certainly may.
Senator SASSER. Thank you, Mr. Chairman.

Mr. Chairman, I find myself in agreement with my colleague,
Senator Riegle. If Dr. Seger is confirmed, she at least will be entitled to serve a 14-year term on the Federal Reserve Board and as
one of the Board's seven Governors she will exercise considerable
influence over the economic affairs of this country and over the
global economic community as well.
Now the conduct of monetary policy is something that profoundly affects every citizen of this country. Interest rates determine the
level and type of business investment and the shape of our economy for years to come. So these are very important hearings. Interest rates will determine whether new families will be able to buy
their first home and whether American consumers can purchase
new automobiles, a matter of great interest to a nominee from
Michigan I would assume, and other consumer groups. And interest rates also determine the cost of servicing the national debt
which, given the fiscal policies of the present administration, is the
fastest growing part of the Federal budget and we find that interest rates are climbing up again.
The prime rate has risen to 12.5 percent. Mortgage rates now
stand at an average of 14.33 percent, the highest level in 1 ½ years,
and consumer loan rates are running at the level of 15-19 percent.
Most experts believe that the prime rate could increase another
percent or so in the next few months.
Now interest rates and big deficits go hand-in-hand. That's generally conceded, contrary to the rather embarrassing statement
that the Secretary of the Treasury made at the economic summit
conference in Western Europe. The Federal Reserve Board is going
to face a very difficult challenge in the years ahead in fashioning a
monetary policy that can help sustain our economic recovery here
at home, and abroad as well.
So I think we must carefully review the qualifications of Dr.
Seger to ensure that she is the proper person for this post.

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Now it is my belief, Mr. Chairman, that a Governor of the Federal Rese~~ Board mus~ hav~ a demonstrated ability to master the
complexities and ramifications of monetary policy. A Governor
should also have substantial business expertise in order to fully appreciate the economic impact of monetary policy on American businesses and consumers.
I might say that I agreed wholeheartedly with my chairman
when he indicated that Governors of the Federal Reserve Board
should come from the areas from which they seek to serve. He's
quite correct in that and he's quite correct when he made another
statement about the qualifications of a member of the Federal Reserve Board, and I'd like to refresh our committee on that.
Our chairman said-and I quote here, "I want to repeat what I
said in the Banking Committee so that messages are sent loud and
clear on how I feel. As the ranking minority member of that committee"-this was some years ago-"that unless future nominees,
whether it is this President" -talking about President Carter-"or
a future President, regardless of how personally well qualified they
may be, if they do not match the intent and spirit of the law as far
as geographical areas" -which we have heard today and which I
agree with-"and we do not start seeing some businessmen, farmers, people to give more balance to that Board, rather than just
trained economists, I'm putting everyone on notice that I will
oppose, not just vote against but try to stop these nominations."
Now the chairman's statements were persuasive then when
made in 1979 and I find his logic equally persuasive today.
Now a partisan approach to monetary policy by a member of the
Federal Reserve Board is clearly not in the best interest of the
American public, so these hearings should fully explore Dr. Seger's
competency in many areas for this important position. These hearings should be wide ranging and thorough and we should act on Dr.
Seger's nomination only after a full examination of her qualifications and a detailed exposition of her views about monetary policy
and what monetary policies she espouses and intends to follow as a
member of the Federal Reserve Board.
Thank you, Mr. Chairman.
The CHAIRMAN. Senator Proxmire.

Senator PROXMIRE. Mr. Chairman, the Federal Reserve has
become the single most important agency in the fight against inflation. Almost singlehandedly the Fed has brought the rate of inflation down from its historical peak of just a few years ago. Paul
Volcker enjoys more respect and confidence within the business
and financial community than either the President or the Congress
and correctly so.
The Federal Reserve has earned its well-deserved reputation by
maintaining its independence from political pressure. I was, therefore concerned to read in the press that the appointment of Martha
Seg~r to the Board marks an effort by the Reagan_ ~hite House to
seize the reins of monetary control. Perhaps this is merely the
chatter of journalists with nothing else to write. Nevertheless, I
think we must look at this nomination with great care to ensure

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that we do not send the wrong signal to the business and financial
Even an appearance of an attempt to politicize the Federal Reserve can sacrifice some of our painfully won gains on the war on
Thank you, Mr. Chairman.
The CHAIRMAN. Senator Sarbanes.

Senator SARBANES. Mr. Chairman, we live in an economic world
where domestic and international conditions cannot be isolated
from one another. Our policies at home inevitably and profoundly
influence conditions abroad and, conversely, developments abroad
may have a critical effect on our Nation's economic and financial
In this complex web of economic relations, the Federal Reserve
System occupies a unique and pivotal role. The Federal Reserve
confronts today problems more complex and more tenacious than
any we have experienced in the past. Its decisions with respect to
monetary policy will have far-reaching and long-range consequences.
Now Dr. Seger has been nominated to a full 14-year term on the
Federal Reserve Board of Governors, a term that will expire in
1998-that is to say, at the very end of this century. Now, given
the length and importance of this nomination, I join with many of
my colleagues in wanting to hear in detail Dr. Seger's perspective
on the role and responsibilities of the Federal Reserve, on the role
she would expect to play as a member of its Board of Governors,
and on the difficult problems besetting the domestic and international economies that the Federal Reserve will be called upon to
The CHAIRMAN. Does anyone else wish to make a statement?

Senator HECHT. Thank you, Mr. Chairman.
I have had the occasion to meet with Dr. Seger in my office. We
had a long discussion on business and economics and, as a small
businessman, I find Dr. Seger particularly sensitive to the business
community and, in my opinion, she definitely bridges a gap between economics and the business world of reality and I am very,
very comfortable with her nomination. Thank you.
The CHAIRMAN. Thank you.
May I just make one more comment along the line that Senator
Riegle and I were discussing. I do not disagree with many of the
things that my colleagues have said on this side of the aisle about
the importance of the Federal Reserve nominee in any year by any
President because of the importance of the Federal Reserve Board
itself and the impact that it does have on the economy.
I would just hope that we do explore your qualifications and your
attitudes and that we don't get into bringing up issues that are different now than they were before, and I would only repeat that the
14-year term has always been true for any nominee except some
who were just filling vacancies.

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The iss~e as far as I know i~, while it was not brought up in
1979, President Carter also appointed Emmett Rice and there's the
entire hearing record-indicating-in the year before the election.
That's it. It's very brief, very cursory. We on this side did not bring
that up and also his published writings, the only contributions to
institutional publications listed on his disclosure are articles and
annual reports for which he could not claim full credit. Lyle Gramley, the last nominee under President Carter in 1980, was appointed and confirmed to a 14-year term during a Presidential election
So I want to make those points, and they are not to argue with
any of you on the importance of the nomination or how probing
you are with your questions. Certainly all of us should be, but I do
think we need to separate qualifications for this job from what
seems to be a rather common practice under previous Presidents
during election years or the year before, and that published material has not seemed to be an issue before.
Dr. Seger, I understand that you will resign from your position
with the Central Michigan University, Comerica Inc., and you will
sever all your existing lecturing and consulting arrangements and
other directorships if you are confirmed. Is that correct?
Dr. SEGER. Yes, it is.
The CHAIRMAN. What you're saying then is you will avoid not
only any conflict of interest but even the appearance of a conflict
of interest in your service as a member of the Federal Reserve
Dr. SEGER. I have already told Central Michigan University's
dean and also the chairman of the board of Comerica that I would
submit my resignation in writing as soon this nomination is confirmed. They have been told.
The CHAIRMAN. Will you agree to appear before this committee
and other duly constituted committees of the Senate when requested to do so?
Dr. SEGER. Definitely.
The CHAIRMAN. Senator Proxmire.
Senator PROXMIRE. Dr. Seger, according to an Evans and Novak
column of March 7, Chairman Volcker was not consulted on your
appointment to the Fed. They say you were selected by James
Baker of the White House and Preston Martin, the only Reagan
appointee on the Fed. According to their column, you were interviewed by Governor Martin, who passed you with "flying colors"
both on your monetary expertise and your "desire to follow a
'Reaganite growth path.' "
How much of that column is accurate?
Dr. SEGER. I don't know if Chairman Volcker was consulted or
not. Back in 1983, I was proposed as a member of the Home Loan
Bank Board by some savings and loans from Michigan who thought
I had done a very good job there. They put my name in for a slotthis was in early 1983-on the Home Loan Bank ~oard, _and at that
point I was interviewed by a number of people, mcludmg Preston

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Then I asked to have my name withdrawn from consideration for
that position, because I wanted to sign my contract for teaching;
and so that didn't pan out. But they had my information, my file,
and when I was considered later for the Federal Reserve Board,
they also had me speak to Governor Martin. I did not speak to
Chairman Volcker, but whether he was consulted, actually I don't
Senator PROXMIRE. Were you, in fact, interviewed by Governor
Martin and not by Chairman Volcker?
Dr. SEGER. I was interviewed by Preston Martin and not by
Chairman Volcker, but whether or not he was consulted about me,
I don't know.
Senator PROXMIRE. But you did not talk with the Chairman
before your nomination was sent to the Senate?
Dr. SEGER. That's right.
The CHAIRMAN. May I just clarify the timeframe? You said you
were interviewed by Preston Martin for the position on the Federal
Home Loan Bank Board?
Dr. SEGER. Right; That's when I first met him. When this appointment came along, they asked me to be interviewed by him
The CHAIRMAN. All right. Thank you.
Senator SARBANES. I want to be very clear on this. You were
interviewed by Preston Martin?
The CHAIRMAN. Twice.
Senator SARBANES. Specifically with reference to nomination to
the Federal Reserve Board?
Dr. SEGER. Yes. The first time was in connection with the Home
Loan Bank Board and then, early this year-Senator SARBANES. But you're not referring to that interview
here; that was another interview; is that correct?
Dr. SEGER. Early this year he talked to me about the Federal Reserve Board. I'm saying I have spoken to him twice, once about
each position.
Senator PROXMIRE. Did you ask to be interviewed by Chairman
Dr. SEGER. You know, I'm a hick from the Midwest. I didn't
know who was supposed to talk to me.
Senator PROXMIRE. I'm a kid from the Midwest, too. Did you talk
about a "Reaganite growth path?"
Dr. SEGER. No, I didn't.
Senator PROXMIRE. You didn't talk about that. That part of the
report, as far as you know, is not correct?
Dr. SEGER. I was never interviewed by Evans and Novak.
Senator PROXMIRE. I know that. But Evans and Novak said that
and I quoted Eva.ns and Novak that Governor Martin passed you
with "flying colors" both on your monetary expertise and your
"desire to follow a Reaganite growth path."
Dr. SEGER. I'm saying I don't know where they got that; they
didn't get it from me.
Senator PROXMIRE. You didn't tell Governor Martin that you
wanted to follow a Reaganite growth path?
Dr. SEGER. No, I didn't.

36-314 0 - 84 - 2
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Senator PROXMIRE. Is it your perception that President Reagan
has a different economic growth strategy than that of the Federal
Reserve Board.
Dr. SEGER. As I understand both strategies, they are probably
aiming for the same target, which is to keep the economy or the
economic recovery on track at a nice, moderate, noninflationary
rate of growth, and in that strategic sense, as I understand
both-Senator PROXMIRE. You don't perceive any difference between
President Reagan's position on monetary policy? From time to
time, there's been some indication of support by the President of
the Federal Reserve Board's policies and sometimes criticism. It's
not your perception that there's a difference then? You feel that
they are the same?
Dr. SEGER. What I'm saying is I think they are shooting for the
same goal. Now whether both sides have identical numbers, I'm
not sure.
Senator PROXMIRE. Let me ask you a much more general question.
Monetarist economists such as Milton Friedman have argued we
would be better off without a Federal Reserve Board. They contend
the Fed systematically underestimates and overestimates the
course of the economy and that its efforts to lean against the wind
are actually destabilizing. They believe we would be better served
if the monetary authorities were required by law to follow a fixed
rule for monetary growth regardless of current economic conditions. How do you come down on this debate?
Dr. SEGER. Having taught business conditions, and certainly
having read the views of Milton Friedman-and by the way, I am
not a monetarist; I think it came out that I was-I think that you
certainly have to be concerned with monetary growth. I guess my
view of the overall economy is maybe a little different from Milton
Friedman's and that is that I'm impressed with how extremely big
our economy is, how complex it is, how diverse it is, and I just
don't feel I am personally smart enough to come up with the rule
that he refers to that you can just program a black box which
would crank out the appropriate amount of monetary growth and
have no hands-on adjustment of that.
He may know a lot more about this than I do, but I just think
that there are too many influences on the economy and that maybe
I'd take a view that is different from his because of our differences
about how the economy operates.
Senator PROXMIRE. It's your feeling that the economy is more
complex than Friedman perceives it? His notion that you would fix
the growth rate at a certain level for monetary aggregates and
stick to that through thick and thin you think is not right and it
depends on fiscal policy, international policy and many other
Dr. SEGER. Exactly.

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Senator PROXMIRE. I note on your nomination statement that you
studied the redlining issue during 1976 and 1977. Who sponsored
the study and how was it conducted?

Dr. SEGER. I started out doing a study because the HMDA legislation had just been passed in Washington, I had a banking background and was going to head into academia and I was interested
in finding something to research. I was collecting information, the
first batch of data from HMDA.
I was working on this independently. Then a nonprofit subsidiary
of what used to be the Michigan Savings and Loan League heard
that I was working on this and were interested in seeing if I would
extend the project and, instead of looking at the reports of a couple
of S&L's-which is what I was doing-to evaluate these reports in
a bigger way and see if, in fact, you could use those numbers to
indicate either the absence or the presence of redlining. They put
up money at the University of Michigan Business School and this
was used for programming, for computer work, to process all of
these HMDA reports.
Senator PROXMIRE. What were your principal conclusions?
Dr. SEGER. I finally dropped the project because I couldn't come
to any conclusions. I tried correlating these numbers with all sorts
of things, and maybe I'm too honest a researcher, but I just
couldn't make anything out of them.
Senator PROXMIRE. You couldn't determine whether there was
redlining or not redlining?
Dr. SEGER. Not based on those numbers.
Senator PROXMIRE. You could not conclude there was a deliberate attempt to exclude certain neighborhoods and ethnic groups
and so forth from borrowing? Were your conclusions that you
couldn't come to a conclusion ever reduced to writing and submitted for publication?
Dr. SEGER. As I said, I didn't feel I could draw any reasonable
conclusions from this analysis.
Senator PROXMIRE. Well, could you draw a conclusion or did you
draw a conclusion that redlining was not a premeditated effort to
exclude certain groups from borrowing?
Dr. SEGER. I know that's the way it's defined. As I looked at the
numbers, the patterns of where the mortgages were made, economic factors, demographic factors, income factors, and all those
things, it didn't seem to me that you could explain these differences in lending patterns strictly on the basis of prejudice.
Senator PROXMIRE. Well, why would you not want to publish
those findings so they could be examined and criticized by other
scholars who did perceive a systematic pattern of redlining behavior? Wouldn't it have been useful for you to make that finding?
After all, you invested a lot of your time and effort. Why not
present that? It seems to me that some people felt that redlining
was a systematic effort to exclude low-income people, blacks, and
others from being able to borrow.
Dr. SEGER. Well, as I said--

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Senator PROXMIRE. You weren't able to perceive that in your
Dr. SEGER. Right.
Senator PROXMIRE. Why wouldn't it have been constructive for
you to make that finding, publish it, and challenge others to prove
that you were wrong? Isn't that the usual procedure for debating
public policy? When you make a study like that, you publish your
results and then those who disagree with you can challenge that.
Dr. SEGER. Maybe I didn't make myself clear. As I went along I
couldn't make any thing definite out of the analysis, and l just
never finished it.
Senator PROXMIRE. During your nomination hearings to be the
commissioner of banking in Michigan, you told the Michigan Legislature, "I have never seen what I would call redlining take place. I
have seen the statistics and in and of themselves, I don't believe
they show anything."

As you know, Michigan passed an anti-redlining law in 1977. One
provision of the law required the Michigan Financial Institutions
Bureau [FIB] to conduct a computerized analysis of mortgage lending reports to detect possible patterns of redlining by financial institutions. One of your early steps as commissioner was to dispense
with any analysis of the mortgage lending statistics.
Here is what the speaker of the Michigan House of Representatives said about your action:
I am very disappointed, therefore, to learn that the Financial Institutions Bureau
does not intend to comply with legislative intent regarding section 8 provisions of
the act concerning the Anti-Redlining Annual Report for 1979 due the Governor and
the Legislature. I am informed that while FIB will prepare some kind of report,
there will be no disclosure data analysis; thus, the single most important consumer
information piece FIB has been asked for has been scrapped, at least for the time
being. It is not consoling to recall that the 1978 Annual Report was not issued until
November 1980 and that one of the assurances Commissioner Martha Seger gave
the Senate during her confirmation hearings was that the next report would be
timely and inclusive.

He goes on to sayThis decision was reached by FIB without benefit of discussion with any legislators or persons who were involved with the original negotiations of the bill (that is,
Statewide Coalition on Redlining) or with the recently appointed FIB advisory committee. It is my understanding that the Advisory Committee was informed after the
fact, giving them an opportunity to express frustration and concern, but no opportunity to participate in the process of reaching that decision.
The Annual Report was envisioned as a valuable tool for consumers, who negotiated this legislation in good faith with financial institutions, your office, the Legislature, and FIB. Now the hard-won protective provisions are being usurped.

Another member of the Michigan House said, "You are, in effect,
taking the law into your own hands-and taking away consumer
The Detroit Free Press wondered whether you showed "too much
zeal" in cutting back on the redlining studies.
What are we to conclude from this controversy?
Dr. SEGER. First of all, if you want the facts on this, the report
did get out. The issue was the timing of it. Again, I don't want to
take an hour to bore you with the details, but the FIB was part of

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Commerce. They switched from one computer system to another
and everything had to be reprogrammed, so that put us off schedule.
We had, because of the Michigan budgetary crunch and I think
Senator Riegle will confirm this-a terrible situation with dramatic
cuts; the number of our employees was reduced about every other
month. Before I went there, they would take some of the examiners
and assign them for a couple of months to work on this report. As
the whole staff got squeezed dramatically, and as the problems of
the financial institutions worsened, we couldn't reallocate those
people. That was a management decision and neither the Governor
nor the legislature seemed to be willing to give me more money or
to give me more help to work on this.
The report did get out. I don't know what the Free Press said,
but-Senator PROXMIRE. Well, my time is up. I understand you already had the money for it.
Dr. SEGER. Pardon me?
Senator PROXMIRE. I understand you already had the money for
it. It was included in the budget.
Dr. SEGER. That is not the case.
Senator PROXMIRE. All right. My time is up.
The CHAIRMAN. Senator Riegle.
Senator RIEGLE. Let me say at the outset that I am going to try
to get all the issues out on the table so that we have a complete
and full committee record, so I know you will be responsive to
questions that I raise.
I must say that I am surprised that you didn't elect to make an
opening statement today. Let me sort of reflect on that because if
we reconvened at another point I think it might be a constructive
thing to do, so I make the suggestion in that vein.

I say that for the reason that your views are not generally
known. For some of us from Michigan we have a sense of them, but
the committee as a whole does not. You are a new person for them
and on a matter of such enormity in terms of the importance of the
Federal Reserve Board, your views count. They are important.
People here need to know what they are. I think it would be useful
perhaps if you made an assertion as to what some of those basic
views are as they relate to monetary policy, fiscal policy, Fed practice, and the independence of the Fed and things of that kind. I
don't mean a lengthy doctoral thesis, but I mean in terms of presenting your ideas and, in a sense, yourself to the committee when
there is no such written record. I think it's good to give the committee something of a starting point in terms of your views on
some of the key monetary and financial policy issues. Of course,
there are a great number of issues-the deficits, monetary aggregates, the trade deficit, foreign debts by less developed countries
and so forth.
I think you see what I'm driving at, a starting point as to your
general outlook on sort of the major topical issues that relate to
Fed policy. Yet. when that is not present, either in the form of

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speeches or written materials or articles or in an opening statement or what have, then it's like an absolute blank slate and it's
very difficult in terms of these IO-minute time periods to be able to
learn enough about you that there's a basis for that kind of evaluation. So I think your views would be a useful thing for the committee to have and I know you have views and I think it would be well
if those could be presented in a form of your choosing.
By the way, just let me ask, were you counseled one way or other
by the White House on the statement?
Dr. SEGER. No.
Senator RIEGLE. That was solely your decision?
Dr. SEGER. I looked at a couple of copies of hearings in the past;
the two I looked at were Nancy Teeter's and Preston Martin's. Neither of them had an opening statement and I assumed that was the
way the hearings went.
Senator RIEGLE. I take it in both their cases their views would
have been much more fully known because they would have been
in print and they would have been available to the committee beforehand. So I think that may account for the difference.
Who set up the interview with Preston Martin?
Dr. SEGER. The White House personnel office.
Senator RIEGLE. Do you know why they would have set it up
with him rather than with Volcker?
Dr. SEGER. I don't know.
Senator RIEGLE. You were never interviewed by Volcker; that's
the bottom line?
Dr. SEGER. That's correct.
Senator RIEGLE. I'm sort of surprised at that because he is the
Chairman and I would think-I would agree with what someone
earlier said-he's probably the most respected financial figure in
the country, although he's controversial and a lot of people who
would like to oust him from the job, but I think it's surprising that
there was not an interview with the Chairman and it just doesn't
quite fit in terms of what the normal practice would seem to be.
Let me go to one article that I have been able to obtain. There
were two that I mentioned, one on economic and policy issues, the
other on a totally unrelated field which I want to get into later because I think that it is not important so much in the substance as
it is in terms of other things which are appropriate.
I want to refer to this article that was in the Detroiter magazine
of November 1983. I'm sure you're familiar with this.
Dr. SEGER. As you know, we have the Economic Club of Detroit
and every fall they have an economic outlook panel. I was on that
panel, and when your staff member wanted something published I
said that that was the one thing that I could give them because
they had published the remarks of the whole panel.
Senator RIEGLE. Right. I think you mentioned that to me in our
meeting that you thought you recalled that and I appreciate you
finding it and sending it to me because I think it's a useful piece
for us to start with.
[The following article was subsequently submitted for the record:]

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hil is the fowth anniversary of my
appearance here u part of a dif.
ferent panel in December 1979. My
forecast wu more pessimistic thm that
ol the lnduauy tyCOOm wbo pra:cd<d
me, aince my crystal ball uw "a receasioa ahud---one that would be long md
severe." Unfortunately, I was right, but
molt ol the audienc:c that day did not
take my prediction seriously,
In contrast, today I'm in a good mood
and l have basically an opt.imiatic view
of the outlook for the U.S. economy. A
mator inOuence oa my fcclingl is tbe
performance of much of the economy
over most of the pat year-a performance that has been far suon:;cr than even
the most upbeat forecasters expected.
We arc recovering from the "81-'82
recession. Since November 1982 bas
been dcsianated II the low point ol that
cycle by the National Bureau of
E<onomic Rcacarcll, the upowing bas
now been ill progreu for 10 months, and
it ii trscking the "normal" cyclic:al
recovery rather than being undernourished and anemic ....
In fact, our 111,tion's price performance
bas been better thm most economists
even dreamed it would be. lnflatioa-u
measured by the CPt-wu reduced to
3.9 percent lut year, lcu than one third
the boncndoua 13.3 percent md 12.4
percent in the lsst two ran ol the
Carter adminisuatioa. And in the put
12 mootba, inflation bas dropped to
about 2K pcrcmt. Let me empbasizctllil is a tnmelldou.s accompliahmmt
and ooe that will produce a mammoth
payoff for the U.S. economy in the future
if we can keep inflation under control.
This brief review of the economy's recent performance 1uggcst1 that a IOOO
bssc bas been built for the l&unc:h ol the
new modd year for the auto industry and
for a favorable forecut for 1984 in
general, dcapite the bad name that
Ccorgc Orwell's book atucbed to the

Martha Seger, Ph.D.
tinuc to carefully monitor the growth
to keep
them within their target rmgea. In
gcncral, 1 cspccl monetary policy to


ycsr ahead.
Before I give you my specific forecast,
let me 1wnmarizc my usumptiOD1:
1. ID international relations-no real
ex>afroatation with Ruuia that could
evolve into World Warm and no fullHedged war in the Middlc,Esst that
could produce another oil embargo.
2. Some progrc1,1 in 1CJlving the world
debt problcm-apccially, ltDOOthly
ratructuring LDC debt before it
to some ICJR of financial crisil.
3. Relative 1tability in the price of crude
oil with ample supplicl through 1984.
4. Monetary policy will be accommodaci. ., with tbc Fed providing
enough money and credit to allow the
cxp1mion to continue through the
forecast period. But the Fed will con-

ol the monetary aggrcptes

be fine IWled rather than be aubiccted

10 liwp 90-dcgrec turm II bas
1CJmetimes happened in the put.
5. Plnally, the toughest, mOlt CODtroftl'•
lial UIWDption to make CODCeml
fisal policy ....In this coming fisal
year, I cspcct a much lower dcficitaay $125 billion-bcca111e futer
ccoaomic arowth, higher personal in•
comes, larger capital pint md IW'g•
Ing proflu for corporatioas will proTide larger than ezpected taz
rcvcoucs. Although I would prefer
muchlcured ink, I don't think it will
cauac the dissstcr that alarmisu arc



Now, after all these usumpt.ioDI,
what can we expect for 1984l Since inflation ii such a key dcmmt in my
outlook, let me praent thia good newt
fint. I expect iaflation-u meuured by
the CPI-to be in the vicinity of 4 per·
cent for both 1983 and 1984. The key
facton here are the productivity improvements finally showing up and the
wage productioa. I'm assuming business
management will continue to 1ue11 productivity pins u,d bargain bald to keep
thae two items in line and produce only
modclt bikes in unit labor cosu.
I think interest-rate IDOTCDICDtl between now u,d late 1984 will pleasantly
ourpriac mmy-pcoplc. the next six
months, I expect rates to move in a narrow baud oi one-half perccDtqe point on
either side of today's lcvcl1. lbm rates
will besin a gradual rile, ending 1984
about one to two perccDtage
This ii
I belien,
because corporations' cub flow will be
arowing rapidly-propelled by liwp


: : . ,in
cmbing corporate demand for fuuda in
the debt markets and making way for the
crcaury financing. Also, • lcucning ol
inflation psychology among iaveston
should reduce the inflatioa pmnlum
&om today's unusual size.
Modelt inflation and manaceable intcrat rata 1hould help to keep ral CNP
advancin1 through the nezt five
quarten. Although the rate of growth ii
likely to slip from the
percent po1ted in Ith• second quarter oq
1983 md ao estimated 7 percent in this
quarter, it should average about 5 percent over the mnaiodcr of the period.
Housing, consumer spending on
durables, dcfcme apenditures and •
in inventory liquidation have
fueled the recovery to date. Now I czpect
to bang in around 1. 7
CJ., r

c.a-=--- , ~--,'

Modest Inflation
and manageable
Interest rates
should help keep
real GNP
through the next
five quarters.

mllllon for both 1983 u,d 1984.
I expect consumer ,pending to cooth
feet and inflation moderating, real
di1poaable income-total and per
capital-ii at a record hilb, Tbl1 purcbaslng ·power abould
combine with plenty ol c:rodit sod
ex>mwner confidence to
gmuate a 1uoug demand for autol.
New-car purclwa 1bould total 9.1
million this year md 10.25 million nest.
Capital spending is beginnUII to ex>me
alive. Riling utilization nta and 1CJme
sood profit ropons sbould cncowagc
buaiaeu maaqemmt to undertake



wcakca a bit, and, when it docs, cxpon,
ol U.S. mcrcbarulisc sbould respond
Budget fi&ura show that defense
1pcading will cx,ntiauc to bolster the
ecooomy-apccially in certain areas.
Piaally, inventory liquidation seems
to have nm its course and accumulation
of stocks will be mother plus in the
outlook. So 1984 should be a sood year
for all of ua. ffl

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"',Jov,....,..,... llJRl


Senator RIEGLE. I notice that you say here-this has a dateline of
November 1983, so it was late in the year 1983 that these would
have been your views-and you say here-you're talking about
fiscal policyIn this coming fiscal year, I expect a much lower deficit, say, $125 billion, because
faster economic growth, higher personal incomes, larger capital gains and surge of
profits for corporations will provide larger than expected tax revenues. Though I
would have preferred much less red ink, I don't think it will cause the disaster that
alarmists are suggesting.

Now the latest forecast I'm aware of shows the deficit coming in
well above the $125 billion that you saw not all that long ago. How
do you account for the difference? What do you now see as the deficit is for the fiscal year in which you made the $125 billion forecast? What do you now think it will be?
Dr. SEGER. First of all, I think that that was $155 billion. That
was the number I had.
Senator RIEGLE. Well, the article says $125 billion. You think it
may be a misprint?
Dr. SEGER. Yes, but I'll still answer your question about the current deficit. In fiscal 1984, somewhere between $175 and $180 billion, something like that.
Senator RIEGLE. $175 to $180 billion is your current estimate of
the current fiscal year 1984 deficit?
Dr. SEGER. Yes.
Senator RIEGLE. So you're saying that that is what you now foresee?
Dr. SEGER. This talk was actually given last September. It was
published in November.
Senator RIEGLE. Well, let's say it's the low figure. Let's say it's
going to be $175 billion. You said you think there's a misprint here
and that you think you said $155 billion and they printed $125 billion.
Dr. SEGER. Yes.
Senator RIEGLE. In any event, that's a substantial underforecast,
if you will. How do you account for that? Why were you so far off?
Dr. SEGER. I think that budgets are very difficult to forecast. I
have been following this for some time and even people in the Congressional Budget Office have difficulty. As you go through the
year, expenditure items get changed, revenue collections are influenced by how the economy is doing, and-Senator RIEGLE. What were the main things? Obviously, your
policy assumptions were wrong. You thought there would be one
set-you made one set of policy assumptions and things turned out
quite differently. What didn't turn out the way you thought it
Dr. SEGER. Looking at the revenue side, I think that the things I
pointed out are in fact happening, that the corporate profits are
coming back strongly and this is producing more revenue than was
initially expected, and, that, again, there are more people at work.
We're having additional collections from individual income taxes.
Senator RIEGLE. That would have closed the gap. That would
have caused the deficit to be lower, but in fact it's higher than

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what you thought. What were the things that worked against your
forecast? What didn't turn out the way you thought it wou_ld?
Dr. SEGER. OK. I said I think those things are coming along
pretty much as I expected. I was probably off on the expenditure
Senator RIEGLE. On the expenditure side. So where on the expenditure side were the miscalculations made?
Dr. SEGER. I don't know the particulars.
Senator RIEGLE. The reason I ask this-and if you prepare a
statement you may want to deal with this because the whole question is sort of how realistic a forecaster are you or what goes into
the basis for your judgment here to make these kinds of forecasts.
If, for example, you were on the Board and you thought that
next year's deficit was going to be $100 billion and everybody else
thought it was going to be $200 billion and you, in turn, then made
monetary policy recommendations on that kind of judgment, I'm
afraid that could take us way off course. I mean, that's a very important consideration around here. It's not a partisan issue, it's a
fully nonpartisan issue. People are very concerned about how realistic are the forecasts that these policies are based on because it is
significant if there's a miscalculation by $25 billion or $50 billionand this is a fairly close-in forecast, you weren't forecasting out 4
or 5 years. You were forecasting for the coming fiscal year and you
say it's $155 billion and let's accept that even though it was printed in the article as $125 billion. Even so, it seems to me that would
be one of the lowest estimates that I think anybody made that I
would be aware of in that time period.
I can't think of another economist that late in the year ~983
would have been forecasting the deficit in the fiscal year upcoming
as low as $155 billion. So that would have put you way out I think
on the edge of the forecasting ranges.
My time is up, but I'm going to want to come back to this because I think one of the things we've got to try to assess here is
how your economic thinking works and how you build your forecasts, how accurate have they have been, how accurate they are
likely to be in the future, and this is a critically important area. I
just want to stress that to you before yielding back, Mr. Chairman.
The CHAIRMAN. Senator Sasser.
Senator SASSER. Thank you, Mr. Chairman.
I'd like to pursue this economic line of questioning, Dr. Seger, if I
could, and just ask you this. Specifically, do you think that inflation remains a significant risk as the economic expansion continues?
Dr. SEGER. Do I think it will be-Senator SASSER. Do you think it remains a significant risk as the
economy continues to expand? If you do, what policies are needed
to counter this inflation?
Dr. SEGER. If you look at the economy and see where we are now
and then view where we are relative to the capacity of the economy to improve, it is true that as you narrow the gap between
present output and potential capacity that the risk of getting into
inflationary problems increases. I don't think that's very controversial. That seems to be pretty standard economic thinking.

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Senator SASSER. Well, we have the tension now between the Federal Reserve Board, where some say Chairman Volcker wants to
exercise monetary restraint as a means of fighting a threatening
resurgence of inflation; and on the other hand, we have others
who oppose this monetary restraint, saying that inflation is no
problem. So we have Chairman Volcker on one side of this issue, if
the popular press is to be believed, and on the other side we have
individuals such as the Secretary of the Treasury, Mr. Regan.
My question is: Which side would you come down on? Do we need
to exercise, in your judgment, increased monetary restraint as the
result of threatening inflation or is that simply something we
should not be concerned about?
Dr. SEGER. I think you always have to be concerned about inflation. I think the economy is doing far better in a noninflationary
environment. But there is a lot of room for differences in judgm~nt
about, first of all, what the capacity of the economy actually is.
This isn't a nice, concrete number. Second, there is a difference of
opinion about how quickly we can approach that before we trigger
a new outburst of inflation.
I think, as I understand Chairman Volcker's views, that he's
trying to say we want to gradually squeeze things down so that we
will prevent another outburst of inflation. The Fed is not doing 90degree turns, but they are gradually working on slowing monetary
growth in order to achieve that end.
Senator SASSER. Well, am I to gather from what you say then
that you would agree with the Chairman of the Federal Reserve
Board if his views are being accurately reported-and I can't say
whether they are or not-that we do need to pursue increased
monetary restraint to combat inflation?
Dr. SEGER. I think this is what has gone on, a gradual, modest
tightening as we have gone along.
Senator SASSER. This has become one of the big questions of the
day, as you well know, and there have been a lot of disagreements
between the Federal Reserve Board on the one hand, as reported in
the popular press, and then, of course, the Secretary of the Treasury, who has had his own statements to make, and I presume he's
been speaking for the administration. So it's a matter of, I think,
some considerable urgency for at least one member of this committee to know what your views are on this particular matter.
Now on the question of fighting inflation, would you put a
stronger emphasis on reducing the Federal deficit or would you put
a stronger emphasis on monetary restraint if you had to come
down on one side or the other?
Dr. SEGER. I think this is part of the problem in this country,
that we've got two basic economic stabilization tools, fiscal policy
and monetary policy, and I think the country is better off or best
off when you utilize your whole set of tools and not use just one or
just the other. I think if you're fighting inflation, if the economy
calls for that stance, then you want to use some of each, some
fiscal and some nonfiscal policies.
Senator SASSER. Well, I couldn't agree with you more and I
think, Dr. Seger, one of our problems at the present time is that

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fiscal policy and monetary policy have been operating at cross purposes in this country for about 3 years and we have gone through a
period of great monetary restraint while at the same time we were
going through a period of almost no restraint on the fiscal side.
Now you indicated at the White House press conference where
your nomination was announced that you supported-if you were
quoted correctly-that you supported everything the President was
doing. I'm sure the President welcomed your words of support, but
my question to you is, do you support, for example, the very deep
tax cuts that were made in 1981, which was a very expansive monetary policy being pursued by the administration, as opposed to the
monetary restraint that the Federal Reserve Board was pursuing
at the same time or shortly thereafter?
Dr. SEGER. As I think back-Senator SASSER. We can't have it both ways. We can't say that
we believe that fiscal and monetary policy ought to be coordinated
and at the same time say we support everything this administration does when one of the keystones of this economic policy appears
to me has been very expansive fiscal policy.
Dr. SEGER. If you think back to the summer of 1981, we were just
starting into a recession that went from the middle of 1981 through
the rest of the year and all through 1982. Yes, I did support the tax
cuts at that time. I think we needed some additional incentives to
be given to the people of this country, and I think we needed the
incentives given to businesses that were in that bill that Congress
passed. Again, there are times in the business cycle when you want
to stimulate the economy and there are other times when obviously
you want to restrain it. But looking back to 1981 and certainly
1982, the economy was in a very deep slump, and I think some
stimulus was appropriate.
Now again, there could be arguments about the particulars or
the exact dollar amount of stimulus and the exact form it took, but
I think stimulus was appropriate.

Senator SASSER. Well, do you regard deficit reduction as the most
important economic priority that we presently face in this country
and, if so, how should the deficit reduction be achieved?
Dr. SEGER. I guess I'm a little cautious about using superlatives,
but reducing the deficit is definitely a very important matter. If for
no other reason it's become a very important matter because the
financial markets find this a critical factor and they have a lot to
do with how that's viewed and, in turn, its impact on financial
markets and the stock and bond prices. Obviously, it's very important.
Senator SASSER. Well, we don't have any disagreement that the
deficit reduction is very important. The next question is, how do we
go about deficit reduction? Do you, for example, agree with the
Chairman of the Federal Reserve Board that in the event it becomes impossible to reduce spending to a sufficiently large degree,
then substantial further tax increases would be needed to bring
deficits and interest rates down?

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Dr. SEGER. When you look at a budget, you've got two things you
can work with. You can work with the revenue side, which means
tinkering with truces, or you can work with the expenditure side.
Senator SASSER. Well, that's very apparent and I know that, Dr.
Seger. But my question to you is, how would you go about reducing
the deficit? We've had the Chairman of the Federal Reserve Board
up here and he has testified that the deficit must be reduced. If for
some reason we cannot reduce spending enough, then he's recommended that in that event there be a substantial further tax increase
to bring the deficit down so interest rates will come down.
My question to you is: How would you get the deficit down and
would you agree with the Chairman that in the final analysis we
might have to have some substantial further tax increases?
Dr. SEGER. I wasn't trying to be flippant on the comments about
the budget. I'm just saying that you've got three choices. You can
address the expenditure side; you can do something with taxes; or
you can do a combination of the two.
Senator SASSER. Well, what would you do? What would you recommend to this committee? You're going to sit on the Board which
has great economic impact and helps determine the economic
policy of this country. What would you recommend to this committee?
Dr. SEGER. Is the Congress going to take its cue as to what to do
with the budget from the Federal Reserve Board?
Senator SASSER. Well, Dr. Seger, the Senators ask the questions
here and the witnesses respond and what I'm trying to determine
today is what your economic views are and how you would react on
the Board of Governors. Now if I were on the other side of the
table, I would answer those questions.
Now they tell me that my time is up. So I will be back again.
The CHAIRMAN. Senator Sarbanes.
Senator SARBANES. Thank you, Mr. Chairman.
Dr. Seger, what I would like to do in my opening round of questions is to get a clearer idea of what it is you have done in your
career. I think the statement submitted to us in that regard is
somewhat sketchy and I'm particularly interested in the last 10
I take it that in the summer of 197 4 you left the Detroit Bank &
Trust Co. and went over to the Bank of the Commonwealth in Detroit. Is that correct?
Dr. SEGER. Yes.
Senator SARBANES. Now did those two banks later merge? Were
they competitors of one another?
Dr. SEGER. Yes, they merged in 1983 and they were both in the
Detroit market. The Bank of the Commonwealth had been a problem bank since the late 1960's. The FDIC gave them assistance a
few years later and a new management team was put in place. 1:he
new president from Boston asked me in the summer of 1974 to gwe
him a hand by working on their investment problems.
Senator SARBANES. What kind of problems did the Bank of the
Commonwealth have?
Dr. SEGER. Going back to the 1960's, which is when this big problem developed, they had put on a very heavy load of long-term municipal bonds. This was back in the mid-1960's, 1965-67, somewhere

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along in there. They had also made a lot of loans that didn't turn
out to be terribly high quality. I guess if I had to pick a single problem that was the key one they faced, it was making an investment
mistake and acquiring too many long-term obligations such that
when interest rates rose the values of these changed dramatically.
Senator SARBANES. Well, now you stayed with them for just 2
Dr. SEGER. Right. As I indicated, I really wanted to get on to
teaching and some lecturing.
Senator SARBANES. Did you contribute to bringing the bank out
of its difficulties, or did it continue to have those problems?
Dr. SEGER. I certainly worked on the problems. It helped me understand how difficult it is to take a bank that is already having
tremendous difficulties and in fact turn it around.
Senator SARBANES. They subsequently merged into another bank;
is that correct?
Dr. SEGER. They continued to have tremendous problems through
this whole period. I left in 1976, but when I was a regulator in
Michigan in 1981 and 1982 it was still a big problem, and at the
end of 1983-l've forgotten the exact month-it was merged out of
existence and Comerica Bank-Detroit acquired it.
Senator SARBANES. Would it be accurate to describe it as a shaky
financial institution?
Dr. SEGER. That's what I meant by problems; yes.
Senator SARBANES. When you left iri September-October 1976,
leaving aside the not quite 2 years when you were the commissioner of financial institutions in Michigan-that was from January
1981 to December 1982-I'm not altogether clear on what you were
doing over the last 8 years. It would be helpful if you could run
through what you were doing during that period.


Dr. SEGER. I have done, as I said, some teaching.
Senator SARBANES. Let's take it seriatim. I just want to get an
understanding of exactly what your career has been. When you left
the bank in September 1976, then what did you do?
Dr. SEGER. I worked on some consulting jobs. I prepared individual lectures. I gave various talks. Then in the fall of 1977, I was
asked to teach at the University of Michigan to cover for Professor
McCracken who was going to be away, so I started preparing my
lectures and started teaching at the University of Michigan in
1978. As I said, I hadn't taught business conditions before, so-Senator SARBANES. Between September 1976 and January 1978 in
effect you were free lancing. I don't know if that is the right expression to use, but you were in that status? You did some lecturing, I gather, and some consulting from your home?
Dr. SEGER. Yes.
Senator SARBANES. I take it you didn't have an established consulting office or anything of that sort; is that correct?
Dr. SEGER. That's correct.
Senator SARBANES. How extensive was that activity during that
not quite 18-month period?

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Dr. SEGER. I did some work for a bank in Alabama. I did some
work for a bank consulting company. I helped them set up a data
base. And, as I said, I gave lectures.
Senator SARBANES. The lectures that began in January 1978 or
other lectures?
Dr. SEGER. Individual lectures.
Senator SARBANES. How many of those, just roughly, did you give
and how often did you do that? This was your source of income, I
take it.
Dr. SEGER. The consulting jobs I was doing and-Senator SARBANES. How often would you give a lecture?
Dr. SEGER. I don't know if I can remember the exact number.
Senator SARBANES. Once every couple of months, once every 3 or
4 months, more often than that?
Dr. SEGER. I would say an average of a talk a month; that's a
very loose estimate.
Senator SARBANES. Now in January 1978 you undertook to teach
these courses at the University of Michigan in the business school?
Dr. SEGER. Yes, sir.
Senator SARBANES. How many courses did you handle?
Dr. SEGER. I handled an undergrad business conditions course,
which was a business economics course, and a graduate course; the
total was 9 hours, which was full time.
Senator SARBANES. So you were not a full-time teacher?
Dr. SEGER. Yes, I was full time.
Senator SARBANES. What was the nature of the appointment you
Dr. SEGER. You mean my title?
Senator SARBANES. Well, were you a lecturer in the school or
simply an outside consultant? You must have had some faculty
Dr. SEGER. I was an associate professor.
Senator SARBANES. You were an associate professor?
Dr. SEGER. Yes.
Senator SARBANES. Does an associate professorship carry tenure
with it at the University of Michigan?
Dr. SEGER. Not for a couple of years, no. You have to have been
an associate professor for a number of years. I think it's 3 years.
Senator SARBANES. Is that the category just below full professor?
Dr. SEGER. Yes, it is.
Senator SARBANES. All right. Now you did that for a semester. I
gather when you were taken on it was on the understanding-Dr. SEGER. No; I did it for 1 ½ years, 1978 and 1979.
Senator SARBANES. All right. All on this basis of filling in for a
professor who was on leave?
Dr. SEGER. Yes.
Senator SARBANES. Then he returned, I take it-he or she returned and then that was the end of that?
Dr. SEGER. Yes.
Senator SARBANES. Then what?
Dr. SEGER. Then I went back to doing individual lecturing. I also
talked to some schools elsewhere about a full-time, permanent
teaching job, because I did like teaching and I did want to do more

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of it. Eventually I was hired by University. That's where I
was teaching-Senator SARBANES. Had you explored while you were at the University of Michigan any possibility of a more permanent job there?
Dr. SEGER. They talked to me about it. I'm a graduate of the University of Michigan and they have a very strong "publish or
perish" approach and, as I indicated to Senator Riegle, the thing I
like about academia is the teaching per se. I am not a philosopher.
I am not a theoretician; and I don't enjoy just sitting and doing research. I was looking for a school where I could be given credit
Senator SARBANES. So when you left there you went back, in
effect, to the same status that you had after you left the bank and
before this 18-month teaching stint at the University of Michigan;
is that correct?
Dr. SEGER. Yes.
Senator SARBANES. And more or less in the same terms you were
describing earlier?
Dr. SEGER. Yes. As I said, when I talked to Oakland back in early
1980 and knew what I was going to be doing there, I· started preparing material for those courses.
Senator SARBANES. So you went to Oakland in the fall of 1980?
Dr. SEGER. I actually started teaching in August, but again I
started working on the course, back in the spring.
Senator SARBANES. Then left them rather promptly to take this
position-or did you take a leave of absence?
Dr. SEGER. I had no idea that the Governor was going to ask me
to be a commissioner. I signed a 3-year contract with Oakland and
had every intention of living with that.
Senator SARBANES. Then you went back to them after your stint
as commissioner?
Dr. SEGER. Yes.
Senator SARBANES. Then what happened that you did not continue along with Oakland?


Dr. SEGER. I was made offers by several schools besides Oakland.
At Oakland I was associate professor. I looked at all the different
offers that I had and chose Central Michigan University, which offered me a full professorship and also would allow me to teach the
finance courses that I wanted to teach. At Oakland, courses were
given out more on a seniority basis and I was the most junior
person in that department.
Senator SARBANES. Did you go to Central Michigan University as
a full professor?
Dr. SEGER. Yes, I did.
Senator SARBANES. And as a tenured member of the faculty?
Dr. SEGER. Not as tenured. If I go back this coming year, the
tenure decision would be made some time during this year.
Senator SARBANES. I see. So at none of these academic appointments have you been there long enough to have been considered
for tenure; is that correct?

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Dr. SEGER. Yes. Again, university policies vary. I hate to generalize, but it's always a couple of years before they vote on it.
Senator SARBANES. I understand that, but your response to the
fact that you had not gained tenure anywhere is that you were not
anywhere long enough to meet the time requirements to be considered for tenure; is that correct?
Dr. SEGER. Yes.
Senator SARBANES. I see my time has expired. I want to make
one point. I share some of the concern that's been expressed this
morning about the paucity of anything in writing that reflects your
views and positions on substantive matters. And, of course, you
come as an academic; you don't come as a business person, where
we can look at the company and make some judgment on the basis
of your responsibilities there and the conduct of the company. In
other words, you come from an activity in which what you think
and how you express it orally and in writing is important. I notice,
for instance, that in your financial statement there's a number of
lectures. Apparently just last month you gave almost 15 hours of
lectures at the New Mexico School of Banking; is that correct?
Dr. SEGER. I have done that, sir, every year for the last 6 or 7
years. It's a banking school run by the University of New Mexico
and they have these all over the country.
Senator SARBANES. Are those lectures available?
Dr. SEGER. No, I don't prepare verbatim scripts. I don't have a
big staff, I do them myself. I could give you the outline of what I
covered in the course.
Senator SARBANES. Now you gave three lectures to the Michigan
Bankers Association in the course of this last year; is that correct?
Dr. SEGER. Yes, sir.
Senator SARBANES. Were they published in the bankers' magazine?
Dr. SEGER. No, they weren't.
Senator SARBANES. What were they about?
Dr. SEGER. One of them was a lecture on women in banking. One
was on improving the education of bank directors, getting them
more tuned in to what's going on in banking institutions of which
they are directors. The third was a lecture to the mortgage lending
portion of the Michigan Bankers Association.
Senator SARBANES. And of the lectures at the University of New
Mexico Banking School, the one you just gave, what was that
Dr. SEGER. It was on regulation of banks.
Senator SARBANES. On regulation of banks?
Dr. SEGER. Yes; then there were some on what I would call
money and banking-banking and the economy.
Senator SARBANES. Have some of the groups or institutions to
which you have given lectures subsequently published them in
their own trade journals or their own internal communications to
their membership?
Dr. SEGER. Not that I know of.
Senator SARBANES. Well, I'm not sure I understand that answer.
They have not or-Dr. SEGER. I have never seen any of them published.

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Senator SARBANES. Or lengthy reports about what you had to say
to their membership? I'm now distinguishing from some publication in an academic journal. It seems to me that you have appeared
before a number of groups. Have they in effect talked about what
you had to say to them or summarized it or provided excerpts from
it that you know about?
Dr. SEGER. Not that I know about.
Senator SARBANES. Would it serve a purpose to try to check that
out? I'd be very interested in seeing what you have been saying.
You come to us, it is asserted by some, with a significant record;
and yet when we try to find anything that we can examine and
read and consider to find out what your views have been or what
you have said or what you thought, there seems to be just a blank
tablet. It seems to me that we ought to try to fill that in if possible.
Would you be averse to trying to go back to some of these places
to see whether there are some reports available'? Or perhaps our
staff could work with you in fact in trying to do that?
Dr. SEGER. For example, at a banking school, you run your classes just like you run your classes in college. I'm sure that those are
not-Senator SARBANES. You i:;peak to the Michigan bankers. I take it
they paid you a fee for doing that. Was there was nothing subsequently in their monthly journal, or whatever the newsletter or
publication of the Michigan bankers is, that reported your speech
or at least excerpted or summarized what you had to say?
Dr. SEGER. Not that I have seen.
Senator SARBANES. But there may have been?
Dr. SEGER. I don't get-Senator SARBANES. You're suggesting that there may have been
but you just don't know about them.
Dr. SEGER. I'm just saying I don't get all the publications, so I
haven't seen them published.
Senator SARBANES. I think we probably ought to look at some of
the lectures you have been giving and see whether such reports or
publications in fact appeared so we can have some idea of what you
were saying.
Mr. Chairman, could we ask the staff to undertake some effort in
that regard?
The CHAIRMAN. Of course, the Senator can ask the staff anything
he would like to do. I would like to ask the Senator if we could
move on and he would wait another turn. The committee under
Chairman Proxmire and I have always been 10 minutes and I will
stay as long IO-minute periods as you want, but the Senator has
gone 20 minutes and I wish he would abide by the time schedule
for the convenience of other Senators. I have given up each of my
turns to allow my colleagues. I have asked no questions except at
the beginning, and I will be happy to stay here as long as you want
as many IO-minute periods, but I wish we could stick to the time
that has been the policy under two different chairmen.
Senator SARBANES. Mr. Chairman, I think that point is well
taken and I will endeavor to stick to the time. Could we have the
staff undertake the effort with regard to my inquiries?
[The following material was subsequently submitted for the
36-314 0 - 84 - 3
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Section on !!.£.!U

Nature and History or Money


Kinds or Moaey
What is "The Money Supply•

Function and Importance or Money


Specialization, Exchange and Money
Does Money Matter?
The Quantity Theory or Money
The Keynesian View
Supply-Side Economics

Section on Th•

Money and Bankin1 System

American Commercial Bankin1



Function or banks as rinancial intermediaries
Bank reserves and factors affecting them

Credit Creation



How deposits and credit are created
Individual bank creation and destruction of deposits--limits
Banking aystem vs. individual bank
Weekly Fed Statement
Weekly reporting member banks and NYC

Section on Central Bankin1

Structure and Operation of the Federal Reserve System as a
Central Bank


Function of a central bank
Structure of the Federal Reserve
Operations of the Federal Reserve--service vs. Monetary

Instruments of Monetary Policy




Open Market Operations
Reserve Requirements
Discount mechanism
Reg Q

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Goal• or Monetary Polley




Stabla Prices
•Full• Employment
Economic growth
Balanca or PaY11ents equilibri1111
Other ObjectlYes
or conrlicting goals


of Monetary Polley



FOMC Dlrectiva
Monetary Aggregate Growth Targets
October 1979 chanae in uphasis

Tight Money--What 11 it?


How ls it

Impact on stock prices
Polltlcal and Social Constraints

Section on Re1ulatlon

Reaulation of banks and banking



Micro vs.

The Bank Regulatory Agenciea

Major bankin1 reaulations
Regulation of other depository inatitutions

Section on Dere1ulatlon and Le11slat1on

Major legislatlon--pre 1980


McFadden Act or 1927
Glass-Steagall Act of 1933
Bank lloldln1 Co. Act or 1956 (and amend111ents)

Major le11slat1on--1980 to Pre.sent

DIDMCA of 1980
Gran-st. Ger111aln of 1982

Section on Structural Changes

Holding Companies

Mer1era and Conaolldatlons
Interstate Banking
Electronic payments system•

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The CHAIRMAN. I have no objection to any inquiries the Senator
wishes to make.
May I just take a questioning period at this time. I would like to
insert for the record a letter from the National Association of
Women Business Owners which states that the National Association of Women Business Owners supports the nomination of
Martha Seger to be a member of the Federal Reserve Board.
[The following letter was subsequently submitted for the record:]

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Washington, D.C

June 19, 1984

Coun ..l


Hope Eastman
Morgan Associates

B01rd ReprHln~lve

The Honorable Jake Garn,
Committee on Banking, Housing
and Urban Affairs
United States Senate
Washington, D.C. '20510

Laura Henderson

Dear Chairman Garn:


Washmgton. O.C




Polley and

The National Association of Women Business Owners
supports the nomination of Martha Seger to become a member
of the Federal Reserve Board.
NAWBO is a national membership organization with chapters across the country which
is devoted to increasing opportunities for women entrepreneurs. As such, it recognizes the fundamental importance
of the Federal Reserve Board and believes that this qualified woman should join its ranks.
Accordingly, we urge
the Committee to vote favorably on this nomination and
send it promptly to the Senate floor.




Barbara Wege

Pre "dent
Nat"onal Association of
Women Business Owners




CTA-A Management Group


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The CHAIRMAN. I would also just note, getting back to the colloquy that Senator Riegle and I were having at the opening, once
again I want to emphasize so there's no misunderstanding, the
members of this committee as long as I'm chairing it, will have the
opportunity to ask as many substantive questions as they wish; certainly that is their right and nominees should be carefully considered.

But I would just note for the record that in reviewing just a few
of the past nominees, there was no opening statement from Chairman Volcker, no opening statement from Nancy Teeters, no opening statement from Preston Martin, no opening statement from
Frederick Shultz, no opening statement from Emmett Rice. I would
conclude from the record of each of the hearings I have here, all of
which are very brief, with the exception of Chairman Volcker's initial one, that it is not uncommon not to have an opening statement.
Also, in just reviewing these brief ones, Chairman Volcker, Lyle
Gramley, Emmett Rice, Mr. Shultz, and Mr. Martin also answered
that they would serve the full term. Chairman Volcker in his reconfirmation did not commit to serve a full term. So I think at
least on those two questions, it's not unusual, as shown by the
record of at least five of the last nominees.
Senator RIEGLE. Mr. Chairman, might I just ask one question
with respect to the points you made? It would seem to me in the
instance I think of all the ones that you mentioned that their views
on the basic monetary and economic and financial policy issues
were generally quite well known because they in themselves were
quite well known. Their views were quite well known.
The CHAIRMAN. I would think that would be true of Chairman
Volcker and Preston Martin. Preston Martin had served previously
on the Federal Home Loan Bank Board. I would not think that was
true of Lyle Gramley, Emmett Rice, or Mr. Shultz, who was a businessman down in Florida.
Senator RIEGLE. Well, if I just may, I remember Shultz because
he ran a forecasting service and so he-The CHAIRMAN. I personally had never heard of him until he was
nominated. Maybe that's my own ignorance.
Senator RIEGLE. My point is that there was material in writing
as to his views and so what we had an opportunity to do as a committee was to gather those materials before the hearing and basically understand more about what their views were, their ideas,
their attitudes and so forth. And that's what's missing here. That's
the only point I make.
The CHAIRMAN. I don't want to prolong this, but with each of
them, even Preston Martin, who was a Ph.D. and had been a teacher and so on, has a list of only about five published works. So, virtually all of them, with the exception of one or two, have not had
an extensive background of writing in those areas. It's an academic
point. I just felt that it was unfair to use these against Dr. Seger
when it was common practice not to have an opening statement or
published writings. Again, Emmett Rice had none to take credit for

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at all, and we approved him in eight and a half pages, with no extensive review of his background at all. He's turned out to be a fine
Governor, but if we were judging liim by the same criteria we're
apparently using today, he certainly didn't look very good on
paper, but he's turned out to be a very fine Governor. I certainly
have appreciated his work since 1979 when he was approved.
One other point, the Congressional Budget Office currently estimates the 1984 fiscal deficit will be $175 to $180 billion. Senator
Riegle noted before that you estimated last September the 1984 deficit at $155 billion. Last September the CBO's estimate was $198
billion. Thus, your estimate is about as accurate as the CBO's. You
were $20 billion under and they were $18 billion over their current
I would also note, in response to a question from Chairman Proxmire about the length of the term, that in 1979 he received a letter
from Henry Wallach and here are some of the facts: The last eight
members all resigned before the end of their term except Steve
Gardner who passed away, he left before his term as well, and
George Mitchel, who served out his entire term. He gives some examples here of years served. Years served: 3 years, 7 months; 3
years, 5 months; 8 years, 5 months; 3 years, 11 months. When you
get into the list of how long people served, there are very few that
served over 3 or 4 years until you get way back in history. There
are some that scored for 10 or 11 years when you get back to the
former Chairman of the Fed of 14 years from Utah, Mariner
So a 14-year term seems to be very, very academic in looking at
the record and rather meaningless as to how long people stay.
Senator RIEGLE. Mr. Chairman, on that point, we've talked about
it and I mentioned it. There is a question on the form and the witness has answered it in the affirmative. Why don't we ask her if
it's her intention to serve the 14-year term? She's here. Is it your
intention to serve the 14-year term as you said in your statement?
Dr. SEGER. To my knowledge at this minute. I don't know what
will happen to my health.
Senator RIEGLE. Assuming good health, but it's your intention to
serve the full term; is that right?
Dr. SEGER. Or, as I said, some family catastrophe or-Senator RIEGLE. But barring that, barring some extraordinary
event, it is your intent to serve 14 years?
[Dr. Seger nods head.]
Senator RIEGLE. You're shaking your head yes.
Dr. SEGER. Yes.
The CHAIRMAN. But again, I would only say that Volcker, Gramley, Rice, Shultz and Martin, as far as I went back, said exactly the
same thing.
Senator RIEGLE. I don't know if the question was asked them in
the same way. We've got the witness here and she's just answered
that it's her intention.

The CHAIRMAN. It's very direct in the disclosure. I'm sure they
all or most of them expect to. Volcker did not. He's the one excep-

Digitized by


tion recently. In his renomination he said he would not. The rest of'
them answered exactly the same way, whether it was verbal or it
was in writing. I'm just trying to make the point that I think the
14-year term is academic as proven by a list of every Federal Reserve Board Governor that has ever served since 1913-82. Mariner
Eccles was the only one that served term after term.
Senator PROXMIRE. William McChesney Martin.
Senator SARBANES. Mr. Chairman, that happened because some
of the earlier appointees weren't appointed for a 14-year term.
Nancy Teeters, whose term just expired did not get a 14-term. She
got only the balance of what remained of a 14-year term. Usually,
when they come before us, the nominees are not being put into a
spot on the Fed for the 14-year term just beginning.
The CHAIRMAN. Those of them I cited, Senator, were. Volcker,
Gramley, Rice were 14-year terms. Gramley is still there, but we're
arguing about something I think-there's a factual record here
that is indicative of the point I am trying to make. If my colleagues
want to argue with the record, fine, be my guest. Again, I will
repeat, all of the substantive questions on her philosophy are fair
game and should be asked. We will stay as long as necessary until
my colleagues have asked all the questions they wish to ask.
I'm just trying to indicate as best I can, without prolonging this
over and over again, that I felt it was only fair to point out in the
record, on the points of a 14-year term, published articles which
are rather meager in most of the ones I have had an opportunity
look at, and the issue of whether an opening statement is detrimental or not, when Chairman Volcker, Preston Martin, Frederick
Shultz, Emmett Rice also had no opening statements. So, maybe we
should reconsider their nominations on that very important point.
Senator SASSER. Could we reconsider some of those in actuality,
Mr. Chairman, I wouldn't mind doing that.
The CHAIRMAN. Senator Proxmire.
Senator PROXMIRE. Mr. Chairman, I might just point out that
Henry Wallach has served for 10 years and is still going strong and
will serve another 4. Charles Partee has served for 8 years and he's
going strong and there's no indication he's going to quit. Emmett
Rice has been in there for more than 5 years and he's likely to continue. Lyle Gramley shows no signs of giving up. He's been in there
for 4 years.
So I think there's an indication that at least the present Board
likes their job and is likely to stick around for a while.
I'd like to ask you, Dr. Seger, your judgment about what responsibility you believe the Federal Reserve has to prevent a sharp increase in interest rates. Suppose the economy and business loan
demand show strong growth and interest rates continue their
upward rise. Should the Fed accommodate this demand by relaxing
its grip on its monetary targets or should it stick to those targets
irrespective of what happens to interest rates?
Dr. SEGER. The Fed, in my judgment, does not target interest
rates and-Senator PROXMIRE. Should not target interest rates?
Dr. SEGER. Does not and should not target interest rates.
Senator PROXMIRE. All right.

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Dr. SEGER. What they basically do is try to implement a monetary policy that meets their overall goals of encouraging the noninflationary rate of growth in the economy and generating many job
opportunities. If, in the process of curbing inflation, which they
think is a desirable goal, this tends to put the squeeze on the availability of money and credit, in combination with all the other factors that influence interest rates, that would drive up interest
Senator PROXMIRE. So as far as you're concerned, if interest rates
go up, then so be it. They went up not long ago-as you know, the
prime rate was 20 percent, the mortgage rate was 17 percentthese were extraordinarily painful and difficult for many people in
the economy. You think we just have to take that punishment and
take that pain in the interest of achieving price stability and in the
interest of the long-run health of the economy?
Dr. SEGER. I remember those high interest rates very well. It was
in 1981 and 1982 when I was in my regulating job and it was very
painful, there's no doubt about it. But at that time they were
trying to get that runaway inflation under control. Now today I
think in fact, I believe you referred to this earlier-that we have
made very good progress in bringing down the rate of inflation
from where it was in the late 1970's. It's about a third of what it
was. Inflation itself is an influence on the level of interest rates
and having these lower levels of inflation, I think, is, again, going
to help keep interest rates down, regardless of what the Fed does.
Senator PROXMIRE. I don't want you to take too much time on
this, maybe just a sentence or two on these would be very helpful.
I'd like to get a notion of your idea of the kind of Federal Reserve
Governor you'd like to be and the kind of job the Federal Reserve
Governor should do. So give us a brief critique that is your opinion
of the wisdom and success or failure of the monetary policy of the
Fed under each of the last four Chairmen. First, William McChesney Martin. He was Chairman, as you know for 20 years, perhaps
the most famous Chairman of this century-I should say, ever
since the Federal Reserve has only been here since 1915.
Dr. SEGER. William McChesney Martin was Chairman of the Fed
when I was a low-level staff economist there in the mid-1960's.
Senator PROXMIRE. You were at the Fed then?
Dr. SEGER. Yes, sir. I was a financial economist in the capital
markets section.
Senator PROXMIRE. What is your judgment of the kind of job
Martin did?
Dr. SEGER. He was very well respected. I thought he did a very
good job. He was well regarded in the business community, as
Chairman Volcker is.
Senator PROXMIRE. What was the heart of his approach and his
policies in your view?
Dr. SEGER. The expression that I recall most vividly was "leaning
against the wind"-1 believe that was the way he said it.
Senator PROXMIRE. You think that's a pretty good philosophy for
the Fed to follow?

Digitized by


Dr. SEGER. What that basically says is if the economy is whipping ahead the Fed leans on it to keep it from expanding too rapidly; if it's slowing excessively, then the Fed would lean against that
Senator PROXMIRE. How about Arthur Burns? He followed
Dr. SEGER. I do not know Arthur Burns.
Senator PROXMIRE. Well, you were very interested at that time, I
presume. He was the Chairman for 8 years during a period when
you had left the Fed. What is your judgment of his period as Chairman?
Dr. SEGER. Again, he was very highly regarded as a business conditions economist. He was very knowledgeable on why business
cycles occur and had done a lot of work and research on that. To
my knowledge, he was well regarded in the business community
and in the banking community.
Senator PROXMIRE. Do you have any feeling about the allegations
that in 1972 he deliberately increased the money supply to ease
economic conditions and bring down interest rates and help reelect
President Nixon? Do you have an opinion on that?
Dr. SEGER. I have no idea, but I certainly have never heard anything about Arthur Burns that would make me suspect that.
Senator PROXMIRE. There was a lot of talk about that in the election. As a matter of fact, during that year, there was an extraordinary increase in the money supply compared to what had happened before and after.
How about William Miller? He served 4 years recently.
· Dr. SEGER. I met William Miller once when he was at Textron;
that's my personal exposure to William Miller. It seems to me he
was in and out as Chairman rather quickly.
Senator PROXMIRE. Well, 4 years.
Dr. SEGER. I can't be exact on his tenure.
Senator PROXMIRE. All right. Finally, how about Paul Volcker?
What's your judgment of his chairmanship? Do you think his policies generally have been right or wrong?
Dr. SEGER. I think Mr. Volcker came in at a very tough time
back in 1979, that he needed to do some things to restore confidence in America, confidence in our public policies. From what I
have gathered, he's a take-charge type. He's willing to make the
tough decisions. He's willing to take strong stands and, certainly in
the financial community where I have a lot of contacts he has been
well regarded and still seems to be.
Senator PROXMIRE. Dr. Seger, you were right and I was wrong
when I referred to William Miller. He was there only 15 months,
not 4 years. I was wrong about that. He then became Secretary of
Let me ask you some other questions that seem technical but I
think they're very important because of the options the Federal Reserve Board has.
How useful is the power to change reserve requirements been as
monetary tool of the Federal Reserve Board?

Digitized by



Dr. SEGER. We went through a period when it lost its usefulness
because of the fact that only banks who were members of the Federal Reserve System were subject to the Fed's reserve requirements; there was a shrinking family, and this is one of the things
that you corrected in the Monetary Control Act.
Senator PROXMIRE. Now we've made them pretty much universal.
Dr. SEGER. Yes; but I'm talking about the period up to 1980.
Senator PROXMIRE. Under present circumstances, do you think
this is a good option, that we should use change in reserve requirements to affect the money supply?
Dr. SEGER. It's certainly one of the available tools, yes.
Senator PROXMIRE. Banks always tend to oppose that. Of course,
if we try to increase reserve requirements, it means it affects their
profitability. You think it's a tool we should use. We haven't used
it much for many years, as you know.
Dr. SEGER. As I said, I think the reason it wasn't used for a long
time was this problem of withdrawal of banks from the Federal Reserve System.
Senator PROXMIRE. This committee will have to work on a very
controversial issue which is whether or not we should pay interest
on required reserves. Do you think the Federal Reserve should pay
interest on required reserves?
Dr. SEGER. I think we should.
Senator PROXMIRE. That would be $1 ½ billion, according to the
staff, subsidy to the banks at a time when we're cutting everybody
else such as food stamps and nutrition programs. We should pay
$1.5 billion subsidy to the banks in your view. Why?
Dr. SEGER. I guess I don't really view it as a subsidy.
Senator PROXMIRE. You what?
Dr. SEGER. I guess I don't view that payment as a subsidy. I
think it's more a matter of equitable treatment. When banks are
forced to keep reserves at the Fed while other kinds of institutions
that compete with banks do not have to-are not subject-Senator PROXMIRE. They never paid them before and banks pay
between 2 and 3 percent of their income in taxes to the Federal
Government because of various provisions in the tax laws. But you
think on top of that we ought to give them a $1.5 billion interest
payment on their required reserves?
Dr. SEGER. What I was getting at was the matter of equitable
treatment, comparing banks to other institutions that compete
with banks that do not have to leave reserves in place.
Senator PROXMIRE. Of course, as I say, we have made reserve requirements-we've required now that the banks that didn't use to
have reserve requirements have them-credit unions, S&L's-so we
have changed the law in that respect.
Dr. SEGER. I was thinking more of money market mutual funds
which are competitive but, to my knowledge, are not reservable.
Senator PROXMIRE. My time is up, Mr. Chairman.
The CHAIRMAN. Senator Riegle.
Senator RIEGLE. Mr. Chairman, I want to go into a subject here
that will take probably all my time, so I'm going to go as quickly as
I can so I'm able to finish it and if I run over I'm going to aok my
colleagues to yield to me briefly so I can finish it.

Digitized by


I'm having the clerk bring down to you, Dr. Seger, a copy of an
op-ed feature that ran in the Record-Eagle paper in Traverse City
on June 6 of this year which I'm sure you're familiar with because
it's a piece that you wrote to the paper and which they published
on that date. So I'll give you a minute to take a look at it. I'm sure
you're familiar with this. As I say, this is hot off the press because
of the June 6, 1984 date.
And I would ask, Mr. Chairman, that a copy of this be made a
part of the record.
The CHAIRMAN. It will be made a part of the record.
[The article follows:]

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Senator RIEGLE. Now, I assume you wrote this piece.
Dr. SEGER. I sent a letter to the editor of several papers back in
early May. Apparently they just ran it in Traverse City in June,
but the letter went out in early May.
Senator RIEGLE. But you wrote it, I take it?
Dr. SEGER. Yes, I did.
Senator RIEGLE. And you stand by what it says? You wrote this
piece. These are your views; is that correct?
Dr. SEGER. Yes, it is.
Senator RIEGLE. I understand this also appeared in other papers
in Michigan. I understand it was distributed more broadly than
just to the Traverse City paper.
Dr. SEGER. I sent a letter to the editor of a number of papers in
Michigan. I don't know which day the papers chose to run it.
Senator RIEGLE. But in any event, these are your views and this
is accurate and this is what you submitted for publication and they
published it; is that correct?
Dr. SEGER. It looks a little truncated, but it's basically-Senator RIEGLE. You think there may be more than what is
Dr. SEGER. I think they squeezed down some of the sentences.
Senator RIEGLE. I assume they have not added anything that you
didn't say because they present it as directly from you.
Now I want to remind you that you are under oath, as I'm sure
you will recall, and I want to know whether you stand by what you
have said here word for word.
Dr. SEGER. I was going back to the 1982 election.
Senator RIEGLE. If I may, let me get into that in a second.
Senator RIEGLE. And I will give you plenty of time to respond,
but I just want to know whether you stand by what you have written here today in terms of your appearance before this committee.
Dr. SEGER. This is generally it. I don't have my original with me
to see if they did change some of the exact-Senator RIEGLE. Well, we'll check that out. As far as you know,
as you scan it, these are your views and you sent these views in for
publication and they have been published; is that correct?
Dr. SEGER. Yes.
Senator RIEGLE. OK. Now I want to file a very important disclaimer here and I want to make clear to the record, to you, to my
Senate colleagues, and to the press that's present that I have no
particular desire or any desire at all to focus on the content of the
issues that are raised in this piece. That is not why I raise this. I
want that made very clear because I don't think that those issues
per se necessarily have any relevance to the question of someone's
suitability to serve on the Fed. I just want that to be an ironclad
disclaimer at the outset.
My concern lies elsewhere, and that's with the whole question of
the accuracy of what was said and the reasonableness of the representations that appear. There are a couple reasons this is important. One of the reasons is that, as I said at the outset, I only have
in my possession two documents that contain your views as they

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have been presented publicly, the one that we talked about earlier
on economics and this one, which is in fact this month. This one is
current, a different subject, but that's all I have to work with at
the moment until I have something else added to it.
Now it's been indicated to me that there are a number of things
in this particular story that are not accurate, so I just want to go
through two or three of them because I want to know whether you
stand by the assertions in light of the fact that it's been said to me
that they are not accurate.
For example, the first one that I'd like to cover with you indicate
that Helen Milliken, a former First Lady of Michigan, supported
Democrat James Blanchard.
Now it's been asserted that that is not true, that she did not support him. Do you stand by the notion that she did and what do you
mean by support? Did she endorse him? Did she act on his behalf
as a candidate. What do you base that on?
Dr. SEGER. Two things basically. One is she was at a meeting; I
was told by someone who was at a meeting in downtown Detroit, a
big women's rally for Jim Blanchard, that Helen Milliken was
there and was with these other women who were supporting Blanchard. That's one thing.
The second piece of information that I used to base that on is
that Randy Riecker, who was the vice chair of the Republican
Party of Michigan, at a testimonial dinner for her because she was
retiring, indicated that she was the only Republican woman in an
official position who backed Headlee in the 1982 campaign.
Senator RIEGLE. So on the basis of what you just said, you feel
comfortable making the assertion that Helen Milliken supported
Democrat James Blanchard?
Dr. SEGER. The third point I would make is she came out in
many, many articles with strong critical statements of Headlee and
his staff.
Senator RIEGLE. Isn't that quite different?
Dr. SEGER. Oh, yes, and-Senator RIEGLE. It's one thing to criticize another candidate and
it's something else to support a candidate. That seems to me to require an affirmative act, a statement, an appearance together.
Dr. SEGER. The first two may have fallen in that category.
Senator RIEGLE. So based on what this person told you in terms
of the first thing you mentioned that she apparently was with a
group of people who-Dr. SEGER. A big women's rally.
Senator RIEGLE. You've drawn the conclusion you think you have
enough evidence then to make the direct assertion which you make
here that she supported Democrat James Blanchard; is that right?
Dr. SEGER. That, and the Randy Riecker comments.
Senator RIEGLE. But those three items are the basis for which
you have drawn the conclusion and you make the positive assertion
under your name that she supported Blanchard; is that correct?
[Dr. Seger nods head.]
Senator RIEGLE. Would you say yes so the stenographer can
record your response.
Dr. SEGER. Yes.

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Senator RIEGLE. Now the second item I would raise-and you've
got a copy of this in front of you, so let's go down now to the paragraph that says, "According to the news release issued by the
Women's Assembly" et cetera. Did you see that news release or do
you have it now? Would you have it in your files?
Dr. SEGER. I have it in my files, yes.
Senator RIEGLE. I think it would be helpful if you gave us that.
Dr. SEGER. In fact, a copy of that was attached to the letter to
the editor, sir.
Senator RIEGLE. I think it would be important that we receive
that as well because it gets to the question of the accuracy in your
representations and your thoughts here.
Now I notice in the end of that paragraph you quote from this
news release-and you're certain, by the way, that it was issued by
the Women's Assembly?
Dr. SEGER. That's what it's called, Women's Assembly.
Senator RIEGLE. But it was issued by them in their name as an
official document?
Dr. SEGER. Yes.
Senator RIEGLE. You're certain of that. And that's on the document that you have that you're going to provide to me and the
Dr. SEGER. Yes, sir.
Senator RIEGLE. I notice at the end of that paragraph you quote
all the way through except down to the end of the paragraph the
last two words, "including marriage" are not included in the
quotes. What's the significance of the fact that those words are
there outside the quotation marks?
Dr. SEGER. As I recall, it was not the same sentence.
Senator RIEGLE. Are you adding that then in terms of your interpretation or do you mean that to be as well in quotation marks?
Dr. SEGER. The way I understand quotation marks is you use
them if you are quoting exactly, word by word.
Senator RIEGLE. That's my question. Are you editorializing here
or is this a direct quote.
Dr. SEGER. Well, the "including marriage" came from another
part of the same-Senator RIEGLE. So in other words, when you send me this document I will be able to find those words located in the equivalent
context elsewhere; is that correct?
Dr. SEGER. Yes, as I recall.
Senator RIEGLE. So, in other words, although there might be a
dot-dot-dot here showing a separation, your assertion to the committee is that the words "including marriage" would also be found
as a quotation off this pamphlet that you referred to and so proper·
ly that might also then include a quotation mark here and that is
not an editorial addition by yourself; is that correct?
[Dr. Seger nods head.]
Senator RIEGLE. Your answer is yes?
Dr. SEGER. As I remember the piece, that's correct.
Senator SARBANES. Would the Senator yield?

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Senator RIEGLE. Yes.
Senator SARBANES. Dr. Seger, the reason for this is the stenographer can't take down nods of the head and she has to have some
oral statement from you. If you're going to nod your head, if you
could also say yes, it would be very helpful to the orderly procedure of the committee. Then Senator Riegle doesn't have to keep
saying, "I take it your answer is yes," because you've simply been
nodding your head and it would be helpful if you could answer
orally. If you shake it the other way, say no.
Senator RIEGLE. Finally, I'm not trying to rush you but the time
is late and both caucuses are meeting and I've got a number of
other things I want to get into here-The CHAIRMAN. You know how boring those caucuses are.
Senator RIEGLE. Well, sometimes they are, although it's very important in this instance.
You go on to say two paragraphs down, "Helen Milliken, and
Elly Peterson made their views known at that convention," and
you made the assertion here that they were in some fashion actively involved conveying attitudes at the Republican Platform Committee. Do you know that to be the truth firsthand, or is this hearsay?
Dr. SEGER. I was not on the platform committee, but I was told
Senator RIEGLE. So you made that assertion based on the fact
that somebody else made that representation to you and you feel
comfortable on that basis making the assertion in your own name,
because that's what you're doing here-you're not saying here, "I
was told by someone such and such," you're making it as an assertion in your own name and so, in a sense, you're adding your credibility to the assertion and you mean to do that; is that correct?
Dr. SEGER. This was covered by the media at that time.
Senator RIEGLE. But you're telling me something different here.
This is something that is published urider your name and this is
your choice of language and words and you're making the assertions and I want to know whether I can understand the fact that
you believe this to be the case and you are making the assertion.
And you are, I take it?
Dr. SEGER. Yes, I am.
Senator RIEGLE. OK. Now I want to say again I am not interested
in rehashing the consequences or even the substance of what is
being talked about here. I am concerned about the accuracy of your
representations and your sense of confidence in making those kinds
of assertions.
So I checked it out in terms of what the recollection would be if
Mrs. Milliken and Elly Peterson, who are referred to here by name
with respect to these items, to find out if in fact what you said is
true, at least as they would see it, and I have gotten a very strong
response to the contrary. As a matter of fact, it was given to me
over the phone today and in writing which is being sent to me in
the mail.

36-314 0 - 84 - 4
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Let me just send some copies around here so my colleagues will
have it as well. This is what they say in response to that. It's addressed to me on behalf of my questions to them so it can be presented to the committee.
It reads as follows:
Concerning your inquiry about the Jetter being sent by Ms. Seger to various
Michigan newspapers we would like to be on record concerning the inaccuracies her
letter contains:
1. Helen Milliken did not support the gubernatorial candidacy of James Blanchard.
2. The Womens Assembly, made up of 28 statewide Michigan organizations such
as the YWCA, the League of Women Voters, the American Association of University Women, the Business and Professional Women, did not issue a "plan to undermine the family structure in Michigan"-the goal of the groups participating in
Womens Assembly was to strengthen and improve the quality of family life through
the more than 75 issues with which it dealt, such as education, employment, family
relations, health care, community concerns, and international relations.

I should say, by the way, that this letter that was sent to me was
sent over the names of both Helen Milliken and Elly Peterson.
Continuing nowThe plank which Ms. Seger so outrageously distorts (deals with private consentual
adult activity and) reflects one adopted by the American Law Institute and American Bar Association. Twenty-five States have already enacted it into law.

I further understand from the conversations that there's a question as to whether or not such a statement as you described earlier
in your piece was released by the Womens Assembly, but I guess
we can clear that up if you've got what you purport to be the document that you say is that. So we will take a look at it and see
who's right in that respect.
Point 3 covers this point and that is:
There was no press release as alleged by Ms. Seger in paragraph 3. That paragraph contains her own interpretation of the plank described in the paragraph immediately above.
4. Neither Helen Milliken or Elly Peterson testified before the platform committee at the Republican National Convention in Detroit or attempted to influence any
of its members on a one-on-one basis. Our only activity at the convention was to
participate in the Equal Rights Amendment march and thereby express our concern
over the removal of support from the platform of the Equal Rights Amendment
which had been a part of the Republican platform since 1940.
Thank you for your inquiry.

[The following letter was subsequently submitted for the record:]

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6103 Peninsula Drive
Traverse City, Michigan 49684

June 19, 19811

Honorable Donald W. Riegle
United States Senate
Washington, D. C. 20510
Dear Senator Riegle:
Concerning your Inquiry about the letter being sent by Ms. Segar to
various Michigan newspapers recently, we would like to be on record
concerning the Inaccuracies her letter contains:

Helen Milliken did not support the gubernatorial
candidacy of James Blanchard.

2. The Women's Assembly, made up of 28 statewide Michigan
organizations such as the Y .W.C.A., the League of Women
Voters, the American Association of University Women, the
Business and Professional Women, did not Issue "a plan to
undermine the family structure In Michigan" -- the goal of
the groups participating In Women's Assembly was to strengthen
and Improve the quality of family life through the more than
75 Issues with which It dealt, such as education, employment,
family relations, health care, community concerns and international relations.
The plank which Ms. Segar so outrageously distorts deals
with private consentual adult activity and reflects one recommended by the American Law Institute and the American Bar
Association. Twenty-five states have already enacted it Into
law in their criminal codes.
There was no press release as alleged by Ms. Segar In
paragraph 3. That paragraph contains her own Interpretation of the plank described In the paragraph Immediately
3. Neither Helen Milliken nor Elly Peterson testified before the
Platform Committee at the Republican National Convention in
Detroit or attempted to influence any of Its members on a
one-on-one basis. Our only activity at the Convention was
to participate in the ERA march to express our concern over
the removal of support from the Platform of the Equal Rights
Amendment which had been a part of the Republican Platform
since 19110.
Thank you for your Inquiry.

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Senator RIEGLE. As I said, this was dictated over the phone. The
letter has been sent today.
Now in light of this assertion by them, which is now also an official part of the committee record, is there any part of your assertion in your letter that you stood behind earlier here in your testimony that you would like now to either withdraw, change, modify,
file a request to say that you would like to maybe have that set
aside until you have had a chance to look further?
Dr. SEGER. As I said, I would like to pull out the couple-page document from the Women's Assembly. I do not have it with me and
that was the way I read it, but I would certainly be willing to
reread it. I will give you a copy.
Senator RIEGLE. I'm wondering about all the different items here.
In light of the fact that you've had an assertion here from Mrs.
Milliken that she did not support the candidacy of Blanchard,
would you like to change that?
Dr. SEGER. That may be semantics, a difference in what she
means by support and what I think of supporting his candidacy.
Senator RIEGLE. So I guess what you're saying is then that you
stand by each and every assertion that you have made; is that correct?
Dr. SEGER. As I said, I will reread the Women's Assembly sheet,
but, yes, based on how I remember it.
Senator RIEGLE. You have her letter in front of you now?
Dr. SEGER. Yes.
Senator RIEGLE. And as I read through it, I assume you had a
chance to read along and follow it.
Dr. SEGER. Yes.
Senator RIEGLE. So I take it then, based on having this in front
of you and their assertions to the contrary, that this does not
prompt you to want to change in any respect your assertions that
are contained in your letter that was published on June 6?
Dr. SEGER. As I said, as far as I'm concerned, both of those
women did support Governor Blanchard in that campaign. I remember their innumerable statements. Maybe their understanding
of the word "support" and mine are different; I don't know. The
Women's Assembly did put out a couple sheets of paper on what
their positions were, and this task force did adopt that. That's accurate.
Senator RIEGLE. So again, I just want to conclude here, because
my time is up and I want to come back because others I think may
want to cover it too-but in light of the fact that you now have
from them an assertion that is directly in conflict with the assertions
that you made about them, that despite having that in front of you,
you still hold absolutely to the assertions that you have made? You
are asserting that what you are saying is accurate and correct and
. that notwithstanding this statement by them that you have misfepresented the facts and misrepresented where they stand on these
Dr. SEGER. As I said, when I think back to 1982-which is the
period we are talking about, the fall of 1982-this is the way I re-

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member what went on and this is the way I remember what was
said in that assembly, and I do have sheets of paper on that. I was
told that they went to the 1980 platform committee and made their
Senator RIEGLE. I want to repeat it one more time because this is
very important. You now have from them an assertion that the
facts are different from what you have said and so I want to know,
in light of the fact that now has been said to you and you have
that in front of you, whether you still feel that what you have said previously is accurate, that you stand by it, you don't wish to modify
it, and in a sense, then, you are not prepared to accept these representations that are made by them that are at odds with the
charges that you have made or the assertions that you have made?
Dr. SEGER. As I said, as these matters were explained to me and
as I remember their comments from 1982-and that wasn't based
on anybody else's comments-this is the way it stands. If what I
was told about the platform activities was wrong, then obviously I
would certainly apologize to them. But this was the way it was told
to me.
Senator RIEGLE. Are you surprised that you now have from them
an assertion that is as blunt and direct and refutes what you allege
about them? It seems to me it's a pretty blunt rebuttal of what you
have asserted.
Dr. SEGER. Again, thinking back, they were somewhat disappointed that I openly supported Dick Headlee-who was the Republican candidate, by the way, in 1982-and these women disagreed
with his stand on the equal rights amendment and were soundly
critical of him on some other issues.
Senator RIEGLE. So basically, you are not prepared to accept
what they are asserting to be their views and what they did and so
forth. You stand by your opposing view? In other words, you're rejecting what they are saying; is that correct?
Dr. SEGER. I am saying this is not consistent with the way I
recall it.
Senator RIEGLE. Well, I think you have a little different obligation than that. I think you have the obligation when someone
makes an assertion that you have misrepresented something they
have done and they have said that that is not right, I think you
either then have to stand by your original assertions or I think you
have to be prepared to change your assertions. And I gather you
are saying that your intention right now at this minute in this
committee is to stand by your assertions.
Dr. SEGER. Maybe I didn't make this clear. I said that if someone
proved to me that what I was told about the platform thing was
wrong, I would be willing to apologize to them. I just said that.
Senator RIEGLE. You're misunderstanding me and I think you
ought to be more direct, and that is, you have them now before you
an assertion from them directly and personally that what you have
said is not correct, and I take it that you are not prepared to accept
that. I'm asking you to do one or the other. In other words, either
indicate now that you stand by what you said before, or in fact you
are prepared to modify what you have just said because you have
in front of you assertions by them that it's inaccurate. I want to

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know which-do you still stand by what you said in print just a
short time ago?
Dr. SEGER. I wasn't there, so if these women said they didn't and
someone else said they did, if what I was told was wrong, then obviously I would be willing to apologize to them. But I wasn't there.
Senator RIEGLE. Well, my time is up. I will come back to that. I
appreciate the patience of the chairman.
The CHAIRMAN. Well, you've gotten even with Senator Sarbanes.
Senator RIEGLE. Well, I think you understand it's the sort of situation that's awfully hard.
The CHAIRMAN. Well, again, I will not take my questioning time
again this time, but I do feel compelled to wonder about this line of
questioning and I fail to see what it has to do with qualifications
for the Federal Reserve. It isn't fiscal policy and it isn't monetary
policy and, in my 10 years in the Senate, it is the very first time I
have ever seen a local political dispute brought into a hearing, particularly from the State. If it is an attempt to discredit your credibility, somehow you were misrepresenting, I also find that also
rather hollow.

All of us represent our views as we see them, particularly politicians. I have listened to debate for 10 years on the floor of the
Senate. I have listened to it on this committee. Senator Riegle and
I have had sharp differences of opinion, but I didn't question his
credibility because he disagreed with me. We've had the same set
of facts. We have interpreted them differently. I have never been
accused by him of misrepresenting an issue when I believed what I
was saying, nor has it worked the other way.
Last night on the floor on the debate on Nicaragua, we heard as
opposing a viewpoint as you could possibly hear and I don't dispute
the sincerity of either side of that argument last night-totally different situations. They could take the same testimony, the same
situation, and view it differently in impassioned speeches until 1
o'clock this morning-totally different viewpoints with one side
saying, "You're wrong" and the other side saying, "You're wrong."
So I don't know the situation. I am not a resident of Michigan. I
wasn't involved in that campaign. All I'm trying to say is that it
seems to me that whatever you said, you undoubtedly believed, and
they have a right to say they believe differently, that they did not
do it. I don't think that's an issue of credibility because, apparently, the Senator is willing to accept their assertions on the other
side and I don't know how it's possible really to prove either one on
either side.
From the evidence you had, you believed this to be true. They
are saying no. Good Lord, we look at the paper every day and any
paper in this country and any news media, and we see opposing
viewpoints on exactly the same thing. We have seen charges. You
can go back to any campaign you want to be involved in. We saw
Ronald Reagan accusing Gerald Ford of all sorts of things and he
said, "No, it's not true." We've seen Fritz Mondale and we've seen
Gary Hart making all kinds of charges back and forth and "No, I

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didn't do that," "Yes, I did." It's not peculiar to one political party
· or one set of politicians.
I think we are really stretching here to prove I don't know what
kind of a point with a local situation in which you may be wrong. I
don't know. But to attack your credibility for saying what you believe and they have their right to deny it. I think we're once again
trying to pull something out that is rather common practice of
people saying what they believe.
You know, I have actually said things in my life, that I sincerely
believed at the time, that turned out to be wrong later on. I really
have. I challenge any human being on the face of this earth not to
have done the same thing, particularly politicians.
Dr. SEGER. This is the first I had seen this article. I did not write
an article. This is dishonest journalism. I sent a letter to the editor,
and they set this up as a signed article by me with my picture.
That's not even honest journalism, to send a letter to the editor
and have it run as an article.
The CHAIRMAN. Let me say to my good friends on the other side,
as far as the time constraints, where only your side is here, I will
interject and take time if I feel I should, but with no other Republican members here, however you want to divide up your time, it's
all right with me. If you want to take more than 10 minutes, you're
here all by yourselves, and I have no one here to switch back and
forth with. However, it's Senator Sasser's turn next by order of
coming or Senator Sarbanes, it's entirely up to you how you want
to do it, being as there are no Republicans here.
Senator SARBANES. Will you yield to me?
Senator SASSER. Yes, I will yield.
The CHAIRMAN. Let me just say then, don't worry about time
constraints among yourselves.
Senator SARBANES. I asked Senator Sasser to yield in order to
take very sharp exceptions to the statement which you just made. I
think the line of questioning is very relevant because I think it
goes to some sort of very basic questions about Dr. Seger and the
way she approaches issues and therefore the question about her
Now, the thing that I found very disturbing was your assertion
that if someone came along and proved to you that the charges you
had made against these women were not correct, you would withdraw them. You made the charges in the first instance. The people
against whom they were made have denied and rejected them, and
it seems to me that places an obligation upon you to substantiate
the charges, not upon them to disprove them.
I appreciate what the Chairman said about sharp differences
over issues. We had a sharp debate last night on the floor of the
Senate with respect to Central America policy, and that's part and
parcel of an exchange in a democratic society.
But allegation, against individuals, which they assert are factually inaccurate, do not come under the rubric of the normal discourse
over policy issues. Certainly, as I understand the way our system
works and my view of fairness, it's not incumbent upon persons
against whom allegations have been made, persons who deny their
factual accuracy, to have the task of proving factual inaccuracy.

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It's the responsibility of the person who makes the charges in the
first instance.
I find your response unacceptable. It seems to me the response
you ·should have made, in light of the letter read to you by Senator
Riegle is that you would-go back and look at the situation and
seek to provide further substantiation for the position which you
That is not what you said at the table, and, I think, Mr. Chairman, it was a very significant response. It made the line of questioning pursued by Senator Riegle particularly pertinent to the
nomination before us.
I thank the Senator for yielding.
The CHAIRMAN. Senator Sasser.
Senator SASSER. Thank you, Mr. Chairman.
Chairman Volcker has recently expressed his view that-and I
quote-"a cautionary note" needs to be sounded regarding the
wave of bank-financed leveraged buyouts which has swept through
the financial system in recent months.
Now from what little I know of your view, Dr. Seger-and that's
what I'm trying to do today is find out what your views are-you
are represented in the case to be an aggressive advocate of free
markets in the financial system.
Do you believe that bank-financed leverage buyouts are potentially dangerous to the soundness of the financial system?
Dr. SEGER. That would be my position, that there is potential
Senator SASSER. Do you think it's appropriate then for the Chairman of the Federal Reserve Board or a member of the Board of
Governors to jawbone the banks against such lending or even for
the Government to take steps to discourage it, or for us to consider
legislation that could emerge from this committee to discourage it?
Dr. SEGER. I think Chairman Volcker is doing some of this already in talking about what happens when companies that have
had strong balance sheets suddenly take on a lot of debt which increases the leverage. Later on this can be a weakening factor, and I
think he's already pointed that out.
I don't know if that's what you mean by "jawboning," but I think
it is under discussion right now.
Senator SASSER. Well, Dr. Seger, do you believe that in the realm
of economic and monetary policy that the actions taken to produce
the recession of 1981-82, specifically, a very tight monetary policy
which went into effect in the spring of 1981, the tightest monetary
policy that I can remember in many years-do you think that the
actions taken to produce that recession were justified under the circumstances? Was the high rate of unemployment that was experienced, 11 percent by the end of 1982-and you come from a State
where it was much higher, Michigan-was this worth the gains
that were made against inflation, in your judgment?
Dr. SEGER. As I think back to the 1981 period, I think the Fed
probably had very few options and that they had to deal strongly
with the severe inflation problem. There's no question that if we

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have a severe inflation problem the solution involves pain. You're
absolutely right. In Michigan, 11 percent would have sounded like
a low-unemployment rate. We had some cities, statewide, where it
was 17 percent and some cities such as Senator Riegle's city of
Flint, where it was above 20 percent. I'm very aware of that side. It
was very painful and we're still working at getting unemployment
But I really think at that point the Fed was between a rock and
a hard place.
Senator SASSER. Well, would it be fair to characterize your
answer as saying that you did think the Fed was justified under
the circumstances and that the pain in the long run was worth the
Dr. SEGER. That gets into a value judgment, whether the pain
was worth it, but I really think in the context of that time, 1981,
and what was going on, that the Fed-I wasn't down here-probably had to act that way.
Senator SASSER. Well, do you agree that the tax cuts that came
then in 1981 were just contrary and in opposition to what the Fed
was trying to do at that time and that is to cool off the economy
and slacken demand?
Dr. SEGER. I said earlier, I did support the tax cuts. I think we
did need incentives to be given and I think business needed the tax
cuts they got, the accelerated depreciation and those types of
things, in order again to give them incentives to invest in more
modern equipment and building.
Senator SASSER. Well, if we all had 20-20 hindsight, as some
claim to, looking back on it now, would you have supported restraint of monetary policy in 1981 and simultaneously have supported the expansionary fiscal policy of that year characterized by
very, very substantial tax cuts?
Dr. SEGER. As I said, I definitely did support the tax cut. I think
most of it didn't take effect until 1982 when we were 6 months into
the recession by the time that a big chunk of it actually took effect.
Then it was the middle of 1982 when another part of it took effect,
which coincided quite nicely, I think, with the severe slack, it was
supplying some stimulus that was badly needed at that time and
some incentives that were needed.
Now the big squeeze from monetary policy, as I look back, came
in early 1981 and through 1981; and then some time in June-July
1982 as I recall, the Fed dropped the discount rate, and this was
the first obvious signal that they were adjusting their policy that I
Senator SASSER. Well, do you know of any alternative policies
that could have been recommended in 1981 to achieve the disinflation at a lower cost in unemployment? I am very troubled by these
cycles of very, very high unemployment, some of them brought
about in this case by what I viewed at that time as an overly restrictive monetary policy, and we find that these recessions are
coming closer together. The wave gets closer or the trough gets
closer after each one of these recessions and the unemployment

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that's left over after the recession, after each recession, is higher
than the preceding one.
Now do you know of any alternative policy that you could recommend or would have recommended that would achieve disinflation
at a lower cost than unemployment?
Dr. SEGER. I don't know of another.
Senator SASSER. Pardon?
Dr. SEGER. I don't know of another.
Senator SASSER. And you believe, then, I presume, that higher
rates of unemployment are necessary to fight inflation, that it's an
either/or proposition or at least it has been for the last 10 or 15
Dr. SEGER. Looking at the record when there has been a severe
inflation problem and drastic actions are taken to slow the economy, there's no doubt about it, sales decline, production declines,
and when that happens people are laid off. As I said, I have seen it
firsthand in the State in which I live.
Longer term, I think you can argue that bringing inflation under
control and giving business confidence in our desire to keep it
under control could actually help the employment situation, because then they will feel confident about expanding.
Senator SASSER. Do you believe there's such a thing as a natural
rate of unemployment. That's defined as the rate of unemployment
below which inflation will tend to accelerate without limit.
Dr. SEGER. Yes. Back when I was first studying economics, we
used to think that number was down in the neighborhood of 2 percent. In fact, I think in the Humphrey-Hawkins bill, even as recently as 1978, they were talking about shooting for a 3-percent unemployment rate for adults and 4 percent for an overall unemployment rate. As we've had more structural-type unemployment, this
figure has gotten bounced up. Again, different economists I believe
have different exact numbers.
Senator SASSER. What would be your estimate of the actual level
of the natural rate of unemployment, given the existing structure
of this economy?
Dr. SEGER. We don't have exact statistics. If you look at the unemployment numbers, we don't have exact statistics on which portion is seasonal, which portion is cyclical, which portion is longterm structural. People can make guesses about how it's stacked
up, but we do not have hard, fast numbers. The number I've seen
most often mentioned for this trigger rate is somewhere between 6
and 6 ½ percent.
Senator SASSER. All right. Well, what would be your posture with
regard to monetary policy when the economy approaches the natural unemployment rate? How would you react?
Dr. SEGER. As I think I suggested earlier when monetary policy
was discussed, when you are trying to come up with a reasonable
policy that is going to be implemented, you look at many, many different factors. We don't have, to my knowledge, a particular
number or a particular factor that overrides all others in the formulation of monetary policy.
Senator SASSER. What I'm getting at is that if Dr. Seger thinks
the natural rate of unemployment is 6½ percent, when we start
approaching 6 ½ percent, how are you going to react as a member

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of the Board of Governors? Are you going say let's put on the monetary brakes here? Would that be your reaction? I'd like to know
for the record how you would react to that.
Dr. SEGER. I think I mentioned earlier you look at the capacity of
the economy and at where the economy is presently operating and
the amount of slack in it. One of the things you look at in terms of
slack is the labor market. It's not the only one. You look at manufacturing capacity and the portion of manufacturing capacity that's
being utilized. You look at the labor market. There are various aspects of capacity that you look at.
Senator SASSER. Well, I've got a note here saying my time has
Senator SARBANES. Mr. Chairman, I'd like to inquire what you
foresee as the schedule.
The CHAIRMAN. Well, I intended to accommodate anybody who
wanted to ask questions as long as they wanted to ask them.
Senator SARBANES. You don't intend to take a break for lunch
here for the caucuses?
The CHAIRMAN. Well, it seems to me that if this nomination is
that important, it's always very difficult to reconvene with schedules later. We have an Export Administration Act, a continuing
conference, this afternoon in this room at 4 o'clock. So I would
prefer to have you ask all the questions that you would like. If we
reschedule it, you're also going to have conflicts. So it would be my
preference to continue as long as you wish to ask questions.
Senator RIEGLE. Mr. Chairman, if I may, I am willing to stay
here, although I don't recall an equivalent instance where we sort
of put everybody, including the witness, through an endurance test
right through the lunch hour on into the late afternoon possibly up
until 4 o'clock.
The CHAIRMAN. Oh, yes, we have.
Senator RIEGLE. The chairman may be familiar with those cases,
but they are quite rare. I don't recall any right now. But whether
he does or doesn't is beside the point. It seems to me I think what
might make more sense-and I suggest it-I offer this as an ideaand that is at some point here-we still are in caucus and there
are some important matters being taken up in our caucus that
some of us have a particular interest in and should be having some
participation with. Apart from that, it seems to me that we ought
to at some point here recess for a brief period for lunch so that the
witness has a chance to escape from the table at least for a half
hour, or 40 minutes, or whatever.
We're going to be here probably until midnight anyway and I'm
willing to come back into session, just speaking as one Senator here
in this committee, at any hour today, and I realize it's difficult to
rearrange. We did start, I might say, at an unusual hour today. We
don't normally start at 11 o'clock. We normally start earlier than
that, so that's pushed us into the lunch hour and into the caucus
period in a way that is not normal. That's nobody's fault. That's
just the way things happened today.
So I would suggest that maybe what we ought to do here at some
point is have a brief recess. If you want to continue today and come
back in here, we will do it. Otherwise, it seems to me that we may
very well find ourselves in a situation where we will go right down

Digitized by


to 4 o'clock, and I'm not sure what we prove by doing that, quite
frankly. I think that can actually work against what we are trying
to accomplish.
The CHAIRMAN. The committee will stand in recess until 3 p.m.
[Whereupon, at 1:40 p.m., the hearing was recessed, to be reconvened at 3 p.m., this same day.]
The CHAIRMAN. The committee will come to order.
To continue my unblemished record at never having the committee start late, and we do not have a witness yet, therefore, we will
temporarily be quiet until she arrives. But we did start on time.
Senator RIEGLE. Let me just say to the chairman that the burdens of being chairman are never easy ones, and there are days
when I'd like to have them back, and then there are days when I
am not so sure.
The CHAIRMAN. There are days when I'd like to give it back to
Senator RIEGLE. I'll say to the chairman, for whom I have great
personal regard, as he knows, that sometimes these matters that
arise in scheduling and circumstances can be very frustrating, but
I always find the chairman to be a great person to work with and
despite whatever frustrations he may be dealing with as a chairman
normally would, he has always been thoughtful and reasonable-or
at least almost always.
The CHAIRMAN. Well, actually it worked out rather well. It gave
me an excuse to cancel something at 3 o'clock that I didn't want to
go to.
Senator RIEGLE. Well, sometimes those things work that way.
The CHAIRMAN. It turned out to be a responsible excuse.
Senator RIEGLE. Well, you know, I must say too, it's my 18th
year in the Congress, and I have been through lots and lots of hearings and seen a lot of witnesses in a lot of situations, and I think
sometimes the witnesses are put through an ordeal that just testifying tends to be, and that sometimes having a break is perhaps as
helpful to them as anybody else.
The CHAIRMAN. If you are ready to continue, we are, I hope.
Dr. SEGER. We had to get a ride back.
The CHAIRMAN. I hope your blood sugar is up. I, unfortunately,
didn't get time to grab anything. I made the mistake of going to
my office and my staff pounced on me for a dozen different issues
that had nothing to do with anything here or on the floor.
So we will turn to Senator Riegle for additional questions he
wishes to ask you.
Senator RIEGLE. Thank you, Mr. Chairman. I know my other colleagues also have things they want to pursue, and presumably,
they will do so when they can. We are under some pressures. As
you may know, we've got a defense bill on the floor, which Senator
Tower is trying ardently to complete, and we have been in session
until midnight the last 3-or 3 out of the 4 most recent legislative
evenings, and so we are in a bit of a marathon on the floor. And
there is great pressure for people to be there and in the committee

Digitized by



on this and that, and so I am sure you will understand why people
come and go and can't necessarily be here all the time.
I want to go back to the economic policy issues where I began
discussing earlier today, but I want to wrap up one loose end before
I do, because I want there not to be any misunderstanding about it.

With respect to the letter to the editor that was printed in the
Traverse City paper, I gather that you sent that out some weeks
ago, and it. appears now in the Traverse City. When would you
imagine you sent that to the city?
Dr. SEGER. I sent it out the first week of May.
Senator RIEGLE. The first week in May?
Dr. SEGER. As I said, it was just a letter to the editor; the
paper-which to me is slightly dishonest journalism-set it into a
column. It's just a letter to the editor.
Senator RIEGLE. Right. I have been through that too. So I am familiar with that. I notice at the bottom of the piece, they say-The CHAIRMAN. I never even get my letters to the editor printed,
let alone a column.
Senator RIEGLE. Well, you're not as good a writer. But I gather
what they say at the bottom of this colum~ is "the Forum is a periodic column of opinion written by Record-Eagle readers in their
areas of interest or expertise," et cetera. But it is correct that you
did send the letter in, intending it to be printed, and they, of
course printed it.
Dr. SEGER. It's just a letter to the editor.
Senator RIEGLE. Right. And they printed it in this form, which
you had nothing to do with?
Dr. SEGER. Which looks like a signed column.
Senator RIEGLE. Right. It does, nevertheless, represent the views
that you held then and you hold now?
Dr. SEGER. As I said, I haven't had a chance to check the letter
word by word against what I sent in.
Senator RIEGLE. We're going to do that. You're going to do that
and send that to me.
Dr. SEGER. Yes.
[Dr. Seger subsequently inserted for the record the letter to the
editor; the document from Women's Assembly III; and several articles from the Detroit Free Press regarding the 1982 campaign for
Governor of Michigan:]

Digitized by


Martha A. Seger, Ph.D.
Professor of Finance
Central Michigan University
Mt. Pleasant, Ml 48859

Hay 4, 19811
Several stories recently have attempted to recreate the 1982
Blanchard/Headlee race for Governor as being decided on Dick
Headlee's lack of support for abortion, lesbian adoption rights,
etc. along with Helen Milliken, Elly Peterson and other formerly
prominent Republican women. It was not the factual case.
I am proud to say that I supported Dick Headlee for Governor
because he knew how to create jobs by cutting taxes and reducini
state spending. Helen Milliken, Elly Peterson and other
Republicans who comprised the Michigan Republican Women's Task
Force supported Democrat James Blanchard because he endorsed the
platform of the Women's Assembly "consisting of 28 feminist
organizations." Job creation and lower taxes were not among the
resolutions adopted by Co-chair Helen Milliken which included such
organizations as the United Auto Workers, National Organization of
Women (NOW), the Michigan Education Association Women's Caucus and
the League of Women Voters.
You will note from the attached news release issued by the
Women's Assembly just before the 1982 Gubernatorial election that
the "feminists" called for legalizing "lesbian and gay consensual
sexual activity"; proposed child custody and adoption rights for
homosexuals and resolved to "provide lesbians and gay men the same
protections now provided to others" including marriage.
Such deviation from normal family life in Michigan was
supported by Candidate Blanchard. It should not have been a
surprise that Richard Headlee opposed the platform of the Women's
Assembly because such anti-family legal changes were considered by
the Platform Committee of the Republican National Committee
meeting in Detroit during the 1980 Republican National Convention
ijelen Milliken and Elly Peterson made their views known at
that convention and found no support from the Republican women
participating in the Republican Platform Committee. To this day,
I do not believe Helen Milliken, Elly Peterson or the handful of
other "feminist agenda" advocates have rejected the Women's
Assembly plan to undermine the family structure in Michigan.
~or have they expressed their support for the 1980 Republican
National Platform which will probably be adopted in total as the
19811 Republican National Platform by Republican delegates from
Michigan and from every other State in the Union this summer in

Digitized by


It is not accurate to suggest that Dick Headlee•s views on
abortion, homosexual marriage and other family issues are any
different from President Reagan's or the majority or other
Republicans in Michigan or the United States. It ts further
inaccurate to report that Michigan Republicans had different views
in 1982 on the feminist agenda than did Dick Headlee. We did not.
The greater question for the "Republican• feminists should
be whether they still give single issue top priority to the
Governor Blanchard they voted for because of his support of the
feminist agenda now that all citizens of Michigan are paying
higher taxes to support an increased Total State Budget in a state
that has led the nation in unemployment for over three years.
Further, as a woman economist, I'm personally insulted by
attention to "feminist issues• that suggest women don't have the
intellectual capacity to understand "real economic issues.•


Professor of Finance
Central Michigan University
Ht. Pleasant, HI Q8859

Digitized by



Mary •own

Stele ReprH-,.tetiff

C,,e;,, M,chlgan Women'• CommiuJon
Helen Milliken
National Co-Chair, ERAme,ica


Def.. Sigma Thel,1

Women I a Assembly III, consisting of 28
organizations representing over 100,000 individu&la
throughout Michigan, was created with the charge to
develop a unified platform of women's issues, to convey
the established placfom to candidates and official&,
and to work as a coalition for the implementation of
the adopted platform at all levels of government.

D5A-fami"'sl INHSll.e

o.moc,.hc Wom41n·1 Cauc.111
Dell'OII Women·s Forum

GI'••• 0.1,0,1 C°"nc,1 ol a ...,.,. women
league ot Wo""9n \101e11
MU. WCN'Nn"I C.u-cus

Mtcn1D9n C.0..1,uon 01 latlOr

IJ"'°" Womeri

M,chlD91\ Coafll+on ot 100 Black Women

M11:r11gan Cor.ie1enc• ol NO W

M1Ch1gan Counc,1 101

""°""'" ,n

lduca11on AOmin,111•11on

Women's Assembly III is part of an ongoing educational
and political process which has involved women since
1975. Women's Assembly l was the initial political
skill-building conference to increase the pcilitical
awareness of women. In 1977, •~nagement !or Wo:nen"
was the format for Women's Assembly II.

Micrngan Feoera11cm (II Bu:w,eH
& Ptore11oan.1 vi.onien s t1110
Mw:hgan hurs,n A.noc1a1ion
MICl'lll>tifl AepuOIIUn WOffllon s l&Sk Fo,ce

M,ctNgan Women's Carr,p••Qri Furl\1

M1chlgAn wom.n·s Comm,ss,on
MIChg,an wom.n·s Po1ir,c11 C&u-cus

Mu,ern UrNdas a. M11cri,gan
Maltor\al Counc11 01 111eo,o women

Soc ..,, lo,Won•n ,,. T1a11s,>0r1at10n

Prot•~• Secrela,,.. 1n1.,na11on.l
Unit.a °"'lo Wu,k_,ll
Women Lawye,s Associ.1Iion Of M1ChiD9n

W~n in S1a1a Gove1nmenr

"All Issues are Women• s Issues" was the theme of Wome:i' s
Assembly III. Each participating organization had one
representative to the organizing com.rlttee and six
delegates chosen by their organization at the Assed>ly.
_:::::.. organizations were accepted for participation by either
being a member of ERAmerica or a multi-issue vo:nen's
organization that does not actively oppose ERA or
reproductive choice and has existed prior to December 31,

At the conference itself, each organization delegate was assigned to one of the six
major issue areas which were Employment and the Econot:1:y, Education, Power and Image,
Family Relations and Health Care, Community Concerns, and International Relations.
The delegates spent the day hearing testimony by the expert witnesses in their field
of_ discussion and were then responsible for issue resolutions which would be presented
the following day at the general assembly. Over 80 resolutions were presented and
passed such as support of a continuation of a Federal ERA, investigation and utiliz3tion
of alternative work schedules, implementation of recommendations on comparable worth,
continuing support of displaced homemaker programs, strengthen social security for
spouses, increase awareness and education of plight of women in poverty and support for
a mutually verifiable nuclear freeze.
After the Assembly, each group of delegates returned to their organization to present
the resolutions for ratification. Women's Assembly has continued its charge by mailing
candidate questionnaires to those individuals running in the Gubernatorial, U.S. Senate,
and State Senate and House non-incumbent and swing seats. They have also distributed
over 50,000 "Get Out the Vote" postcards in addition to members. On November 3rd,
Women's Assembly will be presenting to the Governor-Elect a compiled list of women for
appointments to boards 40d cownissions.

Digitized by


Po• .. and It
WHEREAS, the Michigan Women's Assembly is coneitted to the principle that
all persons have an absolute right to full equality under the lav, and e"ery
woman possesses the right to her own person, including the right to def lne and
express her own sexuality without government inter£ erence; and
WHEREAS, lesbians and gay men have been denied the right to privacy and
their basic civil liberties have been abridged, and women perceive that to
tolerate the abridgement of the civil rtghta of one group of citizens will ultimately result in the .ability of government to abridge the rights of any group of
citizens, including women (both heterosexual and homosexual), and sets a
dangerous precedent in a democracy which must be founded upon a respect for
diversity; and
WHEREAS, the American Law Institute and the Americ;,n Bar Association have
recomiended that private, adult, consenaual aexual activity be ex.lucded from
criminal law and
activity ia, in fact, excluded in the
codes of
twenty-£ ive states without detriment to the public good; and
WHEREAS, both the A.,i,,erican Psychiatric Association and the American
Psychological Association have concluded that hqmosexuality should no longer be
as a "mental disorder, .. and homosex11ality, per se, implies no impai rm•nt
of judgment, stability or general social or vocational capabilities; and

WHEREAS, many organizations have gone on record as favoring reform of the
laws governing homosexuality including the Aineric3n Medical Association, the
National Education Associaticn, the American Civil Liberties Union, the U.S.
Civil Rights Commission, the National Council of Churches, the National Wot'1,:m' s
Political Caucufl, the National Organization for Woruen, the American Jewish
Coanittee, the American Personnel and Guidance Association, the National
Federation of Priests' Councils, the kr.erican Association for the AdvancerJe:1.t r.f
Science, the National Association of Social Workers and the National Associat!c,n
of YI/CAB; and
WHEREAS, many in power positions and in the media have sought to fan hoc:ophobia (fear of ho~osexuality) in an at te:npt to discredit the vot!len' • movement
and until distortt'!d stereotypes concerning homosexuals are conf rooted, all wo:rP.n
in the women'• movement run the risk of being inaccurately characterized; be it
RESOLVED, that the Michigan Women's Assembly III opposes all discrimination""\
against lesbians and gay males in such areas as eir.ployment, licensing, housing,
credit, public accotll.'llodations, heal th services, child custody, adoption rights,
service, iDDDigration and naturalization, and declares that no burden of /
proof of character shall be placed upon such persona which i• greater than or
dUferent from that placed upon other persons;
RESOLVED: that the Michigan Women's Assembly supports the enactroent of
civil rights legiRlation at the local, state ar.d federal le\•ele """hich would pro- ·
vide to lesbians and gay men the same protections now provided to others ard to \
this end, supports the a:nt!ndment of Article 1, Sec. 102 of the Elliott-Larst!n
Civil Rights Act (Michigan Act No. 453, 1976) to include the term .. s•Jzual preference," and supports the reform or repeal of Michigan lawa which restrict
prlvaLc, const•nsual, adult sexual bt!havior and whose sclcctlvc cnfort·l·m1.·nl
has largely been directed at homosexuals. •

36-314 0 - 84 - 5
Digitized by


aeproductlve Freed011

raatly lelatiou/Health Care f8

WHEREAS, the United States Supreme Court in its his tor !cal I 973 dech Ions
(Roe v. Wade and Doe v. Bolton) upheld the rights of women to choose abortlon1, that during the first 6 aonths of pregnancy, abortion should be a decibetween a woman and her doctor, and that a woman could have an abortion
during the last tri11e1ter if her health were endangered; and
WHER£AS, in 1977, the Court in reviewing l caaes (Beal v. Doe, Maher v. Roe
and Poelker v. Doe), ruled that its earlier decisiona did not entitle wo::aen to
public funding of non-therapeutic abortions, leaving that aatter to the states;

WHEREAS, Michigan - through repeated vetoes by a courageous Governor - is
one of only a few states which continues to protect the right of poor women to
chuose Medicaid f unded-c'>cr:.ion11; and
WHEREAS, choice opponents seeking to ban virtually all abortions have
introduced over 17 di£ f erent. versions of a Human Life Amend::aent to the United
States Constitution during the 97th Congress• and action by the United States
Senate on one such amendment which would declare fertilized egg1 and fetuses
•persons"' is imminent; and
WHEREAS, despite the fact that a minor'• right to privacy and contracerUves has been decided in Doe v, Irvin, 61S F,2d 1162 (6th Cir, 1980) and ufr,eld
by the United States SupreJ1e Court, opponents o! free choice have also souf;ht b_:
ad~inistrative rule to deny young wo.nen birth co:itrol and faz:i:ily plann1~ services by requiring parental n.Jtification within 10 days when anyone under age 1~
recel ves prescript ion birth control devices f ro!!I federally funded clinics; b,... it
RESOLVEO, that all organizations sponsoring Women's Assef!lbly Ill support a
woman's right to reproductive freedom, including the right to choose abortin~.
and that Women's Assembly 111 strongly opposes all efforts to limit that right
and will actively work to defeat the HUuan Life Amendment and statutes; and
RESOLVED, that Women's Asse.nbly III •upports continued Medicaid funding of
abortions for poor wo:nen in Michigan; and
RESOLVED, that Wo.nen's Assembly Ill lauds the Planned ¥arenthood Federat.ion
of A:lerica and others who have vowed to challenge in court any administrative
action which violates a minor woman's right to privacy and which limits
access to birth control services.

Digitized by






Voters will reject
the femilmt agenda
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2.Sllppaltb _.illnde

1 - o f l l l t l U G•
llnpl •1111 of (bUrdMS and
IYIIAIOIUH wblrb dt'ICrlml•

Digitized oy

•veallllle _


~.. ..:

andvatebup or-CIIICe
llld lorlll




HCDIARHID & @D 82/9 TO 82/10

llut a lot of this talk. s1H>111s cali:ulatin,;,

if not

dis i n!§l~nut1us. Th~se wo1tu~n, inc I ud i nt:t He I l'Hl Mi 1 I i kJ.::in, hc,ve been
f ivin~ and
breatt,in~ fo~inist is~;u~s for ~i~vardf ~ears now. For
ruost of th~m, Pasfua~e of a national ERA arid Preser·vation of
fr·eedor1 of t:hoi1:e on abor·tion cH't! ,:r·itical issue~i fot• the 1980s.
And ar, un~~mP8thetic Hict,isan gov~rr1or· s,imf•1M wor1'l do.

It arrears theY have no ir1ter1tion of votin~ for Dick Jieadlee.
it's time thPM ~•oid so • • • or· s4!id nothint=i.

l f ~;o,


KEYWORDS: i:olu111n

DATE: n11msDAY Se1•t.r,mbe1· 16, 1'?82
MEMO: f'OI itics


So who won Honda~'s vaunted Dick Headlee-Jim Blanchard
An ':iWtH' :

Head I oe.

Oh, sure, on mattPtS of substar,ce --- wh~t 1 i't1e tt,er·e wer·e
i t was Probably a draw, But on form, RePubl itan
Headlee took
i t hands dOlrJn.
He's quick£~!'

on hi$ feet,

sn,oothPr, ni.:~~;t,ier· and, ~.H?~~,

considerably ~ore glib than Democrat Blanch~rd,
The ~t,dience helped, too.
It was ~ade ur 1,f 700 or so wel I ··sc;·ubbed busirtess raorle

from the Oakland Count~ Council of Chambers of Commerce
·-·- quir1tessential I~ sut)IJf•ban and vei·~ R~F•ubl ican ·-·· Ct'dffim~d
into Tt·o~'s S2n Har·ino Club f01· ltJr1ch • • • er1d rootir,s
\ ik.e
~an~busters for J4eadlae.
Of cc.1ur·se,

it. wc::s nt) traF•.

Blanchard knew odds







RuF•Pe ~;a~.4'!:; he

&!3 HUGH & MC[IIAF/t-lIJ) t f,)l)
l".hP t:i.?:fflf.'t..~isn of t,2'~0,000.



loath to

fl2/'l Tf1 ::/7/1.0

;:;inV 1nore of t1is o~Jrl rnont~~•


c2roP8iSr,, but i f 2\ I else fails . •

A 1:ofumn or, Pd~e 3A T1J~sda~ should t1ave s;aid a fundraiser
fo1· tt1e Rie8le fo:· ScnBt,e camF 1 aign at tt,e De1,roit Club wi I I be
Se-Pt.. 29.



SUNDAY Serte~ber· 19, 1982



MEMO: rol it.ics

Helen Hi


ikun ond tht: other• ReF 1ub{ i,:cu1

fern in ists Pi'Db,sbl~•

ouShl to quit Pla~ins •~mes witt, Dick tteadlee.

IF theu c~n't sto~ach hiff1, wt1i1:h ~ieems obviou~~
the~ ousht to look. him in tt,e e~e artd saM so.




Headlee, desPite t1is disclaimers, aF'P~a,·s to have
rol it, p1•obl,~Rl!, with a lot of women , , , 01·, at le.s!'Ct., in
rec1J~nitin~ what al ier,atns, them. •ie reminds audier11:es i"eF•~atedlY
~f his 1at·~e famil~ Ca Pictu1·e of tt1e •4e3d\ees PIU$ nir1e
chi lrti'en and 16 ~:frandt:hi


adorns; hi1:i camrait..:fn

I it~H·otu1•t:?)

and that God, not man, c1·eBted gendet· dlffer·er1ces -- remir1der·s
1·i~htl~ Oi' wron~I~, con,Jut·e UP for some women (~nd 11en)
old, l~rgelY disct·edited "bzr·efoot ~rid Pre~r,ar,t'' imsS~s.
Headlae also sPeaks earnestlH about e~ual oPPlli'tunities f~i'
wot· women arid equal
raM fot· equal wot·k., but soruehow sli \ I
•~aves the
impression that he would be t,arrier iF most of 'e~
Just opted for home and he•rth • , • and babie!'C,
And, of

to the ERA,

he is anti-abortio" and

Digitized by


@3 HUGH & HCDIARHID & @D 82/9 TO 82/10
to i•PlY that all women are fe•inists.

fe•inist or

Still, •Ivan the relentless and unmistakable movement of
American wo•en toward equality, Headlee appears to have a

His De11101:ratic Of'Ponent, Jim Blanchard, is noisily
Pressing the advantage, flauntin• his Pro- choice on abortion
Pro-ERA Positions, accusin• Headlee of a
social PhilosoPhw" and toutin• Martha Griffiths, the 70-year-old
Democratic feminist runnin• for I ieutenant
as th~~•h
she were a direct descend•nt of Joan of Arc • • • or maYbe
Wonder Woman.
Headlee has labeled char•es that he is weak or old-fashioned
on women's issues as "the big I ie,· Dut the feel in• Persists.
Helen Hil I iken has not heired. She is one of the officers of
ERAmer,ca, one of t~ree co-chairs of the state's Wo111en's
Assembly I l l and, almost certainly, the state's best-known
RePubl lean fe111inist. In Public, at least , she has been
unwi II in• to
where she stands on Headlee, but she sure draws

. I,"'
And a week a•o• she was quoted in the Lansin• State Journal
as ,ncu•iniJt

"Thero's a




-·searchintj !loin~ on

• • • Those of us who worked verY hard in
for ERA are
to suddenly walk away frol'I those issues and vote
•••inst them. Women are
to vote their consciences.·
She's not alone.
Others also disturbed
Ear 1 i 11r this w,onth, EI I !I Peten;on, the we I I ··~.nm,n forl'ler
Hichigan Re, ubl icar1 chairwomar,, s~id she w~s ·ver·~ muct1
disturbed" bY J4eadfue's Positions ~nd Predicted that, unless
t.hose Po~;it'.ions chent~l~, Rli~:n!.-! Rt~Put:d ict:i;n wt1nien wtiuld jlJMF' ~.ihiF1 •
Would she? Too earl!! to tel I, she said.

And last w~et., tt,~ R~f,ubl ic~r1 Womer1's TBsk. force issu~d a
fin~er-wa~gin~ ~;tat~ment Pled~in~ "to vi~nr1,usl~ su, 1 rort those
Re, 1 ubl icar1 cBr1did~tes who sur, 1 01·t ou:· statemer,t of rut·pose
(includin~ I ib~ral ized abor•tion raws and Passa~e of a
nil:t.ioni!:I ERAl, • But. on H,,,~dl£>t,, it was silent,
One of t~o wo~en who head the task f•>rce, Denise Alexand~r,
said l ''kle htwe that. he O1,•;;,d I e.,) w i I I chc,nc~P , . . At tt,.,
Present ti~e, 1 don't know what !'111
to do in Nove~ber,
1t's s s!:ut. --~,renchint:f ctL1l..,s.~tion arid on,: I'vo bt~en wrestlinE: with

Digitized by


DATEI THURSDAY October 7, 1982
HEHO I l'o Ii ti cs

& @D 82/9 TO 82/10


The "woll'len's" issue is one of the 1J1ore durable themes oF
Michigan's 1982 camPaign for gavernor , , , and it -ust be
drivin9 Dick Headlee nuts.
The latest episode was a
luncheon in Detroit Tuesday featurins, as honored suests, El IY
Peter son, t.he ret i red··but·· st i I I ·.. fo:·m i dab I e GOP PO I it i ca I
ll'latr i arch, and a srouP oF about 25 I i ~-e··r, i nded RePub I i ci3n woll'len
Oh, they weren't cat led honored guests, and theY didn't sit
at the head table with Jill'l Blanchard's wife, Paula, and his
I ieutenant governar candidate, Martha Griffiths •• , but they
were what it was all about.
Strictly a setup Job
In Fact, the luncheon was strictly a setup, orchestrated
down ta the last teacur by Demacrats from the Blanchard for
Governcr Coll'lll'littee. Blanchard met rrivatelY For 30 ll'linutes or
so with the Peterson grour beforehand, and then, after everyone
else (about 500 others, ll'lostlY Dell'locratic woll'lenl was sei3ted, the
Rerublicar,s wl•t·e Paraded in like show··biz celebrities on
open ins n il~ht,
And the parade was certain!!< no surpr•ise. Pro··ERA .;,nd ,•ro··
choi1:e Re1•ubl i1:an wor,en, in1:ludins Pet,!n;irn, have b1n:rn Plottins
their defl,ction evet· since Hcc::dlee's uF•sei.; win

in thl~ 00P

Pri1J1arY back in early Ausust,
Stil I, it wan effective.
The luncheon re-enforced the widespread suspicion that
Headlee, whase OPPosition to abortion .;,nd to adovtian of a
Federal Equaf Rights Amendment

is dear and unwaver·in~, ~dkos

hi~ unusually vulnPrable this Year amons women voteru.
•~eadleo and his ~ana~ars, oF co11rse, call such talk nor1ser1se
2nd s~Y tt,e women's issue is~ rhortY that was hatched b~
Don01:r ats t.o di veT·t attention f'i'llrr1 tho r•ia I issue$ of job~J,
taxes ~rid le~dershiP.

They also Point to the Headlee endorsell'lent by the 2,000member· Michigan R~rubl ican Women's Feder·atior1 ar,d su~~est that

th~ nu~ber oF disaffected Revublican wom~n is ll'linute,

Digitized by


@3 HUGH & MCDIARMTD & @D 82/9 TO 82/10

Hr~ad I i,e, in fai: t, was quoti,d I ast s,onth by tho Lans i n,i State
Jol1:·nal ~$ saMir1~: "The:·e ai·e or1IY nin~ women in th~ slate who
don't I i~.e ir1e , Ttu?~ 1 i·e 111:iow1her·s of the RoPubl it:an WoK,on's Tast._
Forcl' (which is 1•1·o·[RA ;,nd Pro··choici, on abo,·tiorr)
• These
wom~n are it·r~tior,ar
• so ohs;~ssod with this that they've
t•~come hG1·der1~d. Th~~ dc1r1't even smile. The~'t·e ur\ha, 1 PY.And on
off tho GOP defectors at the
Bl;;cnchatd luncheon as Pro-choice diohards who OPPose him because
he's enti-·abortion.
the~ have ~•de this sinsle issue the litaus
test of thi5 caMF 1 ai~n,'' he said.

El fy Petet·s;on, for one, be~~ed to dif~er.
''It's 1·idicL•lot1s. tle Just car1't think of ar1ything

else,• she

ssid. "Ue'n? all fr,r• Phil RuPPe (the anti··abor-tion GOP candirlate
for the U.S. Senate) and w• were al I for- Jim Brickley (the antiabortion I ieutenant ~over-nor who~ Headloe upset in the GOP
Peterson sa~s a Primar~ source of her disaffection with
tie~dlee --- or,~ havir,~ 1 ittle to do witt1 so·-called wo~er1's issues
··-· is what s~he calls th~ ~Polarization of Hichi~an.· She
~CLL1ses tt~adlee of sr1 "uncor1scior1able" attempt to Pit Detroit
a~ainst outstate Hict1igdr1, a move she foels would dis~antle ~uch
of tt1P base of the Michi~an RePub1 icBn Pa,•ty that she, among
others, helped t,uild.

And Peterson, 68,

is no Johnn~-come-latel~ to the GOP.

She is a former assistar1t chai,·rerson of the GOP National
Committ~P. She was Mict1i~8r1's RePubl icar, candidat~ for the U.S.
Senate ir1 1964. And st1e se,·ved as state GOP chairperson fro~
1965 until eBt·I~ in 1969 ur,der fot·met· Gov. Geo,·~e RoMne~.
"He were extremel~ close,· saMs Peterson o~ her rol iticaf
r·el2tior1sttiP witt1 Romr1e~.
But that ~•Y have chanmed now,

R~mr,e~, wtto is ~mon~ >t~~dlee's most Passior,ate SUPPortet·s
tt1e!ie da~s, has ~et to cal I Peterson in tieadlee's behalF.
Nor has Headlee

cal led her

But Blanchard cal led.

in his own behalf.

• over a ~ontt1 a~o.

And look what happened.

KEYWORDS: coltimnJ bios--EII~ Pete,·sor,

Digitized by




@D E219 TO 82!10

There was .-,ci"e.

On the ~o:ning of th~ presi~crlti~? ~2elin~, Gvpt2 w2:. ~u~~cd
t h e wr-ons was b·J GOP adv i Sl:i'S dur- ! :1·3 .:, 3t' L• r ! session fo;· so1rie 65
RePLlblicart cor1~re=>~ior1i::I ch~~leuge:s fro?O c:ro_~:;d
the ccu;;t--::::.

·rheY kePt tell i!1g us that we should s3~ Cin th~ c3~Pai~ns)
thc3t everything Sood in the count.r~ is :::,et2~1se cf 'Ri:-f-'L'~:;cc:r,s
ond that eve1Yth in'.3 ba(! !s ber:~use of nl.,~11J1:.-ats, - i"eca.! led Gupta.
-And! said th~t wasrt't good enou~h, lhat we h2d lo
.-,a i ntain ou.- c1edibi I itY •

An~wa~, GuPta h~d F~~r1r,ed lo cc~~t~in lo th~ Presi,1Pr,t aboul
si:r1Pfistic cal',P3i9;r. 2,jvi::e .35 weil es the .. b.Htanc
business when the Srol,,. racl ..1ith :ii;u l<::lr: th~l tQ::,;~-n~r."'~-


But fef row c~ndidate
~rno!d of S2rta c~uz go~ his
~irst. And when the rresident told A·ncld lo -~h~t ~F•

~ef f


that Pi'e'ttY .-,uch

ccoled '.:.h in·3s f.Y '





she l:.ef't '\UiEt.

A close call, H,. P~esident .




KEYWORDS: i:o I u~.n

SUNDAY Octot>e,· 10, 1>'82

Pi'\3E: 3A
F?YL !NF :it1-PJGH•!'-l.::t:l~R~"!::1t}


rol itics

It fisiu,es.
;:1·e no1-, 0-c·.onS .f:he <=1vaf if"ied dL'lit1t:'s of the


And oh,


how the two p;•inci?a!

1.:;?..1t'lern~lo~·ia: 1~c:t·•.:-'t<-~ ir, G~2-r,~ ?~;
of his Pt?Publ i;::en DFP:.:r~nf:,


~732 Cc?Y:P~:·..?n

of Michi9~ri.

-·· ~:-,::(~..;: t~..:.t
Di.:'.· tfr;..;.:,:1'P,-~• ,. __

Digitized by

:t -~·:,?•,'-

i·is.1 a~


the ar1·and bo~ of labor bossas.

& @D 82/9 TO 82110

H~ boisted of his succes& in Congress in 1979- in Puttin~
to•iether a coa I it ion of bus i ne~i's and I abor
i nt,n·e!;ts needed to
win the Chrysler loan suarantees, And he named lacocca, the
ChrYsfor chair~an, as amon~ the bi~ shooters fro~ business who
~SUPPOrt" his

'I'~ sick and tired .
Headlee fired back after the debate.
"I'~ sick and tired of (Blanchard's> runnin• around sa~inS he
tl1rr,ed Chr~sle1· ar•ound," he told re, or·te1·s. " lacocca tL11·ned
Chr~sler around, and for Ji~ Blanchard to in anM wa~ di~inish
that doesn't m~ke ar1~ ser,se ~t a1 t."

Headlee also comrlained about Blanchard's clai~ of lacocca

SUPF 1 01·t ...

"Mr. lacc1cc~'s not SUPPortin~ Dl~nchar·d in tt1e race. Hr.


in the 'i'ace," H11odl1:a said.

Fila:nchar•d, in t.urn, s.sid: "Of CC'lurse, hE:1 (lacocc.s) SUf'Pot·ts
me. t4e's ~ado co~mercials for ~e; he's raised ~onoY for Me
• He mo~ be neu1:.ral in Sl1me off'ic ial , corPor·att~ ~.;.ense, but
he's raised a lot of moneu and been a lot of help," (Actually
Iacacca has not "made" commercials for Blanchard, but
Primary 1:a~Pai~n ho authorizQd thu us~ of fil~ cl iPs
in which
he rraised Blanchard,)

'Official IM neutral'




in the race. He has told us that
effect>," he said

lacocca is.official IY neutral
. He have a letter (to that


Th~re is a tt11·ee··Pat•a~r·a,•t1 rubl ic st~temer1t or1 the is$tte fr·o•
It's da:t,?d Au'.3;, 10 and saus:


"Jim Blanchard Provided leadership in the collective effort
to ~;ecur·e con~i•~ssinnaf
approval of tt,e Chr~slDr loan !iuarantoe

"I stand bM statements 1 made then about his efforts and his
caPabil ities. The~ are a ~atter of Public record. H~
appreciation has not waned.
"However , I have not endorsed anu ~andidate For soveror nor
do J expect to do so. The intet·ests of Chr~sler Cor·P. at·e
Paramount, and we ~ust orerate in a birat•tisan fashion and
reco~nize our friends in bott1 rarties.
Clear enou•h? Like mud.

Digitized by


@3 HUGH & HCDIARHID & @D 82/9 TO 82/10


DATE: TIIIJRSDIW !'ld,L>her 2l., 1 '~82
POI itics


Re~ubl ican Dick Headlee trotted out his two ~ol lsters HondaY
in Detroit ~rid, with t~1eir· blessir1~s, claimed thal bi~ mo
<trlllfl'1entum) w.a~i af I ;n his; fe-vor in th,~ r.hHl in~ ,j:3w5; of the
1982 ra~e for· ~ovor·r,or·
Uh, Di ck •
The cl2iffi 2F P2rently w~s b3sed or, rriv~te rot Is showin~
Headlee Muct, closet· to Demo,:rat Ji~ Dlanchai·d than is iene,·all~


bet i~?ved -·-

r1r.l~J <;:bout~ six r-oint~..> behind with

15 Perceud·.

un,jecided, accordin~ to Headlee's r~oPle.
The Dl2nct1~t·d camp n~tL1ral ,~ h8s its own Priv~le Pol Is witt1
nu~be?s •howin~ a far wider Sap (Blanchard b~ 16) and no Headlee
ruomanlum al al I.
De£id~s his own Poll fi~L11·es, however·, ~!most r1ott1ir,~ seero~
to be ~oing Jieadlue's wa~ th~5e da~s. Hitne~is, fo1· exaMPlef

* THE RUPPr FACTOR -- Word leaked oul this we•k of further
di~~i~r,sion betwe~r, the t~~adf~e c~rnpaigr, ~nd the Phil Ruppe
~enat~ caroPaisn. Seems th~ He3dlee reaPle, att·ead~ miff~d at

fellow Re, 1 1Jbl i1:an RuF•F 1 ~ for talkir,~ Poir1t~dl~ about differences
t,etw2er1 himself arid
or1 women arid blacks , ?lso a,e mad
at Rurre for cuttin~ tho~ out of fur1drai$ers.
R~rubl icsr, SOL11·ces sa~ tlPzdlec's reorle ve1·~ much war,t~d a
Piece of the t,i~ Gaor•e Bush fundraiser f1,r RuF 1 Pe in Dett•oit
Oct. 12 <~s wet I
c:S ot.hc.11·s schL1duted nc,x.t wl~l~k) but wl~t·e tu1·rH.~d

f"I ot,

ThP act·imon~ w~s such tttal GOP natior1~I committ~eworo~r1 R~r,r,Y
Rier:ker, who w~s helF•in~ Rur~a with thu Du$h dinn~r, had to ~arn
the Headlee cam~ tttmt i f H~~dlee ~t·rived late a$ he o,·igin~I l~
pf•r1ned, ho wnufdr1't ovon be introdu1:~d. (Ho w~s on time.)
the recot·d, Headlee said at a press confer·er,r~ Monday he
rlot.?sn't b~f if.?Ve i'.:.htH'e'~i
,3r1!.4 truth to t•epof·ts -1.:.hat Ruppe is

Digitized by


~n 82/9 T~ 82/10
i:.t•~4ins ti., f 1 ut "di~;t,H1ce'' b1~t1,u~1:ion theit· 1:,3nu1 ai·.:fn<:i, but h~ tooY
swir•t~ :=\. f'{uF·F·e, !':>;=.•_.•in1.:.:i "'Tta·:·0':• c:.t,e2•.1!.i c:,uitP c- bit of distance
at thP f ol l~i (c1 1•t~f~1•t.>r\c~ tr, ftol Is
'::ihowin•.~ Hec1:dl•H~ doin·~ betttJr
,n his rcLP thi..rt RuPf'e in hi·:.,).
"THI? Wll . l.H:UJ F',WH/fl .···· 13_911,_ J:1iUit.i?11. wa•; <i@dit><I Rl!Mt ~o
H~:-i:(rll~P i.::t th~~ [i:t.;,'.··rr1ic C'lt:t:i of fletroit lpnchr·on Mond.e:~.:, (1:.h£t
club·-·· not Mi 11 iktHl
.... a,•·;•cnr.ted the s•:?-atinS), an11, af't•:!1·wards,

h~d tt,is di2lo~~1P witt, re,·o:tvt·s:

Mi I I ikan: What du ~ou think?



t.hink the e:ns1;H.~l

Mi\ 1 i ),: Prt:


l-:..ver Ybod~

is ctui'\.e obviou!i.

(duck in~

into his. 1 i mc,us i ru:•).

Hecdll>e told r•epcr-t"·n; !11,nd;oy U1<3t Hi 11 i~.en had 111.3de


clear to him tt,a\, "tt1P ma~r1itud~ of tt1e F rot,lem~ ir, this statew1Juld F ~ec!1J1je ar,~ heavH camPdigr1ir,s on •ieadlee's behalf. Dut
WednPsd;:.:~-~, Mi 11 ikt-:~n spent. much l)f t.hf;
cam:n,cei<;:111 in9 in Det,·o it.
witt1 RuF 1 Pe. And i t is not last on
insid~rs tt,at Jielen
Hi I I ik.er1 rem2ins si ler,t. ort suF 1 Po1·t fo;· HeBdlee, hut ha~ a~r·eed
to t>e hor11li'ar~ co··chaii·m2n of a RuF 1 re fundraiser next w~ek.


* UNDERDOG FACTOR -took on a
iiha;•pe1· e,t~e tt1is week (some ~i~t1t say more ne~~tive), a tactic
l.::L~rH.~r·el l!:-1 u~;ed ti~ undet dos cc:ndid~;t.L1s. Dru:!' ad t'ef'ecttedl8
1:riticized Blanchai•d a~; the t1Jol of bi~ labor bosses and bi~
cit~ bosses (arid named HaYOT' Youns as ar, examrle). Another·
irnPf iPd that Bla:ni:hat•d's; I i1-:?uti;inant !~ovet·n1Ji· ,·unnin'.3: D'1ate,
M~rttia Griffiths, was ar,ti•-c[insume,· bec~use she is or, the
Consu~ei'S f>owe1·
Co. board.
He~dlae 1 s own rt,etor·ic also took. a st1a,·pet·, mo,·e Pe1·sor1al
edse, too, Sev~t·af times this week, he a1:1:used Bl~nchard, who
comPlained at\out }leadlee's c1Jmme,cials, of "whimPet·in~" (he


"the whi111Per

factor," an aPrar-ent takeoff on


wimf• facto1•" tt,at hzs bedeviled Adlai Stever1sor1 I l l , tt1e
D•nn1lt:ratic !~lJtHn·nato;•ial 1:andi1jate in Iffinoi1;).

He Bise scc~1sed Blar,chBrd Qf havin~ be~n "~ p1•ofessior,sl
sturj~r,t mo1;t of his I ife" arid noted Tuosrja~ that Dlanchai'd had
t,eer1 s F1 r·ofessior1al studFr,t "du:·ing tt,e Vietnam w~r·." Ask.ed i f
he ~ear1t to imPIY that Blan1:hard's r~cord was lackin~ because
of ~r, abser1ce of ~i I it.~rM 5;et·vice, }ieadlee r·ePI ied: ''] wouldn't
mind i t i f al I the ve-te1•.3n,; found out."
That's momer1tt1m -- }leadlee st~te.


Digitized by


@3 HUDll t, HCDIARHlD & @D 82/ 11 TO 82/10
DATE: SUNDAY October 24, 1982
PAD[: 3A
L.ENDTfl: Hl:DlllH
MEMO: F•ol it.ics


Dick H~adlee, tt1e R~F•ubl icBr1 cartdidate for· ~ove,·r101·, ss~s tt,e
wo~en's issue is a F•hor,~. He ~i~Y5 his

i t t.c, dive1t attl1ntion from r·eal




as Jobs and who can best read tt,e state. tie sa~s that "El,~
Petet·son (the fo:·met· state GOP le2d~t· who is rro·-Blar,ct,~,·d) artd
a Few ~if itar,t~iu have t,een unfaii•I~ dominatin~ tt,e t,eadl ine~i

it. H1,:-




is a r.on-·is!=.>ue,

And then he dives in -- head first.
As L.

Brooks Pc:tt.l't!'<:=.>on,


is ,·unnin 1..:1


c.:tto~·nt.""~i St.:ru:q·c:;1

on •ieadl~e's GOP Acti,,n Tea~, remarked ir,for·mart~ Frida~,
He~dlec· ccJmes uF with "the damr,ed~st tt1in~ I eve1· heat·d
I t ' s f ike shooting ~out· toes off."

''Those PaoPle that

the ERA (E~ual


it doe~~n' t merit ion womtHI c.:n~.:a,hl~t·e in ttu... ERA, it doe~... n' t.
J'lention wo1r.tn1's Pi'.ihts :an 1.~wh~i'l3' in it, i t tal~.Si about ':i~X

-- the~ at·e PT'OF oner1ts of les~iar, mat·ria~e,
~arri~~~, thin~s of that nature,
which I categorical IY resist
~nd c~te~aric81 I~ reJect, ~s P?t·t of a basis fot a soL1r1d

-:,;oc i et~. "

Here's some chronolos~:
Tue-;,da~, (Jct,

l '?

~~..::..: ___


. ti-_ U J

w •••


t OUSP··+.n it,

I at 8P I~"

1 i bPt'a I


ir1Jur F ur•pcr·tin~ to r~rres~r,t thous;arids o~ Hichi~an

fen1inist~ (and
Mi I l ii't~n c:s, a co-·chc.-s:it·womc·n)
relea~;es its 1982 1:ar,di,iate

The r6tir1Ss fal I sMQrt of ertdo15;emer1t5;, ar,d, be~~use ERA and
"choit:e" (on dbl)i•ti1H\) 2r·1:1 F1 t:tr·crr,ount factor-:i, ttn1 outcome i·:;;
e-nt.irel~ rt·edict,.:•ble. Dlc::r1chc"rd, LoJho f'c:vor·,:.; both, i..1ins.i.

who fGVOi'O;:i neitt11:H·,



)-'.t/C.d 11:.~p j ~:;; 2.r:;.:~.ed Obl.".IUt tht:>
f'i'~S!i confei·er11:u. Ar,d


~k•tlH.'.'fl '~-;· ,:'\s~.;f-?ftJb I !:I ~v~t•~bod~

Digitized by



@3 HUGH & MCDIARMID & @D 82/9 TO 82/10
t.he N~t-. i ona I o~· t':..-:ri i i:c:t ion for· Homen 010~1) , who~>e Hi chi gt?.n
t:haflter i-s> F•ai·t l)f the A~iS1:?-11'1bl!f.
"Tht:-~e f't?l1P1o (MOli-1 n1t,1t,bl'."~ ~;) c:rt, tcJL1l~i of e- I ibt't·c.:I,
Democi·atic el~~er1t,M h~ sa~s. Arid he adds ur1fl&tterir1~ r~~2rt.s
about two of tt,e nalior,at rRA's be$t ~.nL1wr1 do~er1r1eL --- tt,P GOP's

Petar·son and th~ Dew,ocr'3t-;;' Hai•tha Grif'fiths,
t ieutl-:.n(.:.:nt c:tt1vt,rru.11· en F.ttaru:.h~rd's tic.ket.


is runnin9


Wednesday , Oct. 20
Jn the eveninm, Headlee and Dlzn~hBtd debate e•ch other at
tt,e Detroit Pt·e~;s Club. Tt,e women's issue rloes not co~e UP
dut·in~ tt,e debate, but afte1w~1·d, while to t·erorter·s,
H~adlee brr:,aches it.
''This, tonight, didn't focL1s or, t~,e womert's tt,ing," he sa~s.
"Dut it seems I h~rdl~ w~ke UP arid Pick UP a newsrdPUr unti (
someone from t,hP (Pt'•H;f;) is obsef;f.;ed with the women's issue
The!J comPl~tel~ distort m~ track r~1:oi·,i with r~~ard to
eqt1al rights fo?· warner, •

it (the women's issue in the
low that obvious!~ I treated it with humor
was rr,~ r,ista~.e


was so
first. That

Earl~ in the afternoon, Headlee Phones 300-watt WMHW-FM at
University in Ht. Pleasant to tape a radio
The qt1e5tior1s

at·e ~sked b~ an 18-~eat•··old freshMar,, Hike

dnd th~?~'re ,no-sd:.l!J r·outine,


includin9 this onk!':


beer, sa~in~ ~ot1 do not OPPose womer,'s t•ights, Yet at the same
time YOU are OPPOSed to the ERA • Could ~OU clarify this?"
Rick Ler kows~.i, tt,e stBtior,'s news dir·ector ~ride Cer,tt·al
Hjchi~ar, ser1ior, ricks ur the stor!J:


to a buffoonish col
• I was sittin~ in the
rrodu~tion rooru with a friend
the interview), and when
Headlee said that <the EFIA r·ell'lar~-~;l, we IIJO~,ed at oth11r and
said, 'Nati, he didr1't saM tt,at, did he?' "


he was

• He ju-s;t was vet"!-' 1:ar·•~fe~is .

Le~kowski and Haturen Pia~ the tdra oF ••~adl~e's ERA remarks
for· professor· .Jer·r~
the station's broadcast mana~er.
Hende,·son su~~ests that tt,e~ cal I the Associat~d
Pross. They do
The rest is histor•~.

Digitized by


@3 HUGH & HCDIARHID & @D 82/9 TO 82/10



-02 06/29 153220










DATE: SUNDAY October 31, 1982
"JLl.. USTI Pix
HEHO: Politics










Petpy· Sec~hia, Mict1i~mn's Rerubl icar1 nalion~I
via nowslotter (9/2/82) to Democratic
c I aims of a SP! it in thP state GOP.
To~ Drenn3n
it to Di I I Hi I I ikon last Frida~
ri~ht between tt1e e~es.
It was an astonishir,~ ar1d unexr~cted disPla~ of POI iticaf

~nl•us, arid it simPl~ demol ishPd th~ e1eltior1-·~em1· mYtt, ~bout
how sweet it is···- or· st,o,·tl~ wif I t)e ---- tt,i~ ~~i~t• within tt,e GOP.
Brenr1an, 0¥ caL1r·se,

,or I ieutenant
what Brenn~n 1::i-aid,

is Die~. ~te2dlee's har1d·· car,didate

on the

so-cal lod GOP "Action Toa~.· And

wi.!:s what Dick Hec.dleP ~nd a

lot of

other Hict,i~dn tor1se,·vativo~i feel .
. but t,ave t>e~r, eithe,· too
c~utious or too civil to sau or, thei,· owr\,

Drennan, on Fridau, was not civil,
He labeled Millik•?n .. moncit•r.hiol" c:nd "irn'lffl-.t:tive·· ond
characte,·ized his ad~ir,istI·atior, as ''over·b11rdor1ud with the
b~t·r,acles of 14 ~ea,·s of hobnobbin~ wittl self-styled business
and labor leaders.·
He seid that Mi I I ik.~r,'s office h~~; beer, cor1trol led b~ a
•~otle~ 1:rew of union bossus, radical feMinist!i and rol itical
hacks• arid tt,mt Democ,·at.s, bM nomir,2lin~ Jim Blar1ct1~r-d for
sov~rno,·, aro seekir,~ to ~mulate it.

Digitized by






@D 82/9 TO 82/10

Ho said Milliken'~; l.4·-~u~;H' ttJr11.:i·•p hJ.~> (H?Ptl t110 Ions··-- f"'or
trio lc1nS; -·-· ,::rid thu:t c i t i j't1 11~, c:t·t:.~ "tit ed of o~:tmeal mu~.;h ...

Th~ OL1lbt1r·st, whict1 c2m2 ir1 01·ar1d R2F·i(jL, rt·ovided fLJ!'the:·
evi,ter1ce of tt,~ electior1·-~edr r·dn,~or t,etw~1~r1 GOF~ modei·at~s suet,

Mi 1 I j kl-?(I



CCHl~iervat j ve~_;.




~h;::2(, I




t.h i s

ca~;e, his tea~matG Drer1nar1,
Rc.ncor· L•nre i ned

The r~nrt11· has t1Per1 inflamed bM Hi I I ik~n's st.t1bbot·n refusal
\·Jho wcVi; not Mi 11 ilt.,H1's f'i,-·st choice forMi 11 iken had strc:dddlt")d t,hl"l, fence,

to endG'i'':il? Hi}adf•:?-P-,

~:':Dvernot·. Unti I

le~:.t Wl1l?k,

!;a~ir,~ h~ woutd "~;uF ror·t the" and reftJsin~ to be ~ore
specific. BLit or, ThL11·sd2Y in Dei.1·oit, ackr,awled~ir,~ tt,at he'd
afreac1Y 1:ast ar1 at)ser,tee ballot, he Poir,tedl~ ref1Jsed to sa~ For
wham h~ h~d voted.

F1,r Br·enr1ar1, a 53·-~eat•··old fot·mer chief Justice of the
Mict,igmr, Surt·eme CotJr·t, tt,is was tt,e last slt·aw.
"I have keF 1 t mY mouth st,ut 1,ut of i'USPect fot• t,i~ or his
Position, t,ut tt1is •
• tt,is was it," he said bY Phor,e aftPt·
rel~ase of his remai·k.s.
"H~:-r·e l 2m, a -for·m~~r· chief ju~.>tic1-.~ t·unnin9 fot lieLJtenant
~ove1·r1ot• ···- wt1ict1 I consirlet• tt·er,ch rlut~ --·- ti•~in~ to helP tt,e
t.iclo:d;, ~,1i:1 I think th1-.~ lt."?ast hP (Milliken) could hc1ve done was
~wallow whatever pride he had arid get in the !~Bme with us, but
he didn't."
Pf~1 1·~.,;on


i nf"er that Hi I I i >?n h;;id vot,?d "f"Di' the ottH?i'


B!·enn4.:::n said,

E:n~• r·e3sonable


have to

He sc:id i\'. celrril!J: end del ibPrett::Jl~-1.
' I t sh1Jt:Y.~2-d me'

N2i.ionml Committeemar1 Peter· Secct,iz, a Grand Ra~ids
businessmar1 wt,o was F1 resent whun Bv·er1nan spoke his riuce to
ref•ortl~r~.; ez:r·1 ie:r- Frid~!..,,

scsid Bt·enrH':rt Wi.=:~ F1 lentM Wl"'t·k1-id UP.

''It st,ocked roe," Secct,ia said, "I heard him readin~ it, and,
wht.1n hl~ w,~~s donl"?-1 1 ju~;t wt:.1nt , 'wt1w!' 1 said tt1 him, 'Don't ~ou
th ink it's _a f itt.le ~;t1·onS?' And he said, 'I'm .iust tirt!d of
tt,is but lshit.' tie said he ~ot fu1·ious wher, Mi I I i~.er1 tur·ned u,,
down there with Cole~~" Youn~ (in Detroit Thurmda~l ;;ind not
SB~ir1~ who he'd voted for·. tl~ said tt,at just drove him Uf' the



Secchis, BS~-~d wt,~thet· the outt,ut·st would t1elP or· t,t1r·t the
PIHiPonded, "I dunno, I hont?~;tl!J don't •


Brenr1ar1 sc:id he didr,'t knaw eitt1et•. But he said he wasn't
about to t;;ike Hi I I iken's indif"f"erence

Digitized by




dor,'t win bal I games," he said.


Exc1:?Pt, of cot1rse,

in 1<'i'70 and 1'f7A end. 1'>'7f.l cu,d • •


KEYWORDS: st?t~ro2r1t; re3c1,icnJ c,·iticisru; can1P2i~nJ column;

DATE: SUND~Y October 31, 1982





DYL !NE :ll!lUGf11tH1:D!,WMlDlf

MEMO: election '82 I candid~t~s ar,d issue~;; rol itlcs

l n c ,. ed i b 1 l'


• but tr-ue.

The ct·itical final daHs of th~ 1782 efectior,, witt,
boost from Dick. Headlee, ~f•F e~r·ed at times last wee~. tc1 have
be~n rorl11ced to~ wac~.~ ~o,·al itH rla~ ir1volvin~ lest)idns;,
hoMosexli~ls arid, of~, l tt1inss, teena~e sex.

Oh, sure, th~re wut·e ott,er, mare cos~ic issues beir,~ rfayed
out on TV c::ds e.:nd in frantic, 11th-··hDur t.~lec:.tiorie.:~t·in£: ---·· thl~
~iserable state of tt,e HictIi~r1 econom~, the r;3~ir,~
auto imPot·ts, leader·shir qual itieu, etc. ·-- but tt1c,se issues
lacked rassion ~rid ~efied quick arid eds~ ar,siwet•s.
ir, can,rai~n r·t1elo: ic sr1d in msr,~ nPws
So tt1P~ we1·e eel ir~ed
a1:cour1ts b~ ~ot•e tero, 1 oraf s;ubj•?cts; 4:-hot Ut?adl•H!r the f?t?F ublican

IN FACT, H11ad I tH?, an erd:.h u~; i as tic 52··~.H!citr ··of d
businessman wjtt, a Pietistic manr,et· ar,d a facile bL1t
unpredictable ton~ue, seems to hdve stolen an uncommor1I~ far 1to
Piec~ of tt,is ~ea,·'s elector·al show.
In notoriet~, his camrai~n for

~over·nor has surrassed that

o~ his Democr·atic orror1er1t, .Jim Blanchar·d, ar,d redl1ced


contest for the U.S. Senate, which b~ .al I ri~hts should have won
e•ual bl11
to somewhat of
tieadlee rr,c.=t!:t not be the most F'L"lf'Ulur- Hichi!~an politician
(indl'l.•d, most. rol 1s s.s,j h£> wi 11 lose TuPs..rJcn,) but h•' is

36-314 0 - 84 - 6

Digitized by


@3 HUGH & HCDIARHID & @D 82/9 TO 82/10
undeniably I ively -- and controversial.
In his Pri~ar~ ca~Paisn, Headlee ~ade all
sorts of waves,
what he said were the excessive
of Gov, Hil I iken's 13 ~ears in office and Predicting
that Hill iken's chosen successor, Lt. Gov, Jim Brickle~, would,
if elected, beco~e a Hill iken clone. Headlee wrapped himself in
free enten•r i se rhetm· i c, in scr i Ptw·e and in thl' w i I Ii
embrace of ex-sovernor and fellow Horman Georse RomneY. In
he thumbed his nose at
bad Detroit and its black
disaffected GOP ~oderates and courted the GOP
. . • And, in a nois~ and
UPset, he won the

al I most unorthodox.

After al I, modern RePubl ican history in Hichisan was written
by Bi I I Hi I I iken, Detroit's Sood friend and a moderate's
moderate, and, before that, bY Georse Romne~, who, in his
e~t·lier· inc?.rnetton, wa~_; knl",wn to GOP re9ulat·s a~..> on -urban


But Headlee never waivered.
Hhen Blanchard, who b~ then had destro~ed his Democratic
and quietly but impressively united
labor and
other elu~er1ts of his ra,•ty behind hi~, ~ade reference irt fate
summer to Headlee's "hor·se--and•··bu~~~" social F hi lo~o~h~ arid to
his Presu~ed vulnerabi I itY on women's iS$1Jes
wel I
, He?dlee ~cce,,ted tt,e challen~e with ~t15to.

He wa~;n't anti··wo~,an, he ins,is;t1~d, but he
~mti-choice on abortion, and Proud of it,


And when Blanchard, a Unitarian, contrasted

anti··ERA and

their rel

st~1es, Headlee attac~.ed his or, 1 or,er1t's r~ma,·ks as "anti-

And when a handful of I iberal GOP women, led b~ former rartY
El,~ Peterson, took a walk and said Blanchard was their


into high gc,i,ar.

It W-35 that act -- ~lus unfavorable candidate rat ins~ by
HichiSan's I iberal but hardly radical Women's Assembl~ Ill <with
H ~ n as 1:0··1:hairl
..·.. that l,~J' H<!adlee, dur,n& a radio
intet·view 10 d;~ys ago, to d~r10L1nce ERA sror,sor·s as h~roPonents
of lest)ian ma,·r·ia~e, ho~osexual mar,·i~!~~, thin~s of that nature
L..ihit:.h '1 c~tt.1~tJr ict:;!l~J re~ist e!nd cate~t,ricall~
reject as Par·t
of a ba~iis fo,· a sour,d societH."

hF said his t·emaJ·ks had beer1 aimed not so muct,

at the ERA as at Wom~n's Ass~~t,IY III, whose rlat,orm, h~ said,

Bdvo~~t~d not or11~ hornosext1sl
artd l.esbiar1 marriaSe but also
~custodial arid adoF 1 tior1 ri~hts for tt,ose mat·ria~es" ~r,d the
ri~ht of ~ov~~·nru~r1t ''to corue into m~ .fami ,~ without m~ knowled~e
and cour,sel m~ 1:hi ld1•~r1 to use birth control
devices, birth
control ri I Is and to have ?bortions without the Parents'

Digitized by



& MCDIARMID & @D 82/9 TO 82/10

know I ed'lll>, •
The ha,·st,est of tt1ese claims were dis~ot·tions of A~5emblY

Ill's rositions, but Headlee and Romney and To~ Brennan , the
GOP car,didat~ for t ietJtenar1t ~over·nor·, re,•eated theM ir1 separ·ale
aPPearancus last Honda~ and Tuosda~ and then in unison at a
Wedr,~sd•~ rt·es~ confer·er,ce ir1 Detroit.

Ro~neY cal led the issue "secondary• but carried on at len~th
about it, referrin~ to the women's rlatform as "shockins and
di s~ust in~."

Headlee cal led the issue "diversionary• and ·ancillary• but
said, "Frankly, we think it's resronsible
now that it has
become an issue -- to dev~loP it in dePth."
And ho did, evun addir,~ this twist: "The reason the wo~en's
i ssut.~ has beeri so rrominer1l is because so much ~oneY is spent on
sax education ~nd so I ittle ~one~ is spent on ~cono~ic
edL1cat ion • •

Headlee lamented the lack of camPai~n

f'1Jcus on what he said were the Pt' inc iPal
~nd srer,din~, arid

"jobs, taxes


"Hhen YOU start talkin~ about econo~ic rlans . •
chloroform on the electronic media and it doesn't sell
nowsPaPers," he• said.

And then, barel~ rausin~ for breath, he added 1 "As I said
bef'ore, if wo would ol ir,inato sex edur:ation and r•eplaco it with
economic education, we'd have Jobs in this state.·
Blanchard, ~eanwhile, was koePing a fow Profile,
"I am not ~oin• to al low myself' to bP distracted by his
<Headleo's) problems," he said.
ThP remark seemed unnecPssarilY cavalier from the rerson who
raised tho is~;ue in the fir·st Place, But if, indeod, the wholo
issue of women's rights, includin• the stuff about gay marria•e
and teena•e sex, turns out Tuesday to havo hurt Hoadleo
• • • wet I, it may have exrlained a critical difference between
tho two camrai~ns

KEYWORDS: analysis





@3 HUGH & HCDIARHID & @D 82/9 TO 82/10
DATE: THURSDAY Octnber 28, 1982

HEHCl : f' o I i t i cs;
RoF•ub[ i1:ar1 Diel'-. Headlee 1Jnl~a':ihed Hict1i~i3n's a~ing t)ut stit I
hHreractive aF•ocal~rse, Geo:·~e Romr,€~, or, tt1e 1982 CB~F·si~n foJ·
,s!:fain this wi~ek.,





at tirrtP':;,

i t was I ilt.e i•idinB; down

• on a fit·e t.r·uc~ .•

Old G~or~e's prir1ciral ti~r'~~t nat1Jr·al I~ was D~mocrat .. Ji~
B 1 s;nchs;r· d.
And he

let him have


"Blaru:hi.~t'd's rr·o~re:rn of job cr·ei..~tion

is dl~Ct.'?Pt.ive end

lt'!i a F1 honY .
" "Th»re's no w~Y
B1anch~r·d csr, do wt,at he h~s said he wit 1 do witt1out a· massive
tax ini:reai;e ,
" "The el1~i:tiun uf .liw, Jllani:hard (,H;
wi I I ser·ve notice
0r1 the investment
co~munitM that Hichi~er1 1 ~i economic nr1vi1·or1mor1t is ~oins to be

"etc.• ,


But ther~ W85i rnoi·~, •nd soma of it wa~i mix~d with nostalgia
c,~j.f'ec:isl l!.i c.:l; c: PT"l:•S!:> conf'l"H'l~ncl~ Tut:-~..:daM in Lc~nsint:f Fot·
ex'3mF' ! e:
An c, I d FHA f I


Romney said tho women's is5;ue --·· e~;pecial IM the ERA···· whict1
has bedevl led }1~a,,1ee ir, tt1~ 1982 c~mpaisn is "secor,d3r~,"
"div,~r::,ionar~•·· end
"2,. Pol itice:!
n-1!-tth." And tu~ said he'd tHnu,
tt,r-ou~h one JLJSt l i~.e it in 1979 whPn he was SPF•ointe(1 to a
v~car11:~ on the Ha~r,e Stata Ur1iver·sitM Board of Governors.
''I hsd m~ rositior, misr~F•1·eser1t~d c!ear
act·oss the coL1r1try,•
tie said, refBrrin~ to a r·au~;in~ FlaF' i~nited b~ ar1 inte,·view in
whict, he said tt1~ ERA c,·usad~ h;~d att,·actPd ''th~ leshlarts, the
ttomo~;~x1Jals arid the ~D'i'SI f ei·vei·ts. ··

Civil ri~hts bFI ieve:
Romr1e~ said tt1e Hci·mor1 is5;1;e (he and f~eadle~ s;tti?re ~ctive
member·shiP ir, tt,e ChL1:·ch t)f Jesus Cht·ist of L~t;tet··-DaH S~ints)
bt~dl?vill~d hirn l·Jhl?n he fii•-~;t r·2-n fD'i' !~ov,::-rrtO'I''


l w~s a car1did3te fo1

the bi!?::,

ov~:;•po1,.,1t:i' in·.::



t~,c sove:·r,o!'shl~• of tt1is st~ate



ial f!.~ uas c ivi I t' i'.3'.hts fi,t•

trl2c~.s •
• PaoF 1 le tt1ot1~t1t. bec~L1se 1 was a mvmber· of tt,at faitt,
:t (jj.-jn't tH:?li~?ve
in L:ivil ri 13tlts fo;· bi;3ck.s;. })fat:k.s i.:.tun,
1~ot1ldr1't hot(, Priestt,o,Jd ir, m~ ct1L1:·ch, so Pec1F le said, iF so
~~cto, ~ou'i"e 0F 1 rosed to bfack.s. ··

Digitized by



@3 HUDH & MCDIARMID & ID 82/9 TO 82/10

Ro~ne~ volur1te~rad some thou~t,ts ~bout Sur,. Bat·r~ Goldwater,
R-Ariz., who, when he rar1 for rresident in 1964, had b~en
perceiv~d as weak ~n civi I rights b~ Romne~ dnd othur·s.
"I believi:,d C,;o much) in civil rights for blacks • • • 1
Fought so hard a~ainst Goldwater
in the Cow Palace (site of the
1964 Rerubl ican
Convention in San Franc.iEco) that, as I
rorle down Per1ns~lvania Av~nue in (Prusi,jur,t) ~Jot1r1son's ir1au~1Jral
Parade (in January 196~), that th~ 1 ittle black children on
both sides of Penns~lvar1ia called out, 'Did MDU strai~t,ten Di3t'i'H
ot,t, Oeot·~e?' • • • That's wh~ 1 didr1't er,do:·s;e Da,·1·M Goldwater·.
I accepted him but I didn't endorse him."
A lot
of old stuff
Ro~ne~ raised the 1968 ·brainw3st1ir,~" iss;ue a!i dn ~xamPle o~
Pol itica1 "mHlhs" tt1at bedevil csr1did3tes. The issuP ir1volved
Romno~•s -forthri9ht but Political fy unorthodox admission that he
had bel~n

"brainw.i.~shed" b:; ~L':!rn~·ral!=.i on an ea-r I ier

fc1c.t·.-.. findin!:i

triP to Vietnam-·- an admis!;ior, that led to Romne~'s undoin~ as
a Presidential candidBte.

"Me (RoMne~ ~nd his advisers) bel iuved wt,at

~lot1n!ior1 and

<Defense sect·etar~) H~N3ma,·a arid (Sec,·eta,·y of St~te> Rus~.

and evet•~one else was tel I ing us about Vietnam
arid l was
brave er10L1~h (afteT he chmr,~cd his rositior1) to cal I a £Psde a
spade , i3rtd I've t;• led to do it i3I I m!.I I ife,"

An~waY, Romr1e~, who is 75 but still as tirele!;s, tcu~h arid
evan~el istic a$ evei•, sper,t tt1ree ,j3~s this we~~- b~f•nstor·mirt~
Michi•En ta Praise Headlee, raise hel I with Blanch~,d and
lecture ar,~one who would I isten on reafpof itik --·· dccordins to
Gel1T Ci.e Romne:;.

A lot c,f it was aid ~;tuff. And some of it ,i,ss .
~tretchin~ a bit.
But it was •reat theater • And


• wet I,

Pol iticm.

And Hei3dlee knew it.
He tl"lt"'lk nt,t.t.~ ~~t.~dnP~d:.B-!:I

in Dt:>troit of t.hP



that RoMr,e~'s 1:dmrai~nin~ h~d on the Pri~ar·~ efectior1 outcDme.
And hF s~ld he' I I be cclt1r1tir,g or, i t as~irt r1ext wee~ ..

KEYHORDS: column

Digitized by


@3 HUGH & MCDIARMID & @D 84/3 TO 84/4

is but 1-M·~-·-·,"

The House broke UP in
The amendment w~s reJected.

And Power was admonished bM SPeaker Pro Tem Matthew McNeely,
D-Detroit, to clean uP his act.
The House was stil I
amen dn,en t.

as it voted to kil I Runco's

KEYWORDS: columnl

DATE1 TUESDAY APril 3, 1984
II.LUST: Photo
MEMO: Pol it,ics


The corpse of ·~oderate" Ru,•ubl icanis~ wir1kud in Lansin~ last

Saturday, but Just barely,
Still, it 1:aused a stir.
The occasion was the
Moderate RePubl ican Conference,
bY a handful of' partY
maintain tht, I iberal (the~ wm1ld c..;,11 it;
spark For the
era -- Probably 1988.

For example, Chuck Yob, a party
and GOP chairman in
the 5th District, which
Grand RaPids, most of' Kent
Counttt etc., f' ired of'f a er it i 1:a I I atter two week.s;
SPencer Abraham, the state RePublcian chairman,
the conference would prove counter-Productive.
"lam real unhappy to even hear of' the
RePubl i,:an Conf'eri.rnc1!1" Yob wrote. "Al I we need in the State of'
Michigan in the Rerublican PartY are more and more
and parts of' our party pull
away so that we
c..;,n be sure to loose the
the next •o

Digitized by


@3 HUGH & MCDJARHlD & @D.84/3 TO 84/4
That wasn't the end of it.
Yob sent caries to other Rerubl icans,
outsroken Ottawa County commissioner who heired




wrote Yob back,
conservatives who have taken over the
GOP has led to
number of mode1ates , , , quietly
rh~sical and financial support of the
"In mY view,•
wrote, "the center core of the GOP has
always been the maJoritY but has beco~e the silent maJoritY
That still didn't end it,
Peter Secchia,
GOP National Committeeman who had
received caries of the Yob and
letters, sided with Yob and
sent Laum's letter back to her with comments critical of
moderates scribbled in the
He noted, for examrle, that
"the financial
surrort has been weak from the Mill ikens" and
the cryrtic equation: "Mi II ikens • 0 $,·And he wrote
that "the nasty stuff, the bad comments have come mostly from
~od@ratos," sin~I in~ out as exa~,,fes Peter Ff etcher, his
Predqcessor as committeeman, ar,d Maxine Swanson, fot·mer OOP
chair in the 10th District who lost the office after
Democrat Jim ~lanchard for
in 1982,
The conference itself -- which drew about 100 RePubl icans,
includin~ candidates, ra,·t~ functionaries and cut·ious
conservativos -- was co~rarativelY free o~ such rancor, but ~any
Participants walked a fine I ine, Workshor
leaders such as Helen
Hi II iken comrlained about a national RePubl ican
includes school Prayer but leaves out the equal
amendment. And speakers such as U.S. ReP, Jim Leach, R-Iowa,
madr references to Part~ leaders "who look for simPI istic
answers" and to
deficits that reflect neither
comrassion no1· Prudence.h
No Rea~an attack

But nobody beat ur on Ronald
by name or launched
frontal attacks on the state party's new, conservative
leade1·sh iP.
Still, there were buttons I ike "I am a RePubl ican woman and I
want mY ra1tY back," And in the hallways there was lots of
sotto voce about how Ion• the moderates would have to wait.
John Field Reichardt, a moderate from Grand Haven, summarized
the feel
of many in the audience
his conference
re•arks, saYin~ mode1·~tes who have beer, ct•itical of
consot·vatives For not suprortin~ moderate candidates in the
Past, should not make the same mistake this Year with resrect to

Digitized by


@3 HUGH & MCDIARMID & @D 84/3 TO 84/4
''WQ have a Presider1t of the United States who some reorlP in
this; ,·oorn ,jon't lili:t~ v1::or!J 1r,uch," he ~iaid, "but wo ,:~nnot i;ta!4
out of tt,e fraM. WF have ~ot to sta~ b~hind the Presider,t this
!.-te;3p. •·


in ttlP hal lwaY, he

"fio1ne Peoflle," he -s;aid,

was mo1·e direct.
"rr,a!J have to bite thei,· ton~ues and

vomit in tt,eir· sleeves as tt,ey vote fo:· Rea~ar,."
But he said th~~ should do it.

KEYHORDS: column

DATE: SUNDAY Arri 1 1, 1984



State ~ien. Pauf H1:u1r-!_.,, F~·-Gr·and Rafi id~;, v,ho
runnin~ fot· Con~ress, dese1·ves


wi If be

J~e WdS the ~e~r,ote ~;F 1 ~aker Satu~da~ in Lar1sin~ at somett1in~
eel led t.hl~

"Mich is.:~n Moder·i;:1a-:i R~::-rubl it,~n


Hoder·ates, of co1Ji•s;o, 21·e ve1·~ m11ct1 on the ct,ts thesu da~s ir1
t.he Mict,i~~n GOP, i~r,(, t~ieit r1L1mt1~1-~; ~rid er1et·~ies hmvE dwindled
to thu ~oir1t wt1~re, an Fr·idaY, the da~ bef1:,re tt,e ~or1fet·ur1c~,
John Field Reichi~t·dt, or1r· tJf lts F'2tt.iciP~r1ts, cor1f~!ised or1IM
ha I f'··hu«1c.·i·ou1;; l



"~.11.1'r•t1 bu~i!J


11 in•-~ fll?OP ! t:" r:,ut. 1'1·orn unrh"H'

Attcr1d2r1ce --- 100 01· so at L.~,,~~'s Cor1ver1tlor1 Cer1tet· sot1th of
L~:H,-::~in•.3 ···· wa"!;n't so bi3d, but it ma~~ hav~ btH:'n 11"1i":;lfh~din'3.
ThGt's b~c2t1se tt,e 8lJfjier1cP w2s sF•r•lr,~.led witt, cor1!ie1·v2tiv~s
I ike Har·~
Kold~s, ch2irmar1 of t~,e Michigar, Con1;er·vative Union,
2nd P~til Gadol2, ct1Glrm2r1 of Pl·esident Rea~~r,'s Mlrt1i~er1 re--

Digitized by



DATE: THURSDAY APril 26, 1984



MEMO: POI itics



Uh, oh.
Now comes the Michi~an GOP's ver·sion of TYPhc,id Ma1·~, a.k .. 2.
the RoPubl icdr, Women's Task Force, ~lar1nin~ a June 9 tr·ibute to
Pc:rt,i matriar·ch El l,i Pet•'f•s;on who, i t will be recalled,
Ji~ Blanchard for
the !ant time out.


I ib•~raf

UoJT,en's Tct~i~•. For-r.:~


i-:j si:ot·ned b!J GCJP

cor,se1·vatives and has no for·mal Par·t~ standin~, 2r,d Petet·son,
who served as state GOP chairman (that's what the~ cal led her
tt,er,> ft·om 1965 to 1969, has beer, lor,~ retir·e(i f,·om active Par·t~
service. But El I~, wt,o was known as "JT,other•'' to co··wo1·kers
dL1t·in~ her hF~da~,
is ver1erated b~ ReF 1 ubl icar, modet·ates, arid
the tribute dinne,· at HSU'~ Kello~~ CQr1ter· is sure to tu,·n 1 e~

Al read~, for ex~mrle, ot·~anizer·s hBve I ined


Digitized by

Bi I? ar,d Helert


@3 HUGH & MCDIARMID & @D 84/3 TO 84/4
Mi I I iken and Bob and
Griffin as honorary co-chairs for
the even i 11'3, and ll i II
I in, who succeeded EI I II as stato
chairman, wi I I be the emcee.
And it'• I ikel11 that other erstwhile Part11
served with EIIY
Keith Mel in, Bil I Bal
Bob Teeter,
Jo~ce Braithwaite, ~a~t>e even Geor~e and Lenore Ro~r,e~ ate.
-- wi I I show up, too, Join
members of the task force's socal led network that includes,
others, Maxine Swanson,
Cook, Pat Short, Connie Murra11-0'Neal and
Uh, who are these network People?

Wei I, for openers, the11 al I have in common respectable
credentials in and out of the Part11. For examPlel
Hax ine Swanson of" Afff,a heads the RePubl ican Wor,en's Tas~.

Force and the Grand Val le11 State Col
Board and is a former
District GOP chairwoman.
Cook of East
director of the

is a
party worker, now
Women's Commission.

Pat Short of Jackson is a teacher from Jackson and former
chairwoman of the state GOP teachers' caucus.
is a former· vice··chairwoman oft.heln~ham Count~ ReF 1 ubl ican Part~ now servin~ as a Peace Corrs
execL1tive in Afric~.
Frdzier· of Harquette
is a former Har~uette Cour1t~
RePubl ican chairwoman, former co-ch~ir~oman of Mi I I iken fur
in 1978 and chairwoman of the Ferris State Col
The~ ~lso have somethin~ else in commorl.

On Oct. 5, 1982, the11 were
Joined El 111 Peterson in
~ovor·nor, Ji~ Dlanct,at·d.

the RePubt ican women who
the Democratic candid~le for

The~ did so rub\ icl11,
up amid fanfare at
for Blanchard··Gr·iffiths Luncheon" in Detroit.

a "Women

The~ offered al I sorts of reasons for the-ir defection, but
the ,1 rinciPal

one wa':i thdt,

in their cor lectivo




Headlee, tt,e RePubt ic2r,,
was lous~ or, women's issues,
espacialf~ the Ec1ual Ri~t,ts A~endment.
'Don't even smile'

Headlee, who knew the defections were
pre·-emPlive stri~e or two, saYin~ ir1 Sertember,

had attempted a
for example,

that "th~~ro aT·e onl!j nine wolf1en in the state who don't
The~'r-t? meft'1beor~J of the RePubl icc'.n Wt1n1en's las~. Fot·ce •

Digitized by

I ike .-,e.
• These


@3 HUGH & HCDIARHID & @D 84/3 TO 84/4
women a,·e

i rrs:t i one: I



• so obse~;~;ed with this that t.heY 've

beco~e h~rdened. They don't even sMil~. The~'ro unhappy.-


It didn't work. Headlee lost, and, arguabl!.<, it
b~ normal I!< GOP women.


The loss, howeve,·, did not F rev~r,t the ~t~te Part~ takeovet·
b!.< Headlee loyal
early in 1983. And in the ensuing l.5
montt,s, I ittle has beer, dor1u to diminist, tt,e t·ar,cor betweer, the
who remained lo~al to the rartY and the Srour of
the task force women, led by El 1H Peterson, who did not.

El IY a•ain, turning 70 on June 5 and, still with
tots of GOP frier1ds, 1·ett1t·nir,g fo1·
tribute dinr1er at Mict,igan
State University's Kol
Center on June 9.
Tickets at $35 ($125 for
wit I be available in HaY.
Pi·oceeds wil I bo.ear~arked for the Ru, 1 ubl ican Women's Task
Spencer? Peter? John Engler? Dick Headlee?
Don't hold


brl!ath, l.:dil!>i.

KEYHORDS: column
DATE: TUESDAY APri 1 24, 1984
PAl3f: 3A
ILi.UST: Photo
HF.MO: POI itics


Ch~se Salmon Clsborn,
is one of those larger-than-I ife historical

in 191.1 and 1912,
who Promrt

latte,···rla~J cl iches about. how "the!• 1jon't ••a~.e 'ell', I i~.e the~ used
t.o ...

ComPat·isuns across decades, esrecial IY by amateur· histot·ians,
can be treacherous, but so~e People --- I ike Osborn -- stand tall
with or without embel I isttment from adot·in~ ft·ier1ds ~nd
relatives or· ~a!;ual Journalists.

Osbor·n liv~d to the rire old a~e of 89, so,

in a· sense, he

Digitized by


Senator RIEGLE. So, roughly around May 1 then, you sent this
letter off. Did you send it to some other papers too? Do you recall
what other papers it would have been sent to?
Dr. SEGER. Yes. Again, I don't have the whole list. I sent it to
different papers around the State. I know I hit the two Detroit
Senator RIEGLE. The two Detroit papers and some sprinkling of
other papers around the State?
Dr. SEGER. Yes.
Senator RIEGLE. So I guess what you decided to do, you wanted to
state these views, and so you wrote the letter and you sent it to
several papers simultaneously and some printed it and some have
Dr. SEGER. Right. There were several articles that ran back in,
like, April, rehashing the 1983 election, and that's what triggered
this whole thing.
Senator RIEGLE. OK. Well, I think for now we can leave that. I
think we've discussed that, and now I want to go into some economic policy areas that are complicated ones, but I want to talk
them out with you and get your views on the record and let you
have a chance to discourse on them.
What do you see as the relationship between the deficits of the
size that we now have and interest rates? In other words, what is
the degree, in your mind, that deficits at the $185, the $200 billion
level, in that range, what impact do they have in terms of interest
rates, as you see it? Is there a connection? I mean, do you think
there's a connection between the deficits and interest rates? And if
so, what would that connection be, in your mind, when the deficits
reach this kind of level?
Dr. SEGER. Two ways, basically. One is that when we engage in
deficit spending, whatever the amount, it is stimulative to the
economy, and so you have the impact on the aggregate demand in
the economy, which presumably will drive the economy toward a
more rapid rate of growth and that will often generate more credit
demands. Just having the economy grow faster would be one way it
would have influence.
In fact, there are three ways. The second way would be the connection between financing the deficits and interest rates which
means, as I see it anyway, that the Government has to iss11e new
securities in the amount of the deficit, whether they be T-bills, or
notes, or bonds, and when that happens, then there is a direct
market impact. You're just in the market for 1 month or 2 months
issuing these new obligations, which does absorb dollars, and it
does represent an increase in the overall demand for funds.
Thinking back to the capital markets course I just taught last semester, one of the things I pointed out to the students is that if you
look at interest rates as prices of loanable funds, which to me is
the easiest way to understand them, then any factor that contributes to increasing the demand for those funds will have the effect
of putting upward pressure on interest rates.

Digitized by



Senator RIEGLE. Let me ask you this. In terms of deficits of this
size and having now run as long as they have and sort of caused a
spurt in growth in the economy, driving up the GNP, to what
extent do you think there is now, in the sense an interest rate premium, that interest rates have risen, as a result of either or both of
the factors that you mentioned? Are rates higher today because of
the deficits, in your view? And if so, how much higher than what
they might otherwise be?
Dr. SEGER. May I just mention the third factor that I think connects them, because I think it will tie into the question you just
Senator RIEGLE. I understand.
Dr. SEGER. The third connection involves what I would call
market psychology. The professionals on Wall Street and in some
of the big banks have been very, very alert to the so-called deficit
problem, and their reaction to the deficit has influenced their judgment of where interest rates are going in the future. It has influenced how they forecast interest rate movements in the future. In
that way, there is sort of a feedback into current interest rate
levels, because, again, if you expect certain things to happen in the
future, you can sometimes, through anticipation, get those effects.
Senator RIEGLE. Right.
Dr. SEGER. Moved up to the immediate term.
Getting back to your second question then, in terms of tying the
size of the deficit to rates or looking at how much higher rates are
now, because of the deficits than they would have been, I honestly
don't know an exact number. I have not seen an exact number.
Again, there probably is some differential.
Senator RIEGLE. But you have been in the economics business
and forecasting business a long time, and this is partly a judgmental matter.
Dr. SEGER. Oh, yes.
Senator RIEGLE. And different economists will differ on it, and so
forth. But what would be your judgment? What's your intuition?
What is your sense for it? What would you think in your mind is
the interest rate premium that we niay be paying today for the size
of the deficits?
Dr. SEGER. AB I said, I don't have a nice handy-dandy single
number, but the combination of the deficit and the future inflation
concerns, which might be tied to the deficit might add-I don't
know-between 1 and 1 ½ percentage points, something like that. I
underline that this is strictly a very, very rough guess.
Senator RIEGLE. Right.
Dr. SEGER. A rough estimate.

Senator RIEGLE. Now some people said if we don't solve the structural deficit problem, and if we stay at a deficit level that's in the
$200 billion range, maybe $185 billion, in that range, suddenly we
have an economic downturn, which no one wants, but the business
cycle does tend to assert itself at certain points. And if we have an
economic downturn, we might find that what would happen is that
a new cyclical deficit will come piling in on top of the structural

Digitized by


deficit, and maybe we would end up going from $185-$200 billion
. structural deficit, and suddenly we might have another $100 billion
cyclical deficit added on to it, and then maybe a $300 billion deficit
problem, rather than a $200 billion deficit problem.
And as I talk to people in the financial markets, this sort of falls
in the expectB:tion area to the point you made a minute ago, and
people get very nervous about that, because they wonder whether
the system can take it, manage it, what does it do to interest rates.
How would
evaluate the ability of the economy at this stage
of the game, i those sequence of events were to happen, to manage
and to tolerate a deficit that ballooned up to, say, $300 billion?
What do you think the consequences would be? And is that manageable, in your view, to handle that, if we had to?
Dr. SEGER. If I go back to the original points you made about the
developments that would produce this-that is, slipping into a recession-typically, when the economy goes into a recession, the demands for credit by various parts of the private sector diminish. It
could be consumer demands for installment credit; it could be demands for mortgage loans; it could be demands by corporations for
short-term business loans; those kinds of things.
In a recession, or as you go into it and are into it, I would typically expect those kinds of demands to back off, because that bas
been the pattern in the past.
To some extent, using your numbers, which I think was to run
up the deficit in about a 100 in round numbers-Senator RIEGLE. Right.
Dr. SEGER. Probably some of that, $100 billion plus, would be
offset by a diminishing of these demands in various parts of the
private sector and maybe even State and local governments would
back off.
It probably would not represent a net increase in the demand for
funds of $100 billion. It would be something less than that. In
terms of the imract that might have, we have not experienced this
exact event. We re sort of sailing in uncharted waters.
Senator RIEGLE. Let's ho~ we don't.
Dr. SEGER. Yes. So I don t think any economist can say emphatically what the $300 billion deficit would do or would mean, because, as I said, none of us has really lived with it. We can speculate about it, but just looking at the impact on the demand for
funds, as I said, I really think a part of that would be offset, another part probably would not be and would represent a net increase.
Senator RIEGLE. My time is up.
The CHAIRMAN. Your time is notup other than we have a vote.
Senator RIEGLE. I was just handed a little note.
The CHAIRMAN. Well, all I was saying was all your time is up
temporarily. We got a vote.
Senator PROXMIRE. Could I question her until it's time to go?
Senator RIEGLE. Before you do, may I just make one point. I will
be very brief and say the reason I asked the question is that if the
view is we shouldn't really test the outer bounds of $300 billion deficit, it would mean maybe we should take policy actions now to
forestall that. If a person thought the $300 billion deficit was man-


Digitized by


ageable-then a person might necessarily conclude that there
wasn't much that had to be done right now to forestall it-and
that's the point I want to get to when my chance comes back

Senator PROXMIRE. Dr. Seger, you are replacing Nancy Teeters as
a Federal Reserve Board member. Dr. Teeters served, among other
things, as the Feds expert on the Truth in Lending Act. How important do you regard the Truth in Lending Act as a matter of consumer protecting?
Dr. SEGER. May I just make a comment about Nancy Teeters, be-,
cause sbe 1s a fong time friend of mine. Weooth-went-to tlie lfrii_versity of Michigan. I was a couple of years behind her. She was a
graduate student when I was finishing up my undergrad work. We
both worked together at the Fed in the 1960's and she went on to
other things in Government and I went on into banking. She has
handled all these consumer issues and they probably will be assigned to me, assuming I get on the Board.
Truth in lending is one of those activities. I think that making
sure that individuals who are applying for credit of any kind have
information on which to make rational decisions is very important.
I am told by some people who are making the loans-I have never
been a loan officer; even though I had 10 year's banking experience, I wasn't making loans-that the specifics of the Truth-inLending Act, particularly the rules and regs, could be sorted out a
little bit and made a little more clear, a little more simple, just to
do the job better. But I do think that providing the information,
getting the material to prospective borrowers, is very, very important.
The CHAIRMAN. Senator Proxmire, I've been trying to simply do
that for years. We have failed so Tar.

Senator PROXMIRE. -A few months ago the Senate passed a sense
of the Senate resolution declaring that the next nominee-I guess
it was a couple of years ago-OK, March of this year-a resolution
that the next nominee of the Federal Reserve Board should be a
person with substantial small business or agricultural experience.
The author of that amendment, in introducing his amendment, emphasized the special and peculiar vulnerability of both small businessmen and farmers to high-interest rates. Both live and die on
borrowed money. When interest rates rise thousands of small businessmen and farmers literally go through the wall and fail.
That resolution designed to commit the Senate to a small business or farmer nominee passed the Senate decisively after the last
Federal Reserve Governor was approved. Frankly, I voted against
it. But this committee is accountable to the Senate on this score.
What experience have you had as a small business person or as a
Dr. SEGER. Starting with the farmer, first. I am not a farmer. My
mother was born on a farm in Ohio. Our family homesteaded down
there. My father's family owned a couple of farms in southeastern
Michigan. He himself lived in town but he ran a dairy which is a
farm-related activity. It's also a small business.

Digitized by


As I said, as for my own experience, I was born in a small town
called Adrian.
Senator PROXMIRE. But you have no specific small business or
farming experience yourself?
Dr. SEGER. That is what I said.
Senator PROXMIRE. You see, that's a problem because that was
the decision of the Senate very recently.
Well, I see that's our 5-minute bell. So, we'll have to come back. I
hol)e I can come back.
The CHAIRMAN. I would just say, I also opposed that on the
floor, -as you-remember. However;tnis noininafaon--p:rocess-was weTI
under way before that occurred. As a matter of fact, I stated on the
floor that I had already blocked one nominee in the process for
Nancy Teeter's position because of not complying with the geographical function of the law and so the Senate did pass a nonbinding sense of the Senate. But your name was already one of those
being considered before that was passed.
Senator RIEGLE. Mr. Chairman, just as you are leaving I want to
say the letter I took over the phone was transcribed over the phone
earlier from Helen Milliken and Elly Peterson. It contained one
mistake and one word was wronff down in the second paragraph on
point No. 2, the word "adopted' was in that paragraph and the
word should have been "recommended," rather than adopted. I
have crossed it out, corrected the copy and I just wanted to make
that statement now and as a matter of fact, let me also give one to
you so you have it. it's not a major change, but nevertheless that
change needs to be made.
The CHAIRMAN. The committee will recess long enough for us to
go vote and then we will return.
The CHAIRMAN. The committee will come to order. Senator
Senator RIEGLE. Thank you, Mr. Chairman. The number of the
people that are visiting Washington and using the subway cars is
just extraordinary, so getting back from the Capitol is not as
simple as it may seem. Thanks for the patience of the chairman.
When we were discussing earlier, we were talking about the
effect of a big increase in the deficit coming from a downturn in
the business cycle and what happens if the interest-I should say if
the deficit widened out to $300 billion, which is unprecedented. I
would like to ask you a slightly different question about that, and
that is rather than try to make an estimate as to what might
happen to the interest rates under that condition, I think they
probably will go higher and that's a very worrisome situation.
I'm wondering at what point you think deficits at the $200, $300,
$400, and $500 billion level start to take us over the edge in terms
of areas that we should not test and should not go beyond. What do
you set as sort of the outer bound in your own mind? I realize this
is an impression, but it is an important impression because you
have been in this business a long time and I'd be interested in
knowing how you see that?
Dr. SEGER. As you said, I have been in this business a long time
but I remember when a $50 billion deficit was a big one, so our reference points change. There probably is some outer limit. I really

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don't know what the exact number is. Obviously if you can cut off
at a $300 maximum, it's better than $400 for the economy, and
$400 would be less troublesome than $500. I can go through all that,
but iil ternisof tlie-exact point at which chaos takes place-Senator RIEGLE. Where do you start to get very nervous as an
Dr. SEGER. Getting back to my three points about the impact, I
guess what has made me very nervous is to see how magic the $200
billion was. The deficit has been growing for some time, certainly. I
think in my working career we have had about 2 years in which
there were surpluses-I believe 1960 and 1969 are the two-and so
obviously these deficits are not new. But what seemed to be newsworthy to the Time magazines of this world was the $200 billion
mark, and that seems to have triggered a lot of concern on the part
of other people. Once it becomes newsworthy in the general press
rather than in just the Wall Street Journal or the Journal of Finance whatever, it triggers a lot of concern.

In a way, we have made this $200 billion mark a very critical point
and it certainly, as I said earlier, has sent tremors through Wall
Senator RIEGLE. Are you nervous about it then, as you factor in
all of those things, including how the market does? This leads you
to the conclusion then that you're nervous about it, that you
become very uneasy about a $200 billion deficit?
Dr. SEGER. As I thought I said earlier, I would rather have smaller than bigger deficits.
Senator RIEGLE. Everyone would, but the question we are trying
to get to is of a more qualitative measure. In other words, when
they get to the point where they are now, is this something that
really alarms you? Are you really concerned and worried about
deficits at this level? I mean, what sense of urgency do you attach
to doing something about deficits that are this size?
Dr. SEGER. It's alarming me in a sort of a one-stage-removed
phase. Because I have a lot of friends who are in the big New York
banks or working for U.S. Government securities dealers, when I
see their concern then that makes me concerned. as I said. sort of
one-step away, because I know the impact that their concern can
have on the financial markets simply -because they advise people
and control a lot of dollars.
I can just sit back as a private citizen or teacher in a small
school and be concerned, and yet it's not going to rattle and shake
the financial market. But when they find the current level-and
also, I think we discussed this in your office, more importantly
what they see as extrapolated numbers going out to 3, 4, or 5
years-I think it's a combination of the current number and what
they see as sort of a steadily upward creep unless something is
done that causes their concern. That's what makes me concerned: I
see their concern and I know what they are able to do.
Senator RIEGLE. So, let me make sure I understand you correctly.
You are saying that as you talk to people in the financial markets
in Wall Street that are in the center of this thing and they express
36-314 O - 84 - 7
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their sense of alarm, their great anxiety about deficits at this level
and projected deficits, that causes you now to hold the same view
that you are alarmed and that you are nervous about these things
because other people whose opinions you respect may have come to
be alarmed. Is that a fair summary?
Dr. SEGER. It's not strictly a matter of respecting their opinions,
although as I said, I have known many of these people for a long
time and do respect them as professionals, but it's more a matter of
knowing the impact that their views have. They put out these letters, they hold meetings with major institutional investors. Their
employers are often big investors themselves. I don't have the clout
to make a number important, but I think they do, and if they do,
then obviously, it's a significant level.
Senator RIEGLE. Yes, but I think I hear a nuance here. I think I
hear you saying that it becomes important and it is a problem because they think it's a problem. I hear you saying that, you know,
deep inside in your heart of hearts are not necessarily convinced in
the first instance that it is that big a problem, although if they
think it is and they do things in response to that it may be like a
self-fulfilling prophecy. I hear you saying by omission or by the
way you are phrasing it that you are not necessarily convinced
yourself that the deficit at this level should alarm them.
Dr. SEGER. No, no, no.
Senator RIEGLE. That's what I want to draw out.
Dr. SEGER. I thought what we were talking about is a critical
point; how high can they go?
Senator RIEGLE. Well, we left that and now we are coming back
to the current level, the $200 billion level, and so forth.
Dr. SEGER. What I'm saying is that I think deficits do have impacts in several ways; that I personally don't know, based on ml
own analysis what size deficit we can live with today. whether i_t_s
$190, or $195, or $200 billion, or what. Based on the communicationsl
have-personal conversations-there is so much concern among
these professional advisers, the major investors, that based on their
assessments, there is a problem. They can make it a problem. I'm
not saying it's not a problem.
Senator RIEGLE. But have they convinced you, and are you now
convinced that it is a major problem and deficit reduction is a critical item?

Dr. SEGER. I have supported deficit reduction right along.
Senator RIEGLE. Where do you think we have to take it down to,
roughly to where? What do you think is the path we should be
shooting for or setting for ourselves in terms of deficit reduction?
Dr. SEGER. I don't have any nice, neat, exact numbers. But I
think what would register with the folks I am telling you are so
influential, what would impress them, would be an effort to reduce
the deficit and one that didn't just involve a particular year, but
rather one that seemed to addreJ;s it as a long-ran~e problem, that
said, "OK, we're going to get this thing on the rig t track out here
someplace." We have been worried about the deficit soaring this
way from where we are now, and it's going to be worse. They

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would like to say, "OK, here we are now, and we, based on what
we hear from Congress and the White House, we think that instead
of that, we're going to see a consistent, persistent effort to take
these down" I'm not saying that overnight you can go from a lot of
red ink to black ink; they don't expect that.
Senator RIEGLE. But what can the Fed do to help lower the deficits, in your view?
Dr. SEGER. Obviously, they don't have direct control over deficits.
The Congress does.
Senator RIEGLE. Do you see anything at all the Fed can do constructively to help get the deficit down? Any ideas you have in
mind for that?
Dr. SEGER. Tying the Fed into my group on Wall Street, to the
extent, let's say, that Congress got something started, it would convince them that we were heading in the right direction, narrowing
the deficit, ultimately making an effect on the budget. To the
extent that Wall Street believed that that was really going to
happen-and I think they can be convinced, by the way-to the
extent that that happened, then the expectation would change, and
I think that in and of itself would have a favorable impact on interest rates.
Senator RIEGLE. Is there anything the Fed can do along that line
Dr. SEGER. To the extent that those people acted that way, that
they also tied it into a less terrible inflation problem in the future,
then I think this might give the Fed some more latitude to also
back off a bit on their monetary restraints, and the combination of
Fed action and the conviction of my friends in Wall Street would
have a favorable impact on interest rates.
Obviously, the direct way the Fed impacts the budget is that, to
the extent that they influence interest rates, as long as we have
got the debt outstanding of $1.5 trillion, if you can finance that at 1
percentage point below where it's now being financed, that's a big
number per year.
Senator RIEGLE. It sure is. I will try to come back to that. My
time is up.
Dr. SEGER. I didn't mean to go on so long.
Senator RIEGLE. No, no; it is complicated, and I don't want you to
feel hurried. I wanted to take it on through to its conclusion.
Senator SASSER. Thank you, Mr. Chairman.
Dr. Seger, as you know, the Federal Open Market Committee
[FOMC] directives are now kept secret from the Congress and from
the public until the adoption of a subsequent directive. That is
what current practice dictates.
Generalll, do you agree with that policy of the Open Market
Committee s directives being kept secret from the Congress and
from the public?
Dr. SEGER. I know that the policy has been to withhold the release of the minutes of one meeting until a couple of days after the
next Open Market Committee meeting and then release them. It
talces a little while just to get the minutes put together and get
them released, but let's say they're announced the next day or 2

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days after a meeting, there is concern that just having, bang, an
announcement of change, might be destabilizing in the market.
We haven't done this, so I guess we can't prove it would or
wouldn't be, but that is a concern.
Another concern is that the people I was just referring to in talking with Senator Riegle, the very influential Wall Street economists who advise major banks and major Government bondholders
in New York, even if we announced or released these way earlier
than we now do, would probably still try to predict what had gone
on that day, even though they knew the minutes were going to
come out, because they want to get a jump on everybody else for
purposes of positioning their own securities. This is the way some
of these people make money, by getting ahead of the pack. It
wouldn't give a great advantage to the typical Tom, Dick, or Harry
that some of the professional Fedwatchers might have.
Senator SASSER. In other words, what you are saying is the professional Fedwatchers now have the advantage by virtue of their
being able to interpret events and what happens, and if the open
market directives were made public, then the general public could
take advantage of what might be coming in the way of monetary
policy-those who didn't have the expertise to sort out intuitively
what was coming?
Dr. SEGER. I was saying the pros would still try to get a jump. I
mean it would be an advantage to the others, that's true. But I am
saying the pros, the very shrewd Fedwatchers, would still try to get
a jump by not waiting for the report to come out, but rather trying
to speculate about what the Fed was doing and what was going to
be in the report when it came out tomorrow or the next day.
Senator SASSER. But they would just be speculating. They would
have no objective evidence on which to act?
Dr. SEGER. Right.
Senator SASSER. And as many say, given the present circumstances, the very skilled Fedwatchers can read signals that John Q.
Public out there could not read as to what is going to occur with
monetary policy, money supply, et cetera.
In general, do you believe that the Federal Reserve should adopt
a policy of advising Congress of major changes in the direction of
monetary policy as they occur and when they occur, in a timely
Dr. SEGER. Are you still talking about the FOMC, or do you
mean more appearances such as Chairman Volcker makes?
Senator SASSER. I want to know-it's usually in the Federal Open
Market_ CQ_mmittee m_efil_ings that many of these policies are dilt
cussed and decisions are taken. And my question to you is: Should
Congress be advised if there are major c:_han_ges_j11 th~ dir~ction of
monetary policy? You -know, we talk to the Chairman, Mr. Volcker,
quite often up here, and sometimes it's very difficult to find out
precisely what direction he intends to go, from our questions and
his statements.
Do you think it would be useful if Congress were advised of
major changes in the direction of monetary policy when and as

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they occur? For example, do you think in the spring of 1981, when
we embarked on very substantial tightening of the monetary
policy, do you think Congress should have been advised of that at
that time? Would that have been helpful? Should it have been
Dr. SEGER. I would have to go back and see what he actually told
you in that February presentation that he always makes under
Humphrey-Hawkins. To be honest, I have not reviewed that back
to 1981.
Senator SASSER. Well, do you have an opinion as to whether or
not it would be a good policy for the Fed to advise Congress if there
are major changes in the direction of monetary policy coming up,
to advise Congress in a timely fashion?
Dr. SEGER. On an ongoing basis you mean, not scoop you over the
market, but simply give you the more needed information in the
same way we're talking about getting the information out sooner
or closer to the date of FOMC meeting? Or are you saying you
would like to be clued in in advance, 2 weeks before?
Senator SASSER. No; what I am talking about is, if a determination is made that the Federal Reserve is going to make a substantial or a major change in the direction of monetary policy, do you
think it's advisable for the Congress to be advised in a timely fashion about that change in direction of monetary policy?
Dr. SEGER. I think it's very important to have this communication between the Congress and the Fed right along. As I said, I supported the move under Humphrey-Hawkins to have the Chairman
come up and present, in general terms, what they plan for monetary growth in the year ahead and then, in July, to review what
they told you back in February and give you any revised targets,
plus a tentative monetary growth target for the coming year.
I support dealing honestly with you, frankly, with you, putting
the cards on the table.
If the issue is that you would also like more interim kinds of
communiques so that you would be more current on what the Fed
is doing, particularly any 45-degree changes or something like that,
I have not thought about it particularly, but maybe it's something
that could be worked on.
Senator SASSER. Well, you do understand, Dr. Seger, that Congress established the Federal Reserve to be independent of the executive branch and to act as really a creature of Congress. And as
a member of the Federal Reserve Board of Governors, would you
agree to be guided by the general policl' mandates that may be laid
down from time to time? I won't say ' will be laid down," but may
be laid down from time to time by the Congress?
Dr. SEGER. I don't know what you mean by "general policy mandates." You mean-Senator SASSER. Well, we occasionally pass resolutions here in
the Congress dealing with monetary policy. There were some resolutions that were passed in 1981 and 1982, as I recall, and the Congress reacting at that time to the very severe economic conditions
around the country. And the relationship between the Congress
and the Federal Reserve Board of Governors deteriorated to the
point that there were serious conversations about restructuring the
entire Federal Reserve Act here.

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Dr. SEGER. Yes.
Senator SASSER. And there was developing a bipartisan approach
to that. And that was a result of the fact that the Fed did not
appear to be responding to the general policy mandates that were
emanating from the legislative branch of Government.
And my question to you is, Would you be guided by general
policy mandates that might be laid down from time to time by the
For example, if the Congress should pass a resolution mandating
a coordination between fiscal policy and monetary policy, and mandate that they no longer act at cross purposes to each other, Would
you feel obliged to be guided by that general policy mandate on the
Board of Governors, acting in your official capacity on the Board of
Dr. SEGER. I will certainly pay attention to what you have said. I
didn't understand you to mean-and this is why I asked the question clarified a little bit-sending a directive up saying; "By the
way, we think the Ml growth target for 1984 shouldn't range from
4 to 8 percent but it should be from 5 to 9.5," just pulling numbers
out of a hat. I didn't know you were talking about what I consider
to be very specific ways in which monetary policy is carried out.
You have answered by saying you are talking about more general kinds of directives and more general concerns.
Senator SASSER. Very broad mandates. Do you understand really,
Dr. Seger, what it is for the Fed to be a creature of Congress?
Dr. SEGER. Certainly.
Senator SASSER. It was created by this-Dr. SEGER. Congress passed a law in 1913.
Senator SASSER. By this legislative body here. And in your judgment, co.uld you · form your own opinions and judgments on the
,execution of monetary policy independent of any influence, political
,or otherwise, from the administration?
Dr. SEGER. Yes, I certainly could.
Senator SASSER. Well, my time is up, they tell me.
Senator SARBANES. Dr. Seger, I'm interested in how these nominations come about. In your instance, I would be interested to
know how the possibility of going on the Federal Reserve Board
first arose.
Dr. SEGER. I can't remember whether you were sitting in here
when I mentioned a little bit of this or not. While I was a regulator
in the State of Michigan in 1981 and 1982, I regulated commercial
banks, savings and loans, credit unions, and small loan companies.
In late 1982, as I was leaving, the -Michigan savings an<floans said
that they felt I had done a very effective job dealing with them,
that I was very evenhanded and I worked hard to help them solve
their problems.
Senator SARBANES. This is the Home Loan Bank Board; right?
Nothing ever came of that, as I recall your testimony.
Dr. SEGER. That's right. Believe it or not, that's what triggered
this; that's how they got my name down here. I came down and I
was interviewed several times for that job. So I'm just saying--

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Senator SARBANES. For the Home Loan Bank Board?
Dr. SEGER. Right.
Senator SARBANES. Nothing came of that, and you then took the
appointment at Central Michigan; right?
Dr. SEGER. Right.
Senator SARBANES. That was in August 1983?
Dr. SEGER. Right. I'm saying that's how they got my name down
here in Washington.
Senator SARBANES. To start with.
Dr. SEGER. That's right. And then late last year, some economists-you know I am an economist-some colleagues of mine were
down in Washingon at a meeting and apparently they were told
that Nancy Teeters' seat on the Board was going to be opening up.
They were asked if they knew any names of potential people to fill
her seat, and were told that the White House was interested in
getting some names. I know of at least one person who then threw
my name in the hopper for the Federal Reserve Board.
Senator SARBANES. Did you know this at the time?
Dr. SEGER. A friend called me somewhat later; I don't know, perhaps in late November, around Thanksgiving, I would say, and said
that he had been there and he hoped it was OK that he dropped
my name in the hat for this.
And I said, "Well, I'm not holding my breath. I'm teaching, I
enjoy teaching, but OK," and that was that.
Then I went on my vacation in December and when I got back in
January I was called by the White House Personnel Office which I
had dealt with in connection with the Home Loan Bank Board;
they wanted to talk to me. And that's how it came about.
Senator SARBANES. Who was it that wanted to talk to you?
Dr. SEGER. The White House Personnel Office.
Senator SARBANES. I mean-Dr. SEGER. Do you mean the name George Armstrong?
Senator SARBANES. Yes. He wanted you to come to Washington
to discuss the possibility of going on the Federal Reserve; is that
Dr. SEGER. Yes.
Senator SARBANES. How did it follow from there? Did you discuss
it with other people in the White House?
Dr. SEGER. I was interviewed by several people in the Personnel
Office, in their setup.
Senator SARBANES. Do you recall who that was?
Dr. SEGER. There was a woman who works for George Armstrong, and then there was a woman named Becky Dunlop, I think.
None of these are pals of mine. I'm just trying to-Senator SARBANES. Then what happened?
Dr. SEGER. Eventually I talked to John Harrington, who heads
the White House Personnel Office.
Senator SARBANES. All on the same trip?

Dr. SEGER. No; I think that was on two different trips. Then I
was asked if I could come down sometime to be interviewed by a
couple of people in the Treasury.

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Senator SARBANES. Interviewed by whom?
Dr. SEGER. A couple of people in the Treasury. Tim McNamar
and Secretary Regan.
Senator SARBANES. I see. You were interviewed by Secretary
Dr. SEGER. Yes.
Senator SARBANES. Aha!
Dr. SEGER. You're asking for the facts.
Senator SARBANES. Yes. Indeed, I am asking for the facts, yes.
When were you interviewed by Secretary Regan?
Dr. SEGER. I don't have my calendar with me. I don't know the
exact date, but it was sometime in February.
Senator SARBANES. Sometime in February? And by McNamar at
the same time?
Dr. SEGER. Yes, sir.
Senator SARBANES. Together or separately?
Dr. SEGER. No, I went in to see McNamar and then-Senator SARBANES. He took you over to see Regan?
Dr. SEGER. Yes, sir.
Senator SARBANES. How long did you and Secretary Regan meet?
Dr. SEGER. I guess I don't have the kind of mind that keeps all
these details. I spoke with him for a few minutes.
Senator SARBANES. Half an hour? An hour?
Dr. SEGER. Oh, less than 1 hour.
Senator SARBANES. More like a half hour?
Dr. SEGER. A few minutes.
Senator SARBANES. Did he indicate to you at the time, that you
were the nominee to go on the Fed?
Dr. SEGER. No, he didn't. I was one of a couple of the so-called
finalists. I didn't know who the others were. Also I mentioned
when I talked about teaching at the University of Michigan, that
the one I subbed for was Professor McCracken, who used to head
the Council of Economic Advisers here. So he had recommended
me to the President and to Secretary Regan, so he had heard about
me through McCracken, but he had not met me before.
Senator SARBANES. So the White House personnel people talked
with you first, and they then arranged for you to go and met with
the Secretary of the Treasury?
Dr. SEGER. Yes.
Senator SARBANES. And then what happened?
Dr. SEGER. Then, on another trip, I was asked to meet with Preston Martin, which I have already mentioned.
Senator SARBANES. That was subsequent; is that correct?
Dr. SEGER. Yes.
Senator SARBANES. And the White House personnel people asked
you to do that?
Dr. SEGER. Yes, sir.
Senator SARBANES. And then what happened?
Dr. SEGER. Then I was back at teaching, and I think it wasagain, I don't have a calendar here-something like March 1. I was
teaching a night course, and I looked up at the door, and the Dean
of the Business School was standing in the doorway of the class,
and he said, "the New York Times is trying to reach you." And I
said, "what are they trying to reach some person up in Central

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Michigan for?" And he said, "Well, the word leaked that you're
going to be President Reagan's choice for the Federal Reserve
Senator SARBANES. Did he indicate to you when you met, that
you ought to go on the Federal Reserve Board?
Dr. SEGER. Did he say what?
Senator SARBANES. Did Martin indicate to you when he met you,
that he thought you ought to go on the Federal Reserve Board?
Dr. SEGER. He was exploring my views on things, my background. It was like a job interview in corporate America where
they talk about what the job is, whether or not you would fit in,
what you like to do. It was an exchange of that sort. He didn't
twist my arm. That isn't how I got my broken arm.
Senator SARBANES. Did Regan or McNamar explore the same
Dr. SEGER. Yes.
Senator SARBANES. What your views were, what position you
would take?
Dr. SEGER. No, that's not what I'm talking about. I'm talking
about my occupational views and what I wanted to do, and more
general things, not whether or not I think Ml is growing too fast
or too slow. It was more general things: What do you like to do, do
you think this type of assignment would appeal to you? I have been
to a lot of job interviews in banking and business, and it was comparable to that.
Senator SARBANES. Did they discuss with you any of your views
about policy and economic matters? Any of the sorts of questions
that have been addressed to you here today?
Dr. SEGER. We were mainly discussing the business recovery.
Again, because they knew I came from the Midwest, that had its
major problems with the recession. We were talking about recovery, and how it was benefiting those of us out in that area. It was
more in that tenor.
Senator SARBANES. Now about this letter, the subject of the questioning this morning that appeared in the newspaper-I didn't
quite get the distinction you made, because while they published it
as an article, I take it you would have had no objection had they
published it as a letter over your name.
Dr. SEGER. As I say, it should have been handled as a straight
something in as a letter to the editor and having it appear as a
signed column, which is the way this was presented. It makes me
wonder about their motivation. They put a picture in-Senator SARBANES. If they had published it as a letter with your
name at the bottom of it, you would have had no problem?
Dr. SEGER. As I say, it should have heen handled as a straight
letter to the editor, because that's what it was.
Senator SARBANES. It was a statement of your views, though, and
continues to be a statement of your views?
The stenographer is not going to be able to get a noddmg of the
Dr. SEGER. Yes.
Senator SARBANES. Now, when did you send that 1etter to t e
. M
Dr. SEGER. Sometime the first week m ay.

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Senator SARBANES. The first week in May? And you knew the
first week in March, I take it, that you were going to be nominated
to go on the Federal Reserve Board?
Dr. SEGER. I was told that I was-I'm trying to think of the
term-a prospective nominee for the Federal Reserve Board.
Senator SARBANES. When did they start asking for your papers,
and so forth? The White House personnel people?
Dr. SEGER. A couple of weeks into March.
Senator SARBANES. A couple of weeks into March?
Dr. SEGER. Yes.
Senator SARBANES. For this nomination?
Dr. SEGER. Yes.



Senator SARBANES. Do you think, as a member of the Federal Reserve Board-let me just go down the road a little bit-do you
think that as a member of the Federal Reserve you ought to
engage in the kind of polemics in the letter that was the subject of
discussion this morning?
Dr. SEGER. I was not a member of the Federal Reserve Board.
Senator SARBANES. No. No. I understand that.
Dr. SEGER. I was a private citizen.
Senator SARBANES. I'll get back to that in a minute.
As a member of the Federal Reserve, as a hypothetical question.
Dr. SEGER. If I were a member, no, I wouldn't have been sending
letters to the editor.
Senator SARBANES. Why not?
Dr. SEGER. Because I think it is different when you're a private
citizen, which I was and still am, than when you have an official
Senator SARBANES. What is the difference?
Dr. SEGER. The big difference is, we don't have censorship in this
country, and I think as an individual citizen, sending letters to the
editor of a paper is satisfactory.
Senator SARBANES. Assuming I agree with that, why shouldn't
that continue to apply after you go on the Board?
Dr. SEGER. Once you are identified as a member of the Board,
then I wouldn't want people to think. "Well, she's speaking for the
Board," because I don't think that would be the proper conclusion
to draw.
Senator SARBANES. No one would think you're speaking for the
Board. Why wouldn't they think you're speaking for the university
when you sent this letter?
Dr. SEGER. I think people at universities traditionally have had a
lot of freedom to express themselves. That's why a lot of people
Senator SARBANES. So you think that as a member of the Board,
you should not send letters of this sort?
Dr. SEGER. That's what I indicated.
Senator SARBANES. Do you think members of the Board ought to
involve themselves in political matters, speak out politically?

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Dr. SEGER. No, I would say it is a nonpartisan job, and you ought
to behave in a nonpartisan way, which I would, if and when I put a
different hat on.
Senator SARBANF.S. Why wouldn't that apply to you as a nominee
to the Board? If this letter had been sent, say, on January 1 or on
December 1, then I think the question pertaining to it would have
been of the sort that Senator Riegle raised this morning. But at the
time you sent this letter you were, for all intents and purposes,
going to be the nominee to the Federal Reserve Board?
Dr. SEGER. That's not the way it was explained to me. They said
I wouldn't be the nominee until the President formally sent my
papers to the Senate. That's the way it was explained to me.
Senator SARBANF.S. But you were not only under consideration,
you were the one they were P.reparing to nominate.
The CHAIRMAN. Senator, 1f you would yield? At that time there
were three different names, including hers, that had been sent up to
me as prospective nominees.
Senator SARBANF.S. Mr. Chairman, she knew she was in the running and I think if her reasoning on the need for a Board member
to be objective and nonpartisan and not to engage in political activities has any validity of the Board, it also has some validity at
the very time that she is one of the leading candidates to be a
member of the Board. I'm trying to get this nominee's judgment
with respect to engaging in this kind of polemics.
The CHAIRMAN. Senator, I was only making the distinction between-you asked the question if she was a nominee and knew she
was a nominee, and all I was saying, if you want to further stretch
it, indicate that, as a potential nominee she should not, but that's
your choice to make. All I'm saying is that at the time, as chairman of this committee, and being advised by the White House personnel, after I had personally rejected two potential nominees as
unacceptable for geographical reasons, they sent me a list of three
names, all of whom they were checking on and she was in a round
of three but she was not the nominee at that point. That came
sometime later.
I don't remember exactly when but when I got the notification
that they had sorted the three, it was sometime in May. So you can
make that distinction and I appreciate your yielding, but she was a
potential Federal Reserve Board nominee at that time but certainly not a nominee in March.
Senator SARBANF.S. Well, what sensitivities do you think a potential nominee ought to reflect? None on the line of answers I've
been getting to my questions; is that correct?
Dr. SEGER. As I said, maybe it's because of being on a college
campus, but I guess I didn't feel that it was inappropriate for an
individual to talk about the campaign of 1982, which was ancient
history. I wasn't getting involved in anything in 1984; I was commenting on a past campaign, one in which I supported the Republican candidate for Governor; I was looking back over my shoulder.
The letter was prompted by a couple of articles that ran in the
newspapers in April that rehashed the 1982 campaign. I guess I
didn't think that, as a college professor, I had a muzzle on me.
Senator SARBANF.S. But you do think as a member of the Board
you would have a muzzle on you; is that correct?

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Dr. SEGER. I would not use that word "muzzle," but I think you
have to be sensitive to speaking out when it might be made to look
as if you were speaking out for the whole Board.
Senator SARBANES. But you don't think you have to be sensitive
to that when you are clearly one of the leading candidates to go on
the Board?
Dr. SEGER. I didn't feel-Senator SARBANES. I'm trying to get some sense of your judgment. I in fact am very much in favor of people participating politically, wherever they participate on the spectrum. I think too many
people just stay out of the political process. In that sense I have no
difficulty with a lot of your political involvement that took place
earlier in your career, and I gather that has been fairly extensive
and fairly intense; is that correct?
Dr. SEGER. I have done some.
Senator SARBANES. All right. Well, my question is a matter of
judgment. Now, as a matter of judgment you recognize that if you
are on the Board you ought not to be engaged in this kind of political polemic. At least that's how I understood your answer-you
said because, as a member of the Board, you felt that you would
need to be seen as being objective and nonpartisan, concerned with
the substance of the issue and not with the political matters; is
that correct? The difficulty I have is your failure to recognize that
the same kind of reasoning would apply to that period subsequent
when it was already clear that you were a leading candidate to go
on the Board. In your mind I think you anticipated you were going
to be the nominee; did you not?
Dr. SEGER. I knew I had to have all the various checks done on
Senator SARBANES. Security checks?
Dr. SEGER. I knew I was the nominee on May 31, when the White
House called me that morning and asked me to come to Washington, because the President wanted to announce it.
Senator SARBANES. Did you have any apprehension you wouldn't
clear the security check?
Dr. SEGER. Not particularly.
Senator SARBANES. And were you familiar with the various articles that appeared in the press, not only in your own State but
across the country, you know, the American Banker, the Bond
Buyer, Financial Times, and so forth? In fact, the American
Banker says you agreed to accept the post after your meeting with
the Treasury Secretary Donald Regan.
I gather from the questions-Dr. SEGER. I don't know where they got that. Not from me.
Senator SARBANES. I gather from the question you don't regard
that as accurate. But you are familiar with those articles that were
suggesting that you were the person who was going to be the nominee. Was that the purpose of the New York Times call that you
mentioned to us?
Dr. SEGER. As I said, it never reached me. It was 10 at night and,
as I said, he talked to the dean and the dean said that he got word,

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or the word leaked in Washington that I was going to be the one. I
did not talk to the fellow myself.
Senator SARBANF.S. Upon reflection here today, do you think it
was ill-advised to engage in this kind of politcal polemic at a time
when you were under very serious consideration to go on the Board
of the Federal Reserve?
Dr. SEGER. I guess I didn't associate it directly with this because
it just seemed to me, as I said, to be a historical thing.
Senator SARBANF.S. That's you explanation of your thinking then.
I'm inquiring as to your thinking now, whether you continue to
feel the same way or whether upon reflection you feel-Dr. SEGER. Now that I see your reaction, I guess if you can live
life over, obviously you make some changes, -but-Senator SARBANF.S. I wouldn't want you to change your view just
because of my reaction. If you are going to change your view it
ought to be because of a deepening of your own perception about
the appearances that are involved, and the recognition that the
questions which would arise, if in fact you were on the Board,
would also apply in that period leading up to your nomination.
My own assertion would be that you were the leading contender
and, for all intents and purposes, the nominee. Now the chairman
says he had a list of three, but I would apply the same reasoning to
any one on the list of three. So it's not only you. Even if you
assume a list of three, I don't think any of the three during that
period of time should have been engaging in activities which they
recognize they ought not to be engaging in if they were on the
I take it you don't perceive that here today.
Dr. SEGER. As I said, obviously if you allowed me to do it over,
knowing what the reaction is, I wouldn't have said it.
Senator SARBANF.S. My time has expired on this round, Mr.
The CHAIRMAN. Senator Proxmire.
Senator PROXMIRE. Dr. Seger, are you acquainted with the money
power provision of the Constitution that specifies that the Congress, not the Executive and not the courts, but the Congress has
the power to coin money and regulate the value thereof?
Dr. SEGER. Yes, sir.
Senator PROXMIRE. In your view, is the constitutional source of
the monetary power exercised by the Fed?
Dr. SEGER. I thought that the Fed got its authority from the passage of the Federal Reserve Act in 1913.
Senator PROXMIRE. I'm talking about the constitutional authority, not the statutory authority.
Dr. SEGER. I'm not sure. I don't know that.
Senator PROXMIRE. You see the distinction?
Dr. SEGER. Yes.
Senator PROXMIRE. The fact that the Congress has that money
power and does not allocate it to the Executive gives the Congress
in the view of some people-and I'll indicate in a minute who-a
special authority with respect to the Fed.

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Years ago, Senator Paul Douglas, a former member of this committee and, in my judgment, the only truly great economist ever to
serve in the U.S. Senate and president of the American Economic
Association-Dr. SEGER. Professor from Illinois, I think.
Senator PROXMIRE. You recall him-told Chairman William
McChesney Martin to write on his bathroom mirror so he would
see it every morning when he shaved these words, "I am a creature
of the Congress." How do you react to this conception by Senator
Douglas of the relationship between the Congress and the Federal
Dr. SEGER. I agree. I said that.
Senator PROXMIRE. You agree with that. What should be the relationship between the Federal Reserve and the President?
Dr. SEGER. The Federal Reserve is in my judgment an independent agency.
Senator PROXMIRE. So the Fed is independent of the President
but it is a creature of Congress. We have the authority to pass resolutions or to take whatever action we would take and we have that
Dr. SEGER. Yes, sir.
Senator PROXMIRE. Dr. Seger, you have a long academic background. You have taught and you have served many years in the
Government but you have written almost nothing. You have left no
paper trail that might be convenient-Dr. SEGER. Because I'm too lazy to write everything down verbatim. I just use little short outlines.
Senator PROXMIRE. Well, it's just in this one area you have not
offered reasoned expressions and opinions that could be evaluated,
judged, and challenged by other scholars and experts. It also suggests that you have not contributed as someone with your background would be expected to contribute to our understanding of
monetary and banking problems.
How do you explain that shortfall in your record? In the years I
have been on this committee and the Congress the people who have
come before us with backgrounds like yours have some body of
work that they have done that we can look at and evaluate if we
want to.
Dr. SEGER. First of all, in the 10 years I spent in commercial
banking I was dealing with managerial problems within the organizations, as a bank economist.
Senator PROXMIRE. You have a Ph.D. from Michigan?
Dr. SEGER. Yes, I do.
Senator PROXMIRE. Did you have to write a dissertation for that?
Dr. SEGER. Yes.
Senator PROXMIRE. What was the subject of the dissertation?
Dr. SEGER. Bank mergers in Michigan. But it was not published
in a book.
Senator PROXMIRE. It is available for-Dr. SEGER. Yes, it is.
Senator PROXMIRE. Have you written anything else besides that?
Dr. SEGER. I was a coauthor of a study on small loan companies,
which I listed for you some place.

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Senator PROXMIRE. Just one other area I would like to ask you
about. The Federal Reserve Board has had a crucial role to play as
a lender of last resort to our banks. It saved the Franklin National
Bank some years ago. Recently, they have bailed out the Continental Illinois Bank. Yet it has not done this for small banks they
have allowed to fail.
Do you favor the Federal Reserve Board rescuing big banks in
trouble or not?
Dr. SEGER. Starting first with the matter of being lender of last
resort, this is one of the most important provisions, as I see it, of
the Federal Reserve Act. As I recall the history of why the Fed was
set up, it was an outcome of these recurring financial crises, when
there was no lender of last resort, and you would get a couple of
bank failures which would then trigger a chain reaction; other
banks would fail, and others, and pretty soon you had a full-fledged
economic debacle and a major depression.
Senator PROXMIRE. Are you bothered by the discrimination involved here where the Federal Reserve bails out the big banks but
lets the smaller banks fail if they're not competent?
Dr. SEGER. I was just going to tie this in to that. They have been
the lender of last resort for other kinds of institutions. The most
recent, and certainly the most highly publicized one, has been Continental in Chicago.
If you're talking about using the lender-of-last-resort power to
curtail any sort of financial crisis or prevent it, then the facts are
that a $40 billion bank, when it goes under or if it were to fail,
would create a much bigger splash than, say, a $20 million bank
which might fail.
In terms of monetary stability, in terms of the impact on the
overall economy, I think that's the way that you can-Senator PROXMIRE. But don't you perceive an inequity here? In
other words, you have a situation where you're big, you're saved; if
you're small, you're allowed to go down. Does that bother you?
Dr. SEGER. Again in the context of monetary stability-Senator PROXMIRE. Well, no, in the context of simple equity.
You're a stockholder in a big bank; you can take all kinds of risks
because you'll be bailed out if necessary. But if you're a small
bank, you can't do that; you're at a disadvantage competitively,
and it seems that you're not treated justly or fairly, equally.
Dr. SEGER. It might look unjust, just as it did back in the State of
Michigan when Chrysler was bailed out. I knew people who had
fairly small businesses, drycleaning establishments, and so on, who
said, "How can the U.S. Government justify bailing out Chrysler
when we are failing, too?" The argument, as I recall, involved the
fact that Chrysler operated big in about five States, one of them
being my own-Senator PROXMIRE. I sure didn't buy that argument. In fact, I
was one of those who opposed it, as did the distinguished chairman
of that subcommittee. And the man on my left was the principal
person fighting for it, and he won.
Senator SASSER. And he sold me on it, too, I might say, Senator

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Dr. SEGER. I am not getting into whether or not it was a good
idea. I am just saying there are times when being big does bring
your problem to the attention of the-Senator PROXMIRE. It gives you political clout, it gives you influence with the Federal Reserve if you're a big bank. It gives you influence with the Congress if you are a huge automobile company in
an election year.
Dr. SEGER. Also I think it was a matter of arithmetic that there
are a lot of jobs tied to a big company, and in the case of-Senator PROXMIRE. You see, I can't win on that one.
Senator RIEGLE. Before you leave, can I ask a question?
Senator PROXMIRE. Sure.
Senator RIEGLE. I thank you for yielding. I don't think the analogies necessarily work very well, because we're talking about the
bank regulatory system and we're talking about the deposit insurance protection.
Dr. SEGER. I just meant lender of last resort. I was taking that
Senator RIEGLE. Well, perhaps he was. But my concern would be
this: If the regulators come in and insure the deposits of just the
big banks above $100,000, if they tell the small banks, whether
they be in Wisconsin, or Michigan, or elsewhere, that any depositor
that keeps over $100,000 there is not going to have the amount
over $100,000 protected, then that person is not going to keep their
assets in a small bank because they're not going to have the same
protection. It's unequal, and so they're going to move that excessive
amount of money into the big bank where you know there's complete protection.
Now, that is a fundamental inequity between large banks and
small banks, and it doesn't have anything to do with anything
except their size. Do you accept that? Are you comfortable with
Dr. SEGER. I misunderstood the question. I thought he was talking about lender of last resort, and lender of last resort refers, as I
recall it, to allowing banks that get into trouble to come into the
Fed and use the discount window and to deal with the liquidity
Senator PROXMIRE. Right. I was talking about it in two ways. I
was talking about it in that way, but I was also talking about the
Dr. SEGER. I am sorry, I didn't hear "insurance."
Senator PROXMIRE. The dimensions of the big banks having advantage, and I wondered what you thought about that and thought
about what we might do to make this more fair.
The CHAIRMAN. If the chairman, former chairman, would yield
for a moment. After 4 years, I still have respect for you as chairman.
Believe me, as soon as Continental had problems, I started hearing it. There are no big banks in Utah. They're all small. I started
to hear a hue and cry. But really, it's not very fair to make that.

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First of all, you can make the argument, which I think is valid,
that a bank like Continental, the ripple effect-the next week, we
had problems with MNHA when nothing was wrong, just because
of rumors. So the implications weren't just a matter of Continental
Illinois and their stockholders and their depositors. It could
have created a run; it could have caused incredibly serious consequences not only in domestic banking but international banking as
well had the faint heart, pulled out $3-$4 billion a day in hot
Most of the banks of this country are not dealing in hot money.
Most of them are in checking accounts and NOW accounts, mortgage loans and things of that nature. But if you go back to the
1981-82 period, more that 75 ~rcent of all the problem banks
were little and were handled with assisted mergers. So to say that
this is one just being guaranteed over $100,000, that's the way the
vast majority of them were handled. It was an advantage to those
small institutions, and particularly thrift institutions, in 1982.
But it also saved the FDIC and the FSLIC a great deal of money,
as it di~ with Continental. If you simply made a decision that we
are going to go in and pay off everybody that counted up to
$100,000, you wouldn't have an FDIC fund left. And the net cost
was so much lower that the FDIC fund since 1981'-84 has increased
from $11-$16 billion, even handling all those assisted mergers.
So there are some that have not and should not. But when you
find poor management, mismanagement, fraud in some cases, then
I think you do need to just let them go. But more than 75 percent
have been handled in a similar manner. I think you have to consider them on a case-by-case basis, and that's what I think has been
done by the insurance fund.
Senator PROXMIRE. Let me move on to my last question because I
understand the chairman is going to have a proposition for us very
The last question is this. The Federal Reserve Board is a major
factor in international financial stability; it can encourage or discourage banks in lending abroad and the terms the banks provide.
It can urge a cap on the interest rates banks charge foreign-country borrowers. It can rescue banks that have gotten into trouble
lending to foreign countries that default on their obligations.
What role do you feel the Federal Reserve should play in foreign
loans by American banks in assisting friendly foreign countries
that are in financial difficulties?
Dr. SEGER. I think the Fed's role should be one of communicator,
of keeping the parties speaking with each other, encouraging patience, encouraging reasonable behavior, because I think, myself, a
lot of these problems can be worked out if given some compromise,
adequate time.
I think that maybe the Fed is in a good position to be the one
that sort of keeps things-Senator PROXMIRE. But again you have a conflict. I am not going
to get back into an argument on this, but you have a situation
where by making it possible for our banks to loan to Argentina, for
example, or some other country, reducing our interest rates and so
on, don't you see that there may be an inequity, an unfairness to
domestic borrowers? They don't get that advantage. They have to

36-314 0 - 84 - 8
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meet whatever the market requires, whereas we put a cap on the
loan to foreign countries. They have that advantage, plus the fact
that they have the assurance that there is less risk because the Federals step in and maybe bail out Argentina, bail out Mexico.
Dr. SEGER. I misled you. I didn't mean the Fed should come in
and set the terms. I am just saying their role should be one of
keeping the negotiations going between the lenders and the borrowers; they should not, in fact, set the terms on the loans.
Senator PROXMIRE. Except this actually does develop, unfortunately, where you have a country like Argentina that's in such serious straits that unless the Fed steps in with the capital or some
assurance to the lending institution, it can't continue. It's not a
matter of negotiation or being a little patient.
At any rate, this is the only other question I have-how do you
feel about a cap on interest rates? Do you think that that's wise, or
do you think that it's a wash, or do you think that interferes with
the marketplace and is counterproductive for foreign loans?
Dr. SEGER. My preference would be to see the lender just make
straight fixed-rate loans, because to me a cap could result in negative amortization, the same way as some mortgages are set up with
negative amortization. And when that happens, if interest rates
rise, then the principal builds up, which, as I see it, does not lead
to a solution of the problem but could as a matter of fact worsen
the problem later on.
My own preference would be to encourage the lenders-I don't
mean set the rates-but just encourage them to go to some sort of
a fixed rate.
I just saw some numbers yesterday which indicate-I think of
Mexico as one example-they have made some progress in the last
1 ½ years getting their house in order; they have gone from a big
trade deficit to a trade surplus. The lenders feel more comfortable
with the loans that are outstanding and so they are cutting back
on the size of the fees that they charge. They are cutting back on
the width of the spread or whatever it is that they're tying them
to, because the risk as they view it is diminishing.
So I think we have passed the peak of this problem, and that
again given some time, and maybe a little dose of good luck, that
we can get through this.
Senator PROXMIRE. Thank you very much, Mr. Chairman.
The CHAIRMAN. First of all, Senator Riegle has some closing remarks he wishes to make, and I do too. However, we are not going
to be able to complete the hearing today, and I would ask you if it
is possible for you to come back at 9:30 in the morning.
Dr. SEGER. Yes, sir.
The CHAIRMAN. We are in technical violation of the Senate Rules.
We are meeting without unanimous consent 2 hours after the
Senate has convened, and the minority has been good enough to let
us continue this long, and although there is nothing they can
really do to us except charge me as chairman for the cost of the
committee record, we are not taking any action or any votes that
could be challenged. Nevertheless, it has been by mutual agreeCAP

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ment that we continue this long. But after these closing remarks, I
will close the hearing for today and reconvene at 9:30 in the morning in Senate Russell 485. This committee room is being used by
one of the subcommittees of the Banking Committee, and extensive
preparations have been made for that hearing. Apparently, they
have. some witnesses that must be hooded and have to have the
room inspected for bombs and all sorts of things, so it is necessary
for the full committee to move out and have the hooded witnesses
in here.
So we will reconvene at 9:30 in the morning in Russell 485.
Senator Riegle.
Senator RIEGLE. Thank you, Mr. Chairman. Just one final thing
today, and that is this-that earlier today you had the opportunity
to receive and read the letter from Mrs. Milliken and Elly Peterson
that was sent to the committee in response to your published letter
to the editor which we have talked about off and on today, and you
have had some time to think about it since, because of the interruption in the committee hearing and so forth. I'm wondering now
in light of having received the letter and having some time to
think about it, if you want to modify or withdraw today any of the
assertions that are in your letter to the editor.
Dr. SEGER. I have not had a chance, as I imagine you would
know, running to lunch and back, to check up further on what I
heard about the appearance before the platform committee. I'm
perfectly willing to accept the fact that what they're saying is accurate, but I would like to have a chance to check back. If what I said
about it this morning is inaccurate, I certainly will retract it.
On the question of whether it was a press release or a news release, I think that is semantic. I'll give you a copy of the release
tomorrow; I'll trl: to get it. It is on the letterhead of the Women's
Assembly. It isn t anything I made up. In terms of indicating that
Helen Milliken supported Jim Blanchard, maybe there is a difference between what she thinks the word "support" means and what
I think it Based on, again, the press coverage that followed this
whole thing, or her activities and those of Elly Peterson, I view
that as support.
Senator RIEGLE. So I guess that leaves us this evening at this
point, at least as I listened to what you just said, and you correct
me if you disagree-but I gather that you are saying that you basically stand by what was in your letter to the editor.
Dr. SEGER. Subject to a finding of other information.
Senator RIEGLE. But based on what you have here, in terms of
this letter that's come today, it hasn't changed your thinking on
this, and you would stand by your original assertions, is what I
gather you're saying to me.

Dr. SEGER. As I said, and Senator Garn said, many people look at
the same facts and see different things. But I was in Lansing in the
fall of 1982 and this was, you know, a front-page news item all the
As I said, if I find out I'm wrong, I'm willing to retract the whole

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Senator RIEGLE. But you haven't found anything today?
Dr. SEGER. I haven't had a chance to go and look.
Senator RIEGLE. No; but you have the assertions of the people
you have addressed, and you're not prepared to accept those on
their face, because you're still of the mind that your original views
are correct?
Dr. SEGER. Certainly; as I said, on the question of support, I
think that's probably semantic, of what she's saying support means
and what I'm saying support means. On this press release thing,
I've got a 2- or 3-page 8½ x 11 document that came from the
Womens Assembly and has Mrs. Milliken's name on it as cochair,
as a matter of fact. I have that.
Whether or not, technically, it's a press release or news release, I
don't know the fine distinction. I have already commented on the
platform thing. As I said, I'm willing to retract the whole thing, if
someone-Senator RIEGLE. Well, I don't think that's really the issue. The
issue is, you have written a letter to the editor and it contains assertions that you have made.
Dr. SEGER. That's right.
Senator RIEGLE. That you believed at the time. It addresses itself
to these individuals. They have responded in a letter in their own
behalf, asserting that what you have said about them and their position is not correct, and so we have this difference of opinion, and
I gather as we bring down the curtain tonight, we still have a difference of opinion. In other words, your view is what you have said
before is what you still believe now, notwithstanding this letter.
Is that a fair summary?
Dr. SEGER. Yes.
Senator RIEGLE. I think that's straightforward. I guess we'll be
back, Mr. Chairman, at 9:30 in the morning.
The CHAIRMAN. Yes. I have a few closing comments, and. I hope
you can stay, because I don't want to talk without you being represented.
Let me go back to the beginning of the hearing, and say I agree
with what Senator Riegle has said and other members of this committee, that we should examine nominees thoroughly. Often, we do
not. And Senator Proxmire has not been one of those. Normally, he
has been very thorough over the years with nominees for anything
from either party, and sometimes we go through them in a very
cursory manner, so I don't want to be misunderstood. I agree with
Certainly, any line of questioning, in my opinion, that deals with
subject matter of the Federal Reserve, monetary policy, your opinion on fiscal policy and so on are fair game. We need to ask tough
questions and try and find out what your views are, so we can try
and determine how you think you will perform on the Board. But I
do feel and want to repeat at the closing of the hearing, that I
think the evidence on some of the questions that you are askedand not in a hostile way, but a 14-year term situation, as I have
looked through more-and I am not going to take the time to go
through more hearing records-really it's overwhelming that the
average is far, far less than 14 years; far, far less than 10 years and

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recently has been even less than that, if you look at the last few
It is also true that those I read before talk about serving a full
term, most of which have not done so, but I don't question their
credibility. They meant it at the time. Things come up. I committed
to serve a full term in the Senate and I intend to do so, but something could come up that would alter that. Something nearly did,
the first part of my first term. When my wife was killed in an automobile accident, I very nearly resigned at that time.
So, I don't think there's any insincerity there. Also, the comment
about paper trail-and Senator Proxmire made it once again in his
last round of questioning. There's no paper trail. With the exception of people like Paul Volcker and most of these, there is very
little paper trail either, as you go back into it.
I look at the nomination of Emmett J. Rice, who I said before,
served very well, and I have been very pleased with his performance on the Board, but his background isn't very much different
than yours. Eight years at a commercial bank, staff of the New
York Federal Reserve, and so on. If you remove names and places,
it isn't too much difference. And he also gave no opening statement, and his paper trail, again, from his own disclosure, lists
titles published, dates, books, articles, and so on, only contributions
to institutional publications, articles, annual reports, commission
reports, of which he could not claim full credit, even full credit for
those institutional publications. No paper trail at all. That doesn't
disturb me with him, or with you, or most of these others that
don't have a long list of published articles. Maybe they have good
ghost writers. Some of them do. I don't.
Senators have a paper trail, most of which none of us have written. A bright, bright staff have written for us. Hell, I've got a paper
trial after 10 years in the Senate, you wouldn't believe. I didn't
write it all. Some day my grandkids will say "Isn't that wonderful
what my grandfather said? Isn't that wonderful, that article he
wrote for this publication?"
But in any event, there is a little difference here in the nomination of Emmett Rice who, again, did not make an opening statement and the chairman, Senator Proxmire.
You have a remarkably fine background. I'm very impressed. It is good to have a
nominee for the Federal Reserve Board with the kind of qualifications you have.
You have been an academic economist. You have doctorate in economics?
Dr. RICE. Yes, sir.

And he asked about what his dissertation was.
And you have been an adviser to the Central Bank of Nigeria and on the staff of
the Federal Reserve Board, the Federal Reserve Bank of New York for 2 years, 2
years as adviser over at Treasury, 2 years at the World Bank, and 8 years as a commercial banker.

And Dr. Rice explains his 8 years employment in two paragraphs, the National Bank of Washington, and now we're into not
quite a full range of testimony.
The Chairman says:
As I say, I'm very impressed. I wonder where you've been all these years. We
should have appointed you years ago to the Federal Reserve Board with the remarkable background you have. All the years I have been on the Banking Committee-

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and I've been on the committee for more than 20 years-I can't recall a better qualified candidate. I really can't.

Well, I don't doubt Senator Proxmire's sincerity at all. There's
no closer friend I have or anybody I worked with as close, not a
single Senator, even in my own party. We sat here together on one
side or the other for 10 years. I don't doubt his sincerity at all. I
just say there is no paper trail. There's eight and a half pages of
testimony, similar background. Somehow, some things that weren't
there, now are important in your case, whether you have a paper
trail or not.
You're here to answer the questions, and you should answer
them as forthrightly and directly as you can. But I hope, as we continue tomorrow that we will discuss issues pertaining-I also am
not persuaded that the letter to the editor has a great deal to do
with this.
I would also agree with you that it would not be appropriate for
you to engage in any type of partisan politics as a member of the
Federal Reserve Board. I think that would be entirely inappropriate, but I cannot agree with Senator Sarbanes that the minute you
are being considered, as one of three potential nominees, that at
that point, you should start to observe standards that ought to be
observed by a member of the Federal Reserve Board. I think that is
different. I may not have been good judgment on your part to write
at that point, but as far as any lack of credibility, I just don't see

I think what I said earlier is appropriate in talking about differences of opinion, whether it's on the Senate floor, whether it's out
on the campaign trail, whether it's people of good faith in business
who make statements that they are absolutely sincere about and
believe at the time. I certainly, over the years, have been very
strong, and have had opinions on something and found out many
times years later that I was wrong. But it wasn't a question of my
credibility at the time. I believed sincerely what I was saying. I'm
sure that the two ladies who have challenged your testimony believe that they did not support-they believe that they did-differences of issues of very fundamental issues which, as Senator Riegle
knows, whose side I was on in that race. It was Dick Headlee, and
on those sorts issues, Dick and I would agree overwhelmingly. I
know Governor Blanchard well from when he was in Congress, and
I have great respect for him. We disagree on some of those issues.
So I just wanted, in closing, to say that I don't think some of
these side issues-at least that is my opinion and my assertion
today-difference of opinion. But because my colleague feels differently, I don't question his credibility for bringing them up, and
even though I may feel it does not pertain to this hearing or your
qualifications, because you wrote a letter to the editors as a Republican who supported the candidate in the 1982 election.
It is Senator Riegle's right as a member of this committee and a
Member of the Senate to ask any questions he wants to. It doesn't
make any difference what I think, and I will defend his right to do

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so at the same time I tell him that I don't know what it has to do
with it.
So when we continue tomorrow, we will allow whatever time is
needed by my colleagues to ask you additional questions.
Senator RIEGLE. Mr. Chairman, if I may, before you finish here,
just two or three quick thoughts. First of all, just as an aside, the
controversy here is not across her party line. Certainly not between
her and I. This in terms of the other issues that have come up
today is between people who are on the same side of the party
fence. I'm on different sides of the party fence.
The CHAIRMAN. I understand.
Senator RIEGLE. I have, just quickly, a couple of points to add to
what the chairman has said-and I have great respect for the
chairman and I think there is a lot of meaning to some of the
points that he has made here. I think it's important to note that
the witness today has indicated clearly and forcefully her intention
to serve for the full 14-year term, some act of God notwithstanding.
I mean you are here to take the term and to serve the term all
the way through to the end. I think it's significant that in the
course of the interviews that you have had in leading up to this
job, being interviewed by Preston Martin and others but not interviewed by Paul Volcker, I think there is a question that has arisen
and it's worthy of examination for whatever conclusions people
Both the Evans and Novak piece which is a wri:ing team that's
pretty well plugged into the Reagan White House as you know, and
they have asserted that there is a meaning to why you were interviewed by Preston Martin and Don Regan and not Paul
Volcker-Dr. SEGER. May I just add, I have talked to Paul Volcker since
that article.
Senator RIEGLE. Yes, I understand you have. But this was beforehand, before the decision was made.
Dr. SEGER. I just didn't want you think I hadn't spoken with him
at all.
Senator RIEGLE. Right. We haven't discussed it at all today.
There are also stories floating around that Paul Volcker had recommended others. There were other names that had been floating
around that he thought were nominees that he would favor and
they, for whatever the reasons, were not selected and you were selected.
So there is in your case more of a suggestion of some kind of an
ideological component to the decision as has been true in other
cases that I remember. I mean this may be true or may not be
true, but nevertheless these things are being written, they are
being said and there is a pattern of activity and events here that
would give some weight to that. And then, of course, when you appeared with the President at the announcement you said, "with respect to economics I support everything he's doing."
Well, that's a pretty broad support to give someone-Dr. SEGER. They didn't go on to the rest of the comments. You
are just getting it out of the paper.
Senator RIEGLE. Pardon?

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Dr. SEGER. I said you are just getting it out of the paper. They
didn't go on to the rest of the comments.
Senator RIEGLE. Well, then we should get into that tomorrow.
There are two quotes that I have that you made and you tell me if
these are inaccurate and you can add tomorrow whatever you wish.
But you were quoted as saying "I support everything he is doing."
That's one quote and second, you are reported as having then accepted the nomination with a vow to "uphold the President's economic policies."
So, maybe we ought to get a transcript of what you said if it goes
beyond that because I don't want it to be mischaracterized any
more than you do. I want it to be just exactly.
Dr. SEGER. It's out of context.
Senator RIEGLE. But I take it you did make these two comments
in whatever the context was or are these misquotes?
Dr. SEGER. I referred to supporting his policies to keep the American economy strong and healthy, which I think is a very general
Senator RIEGLE. You did just limit it to economics?
Dr. SEGER. No, but I wasn't talking about minutia on policy.
Maybe my language is different than is used in Washington, but to
me policies are a big overall approach and not involved with the
Senator RIEGLE. Well, I guess my point is when you make a
statement to the effect that you support everything he is doing in
the broadest vein as you now say that also raises a question of independence which is a fair question and I don't think the chairman
would disagree with that. I mean that is an issue that we need to
take a look at and determine for ourselves if in fact, although you
have those views, you also at the same time have the ability to be
independent, to disagree from time to time. I mean you don't have
any disagreements now but you might in the future and you should
be capable of asserting those disagreements.

And the reason all of this comes up is because basically your
views are not known. You yourself were sort of surprised by the
nomination and I think it's a great honor that you received the
nomination. Everybody here is getting really acquainted with you
for the first time and so that is the reason for interest in not only
the responses today but anything you might have written, any
other information about your background. We want to fill in what
otherwise is not known. So I think that's the vein we are moving in
and hopefully we can add more to it tomorrow morning.
The CHAIRMAN. Thank you for your patience today and I'll repeat
for everyone concerned that the committee will reconvene at 9:30
a.m. tomorrow morning, Wednesday, in room SR 485. That is the
Russell Building. The committee is adjourned .
. [Whereupon, at 5:10 p.m., the committee adjourned.]

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Washington, DC.
The committee met at 9:30 a.m., in room SR-485, Russell Senate
Office Building, Senator Jake Garn (chairman of the committee)
Present: Senators Garn, Proxmire, Cranston, Riegle, Sarbanes,
and Sasser.

The CHAIRMAN. The Banking Committee will come to order. We
will begin the hearing, although my colleagues who wish to question are not yet here, so we will temporarily recess until they do
The CHAIRMAN. Why don't we start.
Dr. Seger, we appreciate your patience and willingness to return
today. Hopefully, you're a little bit better perpared for your arm. It
looks like you are.
Let me ask you a few questions. Over the course of the hearings
yesterday you were asked several questions that did not relate directly to the types of decisions you will be asked to make as a
member of the Federal Reserve Board, and I feel that we ought to
explore some of those areas that relate directly to that position. As
was mentioned yesterday, you did serve as a commissioner of financial institutions for the State of Michigan for several years, so I'd
like to get your views and your ideas on some of the issues you
dealt with there, that will apply to your position on the Federal Reserve.
I am sure you are well aware, over the last several years I have
urged that we grant banks and depository institutions additional
powers. Do you think that depository institutions, particularly
banks, should have additional powers, and if so, what criteria
should Congress be using in making those decisions?
Dr. SEGER. A brief answer: yes; I do think they should be given
additional powers. As a reguiator, dealing with State-chartered


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banks and savings and loans and credit unions and small loan companies, I had a broad range of activities. What I observed in connection with this powers issue is that institutions can get into trouble with the existing powers. The first bank that I ever saw fail,
which was back in the 1960's, as a matter of fact, put too many
home improvement loans on its books and they were of low quality,
and the bank eventually failed because of big loan losses.
Most people would not say that was a power that was wrong for
banks to have, but it is possible for an institution to misuse or to
use poor judgment with existing powers. In terms of adding to the
powers, one that occurs to me right off the bat is to give banks the
power to underwrite municipal revenue bonds.
When I was in bankingi I was a bank economist and I worked with
bank investment decisions. We had people in bank investment who
underwrote GO's, and the expertise that you have to have to do
that is easily transferable to underwriting revenue bonds. And I
think that that's one power that I would put at the top of my list.
Another one-because it is so closely related to what they are already doing-I would allow is underwriting commercial paper.
Again, I think that's very close to some of the other investment activities, particularly that big banks participate in.
A third power that I think it makes sense for banks to have is
discount brokerage, and particularly the bigger banks that do have
expertise in the area of investment. In many cases, they have big
trust investment departments or bank investment departments,
and I believe that they have the kind of management and the
kinds of staff people who are knowledgeable and can handle those
powers well.
I would start with those. In terms of the criteria to use in evaluating which ones should be given and which ones should not, the
first point I would make is, again, how close the new powers are to
existing ones, so that you can make the case that, in fact, they
have demonstrated ability to handle similar kinds of activities.
Second, is whether or not the powers could jeopardize the safety
and soundness of the institution. And, if they are very, very far removed, then that could certainly be a concern.
But the three powers I mentioned to you, I don't think would fall
into that category. Another criterion I believe has to be used is the
sort of big issue of separating banking activities from general commerce, which has been talked about a lot for at least 50 years, and
the additional consideration of separating commercial banking activities from true investment banking. Those have to be looked at
and considered.
The final criterion I would use is the whole question of equitable
treatment. In other words, are our banks allowed to do things that
are similar to what other institutions that are competing with
them are already allowed to do? I think that's just the equity consideration.
The CHAIRMAN. As a former State regulator, how-well, let me
back up. I'm sure you are very well aware of the so-called South
Dakota loophole.
Dr. SEGER. Yes.
The CHAIRMAN. And we will have a provision in the Senate bill
that would prohibit State-chartered-well, not State chartered but

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a State legislature from granting any powers outside their State
boundaries not allowed by the Bank Holding Company Act currently. So the effect of that would simply be to say you cannot export
services or powers beyond your State borders. But with a State
chartered institution operating solely within your State, if you
decide you want to grant State powers or insurance powers, real
estate, that is your business as long as it is confined solely to that
The House of Representatives is going much further than that
and their proposal seeks prohibiting State-chartered institutions.
To me that issue of State's rights which we have no business
to get involved in and I would assume as a former State regulator,
you would agree with that.
Dr. SEGER. I certaj.nly agree with the position that you can draw
a line between what you do within your State and what you export.
As you say, yes, the State should be making those decisions and
should, therefore, be held accountable for them. Within their own
State obviously they are going to have to have their own regulators
looking at safety and soundness issues. I think it can be their job to
do it.
The CHAIRMAN. Well, that's interesting. I'm a former independent insurance agent. That is the way I made my living before I was
silly enough to get involved in politics and the insurance industry
is one that loves McCarren-Ferguson because it does not allow
them to have Federal regulation. They totally enjoy working with
50 State insurance commissioners and don't want Federal regulation. It bothers me in this particular instance.
I think they have gone far beyond what it is their business to go.
They are lobbying for that position and for independent insurance
agents. I was an independent agent. They talk so much about the
free enterprise system and free market and competition. They take
the double standard by saying we want to maintain McCarran-Ferguson, but don't do anything to us. Then they come back here begging, screaming, yelling and shouting that they are for the Federal
Government to eliminate competition within State government. I'm
not just asking a question, I'm sending a message because I'm irritated about it and I think I can say it probably better than anyone
having been a member of the National Association of Life Underwriters. That simply is not going to be part of the bill.

We will close the South Dakota loophole. It is not right for a
State legislature to make decisions outside their boundaries. That
is not within their jurisdiction and the insurance agents of this
country are correct in asking us to close that loophole. To go
beyond that, to be so greedy and want the Government to solve its
comparative problems solely within State is out of the question. I
would suggest that they back off that one because it's not going to
become law and it doesn't make a former member of their association very happy with that kind of greed. They want to go beyond
closing the South Dakota loophole to totally running roughshod
over State's rights and the right of the legislatures within this

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country to make decisions on what goes on solely within the boundaries of their State.
In light of the large number of bank failures that we have had
over the last couple of years, do you have any recommendations on
how the supervision or regulation of banks could be improved?
Dr. SEGER. I think I have some. Again, I was in my regulatory
job in what to me was the toughest period since the Great Depression; namely, 1981 and 1982 when we had, first of all, an economy
that was falling apart in Michigan, and a budget crises, and then a
financial crisis on top of that. We had to deal with these problems
of very weak financial institutions, a combination of banks, savings
and loans and also credit unions that were getting into trouble.
Limiting my comments now to dealing with failing banks, I think
we can improve the whole supervisory process. By that I mean I
think that examiners can be better trained. I think that we can try
to get on top of the problems earlier. You shouldn't wait until they
are 3 minutes from the graveyard before you start paying attention
to their problems.
Also-and this may be fairly controversial-I think we should
get the directors of these individual institutions involved earlier on.
They are usually met with very late in the game and at that point,
when it really becomes clear to them how severe the problems are,
it's also a little late to do anything about it, other than decide what
kind of a funeral you want to have. I would really encourage the
education of directors as to what their responsibilities are, their
legal liabilities, make sure they are aware of the kinds of information that they should be asking for as directors on the performance
of the institution on an on-going basis. I would encourage that the
Fed and other institutions or States should be actually meeting
with directors, even of the healthy banks, and showing them the
kinds of data that are available, giving them copies of the_ uniform
bank performance reports so they can look at their own institution
and see how it stacks up against its peers ..
I know there are some technical problems with these reports, but
so many bank directors are from completely nonfinancial areas.
Maybe the director will own a chain of women's dress shops, or
maybe be a furniture retailer or a used car dealer or an undertaker, in small towns particularly. These are very good people. I'm not
suggesting that they're not. When times were great they didn't
have to look carefully over the shoulder of management, but when
times get tough they have to pay more attention, but they don't
always know how to do it and if I get to the Fed, that's something I
would really hope to work on with the supervisory people: improving the whole process, doing it better, getting involved earlier-preventive medicine, in other words, rather than just dealing with the
The CHAIRMAN. Thank you. Senator Proxmire.
Senator PROXMIRE. Thank you, Mr. Chairman.
Dr. Seger, I don't have any interest in your position on the equal
rights amendment, pro or con, although I happened to favor it enthusiastically.
Judging from your letter to the editor about Mrs. Milliken and
Peterson, it seems to be a big issue with you. Since ERA is largely
irrelevant to your work as a Federal Reserve Governor, I'm not

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going to ask you about it, but your apparent strong opposition to
the equal rights amendment-perhaps I'm unfair in saying that,
but it is suggested we should inquire about other rights issues over
which the Fed does have important jurisdiction.
The Fed, for instance, administers the Equal Credit Opportunity
Act, and one of the principal reasons for that act was that some of
us perceived a discrimination against women in borrowing. As I
understand it, you, as a new Governor, would be in a position of
administering that act, and therefore, I ask you how you will feel
about the necessity of having a law that provides for equal credit
opportunity? Do you think it is necessary, or do you think it is not?
Dr. SEGER. Can I get back to the comment on the ERA?
Senator PROXMIRE. Yes, indeed.
Dr. SEGER. I have never been a strong opponent of ERA. Based
on over 25 years of working in various kinds of jobs-I have been a
professional career woman-I felt that ERA was being overemphasized as an answer to all women's problems. I'm just basing that on
my own experience in the workplace.
I have never been out picketing for it or against it. I just think
that it's been overblown as a single solution. That's my feeling on

In terms of equal credit opportunity, again, I am a woman. I am
very sensitive to this. When my sister went to buy her condo 20
years ago, she had a hard time getting financing: I ran around,
trying to tell her the names of institutions that she might go to. I
have seen some discrimination in the past, and I have never opposed that legislation. Assuming I get on the Fed, I don't know
what my assignment will be. It has been suggested, as you said,
that since Nancy had these consumer assignments, they would
probably give them to me. It's not, obviously, decided until I get
there. But I certainly believe in equal credit opportunity.
Senator PROXMIRE. At the last, I think Dr. Teeters was the Federal Reserve Governor who handled that, and you might or might
not be, but I think it's a good prospect you would be, and it's very
Dr. SEGER. As I said, I definitely support it.
Senator PROXMIRE. It has to be administered very vigorously, because of the evidence that I've seen, and perhaps you have seen it
too, of discrimination against women in credit. They have to get
the approval of their husband and the husband never gets the approval of his wife, or rarely, and it seems to me that there's inequity that we should pursue.
Dr. SEGER. We are on the same· side on that, and as I mentioned
on truth in lending, which you brought up yesterday, I'm in favor
of full disclosure. I just would hope that maybe we could do it
Senator PROXMIRE. Yesterday, I asked you whether it was your
perception that the Reagan administration has a different economic growth strategy. You replied you felt both the Fed and the administration have the same goal. The implication of your answer is
that there may be different ways of reaching these goals.

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Do you perceive a difference in the way in which the administration is pursuing its goals compared to the Fed in economic growth?
Dr. SEGER. Based on press commentary over the last couple of
months, it seems to me the media has tried to point out differences.
Secretary Regan, for one, has indicated maybe at times the Fed
was stepping on the brakes too hard, and he would like less. But as
I indicated, I think there is room for differences of opinion and a
difference in judgment on how you reach certain goals.
Senator PROXMIRE. Well, the testimony of Chairman Volcker of
the Federal Reserve Board before this committee has indicated his
great concern about the deficit, feeling that that stands in the way,
not only of a monetary policy that could bring interest rates down,
but also in the way of the kind of economic growth that we pursue.
That's his position. It's the position expressed by Treasury Secretary Regan that the deficit is not that important.
Where do you come down?
Dr. SEGER. I believe I said yesterday that my view is that deficits
do matter, and I think I pointed out-Senator PROXMIRE. Matter? How important are they? Are they
the most important element now, in your view, in keeping interest
rates high and threatening a healthy recovery or not?
Dr. SEGER. I feel uncomfortable just singling out any one factor
that control everything.
Senator PROXMIRE. What's more important than the deficit?
Dr. SEGER. I just think there are a lot of things that influence
interest rates.
Senator PROXMIRE. Well, name one or two that you think are
more important than the deficit is.
Dr. SEGER. I'm not saying they are more important. I am saying I
think there are a whole bunch of factors that influence interest
rates. The deficit certainly is influencin~ it directly because of the
problems of financing the deficit. That s a direct market impact.
The psychological effect on Wall Street people of the deficit is
also-Senator PROXMIRE. I take it-I don't mean to interrupt, but I
- take it you feel that the deficit is no more important than some
other issues are. If so, what are they?
Dr. SEGER. The general concern about a resurgence of inflation.
Whether that's a concern a touch above the deficit or about level
with it, or a touch below, I think they're really tied in together.
Senator PROXMIRE. Don't you think the size of the deficit is one
of the elements-one of the most important elements in provoking
a public concern about inflation?
Dr. SEGER. That's why I said I think that these are two factors,
but they are tied together.
Senator PROXMIRE. I am curious about your interview with Secretary Regan. As you know, Secretary Regan has been critical of the
Fed's monetary policy from time to time. Did he bring up any of
these criticisms and ask you how you felt about them?
Dr. SEGER. No, he didn't.
Senator PROXMIRE. He did not. Did you discuss the Federal Reserve' s monetary policies at all with Secretary Regan?
Dr. SEGER. No. He was mainly talking about the kinds of things I
did as a regulator. Professer McCracken, who is a former professor

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of mine at the University of Michigan-I was his research assistant, and I have been in contact with him over the years-followed
my career in Lansing as a State regulator also. Secretary of the
Treasury Regan had talked with McCracken about some of the
things I had done careerwise. We discussed that and the fact that
McCracken thought I had performed those chores well. It was not a
lengthy meeting, as I indicated yesterday.
Senator PROXMIRE. On credit life insurance, as one of the most
unconscionable ripoffs perpetrated by creditors on their customers,
when the banking commissioners in Michigan-when you were
banking commissioner, you wanted to remove the cost of credit life
from the State usury ceiling. Why did you want to do that?
Dr. SEGER. I don't know where your research people get the information, but I'll tell you what the facts are. This had been done a
certain way for a long time, not just while I was in Lansing in 1981
and 1982; usury applied to interest rates, to direct interest charges.
All of a sudden, the Attorney General of Michigan issued an opinion saying that you would have to factor in the cost of credit life
and that, plus the true interest, would have to be below the usury
ceiling. It isn't anything I did; there was a change of view on how
this was to be treated.
Senator PROXMIRE. But you wanted to remove the cost of credit
life, as I understand it. Is that correct or not? The usury ceiling.
Dr. SEGER. After his decision on this. Usury ceilings, even without the credit life issue, were very, very onerous in Michigan in
1981 and 1982, when interest rates were at these historic highs.
Senator PROXMIRE. Now maybe you can answer this charge that
appeared in the "Detroit Free Press" on Tuesday, February 16,
It said the following:
Martha Seger, Commissioner of the State financial institutions bureau, is a strong
backer of the measure to remove the cost of credit life insurance from usury ceilings. It disappoints us to report Dr. Seger is more often found on the side of the
lenders lately than the consumers. In pursuit of what she believes to be her mandate, she has vowed to lift this limitation from everything, and is even now encouraging lending institutions to defy State law and the attorney general, on credit insurance.

Is that accurate or inaccurate?
Dr. SEGER. I wasn't encouraging them to defy them. As I said,
after this decision came out, the attorney on my staff and I-and
we worked with someone in the attorney general's office about how
to adjust, based on that recent opinion. I have forgotten the exact
date, but it was sometime in 1981 or 1982; it was when I was in
Lansing. As I indicated, the usury laws were a big issue then, even
without that complication, because the lenders were being asked to
make loans at rates that were below what they were paying for
their funds. When you are dealing with a very sad case of weak
institutions and problem institutions, the way to get them well is
to not force them to lose money on every loan transaction.
Senator PROXMIRE. Well, my time is up. Let me just point out,
Dr. Seger, something that really concerns me.
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The Detroit Free Press has a reputation as a fair and reasonable newspaper, and they say that you are more often found on the
side of the• lenders rather than the consumers.
In view of the fact you would have the position in the Federal
Reserve as the Governor more responsible for consumer protection
than any other Governor, I think that's a matter that does concern
us, and I hope you can dissuade me from the view that this may be
a serious mark against you.
Dr. SEGER. I would like to comment on that without throwing
you way off schedule. When you take these jobs as commissioner or
banking supervisor, you take an oath to regulate these institutions,
and the main concern in our banking code is that you deal with
the safety and soundness of the institutions you are supervising. I
took that very seriously. As I said, we were dealing in a crisis environment, and I did work on usury legislation. We did work on
trying to get the usury ceilings first removed, and then, when that
didn't work, we worked on getting them to float with market rates
of interest.
This issue of credit life insurance came along as a side issue, but
I did not consider myself aligned with lenders or aligned with any
one group. As I said, I was trying to deal with keeping the financial
system afloat.
Senator PROXMIRE. I see my time is up, but I just don't see the
connection between safety and soundness on the one hand and the
consumer interest on the other. It seems to me they are not in conflict.
The CHAIRMAN. Well, I would point out to the Senator from Wisconsin-during the same period of time that we are talking about
here-this committee and the Senate continually passed State override laws because of the very problems she is talking about, particularly at the request of the two Senators-Senators Bumpers
and Pryor from Arkansas-where Arkansas had a constitutional
provision of 10-percent usury.
This committee continually supported, particularly during that
period of time, because we had savings and loans. It was an issue of
safety and soundness because they simply could not make loans at
losing rates. I suppose we could have been accused in saying we are
taking the side of the institutions over the consumers. That would
be an accurate description. We did so because we had a savings and
loan industry with more than 1,000 institutions on the trouble list
down at the Federal Home Loan Bank Board.
We passed two titles of Garn-St Germain that were totally and
completely industry oriented. Their capital maintenance section
and the new regulators bill-totally in the interest of those institutions-attempted to save them and cut down their problem. So I
really do think Senator there is a connection and maybe I'm
wrong, but as I understand your description of it, it had not been
included before.
Dr. SEGER. That's right.
The CHAIRMAN. So your intent was not to remove it but to keep
it as a practice--

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Dr. SEGER. Exactly.
The CHAIRMAN [continuing]. That had been. The attorney general put a further squeeze on a usury which this committee over and
over again hasn't passed because Congressman Annunzio in the
House felt quite differently even on a business and agriculture
credit. That was a severe problem. We had Senators from various
States literally begging to offer amendments on the floor of the
Senate to relieve their States and institutions from that squeeze
which was placing them in 50 to 60 percent rates in the marketplace when prime was at 20 to 21 percent. So I guess we could all
be accused of the same thing during that timeframe.
Senator PROXMIRE. If the Senator would yield and I'll just take
one more position here. I'm not complaining about lifting the usury
ceiling. As the Senator knows I have consistently, from the very beginning, been opposed to usury statutes. I think they are wrong,
they are a mistake. But at the same time I think the credit life is a
ripoff and it seems to me exceptions to credit life was what concerned me.
The CHAIRMAN. Well, I agree with my colleague and he knows I
agree. As a former insurance person I thought credit life was a
ripoff. It still is. It is unusually high priced and so on. That's a separate issue from if you have a usury ceiling.
What Dr. Seger is telling us-and I agree with her-you've got a
usury ceiling which you and I have never supported. I thought it
should have been taken off, when suddenly at a period of time in
1981 or 1982, whenever it was, that the attorney general's decision
plugged in another factor that had to be included under that ceiling, which compounded the problem. If there had been no usury
ceiling, then I would agree with your position. I would have no objection to it being included in the disclosure. It has compounded
that problem of having a usury ceiling. If our way had been held,
wherein there was no usury ceiling, then it would not have been a
problem having the attorney general change his opinion.
Senator SARBANES. Dr. Seger, what was the interest ceiling in
Dr. SEGER. It took 22 pages, 8½ by 11, to describe the usury ceilings. It's very complex. It's based on the type of loan, the type of
Senator SARBANES. Well, maybe I can get an answer. Recognizing
all of that, what was the general figure that was understood to be
the interest ceiling under the usury law?
Dr: SEGER. Let me give you one example. On a new car loan
made by a bank it was 16.5 percent. I wasn't in charge of credit
life, sir. That wasn't the issue.
Senator SARBANES. Do you agree with the chairman and Senator
Proxmire that credit life is a ripoff?
Dr. SEGER. I'm not an expert on insurance but I certainly have
heard it characterized as that.
Senator SARBANES. It has been characterized as that by two Senators here this morning. I didn't ask whether it had been so characterized. I asked what you thought. Do you think it's a ripoff?
Dr. SEGER. I don't think I would use that term myself.
Senator SARBANES. What term would you use?
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Dr. SEGER. I'd say it's probably a very expensive type insurance,
but for some · people it's the only kind they can get when they
borrow and want to have some sort of coverage to pay the loan off
if they expire during that period.
Senator SARBANES. So I take it you don't think something should
be done about it; is that right?
Dr. SEGER. You mean eliminated? I certainly believe in making
the disclosure of how much it costs. I don't think I would support
just issuing an ultimatum that there couldn't be such a thing.
Senator SARBANES. Well, let's not cast it in terms of ultimatum.
Will you support any effort to control credit life?
Dr. SEGER. In Michigan they are already controlled. I don't know
about other States, but there already are controls on credit life.
That was done in the insurance bureau, not by me, but there were
controls on credit life.
Senator SARBANES. I was asking for your view, not a description
of the situation, but your own position on it. And I must say, when
I get to my own questions I'm going to pursue this distinction. As I
reviewed your earlier testimony the answers are generally a description of the situation or a reference to how it's been characterized, but not an expression of your own posi~ion with respect to it.
Now, what is your own position on this issue?
Dr. SEGER. I would-'-Senator SARBANES. Both of these distinguished Senators here
characterized credit life as a ripoff. I'm being led by your responses
to the conclusion that you disagree with that. Do you think credit
life has a role to play? I take it your only approach to it would be
disclosure; is that correct?
Dr. SEGER. I said I certainly believe in disclosure and I believe in
the kind of regulation we have of it in Michigan.
The CHAIRMAN. It is Senator Riegle's turn. I would say once
again, credit life is now before this committee. It is not an issue. It
is a State issue. It is not controlled by the Federal Government and
I think it should be further controlled and regulated as to rates,
but that is a function of State legislatures, unless we decide to
make some changes in McCarran-Ferguson.
___ ~_!l~tor _Riegle.
The CHAIRMAN. Senator Riegle.
Senator RIEGLE. Thank you, Mr. Chairman. I want to clarify in
my mind a response that you made to Senator Proxmire earlier. I
don't ask this because I want to get into this issue, but I just want
to understand what your answer was.

Senator Proxmire asked whether you were a strong opponent of
the ERA to which -you responded, no, you were not. Do I take it to
mean, then, that you favor the ERA?
Dr. SEGER. I said that I have never been deeply involved in the
ERA issue because, as a career woman, working all my life, I never
felt that there was a single answer to helping women make it in
the business world.
Senator RIEGLE. What I would like to clear up is what I feel is an
inaccuracy on the record because when you simply leave it by

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saying you're not a strong opponent that could leave the inference
that, in fact, you are a supporter. You're not a supporter, are you?
Dr. SEGER. I'm just saying I'm neutral. I am neutral on the issue
in terms of what ERA would accomplish.
Senator RIEGLE. I want you to understand that what I'm interested in is an accurate and an honest answer. You are entitled to your
position, wherever it happens to be. Are you saying you have not
taken a public position on that issue? You're not known or perceived of as having stated a position in opposition to the equal
rights amendment?
Dr. SEGER. That's right. As I say, I haven't been out carrying
picket signs for it or against it.
Senator RIEGLE. So you're absolutely neutral; you have no position on that issue?
Dr. SEGER. I'm in favor of equal rights for women and equal pay
for equal work. As I said, I lived with those issues. But in terms of
supporting or disagreeing with a single way to go to get it, based on
my own personal experience, ERA is not the single solution.
Senator SARBANES. This goes again to the question I was putting ·
to Dr. Seger. I take it, then, that you have a position on support of
or opposition to the ERA?
Dr. SEGER. What I thought I indicated was-Senator SARBANES. I understood what you indicated. You are concerned. But on the amendment itself, do you support or oppose it?
Dr. SEGER. I said I'm personally neutral on it.
Senator SARBANES. And you have not taken any public position
on it?
Dr. SEGER. I haven't as I said-Senator SARBANES. If I found a report somewhere that you had
taken a public position on the ERA, would I then be justified in
feeling that you had not been candid with the committee this
morning in responding to these questions, since you have indicated
you have no position on it? Is that correct?
Dr. SEGER. That's right. I said that I don't think that ERA will
solve all of women's problems.
Senator RIEGLE. When I went through your background statement I noticed that you had not served on any corporate boards. I
gather you do not serve on any corporate boards?
Dr. SEGER. No; I put down a bank board.
Senator RIEGLE. You serve on a bank board now? Which bank is
Dr. SEGER. It's Comerica.
Senator RIEGLE. Have you ever served on any other board of directors at any time?
Dr. SEGER. Yes, before I went to Lansing. Obviously, I gave up
everything in 1981-82. Once I got off, in late January 1983, I went
on the board of Comerica, which used to be the joint bank and
trust; that's the bank I was employed at some time ago as an economist. Before I went to Lansing, for a couple of months I was on
the board of a small bank named Pontiac State Bank. I resigned
from it as soon as Governor Milliken appointed me to Lansing.
I was on the board of Blue Cross/Blue Shield, which is a nonprofit health group, back in the early 1970's.

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Senator RIEGLE. Were you ever offered a position on any corporate boards that you turned down?
Dr. SEGER. No, I haven't.

Senator RIEGLE. I want to be very careful about going through
the discussion. I want to clarify in my own mind what you said to
Senator Proxmire on your meeting with the Treasury Secretary
Donald Regan. I assume the witness is under oath today as she was
yesterday, Mr. Chairman. I assume that just continues.
Senator RIEGLE. I want you to be very careful about thinking
about your responses, because I want them to be accurate, and it's
in your interest that they be accurate.
You indicated that he did not ask your views on monetary policy,
is that correct?
Dr. SEGER. If you mean whether what the Fed is doing now is
right or wrong or if we had a discussion on monetary policy; no, we
did not. We talked about my training in college, was I a Keynesian,
was I a monetarist. The kinds of things I've been asked by other
people in interviews. In fact, I remember saying to him: "I'm a garbage collector," meaning I pick up various pieces from various
theories, and I try to look at a broad number of factors. I have
never felt comfortable being labeled as from any one school of
Senator RIEGLE. Did he ask your reaction, for example, to any
Fed policies in the last few years or recently?
Dr. SEGER. No.
Senator RIEGLE. Did he offer any of his views on Fed monetary
Dr. SEGER. Not that I recall.
Senator RIEGLE. I want you to think carefully about it just for a
second. There was no point in the conversation where he indicated
to you how he felt about how the Fed was proceeding in terms of
monetary management?
Dr. SEGER. I remember we talked about the tremendous respect
that Wall Street had for Chairman Volcker, and I remember he
said something about a towering 6-foot-7-inch person smoking
cigars, who really makes quite an impression. I remember that
coming up. But again, I didn't take notes, and I don't have-Senator RIEGLE. But your response, then, in thinking about it is
that there was no point in the conversation where he discoursed on
his views on Fed policy and would have given you an insight as to
his thinking, or his concerns, or his reservations, and it was all
general and all generic; it was just a very broad gauge?
Dr. SEGER. That's the way I remember it. As I said, it was not
something that went on for hours.
Senator RIEGLE. How long were you together, would you say?
Dr. SEGER. As I said, I went in and saw Tim McNamar first, and
then went in to Regan. The whole interview, McNamar and Regan
together, I don't think was even an hour. I honestly didn't take
exact notes on what the split of time with each was.
Senator RIEGLE. But maybe an hour total with the two?

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Dr. SEGER. Yes; it was a little less than an hour for the total.
Senator RIEGLE. Now I want to move into an entirely different
area, and I want to move to the question of the auto industry
today, which, as we both know, is the principal industry in our
State. You grew up in Michigan, as I have, and so we have seen it
over our lifetimes.
Bill Brock, the Trade Representative, recently said, in effect, the
auto industry was out of the woods-high sales, profits, bonuses, et
cetera-and therefore sort of clear sailing ahead. He said there was
no need, necessarily, for continuing restraint on Japanese imports.
But generally, a very upbeat assessment of the auto industry.
What is your assessment of the auto industry at the moment and
what do its prospects seem to be as you try to look forward?
Dr. SEGER. As I said when we chatted in your office a week or so
ago, I'm obviously very concerned about the auto industry, being a
Michigander and from the Detroit area. I happen to have gone to a
retirement dinner a couple of weeks ago for a market research
person at Cadillac; at that social event, we were talking about its
fact that people were smiling again, not like a couple of years ago.

I do sense from my friends a big improvement over the terrible
times of 1979-82, and I don't think I'm being extreme or far out
when I say that. Auto sales definitely have come back. The auto
companies themselves, based on these conversations, have taken
tremendous steps internally to try to tighten things up. They have
really gone after productivity hammer and tongs. They have
stripped out-I hear various numbers-millions and millions of dollars of overhead, so that they can. make money or break even at a
lower production level than they used to.
All that is true, and I think all that is positive. In terms of
saying that they're out of the woods, I guess I don't want to get in
a semantic fight.
Senator RIEGLE. I guess the question here, as you look at the industry, having gone through these changes, and as it faces future
prospects on all levels-interest rates, strength of the economy,
trade, competition, and so forth and so on-what is your sense? Do
you have a feeling of concern-deep concern, mild concern, about
what the automobile industry will be facing, say, in the next year,
or the next 2 years? What do you foresee? What is your sense as an
economist, for where the auto industry seems to be heading and
what level of concern do you have about that?
Dr. SEGER. What I see-and I have not done a thorough studybut what I tend to see is that they are trying desperately to take
fundamental steps to redo manufacturing plants, to address the
productivity problems, so that they can compete successfully, primarily with the Japanese. I think they have identified them as
very tough competitors. That is the way I read the sales statistics,
by the way, that they are, and that they have very high-quality cars, and that's their reputation, and that appeals to a lot of Americans. The auto companies realize that if they are going to survive
long term, they've got to meet these standards, basically, and to

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put out cars that have good fits and finish, hold together, and all
They are doing more, I understand, with robots and-Senator RIEGLE. But you're really not addressing my question, if
I may say so. That's right, all that is going on, but in looking
ahead, what is your level of concern about the whole mixture of
circumstances facing the auto industry? Do you have a deep degree
of concern about what their prospects look like for the next 2 or 3
years? Do you have mild concern? Basically, no concern? Do you
think the problems are basically squared away?
In other words, you're an economist, and you live in Michigan. I
would like to have a sense of what you see happening, because
until I understand something about that, it is awfully hard for me
to gauge how you might view monetary policy and how you might
act on monetary policy, in terms of one of the basic industries that
presumably you would know best, you're right in it, right in the
center of it. You're an economist. So I want to know what your personal sense is, as an economist, for what you see for the auto industry out over the next 1, 2, 3 years, and how apprehensive you are
about that, if you are at all.
Dr. SEGER. On the fundamentals, which I call the production, on
those I'm very optimistic, because I think they are addressing the
basic problem. Then there is a second layer, which would be considered environmental things that might give them some problems;
that could be another oil embargo; it could be another shot of high
interest rates. As I said, I lived through 1981 and 1982; it hurt the
auto dealers and made it more difficult for individual consumers to
buy cars. I saw that every day.
If that were to happen again, then obviously the auto industry
would feel it. Another environmental thing that-will come up, as
a matter of fact, in a matter of months-is a major labor negotiation this year. I don't have a good feel for whether there is going to
be a strike, if there is one, a major strike. If a couple of the Big
Three are struck, that will not only damage some of the companies,
but will also have fallout in the areas where the production is.
Senator RIEGLE. Let me try to finish, because my time is up, and
I don't want to stop right in the middle of it, until we've got a conclusion from you.
But if you add up all these second tier effects-all these outside
or environmental factors, as you say-if you take them all together
as a batch and come to a bottom line, you see all of these things
working in combination, does this bottom line give you reason to be
concerned about the future of the auto industry, deeply concerned?
Do you think those packages of outside forces are of an aggregate
size significant enough to cause you, as a person from Michigan, to
really feel that the auto industry is in some very considerable jeopardy from these things? Or that basically these are things the industry can take in stride, and that it's no big deal, and not something that we really have to get all that concerned about?
I mean, that's sort of the view that Bill Brock takes, and I want
to know what your view is.
Dr. SEGER. I do have concerns, but it's not to the point of, let's
say, nail biting; I'm not lying awake at nights.
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I am very concerned about their health. Believe me I would like
to see them continue to get back to the old days.
Senator RIEGLE. I take it then-Dr. SEGER. But I'm not saying that it's a rose garden, that all the
problems are behind them. I have never felt that.
Senator RIEGLE. But I take it, then, you're not, as you said, biting
your nails about it or lying awake at night. I take it from thatand I'd rather you say it than me try to say it for you-but I take
it from that that you're saying you think the auto industry is going
to be able to manage through this period ahead, and that there's
no reason for us to really stop now and devise new strategies or
weapons to try to help them in this period for the next, say, 1, 2, 3
Dr. SEGER. Based on what I see right up to today, as I said, I
have some concerns, but they're not violent concerns. I really think
that management themselves have positioned their companies to
go through a period of economic turbulence-not as bad as what we
have been through, but some type of turbulence, and to survive in
better shape than they would have before, just because they have
worked on their own operations.
Senator RIEGLE. All right. I'll come back to that.
My time is up.
Senator SARBANES. Before I pursue a subject that I wanted to
take up in my opening round here, I want to follow up on some of
the earlier questions.
Do you believe that the States affected should repeal the various
usury statutes?
Dr. SEGER. I supported State action to deregulate. A lot of States
have either deregulated entirely or have raised their rates or have
made them float. Michigan has not addressed this problem yet.
Senator SARBANES. Do you think they should repeal them altogether? Is that essentially your position?
Dr. SEGER. I worked on the deregulation of usury ceilings.
Senator SARBANES. Does deregulation mean that you think they
should repeal the usury statute?
Dr. SEGER. The deregulation I supported was to repeal usury
statutes except criminal usury.
Senator SARBANES. Is that your position, that the States should
repeal the usury statutes except for criminal usury; is that correct?
Dr. SEGER. I am not telling other States how to do it. As I said, in
Michigan that was my advice.
Senator SARBANES. What is your view on that? It is asserted on
your behalf that you are a respected economist and that you are an
experienced regulator and, therefore, your views are supposed to
have some weight to them. Now, what is your view on the repeal
by the States of their usury statutes?
Dr. SEGER. I'm saying each State makes up its own mind, and
being in Michigan-Senator SARBANES. If the State does make up its own mind
what-Digitized by


Dr. SEGER. That's what I said. In Michigan, for Michigan, I recommended removing the usury ceilings, except criminal usury.
Senator SARBANES. What do you recommend to other States?
Dr. SEGER. I'm opposed to usury ceilings. I have not been asked
to recommend but I would recommend if they asked me, that they
remove usury ceilings.
Senator SARBANES. All right. Good. That's a direct answer to the
question. I thank you. I had to work a little bit to get it.
Now, what is your position on whether the Federal Government
should in effect preempt States' decisionmaking and eliminate the
usury statutes?
Dr. SEGER. As a philosophical matter, I should think that the
States should handle that, each in its own way. The financial institutions are right in the middle because the Federal Government
did step in through the DIDMCA legislation to deregulate fmancial
institutions gradually on the cost of funds side and yet did not on
the asset side so that there are limits on how much lenders can
charge for different kinds of loans. This was a real problem. As a
last resort, if the States do not deal with this issue, then I think, if
the Federal Government is going to deregulate on one side, then it
is going to have to step in and override those States or preempt the
usury ceilings in those States that have not addressed the problem
Senator SARBANES. So, in other words, you believe the Federal
Government should come in and override the State government?
Dr. SEGER. If the States don't deal with the problems themselves,
Senator SARBANES. What do you mean, "if the States don't deal
with the problem themselves?"
Dr. SEGER. A lot of States did back in 1981 and 1982 change their
usury ceilings. They did-Senator SARBANES. Are you saying that you would give the
States the leeway if they make a decision to repeal the usury statutes, but if they do not that the Federal Government should then
come in and repeal them for them. Is that correct?
Dr. SEGER. Preempt them.
Senator SARBANES. The answer is yes to that question?
Dr. SEGER. Yes, it is.
Senator SARBANES. Now, Senator Riegle pursued some questioning about the nature of your exchange with Secretary Regan and I
wanted to put the same questions with respect to your exchange
with Mr. McNamar. Did you all discuss monetary policy?
Dr. SEGER. No, we didn't.
Senator SARBANES. Or the various roles the Fed had played? Did
he indicate any views to you about monetary or fiscal policy?
Dr. SEGER. He basically was just chatting with me before I went
in to see the Secretary. He showed me a TV screen behind his
desk. He knew I was interested in numbers on interest rates, and
he showed me how they could bring up different information on
computer, page by page. We talked about a mutual friend we have
from California who used to work with him; it was that kind of discussion.
Senator SARBANES. Now, you had an hour's conversation with
McNamar and Regan put together; is that correct?
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Dr. SEGER. I said I didn't time it exactly, but it wasn't over an
hour for the two combined, yes, sir.
Senator SARBANES. As I understand the response now, and the
earlier responses, you only talked a few minutes to Regan and that
was generally about your past experience; and with McNamar you
chatted while you were waiting to go in to see Regan. Is that correct?
Dr. SEGER. Yes. I was waiting out in McNamar's office.
Senator SARBANES. And you just chatted? You had not substantive discussions with either of them in the course of an hour?
Dr. SEGER. I didn't say I didn't have any substantive discussion
with Secretary Regan. I said we were talking about my background, how being a regulator ties in to the Fed's regulatory activities. The Fed does things other than monetary policy; they do a lot
with regulation and supervision. As I said, he was talking about
my background.
Senator SARBANES. What aspects of the Fed's work with respect
to regulation and supervision were the subjects of your discussions
with either McNamar or Regan?
Dr. SEGER. The whole process of supervising banks, the whole
process of dealing with problems, dealing with failures, what my
experiences were, what my experiences with thrifts were.
Senator SARBANES. Did the issues of deregulation come up?
Dr. SEGER. Not that I recall.
Senator SARBANES. Do you support the distinction that's been in
the Federal law between commercial and investment banking? Do
you think that distinction makes sense?
Dr. SEGER. I think in general it makes a lot of sense to draw a
line between commercial banking and investment banking. There
are certain activities that are on the fringes of investment banking
that I think I can make a case for making available to commercial
I think I mentioned one earlier, the underwriting of commercial
paper. Some people would say it's strictly investment banking,
therefore, it's a "no-no" for commercial banks. I think it's very
closely related to some other things the commercial banks do. It is
not underwriting corporate bonds; it's not underwriting corporate
stocks, those kinds of things I think are clearly over that line. But
some of the more closerly related things-again, underwriting municipal revenue bonds-I think while you could put that in an investment banking category, you can also make the case that when
Glass-Steagall was passed 50 years ago the only reason that this
underwriting of municipal revenue bonds was not dealt with was
that they really didn't have municipal revenue bonds then. I don't
think the law was intended to be a direct prohibition. I think it
was just not discussed or not handled in the act. The general obligation bonds were, because that was the typical way that municipalities financed at that time. Banks obviously can underwrite
those. In fact, when I worked in Washington in the 1960's at the
Fed, I remember a lot of articles at that time; some academic
economists were arguing in the midsixties for banks to do the unDigitized by



derwriting of revenue bonds because they said that it would help
governmental units to get a better deal on their financing and
would mean more competition and more bids for those various
issues and the governmental units would benefit.
Senator SARBANES. I take it you said in your conversation with
Secretary Regan that he asked you whether you were a Keynesian;
is that correct?
Dr. SEGER. Yes. We were-Senator SARBANES. He also asked you whether you were a monetarist?
Dr. SEGER. What brought this up was, as I said, a former professor of mip.e, Professor McCracken, had seen Secretary Regan and
had recommended me as a former professor. He used to be here at
the Council of Economic Advisers. Secretary Regan considers
McCracken sort of an eclectic, and so he said to me, "As a former
student of his, basically do you consider yourself a Keynesian, or a
monetarist, or something else?"
Senator SARBANES. What was the something else that Regan
asked you about, besides Keynesian and monetarist?
Dr. SEGER. I guess "supply sider" would have been the third possible niche, and I remember exactly, in this case, what my response
was. I said, "No, I call myself a garbage collector, because I think I
have picked up bits and pieces from all of these areas." As I indicated yesterday, the economy that I see out there is very complex,
very big, very fast moving, and I have not been able to find a single
theory that adequately describes what's going on out there. Therefore, I prefer to say there are many, many things that influence
the economy, including the Keynesian approach of Government
spending, taxes, and that money matters. And, I think that looking
at the supply side arguments, Art Laffer and some of those people's
arguments, that you have to consider the matter of providing incentives for the economy.
Senator SARBANES. All right. But essentially the Secretary asked
you, "Are you a Keynesian, a monetarist, or a supply sider?" Was
there any other category?
Dr. SEGER. Not that I recall.
Senator SARBANES. Not that you recall. Your response to that
was not to put yourself in any of those categories and to say you
were a "garbage collector" in a sense?
Dr. SEGER. That I subscribe to different parts of difference theories.
Senator SARBANES. My time is up.
The CHAIRMAN. Senator Sasser.
Senator SASSER. Dr. Seger, you have been queried this morning
as to whether or not you are a monetarist and whether or not you
are a supply sider.
Let me ask you this question. Did you believe in 1981 that the
tax cuts that were passed that year would unleash such a surge of
savings and investment and work effort and increase in productivity that there would not be a sharp rise in the deficit, as the result
of these cuts? It obviously hasn't happened, but did you believe it

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Dr. SEGER. I said yesterday, I did support cutting taxes in 1981. I
did think we needed some incentives. AB to the second part of your
- question, I did not say and never believed that the incentives unleashed would immediately cover the revenue decline and that
there would be no adverse impact. That never came from me.
Senator SASSER. If it would not immediately cover the revenue
declines, did you think it would, at some juncture in the future-2,
3, 4 years out-feel that the tax cuts in the outyears would generate such a vigorous economy that we would not suffer from a large
Dr. SEGER. I expected the tax cuts to have a favorable impact on
the economy. In fact, I think we're seeing it right now. We're
seeing-Senator SASSER. We're not talking about a favorable impact on
the economy. My question to you is, did you think that these tax
cuts would generate such a vigorous economy that we wouldn't
suffer from the revenue losses and that we would not have to have
these large budget deficits? That's the question. Certainly, we know
tax cuts will stimulate an economy. That's an old Keynesian theory
that's been around a long time.
Dr. SEGER. Because of that, though, I think we are seeing additional tax collections; now it has not been adequate to make up to
cover the deficit.
Senator SASSER. Well, did you think in 1981, when these cuts
went into effect, that they would be generating enough economic
activity that we wouldn't have a problem with deficits, that there
would not be a sharp rise in the deficit as a result of them?
Dr. SEGER. In the summer of 1981, I did not expect the kind of
terrific recession that we ended up going into, and that would run
through 1982. I did not have the impact of a severe recession factored into that equation, and I don't think a lot of people did.
Senator SASSER. Well, had it not been for the recession, do you
think the tax cuts would have generated enough economic activity
that there would have been no sharp decline in revenues and been
no enormous increase in the deficit?
Dr. SEGER. I think without a recession, that's probably fair to
Senator SASSER. Well, that puts you more on the supply side, I
would say, than on the monetarist side; is that a fair statement?
Dr. SEGER. I didn't say I disagreed with everybody on the supply
side. I just said I didn't like to be labelled, because I am not in a
single category. I think each group, each category, each school, has
something to say that I agree with or something to say that I
happen to support, and I think that there are ~arts of the supply
side argument that have some merit. I just don t think that that's
the only thing going.
Senator SASSER. But you do buy enough of the supply side theory
that you thought the tax cuts would stimulate enough economic activity that this would generate enough revenues to cover the tax
cuts and the deficit would not soar, as it did, absent a recession, as
I understand your statement?
Dr. SEGER. Yes. With "absent the recession" underlined.

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Senator SASSER. Well, now we're in a recovery situation, and we
have no recession, but we have a structural deficit, we are told, in
excess of $100 billion. That is, if we get to a full employment economy, and you get to the natural rate of unemployment, which yesterday you defined roughly as somewhere between 6 and 6 ½ percent, we're still going to have a structural deficit, according to
what I read and see in my calculations, in the neighborhood of
$100 billion. Do you disagree with that?
Dr. SEGER. I'm sure there is a structural deficit; Again, I don't
know the exact number.
Senator SASSER. So even though supply side is going full blast
here and we're experiencing a very substantial recovery, and
"America is back again," as we see in the TV commercials, we still
have this nasty old deficit of $100 billion hanging around-well,
$200 billion, as a matter of fact, $180 billion projection hanging
around this year.
Dr. SEGER. Yes. But the point is, we did go through a recession,
and we went through a very severe recession, and you cannot just
wipe that impact off the books. It set the economy back for probably almost 2 years. It added a lot to the expenditure side, with the
usual kinds of programs that are triggered by the recession. We
had a lot of them in Michigan that were triggered-unemployment
compensation, things like that-which is fine, but we got those
larger expenditures.
At the same time, because we did experience the recession, corporate profits slumped, many corporations lost a lot of money, individuals were laid off, their incomes dropped, they didn't get bonuses. Personal tax collections dropped as well as taxes based on
corporate profits.
History is cumulative, and what we see today is based on this
whole past experience. Maybe we can theorize the recession out of
existence, but what we see today is based on the fact that it did, in
fact, happen.
Senator SASSER. Let me move on to something else, Dr. Seger.

In recent months, the Chairman of the Council of Economic Advisers, Dr. Feldstein, and the Treasury Secretary, Mr. Donald
Regan, have engaged in a running battle in the press, and I suppose in the councils of the administration, over whether deficits
really matter, and particularly whether deficits affect interest
Now Secretary Regan has maintained that there is no association between deficits and interest rates and demanded that those
who allege that fact should come forward with proof; and he was
criticized by some of his colleagues at a recent meeting of the European nations economic meeting in Western Europe for those views.
Now yet you testify that in your view, deficits do affect interest
rates and you gave a seat of the pants estimate, which I thought
was accurate-fairly accurate-that present and projected deficits
are adding, perhaps, 2 percentage points to the interest rates at the
present time.
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Now would it be fair to say then that you subscribe to the Feldstein position in this argument as opposed to that of Secretary
Dr. SEGER. I don't think I really heard the argument. I don't
think I want to get in the middle of it.
Senator SASSER. Well, if you have been reading the newspapers,
Dr. Seger, over the last 2 or 3 months, you could not have missed
it, particularly someone who is interested in economic matters.
Dr. SEGER. I did read accounts of it, but I wasn't there to hear it.
I don't know the whole discussion. As I said yesterday, I do think
that deficits are having an impact. In fact, I think I gave Senator
Riegle three ways that I could think of in which they were, in fact,
influencing interest rates; I didn't change my mind overnight.
Senator SASSER. Well, it appears to me, Dr. Seger, to be a simple
matter here, to indicate whether you would agree with Dr. Feldstein's position or the Secretary of the Treasury's position, and
judging by your testimony yesterday, you agree with the Council of
Economic Advisers, as do most economists, but you're saying today
you can't take a position on that, you don't know.
Dr. SEGER. I'm just saying I don't know if Secretary Regan really
said that deficits don't matter; I don't know if that's what he said.
Senator SASSER. Well, I don't mean to quibble with you or argue
with you, but this seems to be so apparent that I would like very
much to get an answer from you on this question.
Are you telling us you don't know whether you agree with Dr.
Feldstein that deficits do, indeed, drive up interest rates or not?
Dr. SEGER. I said yesterday and I have said again today, that
deficits do, in my judgment, influence interest rates.
Senator SASSER. Right. And you said yesterday that in your judgment, the present deficits are probably pushing interest rates up
approximately 2 points.
Dr. SEGER. One and one-half to two points.
Senator SASSER. Right. And so my question to you is simply,
don't you agree with Dr. Feldstein's position, as opposed to Secretary of the Treasury, who is indicating that there is no linkage between deficits and interest rates? That appears to me to be fairly
straightforward and fairly apparent.
Senator SASSER. Well, I think the answer is obvious. And Mr.
Chairman, they tell me my time is up, so I'll yield back.
The CHAIRMAN. Dr. Seger, I do have some additional questions
for you. My colleagues don't have to listen, because they have
heard my opinions so many times over the years, that they can
give them to you for me and save me the time of speaking.
Senator SASSER. Mr. Chairman, we always enjoy your views reinforced by your own statements.
The CHAIRMAN. Well, I'm a supply sider, an unashamed, unabashed supply sider, and I also agree with Marty Feldstein. I also
disagree that Secretary Regan totally thinks, as is characterized,
that deficits are not important. He does. It's a matter of degree between the two. I choose and have publicly many times stated Mr.
Feldstein's view of the nature of deficits. I happen to feel that deficits are the No. 1 cause, overwhelmingly the No. 1 cause of our
problems. I happen to think you can't carry a $1.5 trillion national
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debt. You can't have a $125 billion interest on the national debt,
more than $100 billion of it on past debt that was created before a
good part of us were even here. Certainly, before this administration was here.
It's also a matter of record that the President's recommendations
for tax cuts were delayed. I happen to think the recession would
have been much softer had the original recommendation of 10 percent retroactive to January 1, 1981, rather than being cut in half
and delayed until October 5, might have had a stimulating impact
on the economy. I believe that. That is a personal opinion. I also
happen to believe that the cause of deficits is primarily overspending, not undertaxation. For those tax cuts, we were being taxed at
a higher percentage of the Gross National Product than was necessary to finance World War II.

Even after the so-called Reagan two big tax cuts, we are still
being taxed at a record high level as a percentage of gross national
product compared to other years. We continue to spend like a
former friend of mine, who it didn't matter how much he made.
When he made $10,000, he spent $15,000; when he made $25,000 he
spent $35,000; when he made $50,000, he spent $75,000. And now
he makes a quarter of a million and he's broker than ever, because
he spends $300,000.
If you get an old-fashioned accountant who has never heard of
partisan politics, Republicans, Democrats, liberals, or conservatives,
and he wears green eyeshades and has the black arm band, and
you say, "Analyze the Federal budget for us, would you, please,
and tell us where you think the problem is." We would get an objective opinion of the budget. That kind of an analysis without
regard to politics would simply indicate that the problem is in the
entitlements programs, and overspending, also the automatic indexing programs that the Appropriations Committee has no control
over, cannot touch, increase the deficit and rob the discretionary
programs that in many cases have been cut too much. It happens
in my subcommittee-veterans' programs. I'm a card-carrying
member of the VFW, the American Legion, and the whole bit.
And I get a budget allocation, a 302(b) budget allocation from the
Appropriations Committee and the Budget Committee. What do
you do when you get a $1.5 billion increase for veterans? Where
does that come from, when you've got a ceiling that you're bumping up against? I'll tell you where it comes from. It comes from
housing; it comes from EPA; it comes from the other discretionary
programs in my subcommittee. The entitlements get theirs first.
Congress doesn't have the courage to attack those.
So we say the problem is loss of revenue. Revenue has gone up
dramatically this year over last and the deficit increases. If revenues are going up at record rates over the past year, then obviously
spending is going up fast, or isn't it? I think the facts are rather
clear on this particular argument. I voted TEFRA. I voted for
TEFRA, because 2 years ago I was convinced deficits were really a
problem-really a problem-and although I didn't like the tax cuts,
my philosophy was as I have outlined to you, I figured the $98 bil-

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lion tax increase was worth it to reduce the deficit by $98 billion, I
would swallow withholding at source, which, as chairman of the
Banking Committee, I had unholy hell in voting for withholding at
source on interest and dividends. It was worth it, because the deficit was such a big problem.
You know what Congress did? We spent the whole $98 billion
and more. There was no deficit reduction. That's why we're trying
to hold the package together again. Tax increases will not solve a
deficit problem, unless you restrain spending at the same time. The
spending cuts that were recommended, along with tax decreases
have not been enacted, for the most part. Spending decreases to go
with tax increases as a combination have not been enacted, In the
conference, we have not been able to accomplish that yet. Yet the
tax increase is fine, that's easy. Take more money away from
people, but don't have the spending cuts to go with them.
We can increase taxes forever, and until there is a combination
of restraint on spending, the budget will never balance. It will get
bigger and that has been the history of the decade I have been in
this body. We have had several tax increases, all in the name of
reducing deficits, for 10 years. But if you take the entire tax increase and then spend that and more, deficits get bigger.
In answer to my colleague's questions, which he has heard 1 million times and Senator Riegle has heard 1 ½ millions, at least,
maybe 2 million, I'm an unreconstructed, unreprentant supply
sider, who happens to believe if you let the American people keep
some of their money, they will spend it a lot more wisely than we
I'm willing to vote for another tax increase, if spending reductions go with it, so we actually get reductions in the deficit. To
those who advocate tax increases, alone, without spending restraint, you'll take more money away from the people and the deficits will continue to grow.
For whatever time I have left, I would only say that, don't be
hesitant to say, if you lean one way or another. For instance supply
sider. A majority of this committee, who has to confirm you, are
supply siders. There is honest dissent and disagreement by my colleagues with that opinion, at least-on this point and, hopefully, in
the near future, a majority of this committee will believe the philosophy that I have described to you.
Dr. SEGER. AB I said, I accept the incentive arguments from the
supply side, but I am saying. You can't look at that exclusively.
The CHAIRMAN. I understand that you're a "garbage collector."
Dr. SEGER. I am a garbage collector.
The CHAIRMAN. There's your answer.
Chairman Volcker says that monetary policy is directed at
achieving a sustained growth in the economy, consistent with price
stability. According to GNP numbers released by the Commerce
Department this morning, growth in the second quarter has slowed
markedly from that of the first. In your view, is the economy expanding at a rate of growth consistent with the Fed's targets?

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Dr. SEGER. The growth in the first quarter was a little above 9
percent, I believe, based on revised numbers and came down to a
little over 5 percent in the second quarter at an annual rate. I
think that if we go along at around 5 percent or so, that that would
be consistent with the Fed's growth targets. As I indicated yesterday, the objective is to have a moderate rate of growth and to
maintain it at a noninflationary pace. I think that the Fed's
present targets of 6 to 9 percent on M2 and M3 are consistent with
that kind of noninflationary growth.
The CHAIRMAN. As you mentioned yesterday, and we all know,
the Fed is required twice annually to report to Congress on their
monetary aggregate, you feel that these targets are an appropriate
guide for monetary policy?
Dr. SEGER. I think they really are appropriate, because it does
give a way to quantify some objectives or some targets. It provides
a way to communicate with people in the investment community,
with the Congress, with the world at large, about what your general approach is going to be, whether you will tamper with bank reserves, financial institutions reserves to the extent that it is needed
to produce that kind of monetary growth.
The problem is that you can come up with what you think are
good monetary growth targets and yet, all of a sudden, for some
technological reason or some innovation that's going on in the
real world, velocity will be impacted and, therefore, this amount of
monetary growth that you thought was going to have the right
impact on the economy does not materialize.
There are other problems involved, and these have to do with the
lags-that when the Fed influences reserves and monetary growth
we don't know exactly when that is going to impact on the real
The CHAIRMAN. What do you think about the addiction of people
to the weekly release of M data? I happen to feel that it is inaccurate, misleading.
Do you feel the publication of weekly data is useful in the
market, or would a monthly release be better?
Dr. SEGER. Going back to my days in banking, when people
would hang around the ticker every Friday waiting for this great
number to come out, I think it is vastly overemphasized. There are
sentences on the release saying, "Do not emP,hasize or do not pay a
lot of attention to a single week's statistics.' Nevertheless, a lot of
attention is paid to them, and I agree with you, they are not that
meaningful. They are not that accurate. They're often revised the
next week and there are very major revisions in all the money
supply series each year. I just think it's too bad that we are
making this available and that the investment community is picking it up, using it in an unwise way, and providing extra volatility
to the financial markets with it.
The CHAIRMAN. So you feel it-would be better. to do it on a
monthly basis?
Dr. SEGER. I do.
The CHAIRMAN. Have you made any commitments to anyone in
the administration with regard to the positions you would take on

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monetary policy as a member of the Board of Governors of the
Dr. SEGER. No, I haven't.
The CHAIRMAN. I personally feel very strongly about the independence of the Fed and the lack of politicizing it. So I hope, if you
are confirmed, that you will stick to that and make independent
judgments and not be forced or feel committed in any way to this
administration, or another one, or to Congress. I think that is
highly important that the Fed exercise independent judgment without regard to political pressure from any direction.
Senator Riegle.
Senator RIEGLE. Thank you, Mr. Chairman.
Dr. SEGER, I want to pick up where we were before on the auto
industry, since the auto industry is sort of a proxy for industrial
base problems.
As you know, one of the reasons that you have been selected is to
provide the proper geographic representation on the Board, and so
you are here as a representative of the upper Midwest and of our
region, therefore, presumably would take with you on to the Board
a keen sense of the nature of the problems in our region of the
country, and it's very important I think that those special problems of the upper Midwest, the industrial base, be understood, be
factored into Fed decisions, be thought of in terms of what the
impact of sharp monetary policy changes might be and so forth.
That is really what undergirds my line of questioning the last
round on this, if you will again, this time. Now, from the general
discussion we had about your view of the auto industry at this
point, the internal factors, the drive for efficiency, the external factors that sort of bear in on the industry, I would conclude and I
want you to adjust this if you think this isn't right-I would conclude from your answer that if we were to take a scale of 1 to 10,
with 10 being a real instance of jeopardy and concern and sort of
crisis state of the industry and a 1 being basically clear sailing,
that you have some problems there but as you say you are not
biting your nails over them. I would sort of say, based on the way
you described your view of it, that you would see the auto industry
at about maybe a 3½ or a 3 or a 4 on a 10 scale.
Dr. SEGER. I'm at about a 5, I'd say.
Senator RIEGLE. About a 5.
Dr. SEGER. About a 5.
Senator RIEGLE. You and I agree on something, I think very
strongly, and that is the free market system and what markets tell
us. What would be your sense as to how the financial markets are
judging the future problems of the auto industry, and how do you
think the financial markets would be answering that same question of their sense of the uncertainties on a scale from 1 to 10?
Would you say the financial markets are at about a 5, what is your
view on this?
Dr. SEGER. Obviously this is a guess because I haven't talked to
any auto analysts lately, but I would say their immediate assessment is probably around 5.

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Senator RIEGLE. OK. Now-Dr. SEGER. May I just elaborate on that?
Senator RIEGLE. Yes, please do.
Dr. SEGER. I think what is influencing the PIE ratio on stocks of
the Big Three, which is sort of the next step, is that, again, people
are looking out further. Analysts have a bad habit-or maybe it's a
good habit-of looking into the future and they try to predict what
the impact will be on these companies, these industries in the
future. And therefore the opportunity to make money in those
stocks. I think they are looking down the road apiece, and maybe
they're not as convinced as I am, based on some of these personal
contacts, that the companies have taken the steps internally to get
their products in better position to compete with the Japanese.
Maybe I'm overestimating.
Senator RIEGLE. This is a very important distinction here. You
are saying you think in general the financial markets, as they look
at the auto industry, probably come out at about a 5 which is about
where you put yourself. Is that correct?
Dr. SEGER. In terms of today. But I think the reason the auto
stocks are selling at relatively low P /E's is that the auto analysts
don't see this nice profit recovery that we have seen at GM, Ford,
and even Chrysler lasting on into the future. They say, yes, a tremendous rebound now.
Senator RIEGLE. Do you see it lasting on into the future?
Dr. SEGER. Not at this rate of improvement. Obviously when you
go from practically zero to a big profit number just the arithmetic
gives you a very tremendous rate of earnings growth. I don't expect
that same number to be maintained into the future. But I do
expect, barring a disaster of some sort, the auto earnings to continue to tip up.
Senator RIEGLE. OK. Now this is very important and I want you
and I to make sure we really have an understanding as to this
issue, and as to where we are and what your views are and that
they are on the record. I think this is a key issue and I want to tell
you that now so that you will know we are going to take some time
on it. And I want to make sure in the end that what you are saying
is exactly what you believe.
Now in terms of the financial markets today, the financial markets are looking at the auto industry and the auto stocks, and they
are obviously not betting on what's happened in the past. They are
betting on what they think is going to happen in the future and so
they take a look at it in the future, today, tomorrow, the next day,
the next 2, 3, 4 years, and so forth, and their sense of the future is
reflected in the prices they are willing to pay today. Now I want to
be sure that I understand your answer of a moment ago, when you
talk about the financial markets. I'm not talking about analysts
who do auto stocks and who are buried somewhere in a brokerage
firm. I'm talking about people that are paying money to buy auto
stocks. I'm talking about the financial markets.
I understood you to say before that you thought the financial
markets, assessing the future of the auto industry, would rank
their sense of the future prospects of the industry at about a 5 on a
scale of 1 to 10.
Dr. SEGER. Then you misunderstood my comment.
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Senator RIEGLE. That's what I want to get clear.
Dr. SEGER. What I thought I said was that I felt that a 5 would
be about the right number to use to describe how they felt about
the industry today. There is a distinction, though, between their
feeling about the present and their view way out in the future, and
that is the view that is producing what we discussed as the tiny PI
E ratios.
Senator RIEGLE. That's what I would like to compare. I would
like to compare your sense of the future prospects with the financial markets sense of the future prospects. So, what I'd like you to
do if you can, is give me the bottom line and then the basis for the
bottom line, because I think we can get there quicker. What I'm
wondering is, I understood your earlier comment when I asked in
the last round about your assessment of the future prospects of the
industry, that you responded now by saying about a 5 on a 1 to 10
Dr. SEGER. Right.
Senator RIEGLE. And I'm asking you the same question about the
financial markets. Do you think they are at about a 5 on a 1 to 10
scale, or are they at a different point on a 1 to 10 scale?
Dr. SEGER. No. Looking way into the future I'd say they are
down-again, this is a rough guess-a 7, something like that.
Senator RIEGLE. Well, it would be the other way around. So there
is a 7 alarm level.
Dr. SEGER. Yes. I thought you said 1 was the least.
Senator RIEGLE. Oh, you are exactly right. They are at a 7 and
you are at a 5 and this is what I wanted to pursue because this is
an important question. It's an imJ>ortant question that will be a reflection of your judgment, and it s a reflection of how I think you
might participate in decisions on the Board. I look at what the financial markets are telling us and I put a lot of weight in it, not
absolute weight, but a lot of weight. And I take a look at other
Michigan entities that we are both familiar with. K-Mart selling at
8 times earnings; Kellog selling at 9 times earnings; Dow at the
moment selling at 16 times earnings; Burroughs selling at 11 times
earnings; Upjohn, 11 times earnings; Detroit Edison which is in a
tough industry that's got its problems right now with variable multiples in the utility business and especially in regions like ours,
only 6 times earnings.

But then I move to the auto industry and I find what I consider
to be a remarkable situation, an extraordinary situation, especially
in light of the recent sales levels of the industry, the underlying
strength of the economy, the surge that the economy is in, and
profits in the industry. I find that in the auto industry companies
based in our State, General Motors, the premier company, accounting for half the domestic industry-is selling at four times earnings. This is substantially below even the lowest of the low in a
broad range of other Michigan companies and industries that have
their own problems. But GM looks good in comparison to Ford and
Chrysler. They are selling at three times earnings and actually
closer to two times earnings in one of those cases.
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I must tell you that I don't know, nor can I find or recall a
contemporary example of this contradiction, this anamoly, where
the auto companies with this strong current performance have
been valued so low in terms of the market's assessment of their
future prospects as it shows up in the price. And I say to myself
the markets are telling us something.
The financial markets are flashing a great big danger sign and
you say that you are in accord with what they are saying as maybe
expressing an alarm level at a 7 on a 1 to 10 scale. I think it's probably higher than a 7. I mean, we just would have a difference on
that. I think it's probably an 8 or an 8½. But when you start to get
up into that high range and close to a 10, there's a very, very powerful message in that.
Now, maybe the financial markets are wrong-and I hope they
are-but my experience has been that more often than not they
tend to be more often right than wrong because they are betting
their own resources and, therefore, they are pretty cold and calculating in how they make these judgments and it seems to me I
want to understand-and its difficult during these IO-minute time
segments-why the markets see this differently than you see it and
I want to understand better why I also see it differently than you
see it because I'm going to really need to understand that. I want
to track through the relationship as to how your judgment about
this is likely to affect decisions that you will be called upon to
make on monetary policy. I'll make it just crystal clear in terms of
what I'm driving at here. And that is that we are moving into kind
of a credit crunch at the moment.
Interest rates have gone up. There is a tremendous pressure on
the supply of available credit. Interest rates would be even higher
if we weren't getting an influx of foreign money. And so in a sense
that's artificially keeping interest rates lower than they might otherwise be.
They could even be higher than that but for all that foreign
money flowing in here. I see a situation here where the auto industry is beset by a number of very serious challenges in terms of its
future prospects. A very important one is interest rates and what
the monetary policy is likely to be and what I don't want to see
happen and what I'm not prepared to see happen to the extent I
can prevent it is I don't want to see the Fed miscalculate with
monetary policy decisions at some point along the line here that
really crunch the auto industry and crunch the housing industry as
they have done before and which we have seen just in the recent
past because I'm not convinced that the industry can take it
again-not this soon in conjunction with other factors.
You can talk about the eternal efficiencies and you know I
spent as much time working on that as anybody, and we had made
considerable progress, but we haven't made nearly the progress in
the aggregate sense that we need to make, and that's why the financial markets don't want to buy the auto stocks today. That's
why they are cheaper than they have ever been in terms of their
price earnings ratio in relationship to their current performance
and so I see sort of red warning light flashing all around here and
so far, at least in terms of what you said to me, I don't sense that
you see it the same way. Not that you have to.

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I mean you are entitled to your view and that's what I wanted to
get on the record. But in terms of drawing whatever difference of
opinion there is, I want it clear cut in terms of what you see that is
likely to be the basis for your judgment if you are there making
these decisions. Because we can't afford to miscalculate because
our State I don't think, can go back through the grinder again of
the kinds of situation that we were in the last time the roller
coaster went down and expect to come through the same way we
have come through this time. We are in our 52d consecutive month
of unemployment, above 10 percent in Michigan, as you well know.
We have been battered, so when we get back into this I want to
pick it right up again. I'd rather not do it in IO-minute segments,
but I want to take it right out to the absolute end of the discussion
with respect to the auto industry and the factors that bear on it at
this point, and I hope that helps illuminate where 1 am going because I want you to see the line of discussion so that you can think
about it in those terms so it isn't a question of my trying to not
give you a clear sense of what I'm driving at.
Mr. Chairman, my time is up.
The CHAIRMAN. Senator Cranston.
Senator CRANSTON. I'm glad to have a chance to see you and ask
you a few questions. I'm sorry I wasn't able to be here at earlier
stages of this.
Yesterday you testified you supported the 1981 tax cuts at that
time. In retrospect, given the size of the deficit, do you now think
that a smaller tax cut, foregoing, for example, the third installment of Kemp-Roth would have been wiser?
Dr. SEGER. I still think that the 1981 tax cut was a good idea. I
certainly didn't anticipate, in the summer of 1981, that we would
have this very, very severe recession, and I think that that was
what caused the deficit to explode as it did, more so than the fact
of the tax cut Senator Garn argued a few minutes ago that if the
tax cut had been bigger and had been legislated earlier, that we
might even have avoided part of the recession. That wasn't my argument, but it is sort of an interesting one. I did support the tax
cut and today I still think it was a good idea.
Senator CRANSTON. Do you think that a tax increase now, given
the strength of the recovery is needed to reduce the deficits?
Dr. SEGER. I think that the deficit has to be reduced and I guess
my proposal would be for a combination of tax hikes and expenditure cuts.
Senator CRANSTON. You referred to an unexpected recession. Do
you think that the money policies of the Fed were a major factor in
producing that recession?
Dr. SEGER. Yes, I do.
Senator CRANSTON. What policy do you think the Fed should
have followed then at that time to avoid that recession?
Dr. SEGER. I said I thought the tight money policies had a lot to
do with it, but at the same time, I would add, I don't think they
had a lot of choice about what to do because of the tremendous inDigitized by



flation problems of the late 1970's, 1979 and 1980, when inflation
was running at a rate in excess of 12 percent per year.
Senator CRANSTON. Would you have followed that tight money
policy as a Fed Board Member despite the fact it would predictably
produce a recession?
Dr. SEGER. I would have. As I think back to what was going on,
the chaos in the credit markets, the concern overseas about our
economy, the lack of faith in our dollar. These are tradeoffs, I understand, but it seems to me the inflation issue had to be dealt
with. It was a painful way to deal with it, but I don't know of any
Senator CRANSTON. It seems to me there are many alternatives
in long-range terms in ways of dealing with the lack of productivity
in our economy that would get workers and plants in a position
where they would be more competitive and more productive and I
don't think we're going to deal with inflation in any long-range
term by turning on and turning off the money supply.
That may deal with immediate problems but it doesn't deal with
the long range problem. Are interest rates too high at the present
time, in your judgment?
Dr. SEGER. Interest rates have risen since the beginning of the
year, but they are not back up to their peak. I believe in market
forces determining interest rates and, having said that, I'd say they
are about right.
Senator CRANSTON. You think they likely to go up or down
during the course of the remainder of this year?
Dr. SEGER. Again, there are a lot of forces that influence interest
rates that I don't have control over. I'm not sure how they are
going to work out, including what steps will be taken in the
remainder of the year on the budget. But my best estimate would be
that there will be a modest upward rise in interest rates for the rest
of the year.
Senator CRANSTON. I expect, too, some increase. Under present
conditions, would you rule out any easing of monetary policy intended to lower interest rates, assuming there's no action in Congress to reduce deficits other than the so-called downpayment?
Should the Fed, in other words, ease up somewhat in order to prevent interest rates going up which could produce another modest
or conceivably a strong recession?
Dr. SEGER. As I indicated earlier-probably before you arrived-I
think the Fed is interested in pursuing a monetary policy that provides a continuation of this economic recovery, and furthermore
maintains it at some sort of a moderate, noninflationary rate. I
think that's the real goal and the real desire.
If you look at where the economy stands today, we have had a
nice recovery for about 1 ½ years if you look at where business
activity is now relative to the capacity of our economy to produce,
then I think that you have to be looking at the total economic
policy picture. If the deficit is dealt with by Congress, if there is
this cut and if the cut materializes soon, then I think that, again, if
you look at the overall economic policy picture, a little more fiscal
tightness would allow for some sort of adjustment in monetary
policy in the other direction, toward somewhat more ease. But I
think you have to look at it, too, as part of a package.
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Senator CRANSTON. Do you believe that the Fed can have significant impact on interest rates?
Dr. SEGER. I think they can, short run. But we've got very smart
people in the financial markets. Senator Riegle and I have just
agreed, these people are following everything that the Federal Reserve does. They are following everything that goes on in Washington in terms of fiscal policy. If they saw the Fed taking some steps,
short term, to tamper with interst rates, to push them down,
when the basics didn't call for it, then I think the response in the
financial market very quickly would be to get all riled up about inflation-about very severe inflation-and that concern in itselfsort of anticipating what the impact of the Fed efforts to lower interest rates would have on the econom;y--that that anticipation
itself would have the effect of pushing interest rates right
back up. The Fed could do something immediately, but I don't
think they would have long-term control over that.
Senator CRANSTON. Do you think the deficits are the principal
factor or at least a principal factor in our high interest rates?
Dr. SEGER. I have indicated, yes. I'm not willing to cite any one
factor as the only or the most important one, but I think the deficit
is certainly a very important factor.
Senator CRANSTON. Do you believe it's possible to have high employment and low rates of inflation?
Dr. SEGER. I think that's what we are all aiming for right now.
In fact, as I read the numbers, I think in the last 1 ½ years that's
exactly what we have gotten. The employment rise has been very
dramatic; the unemployment decline, even in States like Michigan,
has been very significant.
As Senator Riegle and I both agree, it's not down to the absolute
levels we'd like to see, but in the last year or 1 ½ years, the drops
in the unemployment rate in our various industrial cities in Michigan has been very dramatic and it's dramatic nationwide. It's over
3 percentage points. Yet we have managed to bring the rate of inflation down from above 12 percent in 1979-80 to a little below 4
percent in 1982 and 1983 and in the last 12 months, inflation, as
measured by the Consumer Price Index, is probably running a
touch above 4 percent; and the producer price index, in the last 2
months has shown no change at all.
I think what we are seeing right now does demonstrate that it
may not be possible forever, but there are times when in fact you
can accomplish both. If business people and the individuals who
are making the hiring judgments have confidence in the long-term
future of the American economy, and if they have confidence that
we are going to really keep inflation under control, I think that
they, in turn, will be willing to make those decisions to expand, to
enter new ventures, and to create still more jobs.
Senator CRANSTON. Unemployment has come down, but it's still
unpleasantly high for a great many people. In your judgment, if we
didn't change any policies, but just followed the present course,
would we be able to arrive in a reasonable time to a reasonably low
unemployment, or full employment, with inflation still checked?

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Dr. SEGER. People have different views about how :rp.uch slack
there is in the economy and whether the slack is at the manufacturing end of the economy or whether the slack is in the labor
markets. In my own judgment, there is still some room to maneuver and we can, in fact, get the overall unemployment rate down
still further before we run into this sort of "hard core" at the
bottom, which is basically structural unemployment.
To deal with that problem, we've got to do things like getting
people retrained, taking individuals who are in industries that
have been technologically outmoded and getting them geared up
for other kinds of jobs. I happen to have been talking to someone
last week who was laid off from a tire plant in Jackson, Ml, and
now he is learning to be a manager for a Domino's Pizza. This is
the kind of thing that we have to do, get people moved out of the
industries that are declining or having trouble and get them
trained and, get them willing to move into those areas where the
opportunities are, and, you know, that isn't done over night.
Senator SASSER. Would the Senator yield for just a moment in
order that I might make an inquiry of the chairman?
Senator CRANSTON. Sure.
Senator SASSER. Mr. Chairman, I have an engagement at 11:30
which I very badly need to keep and I would like to inquire what
the chairman's plans are for the remainder of the day or the remainder of the afternoon. I say that in the context of some additional questions I'd like to ask Dr. Seger.
The CHAIRMAN. The committee will not be able to meet beyond
noon. We do not have access to this room beyond noon so we'll
close this morning at noon and we will reconvene in the Senate
Banking Committee hearing room at 9:30 in the morning.
Senator SASSER. I thank the chairman.
The CHAIRMAN. And we will meet each and every day-Monday,
Tuesday, Wednesday, Thursday, and until my colleagues are satisfied with their questions. So, however long you wish to ask questions, I will accommodate you, but we will meet each day.
Senator SASSER. Well, I don't think my additional questions
would be that extensive I'll say to the chairman. Another 30 or 40
minutes probably will wind me- up.
The CHAIRMAN. I have just been talking to Senator Cranston and
mentioned to him we would accommodate any members of the committee who wish to ask questions. In response to your questions for
the outline, we will hold hearings as long as necessary to accommodate you or anyone else who wishes to ask questions.
Senator Sarbanes.
Senator SARBANES. Thank you, Mr. Chairman, and also thank
you for outlining the procedure we will be following.
I have three or four subject areas additionally that I want to
cover and will possibly complete my questioning.
Dr. Seger, I understood your answer to Senator Cranston to be
that you thought the policy that the Fed followed in 1981 and 1982
was the proper policy, in the sense that you felt that that was the
only choice that they had.

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Did I understand that answer correctly?
Dr. SEGER. That's also what I said yesterday when I indicated
they were between a rock and a hard place, that they were running out of options.
Senator SARBANES. I have here a UPI report of July 1981, and
I'm just quoting it.
It says:
In an interview to be shown on WXYZ TV, the head of the State Financial Institutions Bureau

Which was youAlso said the Federal Reserve Board must loosen its tight monetary policies in
order for the auto and construction industries to recover.

How do you square that statement of your position on the appropriate policies for the Fed with your responses that you have just
given to the question posed to you by my colleague, Senator Cranston?
Dr. SEGER. I wasn't on the Fed. I thought Senator Cranston's
point was what would I have done as a Fed member at that time.
Senator SARBANES. In other words, you had one position as a
head of a financial institutions bureau than if you had been on the
Dr. SEGER. It would have made our life easier in 1981 to have
had somewhat easier money. I don't remember this interview that
he's referring to. I don't have a perfect memory. But I'm saying
that I think for the people that had the decision to make-which
was the Federal Reserve Board-that they probably had to look at
the tremendous inflation that they had to deal with.
Senator SARBANES. But you said this money you thought they
pursued the right policy.
Dr. SEGER. As a Board.
Senator SARBANES. And yet you're quoted here at the very time,
as saying that that was not the right policy for them to be pursuing.
Dr. SEGER. As I said, I don't even remember that interview.
Senator SARBANES. Are you denying that this was your position
at the time?
Dr. SEGER. I said that I was sure that in Michigan in the
summer, whatever the month was that you indicated-Senator SARBANES. July 31, 1981.
Dr. SEGER. In the summer?
Senator SARBANES. The UPI ticker, "In an interview to be shown
on WXYZ TV, the head of the State Financial Institutions Bureau
also said the Federal Reserve Board must loosen its tight monetary
Dr. SEGER. As I said, I don't even remember this interview. But
as I indicated, in Michigan in that summer, I am sure that with
high interest rates and the severe problems with financial insitututions, and the unwillingness of the State to deal with our usury
problem, that probably, at the time, it would have seemed nice if
monetary policy had been somewhat easier.
Senator SARBANES. In other words, you're saying that is the position you took at that time?

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Dr. SEGER. I'm saying I don't remember exactly what I said in
July of 1981.
Senator SARBANES. Were you surprised after you had interviews
with McNamar and the Secretary of the Treasury and with the
Federal Board member Martin, that you did not have an interview
with Chairman Volcker-did not meet with Chairman Volcker?
Dr. SEGER. I've never been considered for this kind of job before.
I have no idea to whom one normally speaks and by whom one is
Senator SARBANES. Well, let's proceed on the assumption that
you're not an unintelligent person. Operating on that assumption
for the purposes of this question, didn't you find it somewhat amiss
that you talked to virtually everybody except the Chairman of the
Federal Reserve Board?
Dr. SEGER. AB I indicated yesterday, I didn't call the shots. I
didn't ask to be seen by certain people and not by others. I had no
idea what the usual procedure is. I had no idea if Chairman
Volcker was away. I honestly didn't know.
Senator SARBANES. You didn't wonder to yourself why you were
seeing everybody but Volcker?
Dr. SEGER. I didn't. In fact, you know, maybe it would have been
Senator SARBANES. Did it occur to you, that there might be some
reason for that? Did you have any idea in your own mind what that
reason might be, why you weren't meeting with Volcker?
Dr. SEGER. Maybe -being in the real world for 10 years did something to my judgment, but I know a lot of people who are hiredincluding executives at big banks-who are not interviewed by the
chairman of the board. I guess it occurred to me that what they
want to do is to have various people look you over when you're
being considered for any job. They don't just want it based on the
judgment of one person in the personnel office; therefore, they ask
various people to talk with you.
As I said, I hadn't gone through this before.
Senator SARBANES. No, I wasn't asking whether it was appropriate that you be seen by others, as well. I was just wondering,
asking, did it not seem somewhat strange to you that you were not
seeing the Chairman of the Federal Reserve Board when you were
being considered for appointment as a member of the Federal Reserve Board?
Dr. SEGER. That's what I'm saying. I guess it didn't seem that
strange, because when I have been hired by a couple of different
banks I wasn't interviewed by the chairman of the board or the
president. I was interviewed by high-level people, but not the top
banana. And so-Senator SARBANES. On the theory, the top banana may be too
busy and too involved?
Dr. SEGER. Or maybe I wasn't important enough or he was out of
town. But I just know-Senator SARBANES. Assuming the Chairman of the Fed is a
pretty busy person, what about the Secretary of the Treasury? How
come that top banana was not too busy and the Chairman of the
Fed, I guess on your assumption, was? Do you have any idea?

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Dr. SEGER. I didn't say that the chairman was too busy. I said I
didn't know.
Senator SARBANES. And it didn't seem strange to you?
Dr. SEGER. No, it didn't.
Senator SARBANES. No, what is your view of the independent role
of the Federal Reserve Board in the making of economic policy in
this country?

Dr. SEGER. As I was discussing with Senator Proxmire yesterday,
obviously, the Fed is a creature of Congress. Your predecessors
passed the law in 1913 creating the Federal Reserve System, so, obviously, the Federal Reserve is ultimately yours to structure. It's
structured now under a certain law and other laws obviously can
be passed to change the structure. There's no doubt about it.
As I read the history of the Fed, it seemed that they took steps
when they did structure the original system to select seven Governors, first of all, and to have their terms end in alternate years and
to give them long enough terms to supposedly remove the Federal
Reserve from everyday political pressures. But that doesn't mean,
as I see it, that they are or should be completely immune to Congress, because, as I said, ultimately the Fed is your creature.
Senator SARBAN~. Leaving aside the relationship of the Fed
with the Congress and your observation that it should not be completely immune to Congress, what is your view of what the relationship should be between the Federal Reserve Board and the
other departments in the executive branch?
Dr. SEGER. Again, I believe in an independent Federal Reserve
System and, as I understand it, the deliberations at the Fed are
based on analyses that their staff members prepare. When I was a
low-level staff member in the 1960's, I could see what was going on
then, but I have not been involved with it recently in person.
There is independent judgment there of economic developments.
They do their own forecasting, look into the future and try to
decide what the appropriate moves are to take. At the same time,
we do, in this country, have certain general economic objectives, as
I recall them from the Employment Act of 1946, which indicate
that all of our economic policy-at least, ideally-should be directed toward having the economy move at or increase at a sustainable
rate, that we should have high levels of employment, and that we
should have price stability. I think that goes back to that piece of
legislation that an earlier Congress passed. I think that, again, the
financial community would be much more satisfied if they thought
that everybody in Government was shooting toward the same
goals, and that even though they have differences of opinion about
the exact way to get there and the exact amount of tinkering to do
to hit those goals, that everybody was in the same ballpark and
playing the same game.
I think that we do need to have some communication, let's say,
between, the Council of Economic Advisers we should hear what
their concerns are and, have the Fed aware of what the CEA's concerns are. Not that they're bossing the Fed, but that you are com-

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municating with each other. I don't think that necessarily damages
the independence of the Fed. The CEA's not calling the shots.
Senator SARBANES. Mr. Chairman, my time is up.
I don't know if you have some questions, but if Senator Riegle,
perhaps, would defer while I'm on this subject, I'd like to pursue it
The CHAIRMAN. Well, if the Senator would not mind yielding for
today, I do have a conference with the House Banking Committee
on an issue with Congressman St Germain and the only time we
could find was to start at noon with the Conference, and we lose
the room at noon as well.
I would come back and would again repeat, that we will reconvene at 9:30 in the Senate Banking Committee chambers.
Senator Riegle has indicated he cannot be here until 10 am. If
you could be here at the beginning, you could certainly be first to
pick up your line of questioning at the beginning of the hearing.
Senator SARBANES. I don't know my schedule, but I'll make every
effort to be there. Fine. Thank you.
The CHAIRMAN. Also let me just ask unanimous consent. For the
record, I do have a large number of letters of support from various
individuals in Michigan in support of your nomination, including
one from Paul McCracken. I'll just quote one paragraph out of that
In my judgment, Dr. Seger would be a natural for the position. She has intellectual ability, tough mindedness and experience in the realities of banking during her
period as commissioner of banking here in Michigan. She could hit the ground running in the Federal Reserve Board.

I would ask unanimous consent that all of these letters of support be included in the record at this point.
[Letters in support of Dr. Seger's nomination can be found in the
The CHAIRMAN. We do appreciate your patience, and I have neglected to ask one thing, as I have announced arbitrarily here the
time. I suppose it would be nice and kind if I would just ask you if
you could come back at 9:30 in the morning?
Dr. SEGER. I'll be here.
The CHAIRMAN. All right. We'll look forward to seeing you in the
morning. Thank you very much.
The committee is adjourned.
[Whereupon, at 11:50 a.m., the hearing was adjourned, to reconvene at 9:30 a.m., Thursday, June 21, 1984.)

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Washington, DC.
The committee met, at 11 a.m., in room SD-538, Dirksen Senate
Office Building, Senator Jake Garn (chairman of the committee)
Present: Senators Garn, Riegle, and Sarbanes.

The CHAIRMAN. The Banking Committee will come to order.
Dr. Seger, I appreciate your patience. Once again, without even
consulting you, we changed the hearing time from 9:30 to 11. The
Senate was in session until 4:13 a.m. I remember very precisely we
were in until 4:13 this morning, so if I fall asleep in the middle of
the questioning I want you to know it is not personal. At 20, it
didn't bother me to go to bed at 4 and get up at 8, but at 51, it
does. There's no doubt about it.
We do appreciate your patience and willingness to accommodate
your schedule with that of the Banking Committee.
Let me start off by once again saying that as we start this session today, I believe the issue before this committee is simply your
qualifications to serve on the Federal Reserve Board; there are
some other extraneous issues, that I tried to point out in other sessions, I do not think bear one way or the other on whether you are
qualified to serve on the Board.
But, the issue does include, in my mind, maintaining the independence of the Board from a partisan point of view, not only from
a partisan point of view, but simply Congress and the administration-whether it is this administration or any other.
I feel very strongly that even though the Fed is a creature of the
Congress, nevertheless, it is fundamentally important to maintain
its independence. I think anyone who objectively views the Federal
Reserve Act can see that the intent at a 14-year term was to maintain the independence of the Fed and avoid politicizing the process-I am not talking about partisan politics at this point-the
intent was to avoid politicizing the process, so that Presidents,
Congressmen, and Senators were not able to dictate monetary policy.
We obviously control fiscal policy. I don't think that anyone'
would agree that we have a very good job with that. I have often
used the example in speeches and here in the committee, that
when I was mayor of Salt Lake City and needed a fire chief, I did

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not go to the Utah State Prison and interview the arsonists out
there to find out who should be the new fire chief.
When I look at the record, through not only the 10 years I have
been here but a long time before that in Congress with both Republicans and Democrats serving, the record is self-evident that we
have done a terrible job with fiscal policy.
We have $1.5 trillion national debt. We have interest on the national debt in excess of $125 billion.
I would hate to have the same people that have been managing
that fiscal policy being able to dictate the monetary policy of this
country. We have some specific examples of that; 10 years ago,
when I first arrived here, Congress was trying to mandate legislatively the monetary targets at various high levels, far, far beyond
what Arthur Burns at that time wished to do.
So, it is not really a question as much as a statement that when
you are confirmed, I certainly hope you understand my attitude
about the independence. I may yell and scream at you as I do with
Volcker at times, and I won't be hesitant to express my viewpoint.
The point I'm making is that, as a member of the Federal Reserve Board, any member of the Federal Reserve Board ought to be
able to say "I disagree."
I certainly would not want to put controls on anyone expressing
their views, but the independent nature of the Fed is very important to me.
I think one of the things that is very important in your background and qualifications for this job is the fact that you have been
a bank regulator in a very large and important industrial State. A
State, which, as my friend from Michigan has outlined very well,
over the last few years has had much more difficulty than a lot of
others-certainly more than mine. Higher rates of unemployment,
being one of the older industrial States, being hit very, very hard
by the recession.
And so I think your experience in that kind of environment in
Michigan will be very helpful with some of the difficulties we have
with institutions all over the country. And I believe your experience would give you some insight, as a member of the Fed into the
supervision and regulation of financial institutions all over the
If you can explain briefly, while you were in Michigan, in that
position, what experience did you have with failing banks?

Dr. SEGER. During the 2 years 1981 and 1982, which as you indicated, were extremely tough ones for the economy and also for the
financial institutions, bank savings and loans, and all other types,
we actually managed to contain the damage. We had one bank failure. That was a small bank, a little under $20 million, in a small
town near Ann Arbor, Ml. We worked .:very diligently-obviously,
we had other problems-we worked very diligently to get.another
bank to acquire it before it actually went the full route toward failure.
Various banks backed out of the deals or the regulators decided
that the bank that had shown an interest really should not acquire

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this bank, because it might have some problems of its own; the
Federal regulators were concerned that adding these problems on
top of the acquiring bank's own problems might be the straw that
would break their back.
Consequently, we ran out of all of our options and had to end up
getting this bank declared insolvent and placed into receivership.
The FDIC, of course, was made the receiver.
We had a number of others that were in very bad shape, but we
were able to arrange "shotgun marriages" for them, we were able
to get them acquired by holding companies, and therefore prevented the newspaper impact of showing a failure. I think when you
are already depressed and the psychology in the entire State is
very negative, you don't want to add insult to injury by having still
more emphasis put on our problems.
What impressed me though, at the time, was how very difficult it
is to contain these problems. Once a bank gets into trouble and
these problems stack up, there is a cumulative effect; and it is like
the momentum that builds, I guess, in many other aspects of life.
The momentum is positive as you go forward. If it is a negative momentum, it is always hard to stop that. It took a lot of hard work.
It took a tremendous amount of telephone calls, personal contact,
running around trying to get the various people involved so as to
contain the damage.
That was the basic experience that I had.
The CHAIRMAN. As a former State regulator, I would assume that
you would strongly support the dual banking system. From that experience, what role do you think that the Federal Government
should play in the supervision and regulation of State-chartered institutions?
Dr. SEGER. You are right that, as a former State regulator, I do
have views about this philosophy; we certainly need a dual system
and we need to have more input to regulation than that coming
just from the Federal Government.
The Federal role at the moment for State banks is, of course,
that if you are a State bank and a member of the Federal Reserve
System, then you have two sets of regulators to deal with. You
have the individual State and then you also have, of course, the
Federal Reserve examiners to deal with.
If you are State chartered, but are not a member of the Federal
Reserve System, then you deal, again, with two sets of regulators,
those at the State level and with the FDIC. That is the current arrangement.
If the bank is a part of a holding company, then even though it
is not a member, the holding company has to deal with the Fed.
In terms of my attitude toward changing this and toward improving it, I certainly support the recommendations of the Bush
task group report, which would take the FDIC out of the business,
basically, of regulating and supervising banks. It would leave them
primarily as the insurance agency for commercial banking. It
seems to me that there is a lot to do just right there.

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The Federal Reserve's role would be changed, in that they would
take on the State banks that are being given up by the FDIC, and I
certainly think that is OK.
Ultimately, though, the individual States would be given more
authority and more responsibility than they now have-at least
that is the way I read this recommendation-and the amount of responsibility that would be given to them to regulate and supervise
would be based on certain criteria that are set up, and they would
have to be certified.
In other words, you don't want to turn this over for straight philosophical reasons, and then rmd, in fact, they don't have the necessary staff, or they don't have the dollars allocated to them, appropriated to them, by the various State legislatures to do their job.
I think that there is a role for the Federal Government in regulating State-chartered banks. I think it is basically one of cooperation, one of support-again, having the Federal Reserve perhaps
work more closely with the States in getting examiners trained, or
in suggesting improved ways of doing things.
In a State such as Michigan, in 1981 and 1982, we had terrific
budget crunches. One year we had our budget cut 25 percent, and
it was very difficult to live with that kind of a cut in a crisis environment. Possibly there would be a way for the Federal Government to inject some dollars in such a crisis to support the system
and keep it operating well.
That is my philosophical approach of getting things done well, of
having the supervisory process work better.
AB I indicated yesterday and the day before, I think we really
have to do this in order to get to the bottom of the problems.
The CHAIRMAN. To follow along on that, that general sense, what
should we be doing-when I say "we," I mean the Congress, the
Fed, the other regulators, State and Federal-what should we be
doing to strengthen the banking system?
We are right now in a period when virtually every day we are
hearing about the weakness of the system. Continental Illinois has
certainly brought that to the forefront. The rumors are far worse
than their actuality. But nevertheless, there are some real problems out there.
Generally, what would you recommend to strengthen the
Dr. SEGER. I am going to back into that by commenting just a
second on what contributed to some of the big problems that we
have had in the system the last few years, and that have weakened
the system in the last few years, and I think these were basically
economic problems.
In the 1970's, going back to about 1973, we had a tremendous
amount of economic turbulence and several very severe recessions.
We had numerous business failures. The oil embargo was a tremendous shock to the U.S. economy.
Later, in the 1970's, we had this tremendous outburst of inflation. We had interest rates going to unprecedented high levels in
the late 1970's, and very early 1980's, and this was an environment
in which banks and other financial institutions, as a matter of fact,
found it very difficult to operate. They are out there and they operate in a certain environment, in a certain economy, and they

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cannot isolate themselves or insulate themselves from all those economic tensions and pressures.

Using that to answer your question about improving the banking
system and the stability of the financial system, I think we have to
concentrate, No. 1, on the fundamental economy and to make sure
that our economy does run in a noninflationary fashion. If that is
the case, then presumably, we would not see interest rates go
through the roof once again, which would put these institutions in
a very severe bind once again.
Another way that I think we can improve the system is, through
supervisory actions, to urge the management of these various institutions to get on top of things, to get the management thinking in
terms of asset-liability management, to get them conscious of the
need to match the liability side with the asset side. Interest rate
deregulation, going back to 1980, made this more urgent.
Although I still think dereg w(lS a good idea, a number of banks
were sort of caught by surprise by that; all of a sudden the interest
rate ceilings were being pried off on their liability side, on their
cost of funds, and yet they had made these commitments in prior
years on the loan and investment side. To the extent those commitments were very long, if they were made at fixed rates, then these
institutions were put in a tremendous squeeze.
I think there is such a thing as preventive medicine-by encouraging them to pay more attention now and in the future, in terms
of new commitments, and to make sure that they don't continue
with this mismatch.
I think, as a matter of fact, some of this is going on, and we are
educating bank management to the need to manage in a different
way than they used to back in the 1950's and 1960's, when times
were much less turbulent, and also when deregulation had not occurred.
There are, I think, some other ways to strengthen the system
which involve, for example, revisions in deposit insurance and the
way that is handled.
Putting the emphasis on market discipline will feed back presumably to the directors and the active management of these institutions, to do things in a way that will allow the institutions to be
profitable but will not be so risky; that will at least stabilize the
That is a long-winded answer.
The CHAIRMAN. Thank you. Senator Riegle.
Senator RIEGLE. Thank you, Mr. Chairman.
How are you this morning? I hope you were not up as late as we
Dr. SEGER. No, I was thinking, I am of his generation, and I need
sleep, too.
Senator RIEGLE. Yes. We have really been burning the midnight
oil around here.
The CHAIRMAN. Midnight wouldn't bother me.

36-314 0 - 84 - 11
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Senator RIEGLE. It is the 4 a.m., that really stops us. So we may
be working at slower speed today, as a result of these late hours
that we have been keeping here.
Are you familiar with this publication, the "Daily Report for Executives," that is put out by the Bureau of National Affairs?
Dr. SEGER. I don't subscribe to it.
Senator RIEGLE. Well, it is a very widely read, subscribed to, and
circulated publication in the Washington area and tracks important legislative developments and business-type matters. It is one
of the leading journals that would be widely used here in Washington and I think beyond, but principally here.
This is today's issue, June 21, 1984.
There is a major story here on the Fed which I want to read to
you, and then I am going to ask you some questions about it, and
your reaction to it, and your feelings about it.
The story relates, by the way, directly to your nomination and
the whole sort of movement of events here, so this is the context in
which I present it to you.
The headline on the story on page L-8 of today's issue is captioned, "Federal Reserve, White House OK's GOP Platform Planks
Severely Critical of Fed Policies."
I am going to read to you verbatim what it says here, because I
think it is a very important thing for us to get into. This will be
direct quotation, unless I say otherwise.
With approval from top-ranking White House officials, GOP platform organizers
have drafted a series of planks severely critical of current Federal Reserve Board
policies and calling for reforms that would bring the central bank under some control of the present B and A, this organization has learned.
Among reforms in the latest draft of the Republican platform documents are proposals to have the Treasury Secretary made an ex officio of the Federal Reserve,
and make the tenure of the bank's chairman coterminous with an incoming presidency, these officials said.
The basis for some of these reforms and the harshness of the proposed planks,
according to Republican officials, is a 1983 Treasury Department memorandum that
reviewed the mandate of the Federal Reserve Board and how its current policies
jibe with administration attempts to shape economic policy.
The conclusion of the Treasury report, the administration officials confirmed, was
sharply critical of the Federal Reserve, especially of Federal Reserve Chairman
Paul Volcker, whose monetary actions at the time were considered to be inconsistent with the administration's budgetary and tax policies.
Although the 1983 study for Secretary Regan has been kept under wraps within
the administration, the basis of the Treasury report has been used to develop a Republican-backed bill designed to make the Federal Reserve more accountable to the
public through the White House.
The House version of the bill, H.R. 5459, is sponsored by Representatives Jack
Kemp, of New York, and Trent Lott, of Mississippi. In the Senate, the bill S. 2620 is
cosponsored by Senators Jepsen from Iowa and Mattingly of Georgia.
Basically, the two bills seek, according to congressional aides, to "modernize" the
Federal Reserve by making the Treasury Secretary and the Council of Economic Advisers' chairman ex officios of the Fed, making the Fed Chairman's job coterminous
with the Presidency, reducing the tenure of the Federal Reserve members from 14
years to 7 years, and requiring the minutes of the Fed Open Market Committee
meetings to be made public within 24 hours. Currently, the Fed releases FOMC
meeting minutes available on the Friday following the next meeting of that committee.

The CHAIRMAN. Would the Senator yield for an editorial comment from the chairman?

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Senator RIEGLE. I always yield to the chairman.
The CHAIRMAN. AB a member of the GOP, I assure you-you
were not here for all of my opening remarks about the independence of the Fed-that will never see the light of day while I am
Please continue.
Senator RIEGLE. That is encouraging, because when I was reading the cosponsors of the bill in the Senate, the chairman's name
was conspicuously absent.
The CHAIRMAN. Deliberately absent.
Senator RIEGLE. Well, I think that too, is an important factor for
us to weave into the fabric of what seems to be taking place.
To continue, and I am about halfway through here.
The Joint F.conomic Committee held hearings in mid-May and early June on the
Federal Reserve on ways to bring about some reform such as those outlined in S.
2026 and H.R. 5459. Jepsen, who is JEC chairman, called as witnesses before his
panel, both Mattingly and Kemp, among others, who have sponsored the two bills
and would like to see the Federal system of accountability altered substantially.
Currently, the Fed is accountable only to Congress.
Congressional officials said that administration officials were not called to testify
before the JEC hearings because of "political fallout" that would have resulted from
any criticism of the Federal Reserve. The administration would have been charged
with "political sniping'' in a political year.
Moreover, an administration official said the White House is attempting to hold
down any criticism of the Fed because of concern that it might affect the current
economic exJ)llllBion. The Fed is working "within its monetary targets at the
moment," a Presidential assistant said. And while the President and others think
there could be some easing of the monetary reins, "We are not going to complain
about Fed policy at this rate," he said. At the same time, however, GOP officials
contacted by DNA

this organizationsaid they feel it's extremely important "to bring more accountability to the Fed"
whose policies for the past 2 years have been "at times at odds" with those of the
White House and the Congress.
GOP platform drafters say they have drafted language that some may consider as
"extremely critical" of the current Federal Reserve Board. However, "It's time that
we brought monetary policy in line with fiscal policy" at the highest levels of Government, a GOP leader said. It's time we have a better focus on what is monetary
policy and where we are going with it, another Republican official noted, and one
way to bring about such direction is to make the Fed accountable to the President,
the official said.

This is the last paragraph.
Therefore, the GOP platform will call on Congress to make the chairmanship of
the Federal Reserve coterminous with the President, allow the Treasury Secretary
to be a member of the Federal Board of Governors, provide staff liaison between the
Fed and the White House, and require the Fed Chairman to regularly report to the
President on activities of the central bank which are in support of the administration's economic and tax policies.

That is the end of the piece.
Now, this is a pretty important piece of journalism, it seems to
me, because assuming that it is accurate, I think it means that an
attempt is underway to change the independence of the Fed along
the lines described here. And I think one can take that information
and look at that, and one could say your nomination has been, I
think, handled in a different manner than has normally been the
case. In the case of your interviews, the Federal Chairman was not
involved in the interview process, whereas the Treasury Secretary
and Preston Martin were.

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If you take these events, it starts to look as if there may be a
pattern of an effort here to try to both change the way the Fed has
historically operated, and change the procedures in which people
are being presented for membership on the Fed Board. And I am
concerned about the possible connections here. You are certainly
astute enough as well to be concerned about it, also.
There are several questions I want to ask you. You have previously described your meeting with Treasury Secretary Regan, and I
am wondering now as we go through the various topics suggested
here, if any of these particular subjects-not in this context as
such, but the subjects of changing the term of the Fed members or
making the term of the Chairman of the Fed coterminous with the
President, or having the Treasury Secretary as an ex officio
member. Were any of these matters touched on in your conversation?
Dr. SEGER. The answer is no. But let me just comment.
I haven't seen the article you just read. I have not seen the GOP
platform or any of that. I have not seen a paper this morning. But
the Fed staff showed me the bill that Congressman Kemp has introduced, so I had seen those proposals. I had heard those from the
Kemp bill. I have not discussed them with the executive branch.
Senator RIEGLE. Who gave them to you?
The CHAIRMAN. Senator Riegle, could I interrupt you for just another moment?
What I want to say, so you can continue your line of questioning
as long as no one else is here, why don't you just continue for a few
Senator RIEGLE. At any point, if the chairman wants to come
into the act, I will unhesitatingly yield.
The CHAIRMAN. I just thought, since nobody else is here, you
might just as well continue.
Senator RIEGLE. Thank you.
You say that someone on the staff gave you the Kemp bill. Who
would have given that to you?
Dr. SEGER. I have been given copies of current legislation by the
congressional liaison office of the Federal Reserve. Within that
package was the so-called Kemp bill, so I have seen the recommendation. I didn't know it was part of the GOP platform. I have not
seen that. I am not on the committee. I have seen some of those
recommendations from these bills that they have shown me.
Senator RIEGLE. So this was in the packet of materials that you
were given, and you had a chance to take a look at the legislation.
What was your :r:eaction to it?
Dr. SEGER. As I thought I indicated yesterday and the day before,
I firmly believe in the independence of the Fed. I indicated that
before. I also said that I felt at the moment Fed policy was appropriate. Monetary targets-as approved in February-are reasonable
and monetary growth generally is within the targets. M3 is a little
above the upper band, but the others, Ml and M2 growth, were
within the bands. Based on how the economy has been goingwhich I felt was a good, strong economy with growth of the nonin-

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flationary variety-this is the acid test. I was not critical. That was
what I said then, that is what I meant, and now I would certainly
confirm it at this point.
Senator RIEGLE. Do I take that to mean that you would not think
these changes are needed, that you would not recommend the
kinds of changes that I was just citing, which are in that proposed
Dr. SEGER. The one proposal that I have heard recommended far
before Congressman Kemp put his bill in-back in the 1970's,
even-was the idea of keeping the terms of the members at 14
years, but of making the chairmanship coincide more closely with
the term of a President, any President.
Of all the things that you have ticked off, that would be the one
item that I guess I can put closer to the top of my list of changes
that possibly would be considered. I don't think, myself, that that
would be that compromising to the independence of the Fed. I may
be wrong. I have not lived with that system, but that is sort of my
Senator RIEGLE. Let me go through the others specifically.
What do you think of the idea of making the Treasury Secretary
an ex officio member of the Federal Board?
Dr. SEGER. I guess I have a problem with that.
Senator RIEGLE. You would not favor that idea?
Dr. SEGER. I would not favor it.
Senator RIEGLE. And what about the Chairman of the Council of
Economic Advisers as an ex officio member, would you favor or
oppose that?
Dr. SEGER. As I said yesterday and the day before, I am in favor
of making sure that all the people involved with making economic
policy speak to each other, so we are all heading toward the same
general targets of improving our economy. I certainly would back
that. But in terms of the particulars, of actually placing them on
the Fed or on the FOMC, as I said, I would oppose it.
Senator RIEGLE. So you would oppose this also, making the
Chairman of the Council of Economic Advisers an ex officio
member? Dr. SEGER. Yes, sir.
Senator RIEGLE. I might say, I agree with your suggestion about
people trying to have more cooperation, and hearing each other's
You are new to town but we have had sort of a celebrated hairpulling contest going on here among the economic advisers.
The CHAIRMAN. I lost on that one.
Senator RIEGLE. As you can see, the chairman came out a little
short. So did Dr. Feldstein, who is on his way back to Harvard. I
am not sure where David Stockman is, but I know he is in town
and still working, but I gather he is sort of on the other side of the
argument also.
Dr. SEGER. I haven't seen him.
Senator RIEGLE. You haven't seen him either? Well, that is even
more significant than that he has been taken out of public view for
some reason or other.
But there is a very substantial argument underway within the
administration on the relationship of deficits and interest rates.

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Some people think there is a relationship and other people say
there is no relationship.
At the moment, the only two people that I can find who think
that there is no relationship are the President and Secretary
Regan. But they are very important players. So the fact that they
may be the last two people who feel that way doesn't mean that
this is not a significant fact. Because they probably have more
impact on policy, at least with respect to administration policy, in
these areas than all the rest of the people put together.
Virtually everyone else has come out the other door now, and
there is a very strong consensus of opinion across the spectrum of
economics that there is a very substantial relationship between
deficits and interest rates.
We are having the largest deficits in our history, and at the
same time now we are getting record high real-interest rates, the
amount of the nominal interests over and above the inflation rates.

Given the fact that this struggle is under way and it's been very
much reported upon in the national press, this has not been a quiet
war or struggle within the administration, it seems to me that that
is also woven into the fabric of what may be taking place. Perhaps there is an attempt by the administration to change the composition of the Fed, the term of the Fed, the policies of the Fed. It
is even possible that you may be seen as part of that, correctly or
incorrectly, because when you were introduced by the President at
the White House, and you indicated you were grateful, as any of us
would be in your situation, you said, "I would like to thank the
President because I support everything he is doing."
Well, everything is a lot. Everything means everything, and it
doesn't say most of the things; it says everything.
This also lends itself to the interpretation that, ·in terms of the
policy areas which you are most involved with, economic policy, financial policy, monetary policy, if you make that kind of a blanket
statement presumably it would apply most directly to these areas
of your work and professional background.
I think it lends itself to the question, and possibly to the supposition that you may very well hold exactly those same views, therefore you would not think there was any material connection between interest rates and deficits. As a result, when you go on the
Fed Board, you in a sense become a person who can reflect that
different point of view. How do you respond to that?
Dr. SEGER. I don't know where to start; you made so many
First of all, regarding deficits, yesterday and the day before, I
talked about the connection between deficits and interest rates. I
said that the deficits were a factor, and I think I gave you three
ways they are connected, so I don't recall denying a connection.
In terms of the President or Secretary Regan saying that there is
no connection, as I said, I haven't heard either of them say that to
me personally. I have read newspaper accounts of it.

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By the way, I had never met the President until I met him in the
corridor walking out to the Rose Garden, so we didn't have a
chance to chat.
Senator RIEGLE. You didn't get a chance to persuade him that
there is a relationship between interest rates and big deficits?
The CHAIRMAN. My colleague invited me to interject.
Let me say that the Presldent was worried about deficits before
Senator Riegle and I were born and I happen to be part of the Republican leadership, we have neglected the Rose Garden strategy.
I was in at least twice a week meetings. I have been down there
at least once every other week for the last 3 ½ years. There is no
one in this town that is more concerned about deficits than the
President. Obviously, we have differences of opinion on how that
deficit should be reduced, sharp disagreements among Members of
the Senate and the House.
So, how the President wants to reduce the deficits is an issue
that certainly my colleagues would disagree on and has been
widely publicized for a long time. But I do think it's unfair to indicate that the President is not concerned about deficits or that he
does not believe that there is a connection between deficits and interest rates.
All I can say, if I didn't just meet him yesterday, I have been in
all of those meetings and I know exactly what he said over and
over and over again. Once again an honest difference of opinion between my friend and I on how deficits should be reduced. The .
President is just as concerned as anyone that I know in this country about those deficits. It is a disagreement on how they should be
reduced and he does believe there is a connection between high
interest rates and the deficits.
Dr. SEGER. I just want to make sure that people understood that
we hadn't chatted for a half hour before. He didn't tell me-in fact
he didn't have time to tell me-anything about deficits or interest
rates. I just want to get that on the record.

In terms of my statement out there, it was not a prepared
speech. I didn't think I was going to have to say anything, for a
hick from the Midwest, that experience is sort of overpowering, so
you have to forgive my lack of composure. I did call over and see if
someone had recorded what I mumbled and I was told I said, "I am
really grateful. I'd like to thank the President because I support
everything he is doing." The rest of the sentence is that I think
getting our economy back on the track is the best way to keep
America great. If you want the whole thing, the accurate statement, although this wasn't from a text, this is what they recorded.
It was in that context, looking at the overall economy; I was not
talking about every little single step he had ever taken or might
take. I was looking at the big picture, his moves on getting inflation whipped, getting the economy sound.
Senator RIEGLE. I appreciate you reading that and I have the
same statement in front of me that you have just repeated. You
can see why in the context of your remarks and the event at which
you were being introduced, the phrase "because I support every-

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thing he is doing"-! mean the weight those words tend to carry-Dr. SEGER. In the context of the whole sentence, I don't think it's
quite as stirring as if you just put the period after "everything he
is doing."
Senator RIEGLE. Well, let me ask you then. From what you have
just said, there are areas where you do have some differences of
opinion. You obviously weren't highlight~ng on them that day nor
should you have been, but you obviously have some differences of
In the area of economic policy or financial policy, what are these
Dr. SEGER. I wouldn't make a blanket statement that I support
every single thing he is doing or has been doing. I just wouldn't be
inclined to make that broad a statement. I was talking about the
economic area. Maybe in the business world we use the term "policies" differently, but policies are big things and they don't involve
looking at every little detail of how you carry things out.
That was the context in which I was making that statement, the
direction in which he is trying to get the economy moving, in that
context I think his policies are appropriate. I had not cataloged
every detail in my mind, 2. seconds before I went up there. Basically, in fact I would say this today, I think we have got the economy heading in a good direction, and I think a lot of his policies
have something to do with it.
Senator RIEGLE. Well I think each time you can help shed more
light it's helpful.
But I want to say again, you say "because I support everything
he does." In a sense you are repeating it now, in that as far as the
general thrust of things that you know, you see things as he does.
But you have some areas where that is not appropriate, where you
have some differences. It wouldn't have been appropriate to say
them at that session there in the Rose Garden, but it is appropriate
to say them here and that is what I am asking. Because I think the
question has to do with the degree to which you do _think for yourself. You do have your own ideas, there are times when your ideas
are different. You have the strength to express those ideas when
they are different. You have the ability in the cross-examination to
articulate the differences, and nobody is trying to get you to say
something you don't want to say.
The point is we are trying to understand what your views are.
Dr. SEGER. I understand.
Senator RIEGLE. And I want to also say it's in your interest for
those things to be known. Ifs not in your interest for them not to
be known. I know it takes a while for me and it takes a while for
you, but that's the only way we are going to know.
It goes back to the earlier thing if your views were broadly
known, if they were in print or generally known, we woulqn't have
to go through all this. But because they are not and because we
don't know what you would have said.
Dr. SEGER. I am willing to answer this.
Senator RIEGLE. Very good, please go ahead.

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Dr. SEGER. That day out there I hadn't seen the Kemp bill. I
honestly didn't know whether the President wanted the Secretary
of the Treasury on the FOMC.
I wasn't thinking in particular terms. I indicated a few minutes
ago that if it is in the Kemp bill, if it is a part of the GOP platform-which, as I indicated, I have not seen-I do have problems
with the Secretary of the Treasury and the CEA being on the
Senator RIEGLE. I am going to come back to that and finish my
line of questioning and then yield-Dr. SEGER. I'm sorry.
Senator RIEGLE. I don't want to stop you if you would like to add
Dr. SEGER. Those are two immediate examples of disagreement.
Senator RIEGLE. I will come back to the others in a minute.
A second ago when you said that-and I am paraphrasing so you
can state it again precisely in your words so the stenographer
doesn't have to read it off the record-where you were in general
agreement with the President is that we are on the right track,
things are moving, you feel pretty good about the economy and the
econom~ is showing strength.

Dr. SEGER. Yes, recovery is in the air.
Senator RIEGLE. I want to ask you then on that front the same
question that I asked you yesterday. I asked you on a scale of 1 to
10, the level where you thought the automobile industry was. You
said about 5.
Where do you think the national economy is right now on this
kind of scale in light of what you've just commented, about feeling
pretty optimistic about things.
Dr. SEGER. I don't feel as comfortable with this grading system as
I do as a professor grading quizzes. But-10 is the worst, right?
Senator RIEGLE. Yes, and I think we were using 10 as indicating
big problems, big alarms, so I think in this instance the lower the
number the better you feel about the economy.
Dr. SEGER. Looking at it that way, I would say, if you are talking
about where we are right today, we are somewhere between 2 and 1.
------senator-RIEGLE. So you feel really pretty darned good about the
way things are going overall?
Dr. SEGER. About the ability of the economy to throw off new
jobs; looking at our area, certainly I see people smiling again, auto
sales are not back -gp to what th~y were in 1978-79, I agree with
that point but they are much improved.
We have been able to keep inflation down closer to the 4-percent
mark than the 12- or 13-percent area, which is what it was in the
late 1970's. The GNP came out yesterday for the second quarter
which showed an annual growth a little above 5 percent.
As I look at the current state of the economy, as I said, I can't
guarantee the grade, but I see it up somewhere between 1 and 2.
Senator RIEGLE. I am going to end with this observation because
I talk to a lot of people in the financial markets. I was with some

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last evening as a matter of fact, some leading people from Wall
Street. As I talk to people in the banking system, in the securities
business, in other major financial organizations of national consequence, some in New York but scattered across the country, what I
am hearing from them daily, almost hourly, is a picture that is directly at odds with the one that you see.
It doesn't mean they are necessarily right and you wrong, but
there really is a profound difference between what I am hearing
from a broad cut of the financial leaders of the country and what
was just described.
I would say that their sense of unease or alarm or concern is up
in the area of somewhere between 8 and 9 rather than between 1
and 2. So we have a very sharp difference.
This is what they cite to me when they give me that bottom line
judgment about the Federal deficits. They think the Federal deficits are really killing us. The deficits are piling up an impossible
burden for the economy now and in the future, forcing up interest
rates, overvaluing the dollar, and a whole host of connected problems which they feel are now in such an extreme form that they
are deeply alarmed.
They cite this as a basis for why the bond prices have fallen so
much, the interest rates have risen so sharply, the uneasiness in
the stock market and the fallout of that being the fall-off in housing starts and some of the other areas where higher interest rates
are starting to cut in.
Then they take a thing like Continental Illinois, where the massive rescue took place in the name of preventing a worldwide financial collapse. You have got other financial institutions in real trouble. But if the high interest rate period continues we are going to
have a lot more.
We are going to have the savings and loan folks right back
where they were before we passed Garn-St Germain to try to give
them some help.
You have got the foreign debt problem with Argentina and the
other countries in very difficult straights. Things are not working
out there. You have the merchandize trade deficit continuing to
mushroom, now running at the $130-$140 billion annual rate. All
that money on the merchandize trade side leaving the United
States-and all the jobs that go with it.

The front page story in the Wall Street Journal says the middle
class is shrinking in this country. I don't know if you have had a
chance to see this story. It's the lead story in the Wall Street Journal of yesterday. It shows us that families with annual incomes between $15,000 and $35,000 made up 44 percent of the population in
1982, but in 1970 they made up 53 percent of the population.
This is adjusted for changes in inflation so that is an accurate
yardstick. I mean it's an incredible change in circumstance. We
are watching the shrinking of the middle class. Then some people
say, well, that range of income isn't a sufficient indicator. But if
you take a different bracket of income, say between $15,000 and
$25,000, and you find that as the middle class you see the same

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thing happening. By that measure the middle class has declined
from 28.2 percent of the population in 1967-down to 23.7 percent
in 1982.
So what I am hearing from those prominent individuals in banking and financial circles is that they are greatly concerned. They
are coming here in increasing numbers, taking out ads in the newspapers saying cut the deficit, do these things because if you don't,
in their view, we run the risk of enormous collapse. I mean a major
recession coming in 1985 and a recession of the kind that may be
more structural at that particular point. So you get a structural
problem or a series of sort of cascading events that you can't
manage, that is, what people were saying might have happened if
Continental-Dr. SEGER. What I answered wasn't what you asked. I thought
your question was, as I look out the window right now, how do I
see the economy doing. I read publications from a lot of these same
financial institutions, and their economists I think are viewing
things much as I am, if you just talk about how the economic recovery is going now.
If you talk about my worry list, looking out ahead, which I think
is what you are saying, I have a worry list, too. I distinguish between current analysis and a forecast. I think we were talking
about slightly different things.
Senator RIEGLE. So between the 1 and 2 on the 10 scale would
apply to what time period are we speaking about?
Dr. SEGER. The way the economy stacks up right today, I think it
looks good.
Senator RIEGLE. How about over the next 2 years?
Dr. SEGER. Now we are out into a forecast period, so I would give
you a different answer. That is why I said maybe I answered the
question-Senator RIEGLE. What would be the answer over a 2-year period?
It jumps up from a 1 to 2 today to what, if you look out over the
next couple of years?
Dr. SEGER. Over the next couple of years I think I would be
down. You have to make assumptions about whether the deficit is
dealt with. You see, I happen to think that the people in Congress
will deal with this problem. If you tell me they won't, then my concern would go from a 5 to a 10. But I happen to think that with all
the concern about it, it will be dealt with. Having said that, then
that is one item off my panic list.
Senator RIEGLE. Right.
Dr. SEGER. I certainly agree there are problems with the financial institutions. I dealt with some of them in 1981 and 1982. They
are not all gone. I don't think that they are unmanageable if we do
some things right in the economy. It's a lot easier for financial institutions to be nursed back to health if they are not on some sort
of a pogo stick riding down the road.
It's incumbent upon us to keep the economic environment as
smooth as we can to help nurse financial institutions of all types
back to health. As I said, maybe I am overly impressed with how
Washington does things. Not that we want to have another bank
failure; I am not recommending that at all. We have had 40 already, and there may be a lot more.
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Senator RIEGLE. So over the next 2 years you would say the
number you would pick on the 10 scale would be what?
Dr. SEGER. For the next couple of years I would say it would be
closer to 5 or 6, but in terms of assessing the immediate shape of
the economy, I feel very good about where we are right today. Not
that we don't have any problems.
Senator RIEGLE. Well, I hear what you are saying. I think I have
a little trouble with that, too, because in the real world of finance
and economic and ·financial decisions, nobody is making decisions
based on right now. They are making decisions now that are going
to kick in-that will have an effect down the road. So everything is
moving, everything is trend lines, everything is the sum total of
events. It's a dynamic.
So to take a snapshot of right now and not key that into everything that is propelling it and where we are heading and where we
are going, I don't know how useful that is.
Dr. SEGER. As an analytical matter, when I was a Federal economist, we had groups that worked on current analysis, following the
economy on an ongoing basis. That is called "ongoing analysis".
We had other people that worked ahead on forecasting. If you are
doing that, then you ask, what are your assumptions; you have to
make assumptions about what is going to happen over the next
year or 2 years.
Senator RIEGLE. I am going to finish here. This gets into a kind
of rosy scenario problem which we have had before. Because down
at the other end of the street, when I hear the President saying
everything is fine and dandy, that things are terrific now, and that
whatever the problems are, they are essentially self-correcting-Ms. SEGER. I didn't say self-correcting.
Senator RIEGLE. I am not saying you are saying this. I am saying
the President is saying this. That is the essence of the message that
I hear coming from that direction.
What I hear in the Congress, as a result of what my colleagues
are hearing from bankers back home, what they are hearing from
financial market people, what they are hearing from small-business people, what they are hearing from farmers, is entirely different. They feel a great sense of apprehension, a great sense of
alarm, a concern that this thing cannot last because we have this
enormous Keynesian stimulus going on at $200 billion a year. We
are spending ourselves closer and closer to impossible situations regarding servicing the debt, borrowing like crazy from abroad to finance it, and not saving enough here, and all kinds of problems we
have here. This leads, I think, to an increasing feeling of apprehension and concern in Congress on both sides of the aisle.
There are people that I have heard earlier, who are saying, "We
are in big trouble." This is a false paradise, if anybody wants
to describe it that way today. Things are not in sync. We are heading for a big fall, hopefully not like the one we got at the end of
the 1920's, hopefully one we can manage.
But strangely enough, 4 weeks ago when we decided to bail out
Continental Illinois, to the tune of $7.5 billion, the rationale that

Digitized by



was given was that if it wasn't done, the world financial system
would collapse.
Well, that is a pretty big reality that serious people believe. I
think a lot of serious people do believe it. You touched on it, delicately, but you touched on it yourself.
So I am saying that I am concerned about what I understand to
be your general sense of urgency about where we are going-what
the nature of the mixture of economic policies is, what are the dynamics at work, do they constitute a big problem, are they basically not much of a problem, are they essentially self-correcting? I
want to track that all the way through not only in terms of the
way you see these problems, but how that would likely come to
bear on the kinds of decisions you would be called upon to make at
the Fed.
What I am concerned about is: If the great bulk of opinion in the
country is that we have serious financial problems and big steps
need to be taken now to deal with them, and if this is not your
view or if your view is quite different from that-as is the President's, as I understand him-then that would make me very concerned about whether or not this is the kind of thinking we ought
to have on the Fed right now.
I will just finish it by saying it this way: It's all well and good for
some people in the administration to beat on Volcker, privately,
through the platform committee, or whatever other way, to bypass
him in terms of interviewing prospective members of the Fed and
what have you. But I daresay whether one agrees with him or
doesn't-and I don't agree with him all the time, nor does anybody
here on this committee probably-if he were hit by a truck in this
town-there would be panic in the financial markets-because he
is the only central player on these issues that most of the people in
the financial markets have any confidence in at this point.
I don't want the confidence eroded at this point, because our
problems are serious. I think it's a very fragile situation, and a lot
of steps need to be taken; and what I am interested in discerning in
you is your sense of urgency about these matters. I would have
that regardless of who was sitting there.
What I am talking about is the decision responsibility of the job
that you have been nominated to fill. That is what I care about,
but in this larger context. So I will have to continue, but I am concerned that I am not getting from you, at least as I have heard it
over the 3 days, the sense of urgency about our economic problems
and the need for some very substantial steps to be taken quickly
and strongly and concertedly.
I am not getting that, at least as it's hitting my ear. Now, if that
is not in your mind, then I want you to make-somehow clear that
up. So that if I am getting incorrect notions of what you are saying,
I want you to change that for me so that I really have it the way
that you would like me to hear it.
The CHAIRMAN. We will turn to Senator Sarbanes at this point.
Senator Sarbanes, we have not followed the IO-minute rule this
morning because there were only the two of us here, so I have
asked the clerk to give you another 20 minutes rather than 10.
Senator SARBANES. Thank you, Mr. Chairman. I want to express
my appreciation to you for continuing these hearings.

Digitized by



Dr. Seger, I think you need to understand it's in part made necessary by the paucity of any statements by you of your views on
these issues. Usually when we have nominees for positions such as
the one for which you have been nominated, in fact without exception, there's a bedy of material that members can examine which
sets forth the positions that a nonsense has taken, and usually
there's a public record of performance in various offices that gives
us some indication of the nature of his or her judgment.
The CHAIRMAN. Would the Senator yield for just one quick comment on that?
Senator SARBANES. Mr. Chairman, before I do that, I'd like in
that regard to insert in the record the biographies of the current
members of the Board of Governors of the Federal Reserve
System-in other words, of Chairman Volcker, Preston Martin,
Henry Wallich, Charles Partee, Nancy Teeters, Emmett Rice, and
Lyle Gramley.
The CHAIRMAN. Well, certainly I would be more than happy to
accommodate the Senator and those will be placed in the record.
[Biographical sketches of the current Board of Governors of the
Federal Reserve follow:]

Digitized by





_ __;_"-1"1r----


,__IDV!Hdl Chauaat, 8cmd of. o::,,,-.znon of
the flldeAl

....... _

Mlritlll llatua:

A., ..!.



all lMfflbwahli)t Ind of!kN held I" profnlionll, frlttmel, bull-. Khoftrf)',
tlvlc.ChlritlbM1ndothef0t11nln tlon1,

ftOfNl'lltlan:-""'ll=1/...c79,..__ __






Sa,,1 Jpy

llnrlcai. Friends of u:::nbi






Prlnmtc:n Utiwniity


Harvard t.)1J:vws1ty



I.m<bi Sc:h:101 of







1975 - PAIIDt


U2!i - nreeeot

Bd , of Directon

ot ra:rx:etce

1' Fo.indat.J.a\
llrR.rican National Rid em.a

tnde '!?Jeter - ~ - - - - - - _ _ _ _ _ __


pd. ol Directcn





olchlldrwr. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __
Daur;htar· Jmicw


Q:llncll a,.


Mayo Cl.inic:/Fou,dat.i.on

Trilateral O:Jllnia&La\

Bd. of TrUateu


of TD!8teM


Bd. of TrUateu

JQJ211)- pt'Mlftt:



Emplo)'ment '9COl'd: Uat below 111 pMition1 held sine. collep, includin1 the tltl• or dascriptlon ot job, NltM ot
employm11r1t. location ot work, i nd d•t• of inckl sive etn91oyment.






U. S. Truaury 1




Balk of Nw Yor1t, 33 Liberty St., N.Y ., N.Y.

Prinaitx:n lhiw.rsity, Pri.ncata\, N•.J . - Sm1or Fel.lcJw (Ala:, did


D.C, - \.hltr secretary

fW\hatun lllnk. N.Y., N. Y.-Y. P. 'Di.mcU)r or rorward!
U.S. Tre.uury, Wuhinqtai, D.C.-Oir., otfioe c t Fina'lci.&.l Ana lyaia and
Olp,ty lh:Ser Secxettq,




Honon and ll'IIIMtds: Utt MlcM ,11 ,chollnhlps, t.llowshfp.s, honorary dqrMI, mllttl,y ,,...... hanol"lry IOC'-'Y'
IMfflberw!lps. and any other spKial rwcacn1t1on1 foroutstandlne: seMceorac:hffllnent.

ldmin.iatraUa\ Fial.low - Harvard Utiwraity


Auletohllat~ Natia1&l.. Mmciatia,, of Buaineu F.a:n:ad.ata


W1.ll.iut r. Butler larlarn, N . Y. Cbaptar of NABE

0 .-...rd, Alexmder Hmniltcn Award, Sarvi.i;,e
.-..rd (U.S. 'InU:ury), Gmeral Iaalie GrllYN .-..rd




C?wl• Mllnhiltun Bank, N.Y., N.Y. - Fin.M\cial Ecaonist
sink of Nl!w 'toO:, jj St., N.Y., N.Y. FeduaJ.
1 Special AN_is~t
Sl.lrrrer joba - i.!lc:11..dinq fO•it.ia'l.s At U.S. TrllUUry and
[Aral 8uK'a Bfnlr- g( Net Xadc,



list any experience in or dirKt association with F.CS.ral. Stat•.
or local aov.,nm9nts, in•
cludin1 any advisory, consultat,ve,
honorary or olher part-time service or positions.


See Fl!ploytrent History



Departl'r"ent of cam.roe Balance of Paymenta
o:mnittee (1967•196§)
Advisor to a:mni.ssicn eri the Al!organJ.z& tlan of
for Fnmi91 Policy (•it•r:t=h¥ Ct:mniesia, " ) 0974 ~ t
~ t of Stam l\!View Board for H.ini.eten

Ult UM titles. publishers IAd detfl ol books. ertlcles.
you haw written.

or olhlr putlllshec:I materilte


ltemile all pclitical coritribvtiOf'IS of $500 or morw to
any individyal. cam~iln orraniH•
lion. poli1ic a1 party, p0!itital action eomm itte. or similar
ent ity durin1 !he IHI ••Shi
year,and identify the specific amoynts, dates. arldnamesof
therec:ipiant s.


State fully ,our qualifieatlofls to Mrw In the position
to which )'QI.I 9'lft bNn named.


I haw had a ai%ele nl.l'l'bar of articl.u, lectures,
rl!lp?rta and

apeectw• p.bluhed u or in boeu, in profeuialA l. ;)ournala,
period:i.eala, or in offieial p.lblicatien a tut haw rv:,



currw\t lla~.

Future,mploy mllflt

1. lndicat, whether )'OU will HYlf all con n.ctions with
your praertt 1mpio,.r, bullnna
firm. auoci411ion or orJlf\iu tion ii rou are tonflnnecl
t,y the s.n.t,.






rww poeit..l.CI\,

2. Al far as can be lorelNl't, state whather ~u ha""
any plans after compta1in1 ,:o-,i.
men! wrvic• to ' ""'me !ffllplo)'mtnt. ethliation or
practice with )'Ol,lr pt"ll'rious employer, bu11nes& firm, association oror,:1nizatio n.



a:oept. to axtat inheiwlt iJ'I.


and ICtlvUJes:

ll1t all memberships al'lc\ offitas h•ld in al'lc\ semen
rendlm 10 111 poffl:icll pertlu or
11ection comrnittfft durin1 !hi last 10 y11n.


3. Has anybody made you a commitmant to a job aftt,r
you laavie .,...mment1

4. Do you expect to_,.... the full term to, which you
hlwi bNII appoint«!?






f1f lnterHt:

11'\Ct.-,d lo,- the
h4 . l l1t .,,,. lobb)-i,_ 1ct lrity d urln1 t~ pHt 10 Y'H" k, wtl lr:h
p u ~ ol c1;r1C1ty or indirldly ,nll-int the p,assaa-, ~INI or modi fication al
of IQ\4mnwll or .tfKtlf'lf 1119 admln11hllkln and
-,.Y ,.,.,1,1ion II the rllhONII
uecuUon ol "itlonal • Ot l)Llbl!c policy.

or otMt
1. O.S.:ribe 1nr firi.11nci •I " '' " "" " "'' or deferrld comp.M'l~klft
continu in1 dealln1s with busineu auoo:i11n, cliionll or custC!fMA Who will be If•
will in flullnCe in trle position to }'OU ...... bNrl
'-cttd by pollCIN which


H::na .

hnaicln r l ~ fran NrV101 at Fadaral RitNr.. 8enk o1 N9W Yorlc..

CD\qr9U.ialal cxrit:AcU haw

in an-=tian with

off dutiea .




2. Ust a,,y lnwstments. oblis1tion1. liabllitiH , 01" othlf ,..i,1io1uhlp1 which mirtit im,oMI
oot1onli1I conflicts of interesc with the l)Otition to wh!Ch you haYe bNrl nominatecl.

ta11a,to9krotl.ld ;p.
5. upl~ nl'IOW'youwillrff0tve 1ny~lalconfllc1ofint etestthatma,btdllclo Mdbr
Your ,-po!'I . . . to the atiov. iMtnl.

3 . Oacnbe any buslneu ..-l ation5hip, d• lint o, fln11ncill tra nuction (otMI'" U1a,n tax•
payin l) tllhieh ~u have hid durinf t i-. last 10 ye1r1 with lhe Federal Govtmm1nt,
beha lf of I client, or K lin1 H an qerol. 1h11 mi1hl jr, a ny
wtleihef" lo, )'Ol,lf5otlf,
-1 constitute Of' r~lt ,n a pou rble tonftict of irrte,.tt with the position to whk:h you


l\"°'"inlted .


Ow, erimll"IM and



Craw to Ill' ~led9al •

iftf in ~ h )OU_,. e deftndlnt
l. GM 1719 lull deteib of ar,y tivtl Ot trimtnal ~
o, any il'l(luiry ()If i,,,,.,llpllon by a Fed.,.I. Slate, Of loca ..-,cy iro -wf'IKh you...,.
ltle~bte(:tof ltM1inquiryori~

O.fmdant in

mit, lj,lrolmt by

of JwilAl. 8NKYI Banka




W1nat PJ'Mia\tf

m [ldlral QiS?. l1fKMt Cbpli,ttat









2, QNII the full dat1ilt of any proc-Nd lnL inquiry or i,.,....liption b)' any prot.uion-'
•uoeiat ion !nc1udin1 '"1'f bar auociMion in 1lltlich you_.. ttie MObi«t of the pr.eNdinl, <nqui,y or ;,....,ci1aiion•





Digitized by






- - - - - --

~~• -•·

,t.,~lri ·- - - -

--- -

'°"'r:~~~w:naJ:..M'_...tbt_[e:dul.1...RellnLBoud.._ _Dlll!!~nation: August 28. 19?8 _ _

-.~?.~- Piece of birtft:_!1.rl.Q!!,._ 1.nJU•"'' - - -- -- -

Marilal ttatm: -llla'Jed...J26

~ } full narne ol lPOUtc:.loberLD---Ieetea.. _ _ _ _ _ . .. __ _

Name and alfl

""-·--olchildren:_:'nn Teeters __ _ _ 1:;.BLY:..c

' ' -· _ _ _ _ __
~•mes Schendel Teeters 17_,_
JQhn Pnke Teeters


~rnm-;-lft<ltlN·- -


Ober11n Colhge
Hf'Vilif.fn-Untverstty of ~ hi_g_•_!!_

- --- -~•-ffiel'I
Mfr-tcan Econc-1c Assoctatton
Ull tls t An. s.-, Na shvi lle,



Tenn-; - - - - - -


1974 -


· - -· ··· ·

1971 - 1974
Aaert can Ftna nce Assoctatton
lt:'f:-Vnt v:-;- Graduate School; Jr.TX:-·- - - --- - - - - - Nati onal t~on0111lsts t l ~ _D_1_r~tor, Y~_nj - _jj_6§..:..t_r.1,f!lj
-,it, Ch1tnnan
2000 N S"t. NW, 0 . C.

ilHe1~~~ ~~:~N~~ug_ - c~·-· - - . - ---~ ~--


~!~YJ~f~~~si~;-,s6~dl.llf £d~~g~rP~}i~!ttoniT

--WJ ..... fNMM



_.Att,_i,ory Jlo111_

- -



~ '!!!?_
(,npkiJment raeont: Uu bMoow all positions PM-kl since co1 r-... . lnc:lud'inc the tiOe o, dffcnotio,I of ;ob, ~ employment, 1ocatt0n ol -..ork, .nci datu of incknift ernpk)rrMnt.

1942- 1945
Martin Boots Jr. High
1\1 r ron~- ncit .frw - - -1945- 1948
Mlrt on High Scl'lool

-- -

Lill be4ow an m&mberahips and off,cu held i n ~ . fm'WMI, bua.lMM. Khola,fy.
cMc, c"-t'1la blt and other o,sa"'tatioM.




~ l p a:

..•L---1~_51-53 O b e r l ~ ~ t i i . J)ML__.b.r fo.,usu,jQh
Dt plcm.

- - -AB



tfil:j_LJR~!o~~M~Vf.n Ecnnrwtcs Deot
195S- S6 u9!~~~;{ 7ote~~~and_{Q~tr.>•nJ


1956- 57 Un!J~rs i tyLMi ch igan , ..f._tQllO!"'Jil..DcRL...Jocb1D9 f t] low
~ nn Arbor, Nid119 an
196Z- 6J





Ftsu l 1'.aNmliL_ __

1~~70~!~~f,,g~-o~~ t6" ~u.dUt._
• A_c_• d ~ ~ ~ ~s s2e,.t in German.l..,____
Honors .lnd a~rcb: Lisi below all 5.Chotarships, "1'.lo-.-. s~, ;: s. l'lc.i:>rilry dcrrees . m il ,t.>ry m~~ ~ls. !'. : -: - -~.... : • . ,f:'"I
mem berships, .:i.-:d •n'I oth•r sptc,al r.:cc~n,t1ons tor outst.:in.c!i11, scTY,c"- or .Jctuc.n:n~nt .

Sec ScheduJc A

1 ~~~~ ~1 ~~lo ~~s ttrion. ____ ___---5ertt0r_f.el1011t. _ _ _

1~73.:_7~~ _Lt;~;;{,~;f 5;~:i~!~s
1975•- Prt>St'n t

~cg~\-:-_ ~tni OL SQr'-.f I l 1st




Au is tant Director •
RepresentHives . C0f\r.1itttt
- - HoUse
_ _ _o_n _t_he Budg~t. _Wa ~hj_!:!9. t Q!1.. p. _c_. _ _ (a,ie!..EcCl!lv, jH _ _


• On

)o,n to

HOC br Ltbrtrx for one xe1r



THchtne Ft11cw




list any eJperience in or direct association with Fl!deral, State. or local govemm~ts, In•
cludina: any advisory, consultative, honorary or other parHima service or positions.

-- --- --·- -

-- - -- __ __

Social SecurftY,_;_•_ _ _ _ _ __ __ _ _ _ __

State fully ,our qualifications to serve in the position to which )'OLI have bnn named.

Future employment

-~B_efer back_t.Q._empl_o,Y!J!e~ re.cor:-J;I_
Part t fme_ consultant to the 1970 Advh~ _Council


See Schedu I e D
1. Indicate whether yoU will se.-e, all connections wl1h your present empl0)'9r, business
firm, essociation o, organization if you are continned by the Sef'late.

_ _ _ __ __

_ yn__


2. As

fa, as can be fore~. state whel.l,er you heff any plan1 efter compfeting ,ovtm•
ment service to resume employment. affiliation or practice with your previous em•

player. business firm, association or organization.

_ ____ · --·No pres_e!'t plans . or: c01n1t ~ ts. __ _ _ _ _ ___ ___



list the ti Un, publishers and dates of books. articles, reports or other publishtd materials
yo..1 have written.

3. Hn anybody made 10lJ a commitment to a tob, after 10'.I 'eaw ,o,;,emmentJ

See Schedule B


4 . Do you e.pect to serve the full term to, which ,ou

"-vt- been al)p0inted7

hs , I expect to serve ur,t11 r.,y term has ex~,-!~ Potential conflicts
of interast:




~ •~ •ns~er__t o....9.__ue st ion 2 bel~ow~-- ---·





J. Describe any financ ial arrangements or deferred compensation agreements or ot1,er
continuiro~ dea liniS with business associate!.. clie:,ts or customel'!. who ~-ill t e ~f•
fected by policin which )'0IJ will influence in the po,ition to which you have bat>n

ath h.itions

and activit itt:

lisl a,:I m:?m'Jcrsh,ps a r.d offices held

- ·------·- -- - - ----·----- - --- -

lfl or tinancill co,11~1bu1i-,,,s a:-:c! services re r;~!:re.: 10
all political p;irties or election committees durini the last ten yc.:irs.

[!onations_: ~becltLsigl'\ed_ .llancy.J(... J eeters: f1cGove r r.. QctohC"r .2 7 •. 127:
- -S 10.00; Jee fis he r . August,~. 1974 -- )25.00;

- - - - - - - -- ------ --- -- -·---·checks signed R. O. Teete rs : Peop l e for

Mus kie, May 20, 1972 -

2. Lisi any in11e!.lmcnts , obligJtions. liabilities. or other ,c!al ionshi ps which mi£.,: 1r.-,,clve
potenHal conflicts o1 mtcrut wit h the pcsition to which YtlU have bttn nomu:::i:C'd.

- - - - -~s~~~hed-~"~l•~E_ _ _ _ _ _ _ _ __

•· SlOO.OO o Mondale Vo1unteeT Con,nittee. Septent>er 1, 197Z --$25.00 •

Nancy Teeters, 1nd her husband, .lJ.J.llj_}Lncccs sary

Sarbanes for Senate , December 20, 1975 -· $50. 00.

actions to eliminate conflicts,.u .__fwlils, •nur.t<!rlted

See Schedult C

tn Schedul_! E



Schedule A

3. Oncrfbe •WJ blnineu ,.«atlonahlp, dNlin1 or fiNnci.t 1,.nuctlon (othar than tn•
ptyinl) whteh )'OU ha..,. had dufin1 U~ Int JO yurs with the ftdlr-4 Government,
whether to, yourself, on behalf of a client. or ktin1 as an a,ent, that mt,t,t Ill •I'll'
.• Y constitute or retu" In• possible conflict of int•rnt with the position to which you
haw bNn nominated.

___,1.t.on.iJ,eJa, ..~ 1 - I U s = - = - - -

Nancy Hos THters

Honors and AWirds


... Ult any lobb)'fn, actfvity durfna tM pnt IO yurs kl whidt you havie anca,ed for thl
porpose of direclly or Indirectly inlluencina the passa,e, defeat or modificaUon of
any legislation at the natioN I , ~, of ac,vemment or affectin1 the adm inistrat ion and,
uecution of national lN or public policy.

As assistant staff d1r~ctorand__chiff ec_o1'1Cl!Li.s.LD.Lthe....Cocrn1.lle.e...

on the Sudg~'!f..J:!mi.lLQ.f.JieQCes.entU.1..i:.e..s....a:a....been.._




res pons i bLU.2 r. . .beJP..i!IA._tg_ .de'te 1og__tl:te..._two._concur.r:e.n.t..... lut.imls._<tge_t...uw.u.ce,d .. bl'- law. _
~l!)t>e.a. . ...t.oncernirig s l a.t ion _tb.a~ou.ld .aliec.Lthe. .c.on.,,__
gi:l!iS ...buttgeLproi;ess.



5. [Jq)(ain how )"04,.I will resolve 1ny potential conflict of interHt that may be disclosed by
)'DUr ruponsa to the 1bove items.

I do oot wl 11 interfec with th.e__
QCrfann.aoce of mv. duties

As indicated


work wt th the Houn Budget Con111t ttee .

J shall resign frM

N1tton11 Honor1ry Socttty (Htgh School)


Kiw1nis Awrd (top 10 gr•dulttng union}


Outstanding Sent or Gtrl (H1gh School)


C011fort Starr Award (economtcs), Ober11n Colltge


Graduate Schollr,htp (tcon011tcs},

Unh'ers1ty of Mtch191n


Graduate Scholarship (econ011tcs),

Untverstty of Ntcht,an


Teaching Fellow (econca1cs)."un1·Hnfty of Ntcht91n


Teaching Fellow (econoetu), Untv,rs1ty of Michigan


Outstanding Servict A-,1rd, N1ttona1 Econoaihts Club, W.shtngton, O. C.




Schedule B
August 17. 1978

Nancy Hays Teeters

August 17, 1978

Nancy Hays Teeters



•fedel"'al. State, and local Budgets," Methods and Techniques of Business Fore•
casting. William F. Butler, Robert A. Kavesh. and Robert B. Platt, editors,
Prentice Hall, Inc.

Technical advisor

for Democratic Platform Conmittee

Member Economic Advisory Co,rmtttee for President Carter

Setting National Priorities:

the 1974 Budget, with Edward R. Fried, Alice M.
Technical advisor to McGovern

Setting National Priorities:

the 1973 Budget, with Charles L. Schultze, Edward
R. Fried, and Alice M. Rivlin, Brookings Institution, Washington, 0. C.
Carter Transition Staff

Setting National Priorities: the 1972 Budget, with Charles L. Schultze, Edward
R. Fried. and Alice M. Rivlin, Brookings lnstiution. Washington, 0. C.
"Budgetary Outlook at Hid-Year," in Brookings Papers on Economic Activit,i, Brookings
Institution, Washington. D. C.
•Payroll Tax for Social Security." in Broad Based Taxes: New Options and Sources,
Richard A. Musgrave. editor, Johns Hopkins University Press, Baltimore,





"Outlook for Federal Fiscal Policy," Brookings Papers on Economic Activity. Vol.
Brookings Institution, Washington. O. C.
oin~~1i~:~o~:P:~~~f~~i~~•: ~:o~~in{~g~~.yers on Econorni~
"Report of the Panel of Actuaries and Economists to the Subc01:r1i!.tee·on Bost
Estimates and Financial Policy of the Advisory Cnuncil on Sccial Security."
with Otto Eckstein, Arnrdr:l li,wt-p,n1r"·, f-Turra/ li!ti :ier-, MO: :·,:•~P.11 ;-:illir-·
·1 !.
1-~h-o::_ls-£!.."'~l.:-"'.:-.u.r_ i_;~., • c:J~s e ~'ccu··' ·

i½~-/{o-~~-~c~? :V}!-~{{ f;-°~r(

"The Full Employment Surplus Revisited," with Arthur M. Okun. !3rooJ,:_inf!s -~-:".f..!'5__1'•1
Economic Activity, Brookings lnHitution, :•:Jsf1i~g!.O'"·• 0. C. ;1970T"""

July • November

Rivlin, and Charles L. Schultze, Brookings Institution, Washington, 0. C. (1973)

•rhe 1973 Federal Budget," Brookings Papers on Economic Activity. Vol. I,
Brookings Institution, Washington, 0. C. (1972)

June 1976


November 1976 January 1977




Schedule D

August 17. 1978
Nancy Hays Teeters

Page 2
Nancy Hays Teeters

Schedule D

August7i; 1978

By ti-aining, I am an economist. I concentrated tn economics both as an
undergraduate at Oberlin College and as a graduate student at the University
of Michigan with special emphasis on fiscal and monetary policy.
Hy entire professional career of twenty-one years to date has been as an
economist. From 1957 to 1966, I served as·a staff economist in the Goverfl'llent
Finance Section of the Division of Research and Statistics of the Federal
Reserve Board. My responsibilities included such things as tracking the ownership of the Federal debt, estimating and interpreting Federal fiscal policy,
supervising the development of certain computer programs, and special studies,
such as the one on the fiscal impact of the social security system. In 1962,
I was lo<'!ned to the Council of Economic Advisers, and helped to develop the
tax reduction proposal which eventually was enacted into law in 1964.
From January of 1966 to January of 1970, I was an economist in the Fiscal
Analysis Division of the Bureau of the Budget (now the Office of Management
and Budget). During most of that time, I was the sole staff representative of
the Bureau to the Troika -- the three agency, three level group that developed
the official economic forecasts of the Government. I was also the staff liaison
person with the Council of Economic Advisers and the revenue estimators at the
Treasury. I was responsible for any economic discussion in the budget docurr'ents,
the revenue section, and one of the special analyses. In addition to the macrr-economic work, I participated in development of social security policy and tot)
unified budget.







From February 1970 to September 1973, I was on the staff of the Brookir.·_:s
Institution. During that period, I was promoted from a research associate
a senior fellow. Since Brookings is a research institution, my work involvr:
ent,.-1,;ivc research and 1~riting on a variety of topics in economics (sce
liq ,)r' publications, Sclle~,;lc C). I \~,1s also .:i nMC>irber of the 6ronkin9s
.:-1: :~
1·ic :.ctivity. Fn, .. : Sc;it~i•hc1· l<.:7J t0 t•'Ji J•::/J,: serve~ .1, ,, ~e.: 1;,
c.011sult.<.!11t to the Su!,c01:nitte<" to Evillulte: t;,L ;.,:_tl1<11·i.:il S,1ur:dn~s~ of Soci.,;
S.:cu1•ity System of the 1970 Advisory Council on Social Security.
From September 1973 to December 1975, I was a senior specialist
Con,;,·~~~hm.;;1 ,.~·~earch Servic~· cf :.he l.i::..1·d1·y of Cu11:.1rcss. Howcvct·,
Nov~nb<>r 1':17.4 until December 1975, I w<1s on loan to th<' Conmittee on
of the United States House of Representatives. Including the period
I have been the Chief Economist and Assistant Oirector of the Budget
from 1974 to the present.

in the

the r,11,+rint
on loan.
Con111i tt~c

I have been involed with the fonnulation of Federal fiscal policy for n:uch
of nty Cilreer. Correct evaluation of the impact of fiscill policy requires a

detailed knowledge of the workings of monetary policy. I have followed monetary
policy closely, even during the years since I left the Federal Reserve Board.
I have a thorough understanding of open market operations, and also have e,ctensive
experience in developing economic forecasts.

t have served three-year tenns as a Director of the American Finance
Association and on the Con-mittee on the Status of ~lomen of the American Economic
Association. I have also been Vice President, President, Chairman of the
Board, and member of the Board (ex officio} of the National Economists Club.
I am currently a member of the National Advisory Board of the Institute for
the Study of Educational Policy, Howard University.
If conftnned, I shall do my best to serve the Nation wel1 as a member of
of the Board of Governo:-s of the Federal Reserve System.




Ult below all membenhips and offices held In proJ.nioNI, frawnll, business, 1tholarly,
civic, chlritllba. and other ora;aniutions.

-- --.


Fositklntowhldl Member/Vic,. Olairman, Board of Cb.ll!rllCtSA.ot
of tte &de:ral Benerve System
nomination: _ _ _ _ _ __

Date of birth:

~.J.:. 19,l.

Marftal staitua:

of dllldrtn:


fullnameofapoua: Mrienne May Hatch Mairtin

Pier - 20

Gay -

Mar ican Finance Au:x:iatia,,



lmlerican Bxlnanics As8ociaticn




Jeffrey - 30





Beta Gllrme, Sigma

Inter. 0:nf. ShJp. Ctn.


Indiana tl"liversi~

Sept. 1948Jllm!....l.9Sll

l.hiversity of Southern CA 1946-1948
ll"liversity of Otlahana





Place o1 birth: los Angeles, california











B. Sci.



Los Angeles State Cl:>llege

Employment ncord: Ult below all positions held since collep, lnc:ludln, the tltS. or dacrtption of }Db, name of
amploymtnt, location of work, and datM of Inclusive ampiormlflt.

19ao-1tw.1981 seraco E)")teroda,es, Inc , OticEO, IL, Qiai[fflllO and cm
1979 !MI M::>rtgage Insur~ Cb., San Frenci9co, CA , Ola innan and QD
1912 ft:derol ft:!Te 1pan Bank Board, Wash
Pc , P>airman
1968 Division of Savings and Loan, C'.alifornia, IDs Angeles, CA ctrrmissioner
Profesmr of Finooce Gra;foote Sctpol of Busioru Administratioo
Lniversi ty Sc::uth.CAlif. , Los Angeles, CA


1964 Director of executive Prcxaroms Jbiversity of Calif


19Ei5 Iostrnctnr tn Profesoor of Fionooe IISC GrMuote Sctml of ft111ioess

Im Aa?«lea CA,

and Professor of Finance , l5C



Honon: and ..,.n1s; List below all schollll"lhlps. t.llonhlps, hononry ctecr-, mlltlary fflldaJ&, honorllry socllty
membership&, and any othertpetlll Neap'lltlons foroubtancllns •Met or achMmllnt.

1973 Premier Perfornnoe ,'a,ard, the 1\Jm Table Builders, N.A.H.B.


1972 Al\mli llw4rd, Ui.iversity of Southern California
1971 0::nstruction lmJstry Award, J!hgineering News Rec:Xrd

1971J?70 Management Elleellence lltards, lllite tb1ae



1969 'l\'.ll) Perforar, lbiae and lbne Ma:]azine

191i5 ftXxx:mk Beseuch Graip Ios ,n;,eles CA Prq>rietPC
1956(mid ) l957 Instituto per lo Studio Q"ganizatzi~ Azi endale, 'lbriro, Italia,
!Professor of Fi.n.arce.l
1980 11,c Uicke:> Cbr;i., Zall O{ago, cal., OJ.tector
1902 c,entt-x O;,rp. 1 0.!1.ll~, 'I'eXZZ 1 Directoc
1981 Se~ la!ooct. , Cb., 01:!.cago, Ill., Director


s IUJSid{ar ies:

Allstate Bnterjwl:Bs PIXtgage 0:lllpmly
PU ttrtgg Q:apcrw
RU R>ct.gage In3u.r,:nce
of cal.ifornia






Ust a n y ~ In o, dl,-;t tiUOd•tlon wtlh f_,..I, State. Of klul ~ - .
cludlnc 1ny IIIMlory, CDn&UltMM. honorary o, ott,- pllf'Hlme ..-.Ac. Of position-.

Please Bee e!plCMrent reoocd for full time posts twld
Present l'lll!ffber, President' s Hcusin, Connission
FoOPer iil"Dffr, flt1A. Advioorv O,,,nx:il
Forner ll'l!rTt:er, Federal fare Loan 1't:>rtgage Corp. Mvisocy

FHI1!8 Advisory Cqrrnittee



Uon, pofit~ pel'I)', poHtiul action committN o, Mmiler tntity during U,s IHI
wi-ra and kttneity IN &pltific amount,, datet, and t'l9l'nel of the rwcipient1.



1978, Jul.l...!:!. AL!gust 1 ti.n:heon "Pete Nilaoo for- G:J,,,,ernor"

[of CA.hfornua), $500.00 Appiaac-.


H.U.D. Advisory Carmittee, "Future of EliA", 1977-1978


n.min 111 pofilical con11tbulion1 of $500 or mot1 to any indi'lkfu1I. um~it;n o,pNu•

July 9, 1981:


List the tltt•. publishers and dat• ol boolls, •rtJdN.. repo,ts or othtf publtshld

Seail liitWCk~litical

Stl'te fu lly your quaillficatklns to llllW In h

Action o:mnitte,

Ssoo .oo

polltk,n to which ,OU ha'#I bNn Nlmtd,


)'OU ..... writlwl.

eee attached sheet .

~_!_,:ibuting B:titor, -itle Profess ional . &.lilder", -1974-1972,
wrote nunerous atticles er, reg..ilar basis

~Principle"San:J Practioes Of-Real Estate•, ll'livusity tmct., ,,_
Macmillan g:r,pany, 1959_
"'lbe Bureaucrat as Innovator• , Aep:,rt to HanaQelnent t 23 I.S:, 1970
"Savil'l':,S ard lDans 1n New SubMrkets•.
~ . 1967

"Affluerce ard Housen:>ld Li CJJidity•, .Journal of rinarce end ()Jantitative
Analysis, Karch, 1966
-- - --- -- -


•Fbrecasting Southern California Business c.aiditiaui" 1 fteP?[t
tl3, universi ty of Southern California, 1965



, Futu,. empk,ymtnt
I. lndk.ate ~ther you will wv.r all connection, with your
em.,,_,, buMMU
firm, hlOC~tN)ft or orpnitatiCMI if you .,. confirmed by the, SeNte.

eee attw;tyd ltce:t
2. As f,r., can be foreseen, 11,te WMl:t.r )IOU hewt any plan,
compltt ina ,cwwn,
ment service to rnume emplQyrMnl, 1frih1tion Of practice with your p!T<'iOul ernployar, bu1ine11 firm, 11aoc!1tion

M;> pl,O.S







3 . HH anybody )OJ• commitment


•net Ktfvttln:


mtmbershir,s -,Id offices held In •nd Mrkes ~ r t d 10 .i1 polltlc:al pertla cw
tl'te Ifft 10 yura.


job afmr you IMft .,

•lecttOn committett durin,:

Notiooal. Araaan foe Prtoident Q:a.ittee mid::1'80
Mv wift Adritooe was M Alteroote Delegate Calibnla Aeleeuicn
to the R!plbliean Naticnal Convention in 1968.
I served as an 9Hc:nocary Delegate•. California Delegatim , to the

Ri:publican Nftirool Cq)ytotion in 1972


4. Do)'OUupec'IIO..,..,.thefullWTnfot'wtllch)'OUN'\liebealappoint lldl'


Mtact.ent. P~ 4,


This is to at.ate f1tf qualifications foe the p:,sitia, of MerrtJer ..S
Vi~ ~iraan of the Board of Q)vernors of the ~ral Rtserve Syste.i.
My oarbinatiai of developing ard nw&naginiJ goverruental am b.lsin@ss
organizations is unusual. My exper lenc-e includes managing se~r.i
activities of a similar agency, the Federal ft:me loan Bank Board, in
the for!ll.llation and ~lementation of credit policy (nortgage credit),
finarcial institution supervision (end supervisory mergers), ard

involved with managing Mllll
litlst of ffti ..,,king carMr has
b.lsinesses and in the •start--up• phases of ventures, particularly
Savings and Loan A&ax iatia,s. Hy oonsulting fim 'Ihe Eb:lronic Rt•earch
Gro.JP was actiVP for t\olelve years in those activities. Ar. a aole
proprietor I perforffll!d a wide range of activities. Similarly, tlw
fOUl"ding, staffi1"9 , ard expansion of PMI fit:>rtgage ln&urance O::apiny
for eight ~ars and se~ral b.Jsiness cycles in the fb.Jsing and Pinancia.l
J.n::tustriu taught • about aone-t.ary

Pvtentlel conflicb


1. DHcribl an, final'l(. ill arr1nftmel'l11 or dtftrred compenution •l,..,,_.ll'tl or etMf
continui"I dl1hn11- with bv1iht'u. euociatH, clienll Of customtn. who will bt alt.ettd by polo(ies whic:1'1 )'Ol,I will infh1ence•in thl: position to llfflich you tiawie ri.n

, Cb., Cl'I
~r111inatad atatus u aetiw t!llploywe of, W
lt:M:!rrber 17, 1981. Will receive Nverance pai'ftl"lt of S446,438 pdor
to teking Nth of office end wilJ cecei•• pensim
effectiw January 1. 1984. Will continue as a participm,t in Stara'
1ili=a.ttUibldXf M4\)?Witl1 Ute h1&11au pta1 fut kej WWUChW.
2 . Ust ar,y inwstrntnt1, Obli&•li<Mil. liabilltiff. or O(Mf relationships which ff'>iln\ itlW'Clt4
pot1ntial conflict, ol lnlet'UI with the p01,i1ion to whiel'I yG!J ne ... been 1\0ff\11\ated,






S8S she.tea of the Cathay Bank,

Angelu, vhich

aold .

My tt.D years at Sears.R::leboci(iCb. -ere onn of responsibility for
two snail organiutions, atd thtff •i..n aiz.ed fin115; t~ plaruiirq
rd restaUirq which was acc,c:q>l ish@d was greatly affected by wr
OJtlooka regarding t»Yf'loping JIO'letary. fiBC'al, ad regulatory policiH.

Attactaent, Pagl: 4 .





PUtuce 91'lCJ1JNOt l'elatiCl'l&hips:

~nn.inated 9Ultua as active ~lc:,yee of Sears, fl:lel::u:::k , Co. on
M:M!ntier 17, 1981. Rltceived right to severance benefits throogh Dllombel' 31,
1983, and retire.nt benefits thereafter, have no obli9atia1 to
provide arr-; services t.o, A:::Jetuck , Co. or 11ny of ita affiliates or


bu~inn• rtla1 ionsl'l,p. dHl•"I or fin.-ncial transac1ion (alher than te13 . Ducriba
payin1) ..tl1th )'OV NI~ had CluM£ tht lut 10 yurs with the f~,el Government.
•1•nl. thlt milhl in eny
whether for yourself, on bthatf of • client. 01' act1n1 II
way con,tit1J1t o r re111n In• pouit>lt confl,a of interest wtth the position to which you
ha-.. been nominated.


)'NI'S In whk:h )'IKI h,w enppd for the
pur))0$fl ot dirllC'tly or Indirectly lnfkMnclna the ~uqe. dMMt or modification of
ot l()V'ffnrMnt or llffl!Ctina the lldmil\lllratian and
any legisl•tion at the national
UKution of nattONI ,... or public paltcy .

4. ll1t any 1obbyina •ctivity durin1 thtl past 10


!5. b:plain how )'OU will rnolve any potential conflict of lnternt that
your ,-spon1n to the abo'tfl itams.

MY wife ard
her Cathay

I wi)l sell our Natimal City
shares l4)0fl confimatic:n.

ffll)' bl dlacloled b,

Comorati<rJ ahacn and



Civil, Crtmlntl and
invest iptory



of any cMI or criminal p,oc-.:fin1 in w h i c h ~ . _ . . • ~
or any inquiry or in¥esti11tion by a Federal, St.ta, or toe.I ..-ncy in wh6ch )O.t weN
the subject of the inquiry or invu.tiption.

t. GM the Ml dltai'1

nnter of the Fedectl Heme IMP Renk Bo:rd frcn 1969-1912 tAd
as Carmissicner of Savi ngs , Loans of california frClll 1966-1
I was ~ e n d a n t 1n vano
'DQ t.Ae beet gf JnJ' kRO<lW
tilrw!. No criminal or other E_roceedi




2. Gift th• tull detail!. of any procNdinc. inquiry or investiption by any pn:,fflsionll
nsociation includina any ba, ass.ociation in which )'OU were the subject of the pn,CNdin&, inquiry or inYt1sti1•tion.






"-ltlonto'fl'tlk:h He,iber, Bo.rd of Covernora
Federal Rr.erve Sy • te•

Marital status:


.!~ Dc=er

~':,!.9 Ptac.ofbhth:

Di vorced


Dile of
nomNtKlft: _ _ _ _ _ __

List befow all membenhips and offices heed In prvfeuiorlll, frat.,,,..,
civic. th.lritabl• and othe-r oraanization&.

bu---. tcholarlr,

-- -




flounce , South Canlln•

fullnameofspouM: _ _ _ _ _ _ _ _ _ _ __

N•me•nd •au
of chlldrtn:
Su.un E. Ric•• 14
f._111Ntt J . Rtce 1 Jr .




- - - - - ---·- - 12





College of t h• City of
New York


- -1937•1!:41

Co llege of the City of

---I.I.,' .




New York


TnTviiil ty of CdlfornU - -(Buke h y)



N, I.A .


[mploJment rteonl: List belo.rt all positions held since toH.,., includin& lhe tit!• or de1c:ripdon of job.
empklyrn«1t, klcatlOfl of .ork, and dat• of lnclu•h• ~ 1948• )0

Onl verstty of Callforn1a - - - -



1950,. 54


C lty flre-n, laur fir. •Iara operator, CltJ of . . rkehy
Ca l 1.for nta.
SH Honor• end Averda

1954•60 Instructor , later A11l1tant Profauor of lconoai.ce, Cornell
- - - - Un"i'Vtnity""'1TI MCa, Nev 'York_ _ _ _ ·· - - --




Advhor , Central lank of __!flterla (Laaoa)


Deputy Dire c tor , later Actlna Director, Office of O.valopl•
U. S. fnuury bepart-nt







tlonotl and ..-.rda: List below all sc::~rlh/ps, fe llowshlps, honorary delrNS, rnUitery ~ I s, honorary society
mtmbentlipt, •nd any other special recotnitions for outslaodi"&
or achl'h'tfNnt.
l9S0 - Resurc h•A11 i s unt ( Oe!Mlru~nt of Econo..te:1 ) Unlvenlty o f

Ca l l f orn i a ( Berkeley)
Teaching Fellow (econo111fc1)



le~..h.!.!!J hllow (ec ona-tca}
(krhle y)




U. S . Alternate £xec1,ttlva Dire c tor for J n urnatlonal lank
lor Recon n r uctlon and bev.lo ~nt (World link) , Inter•
n.at1on.1.l Dir vel o [Hllf,nt Au oc llli o n (IDA ) , and l nurn.ational

Unherdty of c a . u f o r n r . -

!9~_ulbrlght hllov (lndl•) ReHrve lank of India

hderal hurff lank of Maw Tork



Executi ve Dl re c t o r,
Econo mic Devaloe-nt
~ r o . U. S. Tru111ry Depart-nt ,

1971 to PreHnt


Sirn to r Vic:• Pre_atden~.L The National lank Of
\Ja1 h in1ton



lilt anr t•perlwnc• in Of' direct IHotiltiOft with Fed~. Slate. Of local ..,...,-,vner,t,. 1ft.
dudin1 ..,, ad"ilO'Y, con&Ult1tive, hOnMat'y or ot'- pa,t-time MMCe or PQl,itloN.


a.fer baclt to eap_lor-,nt record,

Vice ChdrM.n 0 M,,yor'1 Ecoacnd.c l)e,,.lopaat C-1.ttu

_ _ tl?~~tributlon• or $!100 or .,re .

- --- -- -· -- -

Wuhl~ton. D. c .

lterriin alt political conlributions ol $ 500 or more to any individual. umpaitn
tlOft. poh11ul party, pohl1Cal Klion c:omminu or similar entity dur ing the IHt eipl
18"' :il'ld identity the 5')11(:itic amounts. dates. and names of tht rKipiitnb.

- - ----- -

l'kaber_. D, ~ o r ' , Overall Econoah': Developaent

_ _ · -~ ~vhory C01nlttee


Chairman, D. C. Tax Ravttion Co-iHlon, Covernant of th•

- - ohtrtctor"toruinti ,

Lisi the titlH, publilhen
you havt wriU1n.

dlltn of bo0k1. •rticles, r9')0fb or other publw.l mater1alt


Stile lu11'f yt,Ur qualil1C1tlOl"IS to MrYe in lhe pos,tion to IWhi(h J'Ol,l M¥9 bt,ef'I


( l ttKl'IVl<N'tl

See Schedule " I "

~~o~tribut1on_1 to ln1t itut10Ml public1t1on1 -- artlclH

~ ' ! • I nporu , c-111ton r.poru ... for Wl ich

1 could


future employment

ct.111 full credit.


I. lodicale whet hff you will seYltf' all eonnections "'1th your ~Hf'II «npto)'9r, bullnna
tirm. ass.octahOfl or or1uua1ton 11 )'OU ar• confirmed bf the S-0.te.

----1!.!.!-1 ~ ~-~

c:-="'-' :::•"::'-=-·- - - -- - - - - -


2. Ai far as c,n be 1ornttn. sl1te whether )'OU have any plans atter eomoh't•nc
mMI service to resume em plO)'ment. atf1l1alion or p,actU wttb yOUr p,1vtOU1 .m•
pk>yer, busi neu hrm, Hsoci11ion Of or1ani1a11on.






I have no plans to re•u• any aff1 ll•tton.
1nd activiliff:

List all FMmberships and offices held in and services renc:1«9d to Ill poll11al par1iH o,
election commit1ees durinc the east 10 )'II.JU,.
Regi..und Dei:10cnt; no offlc u

M id.


3 . Hai anybody made you a eommitment to • job after )'OU .,vemffilfttP

No Hrvtctt r1nd1I1d
4. Do


••PKI to


tM full t«rm tor wtiich you have been appointtd!






l~ i


















i .






Ht.. I


l !•

::: V.





Digitized by




P•a• 2-A
M E ~I II £ R S II l



Schedule "1 11



Wa•hln1to11 Tru,u,

1'72 • pHMH

federal Clty lklulllnJ Corp1:1f•Ulon

cur r•nt lo&rd Melllber

197Z • preNnt

Creatf'r Washin&t on r.u,tne ,, Re,ource

loerd Me.tier

1974 • pnM•t

Minorl ty Contru:tou Re1ource Center


1972 - 1974

theory on both the undergr•du1te and 1raduace

A-rlcan Red Croa,. D. C, Chapter


l97S • pr•M•t

ataff of the federal ReH~ a.nil

of open Nrket operation• aaph•y•d by tlM Tndtna Deak of the .. nk lo t~l••nttaa the

Except for the yeara davoted to teec.hln,: ec.onoaic.1 lo • dlHlfCuhhed U11.l'4nlty,
nurly all of JtTY profeulona l c1reer ha, been .,.nt ln financial lnatttutlon.a.

Aa •

taacher, 1 had prl1111ry re1pon1iblllty for courHa ln UIONy and ban1t1n1 and mNtH')'


Later, aa an ec.onoaiat on tha

Nev York, I bee••

vlth the tachntquea

and He-troThe C:f'nter For
po l iun llf'ae arch or the
Cep H •I Area



19H • pfHfflt

Consorti 1111o ! Unlversltle 1,

llon-d ... _,. ..

lt74 - preM•t

A-ricen £1.:onomlc Auoctatton


1954 • 1974

alao pnpared for publication ln the a.nk'a Honthly Revlav the ertlcl• vhlch n111larl7

Council On rordsn llelatlona


1972 • pll'•Mnt

ducrlbed and interpr.ted develoJM"nt• in -,nay and capital -rket•.

Atlentic Council


1971 •

dlractl -..i, of the rOHC.


Bo&rd ....,.r

ao.rd of

lt7Z - prueot

one of r, rHponalbilltiH hrl111 thll tt• ... the hittattoe.
to tMt f'OIC.

of the flnt draft of the trt-veakly Report of O~n

While ser-vina a, an advher to the Central lank of "l1eria,

t hM


the rare

o pportuntt, to ,.rttct,.ta tn the creation of tooh and technique• for Central . .,..
control in a lar1• developl"I country.

D. C. Bankert A11oct•thm


1972 - pnMnt

Unlventty Club of Washington


1976 • pr,Mot

th• re .. u·ch depart-nt of th• nav Central ..nk.

w,nhinttton Perfor111t ng Ar~• Society

Board 111:mber

lf77 • pnH1lt

part•nt'• Divhion of lnternatlonal Affain, I




Federal City C<H.ll\cll

t eho helped ln the de-..ilo,-nt of
Letar, ln the U. S, Tr•••ury DII·
•ct1-ly lavolved in the foratton

of U, s. financial pollcie• vith re .. rd to the d•-lopln& countrle• of Aat•, Africa,



P•I• 4-A

P $

i.trop,ollu,n Wa&hington


State-nt for Coapletion b1


Schldul• "A"

w,1hln1ton, D. C.


t,..,, .I .

sutu,ent for Coapl•tlon 11,
p.-e•identhl Mo•lnee,

t : - u J . Uc•

Tur,s World Corporai"lcm
Trana World Al rlloe1 , Inc.

Board Motaoer
Board Mt-t,er

1979 - pn .. •t
1971 - pruaat

fort Lincoln Nrw Town Corporation

lotird ..

1975 • preHnt

Dlstrlct C~nlc•tlon•. Jnc.


1974 - pr,Not

the Middle Eaat, AuatraU.a and Nev Zealand.

Aa U. S. Alternate !xecutl- blnctor oa

the bo.rda of the world lanlt and the lnternattonal Plnaaca Corporatton, 1 t•l"94
broad experience in int•l"Nltlonal davelo,-ant ba.nlttnc , whll• taki"I part ia policy
relattn1 to econoalc develo,-ant •••l•t•nc• .
For the put at1ht year,,


h.1- been a senior officer in• co-rcial Mink

worlltn1, aMJnl other area,, ln -,ney tradlna and in-•t•nt

t• th1.a












E ,:?







ie !J

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e .


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Digitized by










..... ....
"°'"'natld: Gqvernor,


..... ... _




Fed•ral Ra9erve Board C..~nadort:

~7 PIK:eof birttl:

,...... inatUl:....lf&
or chlldrai:







March 17, 1980

Aurora, Illinoi•


Lucilll w,chUl Gn•lty



Aurora College
AUIOIG, illtnolw
Beloit Co ll...!9.!.

Beloit, Wisconsin
Todt ,oe Hrinerei ty





-i' i

Ult tallow all m1mbenihiP1 and offlcn held In pl'Ofeuionl/, fratlmll, Ml,_., ICholarfr,






_ _B_A__



Ph . D



INris:10 Ecoomic aeeoc _ _ _ _ __

1955 t.o ruunt

Aauis&n fioanc1 A11oc

195!1 tA Pnunt

N1t1onal lconaifu Club 194rd of
Cont' of Bu,
_ _ _ _ __

UU to Preeent

Pot,ozys; Hunt. Club
Middltt,PYD Valley Hunt-



c!Ylc, Wrltabla 1nd ott.r ori1niution1.




t~tf~•~~/~~i 11~~bPoio Clu


1971 to Prennt

U79 to Present
1971 to 1979

nw 'f~ lii1

rec:otd: Use l>elo- .. , poaihons Mid since col ..... lndudlnc the title« 11Ncr1ptlon qt jl)b, MN qt
Whl)!Oymenl. loc11:Klftofwortr..arlddl1:wof inck.tt1¥11~

Federa l Re aerve Bank o f ianaa• City, 1955-62, Financial
Univeraity of M4ryland, 1962-64, Aasociate Pro!. of Economics
Federal Reserve Board, 1964-1977, Staff Economi•t•
Final position: Director of Divi sion of Research , St&ti,tic•
Council of !conoaic Adv i sers, 19 77 -1980, Member






Honon Mid ..,.rd&: LIit below all scholarshlPI, t.llowshlps , honorary detNN. military ~Is, honorary IOdl,tJ
nMmbersh!ps.~wryc,tJwrapecialracocnltkNforoutltandln,aMlviceo rac:hi...n.nt.

PHI Beta Xappa

Fellowship, Indiana University, 1951-52
Honorary Doctor o! Law , Beloit Colleg•. 1978






Utt.,,,,, ~ ln

o, du.ct nsocia110fl wtth Feeler.I, st.t., Of local
pemm,9ftls, 1ft'
ch,di"I •nY adwiao,y, conauttati11e, honOrwy or other part-time Nrvlce
or poaitlOns.

,O,iUca l

~ r of ~oundl of Econoaic Adviaera, 1917-80
Associate Director of the Maryland Tax Study, 1963-64

UlttNllt:M&, publW.Sand -..ofboob..-t ldea. ,wportsorodlM
"publ..,_.mawt llb

11emize 1tt political contributions of $500 or mon to atff indt,,idual.
lion, political party, pc)l1lical action commiftN or stmil1r entity
durlnc thl i.,t .iatlt
,..,, Mid ic»nl ify tM ~ .ific: lfflQIJffl$. <Sat•, and names ol the ~jpjentJ.


q... tlfatlans:

State fully )'OUr quallftcations to ..Win tN poaitlon lo ,-ii..,.
bNr'I ,_,.,_


ln cc-nercial ft.Ink ins fcoaut:bArl, fcdual RHerve

Bank of IC.ans•• City, 1962

Scale reonomiu 1n Beokine Fedenl Benne Bank of bnH•

City, 196 2

Tbe Nerylud Tex Stndyllnoc Dtcectncl Buc11u of
a nd Economi c Research , University of Maryland,
Time oepoalu in Honetncy Aonlnh (w ' th
Federal Reserve Bulletin , October, 1965 SMl B ChAHI






and ktMt-=

The Information al Cmteot of !nrentt Ratea u
of Monetary Polley, Federal Reserve Bank
of Minneapoli s,
Gu1del ines tor t10nettrv Policy -- The C11e b9ainat Simple 5/ 68.
Rules, unpubliehed paper delil/'ered at the Pinancial
of the i:nca February l96t
Way• to Moderate Fluctuation s in Housing
Constructio n,
(Director), Federal Reserve Staff Study published
by the
Federal Reserve · Board, 1972
Lilt ell J'Mfflwshlpt a n d ~ hald in end Mn'k:'N
.-tionCOl"llffli tlN&dlmnl;the taallO,..,._

to all polfflcal PMlal o,

Futuni w,ip loyment

1. Ind~ ""9ther )'OU will s.,,er 111 connections 'lffltl y o
u r ~ ~ - bullMa,
tin'n, n,ociltion or Ol'"lllliHtiOf'I II )'OU . , . conltrmed bJ the s.n.t•.

l~Ul •


2, As l•r II un ba ~

- stet• whether
lffY pl1M aftw completln1 .,,...wntMnl Nrvit• to rnume emoloymenl, lffili,,t,on o,r
with )'OUf Pf'W'riou• em-

ploy,er, bl.ls1neu firm, 1uocl1tion or orpniution.

I have no suc h .E_lana
] . H.. anybody ,nad,I


I canwnltlNN'lt to• joO attar )'OU i... P'9ffl"WdJ'




A. Dll)'DU~to..w hfwlt9ffllkwM 'lid'IJIO'l...,.b Nr'laopoinlad



of lntwelt:




4. Ult 1ny lobbyln1 activity durin1 thl l)Nt 10 )'Un In which )'OI.I have ..,..lld for the
purpoM of directly or indlrectfy lntlUMCin1 tha pa,..... defNt ,x modification of
any lesislation Ill ttMI national 1.,... of aowmment or af'l9ctinr the administration and
uecutlon of national law or publlc policy.

1. Describe •ny flnanc~I •rranpments or def9rrwd com~ution ..
or othllr
cont\nuina dulinp with butiness associatfl. clients or customers who will be ef•
fected by pollciN which you will infl1,1Wtc• in the poaition to 'fflich )'QCI haYII bNn


2. Utt any investtMnts, obligations. liabilitin, or other 1'91ation5hips which mipt irn,oM
potential conflicts of interest with the po5ition to which you hav. bNn nominated.

I have indicated to Reserve Board Counsel that
I will li2idate .any stocks presently owned that might
!I. Explain


"°"" you will moM any pcnntlal conflict of ..,_. that IN)' be dladoMd bf


about conflict of interest.

M_ -~_dicated in

3. Oescribt any busi,-s relationship, dNlinl or ftn1nci1I tninuctioo (other than tu:·
payinl) which you have had during tha last 10 yea~ with the Fer:lenil Govemment,
whether for yourself, on behalf ol a client. or acting as 1n a11ent !hilt mi,t1t in any
way constitute or rasult in a possibl9 conflict of interest with the po5ition to which you
hav. bNn nomil\Med.

CMI, Criminal an:t

my rHPQnH to question 2,

1. GiW the full det11il1 of 11ny clvil Of' criminal proceedln1 In which ,act were II defMdant
or 11ny inquiry or invest!ption by a Federal, State, or local apney in whicf'I )Q,I ..,..
the subject otttw inquiry or invutiption.








2. GM Iha full det11il1 of 11ny pron.tins. inquiry or l~tiptlon ti, any protnaional
HSOC:i1lion incluclin( any bar 1noci1tion in which )'OU_. the subja:t of Iha pro.
CNC!in1. inquiry or invest1ption.





Statement...2!...,g_ual,_if ication•

Since the beginning of this Administration, I have been
the member of the Council of Economic

My entire

eareer ha.a been

or indirectly with the tocal

dealing directly

of monetary policy.

From 195S to 1962, l worked •• a financial
the Federal

Bank of

included econ011.ic






and monetary policy, and advieing
in theae

at the

of Maryland.

theory and policy;

financial economiat.




were taught at both

ff of the Federal

Board •• •

Du.ring the 13 year period of ay -ployaent

vith the Board, r:ry are•• ot responsibility included economic
forecaating, analy•i• of developments in financial market•, adviaing
the Board and the Federal Open Market Canmittee vith regard to
ongoing aconoaic develo~nt• and the course ot monetary policy.
Du.ring fll'f final yeara at the Board, I vaa the Director ot th•
Dividon ot Reaureh and Statistics and Economist (Doaaatic
Buaine••> to the Federal Open Market CoaDitt••·

In capacity,

it vaa my privilege to vork cloHly vith the then-esiatinq Chaina&n
of the Board, Arthur r. lurna.

If confirmed,

I will devote all of flf'f energy to serving the Board and the

My area of specialization



Appointment to the Federal Board in these difficult and
critical times would be an enormous challenge.


the graduate and undergraduate
In 1964, I joined the

as economic forecasting and Uacal policy.

Nation well.

FrOlll 1962 to 1964, l vaa an associate


reaponaible for
That area

the analysis of financial market• and 1t10netary policy, aa well

at the

research and 1triting on commercial

banking, money and capital

macroeconomic analysis and policy iaauea.


Dr. Wallich i~ the Seymour H. Knox Professor of Economics at Yale University,.
where he has been a tencber since 19,H. He is a former member of the Council ol
Economic Advi~rs (:MaY 19.j~Januarv 1961), and served as Assistnnt to the
Secretary of the Treasun- {Sel1tember ·1958-May 19:,9), nnd with the Federal
Re&'f\•e Bank of N= 1'ork (June 1941-September 1951).
Bom in Germany in 1914, he became a U.S. citizen in 1944. His educa- ·

tion, begun in Genn:iny, included studies at Oxford University in England, an~
led to a ma.ster,, degiee from New York University and a Ph. D. degree froni
Harvnrd in l~.
Before joining the staff of the Federal ReservP Bank of New York in HMl,
Dr. Wallich wee associated l\ith private finns in Latin America and New York
Sinre 1969, Dr. \Vallich has been a i,;enior con~ultant for the Trewmr)~ Depa&
ment. Hr, baa also eervt:d 1dth the Advison· Board of the Arm~ Control and
Dif.B.rmament Agency (1972-19i3) and ns the·r.S. Representative on the Unit.Pd
Nations Expens Panel on Economic Consequence:-: of the Arms Race (1971-1972}.
He is a director of ~everal busine~~ firm5 and ha..;; t-erved on the Research Advisory
Board of the Committee for Economic De,·elopment from time to time since 1951,
Hill, publi~hed work.~ include four bookf:l and numerous nrticles in economic and~
financial journals dealing, among other things, with monetary policy, the interna--·
tional paymenbt ~r~tem, :ind our fin!lncial :-tructur(•. From 1961 to 1954, he was an
editorial writer for the \\~a~hingtc.n Post; since 1965 he has beGn a columnist for
Newsweek Magazin~.
He is manied and b.u~ three children.



P .-\JtTEE

Name: J. Charles Partee.
AddN!SS: 931 Leigh Mill Road, Great Falls, Virginia 22066.
Residence: 6½ years at above address; 7 years at 1002 South Mansion Drive,
Silver Spring,_ Maryland; 12 years residence in various suburbs of Chicago, Illinois.
Age: ½8. Health: Good. Born: October 21, 1927, in Defiance, Ohio-lJ.S.
Family status: Married, since 1946, to Gail Voegelin Partee, re-siding at above
address. Three children-Eric, Sharon and Pamela-all grown and living away
from home.
Education: Primary and secondary-Public schools of Defiance, Ohio; Unive~ity: B.S. in Bu~iness ("'ith dii•tinction), 1948; Indiana University: :\1:BA
(in finance), 1949, Indiana Uni,·ersit:r: Non-degree graduate "·ork in finan~
.and economic~, l9;}2-S4, University of Chicago.



194S-49-Graduate as~istant in finance, Indiana Uni,·ersity.
1949-.56-Economii.::t (specializing in consumer finance, mortgage markets,
and :Sadngs behavior), Federal Re~er,·e Bank of Chicago.
19-iQ-."};i-lnstructor in ::\loney and Banking, American Institute of Banking
Chicago (part-time).
19.)6-61-A~sociate Economist and (from 19.JS) Second Vice President, The
Northern Trust Company of Chic3.go, Illinois-.
1962 to date--Board of Governor~ of the Federal Reserve System, "\\·ashington,
1962-63-Chief, Capital )!arket~ Sf"ction, Dh·i~ion of ResC'arch.
19G4-o.;-Ad,·iser in charge of financial !-l'ctions, Division of Research.
196,)-69-A. . :--ociat.c Director, Di,·i:sion of H.esearcb.
1960-74-Director, Divh•ion .of Re~earch.
19i3 tO d~tc-)lanaging Director for Research and Economic Policy.

U .8. Reprc..;entativC' to (and Yice Chairman o() the Committee on Financial
1\1arket..:, O.E.C.D., Puri::i-1970-75.
Deput~· to Ad,·i~er (Chairman Burns) of the Co~t o( Lh·ing Council, 1971-73.
Director, 8ecuritie:-- Investor Protection Corporation, 1970 to date.
Active m~mber, Conference of Business Econonfr•t~, 1969 to date.

Digitized by


The CHAIRMAN. But I suppose after 3 days, when the same argument is brought up, certainly there are members of the Fed who
have had extensive writing and background; but, as I showed in the
previous hearings and yesterday, most of them, particularly Mr.
Emmett Rice who has served well, but, by his own admission he
had no writings that he could take credit for himself, have very
little military experience. We had only eight and a half pages of
testimony on Mr. Rice. His nomination was also in correlation with
a Presidential year and the prime rate was starting to go to 21.5
This witness should certainly be asked all the questions that Senator Riegle and you have been asking about her views concerning
monetary and economic policy, but I really must protest continuing
to make issues-that I don't think are issues-when the proof is so
adequate in previous hearings that other witnesses have not been
questioned on the fact that they did not have an opening statement
and the other things you are bringing up. I will not take more of
the Senator's time. Please continue.
Senator SARBANF.S. Mr. Chairman, I would just offer an addendum to that. First of all, I have not made anything of the point
that the witness did not have an opening statement.
The CHAIRMAN. That is correct, you did not.
Senator SARBANF.S. And I think the chairman is quite correct
when he says that there have been a number of nominees to the
Fed who have not had opening statements.
With respect to the seven members now on the Board, I was very
careful in the statement that I just made to say writings and stat.ements that would enable us to ascertain some of their judgments
and views or holding positions that enabled us to do that.
Emmett Rice had been an alternate executive director at the
World Bank and the IDA, the International Finance Corporation
and he served in the Treasury as Deputy Director of the Office of
Developing Nations. Preston Martin had, of course, had extensive
business experience. I think he's the other one where we didn't
have a large body of writing before us. I don't think that's the case
with Volcker, Wallich, Teeters, Partee, or Gramley. Martin had, of
course, been Chairman of the Federal Home Loan Bank Board for
3 years, from 1979-82. That is a position of some responsibility
and gave the committee an opportunity to know him and have
some understanding of his qualifications.
Also, because I think you have made reference to it twice,
Emmett Rice was sworn in an election year, but-The CHAIRMAN. No, his hearing was held on June 5, 1980, during
a Presidential year.
Senator SARBANES. My information is that he was sworn in on
June 20, 1979.
The CHAIRMAN. I'm mixing him up with Gramley. Gramley was
June 5 and the Senator is correct. Emmett Rice was the year
before, in 1979. We're talking about 1 year difference on a 14-year

Digitized by


Senator SARBANF.S. And Gramley was sworn in, as I understand
it, on May 28, 1980.
The CHAIRMAN. Well, I had all those before me yesterday. I do
not have them now. I'm not going to take time to argue about June
5 versus May.
Senator SARBANF.S. Dr. Seger, when you were at the Federal Reserve Board here in Washington from September 1964 to February
1967, what was the nature of your responsibilities?
Dr. SEGER. I was a financial economist in the capital markets section and did analyses of current conditions in the financial markets, analyzing financial institutions. Specifically, we did a lot with
thrifts, analyzing savings and loans, savings flow into commercial
banks, savings flows into credit unions.
Senator SARBANF.S. You had no administrative or supervisory responsibilities?
Dr. SEGER. I was a grade 13.
Senator SARBANF.S. All right. Then, the earlier experience at the
Federal Reserve Bank of Chicago from 1957-59Dr. SEGER. I was right out of school then. I was a research associate. Chicago sent me to represent them in Detroit as a research associate.
Senator SARBANF.S. You were right out of college or high school?
Dr. SEGER. I was 2 years out of college at that time.
Senator SARBANF.S. All right. I have a series of subject matters
I'm going to try to cover, so I'm going to try to move along rather
quickly jf we can. Yesterday we were discussing the independence
of the Federal Reserve and at that point we had to bring the hearing to a close, so I'd like to resume with that subject.
How do you reconcile the independent role of the Federal Reserve with the necessity to coordinate overall economic policies so
you do not have different agencies of Government working at cross
Dr. SEGER. In the Employment Act of 1946, we have certain general economic goals described for the country, things such as high
levels of employment, a sustainable rate of economic growth in the
overall economy, and price stability. That's what I'm talking about.
I think we've got various kinds of economic policy and I think that
it's appropriate. Those goals were passed by Congress; I didn't prescribe those. Since Congress passed that Act and put those goals in,
then I think it's appropriate for economic policy to be heading in
that general direction, that those be the general goals. That's what
I was referring to.
Senator SARBANF.S. How do you make sure that the Federal Reserve is not heading- in one direction and the Treasury is heading
in another?
Dr. SEGER. Maybe it's because I don't live in Washington, but I
think people in, say, a corporation, people at General Motors or
people who are designing cars, speak to the engineers who are
going to have to engineer the new model, and they speak to the
marketing people who are going to have to sell it, you're all aiming
to get something done together.
Senator SARBANF.S. And if they disagree about what it is you
want to get done, then how is that resolved at General Motors?

Digitized by


Dr. SEGER. They all are reasonable people on a team to produce
and sell a car.
Senator SARBANES. Reasonable people on a team may have different views about how to achieve a commonly shared objective. How
do you resolve that dispute? First of all, let me ask you this question. Is it your perception that the Fed and the Treasury have
always had exactly the same perception as to what ought to be
done in terms of economic policy?
Dr. SEGER. No, and I thought I discussed that yesterday.
Senator SARBANF..':1. If they do not, how do you address that problem?
Dr. SEGER. If y_ou talk to various economists, they have different
ideas about how the economy is going. If you look at economic forecasts, not all economic forecasts are the same for the next year, or
the next 2 years, or whatever. There are differences of opinion
about the particular conditions. There are differences of opinion
about particulars of how objectives can be met. I think you can
have differences of opinion on the specifics and still have people
shooting for the same ultimate goal, which is a healthy economy.
Senator SARBANF..':1. If you were a member of the Board of Governors of the Federal Reserve, would it be your view that the Board
should make its decisions without reference to the policy position
being taken by the Treasury or the Council of Economic Advisers?
Dr. SEGER. I think if you mean should the Fed be independent in
its deliberations, they should be independent. I think they should
be independent in their deliberations.
Senator SARBANES. When the Secretary of the Treasury says in a
public statement that the Fed is either following too tight a policy
or too loose a policy, do you think the Federal Reserve Board
should pay any attention to that, or simply brush it aside?
Dr. SEGER. I'm not on the Board, but I'm sure that they hear discussion. I'm sure that they read the New York Times, the Wall
Street Journal, and the Washington Post. I'm sure they are aware
of comments of every variety.
Senator SARBANES. My question is not whether you would be
aware of the comments, but what weight you would give to them. I
assume you would be aware of the comments. If you didn't get
them any other way you would pick up the morning paper and
read that. What weight do you think you should give to it?
Dr. SEGER. I indicated a couple minutes ago that I think the Fed
should be independent in its deliberations.
Senator SARBANES. I understand that. That's not my question.
What weight should you give to the positions taken by the Secretary of the Treasury, and how important is it that the agencies of
the executive branch of the Government follow a coordinated and
shared economic policy?
Dr. SEGER. You pick up all sorts of information, all sorts of comments, but you can still be independent in determining what policy
you think is appropriate. I think that you can decide in an independent way how to implement it and still have all sorts of information.

Digitized by





Do you think you should pay more attention

to a comment about policy made by the Secretary of the Treasury

than you would to an ordinary commentator?
Dr. SEGER. I don't know how to say this any better than I am.
I'm saying I think they ought to be independent in their deliberations.
Senator SARBANF.S. I understand you're saying that. My question
is something else. I take it you don't mean you should ignore the
comments of the Secretary of the Treasury on policy, or do you
think they should be ignored?
Dr. SEGER. I don't think you should ignore any comments; my
own Senator here has just said he's heard all these comments from
the financial community, and I think he should be aware of those.
I'm saying the same thing for the Fed.
Senator SARBANF.S. That leads me right back to my previous
question. Do you think in the course of not ignoring any comments
you should pay more attention to positions taken by the Secretary,
of the Treasury than you would to positions taken by "Mr. Citizen '
or "Mrs. Citizen?"
Dr. SEGER. I think that you should pick up the comments, you
should find out as a matter of information where the problems are;
still, though, you can make your own decisions. If you're talking
about direct input from the Secretary of the Treasury versus my
grandmother, then I would say they would be on an equal footing.
Senator SARBANF.S. All right. Now, given that the Secretary of
the Treasury and your grandmother are on equal footing with respect to their comments on what the Nation's economic policy
should be, what is your view on the various proposals floating
around, first, that the Secretary of the Treasury should be an ex
officio member of the Federal Open Market Committee?
Dr. SEGER. I think I answered that; I'll go through it again. I indicated to Senator Riegle-I think he will vouch for this-that I
was not in favor of that change.
Senator SARBANES. All right. What about the Secretary of the
Treasury being ex officio member of the Federal Reserve Board?
Dr. SEGER. I said that I was not in favor of the Secretary of the
Treasury being put on the FOMC or the Federal Reserve Board or
made a research assistant.
Senator SARBANF.S. Or as what?
Dr. SEGER. Or made a research assistant of the Fed.
Senator SARBANF.S. I don't follow that.
Dr. SEGER. I am not in favor of the Secretary of the Treasury
being put on the Board in any capacity.
Senator SARBANF.S. I see. Including the capacity of research assistant, which is the position you held in 1957-59 with the Fed?
Dr. SEGER. I was a research associate.
Senator SARBANF.S. What is your view on having the term of the
Chairman of the Fed coincide with the Presidential term?
Dr. SEGER. I recall this issue being discussed even back in the
1970's. The idea was to make the term of the Chairman more closely aligned with the term of whatever President. As I indicated, of
the various changes proposed for the Federal Reserve System, I
think I would put this at the top of the list, as one that probably

Digitized by



could be done without necessarily violating the independence of the
Senator SARBANES. I'm not quite clear from your answer whether
that means you support it or do not support it.
Dr. SEGER. I said I could support it.
Senator SARBANES. Do you support it?
Dr. SEGER. I don't have strong views about changing it. If it were
changed, I would support it.
Senator SARBANES. In other words, you don't have a view on
Dr. SEGER. I don't feel strongly about keeping it as it is or-Senator SARBANES. I'm not insisting that you feel strongly about
it. I'm just trying to find out what your judgment is on that question. That's a question that we have to face and others have to
face. It's an issue that's been under general discussion. What's your
position on it?
Dr. SEGER. I don't think the present situation is working that
badly. I'm not going to be the one making the decision, but if you
decided to change it, I would support it.
Senator SARBANES. You're going to be a member of the Fed, or
you're trying to be a member of the Fed, one of seven people to
whom we look to for wise judgments with respect to some very important issues. In that sense, you are not simply a follower. You
help to make decisions and to make policies that affect not only
our own people but people throughout the world.
This is a question involving the internal dynamics of the Fed and
how it functions, but }"OU don't have a position on whether the
chairman's term should be coterminus or coincide in some way
with the Presidency?
Dr. SEGER. As I said, I don't think the present system is working
that poorly, but I'm not beating the bushes to get a change made.
Senator SARBANES. In other words, anything that's done in that
regard _you will accept?
Dr. SEGER. That's right. I have very strong positions on certain
things that I've worked with a lot, such as commercial banking, supervision, regulation, how to improve those areas. On other matters, such as this, I have less strong positions.
Senator SARBANES. Well, on this one you have no position at all.
It's not a question of the intensity of the position.

The Federal Reserve Act requires that the members of the Board
of Governors be selected with due regard to fair representation of
the financial, agricultural, industrial and commercial interests, and
geographic conditions of the country. Are you in agreement with
this reguirement?i
Dr. SEGER. I think it's·good to have a mix, yes.
. -Senator SARBANES. Y 6u're· in agreement with ~th
Dr. SEGER. I think it's good to have a mix, yes.
Senator SARBANES. Well, is this the right mix? ·
Dr. SEGER. It's fine with me.
Senator SARBANES. Do you think the financial interests are already adequately represented on the Board?

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Dr. SEGER. By financial interests, are you referring to the fact
that Chairman Volcker had some experience at Chase Bank and
the Fed in New York and that Preston Martin had some finance in
his background? Finance is a pretty big field. I'm sorry. I'm not
quite sure what you're driving at.
Senator SARBANES. I would think banking would be financial.
How would you characterize yourself amongst financial, agricultural, industrial, and commercial?
Dr. SEGER. I've spent roughly 10 years in commercial banking
and a couple years as a State regulator, which I have already mentioned, and I have had some prior experience, roughly 5 years with
the Federal Reserve. If you consider that and commercial banking
financial, that's about 15 years of financial experience.
Senator SARBANES. Do you believe that agricultural interests are
adequately represented on the Board at the present time?
Dr. SEGER. I'm not familiar with the details of every Board member's background. I heard somebody say that Lyle Gramley had
been brought up on a farm or near a farm, but that may be wrong.
I don't want that in as a fact.
Senator SARBANES. Do you believe industrial interests are adequately represented on the Board?
Dr. SEGER. I would certainly view Preston Martin as someone
who has a good background and would be considered industrial.
Senator SARBANES. Do you consider him as having an industrial
rather than a commercial background?
Dr. SEGER. He didn't run a manufacturing plant, but I think he's
had experience in the retail industry. His company was part of
Sears Roebuck, as I recall.
Senator SARBANES. Would you consider Sears Roebuck an industrial interest as opposed to a commercial interest?
The CHAIRMAN. Not yet, but they will be soon judging from the
way they are rolling into everything.
Senator SARBANES. Well, I now make reference to Dr. Seger's response to Senator Riegle that she looks out at the current situation
and not at the future situation.
Do you consider employment at Sears Roebuck would make him
an industrialist?
Dr. SEGER. I would consider it part of the retailing industry, yes.
Senator SARBANES. Do you believe small business interests are
adequately represented on the Board?
Dr. SEGER. I honestly don't know.
Senator SARBANES. Mr. Chairman, my time is up. I do have an
additional line of questioning that I want to follow.
The CHAIRMAN. I do have some comments. Let me make a comment here and I'm not here to be approved for any appointment,
but I would say to you, as you consider your appointment to the
Fed-and I have said this many times in the past-the Fed has had
what I have called an incestuous relationship primarily of establishment people appointed over and over and over again who have
lived and worked most of their time in Washington. One of the few
exceptions to that recently has been Mr. Shultz from Florida who
was a businessman. Preston Martin, although he had been here on
the Federal Home Loan Bank Board and had had some Washing-

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ton experience in addition to that, had been in California and other
areas and worked extensively in the private sector.
Beyond that, as you look at most of them, I believe-I think and
the majority of this committee believes that it has not been wellbalanced and certainly not geographically. That is one of the reasons that I insisted that this President send up someone who fit the
qualification. You do fit that qualification. You are an economist,
but you are not an economist who has had extensive experience
here in Washington. You have been out in what I would call the
real world. I guess my colleague, Senator Riegle, would agree that
Michigan is the real world.
Senator RIEGLE. We like to think it is.
The CHAIRMAN. That is an area that I expect this committee, including the chairman, to be working on in the future, that there be
more diversity on that Board. I don't mean to characterize or criticize anyone currently serving, other than to fit them into a category where a lot of the present Board members' experience is very
similar to each other. They have had very similar backgrounds and
I hope that over the next few years to see that changed with this
President and other Presidents.
Along this line, I would submit for the record at this time a
letter supporting your nomination from Small Business United, a
group representing 60,000 small business members in this country
who do support your nomination for the position on the Fed.
[The following letter was subsequently submitted for the record:]

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69 Hickory Drive. Waltham, Massachusetts 02154

(617) 890-9070


G. Thomas c.ator
llttce. Cator & Associates. Inc.

10!>0 17th Slreet. N.W ..

June 19, 1984

luhn'tcton. D.C. 20036
202 ns.0429

Honorable Jake Gorn
Choirmon, Camnittee on Banking,
Housing and Urban Affairs
United States Senate
Washington, DC
Deor Chairmon Garn:
Smol I Business United, on behalf af Its 60,000 members,
wishes to encourage you, as a member of the Senate Banking
Comnittee, to confirm the appointment of Ms. Martha Seger, as a
member of the United States Federal Reserve Board.
When former Governor William H. Mi II iken appointed Martha
Seger, Director of Financial Institutions for the State of
Michigan, he chose an activist for revitalization of Michigan's
economy. Ms. Seger grew up in a small business family and
understands wel I the concerns of smal I business in our monetary
economy. Her concern about interest rates, the flow of capital,
ond the supply of capital, will encourage further economic
expansion of smal I businesses i_n the global marketplace.
Your support of her appointment to the Federal Reserve Boord
wi II be recognized as support for the small business camnunity os
wel I as support for a more balanced Federal Reserve Board.


C. Rennie
dent, SBU


Brad Roi ler
President-Elect, SBU

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Let me ask you what lessons for bank regulation and deregulation we should learn from the Continental-Illinois situation?

Dr. SEGER. The No. 1 lesson that occurs to me to be drawn from
that is that banking is a tough business. It's very difficult to make
decisions. After the fact, it's easy to criticize them, but at the time
the decision has to be made it's not always easy.
A second point is that banks are institutions run by humans.
Some humans are very smart; some humans aren't so smart. Some
humans make mistakes-I should say a lot of humans make mistakes, including humans who work in banks. Also, some humans
are very aggressive, they're willing to take on a lot of risks, others
aren't. I think in the Continental situation we did have a lot of individuals who were loan officers who were very aggressive, willing
to make loans, large loans. They were willing to go down into the
Southwest at the time when energy was thought to be the boom
industry and they put a lot of money there in various energy related companies, made tremendous commitments. AB I said, it's difficult to make these decisions, and banks don't always employ perfect forecasters. Consequently, I think some of the assumptions on
which those energy loans were based didn't pan out; that is, that
crude oil prices would go in one direction, up. Very few people, including Government reports that I was reading back in the early
1980's, showed a forecast of crude oil prices dropping either. The
commercial bankers were operating from the same type of forecasts, where they thought crude oil prices would go from $34 on up
to $40 and eventually $50 and $60, and so on.
That key assumption made a big difference in the ability of these
borrowers to meet these commitments and their lack of ability to
meet these commitments. And so I think those are some of the lessons I think we can draw.
The CHAIRMAN. Well, if we learn those lessons, as a possible regulator, how do you evaluate those lessons? How do you operate as a
regulator? What do you do to catch situations like that earlier, like
Penn Square? I happen to feel that there was too much time lag.
Penn Square should not have gone as far as it did-although Federal agencies were following it, it went too far. So what kind of approach do we take to learn from those lessons? We can see what
happened. How do we deal with that? How do we deal with that
type of a situation before it gets to the point where we have to
come up with $7 billion?
Dr. SEGER. This gets back to the point I was making yesterday or
the day before about the need to improve the whole syste~ of supervision and to change the way we look at these banks, to change
the examination process, to get involved earlier, to communicate
more clearly to the directors so they are honestly told what the
condition of the institution is. We tend to use very oblique and sort
of indirect terms to describe things, and I don't think that actions
are taken soon enough even in-house to get problems dealt with.
I think it's up to the supervisors to get these improvements so
that directors and management themselves can handle it.

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The CHAIRMAN. What I was trying to get at earlier, do you
favor-rather than routine examination periods of both banks that
have never had any trouble whatsoever and some of those that
have had some rocky times-changing the examination schedules
and maybe not visiting one bank that has never had any problems,
has obviously been well run nearly as often as another more troubled bank and really ride herd on the one with much more frequent examinations if they are on the troubled list?
Dr. SEGER. Absolutely. You see, many State banking laws used to
prescribe an examination a year, like a physical, whether you
needed it or not. What I would recommend is that a system be set
up where you could get, say, computerized reports, hitting various
performance measures from all banks; but you would save your
time and your energy and go out and visit and concentrate your
examination effort on those institutions, as you said, that were
identified as rocky or having tremendous problems.
Then you would concentrate more on those and not spread your
resources so thin by trying to hit everybody and not doing a terribly good job of dealing with anybody. I would agree with that.
The CHAIRMAN. How do you evaluate the capital adequacy standards for banks that are put to them by the Federal regulators? Do
we require enough capital?
Dr. SEGER. I believe December 1981 was the time that this joint
communique was put out that indicated that the Federal Reserve
and the Comptroller of the Currency would agree to certain minimum capital standards, and then the FDIC had a slightly different
view of all this, but I think that probably was a step in the right
direction, to have some absolute low point below which it was not
possible for bank capital to slip, because the trend had been this
long-term drop in capital.
Given the problems since then, it certainly would be nice to have
more capital shown in those accounts. But what I sort of detect, unfortunately, is a tendency to put so much effort on capital adequacy that maybe some of the other things are neglected, such as improving management and also concentrating more on things that
banks can do to improve their profitability, through things like
asset liability management, in-house asset liability management.
To me, it's like my flying home tonight: I am more concerned about
the pilot who's up in front and whether or not the motor is good
than I am about having a parachute in the plane, because I hope I
don't have to use it.
I think we ought to look not at the capital first, because that's
sort of the last line of defense. If you don't have any earnings and
you've got tremendous loan losses, then you have to dig into capital. But we ought to make sure that they are also showing some
profits, because that's the first thing that will absorb loan losses
and other types of losses.
The CHAIRMAN. Do you have any suggestions for the problem of
international lending? At the time we increased the IMF quota
there were suggestions for country loan limits and all sorts of very
restrictive proposals. The Senate and the House adopted some
medium ground by requiring higher capitalization, additional disclosures, special reserves, and other things of that nature.

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The problem of international lending is still before us and I'm
not asking you what to do about current outstanding loans. I'm
looking to the future, not today and not last week. Do you have
any suggestions for how we deal with international lending problems for the future to see that it not only does not continue to compound, but we hopefully avoid that type of situation in the future?
I guess to be more specific, would you favor more of the strict
type of controls that were advocated by some last year? Do you
think we adequately dealt with it or are there some other steps
that you would recommend that we could apply to banks in relationship to international lending problems?
Dr. SEGER. To answer the question first of all, as to whether I
favor specific controls, or let's say dollar limits country by country
or percentage limits-percentage of asset limits country by country-I am opposed to that because I don't know where the group of
geniuses reside who will set those limits.
In terms of the way that we could deal with this-and as I understand it, steps are being taken to improve some of these things
already-I think, again, the supervisors could get on top of these
problems earlier, and hopefully they are. Also, I think we can
remove some of the incentives to get deeply into these foreign loans
by dealing with the way in which the income from those loans is
bought. When you could take a fee and put it all into income up
front that was a big incentive to get in. I'm not an accountant, but
as I understand it, these fees are being spread or it's suggested that
they be spread over the life of the loan, so that reduces the incentive a bit.
I think, too, that we can do some consciousness-raising on the
part of the lenders in making sure that they themselves look at the
composition of their loan portfolio, not just foreign loans, by the
way, but everything, and look for areas of excessive concentration.
I don't think we have to have the regulators do all the thinking
for the banks, and I think that what we ought to do is to push
them to run their own shops in a more effective way.
The CHAIRMAN. I'm going to stop my questions at this point and
I've conferred with Senator Riegle, and due to the Senate schedule
and our individual schedules, we will close the hearing at 1 p.m.
today, and if it is convenient with your schedule, Senator Riegle
and I agreed that we will resume at 10 a.m. in the morning. Is that
satisfactory to you?
Dr. SEGER. I have to go home tonight, but I can fly back first
thing tomorrow morning.
The CHAIRMAN. So with the remaining 20 minutes, I would
simply turn to my colleagues-however you two would like to
divide the remaining time, fine.
Senator SARBANES. Mr. Chairman, I don't know whether I will be
able to be here in the morning. Is there some way I could pursue a
line of questioning now?
The CHAIRMAN. As I said, it's Senator Riegle's turn, but if he's
willing to yield to you, fine.
Senator SARBANES. Is there any chance we could continue beyond
1 o'clock?

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The CHAIRMAN. We could continue until 1:15.
Senator RIEGLE. Let me yield my time to Senator Sarbanes.
Senator SARBANES. Dr. Seger, do you believe that it is possible in
principle for a currency such as the dollar to be overvalued?
Dr. SEGER. I hear the dollar described as an overvalued currency
right at the moment.
Senator SARBAN~. Yes, I hear it too. Do you believe that it is
possible in principle for a currency such as the dollar to be overvalued?
Dr. SEGER. The answer is yes.
Senator SARBANES. You do believe that. Is the dollar, in your
judgment, at the present time overvalued?
Dr. SEGER. It may be, in terms of certain currencies and not in
others. I don't think one can give a blanket, all-encompassing
answer to that.
Senator SARBANES. The economic report of the President estimated that the dollar is 32 percent above its long-run real value. Do
you agree with that?
Dr. SEGER. I don't know if it's 32 percent or what-I do not know
an exact percentage.
Senator SARBANES. Pardon?
Dr. SEGER. I do not know if that's the right number.
Senator SARBAN~. Do you think the dollar is overvalued in
something approximating that range, 20 to 30 percent?
Dr. SEGER. I said I would agree it's overvalued, but I do not know
a number.
Senator SARBANES. I'm not asking you for a specific number. I'm
trying to get a range. You're seeking to be a member of the Board
of Governors of the Federal Reserve. You said that the dollar is
overvalued. Do you have any idea of the range by which it's overvalued?
Dr. SEGER. All of these are estimates, including the number in
the economic report of the President. I would say the number is
somewhere probably between 15 and 25 percent.
Senator SARBANES. And how do you arrive at that?
Dr. SEGER. As I said, it's a rough estimate. Basically, I would
come up with that by looking at the trend of where the dollar had
been vis-a-vis these other currencies in the past. That's one thing
you can look at. Another thing is to look at the trade flows.
Senator SARBANES. Do you think that poor trade flows indicate
an overvalued currency?
Dr. SEGER. If the exports of a particular country are having a
rough time in foreign markets, I think that that is one sign of an
overvalued currency; yes.
Senator SARBANES. Do you believe coordination is necessary between monetary authorities of the major industrial nations?
Dr. SEGER. I think cooperation and communication between all
these major industrial nations is very important. If by coordination
you mean setting up some body that will order each country to do
certain things with its monetary policy to make sure that everybody is in sync, then I suspect that would be unacceptable. The nations' economies are not in sync. The economic recoveries between
various countries, while they are certainly going on, are not all in
the same stage.

36-314 0 - 84 - 14
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204 Senator SARBANES. Do you believe the monetary authorities· of
the major industrial nations should seek to coordinate their policies with the objective of stabilizing the exchange value of the
major currencies?
Dr. SEGER. I take more of a market approach to establishing exchange values, period.
Senator SARBANES. Do you believe it is ever appropriate for the
United States to intervene in the workings of the foreign exchange
Dr. SEGER. I think it's appropriate for them to do exactly what
they are doing now, which is if ~he markets are disorderly and if
there's something bordering on chaos, then it's appropriate for
them to have the ability to step in.
Senator SARBANES. But only in an extreme crisis?
Dr. SEGER. Disorderly markets, chaotic conditions; yes, sir.
Senator SARBANES. Are you aware of what is happening to the
net asset position of the United States?
Dr. SEGER. If you mean that we are approaching net debtor
status internationally, yes, I am aware of that.
Senator SARBANES. Now that's a development that would make
us a net debtor for the first time since the period before World War
I. Other things being equal, what will this do to our surplus services account?
Dr. SEGER. Obviously, if we are having to borrow more, it's going
to mean that we will be paying out interest to foreigners and that
this one action by itself-I don't know what assumptions you're
making about other things going on-but this one step would
reduce that surplus.
Senator SARBANES. What do you think this structural decline in
our current account surplus would do to the underlying value of
the dollar?
Dr. SEGER. In my own judgment, not a lot.
Senator SARBANES. You don't feel it would affect the real value
of the dollar?
Dr. SEGER. Not in and of itself; no.
Senator SARBANES. So you don't expect a shift into a net debtor
category, with the outflow to pay interest on the capital inflow,
could result in the depreciation of the dollar?
Dr. SEGER. When I was in banking, I happened to have dealt a
lot with our own international department and the international
departments of some other banks, and in the conversations I have
had with foreign exchange traders in Detroit, Chicago, New Yorkthe key factors that have always been pointed out to me-and
these are the people that have a lot of clout as to where the values
are established; I don't· personally because I don't buy or sell currency-the items that impress them the most and influence them
the most, are interest rates and the relative levels of interest rates.
You're looking at currencies in pairs basically. The second thing
they look at is inflation performance on a relativ.e basis.
Senator SARBANES. On the subject of relative rates of interest,
you said yesterday that you thought interest rates now were just

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about right. I think that was your statement. But real-interest
rates are at an unprecedented level.
Dr. SEGER. I guess it depends on how you calculate real-interest
rates. The academic community and apparently a lot of other
economists are looking at one thing, and I think the people who
are out in the real world making decisions to borrow are looking at
something quite different.
The basis for the statement you just made, I believe, is to compare current nominal rates with what has happened to inflation
over the last year or so. If you subtract off the nominal rates the
amount of inflation over the last 12 months, which as I indicated
earlier has been a very good performance, then you net out to a
large number which is referred to as the real interest rate.
People who are experts on corporate finance and are making big
decisions to invest in corporate America and a lot of other people
who are making investment decisions for the future are looking
ahead, are trying to decide where inflation is going in the future.
And when they look at that in the prospective way, they see a
number that's bigger than the number in the last 12 months or the
last 24 months. By the way, there is no one number for this; different individuals certainly have different feelings on that matter.
But if you look at it that way, then I suggest to you that the socalled real-interest rates that count are probably not that much too
high or are not at record high levels.
Senator SARBANES. You don't think they are at high levels at all.
You think they are about right, as I understand it. That's the
answer you gave yesterday.
Dr. SEGER. I was talking about market-Senator SARBANES. And I take it that is the answer you're giving
right now.
Dr. SEGER. Yesterday the question was what I thought about
market rates of interest.
Senator SARBANES. You thought they were about right.
Dr. SEGER. Market rates of interest.
Senator SARBANES. Then today you're saying that if someone
then comes back at you and say, yes, but the real rates are at an
unprecedented level, then you discount the real rates and come
back to your point that you think-Dr. SEGER. Sir, I am not discounting them. I'm just saying that I
think there are different ways to calculate what's known as realinterest rates. Academics typically look backward and the people
making investment decisions look forward, and so they come, I believe, to two different conclusions.
The CHAIRMAN. Would the Senator _yield for a clarification? I'm a
little bit puzzled here, too.
As I listened to you yesterday and today, I assume that your
answer is that they are about right is in an academic and a market
sense, but you don't think the interest rates are not too high as far
as the public is concerned?
Dr. SEGER. No.
The CHAIRMAN . .Because I do, and I wanted to clarify that so
you're in a market adequacy situation.

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Dr. SEGER. As I look out at the market, I see the market is setting these rates; I don't believe that I should be in the business of
setting interest rates.
The CHAIRMAN. But interest rates are too high for those of us
who are going to borrow and the economy and all that?
Dr. SEGER. Absolutely. When I worked in Washington in the mid1960's the prime rate was 4.5 percent. I would love to see us return
to those type of conditions that would support that.
The CHAIRMAN. I a_p_preciate the Senator letting me clarify that,
because if you thought interest rates were about right for the consuming public, I might have to reconsider my support. So I thank
the Senator for letting me clarify that point.
Senator SARBANES. Mr. Chairman, I'm pleased to hear that a
process of reconsideration is possible.
Could you describe to the committee your view of international
exchange rate regimes? Specifically, do you favor or oppose the
present system of freely floating exchange rates?
Dr. SEGER. I do favor freely floating exchange rates, and I
thought I was suggesting that when I indicated that I preferred to
have the market determine rates and eventually it would be done
only when markets become disorderly or chaotic.
Senator SARBANES. So you reject fixed exchange rates on the
Bretton-Woods model?
Dr. SEGER. Yes, I do, sir.
Senator SARBANES. What is your view on the gold standard?
Dr. SEGER. I have never been a gold standard supporter, and I
am not now.
Senator SARBANES. Do you favor or oppose the attempt to tie the
value of the dollar to the price of a basket of commodities?
Dr. SEGER. It seems to me that's just a left-handed way of asking
the gold question.
Senator SARBANES. So you oppose that?
Dr. SEGER. I oppose it.
Senator SARBANES. Did you favor or oppose the legislation last
year to increase the quota allocations to the International Monetary Fund?
Dr. SEGER. I wasn't down here lobbying for it, but I did support
it, yes.
Senator SARBANES. Do you believe that the IMF has enough resources now to carry out the vital functions that it's charged with
in the international community?
Dr. SEGER. I guess it depends on your assumptions. If the whole
foreign debt situation blew up and the IMF had to come in to a
very great degree, they might not; but using reasonable probabilities, which I think is all that one can do, I would say at least they
are $8 billion more likely to reach it today than they were last November.
Senator SARBANES. Would you favor or oppose the new allocation
of special drawing rights?
Dr. SEGER. Again, I haven't done much thinking about this, but I
guess I would favor it.

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Senator SARBANES. How concerned are you about the Latin
American debt problem?
Dr. SEGER. You mean in general or as it impacts on our banks
or-Senator SARBANF.S. Both.
Dr. SEGER. Again, this problem is not new. I have been very concerned about it for the last couple of years. The borrowing has been
going on for a long time. The debt load has been rising. The dollar
amounts of these loans made by American commercial banks to
Latin America, of course, have gone up and up to rather interesting levels, and that's all been going on for a while.
In my judgment, the peak of the concern probably should have
been expressed back in the period when I was a regulator, which is
back in 1982, and while I still think it's a very severe problem both
for the Latin American nations and for the American banks that
have made those loans to Latin American nations, I think that we
are on the downside of the hill, that we are heading in the direction of dealing with this.
One example I'd like to use is Mexico. Mexico, between 1981 and
1983, has turned its situation around from running a very major
trade deficit of $14 or $15 billion to a surplus. And we have seen
improvements in various countries. The IMF, of course, is working
with them, is putting pressure on these countries to get their internal affairs in order, to practice some austerity.
The current problem, as I understand it, is working with Argentina trying to get a deal worked out with them so that they will
adopt some sort of an austerity measure or measures and that then
the IMF can proceed to get that situation dealt with.
But again, I am not complacent and I don't think the problem
has gone away. I don't think it's going to go away overnight, but I
think we are making some progress.
Senator SARBANES. Well, what is your analysis of the reasons for
the unprecedented trade deficit we are experiencing?
Dr. SEGER. A whole bunch of reasons.

Senator SARBANES. Does the austerity program in Mexico have
anything to do with it?
Dr. SEGER. The austerity program in Mexico had a lot to do with
it. I happen to live in a border State. We border on Canada, and
Canada is certainly America's major trading partner or one of
America's major trading partners. Mexico has been another major
trading partner because they border on our southern extreme. The
Mexican economy was one of the most rapidly growing of all in
South and Central America. It was doing very well back in the
1970's. As a consequence, there were major purchases of American
goods and services, and so when they got into trouble and these
austerity measures were put on-various controls were put on the
citizens, currency controls-they took steps to limit imports into
Mexico, and many of those imports into Mexico used to be products
being exported from the United States, so that I think is one very
important matter.

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A second factor that contributed to our balance of trade problems is the matter that I obliquely referred to earlier about our
economic recovery coming along. It's on the early side if you compare our situation to some other major industrial nations. We have
come along early and the recovery has been very robust. The other
major industrial nations are certainly in the recovery mode, but
they are some months behind us. And as such, this has meant that
our strong early recovery has sort of worked as a major magnet to
pull a tremendous amount of imports in from outside; but at the
same time, because the other countries' recoveries were lagging
behind ours. This meant that the markets for our goods-in other
words, the opportunities for our exports-were not improving as
rapidly as our imports. That's a second factor which has entered in.
A third factor certainly, if you just look at statistics, involvesand I'm sorry Senator Riegle has left, but he and I discussed this in
his office-imports of foreign cars and this has been a big item in
our trade problem.
Senator SARBANES. So it's your perception that the export-import
gap is very closely tied to the cyclical mismatch in the movement
of the economy; is that correct?
Dr. SEGER. I said that is a factor, yes.
Senator SARBANES. I was interested that you didn't mention in
this list of factors the question of the value of the dollar and the
assertion by many that it is overvalued. You don't think that's an
important consideration?
Dr. SEGER. That's another one on the list. That ties in-Senator SARBANES. Isn't it a fact that the very high interest rates
which have brought in these tremendous capital inflows into the
country have in effect prevented the traditional economic theory of
how you adjust your trade balances from working? The traditional
theory is that when you get that gap on exports and imports, you
get an automatic adjustment in the value of the currency and the
situation is remedied. Isn't that correct?
Dr. SEGER. Maybe the real world is more complicated than the
theory suggests, because there are lots of different things that work
these days. Theories are usually laid out in such a way as to
assume that only one factor changes at a time. Unfortunately, that
doesn't often happen.
Senator SARBANES. Well, how are we able to sustain these large
trade deficits in the real world?
Dr. SEGER. As time passes, I think there are still some self-correcting mechanisms that-Senator SARBANES. But right now, we've got this enormous trade
deficit. How are we able to balance it off?
Dr. SEGER. Are you just talking about the capital flowing in?
Senator SARBANES. Is that what's doing it?
Dr. SEGER. That's the way it's balanced.
Senator SARBANES. That's important, isn't it?
Dr. SEGER. Yes.
Senator SARBANES. That is the real world, those capital flows.
Why are we getting those capital flows?
Dr. SEGER. Several reasons. One is what I mentioned earlier, relative interest rate levels. Another reason the capital has come into
this country is because of the fact that in other parts of the world

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we have some political turbulence, some big economic problems.
Whether you agree or not, many foreign investors still think of
America as a rather attractive place to invest, more or less a
Senator SARBANES. A safe haven?
Dr. SEGER. A safe haven, yes.
Senator SARBANES. If the capital inflows are such that they sustain an overvalued dollar, how are you going to balance the trade
Dr. SEGER. This goes back to some self-correcting measures that,
in my judgment, will eventually appear. As our economic recovery
proceeds, but at a slower rate, this will tend to diminish the rate of
increase in our imports, looking at that side of our balance of
trade. On the other hand, if you look at the recoveries going on in
foreign countries, they are coming through or will be going into a
more robust stage, and that will tend to help our exports. If our
exports are being aided by these self-correcting measures and our
imports either experience a slower growth or maybe even come to
sort of a plateau because of this, then we can get this trade deficit
narrowed down.
There are other proposals that are made to narrow it that are
political suggestions, that are political solutions, things such as
putting on quotas, erecting tariff walls, and all those things.
Senator SARBANES. Do you agree with the observation that
there's a mismatch between the American dollar and the Japanese
yen in the range of 20-30 percent?
Dr. SEGER. We talked earlier about differences of opinion. I hear
that all the time from the auto makers in Detroit, which is, as you
know, where I live. At the same time, I have spoken to Fed economists who are specialists in the international field and they suggest to me that there's no evidence of that. I'm not an expert on
Senator SARBANES. What's your view? This is a pretty important
question. Your judgment on this question has very important
policy implications. What's your view on the question?
Dr. SEGER. I'm impressed by-Senator SARBANES. You told me one view and you told me the
other view. I want to know your view.

Dr. SEGER. I don't think there is a universal view on this matter
and I am impressed by the presentation that the Fed's international economists gave me. Based on that, I would say that there is
some overvaluation. Whether it is exactly that percentage, I don't
Senator SARBANES. Their presentation was in line then with the
view of the auto industry that there was an overvaluation?
Dr. SEGER. Excuse me, I misspoke. I'm saying I was impressed
with their presentation about its overvalue, and I think that I
would go along with the auto companies that there might be a
little bit of overvaluation, but I don't think it's up in this high
range that you mentioned.
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Senator SARBANES. The auto companies think it is up in that
high range.
Dr. SEGER. I indicated at the start that I hear that from them all
the time.
Senator SARBANES. And you disagree with them?
Dr. SEGER. I have been convinced there is some overvaluation.
Senator SARBANES. Did you tend to agree with it before you got
this briefing from the people at the Fed?
Dr. SEGER. I hadn't been convinced that it was an exact number.
Senator SARBANES. Well, I understand, but you have been working closely with the auto industry people in Michigan; was it your
view before you got this briefing that their general assertion of this
overvaluation was essentially correct? I take it you have revised
your view on this markedly as a consequence of the Fed briefing.
Dr. SEGER. Well-Senator SARBANES. Was that a briefing in preparation for these
hearings, incidentally?
Dr. SEGER. They have been trying to tell me what the current
economy is as they see it, what the current issues are. As I indicated, they showed me some of the key legislation. I think maybe we
discussed this before you arrived.
Senator SARBANES. When did all of this take place?
Dr. SEGER. My nomination was announced May 31, which was
toward the end of 1 week, and I have been in here several days in
between then and this week.
Senator SARBANES. I see. This is a series of briefings from the
people at the Fed?
Dr. SEGER. From their professional staff, yes.
Senator SARBANES. Now, on this issue.
Dr. SEGER. OK. Socially I see a lot of the auto industry people
and hear this over and over again; that the dollar is so overvalued.
They have not said, well, it's obviously overvalued by 27 percent or
32 percent. They weren't getting into the particulars, but they
were just arguing that it was significantly overvalued and that this
was giving them great problems competing, primarily with the Ja~
anese. I think I have been convinced that there was a problem with
an overvalued dollar.
Getting a presentation from the Fed staff-and these people are
not employees of the auto companies-suggests that the dollar visa-vis the yen is probably not that much out of whack; yes, they did
influence me.
Senator SARBANES. Going back to the debt question in the developing countries-The CHAIRMAN. Senator Sarbanes, if I could say this, this will
have to be the last question. The reason Dr. Seger has to go back to
Michigan, so you understand why we're cutting this off, is that she
has to have her arm x rayed I thmk once a week or something like
that, so she has to catch an airplane to go back and have her arm
x rayed.
So you could ask one more question.
Senator SARBANES. I didn't realize that, Mr. Chairman, and I will
jus~ touch on thi~ final point. I need two questions in order to do it.
I will be very quick.

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On the debt question, it's been estimated that from one-third to
one-half of the adverse swing in our nonoil trade balance can be
accounted for by a decline in imports from the United States by
the developing countries.
Do you tend to agree with that? Do you have any difficulty with
that statement as a premise for the question I have?
Dr. SEGER. Could you run the first part by me again?
Senator SARBANF..S. Roughly one-third to one-half of the adverse
swing in our nonoil trade balance can be accounted for by a decline
in imports by the United States by the developing countries. This is
a point I was touching on earlier, about the importance of the developing countries to us as an export market.
Dr. SEGER. I don't carry those exact statistics around in my head,
but it is very significant.
Senator SARBANES. In view of that, would you favor special measures, such as a cap on interest rates paid by the less developed
countries or similar sorts of measures, to contain the hold that
rising U.S. interest rates have taken on their economies?
Dr. SEGER. I think this came up either yesterday or the day
before, but I will be glad to comment on it again.
What I indicated at that time was that it is a problem, clearly,
for anybody-whether it's a country or an individual or a business-to have a lot of debt outstanding and to have a floating rate
attached to it. As the rate runs upward, obviously, your debt service increases, and it becomes, in the case of these countries, more of
a problem.
I think my recommendation was that I would hope that the lenders to these countries could be convinced, maybe by actions in
Washington, that we are sufficiently serious about dealing with the
future inflation problems in this country, and ultimately will not
have to be looking forward to another outburst of tremendously
high interest rates. I am opposed to capping these loans in the
sense of putting a lid on them and if rates go above that we just
take that unpaid interest and add it to the principal; that to me is
negative amortization and I'm opposed to that. But I think if we
can cap it in the sense that we convince the lender that it's a fixed
rate loan-which is another form of cap-I would be in favor of
Senator SARBANES. Well, I don't want you to miss your plane.
The CHAIRMAN. Thank you very much. We appreciate your patience and have a safe trip to Michigan and back and we will see
you in the morning.
The committee will stand in recess until 10 a.m. tomorrow morning.
[Whereupon, at 1:20 p.m., the hearing was recessed, to be reconvened at 10 a.m., Friday, June 22, 1984.]

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FRIDAY, JUNE 22, 1984

Washington, DC.
The committee met at 10 a.m., in room SD-538, Dirksen Senate
Office Building, Senator Jake Garn (chairman of the committee)
Present: Senators Garn, Gorton, Riegle, and Sasser.
Also present: Senator Boschwitz.

The CHAIRMAN. The committee will come to order.
I think you probably found out what it is like to be in Congress
running to Michigan and back last night. We find that's an occupational hazard, and the only difficulty is that Utah is a lot farther
from Washington than Michigan, and when Western Airlines started nonstop flights, unfortunately, too many people at home found
out about them, and they are spaced so I can go to Utah. If I
caught an airplane this morning at 8 o'clock, I could have been
there by a 10:30 luncheon, a talk or a meeting; catch a 3 o'clock
plane and be back at 9 in Washington. That happens occasionally.
We know you can get there and back in the same day, so a 4,600mile round trip for lunch, and I take about 25 or 30 of those trips
per year.
Senator Riegle will be here shortly. He has some additional questions he wishes to ask you. Before he does get here, I wanted to
pursue some questioning on bank deregulation.
Chairman Volcker and I have talked and worked together on
this subject for a long, long time, and I'm wondering what your impressions are of deregulation. And I say at the outset, I suppose deregulation is a misleading term. People relate it to what we have
done in transportation deregulation strictly with trucking and airlines, in which we took very large steps and very carefully regulated routes as to where airlines and trucks could go and what they
could charge. I think deregulation is an adequate term for what we
Many people seem to think that we are trying to do the same
thing to the banking industry, and I have tried to point out over
and over again that using the term "deregulation" here is quite
different. We are talking about adjustments, talking about grantC213J

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ing some additional powers, but no one is talking about repealing
Glass-Steagall. No one that I know of is talking about putting
banks in general commerce, and nonfinancial-related services such
as construction, development, and certainly not into manufacturing, or retailing, or anything of that nature. But of course, the opponents who don't want any fair competition will try to lump that
all together and create the impression that we are removing all the
safeguards or attempting to remove all the safeguards and threatening the safety and soundness of the financial institutions of this
Now there are a lot of diverse opinions on this subject and you
have been a State regulator. In general, what are your impressions
of where the banking industry is today, in terms of deregulation?
What do you think the impact has been so far, as far as the results
of my bill of 2 years ago and where do you think we ought to be
going? I realize that's a big subject, and I don't expect you to get
into a lot of detail. We could spend hours discussing that, because
it's such a big subject. Give us your general impressions. I think
you are familiar with it. I was with you at one meeting in Detroit,
where we discussed it at some length.
Dr. SEGER. I'm definitely in favor of deregulation. I'll just make
that a generalization. And deregulation is basically in three areas,
as I see it. The area in which we have had the most deregulation,
to date, has been interest rate deregulation, where we're trying to
pop the regulation Q ceilings off deposits, so that banks could, for
the first time since 1933, really be in charge of what they offer
their customers in the way of interest on savings and time accounts. That was handled in the DIDMCA legislation, and DIDC, of
course, was given the job of coming up with a specific timetable for
that phaseout.
I think it has worked very well. I think it's been very proconsumer..for the first time in ages, consumers have had a chance to
get a return that's closer to market rates, and I think that's very
good. It has also given bankers opportunities to innovate on those
kinds of instruments and to make some decision themselves on
what their organization can afford to pay for these various kinds of
deposit moneys. Philosophically, I am in favor of deregulation and
practically speaking, I'm also certainly in favor of it.
My concern about the timing of that particular part of deregulation was that it did such a good job on the liability side, and yet, at
least from a perspective of the regulator in Michigan, it seemed to
me it did not address dereg on the asset side of the bank balance
sheet at the same time. Consequently, many financial institutions
found themselves sort of in the middle with their cost of funds deregulated, but at the same time, State usury ceilings on what they
could charge for various kinds of loans. I think that timing matter
perhaps could have been ·dealt with somewhat better, and if the
Federal Government was going to deal with the liability side, then
I think it should also have gotten involved on the asset side, so as
not to have generated this squeeze which was very, very severe
back in 1981 and 1982.

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In terms of your act-Garn-St Germain-in 1982, the instruction
to provide this new instrument now known as money market deposit account, was very, very positive, I think, both to the banks
and also to consumers, because consumers are now offered a product at banks that is very attractive and that is fairly similar to
what they have been able to get with the money market mutual
funds. At the same time, it gave banks a way to compete rather
effectively with the money market mutual funds. I think on an
equity basis that that was a good move and was very important.
Furthermore, I know that there were concerns at the time about
whether or not banks could wisely use this new freedom; the concern was that they would somehow or other act wildly and just put
30, 40, or 50 percent rates on these instruments and then find
themselves in trouble and have to go out looking for risky loans
and risky investments to get the revenue to cover the high-cost
funds. But I think the record shows that, in fact, banks have used
very good judgment, not that no banks have gotten in trouble, but,
as a group, I think they have used good judgment.
· In terms of the deregulation of what I would call products or
product lines, extending the services the bank can provide, here
again, I think it makes a lot of sense to give banks some additional
powers. I think I mentioned-I can't remember whether it was
Tuesday or Wednesday-some of the things which I think would
make a lot of sense, at least as a starting point, because they are
quite closely related to what banks already have.
The CHAIRMAN. I think today is Friday. I didn't expect to see you
every day this week either.
Dr. SEGER. I'm sort of confused too.
I think some of the items that I mentioned, based on both my
experience as a regulator and also having been in banking for 10
years, that I thought would be a closely related activity was underwriting municipal revenue bonds; at least bigger banks, I think,
have demonstrated they have the expertise to do underwritings,
and whether it's a GO or a revenue bond isn't really that much of
a difference.
In terms of underwriting commercial paper, again, I think
there's a lot of transfer of expertise here, and it does make sense.
I think also that banks can handle the discount brokerage business. I'm not talking about the turf fight about whether or not they
should have the opportunity to compete with the investment industry. I think that's a political consideration. But the economic consideration-the financial consideration-I believe suggests that
giving banks the power to offer discount brokerage does make
sense. Also, I think being allowed to underwrite and to distribute
mutual funds is not that far removed from what banks are now
doing and are able to do well. And I agree with you that certainly
banks came from a starting point of such a tremendous load of regulation that the so-called dereg we have seen so far and what we
are now talking about, even if it all materialized, leaves us with a
tremendous pile, slightly shorter than where we started, but still
hardly an unregulated industry.
The third part of dereg, as I see it, involves geographic deregulation. In other words, allowing for the banks to operate in broader
markets. And of course, some people refer to this as the question of

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interstate banking, interstate branching. Here again, I think that
going back a long time ago to the McFadden Act of 1927 or to the
Douglas Amendment of the Bank Holding Company Act, there has
been a lot of support given those controls, but I think by the time
we get to 1984, what we see are dramatic changes in the economy,
dramatic improvements in communication and computer technology,
and advanced transportation. Your example of being able to fly
to Utah for lunch and come back for a dinner meeting here fits in;
I think all of these things suggest that, in fact, the economic forces
have led to a broadening of markets.
I don't think, as a matter of fact, that the economic boundaries
of markets were ever coincidental to political boundaries. We sometimes forced it in laws, but I think if you look at the natural flows
of commerce and other sorts of activity, that it doesn't necessarily
end at somebody's State line or somebody's city limits, or the District line here in Washington.
So again, I think we should allow these changes in the economy
to be reflected in some liberalization of branching. Again, how far
we go, how quickly, that all, I'm sure, has to be negotiated. But I'm
definitely in favor of doing something with this, of allowing for
more interstate activity. We already have a lot of interstate banking activity that does not involve actually setting up brick and
mortar structures.
Having been in banking, I remember a lot of loan officers who
every Sunday night would get on a plane and fly off to the Southwest-this is from Detroit-and they would spend all week down
there calling on customers in that area.
The banking laws are not set up to limit one's ability to get on a
plane and conduct business. They were able to line up loans and to
offer other kinds of banking services, cash management, those sorts
of things for customers outside our State and out of our immediate
market area. These things have already been going on. Or, you can
have a formal loan production office someplace. With the use of
automated teller machines, we have had, I think, a broadening of
banking activities, because these ATM's are being linked within
the States. Also, a couple of big systems-PLUS and Sears are two I
can think of-are making these ATM's nationwide, which results
in a lot of banking activity across State lines, coast to coast, east to
west, north to south.
I think if you look at the interstate issue this way, then it
doesn't seem quite as great a departure from what we now have
than if you just say, "Gee, we haven't had brick and mortar
branches and now we're talking about allowing that to happen."
The CHAIRMAN. I'm sure you are aware that politically interstate
banking has no possibility of passing, regardless of what you just
said, and I agree with you, interstate banking is already here in
many respects.

In the bill that we will take up or the committee print next
week, we will have a provision that would legalize interstate compacts. Would you favor doing that?

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I favor doing that as a first step or, let's say, an inter-

im solution, hopefully leading to a better long-term solution which
t.o me would mean no barriers. If this was viewed as simply a tran-

sition, then I think it's great. And I know there are some of these
pacts in existence already; your step, as I understand it, would ba-

sically give some legitimacy to those.
The CHAIRMAN. Well, they are forming very rapidly. You have
the New England situation and in my State where they would be
opposed absolutely to interstate banking. The legislature, one day
this spring, unanimously, in both the Utah House and the Senate,
signed by the Governor on the same day, passed a reciprocity bill
with 10 other States, except California, of course. California is not
one of the 10 States included, any more than the 6 New England
States want to include New York.
So I'm sure there is no doubt in anybody's mind who will try and
remove that provision from the committee print next Wednesday.
It will be Senator D'Amato from New York. He will not enjoy
having that provision in. That is happening in many regions
around the country.
Let me ask you a question. We have talked of usury and the difficulties of States, particularly, and businesses, banks, savings and
loans within those States because of the usury ceiling. We have
consistently in the Senate passed usury override bills.
Consistently, the House of Representatives due to Congressman
Annunzio, wouldn't even allow us to exempt business and agricultural credit. This is hardly the normal type of daily credit with unsophisticated individuals. These are people that have lines of
credit, borrow all of the time. We have not been able to do that.
Once again, I would expect that we would pass a usury override,
at least on business and agricultural credit. But as a State regulator, I don't know what difficulty you have with that. I have always
had difficulty with Federal preemption of State laws because of
States rights.
Therefore, in all of the provisions since I have been here, I have
always insisted on-a 3-year period for a time for the State legislatures to say we don't agree with that. Do you think that's a reasonable attempt at solving this problem? To say, yes, we are going to
preempt State usury but if an individual State decides they don't
want to be preempted they have a 3-year period of time to tell the
Federal Government we disagree? Or do you think we should just
override and tell the States that's the way it's going to be?
Dr. SEGER. Let me just begin by saying that we did have a terrible time with the usury problem in Michigan in 1981 and 1982, because of the record high-market rates of interest and the fact that
the dereg act had gone through in 1980 and just about that time, of
course, is when interest rates took off.
The usury problem has to be dealt with. Certainly my philosophical preference, both as an observer of Government and as a State
regulator, is to think that States can deal with their own problems.
I'd like to feel that.
In the State of Michigan, though, quite candidly we couldn't deal
with it, and you heard the brick-a-bats thrown at me in the last
couple of days because I did try to deal with it there and to do
what was right, what was economically justified, and what was in-

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telligent. As a consequence, you get a reputation for being on the
side of the lenders or being anticonsumer.
The CHAIRMAN. Let me say at this point, 2 years ago to 3 years
ago, we had both Senators from Arkansas-Senators Pryor and
Bumpers-who would surely have the reputation of being proconsumer, literally bending this committee's ear every day to see what
we could do about a Federal preemption because Arkansas had a
IO-percent constitutional provision.
Dr. SEGER. I remember that.
The CHAIRMAN. It was not just a law, but in their State constitution. It was causing great difficulty among the markets and I doubt
very much that anybody called Senators Pryor and Bumpers anticonsumer because of their attempt to do something about that 10percent usury rate in the constitution of Arkansas.
Dr. SEGER. Michigan's wasn't quite that simple. It wasn't just one
number, and also it wasn't in the constitution. The combination of
these various limits was very restrictive and at that time was causing a very severe problem for many, many different types of lenders and, again, it was tied to the issue of safety and soundness in
dealing with the problems of the financial institutions at that time.
In terms, though, of how you deal with it if the State refuses to
or if the various interest groups that control the State legislature
will not allow it to be taken care of, then I think ultimately the
Federal Government has to get involved, whether I like it philosophically or not. The Federal Government got involved, deregulating on the liability side; they popped off the regulation Q ceilings,
which I certainly endorsed and still do endorse. Maybe we should have
made a States rights issue out of the regulation Q removal; I don't
know. But we didn't, -and now I think that you- cannot just leave
certain States there to die or suffer when they cannot deal with
this problem themselves.
In terms of the specifics, I suppose the mildest solution would be
to preempt them. By the way, just dealing with agriculture and
commercial loans is not enough. The big rub there was in the consumer area. I would say, if you are going to go at it at the Federal
level, it has to be broad based and across the board.
A preemption, as a first step, a preemption with the understanding that the States can override in a certain period-I know you
say you prefer 3 years and that's fine with me-that would probably be the mildest solution.
If one felt that the problem was absolutely out of control, absolutely impossible to handle at the State level, then I think I would
say you've got to play hard ball or be Mr. Mean and just say you
were forever and ever overriding this.
The CHAIRMAN. The reason for picking 3 years is simply some
legislatures don't meet every year.
Dr. SEGER. Right.
The CHAIRMAN. And that's probably very good for their State,
those who are fortunate enough not to have an annual legislature.
But in any event, that is the reason that we did that. Thank you.
Senator Sasser.
Senator SASSER. Thank you very much, Mr. Chairman.

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Dr. Seger, you testified yesterday and I think very rightly that
banks with loans to developing nations should be encouraged to re-

write those loans at fixed and realistic interest rates. Now, how
then should the banks be encouraged or required to treat such
loans on their balance sheets, in your judgment? Should banks be
allowed to keep such loans on their books at face value, or do you
believe the banks should be increasing their reserves against such
loans so that eventually they would be able to write off a certain
fraction of their book value?
Dr. SEGER. Commercial banks, whether as to foreign loans or domestic loans or any other kind of loans, do work with their regulators, specifically the examiners who are in these various banks to
evaluate the quality of their whole loan portfolio. When that is
done, an evaluation is made supposedly of the quality of each one
of these and that involves assigning a probability of ultimate par_off
of each of these obligations. Again, as luck would have it, it s a
very complicated world out there, and there can be differences of
opinion even between individual examiners about which ones
should be written off or which ones should be written off let's say a
half, or by a third, or a fourth.
If it's a bank that employs a Big Eight accounting firm or another independent CPA firm, you also get involved in this business
of looking at the quality of assets or loan quality; they too try to
make an assessment of the odds of repayment.
To get your specific question about the foreign loans, they: are
looked at the same way, and the issue is: Will these eventually be
paid off! I think you have to be more than an economist to answer
that question; probably a pyschiatrist, a political scientist, and so
on. But I do think certainly we have to look at or make a strong
effort to determine the quality of these and to make sure that the
banks do have adequate reserves for future losses, to accommodate
whatever does come up.
I don't think, sir, that we have to say, "Well there is a problem
with Third World debt and therefore we better take the whole pot
and say it will never be paid off." I think that's probably the outside
extreme; somewhere between that point and assuming that every
nickel will be paid back is appropriate.
Senator SASSER. Well, we agree, of course, that there are some
uncertainties as to whether or not these loans will be paid and it
may very well vary from country to country, from indebtedness to
indebtedness and will be determined, I suspect to some extent, by
the political views of those who are in power in the particular
countries, and also will be determined in very large measure by
economic conditions in those countries and by the world economic
And these are matters of considerable uncertainty at the present
My question is: Should banks be allo:wed to keep such loans on
their books at face value or should they start writing some of them
down now?
Dr. SEGER. The first step in doing this is what I was referring to,
sir, where the banks, with the help of the regulators, examiners

36-314 0 - 84 - 15
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and as I said their CPA firms, go through loan by loan and try to
get a value on them. Then they do, in fact, come up with a number,
and then they try to make provision for future loan losses that's
adequate to cover those.
It's a matter of saying what are the odds of repayment? If it's so
far gone or the debtor has just said, "I'm sorry I just declared
bankruptcy," it's clear cut that obviously this will not be paid back,
that would be written off promptly, as a loan loss. But there is a
sequence involved to get this done, and banks should do it, and I
think, in fact, they are doing it.
Probably the only debate among people is whether the dollar
amount is the right amount.
Senator SASSER. Well, these loans should be reserved against, if
the risk of nonpayment is high. We don't have any disagreement
there, I assume.
Dr. SEGER. No, we don't.
Senator SASSER. So it might be well, judging from what you said
here, for the banks to start moving in the direction of raising reserves against these loans, in anticipation that there would be
some nonpayment or a substantial nonpayment or just nonpayment. This is something that should be anticipated, and as I judge
from your testimony here, you are of the opinion the banks should
move forward and start reserving against these anticipated nonpayments, or at least the threat of nonpayment?
Dr. SEGER. Yes, I do favor that. In fact, the 1983 statistics show
that the banks that are the major lenders of this type of money
have, in fact, made a big move toward increasing their reserves already.
Now that doesn't say that more increases are not in order. But
they started to address this problem back in 1983.
Senator SASSER. Yesterday you testified that you opposed several
portions of the bills that have been put forward in the Senate by
our colleague here on the Senate Banking Committee, Senator
Mattingly, and also Senator Jepsen, who is not a member of this
committee, and bills put forward in the House by Representatives
Kemp and Lott.
You stated, as I understand it, that you do not favor placing
either the Treasury Secretary or the Chairman of the Council of
Economic Advisers on the Federal Reserve Board. And earlier in
your testimony, you indicated that you oppose changing the provisions which would hold release of the Federal Open Market Committee decisions until after subsequent meetings. And you also said
that you oppose either the gold standard or its equivalent, the commodity price vent.
Now what about one other provision of the bill which we haven't
mentioned so far, and that is one to shorten the terms of the Federal Reserve Board members from 14 to 7 years, and give the President the power to appoint a majority of the Board in his or her
first term of office?
Would you favor or oppose such a change as that, Dr. Seger?

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Dr. SEGER. I know you didn't hear this discussion, but yesterday
we discussed at length the whole issue of independence of the Fed,
and I think I said in every way I could that I certainly support the
idea of keeping it independent. The initial reason that the Federal
Reserve Act put these terms in at 14 years was tied to the independence issue and the feeling that 14 years is long enough to
really remove these people from the immediate political scene.
Whether or not those terms can be shortened somewhat and still
keep the Fed independent, probably they could. I think Senator
Garn said that the average time that a Governor actually serves is
closer to 4 or 5 years-which I believe was your statistic-rather
than 14, even though, technically, you are named to a 14-year
term. There is a lot of turnover; I think he said that G. William
Miller was in and out in 15 months. There have also been some
who have served the full 14 years.
Senator SASSER. What is your feeling about it? Should it be shortened to allow the President to appoint a majority of the Board
during the first term of office, or do you feel it ought to retain the
terms at 14 years as they presently are?
Dr. SEGER. I think the 14-year system has worked pretty well, because, as I thought I suggested, even though terms are fixed at 14
years, the Presidents do, in fact, have more opportunities to influence it because of the turnover and the fact that, because of death,
more attractive opportunities, ill health, or whatever, people do
serve less than their full 14 years. In the late 1970's, I recall a
number of replacements being made, as terms were not, in fact,
ending, but rather, appointments were made to replace a person
who had chosen to leave.
Senator SASSER. So if you follow that line of logic, then I assume
that you think it's well that people do not stay in this office for a
full term of 14 years; it's probably a good thing then that some get
better economic opportunities, or have ill health, or perhaps even
expire before their 14-year term is up. And do I gather from that
that you think it might be well if the term were shortened?
Dr. SEGER. First of all, I didn't say it was good that anyone expired or had ill health at all. I was just mentioning the facts as I
understand them, that people do come and go far more often than
a 14-year term suggests. Because they come and go more often, I
think that, in effect, we have given each President more of an opportunity to have some input to the composition of the Federal Reserve Board and, therefore, that the present system is working
Senator SASSER. So I take it then you think it's well that Presidents do have more input into appointments on the Federal Reserve Board than just having to wait until a 14-year term is up?
That's the whole thrust of the legislation that's been encouraged
and introduced over here-the feeling that 14 years, on the part of
some Senators and some Congressmen, including my colleague,
Senator Mattingly, of this committee and Congressman Kemp on
the House side, that 14 years is too long, that it ought to be shortened, and that the Federal Reserve Board ought to be responsive,
at least to some extent-not subservient, but responsive to some
extent-to the elected political leadership of the country, hopefully,
so we don't get into situations as we have had in recent years,

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where you have fiscal policy running in one direction and monetary policy running in another. Although perhaps that was helpful
this time-I don't know-but on the other hand, if you think no
change in the law is needed, just tell us that. It would be helpful to
know your views on this matter;
Dr. SEGER. That's what I said; I think the present system is
working well.
Senator SASSER. So then the bottom line is that you would stick
with the present system and you would not want the term shortened from 14 to 7 years? That's the answer to the question; isn't it?
Dr. SEGER. That is my view right at this moment; yes, sir.
Senator SASSER. Right. I might say, Dr. Seger-and I share this
with the chairman-we had a gentleman running for office down
in my State years and years ago, who wanted very badly to get
elected, and he made a fiery speech to a group, and when he got
through-he was sort of a rural man-and he said, "Ladies and
gentlemen," he says, "Them's my convictions, and if you don't like
them, I'll change them." [Laughter.]
So thank you, Dr. Seger.
The CHAIRMAN. Thank you.
Before I turn to Senator Riegle, it's just interesting, Senator
Sasser was asking you about the ability of the President to appoint
a majority during his first term in office. I was just checking, interestingly enough, under President Carter's term of office, even
though he was only there 4 years, and there is a 14-year term, he
appointed six people to the Federal Reserve Board. I realize that
that is unusual. I'd expect that going back to other Presidents, who
did not have similar opportunities, the natural turnover, regardless
of 14 years, produced six out of seven that he had an opportunity
to appoint during that particular period of time.
So it is a little misleading to say six out of seven, because a
couple of them were reappointments. However, the fact that he
had the opportunity to change them, is the point, if he desired to.
They were at the end of their terms, and the opportunity arose. He
didn't appoint six new ones out of seven during that period of time,
but had the opportunity to do so, if he had chosen. President
Reagan, of course, could have changed Chairman Volcker, and decided not to.
Senator Riegle.
Senator RIEGLE. Thank you, Mr. Chairman.
This morninr: the progressive Conservative candidate for the
Prime Minister s position in Canada, Brian Muldroon-The CHAIRMAN. What is a progressive Conservative?
Senator RIEGLE. Sort of like you, Mr. Chairman.
The CHAIRMAN. I always wondered what I was.
Senator RIEGLE. The Liberal Party is the alternative party. I
don't know if they're called conservative liberals, or what, but
anyway the progressive Conservative candidate, Brian Muldroon,
and a personal friend of mine of longstanding, was in town today
and met with the President and today was on Capitol Hill, and so
we had an opportunity for him to meet with some of our colleagues, including Senators Sasser and Byrd. In any event, that
prevented me from coming earlier. I just wanted the witness to understand why I was not here at 10 to get started.

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There are several things I'd like to get into today.
First of all, before I arrived, you were talking about financial deregulation legislation as it would relate to some additional powers
for banks.
Dr. SEGER. Yes, sir.



Senator RIEGLE. What is your view in banks getting into the securities business more fully than they presently are? How about
the security powers, as such?
Dr. SEGER. The ones I ticked off as supporting were: First, to
allow banks to extend what they can presently do, which is underwrite general obligations, to include municipal revenue bonds, because I felt that was closely tied, in terms of the expertise required,
to what they now do.
The second was to allow them the power to underwrite commercial paper. Again, I feel that is quite closely related to many of the
investment powers banks have had for a long time and seem to
have handled rather well.
The third was to give banks the authority or the power to
manage, distribute money market mutual funds; again, I feel that
is very close to activities they already have.
Furthermore, on an equity basis, money market funds are very
close substitutes for money market deposit accounts. These are
very great competitive items, and if the money market fund managers can now offer something that is a bank-type activity or service, then I think it's only fair that the banks be able to get into
some of the things that the funds are doing.
The other power is discount brokerage, which many banks are already doing, on an agency basis. Those are the powers, sir.
Senator RIEGLE. Now, Donald Regan testified on that point and
also supported the idea of broadening the security powers to get
into revenue bonds. I asked him the question at that time whether
he saw that as sort of the end of the expansion of powers into the
securities area or the beginning? In other words, was this opening
a door to something that would lead to the direct underwriting of
corporate securities, for example. And he was quite frank to say,
yes, it was a door opener and he saw this coming in stages but basically the banks were to move much more fully in the securities
The CHAIRMAN. That probably depends on whether he's back in
the securities business when we get to that.
Senator RIEGLE. That may well be right.
Would you agree with him on that or would you draw the line
after revenue bonds and the ones you have mentioned and say
banks ought not to go on then in later steps into directly?
Dr. SEGER. Was he saying what should be done or what he
thought would be done-I just wonder what question I should
Senator RIEGLE. He has indicated what he thought should occur.
In other words, what he envisioned down the road if he could wave
a wand and make it happen.

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And the reason that I think that's important is that if you talk
about obligation bonds and revenue bonds as a package and that's
the full extent of the discussion, that's one issue. If you view it as
sort of a train station on the road toward eventual full-blown banking activity in the securities business then it takes on quite a different implication if you go to revenue bonds now.
And so he was saying that that is what he envisions and what he
would see as an appropriate set of steps here-to see the banks
fully into the securities business. Would you share that view?
Dr. SEGER. I am fairly conservative about making wild changes
rapidly. My preference would be to sort of ladle these things out
little by little. You give them one new power, a couple of new
powers, and see what happens. How do they handle it? Does it get
them into deep trouble or are they managing themselves well and
keeping their house in order, getting the right kinds of expertise as
they do this.
You see how that goes and then you can consider extending it
further. That's the way that I would prefer to play it. Now maybe
at the end of 20 years-I'm not that good a forecaster that I can
look out that far-maybe at that time one could say, "Hey, they
have handled this all so well that now they deserve to be fullfledged investment bankers." That might happen. I'm not going to
sit here today and say I recommend that in 3, or 4, or 5 years that
they have the whole package, but rather that it should be looked at
step by step by ~tep.
Senator RIEGLE. How about mortgage backed securities? What
would be your view on that?
Dr. SEGER. I'm sorry I didn't mention that. I think that also is
very closely related to some of the activities that the banks already
do and that that would-Senator RIEGLE. So that's something you think could be done
Dr. SEGER. Yes. Right.
Senator RIEGLE. I want to come back to banks later because I
waht to really get your thinking.
The CHAIRMAN. Senator Riegle, before you get on another subject, I've got a longstanding appointment at 11 o'clock and with all
of these additional hearings, I didn't expect to hold I have been
changing my schedule all week. The one I have at 11 is one that I
simply cannot cancel, so if you and Senator Sasser would please go
on with your questions, Senator Gorton will be here at 11 to chair.
I apologize for having to leave for an hour, but it's one that I just
am not able to change, so please continue.
Senator RIEGLE. Very good.
The CHAIRMAN. I will be back.
Senator RIEGLE. Let me ask for the record, the questions that
Senator Cranston will want to submit to you to have you respond
to in writing. We'll give you at the end of the hearing to supply for
the record.
[Response to written questions of Senator Cranston follow:]

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~stions fran Senator Alan Cranston


Independence of Federal Reserve G:M!rnors




believe that the Senate shruld confirm any appointee to the Federal

:Reserve Board who is not entirely free of suspicion as to his or her
pendence of




you believe that the Senate ehould confinn any

appointee to the Federal Reserve who is not entirely free of the taint of
association with what may be the partisan political objectives of the Mninistration?

The Federal Reserve Act, as passed by Congress in 1913, made it the


sibility of the President to awoint individuals to serve as me!lt>ers of the
Board of Governors and nost Governors I have IIE!t have been

same party as the President awointing them.
Denr:x:rat, appointed by J:i.nmy Carter.

neihers of the

EKanple, Nancy Teeters, a

Your question seems

to suggest that

of the present Governors can not be independent since they had partisan


I believe the Senate should confirm ncminees based on their experi-

ence and qualifications for doing the job.




pledge to reJXX!iate any effort that may be made by the EKecutive

Branch or its agents to solicit YQlr SUF,POrt for any particular position


a nonetary policy question, other than through regular channels of consultation between the Federal Reserve and the Executive Branch?


you pledge

that under no circumstances will you accept Reeret instruction fran the
Administration on a matter before the Federcil Reserve?

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Yes, yes.


Do you pledge to report to this Catmittee any ocmnunicatioo you may


fran the Executive Branch or its agents soliciting or urging that you take
any given position on m:>netary policy for a partisan political purpose?

Yes, frCJTI this J\dministration or a future one, Demcrat or Ile!plblican.


Does your suwart of everything PresidP.nt Reagan

is doing extend



views on monetary policy?



not discussed 11Dnetary policy with the President.

His publicly an-

oounced program 11981) called for a IIXlderating and evening out

of 11Dnetary

growth to bring inflation under control and I SURX>rt that position.


Have you made or been asked to make any pledge, prCJTiise, ocmnib!P.nt, or to
give any assurance to Mr., Secretary Regan, Vice Chairman Martin
anyone else


that you will support the President on matters before the Fed-

eral Reserve Board?



Will you regard yourself as a member of the President's team on the
Reserve Board?

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not have •teams"-they are individuals doinq the best they

can to act in a nonpartisan way to serve the whole countzy.


Will you seek the opinion of the Administration on major l!Dnetary policy
questions before making up your own mind?




I will not.

Beliefs on F.conanic I!!SUF?S






Federal :Reserve had, in your view, no

choice but to follow the policy it did follow in 1981 and 1982 of very tight
money and high interest rates, leading to high une!lployrrent.

At the tinE,

however, the Treasury Dep/!rtment frequently criticized the Federal :Reserve,

allowing what

Secretary :Regan

growth rate of the money supply.


said was too nuch "volatility" in the

In your view, generally speaking and based

kncMlP.dge of the situation at the time, does such a criticism have


any merit?

If the criticism does have merit, what measures would


the volatility of monetary growth?



In 1982, the Denocratic l'Bn-

bers of the Joint Econanic Camrl.ttee came to the opposite conclusion.




disagree with the view that very short-run volatility of money

growth significantly damaged the econany in 1981.
cism of the Federal :Reserve be diS)'.lf"nsed with.•

urge that this


was the JFlc wrong on this

point? Why?

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Improvements coold be made by making 11Dre :frequent, m:x'lerate,


in 11Dnetary gra.,th.

'Ibis step, in turn, requires sane iaprolle-

ment in forecasting the path of the eocmany in the months and quarters


don't know what the JR: D3nocrats meant by •very short-run volatility.•

If they mean wiggles that last a couple of weeks, then I agree with them.


Do you

believe that it is desirable (or necessary) to maintain the present

value of the dollar in order to keep inflation fran surging back? How llllCb
of the decline in inflation since 1981 'WOUld you attrib.ite to the effects of
lower energy prices and the dollar appreciation?
bolo-thirds of the disinflation that occurred. )

(Estimates range up to

Do you agree

that continued

inflows of foreign capital to the U.S. are necessary to maintain the value
of the dollar-that is, if they do not occur, then the dollar will fall?

econanists have estimated that the real interest rate differential-the

anount by which U.S. real interest rates exceed those overseas-111St new
rise by three percentage points, or the foreign capital inflows will cease.
Nhat do you think of such estimates?
inflation policy is

If you believe that a continuerl


in"portant, and you believe that the high value of the

dollar is an essential CCJllX)l'lent of this




believe that

capital inflows nust be sustained to keep the dollar high, then do you believe that interest rates should be raised at the present tine by enough
keep those inflows going?

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high value of the dollar has assisted in bringing down inflation, bit I


do not believe that artificially maintaining the value of the dollar


a inajor

inflatioo fighting tool.


As I nentiooed in my oral testinaty,

fiscal and monetary policies slxiul.d be our primary weapons.

It is inp>ssible to llll!IIISllre precisely the portion of the




inflation decline

to lower energy prices and appreciation.

say a •significant• contribution was made-11 rough

est:im!lte of


to 30




net capital inflOii will result if and when a country runs a current A/C

deficit~ the U.S. is, of oourse, running such a deficit.





is quite

rate path will be influenced by the way in which

this deficit is financed.

'ttrl.s is a difficult question, since it involves oaiplex relationships.



interest rate• concept involves controversy--econanists

define it in numerous




My preference is

to use a •prospective• view of

if one were to use a retrospective view, the actual

data oo real interest rates are diverse.


Also, the nunilers are very vola-

M:>st recently, differentials between U.S. and major trading partners

range fran one in favor of a foreign country, such as









U.S. , such as France and Gennany, to an extreme

differential exceeding 6 percent in the case





of Japan.




not what the differentials suggest.

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M:>reover, in 1983, no


country except Switzerland had a 3 percent differen-

yet we had massive inflows of capital.

'Die point is-the size of the

net capital inflows is detenn:i.ned by the size of our current A/C deficit.


You have testifieo that in your view today's high interest
in part expectatioos of higher future inflation.



was it not a prime oojec-

tive of the Reagan .Administration to develop a recovery which was not accanpanied by expectations of higher inflation?

~ t ·was wrong with the concep-

tion of the Reagan eoonanic program that accounts for this failure

to per-

suade the markets that inflation will remain low?


Reagan .Administration,


it came into office, announced that its

primary objective was to fight inflation.


Given the fact that in



the Carter .Administration finacial market participants thought it

was raging out of control, I believe this was the right goal

to set.


great progress has been made with inflation (as measured by the CPI) reduced
fran 13.3 percent in 1979 and 12.4 percent in 1980 to 3.8 peroent



Financial markets know of these good results, but participants are concerned
that the low rate will not continue into the



of CongreRs



of questions

to pass the legislation necessary to

reduce the budget deficits significantly.


Sane econrntlsts argue that todav's high interest rates, both real and


nal, have to do not with expectations of inflation but with expectatioos of
high rates of return on investlllent.

t!lat is your opinion of this hypothesis?

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rates of return oo new bisiness pro:iects are now in the range of

15 percent in many cases.
lated envircnnent,

If you believe that

'fflerefore, to sl.oii eccnc:mic growth in a deregu-

after-tax returns oo bonds llllSt rise above this level.

policy slnlld be tightenirxJ, then are you in

favor of having interest rates rise by enough to bril'XJ the after-tax return
oo bonds above this level?

I disagree-it is out of touch with the realities of decisiormaking.


In yesterday's wall street Journal, Maury Harris, Vice President, and Econo-

mist at Paine Webber, said that the real

growth rate for this quarter is

•absolutely critical• for determini?XJ the interest rates oo the huge mm:,unt
of govenmmt borrowing in the next few ~ieeks.

Specifically, he contended

that "if inflation-adjusted~ for the current quarter is between 3% and
4%, J:xnj yields won't change llllCh fran their current levels.
at DDre than a 4% clip would increase the chances

But~ growth

of the Federal Reserve

tighteni?XJ its credit hold and frightenirxJ investors away fran the Treasury


cannerce Department reports real growth at a



5.7 percent rate this

a Federal Reserve GoveIT10r, would this news incline you tc:Mard

a tighter credit policy? Or, do you believe that the Federal Reserve should
adjust policy to acccrrm:,date the Treasury borrowing calendar?

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stated-and believe-that the Federal Reserve slolld bll8e its deci-


sions on a thorough analysis of econanic develcpnents and not on the release
of any single statistic.


If taxes


to be raised, how would you favor doing it? that are your

views on the Bradley-Gephardt Fair Tax prq:,osal?

en a

Flat Tax?

()l the Value-Added


()la ConSU11ption Tax?

If taxes are to be raised, I prefer base broadening efforts to boosting tax

I feel that our present in<XIIE tax system shoold be

the base broadened.

s:inplified and

Also, it is :inportant to give the citizens the message

that the system -would be made 110re "fair.•

Finally, changes shoold provide

110re incentives to work, invest, and save.

'lllere are various ways to "reform" the system and each way has its pluses,
minuses, supporters, and detractors.

'!be flat tax-and its variations such




for s:inplicity and base widening.



paperwork and red

:inprove catpliance,





I'rn concerned about the

snall business.


concerned about possible inflation effects.

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on the details of a ciorunmption tax, it could be inflationary and


unfair to


low inocme peq,le.

7. Yesterday you expressed
Stockman has




for the Reagan




that the Administration's original goal of

balancing federal outlays and revenues at less than 20




not econanically or politically realistic.

percent of GNP


1ihat is your view on the

apprq,riate level of federal revenues 11s a percentage of GNP?

I believe that the size of the federal gove:rment


an absolute

should be curtailed by

ceiling of 20 percent on spending as a share of GNP.

'ttlen, by curbing our biq spending appetite, we can balance the budget by
lll!lldnun tax bite of 20 percent.


After all, in 1965, outlays were 18 percent

of GNP, and we did quite nicely.

P. Yesterday you told Senator Cranston that interest rates










inflation) are at record

Are levels of real interest appropriate in your judgment?

of what

criteria can


say that






rates are at

appropriate levels, when they have virtually never in history been this high

I was talking about ~ket rates of interest in response to &mator Cranston


If one believes (as I do) that market forces detennine rates,

then one can say that prevailing rates are "about right.•

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I've mentioned


before, cxmnents about real interest rates are a function of hew cne


calculating as I do, they are oot at record levels.


rates-in naninal and real tenns--could be lower if market participants were
convinced that government was sincere in pram.sing to fight inflation.



Fischer, Professor at MIT, has recently written:

"It has long been

known that at sane stage in a disinflation process initiated


in the growth rate of the ncney stock, the rate of inflation nust

fall by nr,re than the reduction in nr,ney growth."

by a discrete



it be true?

Do you

agree with


('!he reason, according to Fischer, "is

that the demand. for real balances in the new low inflation steady state wi11
be higher than in the high inflation equilibrium:
balances by causing the price level to grow nr:>re




understand what

the econany produces real




inplies that, as inflation slCMS down, it will be necessary




proposition inplies?

the nr:>ney

grow quite rapidly at sane point, so that people can have the

larger quantity of money they will wish to hold at pernanently low rates



This is an instance, in other words, of an increase in the m:,ney

supply which is not inflationary.)

Yes, it is true.

The analysis




may be


velocity behavior that will have to be acccmmdated.

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Olainnan Volcker has urged Congress to close the nonhank bank locphole and the
Saith Dakota loophole.


also favors additional bank powers for banks, rut not

at the expense of no bill at all.

By way

of <XX1trast, Carptroller of the eur-

rency Ccnover has said he will recarmend a veto of any bill

loopholes but pr01Tides no new powers.


just closes

itio is right on this ccntrO'Jersy, Volcker

or Conover?


It is>rtant to get a clear definition of "bank" through legislation

provide new powers.

gress will grant only one.


Because the Fed is re!!pOl'ISible for regulating bank holding

ocrrpanies, Mr. Vokker sees the




definition as the higher priority if Con-

Nevertheless, he has stated p.iblicly that h e ~


Do you

believe that a tax increase now, given the strength of the rec01Tery,


needed to reduce deficits?


I prefer to enphasize expenditure reductions.

If, hc:1wever, suffid.ent expendi-

ture reductions cannot be achieved by the Congress, then I '!o.'OJld support higher
taxes so that the camined steps '!o.'OJld cut the deficit.

36-314 O - 84 - 16

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Health care?

I'P.ductions do you believe are 11Dst urgently needed? Military?

Social security? Welfare?

Or other danestic programs?

For openers, I would suggest you look at the list pro17ided by

cratic businessman, Mr. J. Peter Grace.
lion fran spending in 3 years.



leading Deno--

His proposals would cut over $400 bil-

Secondly, I would examine all the


I would rerove all escalators fran programs-civil service

pay, social security, etc.


to curing

After all, if goverment is honest and sincere about
inflation disease,

then these escalators are not


In your judgment, in the past year, has the econany been growing too fast?


lblld you prefer a slower rate of real econanic growth?

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lbt in this quarter.

Growth should slaw during the remainder of 1984.

Is the econany C111erheating?

Is there a danger of the econcmy C111erhe11ting on the course we arP on, given


deficits we face?


'!here is a danger of overheating as we reach capacity-probably next year.

Is the danger large or small?




large next year if one asSl.ll'eS no policy changes.

believe that steps will be taken to deal with



However, I

problem before

r~ches crisis proportion.q.

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continue to rise, the savings and loan industry is going to

experience even nore balance sheet difficulty.

Do you think that the


should step in and assist these financial institutions?


I think the S&L industry today is in far better shape than it was in 1980.




that the federal goverrment shruld ~ r t specialized lenders

for housing and continue to allocate funds for hrusing by special incentive?


I believe that we shoold foster a financial regime that encourages haneownership
without unduly straining cur financial system or without channeling the nation's


resources toward less than fully productive investllents.



measures that enhance the ability of financial institutions to ccnpete for :fuoos
and to place them where appropriate detands for capital are JIDSt





cur existinq hoosing institutions serve an inp)rtant function as

providers of fums for shelter, and in an era of deregulation, we

should weigh

carefully the costs and benefits of adjusting this structure.

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Do you believe that housing occupies

too IIUCh of our capital narkets financing?

At times, yes.

().lest ion:


you think that the Federal Reserve should have let Continental Illinois Bank



Do you

think that Secretary of the Treasury should sit on the Federal Reserve

lloard as recarmended by my bill S.10?


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you think that

over IIDlletary policy?

the President should have mre direct oontrol or influence
If yes, by what prooess or procedure?


What should be done about takeovers, and the vast llllrAJl'lt of rroney they tie up?


Takeovers are getting a lot of ?)blicity these days because
nature of the

parties to the mergers.

of the

size and

Sane of the <Xllbinations will prd>ably

lead to mre diversified bases of operation and perhaps econanies of scale,


others may be IIDtivated by tax considerations or management enrich!ent and protection schemes.

'l'he SEC and various anti-trust agencies should be



this situation.





side of these deals, the f11cts mn,, very 1azge bank

loans being made to the acquiring finns.

in the




Although there may be

'fflese represent merely transfers of existing


sane tenp:,rary

that result, they do not •t1e up• mney.

influence financial statistics,




such as gI'CMth of business loans


rroney 9UR>ly, the Fed llllst take these mergers into acoount in its policy IIDl/eS.

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Bew slo.Jl.d we handle the vast foreign loans

threaten the


stability and

sovereignty of U.S. banks?



believe that


the problem of dealing with foreign loans is a big and OCJTplex

We want to oorrect the problem over tine.

'fflere is no global


on experience of the past, we need to stretch out the maturities-this is

similar to oo:rporate workouts at ocmnercial banks.


need to involve all the varioos parties.

'lhe debtor nations need to restore their earning capacity and get




need to

cial. houses in order-balance budgets, control inflation, etc.

'ffle creditor nations and banks need to be patient and cooperative.
keep pressure on for a






it will




'l'1e banks have to be willing to extend nooest am:,unts of new credit

whil.e workouts are in process.

The lenders nust carry reasonable



loan losses and be oonservative in booking inccrne fran these loans.




to remain involved to see that appropriate econanic stabilization

policies are followed in each debtor coontry.

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And finally, the Fed can stay involved as a coordinator and an agency that

pushes to keep all the parties with a direct interest working toward a solution.
And, by helping to keep the U.S. econany on a

healthy noninflationary growth

track, world econanic grc:Mt:h will be supported, and this will help all the
various groups.

Why should the Fed's rudget for salaries and expenses be separate fran the


gresEional appropriations process?



should not be subject to the Congressional appropriations process be-

cause of the "independence" issue.

Experience has shown that control of any

group's budget brings with it the potential for oontrol of that group's

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The CHAIRMAN. I will broaden that request. There are other Senators who I believe wish to ask questions for the record and so we
may have some written questions from various Senators that we
would like you to respond to in writing as rapidly as you can.
Dr. SEGER. Are you saying I'll get those today?
Senator RIEGLE. Very shortly you will get them. In a matter of a
very short period of time. It is under normal custom. I mean questions that either we don't have the time or way to develop are normally submitted to the witnesses in writing.
The CHAIRMAN. As a matter of fact, since you have been here too
extensively, your written questions will probably be much less. If
you have a short hearing then you get a lot more written questions. So on balance it ends up about the same.
Dr. SEGER. All right. I was wondering if I would have the weekend to work on them, because today is Friday.
The CHAIRMAN. Nobody will be here to receive them on Sunday,
I guarantee you.
[No additional written questions were submitted for the record.]
Senator RIEGLE. I don't know if you have had an opportunity
today to look at the Wall Street Journal?
Dr. SEGER. I went to the airport at 6:15 this morning and came
right here. I'm sorry, I haven't seen the papers.
Senator RIEGLE. I have the problem in the mornings too. By the
time the plane leaves, the newspapers aren't available yet.
On the front of "What's News" section here, under the "Business
and Finance," the lead item reads as follows-I'll just read it to
you and then I'd like you to react to it. It says:
The money supply rose up at $3 billion, increasing speculation that the Fed soon
will tighten its credit grip in an attempt to slow economic expansion and keep a lid
on inflation. The increase pushed the Ml level above the Feds target range for the
first time sin_ce late February.

And I'm wondering, in light of that-which by the way The Wall
Street Journal sees as a lead item. That's No. 1 in the column.
There's much longer, elaborate information inside.
What do you think ought to be done in light of that piece of news
today? What is your reaction to this?

Dr. SEGER. I can't remember whether it was yesterday or the day
before-I've been here so long-but one day this week I was asked
my views on the weekly release of the Ml statistics and as I recall,
the point I made-and certainly my feeling is-that the Ml statistics, particularly the weekly ones, are way overemphasized.
In fact, the Fed prints right on the release itself-maybe The
Wall Street Journal doesn't pick it up in their various writeupsthat there should not be that much emphasis placed on any single
week's number, whether it's up or down or sideways, whether it's
in the band or out of the band or in the middle of the band. I think
that that's the big point to make first: a single week's move in Ml
is not that relevant nor that significant and, as I said, the Fed's
own releases refer to the same thing.

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Senator RIEGLE. Well, I'm going to take you down to a tighter
focus on this because I want to integrate this into everything else
that's happening and get an opinion from you.
The articles which follows on from that front page lead news
story from the summary that I read to you goes on to say "the big
increase-" sort of generically accepted to be a big increase, $3 billion-Intensified speculation that the Fed soon will tighten its credit clamp in an effort
to slow the pace of the economic expansion and keep inflation under control. Some
economists contend that the Fed already may be in the process of tightening credit
conditions. Bond prices, which tumbled Wednesday, fell again yesterday in response
to this, so the financial markets are sort of rendering a judgment that coincides
with what is being reported here.

And down into the piece-I won't read the whole thing-it says:
"A tightening move by the Fed is likely if it isn't in place already," said Elliott
Platt, senior vice president and economist at Donaldson, Lufkin & Jenrette, Inc. The
economies biggest growth coupled with rapid money supply growth provide the
"necessary conditions for a Fed tightening."

And here's my question and I want to make sure you really understand it.
You, following the financial news, know what has been happening and we have been discussing it quite fully here. Now, we've got
this new piece of information here and my question is: Do you
think now that the Fed needs to do some tightening, doesn't need
to do some tightening, or perhaps even could afford to loosen it a
How do you net out the things you see in terms of what your
own opinion is and what you might be advocating if you were sitting around the table now at the Fed meeting?
Dr. SEGER. I have commented previously that I thought, overall, Fed policy at the moment was pretty much right.
In terms of the reaction to this new piece of information that
came out, I believe yesterday afternoon, I don't believe the Fed does
pay that much attention to a number for a week, and I don't think
that they should pay that much attention to it, and I wouldn't if I
were a member of the Federal Reserve Board at the moment. At
any time you look at more than just the money supply numbers.
But even within the money supply numbers you want to look at
more than just a week's change.
Senator RIEGLt:. So, if you took everything and put it togetherthe latest week's change and all the rest of the things that you indicated, I take it you don't feel that there is need for further tightening at this point?
Dr. SEGER. No, that's what I said. In my judgment I think the
Fed policy is just about right.
Senator RIEGLE. But your answering a different question than
I'm asking. I'm asking you on the margin, looking ahead from
where we are today do you think there's a need for any tightening
at this point?
Dr. SEGER. I don't think that this statistic yesterday justifies a
move at all, if what they are doing now is about right-I'm taking
those two points together.
Senator RIEGLE. So in other words, if you are sitting around the
Fed table and a discussion was going on right now, and the consid-

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eration was whether to tighten or not, based on what you have just
said, your vote at the moment would be not to tighten it.
That things you think are probably where they ought to be right
now, and there isn't really justification for further tightening. Is
that a fair summary?
Dr. SEGER. Yes, sir. Something might happen next Wednesday,
obviously, that would change the whole ball game. Based on what I
would know at this moment, 11 o'clock-Senator RIEGLE. No; I understand. That's a fair answer, and I appreciate your giving it, because that's what I'm trying to get at. It's
a sense of how you see things and what your policy judgments on
the margin would be right now, and I think that's what other
people are interested in as well. I think the public has some interest in that in trying to get to know you and get to know what your
views might be.
Dr. SEGER. I think the important thing is to understand that I'm
not, trigger happy. In other words, you don't just go wildly reacting
either way to every little bit of information. I think, absolutely, it's
very important to pay attention to all these numbers as they're released, but I don't think any one should trigger some wild response.
Senator RIEGLE. Now we have talked before about inflation and
where inflation is, where it might be heading, and I don't want to
rehash all of that. I just want to get a summary from you now as to
what your own sense of inflationary expectations is, as you look
forward from today.
Are you considering that we may be about to have a surge of inflationary pressure, or do you feel pretty confident that inflation is
both under control and is likely to stay under control as far out as
you can see here?

Dr. SEGER. In terms of where we are right today, I think inflation is rather well under control. Inflationary expectations, though,
particularly in the financial community, which I think you and I
have agreed upon before, are something else again; they're looking
ahead. They're not looking at 1984 as much as they're looking out
past 1984 and beyond. As we indicated, this is tied, I believe, basically, to their concern over the deficit.
I'm always very concerned about inflation, but why I'm not doing
loops around the walls is that I really believe what I hear said
around this room; that everyone is agreeing that the deficit is a big
problem. And I really believe you people when you say that it will
be taken care of. I don't know exactly what manner or on what
day, but I really take you at your word, and so-Senator RIEGLE. We can't do it alone, you know. We also discussed the fact, I think that's a consensus here, that there are two
big holdouts on this issue-deficits as they related to interest rates
triggering inflation. The President and Donald Regan are sort of on
the other side of that argument. That goes back to the fight that's
been going on within the administration, with Feldstein saying it is
a problem and the President and Donald Regan arguing very forcPfully in public that they are not convinced of that.

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Dr. SEGER. I was talking about the decifit and the inflation expectations. I really think that it will be dealt with.
Senator RIEGLE. Yes, but what I'm saying to you is, don't assume
that, because we can't do it unilaterally here.
Dr. SEGER. Congress can pass the bill.
Senator RIEGLE. No, not in opposition-direct opposition to this
administration. I wish we could. We have demonstrated we don't
have the capacity to do that. We tried a bigger deficit reduction
package the other day in the Senate, and it lost on a tie vote, 49 to
49. There were six Republicans who came over and voted with us,
because they hold the view that we need to take the deficit down
further, but we were one vote short, so we failed on a tie vote. But
today in this town-and it's important to understand it-this President is a very strong figure, and as a result, if he has one view and
holds strongly to that view, Congress has not shown that it has the
strength to overpower that.
So we're sort of stymied, and we're just drifting along, and you're
not seeing any significant deficit reduction. There's a big question
as to whether we will have any. I mean, we are trying, but it's in
relatively modest amounts. So don't fool yourself about the nature
of the debate that's going on or how this is likely to come out, because if you're working on the assumption that all of this is going
to be taken care of because there is going to be a great big terrific
deficit reduction in the package materialize out of somewhere
sometime soon, I don't see that, and the financial markets don't see
it, frankly.
I mean, if they did, I think interest rates would be a lot lower,
because they would not have this apprehension about the future.
So what you are saying is, you have confidence it will be solved,
and you are not concerned about inflationary expectations being
lowered; is that right?
Dr. SEGER. In terms of the future course of inflation, I think the
deficit is a very key matter, definitely. As I said, I was assuming
that Government would deal with it. Maybe not completely this
year, but at least, since everyone seems to be admitting it's a problem, there would be a start on a solution. Therefore, in terms of my
long-range expectations for where inflation will go, the things I
look at, I could say, Well, at least the fiscal policy side or the deficit side would be something that would be coming down the line as
a problem rather than up the line.
That may be a wrong assumption. Certainly, if you tell me flatly
the deficit will not be taken care of, then I'm going to jump right
on the same bandwagon with financial markets and say, Help.
We'd better really get our worry beads out and start to think about
a rapid run up in inflation, unless the Fed really gets tough.
Senator RIEGLE. So your view would be then, if we don't get
major deficit reduction, which you're sort of counting on to
happen-if that doesn't happen, then you think we could really
have an inflationary problem on our hands there?
Dr. SEGER. In the future.
Senator RIEGLE. When do you think it might hit us?

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Dr. SEGER. These are the kind of events that develop over time. I
don't think we go from a little over 4, where I think we are now,
up to 13 percent, which we had in 1979, in 12 months. But I think we
would have to be concerned about getting on that kind of path that
might take us up to double digit again. Certainly not, as I said, in 12
months, but over a period, I think that that would be a concern. I
think that's what's bugging the financial markets. Not that they're
looking at today; but that they are always future oriented, and their
expectations are always based on looking out 1 year, or 2, or 5, or
Senator RIEGLE. So you think, then, that, in the absence of major
decifit reduction accomplishments that inflation will start creeping
back up in the direction of double digits, so you are not predicting
it will get to double digits, say, within 1 year, but that we would be
seeing a buildup pressure in the absence of serious deficit reduction?
Dr. SEGER. That's what I'm saying. It may take 3 years; I don't
know the magic date on which this would happen. It's based on
some other things that might happen, too-things like what happens to oil prices. There are a lot of factors that enter in, as you
know. But I think it certainly would move inflation up on my
worry list if you were to tell me flat out to forget any sort of solution to the deficit problem. If it were that straight, my inflation
concerns would definitely escalate.
Senator RIEGLE. I'm going to leave that for now, and I want to go
back to the discussion we have had a couple of times on the auto
industry, which is really the thing I want to make sure we get all
the way through, because I think the auto industry is not only vital
to our State, in obvious ways, but I think it continues to be very
important to the overall economy.
I guess my time is up.
Senator GORTON [presiding]. Senator Sasser.
Senator SASSER. Thank you, Mr. Chairman. Dr. Seger, you testified you felt the Fed policy was about correct now as regards monetary policy.
You also testified, I believe yesterday or the day before, in response to one of my questions, that you view recession as the only
available means of fighting inflation. Now let us suppose that you .
are right in your expectation that inflation rates will rise as this
expansion continues. At what point, or at what level of inflation
would you consider the inflation problem serious enough, if you are
on the Board of Governors of the Federal Reserve Board, to warrant tightening monetary policy, even at the risk of another recession?
Currently, inflation rates range, I think, 4 or 5 percent. At what
juncture would you say, Look, we're going to have to tighten the
monetary policy here to slow this inflation rate down? Six percent?
Eight percent? Ten percent?
Dr. SEGER. May I just correct a premise in your question?
Senator SASSER. Yes.
Dr. SEGER. I don't believe I said that creating a recession was the
only way that the Fed could combat inflation. I think we were talk-

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ing about the last recession, and I indicated that with inflation
raging at 13 percent plus, in 1979 and 12 percent plus in 1980with that amount of inflation and the tremendous problems that
that was wreaking on the U.S. economy and in the financial markets, domestically and internationally-that the Fed had no choice
but to deal firmly with· that problem.
Senator SASSER. And I went on to ask you, I said, "Dr. Seger, do
you know of any other way or any better way to combat inflation,
other than this creation of a recession and the attendant high unemployment?"
The line of questioning I was pursuing at that time was whether
or not you thought the unemployment and all of the problems attendant to that were worth the cost.
And your response was that you didn't know of any other way to
combat inflation. So I assume from that that you view recession as
the only available means of fighting inflation.
Now if you know of another way-Dr. SEGER. We were talking about-Senator SASSER. Let me finish. If you know of another way to
combat inflation and to want to amplify on your previous response,
I'd like to hear that also.
Dr. SEGER. We were talking about the specifics, as I recall, of
dealing with that inflation of 1979-80 and the Fed's tough action.
We had a recession in early 1980, and we had another one which I
discussed with you, that began the middle of-Senator SASSER. Let's just go back to where we were initially, Dr.
Do you know another way to fight inflation, other than tightening monetary policy and risking recession?
Dr. SEGER. We have been talking about it all along; that is, that
we've got two basic economic policies, tools. One is monetary policy
and the other is fiscal policy. And when fiscal policy was not in an
anti-inflation mode, then monetary policy, which was the one remaining tool available, apparently had to be used more toughly.
Senator SASSER. And I think you told us you supported this expansionary fiscal policy in 1981, because you supported the KempRoth tax cuts at that time and still do. So you were supporting
then an expansive fiscal policy, which leaves the only alternative, I
suppose to combating inflation, a restrictive monetary policy. And
this creates recession and unemployment. That's what it's all
about. In an effort to combat inflation, you try to slow down and
muzzle the economy.
Now at what rate of inflation would you consider tightening
monetary policy, even at the risk of another recession?
Dr. SEGER. I don't know that the Fed has two settings on their
scale-stop and go. I think monetary policy covers a whole spectrum of adjustment. They just don't sit with one setting and then
all of a sudden jump to another extreme, but rather they are
making continual, modest adjustments, and they are always looking at the inflation result.

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They are always trying to assess the severity of the inflation
problem. They are doing it right now and I think that's appropriate. I don't think we should expect 90 degree turns or 120 degree
turns, where the Fed all of a sudden does a tremendous move and
says, "Well, we're going to throw the economy into a recession."
I think that what is hoped is that by making these gradual adjustments, always keeping in mind the importance of keeping inflation under control, that in fact you can slow down the economy,
can deal with inflation, without throwing the economy into a recession.
Senator SASSER. Would you favor tightening monetary policy for
inflation before inflation accelerates past 5 percent?
Dr. SEGER. I don't think there is a number at which you say,
"OK, now we'll fight inflation."
Senator SASSER. Say the number was 13 percent, as you said it
was in 1980, would you say at that point, well, this is not a time
when we ought to be concerned about inflation?
Dr. SEGER. Apparently I'm not getting through-Senator SASSER. No, you're not getting through, Dr. Seger, I'll
grant you that.
It seems to me a simple matter to just answer the question and,
say, give a range of a percentage of inflation at which you would
consider tightening monetary policy. It would be a simple matter to
me if I were sitting where you're sitting to say, well, Senator I
think we ought to consider tightening monetary policy at 6 percent
or in the range of 6-8 percent. That's all I'm trying to ask you.
I'm not trying to trap you.
It appears to me that's a reasonable question for a Senator on
the Banking Committee concerned about the economy of this country and concerned about monetary policy as it emanates from the
Federal Reserve to. ask a nominee for that Board: At which point
do you become concerned about inflation? At what point do you
think there ought to be a tightening of monetary policy?
In fact, I think I'd be derelict in my duty if I didn't ask you that
question and all I seek is an answer.
Dr. SEGER. I think the Fed should be concerned about inflation
when it's anything above zero. I think the Fed is looking at inflation all the time and, as I indicated earlier, one has degrees of
tightness and one has degrees of adjustment. But even the Humphrey-Hawkins Act sets, as a long-range target, having no inflation
in this economy. The interim target was 3 percent for inflation and
that was in the Humphrey-Hawkins Act passed by the Congress
back in 1978, I believe.
Senator SASSER. Is this committee to be left with a view that you
have no notion as to when monetary policy should be tightened as
a result of accelerating inflation? You have no figure at which you
would start thinking about tightening monetary policy? That's
what I'm hearing here now.
All I know is that you think the Fed is operating correctly now,
that things are about right with regard to monetary policy, that we
have a rate of inflation now of 4 or 5 percent but I don't have any
idea what you would do if the rate of inflation got up to 7 percent,
8 percent, even 50 percent.

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I don't know what Dr. Seger would do if she were sitting on the
Board of Governors of the Federal Reserve-System and I would like
to know.
Let me move on to another question.
Yesterday you testified, Dr. Seger, that you would oppose proposals to return to a gold standard. Now, could you elaborate on this
view? Would you fear for example that a gold standard might
prove excessively inflexible; that it might cause deflation and unemployment or that it might entrust effective control over the
monetary policy of the United States to the major gold-producing
nations of the world-South Africa and the Soviet Union? That's
been one of the fears expressed by those who don't want to return
to the gold standard.
Why do you oppose returning to the gold standard?
Dr. SEGER. I oppose returning to the gold standard because I
don't think it's the simple answer that people who find the gold
standard very appealing are usually looking for a way to discipline
monetary growth, and I think that it's possible to get discipline
without gold.
I also think it's possible to have no discipline with gold, because
if you're on a gold standard and it proves to be overdisciplining, it's
always possible to go off the gold standard; therefore, I don't think
it would work.
Senator SASSER. Thank you. My time is up.
Senator GORTON. I understand that Senator Riegle has a somewhat longer period of time, therefore, since there are only two of
you here-Senator SASSER. Go ahead. I'll defer to Senator Riegle.
Senator GORTON. All right.
Senator RIEGLE. I keep trying to get back to the auto industry
and then we get off on other things that arise.
Let's try to finish the discussion of the auto industry here because I think it's important, again, to try to get a sense for where
that fits into your thinking and how you view the problems there
and how that might affect your judgments on some of the monetary policy decisions you would be asked to make.
You remember I believe on our first day here we were discussing
back and forth the current price earnings ratios on the auto stocks.
Dr. SEGER. That's right.
Senator RIEGLE. And I was indicating to you, I don't know another example in contemporary history when the economy has
been so strong, car sales have been strong, profits have been so
strong, that the companies have sold at such low price earnings
In my mind it's really unprecedented in the face of those kind of
positive things. With GM selling at 4 times earnings; Chrysler at 2
to 3 times earnings-when you look at other, say, Michigan-based
companies that sort of cover a spectrum of other kinds of commercial activities you get K-Mart selling at 8 times earnings; twice the
PE ratio of GM; Kellogg at 9 times earnings; Dow at 16 times earnings; Burroughs at 11 times earnings; Upjohn at 11 times earnings

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and Detroit Edison in a troubled industry selling at 6 times earnings which is sort of to be expected, given the special problems of
that industry.
But nevertheless, I'm stuck by the fact that even in the case of
Detroit Edison it's price earnings ratio is 50 percent higher than
that of GM. So I say to myself, you know, the financial markets I
think obviously have a real case of the jitters in terms of what's
ahead for the auto industry as reflected in what they are willing to
pay in the market price today per dollar of earnings.
And when we talk about where you would put that on a scale of
1 to 10 in terms of your own apprehension, you thought you would
put it at about a 5 gravity and you also thought that the financial
markets were probably grading that same set of future risks and
factors at about a 7 gravity.
I think they probably see it higher than that. I think one multiplier is so unusually low in this case in the face of good performance data at the moment that I think it's just a difference of opinion that we might have. I would say the financial markets are putting it at about an 8 or an 8.5 on a 10 scale in terms of apprehension.
But in any event, there is the difference between how the market
sees it and how you see it, even using your own numbers of the
grading scale. So I thought it would be useful if we went down
through some of the factors that make up the judgments that both
the financial markets are rendering and presumably are part of
your own judgment as to how you look at the auto industry and
you do have some considerability familiarity with it, being in
Michigan and the banking and economic forecasting business as
you have been for a long time.
So, I would like to run down through some of the things.
How much weight do you give the factor of foreign competition
and the imports right now? Is that a big important part and you
are sort of grading it at 5 on a 10 scale and how would you express
your level of concern about foreign competition as it impacts the
auto industry, say, looking out over the next 5 years here?
Dr. SEGER. Well, first of all you may disagree with me about a lot
of things, but I don't think we disagree on the importance of the
auto industry, just to get that on the record.
Senator RIEGLE. Good.
Dr. SEGER. I hope not, anyway.
I think a couple of points I was making about the auto industry
tie into this import question; that is, the fact that the Big Three
auto companies, at a minimum, have taken tremendous steps internally to improve the quality of their products.
They have, in fact, sometimes taken a page from the Japanese
book to see how you can manage production lines more effectively,
get more involvement of your workers in the production process so
they care more about making cars where trunk lids go down and
whose doors are hung right and that don't have leaks around the
windows-about all those quality aspects.
I just got a new Chevrolet, as a matter of fact, that I can compare to my 1981 Oldsmobile. I happen to drive American cars, sir.
Senator RIEGLE. You're doing better and better here on this question. [Laughter.]

36-314 0 - 84 - 17

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Dr. SEGER. It's true. I'm not just buttering you up.
Senator RIEGLE. No. But it's appreciated, the value of the point.
Dr. SEGER. My reason for saying that is so I can compare the
quality of two GM products, the 1984 model versus the 1981, although they're not the same line. I'm not a mechanic, but just the
way it feels, the way the doors slam, show a much improved product. I think this is a first step toward dealing with the Japanese
competition, if they're going to do it successfully, and not just run
to Congress whimpering and asking to be protected. I think this is
the proconsumer approach. I think it benefits all of us, including
the workers in Michigan.
There is that angle-improving the quality of the product that
American producers are offering. The second thing is, there's been
an absolutely tremendous effort since these big troubles broke out
in 1979 to deal with this whole productivity matter, not only getting a good quality product, but getting it out in a cost-effective or
efficient way.
I'm not a manufacturing expert, but the steps that have been
taken to do that will allow us to compete better with the Japanese
and, of course, other importers also. Maybe I'm giving these more
weight than others, but looking at those makes me think that it's
up to the management of those companies-and after all, they're
the ones that should be ultimately responsible-to get their indus•- ·
tries back in shape.
We can certainly improve the overall environment in which they
make decisions and get less economic turbulence. I certainly agree
with that. But in terms of managing their own shops, I think
they've got to address some of these problems themselves. They've
got to do these kind of things so they can compete effectively. I
think that that's going on. They have been, for the last 4 years or
so, moving in that direction; therefore, I think that we are going to
have a far greater capacity to deal with the question of import
competition in this positive way.
I'm not saying it isn't a problem, sir. I'm just saying I think
today we can deal with this question more effectively than in 1979
or 1980.

Senator RIEGLE. Now, as you know, we have in place now what
are called voluntary import limits on Japanese imports that expire
early next spring.
Dr. SEGER. Yes, sir.
Senator RIEGLE. It is the Japanese that under that system are
held to about a 23-percent market share in the United States.
Dr. SEGER. Yes, sir.
Senator RIEGLE. Do you feel that if the import limits come off,
and because of these improvements, the domestic industry is ready
to meet the Japanese and hold their own?
Dr. SEGER. I mentioned earlier my philosophy is definitely on the
free trade side of the spectrum. As I recall, when those quotas or voluntary agreements were set up initially, the talk was to give the
American producers some time to get their houses in order, not
protection forever. I think that they're heading in that direction.

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Now whether or not by next March, which I believe is the end of
the period, they're ready to go, I'm sorry, I just don't know if that's
the exact date, but I think they're definitely far more able to deal
with that competition, and· they will be more able to do so than
they were 3 or 4 years ago.
Senator RIEGLE. Well, l want to push you a little further on this,
because we are going to see a policy decision here before long,
either to continue the import limits or to change them down or up.
Probably down, as the signals have been-or eliminate them all together.
And the question of whether we're ready becomes a very import.ant question, and in the question of quality, which is sort of a
more subjective measure-I mean you have described the fact that
the new car sounds better than the old car when you slam the
door, and so forth-Dr. SEGER. Better mileage also.
Senator RIEGLE. Right. And the productivity side of it. All of this,
in essence, a good part of it boils down to the differential cost advantage of the Japanese. All the published data, as I'm sure you
know, shows that today Japan has something on the order of probably a $1,500 to $2,500 per car landed cost advantage due to many
things-lower labor rates, different kinds of taxing policies, prime
rate in Japan closer to 5 percent today a whole host of things.
As an economist, isn't that baseline cost differential so large that
if you just add an unrestricted market situation, isn't it likely to be
that the Japanese would come in and take a much larger market
share, if they wanted to, simply on the basis of that cost differential-price differential they have going for them?
Dr. SEGER. I'm aware of those differential figures, and, as I indicated, I am not sure that next March is the exact period at which
the American companies can take on the Japanese with no holds
barred. I am not in the auto industry. I don't have access to their
confidential data, their internal cost figures, and I don't know the
exact date.
I just think that they're far better able today than they were a
couple of years ago.
Senator RIEGLE. What would happen if the cost differential, car
for car-the American car produced under the new arrangements
versus the Japanese imports, would remain, say, at $2,000 a car, indefinitely, that is, we make improvements in efficiency, and so
forth, and they do as well, so we don't close the differential gap,
that we have a $2,000 per car gap. If you have unrestricted access
to this market, aren't just the sheer economic realities apt to be
that the Japanese penetration is going to just continue to rise?
Why would somebody pay a premium just to buy an American car?
You and I might do it because we come from Michigan and our orientation is that way, or we might prefer that car.
But more and more Americans are showing they don't feel that
way. If you go out into the State of Washington where the chairman comes from-the acting chairman comes from-the percentage of imports in that State now are about 50 percent. They are
above 50 percent in California.
So it seems to me that if these cost differentials maintain themselves and you give the Japanese unrestricted access to this

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market, you're going to see their market share way up. And as a
matter of fact, that's why the import limitations were put into
Dr. SEGER. I agree with that.
Senator RIEGLE. As I said, they're going to go way up. So what
I'm asking you is, if we take them off next spring and the cost differential hasn't gone away, why aren't we going to see an enormous surge in imports?

Dr. SEGER. I know that the auto companies are shooting to
narrow that differential beyond what is presently in existence. I
don't recall the exact numbers, but the relationship between the
dollar and the yen also could be improved, if we got some things
done in this country that would allow the relationship to change. I
don't mean meddling in the markets, but certain fundamental
things that would allow that to change. That, too, would help to
narrow the gap.
Senator RIEGLE. There could be some things done in Japan too
that could help that. You don't mean to imply that all the changes
in the dollar/yen relationship have to be done on this side?
Dr. SEGER. No, no. When the models land in California or Washington, or wherever they come in on the west coast, the relationship between the dollar and the yen is an angle you have to look at
in addition to the fundamental productivity facts.
Senator RIEGLE. Some people estimate the yen/ dollar differential
to be as much as $800, to $1,000 to $1,200. I want to discuss that
more fully at a later point. But I think you're correct in raising
that as one of the key elements in this cost difference.
So I guess your conclusion was that there might be some policy
actions we could take in this country to, I guess, lower the value of
the dollar vis-a-vis the yen?
Dr. SEGER. What I'm talking about is a combination of things.
The internal actions taken by the auto company management,
point one. Second the policy things we could do in Washington that
will get our own economic house in order, which would ultimately
lead to less nervousness about inflation, would make people confident about where interest rates are going to go in the future. That,
in turn, would have an impact on the dollar/yen relationship.
The other side of this is that, as a policy matter, I think that
American negotiators can sit down and talk some more with the
Japanese about having more equitable treatment. I read this over
and over again; that we have, in many cases, a nice open market,
and yet when our manufacturers or would-be exporters try to ship
to foreign countries, they don't get the same kind of reception that
we give some products here.
Perhaps there are some things that the Government can do to
open up more, on the Japanese side.
I think there are different steps that can be taken.
Senator RIEGLE. Well, let me try to move this along a little faster
down this road on the auto industry, because our discussion in this
area is going to have a key bearing on how I view how you might

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approach some of the policy decisions on the Fed, and especially because you're here as a regional representative.
Other people were turned aside as nominees that were in consideration because they were not from our region, and you were selected, in part, because you are from our region, and therefore, presumably are able to represent on the Board these kinds of issues
and to represent them with some real insight, some real important
substantive judgment and argument that you might be able to advance around the table that would give our region representation
that it will not have otherwise.
This is a complex and specialized problem. A lot of people don't
understand the automobile industry. You have worked in it, and
you have lived in it, as I have, and by your own testimony, you feel
it's a critical industry, a very important industry for the country.
So here's the problem that we face. Every nation on the Earth
now has import limitations on foreign cars-every single one-including Japan. In fact, they're one of the toughest. They do it
through a variety of mechanisms.
Dr. SEGER. That's what I'm talking about, getting them to loosen
up on their end.
Senator RIEGLE. Right. But setting them aside, every other
nation-all the other industrial nations-Great Britain, Germany,
Canada, France, Italy-they all have had to erect barriers against
imported cars because if they did not do so, they would be
swamped-their internal markets would be swamped with imports,
principally Japanese imports, and it would cave in the size of their
domestic industry that continues to give them cost efficiency in
producing cars in their own countries, so they have all established
various import limitations of various kinds.
And it's very interesting that if you take Great Britain, for example, and Germany which also believes in free trade as we believe
in free trade, both of those nations have now decided they have to
limit the Japanese to a 1O.5-percent market share whereas we have
been far more generous. We in the United States give the Japanese
double that size market share-23 percent of a much bigger
So we have been very, very accommodating to that trade practice.
Best estimates that I have seen-and I want you to check these
and either agree with them or challenge them. The best estimates
that I have seen indicate that in Japan today they have excess
manufacturing capacity in the auto industry for cars that they can
build and ship into the export market. It's very substantial. Partly
because they have been locked out of all these markets and scaled
down, onll allowed 3 percent, for example, of the French market.
So they ve got the factories sitting there and the workers trained
to produce a lot of cars that they don't have any place to sell because they have been locked out of all these other places.
It appears that next March, if the import limitation came off in
the United States, and Japan wanted to because of this cost differential which has not been eliminated, it's still there, if they wanted

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to go from the 23 percent market share to a 40-percent market
share, they could do so quite readily.
They have manufacturing capacity, they have the cost advantage, they have customer acceptance in the United States and in
fact the onlr reason they are not selling more cars here now is because there s import limitation. They can only ship in a certain
So it's quite easy to see from the data that's available that in the
absence of any kind of restraint the Japanese make the decision to
come in, take a larger market share that they could probably
double their market share in a very short period of time because
they are all set, got all the components they would need to do that
except free access to our market.
What do you think would happen to the auto industry if, say, the
Japanese market share went from 23 to 40 percent in the period of
1 year? How dislocating would that be, do you think, to that industry financially, employmentwise, unit production cost? What do
you think the implication would be on the domestic industry as an
Dr. SEGER. During the recession, the import share of the total
market rose dramatically, because the whole pie was shrinking.
The Japanese, I guess, had more loyal customers. Also, the number
of Japanese cars, because of this numerical constraint, stayed the
same and therefore their share of the market was, I remember
some months, up to 27 or 28 percent, as I recall.
If what we are talking about, say, next year or the next year is a
big change in the share of the market going to the Japanese, if the
overall market is staying at a pretty healthy level-and by the
way, I think this is tied to fundamental economic forces, things like
income, growth, employment, and all those things that help one's
ability to buy any kind of car-the problem would be less.
Senator RIEGLE. Interest rates.
Dr. SEGER. I'm saying a whole string of things. I didn't pretend
that was all inclusive.
Senator RIEGLE. No, no. I understand.
Dr. SEGER. I think if the adjustments were made in the context
of a healthy economy and a big total market-and maybe even a
growing total market-that the adjustment problem for the domestic industry would be far less severe.
I think that's just arithmetic; obviously you would have a negative employment reaction, some layoffs. But I'm positive it
wouldn't be as catastrophic as the last recession was for the auto
industry, where they had a tremendous contraction.
Senator RIEGLE. Well, let's assume the total value of cars sold
stays where it is about now. It's pretty good relative to where it
was a couple of years ago. Let's say it stays about where it is now
but the Japanese market share goes from 23 to 40 percent in 1 year's
period of time.
I want you to think about it as an economist. If we saw that
happen and all the preconditions are there that could allow that to
happen-the cost difference, there is free access, and so forth, plus
customer acceptance-then what would happen, do you think, if
suddenly you have the same level of sales that you have now but
you have a larger chunk of those sales being subtracted from d<r
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mestic producers? What do you think the implication would be to
the auto industry at this point, if they lost, say, 20 points of market
share right now to the Japanese over the period of the next year,
year and a half? How devastating a blow would that be?
Dr. SEGER. To begin with, I'm not sure that I agree with you that
it would pop right up to 40 percent.
Senator RIEGLE. No; I'm not saying that. I'm testing a hypothetical. If it did, what would be the economic consequences.
Dr. SEGER. I just wanted to make sure I'm treating this as a hypothesis also. I'm just doing the arithmetic in my head. I don't
have a calculator.
We're talking about a total market of maybe 10 million cars;
we're running along there. The Japanese have 2.3 million and the
domestic market the remaining.
Then, if we go with your hypothesis that it goes from the 23 percent mark to the 40, then we are talking about a 17-percent change
in share, 17 percent on the 10 million. That would be 1.7 million
cars that would come out of the domestic share and go to some sort
of import, probably Japanese.
We are basically talking about the impact of a cut in auto
sales-auto production, domestically-of 1. 7 million, the impact on
unemployment, auto profits.
Senator RIEGLE. Unit costs.
Dr. SEGER. Yes. The financing of the auto industry. All the
things we look at when we assess the health of the auto industry.
There is no doubt about it. Minus 1.7 million is a significant-Senator RIEGLE. How significant do you think? How devastating
a blow would that be if that were to happen?
Dr. SEGER. I'm not sure there are exact numbers that can be provided on this impact; frankly I did not get myself geared up with
any exact numbers for this hearing because I thought it would involve monetary policy, banking, regulations.

I don't have these numbers on the top of my head. Let me just
say that definitely it would be a negative impact on employment,
on profits of the auto companies.
Senator RIEGLE. Let me try to sketch it for you. I don't expect
you to have precise numbers, but I do expect you to be able to trace
through the quantitative dimensions of this kind of an impact as
an economist would, what it might means on the road to what this
means for monetary policy, because this is an enormously interestrate sensitive industry.
So if suddenly it finds itself in big trouble for other reasons, then
the level of interest rates whether they're manageable or very high
or low have an enormous bearing on the ability of the industry to
withstand some giant blow that comes from a different direction.
So these things are directly connected and that's one of the reasons
why I'd like to have somebody on the Federal Reserve Board that
understands the connection of these relationships.
Dr. SEGER. I can certainly get the figures. I'm just saying I didn't
come in today with these all memorized.

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Senator RIEGLE. No, no. I'm saying that to try to help you to sort
of see where I'm going here.
Now, having said that, I want to stay right now on a point of
what happens if we see the loss of 1.7 million units coming out of
domestic supply. And there are two ways to think about it.
You think about it as an industry as a whole and you can sort of
make some judgments about what does this do to weaken the industry as a whole and then you can do it on the basis of individual
firms because obviously it's probably not going to fall proportionately across say the four or five domestic manufacturers that we
have. It's apt to fall unevenly.
The bigger you are probably the more your strength to be able to
handle that, that is, GM probably could ride that out much more
effectively than the smaller firms partly because of the cost of production.
As economists, we both have economic training and if you are
sort of allocating your fixed costs over many more units, your unit
cost is lower and you are going to be able to hang in while the next
guy down the street has got the lower base when things shrink,
you know-Dr. SEGER. They also have a stronger balance sheet up front.
Senator RIEGLE. Right. Exactly. So it's all reinforced for the big,
strong company, whereas the ones who are not so big and strong
suddenly are in big trouble. So then all kinds of things happen.
You may have industry that can take the blow in a sense but the
way it takes the blow is maybe you lose one or two companies if
they can't handle the cash-flow requirements. Whether or not your
other domestic manufacturers move in and pick that up depends
on difference in product line, and so forth, and so on. So it gets to
get very complex in a hurry.
I see some real dangers here for the country, for the automobile
industry. If we see anything like that kind of a disruptive impact
in a short period of time and I think the risk of it is very real and I
would say you don't have to take it on faith, there's a reason why
we have the import restrictions.
There's a reason why Reagan says he doesn't like them but has
agreed to have them as an administration because they felt they
couldn't afford not to have them because they didn't think they
could afford to let this breakthrough happen.
Now, is it your feeling that the auto industries are far enough
along through the retooling, modernizing of the factories, the redesigning, the downsizing, the enormous capital-cost load that's there,
that if they got hit with this incremental loss of market share that
they could still manage to go ahead and improve their competitiveness?
They would still have the industry cash flow of the size and the
dimension that they would need to continue to stay healthy and in
fa?t even close the gap on the Japanese? Or do you think that they
might then find themselves with not enough money in the overall
cash flow at a reduced volume level to be able to finish the modernizat~o~ and hopefull1 catch the Japanese? In fact, they might
start shdmg backward mto a new hole. What is your sense for it?
Dr. SEGER. I doubt that the whole modernization process has
been completed. I haven't yet been out to see the plants, but it's
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my understanding they are working furiously and feverishly in
that direction.

They are trying to get things modernized. In fact, I think I heard
something like $6 billion for General Motors as a number for capital expenditures for the next year, primarily to retool, modernize,
put up a couple of new plants-again, going after the high productivity. I don't believe the job is done.
Senator RIEGLE. So a disruption would come at sort of a bad time
in terms of meeting that modernization job.
Dr. SEGER. Certainly, as I said. I don't know exactly what percentage of the job is done, but it is not 100 percent accomplished, I

Senator RIEGLE. It seems to me that's quite an important fact,
though, because if the industry is going to be able to heal itself, in
sense become competitive, it's got to have enough time to do it. It's
got to have enough cash flow to do it.
It means there are enormous capital requirements. I think the
figure of $6 billion for GM over a 2-y-ear period may be about right.
I don't know myself without checking. I know it is a large
number-billions of dollars for just GM.
Dr. SEGER. That was the number that I heard Roger Smith use at
the time of the annual meeting.
Senator RIEGLE. I think that's about right. So, if we had an interruption at this point of the cash flow to finance that, this would be
a major impairment to the industry. Would that be your conclusion?
Dr. SEGER. Don't forget, I didn't say the controls or the limits
could come off in March.
Senator RIEGLE. No, I understand. I was just talking about what
would happen if they did come off and you had this increase in
market share? We are trying to economically assess what is the
vulnerability of the industry and what is likely to happen. Can
they cope with it and if they can't what are the consequences?
You would have real concern about the question of whether the
auto industry would be able to complete the modernization, the
drive for efficiency process, and so forth if suddenly there were a
big interruption in terms of a big surge in imports, a loss of domestic volume. Is that correct?
Dr. SEGER. Yes; it is and that's why I said I wasn't sure about the
timing of the voluntary constraints being taken off. I don't think
the auto industry wants, nor should have, full protection forever.
As a consumer, I think we all benefit from competition but at
the same time I'm in favor of giving them adequate time to get
their house in order. I just don't know the date that means adequate time.
Senator RIEGLE. All right. I want to press that just in terms of
your own economic views, in terms of what you just said.
Let's say the $2,000 price differential between the Japanese and
the American car continues and the Japanese, by the way, are now
producing cars up and down the line-not just small cars. They
have Buick-size cars, top of the line cars, and so forth.

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Dr. SEGER. Yes; in fact, I think they are emphasizing the top in
terms of what they send in here.
Senator RIEGLE. Yes; they are, because they like the larger profit
margins. Let's say the $2,000 price differential continues on into
the future.
Suppose the Japanese, on a basis of having a complete line of
cars, customer acceptance, continuing cost differential, could come
here and take 80 percent of the U.S. market, which I think is entirely possible, they have done it in certain other areas.
Suppose they came in and took 80 percent? Are your free-trade
views so strongly held in terms of the values to the consumer and
so forth that if that's the ultimate disposition of competitive advantage between nations that we are going to have to adjust to that
and in the end we will be better off for it?
Dr. SEGER. My free trade views are predicated on the fact that it
is free; in other words, that it goes in both directions. I think we
both agree that in the case of the Japanese that is not true.
Senator RIEGLE. That is what?
Dr. SEGER. That it is not true that we've got a free movement in
both directions. I think that I would push for, ultimately-again, I
don't know the right date-fewer protective measures, if, on the
other side there were also fewer barriers put up against American
Senator RIEGLE. Well, let's say we got that solved and the barriers came down-the barriers they maintain internally. They have
different kinds of testing requirements and different kinds of ways
in which they keep cars out of their market.
Let's say all of the obvious sort of free-trade-barriers gimmicks
were done away with, were negotiated out of the picture but still
the Japanese had a $2,000 price advantage because their labor
rates are lower, which is a very important fact because of currency
differentials which give them an advantage in that area, the fact
that the cost of money is very different in their country than in
our country and I mean by that interest rates, and so they maintain the $2,000 cost advantage and no restraints either way and the
American people increasingly said, you know, I'll drive the Japanese car if I can save $2,000.
And I'm saying to you, is it your view then, in extending this
out, that as an economist, in the end might be difficult to adjust to
but if the Japanese came in and took 80-percent market share in
the United States, that you are willing to say as the extension of
the argument here that in the end that will be good for us and if
that's the natural outcome and the natural consequence then we
ought to be prepared to accept it and see it as a plus?
Dr. SEGER. If you're hinting that I'm a blind free trader the
answer is no, I'm not.
At the same time, perhaps, I have more faith in the ability of the
management of these concerns to assess these problems also. I may
be dead wrong, but as I see it, understand it, and talk with people
in the industry, they are aware of these differentials, and they are
working furiously and feverishly to make changes, internally,
which will help to narrow it.
I'm not saying that they can wipe it out entirely, but they are
certainly working to narrow it. The longer the time we give them
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to make these changes, to completely redo their manufacturing facilities, put in the latest in equipment, retrain the workers, use the
Japanese management approach, the greater the odds for closing
the gap.

Maybe it's my private sector bias, but I feel that the management themselves would love to get their own houses in order. They
need time to do it, and I really think that they will. If they don't
and if something happens, and maybe that differential even
widens, then obviously, we don't have a policy today that will go
for the next 20 years without any fine tuning, any adjustment to
changes, worldwide impact, all that at least.
I'm not smart enough to set one. And I think it's important to
look at everything you can, make the best policy that is possible for
the facts and the conditions of the moment, bearing in mind that
all these things have to be reviewed, assessed, and considered on an
ongoing basis and that you don't have to set it in concrete at one
time and just live with it. That would be my preference.
Senator RIEGLE. Well, let me take you another step here because
I also have a free market bias, just like you do. In fact, I sort of
have a reputation around here as fighting awfully hard for the
auto companies to try to help the auto companies which I feel quite
comfortable trying to do. I think it's important to the country that
that happened.
Dr. SEGER. I think I told you I chartered a bank for Chrysler as.
part of their bailout, too, so I'm not against them.
Senator RIEGLE. And you said earlier that you felt the industry
was making progress with productivity improvements-modernizing the factory, improving car quality and I think all of those
things are so.
The problem is that the cost differential still remains and it's
substantial and it's not being whittled away and I'm going to take
you to two specific things that are part of it, and one that you
would have direct access at in terms of sitting on the Fed Board, if
you're there.
Now, the prime rate in Japan at the moment is 5.7 percent-5.7
percent today. The prime rate in the United States is 12.5 percent.
So, automatically these are big items here. These are high valueadded products. A lot of inventory, carrying costs, and so forth and
so on. So you've got the interest rate differential built in the cost of
production and then you get socked with it again when you are
trying to finance a high-cost product in terms of consumer markets, financing a $10,000 car, $8,000 car over 3, 4, or 5 years and
the interest rate is a big, big factor.
So, here our manufacturers are facing a prime rate of 12.5 percent and the Japanese manufacturers are facing a prime rate in
their country of 5.7 percent. How do we get rid of that? How does
modernizing the factories and improving quality change that-they
obviously don't. If we are left with a very important residual here,
that is sort of an inescapable competitive disadvantage that is killing us? What do we do about that, and what do you do about it,
and how important is that?

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Dr. SEGER. I'm sorry, I can't remember who was here or at what
point I answered the questions. It's a disadvantage I have.
Senator RIEGLE. What we want to do is put it in the context of
this line·of questioning.
Dr. SEGER. Yesterday I commented that when I came to Washington 20 years ago, believe it or not, the prime rate was 4½ percent. The hooker in this whole story, of course, is that inflation, in
the first half of the sixties, had been running, as I recall it, at an
average of 1 ¼ percent per year; I would love to see the prime back
at 4½. I mean, I'm not wed to 12, or 10, or 9.3 percent, or whatever.
I'm not somebody who gets my kicks out of high-interest rates. I
have seen them lower in my working career. But I think that the
level of interest rates, as we have been discussing back and forth
for several days, is tied to a number of things.
One of them is the whole issue of inflation. When you come
through a severe inflationary period such as we had in the late
1970's, while we have certainly made some progress in bringing it
down from 12 or 13 in the late seventies or 1980, to roughly 4 percent or a little above now, the people who have a lot of clout in the
market are not convinced that we're going to keep it down. I think
if we could convince them, sir, that not tomorrow, not next
Monday, not next Friday-but that we are serious, you would see a
dramatic drop over a period of time in interest rates as people in
the financial markets of this world became really confident that
this would happen; the so-called inflation premium would be
squeezed down very soon, and furthermore, as you went along, interest rates would make a dramatic downturn. Now I don't know
whether or not they would end up back at 4½ percent. I'm not
smart enough to know that, but I certainly think they would be
way below where they are today. I'm mentioning this, because I
think, this is one of the things we definitely have to work on.
Senator RIEGLE. I'm all for that. I agree that that is imperative.
If that doesn't happen, and the interest rate differential does not
disappear-Dr. SEGER. I'm sorry. I thought your question was how do we
narrow it. Maybe I misunderstood your question.
Senator RIEGLE. Well, we can discuss that. What I'm saying is
that it's there now. It's been there now for quite a period of time.
No sign it's going to go away any time soon, and that even if we
catch the Japanese in terms of internal production efficiencies, car
downsizing and so forth, we still have some built-in competitive disadvantages that yield the dollar difference that make us uncompetitive and give them the opportunity in the absence of barriers to
come in and take as much of the market as they want and possibly
even as much as 80 percent, which is hypothetical. If that were to
happen, it seems to me you get massive displacement in this country, not just in Michigan, but the industry is so big and has so
many connecting links that it becomes a 50-State problem, literally
overnight, if you're going to talk about any kind of a massive shift
in its size, in its strength, and if it starts shrinking.

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And it's sort of a self-reinforcing slide. If we start shrinking and
the production base continues to get smaller and your unit costs
rise because you become more uncompetitive, and so it's a downward spiral. And once it starts, it's very hard to break it. And I
don't see anything taking place here at the moment that's closing
this interest rate differential gap. I mean, yes, if something happens over a period of 5 or 10 years and it goes away, that's terrific.
That solves that problem, but that isn't what we're seeing. That
isn't the pattern. As a matter of fact, the pattern is that it's widening out at the moment.
Our interest rates are going up. That's the first item we talk
about today. They're not going down. And the things that are driving interest rates are very much with us, and if anything, are perhaps increasing. And this is one of the reasons why interest rates
are going up.
So it seems to me, if you follow the free trade model, you run
smack into the problem of the interest rate differential, which we
don't have an answer for and puts us at a very substantial competitive disadvantage and puts this whole industry in some real jeopardy, if you have a wide open market on imports.
I'm going to give you a second one to think about, and then I
want you to add the two together and tell me how nervous it
makes you and how it might affect your decision at the Fed.
One of the important costs in the price of a car is the health insurance benefits of workers, because health insurance today is expensive because health costs are high. Hospital costs are high, doctors' costs are high. The doctors are just meeting now, as a matter
of fact, and talking nationally about the fact that they don't want
to get squeezed into cost controls, because they think it will hurt
quality. So it's important to have good medical quality, so, you
know, prices have to be high to get good quality.
In Japan, the health care of an autoworker is paid for by the
Government. So that's covered a different way, and it doesn't end
up being paid for by Mr. Toyota and doesn't go into the price of the
car. So that's a very substantial cost differential, probably $400,
$500, $600. I mean it's estimated at that level by different estimates.
Now that's a difference in system. They have national health
care; we don't have national health care. We have private sector
health care.
How do we get rid of that competitive disadvantage, in terms of
product cost?
Dr. SEGER. I guess there are a couple of ways you can go. One is
the automotive health care plans, at least one I used to see. I think
I mentioned a long time ago I was on the Blue Cross Board for a
couple of years, and so based on the specifics of those contractswhich probably are not identical to today's, but I'm sure they're in
the ballpark-those programs were expensive, that's true. They
were also, shall we say, the "Cadillac" of the industry. They had
extremely good, generous coverage, which is negotiated. I guess
that's fine, but when you negotiate that kind of coverage, it's also
Senator RIEGLE. What if we cut the bill in half? What if we cut
the bill from $400 a worker, if that's what it is, to $200 a worker?

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Does that solve our problem? I mean, it obviously changes the
amount of health care that the worker is getting, but I don't think
you're suggesting you can cut it down to zero and do away with the
health care.
Dr. SEGER. No; I wasn't suggesting cutting. I thought the issue
was the cost of it, and I'm just saying, depending on the coverage,
you can design different kinds of plans.
Senator RIEGLE. You can negotiate, but you can't reduce it to
zero, so you're still left with some residual amount of costed health
insurance. Maybe it's $100 a car, maybe $200 instead of $400 or
$500, but it's a substantial difference. If you take that, plus the
interest rate differential and add those up, it seems to me you're
left just even with those two items with enough of a cost differential that the American producer is still going to be at a competitive
disadvantage, in terms of the cost at which he can sell a car in this
country, and that these kinds of things still create opening for the
Japanese to drive their market share as high as they can take it,
based on customer acceptance.
I think the customer acceptance in Hawaii is like 75 or 80 percent. I assume it could be the same across the country, you know,
with just the passage of time. Now does this start to make you
worry a little bit as somebody that comes from Michigan and said
at the outset that the auto industry is really important to the country, and so forth, if we're facing economic problems of this kind
that are not self-solving?
Where is this all taking us and how is it likely to affect your
judgment on the Federal Reserve Board, if you're there?
Dr. SEGER. Again, I can't remember whether it was yesterday or
the day before when we were first starting our discussion of the
auto industry. I agreed with you that I thought that we still had
problems to solve. I also think that what one does when one deals
with problems of public policy is to deal with them on an ongoing
basis. I would certainly hope I would not be like the doctor of medicine who waits until the person has terminal cancer before taking
care of a modest spot of skin cancer.

You can deal with these problems as you go along. Certainly, I
don't think you have to wait until-your hypothetical cutoffyou're at 80 percent of market domination or market saturation
before you say "Oh, my God, we've finally ~ot a problem, and we
better take draconian measures to solve it. ' I don't think we go
from 23 to 80, between Friday afternoon and Monday morning.
Now I may be all wet.
Senator RIEGLE. But I think your analogy is a very good one, because the 23 is maybe like a spot in the arm, and if the trend lines
are taking you toward 80, you may be the person that has to say,
"Hey, you got something on your arm, and you better get it treated
now. "
That's the value of having a regional representative on the
Board, because everybody else around the table who comes from
somewhere else, and they look at that spot on the arm, and its 23
percent, and say, "It's no big deal."

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I want somebody there who is going to be able to sort of diagnose
the problem before we've ffOt a terminal cancer down the line that
we can't fix. I mean, thats the particular value you would bring,
and that's the whole theory behind regional representation. Somebody that can talk about the problems of the industrial Midwest in
this case and interpret them.
And that's why I'm taking the time to try to figure out how good
a diagnosis person you might be.
Dr. SEGER. No, I'm not insensitive to this, believe me.
Senator RIEGLE. That's why I wanted to determine in my own
mind how you see it and whether or not you feel that we can have
confidence, that based on your knowledge of things that you have
been in the center of for a long period of time and your sense for
the trend lines and the degree to which you have detailed knowledge on these things, whether you're capable of looking at this
whole thing and going in and making a very pragmatic assessment
and not an ideological assessment.
Dr. SEGER. Oh, no.
Senator RIEGLE. But there are a lot of folks roaming around
today who are all free traders. You know, I called myself a free
trader and you call yourself a free trader.
Dr. SEGER. I said philosophically.
Senator RIEGLE. We both have economic degrees from the University of Michigan and think ourselves as free traders and that's
all well and good. The problem is we don't have a free trade system
and we are caught in a system that is very different than what we
would like to see or what we talk about in theory.
My concern is-and I must tell you that I want to hear more
from you on this and I may ask for some of it in writing so we
don't just take hour after hour here in the chair.
I think probably the single most important value you might have
on the Board as a regional representative is to be able to articulate
in a nonideological way, in a practical, pragmatic, real world way
what is happening in the industrial base that is posing some real
jeopardy to the future of this country and to be able to talk about
it, talk about it convincingly with a level of firsthand knowledge
and so forth that could really be of service to the country and to
the other Board members who would say, now she's telling us
things we didn't know; she's explaining the nature of this problem
in a way we haven't heard before and so help the Federal Reserve
Board get to some monetary policy decisions that don't make our
problems worse or at least take into account our problems before
the interest rate and monetary policy decisions in effect are made.
Not that the Fed sets interest rates, but certainly its policies ·
have a lot to do with it. So that is a thing that's important and
what I'm concerned about partly here is that I think there is a
tendency-you worked for General Motors. You have not worked
for the other companies. You have not worked for Ford, or Chrysler, or AMC, and so forth, so you have seen the example of the big
strong, powerful company with the larger financial resources as
you were pointing out.
I look through their window but I look through the windows of
others as well and try to add it all up into the industry as a whole.
And I am concerned here that, as I have listened to your answers

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carefully, that you may be extrapolating on the basis of a General
Motors example, which is the strong kid on the block-and I'm
glad we've got a good strong General Motors-but I want all the
companies to be strong. And I don't want to sort of make an assumption based off the GM experience extrapolated to the other
companies when in fact that would be an invalid thing to do and it
would mislead, and if that were your view it might enable you, or
not enable you, but cause you to have a view that would unintentionally mislead others into thinking the industry is strong, fine,
everything is terrific, we are doing well.
Dr. SEGER. I never said that we were all out of the woods, not
even GM.
Senator RIEGLE. The degree to which we're not out of the woods
and how we describe that and the degree to which you understand
that and can explain that to me is a very important qualification
on your part. So much so that I would say that to the extent you
really can take that knowledge into the Board-and I'm talking
about in a comprehensive way-I think that would be an important
addition, not just for our region or our State but for the country to
have at the table.
If I thought, on the other hand, that it wasn't very comprehensive, wasn't very well thought out, wasn't very complete, and that
it had big gaps in it, or that there was any kind of an ideological
trend to it, or fragments of information rather than a thoroughgoing analysis, I would say to myself we can be running the risk of
instead of having somebody there that can really eliminate the
problem, we could be running the risk that we would have somebody there that was misportraying it in ways that could be very
damaging by causing people to think that things are different than
they really are and that the Fed would end up veering off on one
basis of assumptions and all of a sudden we've got a lot of wreckage in the auto industry or in the industrial base that I don't want
to see happen.
And I feel very strongly about it. I mean if you are confirmed
you are going to be on the Board for 14 years and I've been here
for 18 years and the longer I'm here the more I am of the sense
that the auto industry and the industrial base is in very, very serious condition. I mean it's in very considerable jeopardy from the
trade differential, some of which we can correct, some of which we
can't within the industry, no matter how many hours a day Roger
Smith works, or Lee Iacocca, or Phil Caldwell, or Paul Tippet, or
anybody else, there are some aspects of this trade differential and
this cost differential that thel can't eliminate.
They need help. And that s where policy decisions come into the
picture, the ones we make here, the ones made at the Board.
Dr. SEGER. May I just add one thing, just thinking of GM.
A lot of this information on the productivity improvements was
given to me by a friend of mine I've known for a long time who
just left Ford's comptrollership for a different job within Ford. As
comptroller, he was working with these costs number, and so I
have also heard from him and from Ford's economists. Also, I

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talked-not in the last few weeks-but I have talked with Steve
Miller, who, I believe, is the chief financial officer of Chrysler.
I did work with GM, you're right, for 2 years, but the things I'm
hearing do come from a little broader base.
Senator RIEGLE. Good.
What I tend to find is a lot of people who may generalize observations about the auto industry will oftentimes key off the strongest player and sort of make extrapolations, which is really way off
the mark in terms of the health of the industry as a whole.
Did you take a position in the early days on the Chrysler loan
guarantee legislation? I know you helped implement it down the
line, but did you ever take a position on it?
Dr. SEGER. I was never involved in it. You people put the finishing touches on it. All of a sudden Chrysler found no banks would
clear their drafts, so they came to me.
Senator RIEGLE. Did you have an opinion at that time that that
was being discussed? Did you think there was a justification for
Federal ·intervention or did that kind of cut against your free
market views?
Dr. SEGER. As I said, you can't handle things strictly on a philosophical basis, we both sat here and agreed to that over and over
again. Deep down, I thought you shouldn't have bailouts, but then
again I looked out the window and saw the problems in Michigan
and the importance of Chrysler; I think at the time they were the
major taxpayer in the city of Detroit and the major taxpayer in
Michigan. So I understood how you get decisions-political decisions-made, which is what that was, and I said I backed it up by
chartering a bank.
You can check with Steve Miller on this.
Senator RIEGLE. Would it be fair for me to conclude then that
back at the time that this was being debated and before the legislation passed that when the dimensions of the problem were laid out
and being debated that, although you would not have made any
public statements or taken a public position and despite the fact
you consider yourself a free market person, is it fair to say you
reached a private judgment that the Chrysler legislation was justified and should be passed?
Dr. SEGER. I understood, as I said, how as a policy matter the decision came down on the side of saving it because, as we were talking about the other day with regard to banks, the facts are that a
big institution, whether it's a school, or a bank, or a company-Senator RIEGLE. You thought it was the right thing to do then?
Dr. SEGER. Yes. That's what I'm saying.
Senator RIEGLE. So, in your own mind then you are able to reach
the judgment that this was one instance where Federal intervention was justified?
Dr. SEGER. At that time and, given the severity of the situation
and looking at what the impact would have been if it had just gone
belly up, as they say, it may not be the ideal solution, but it had to
be done.
Senator RIEGLE. And you finally became convinced that you not
only felt that but you were comfortable with that decision?

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Dr. SEGER. AB I said, I backed it up, because if they hadn't had
that bank, the whole thing would have come unraveled, because
they couldn't finance their new-Senator RIEGLE. I don't want you to feel like you have to be apologetic or you're going to lose your credentials in the economics
community because after all it did work and it worked quite nicely.
Dr. SEGER. I know that.
Senator RIEGLE. And I think it was a victory of realism and intelligence over ideology or rigidity of people who just couldn't bring
themselves to think in practical terms. There are some people even
today, even though it was done, done successfully, and the Government made a lot of money, avoided a lot of losses and so forth, the
Government is now out of the act and everything is paid back, who
still think it was a terrible thing to do, who are still pained by it,
who can still get very exercised because they are ideologs, of which
we have too many I think in Washington.
Dr. SEGER. I think, as we talked back and forth before, it's one
thing to solve the problem on the blackboard for the freshmen sitting before you, with all the complications of the real world removed, and it's another to be out there where you are responsible
for results. You can start with the ideal world and say this and this
would result if we did and this and this if we don't; but then you
start factoring in other considerations and I think that's how the
ultimate judgment is made.
Senator RIEGLE. Well, now, going back to the Federal Reserve
Board and the problems of the auto industry, if you are on the
Board and next year rolls around and the import limits come off,
which is what has been suggested by Ambassador Brock.
Let's say the Reagan administration is reelected-I hope it
isn't-but if it is and a team is in place and this issue comes up
and the decision is made to take them off, it's time to compete, let's
see how we can do. The industry has had a pretty good time and so
forth, and let's say what happens is that the foreign penetration
really jumps way up and it goes up to 30 percent-the Japanese
share to 35, 40 percent and it's just really rising sharply in a relatively short space of time and you can see it, you know, month by
month and as they increase their capacity to ship cars over and so
forth, it goes up, what would you be inclined to do then? What
would you be saying to your colleagues around the Fed Board table
about this?
And I ask the question in the sense of your notion about how important is this industry and how important is the industrial base as
it relates to aggregate income, value added, jobs provided, tax revenue, just overall economic and financial health of the country.
If you saw that starting to happen, what would be your response
to it on the Board?
Dr. SEGER. First of all, getting back to some of the comments I
made yesterday, to get good policy in Washington, I think what we
need is more people speaking to each other, more coordination, I
would think using your numbers, if all of a sudden it went to 23,

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27, 30, 35, at some point you would bring together the various
We are talking about the health care question, the interest rates,
the value of the currency, and I would think at that point maybe
Congress would have hearings. I am new to this place-relatively
new-and so in some way I think you look at the whole problem,
involve the people who are the various players in a solution to the
problem, and then you get going on a solution.
I don't feel the Fed, sitting over on Constitution Avenue could
singlehandedly adjust monetary policy to deal with this. It has to
be a coordinated effort.
I would certainly be very willing to speak to the fact I think one
out of five people in this country are employed in some aspect of
the automotive business. As I said earlier, in places like Michigan,
the city of Detroit, Chrysler used to be the largest single taxpayer. _
I could certainly make those kinds of arguments. But I still say I
don't think I'm the only one who would indicate that you can't
have a person or an agency take this on, that you have to get all
the actors-Congress, everybody involved.
Senator RIEGLE. Let's say we found ourselves next year-late
next year-and you're on the Board and we found ourselves in a
situation where the import limits have come off and the Japanese
imports were really coming here at a fast rate, market shares
shooting up and so forth and we got the same kind of item in the
Wall Street Journal that we got today.
Dr. SEGER. You're talking about the Ml item?
Senator RIEGLE. Where it says the money supply rose $3 billionand this is the important part-increasing speculation that the Fed
soon will tighten its credit grip in an attempt to slow economic expansion and keep a lid on inflation.
Now, if you were there and the largest sort of macroeconomic requirements were such that the conversation was going around the
table and people saying, man, we'd better, you know, we got a real
problem here. We'd better tighten up and raise interest rates,
they're going to have to be driven higher. You know, you don't like
it, but we got other problems to deal with here, so we may have to
tighten and it may mean that interest rates go higher.
And I'm wondering when you are sitting there thinking about
this new problem that's developing in the auto industry, in the hypothetical I'm talking and the importance of interest rates, the
damage that high interest rates would do to the auto industry, and
especially the smaller companies, I'm wondering if at a point you
would speak up and say, well, I understand the arguments for why
people here think we may need to tighten for the following reasons.
And the result of that may be we see higher interest rates, but I
have to tell you I'm so concerned about what's going on the industrial base right now that these other factors and the jeopardy that
the auto industry now finds itself in, that I think we'd better really
weigh very seriously the impact on the margin of an increase in
interest rates on a big industry that's connected to one out of five
jobs in the country, that happen to be in trouble right now, and I'm
not sure that I can necessarily sort of weigh this out on a scale in
such a way that I can support the idea of moving to higher interest

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rates right now because I think we might get a lot of damage over
here that hasn't been cranked in and I'm not sure that that's good
for the country.
Could I expect, if you were there, that you would be playing that
kind of role?
Dr. SEGER. First of all, if I survive this shakedown cruise and get
on, I think what I would like to do is get rid of the weekly release
of the Ml figures because, as I indicated yesterday and the day
before, I think they are way overemphasized in terms of importance and as a clue as to what the Fed is going to do next. Let me
just lead off with that.
In terms of speaking knowledgeably now about the Midwest or
the problems in the auto industry, I would certainly hope to do
that and to remind people, using your set of assumptions about
how severe the situation is, how catastrophic it would be if interest
rates went through the roof.
That could certainly be articulated.
The CHAIRMAN. Senator Boschwitz.
Dr. SEGER. He's just holding my arm.
The CHAIRMAN. You have noticed we have a visitor.
Senator RIEGLE. He wants to sell you a plywood splint. That's
what's going on there.
Dr. SEGER. He thought I had been beaten up so badly here that
that's how I got it. I assured him I fell on the kitchen floor.
Senator RIEGLE. I want to be able to say to him that you came to
the committee room with that. I figured you got that at the White
House, down at the Treasury Department.
Dr. SEGER. No, I fell on the kitchen floor.
The CHAIRMAN. I really question his judgment. The Senate is out
of session and I don't know what he's still doing around here.
When I don't have to be here I leave. I spend enough of my life
here, particularly this last week. All of us have been here about 18
hours a day.
But other than questioning his judgment, I have great admiration for him.
Senator BosCHWITZ. Are you talking about me, Mr. Chairman?
The CHAIRMAN. If the shoe fits, yes.
Let me just make an announcement. Then Senator Boschwitz
would like to make some comments and, although he is not a
member of the committee, we are very happy to have him drop in
as always. He is always welcome to visit the Banking Committee.
I apologize for the discussion with Senator Riegle I had. We were
not trying to be evasive, but trying to arrange the schedule because
each of us has had to readjust our schedules this week.
I had a particular problem that I cannot avoid. The annual Utah
State Republican Convention starts this afternoon and I obviously
am not going to be there for the opening session, but I must catch
an airplane this afternoon so that I can be there tomorrow. There
are a lot of things that I can't avoid, but as Senator Riegle can't
avoid missing Democratic meetings in Michigan I can't miss Republican meetings in Utah.
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So Senator Riegle informs me that he feels that his additional
questioning will take about 1 hour, but also feels it might be better
if we took a lunch break and then he would return and if that is
acceptable procedure to you, give you a chance to do whatever you
do to rest your arm in between. But after Senator Boschwitz 'comments we would recess for 1 hour and then Senator Riegle feels an
additional hour after that would complete his questioning and we
know of no other request for time. There will also be questions for
you in writing.
I have discussed, but not yet been able to clear it with Senator
Proxmire. Senator Riegle has no objection to holding a markup
next Thursday on your nomination, so that is the procedure that
Senator Riegle and I have discussed and if that meets your time
schedule-Senator RIEGLE. Mr. Chairman, might I add one thing at this
point. I suggested that also with your interests and mine in the
sense that I know after you have been seated at the witness table
for a lengthy period of time it's nice to be able to get up and sort of
take a little break.
If, however, because of your plane connection or anything else
you would rather just sort of go straight on through, I would also
be willing to do that. I just thought it might be better if we-Dr. SEGER. I can go straight on through if you just give me a 5minute break.
Senator RIEGLE. Would that be your preference? What are your
plane travel circumstances?
Dr. SEGER. At the moment I've got a reservation on the 3:15
Northwest flight back to Detroit. I can certainly try to get on something else. Also, if I'm going to be given the written questions
today, then I ought to hang around a little while over at the Fed to
see what information I might have to gather.
The CHAIRMAN. Well, the Senator is simply giving you a choice,
so whichever you would like to do.
Dr. SEGER. I'm going to be given the written questions today so I
can work on them over the weekend. If I'm not, then I guess-Senator RIEGLE. You'll get mine today, although I don't know
that they'll be ready before 5 or 6 o'clock. They may have to be
phoned to you.
What we may do, for example, is, you know, Senator Cranston
specifically has some. I don't know whether we have his in hand on
this side of the aisle.
The CHAIRMAN. I would not expect it would be possible to get all
the questions before-Dr. SEGER. Then I'll just count on coming back and working on
them on Monday.
Senator RIEGLE. I don't know that you need to do that unless you
want to. What often happens I think in a case like that is the questions are given to the majority counsel and then he can presumably be in touch with you by phone or however you want to do it to
let you know what the questions are so that it isn't a matter of you
having to make a trip just to get some questions.
The CHAIRMAN. If we could proceed on this basis then after Senator Boschwitz' comments or questions we would recess long enough

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for the trip down the hall, come back and complete your testimony
with Senator Riegle.
Senator RIEGLE. That's fine with me.
-The CHAIRMAN. Then we will have the staff get to you as soon as
possible by telecopier, or whatever, so you can work on the questions over the weekend, either this afternoon or the first thing in
the morning. I'm sure we can arrange that.
The CHAIRMAN. I'm sure Senator Riegle has a telecopier in his
office or some means of getting-Senator RIEGLE. Whatever is the normal way. I know what happens all the time is that questions are gotten to witnesses who are
at a distance and so I'm sure that ~an be accomplished here.
[No additional written questions were submitted for the record.r
The CHAIRMAN. Thank you. I appreciate both of you being so accommodating, and I do apologize for having to leave, but I know of
no way that I can avoid the Republican Convention, as the senior
Republican Senator in Utah.
Senator RIEGLE. May I also say, Mr. Chairman, before you go, I
want to compliment you on the manner in which you have conducted these hearings and accommodated the requirements on our
side of the aisle, both mine and other people, and I am very appreciative of that, and I think it's very much in the workstyle you and
I have enjoyed over a long period of time.
So have a safe trip, rouse the faithful, as I know you will, in
Utah, and know that things are in safe hands here and come back
safely on Monday.
The CHAIRMAN. Thank you. Senator Boschwitz.
Senator BosCHWITZ. Thank you, Mr. Chairman. I too will wish
you a pleasant trip to the faithful, as Senator Riegle speaks of
them in Utah, and I am sure they will be pleased to see you, and I
am pleased to see this very qualified candidate, Dr. Seger, before us
And as I spoke to her just moments ago, I encouraged her to be
patient with the committee, and that sometimes in election years,
the questioning goes on for quite sometime-and even in nonelection years, it sometimes goes on for quite sometime. I think it is a
reflection of the·importance in which we hold the Federal Reserve
Board, and it's also, I think, a reflection of what happens during
the elective period.

I have listened to you during Senator Riegle's questioning, but I
have no questions. Although I am not a member of the committee,
I am quite sure, along with the courtesies extended me now by the
chairman, that questions would be in order, but from all I have
read and all the background material that I have seen, you are
eminently qualified for the Federal Reserve.
I know that some members of the Federal Reserve have come
from Minnesota and certainly your qualifications are as high as

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those that I have seen of other nominees from our part of the country. I am sure that Senator Riegle is proud that a Michiganer will
come to the Federal Reserve with the thought in mind of the needs
for the State of Michigan.
So I welcome you here to the Senate and ask you to be patient
with us and, hopefully, the nomination will be acted on quickly.
Mr. Chairman, do you expect that we will be able to act upon
this nomination before the recess?
The CHAIRMAN. No, I would not expect that that would be possible, if we hold the markup on Thursday.
Senator BoscHwITz. Oh, your regular business meeting?
The CHAIRMAN. Well, we're attempting to schedule it. We have
to get the written questions, the report has to be written and held
on Thursday. There may be a 3-day layover period, with the debt
ceiling having to be passed by Friday of next week.
I wish that were possible, but I would frankly doubt if we would
be able to have it up for consideration until after the July recess.
Senator BoscHWITZ. In the closing minutes of a session many
things are done rather quickly, so perhaps, Madam, it probably will
not be much of a disadvantage to be in Washington during the
month of July.
Senator RIEGLE. August is even worse.
Senator BoscHWITZ. That's right. Perhaps with good luck we can
hold up your nomination through August as well, but we welcome
you to the Senate, and we are just pleased to have a nominee with
your qualifications and your background in the banking business.
It's not always the case that we talk to nominees who have so
much experience in the field in which they are nominated.
So I just wanted to come here as a show of support from the nonmembers of the Banking Committee, particularly myself, and wish
you a full term, because one of the things I have noted about the
Federal Reserve Governors, is that they turn over very rapidly,
and just as they're getting to know where the levers are and what
the procedure is, I, at least, found when I came to the Government,
it took me some time. I had no previous Government experience as
you have had, on the other hand. It just seems as they, particularly
the business members to be getting involved in the process, they
leave, because the Government operates slowly. It is a little bit
frustrating, and so forth, so I hope that not only are you speedily
confirmed, but that you stay the full length of your term. I think
in that way we will be assured that you will meaningfully participate and make a meaningful contribution to the Federal Reserve
and the Nation as a whole.
I thank you, Mr. Chairman, for allowing me this opportunity. I
was pleased to be able to listen to the nominee, and I wish her
rapid confirmation.
The CHAIRMAN. Thank you very much, Senator, and the committee will stand in recess for an appropriate time.
Senator RIEGLE. Why don't we reconvene about 10 minutes to 1?
The CHAIRMAN. Reconvene at 50 minutes past 12.
Thank you much for your patience.
Dr. SEGER. Thank you. Have a good trip.
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Senator RIEGLE. I'm going to just finish off on the automotive
thing because we spent a lot of time on it and it's a very important
Dr. SEGER. And, again, I agree.
Senator RIEGLE. And I just wanted to make sure too that, assuming you are confirmed to this seat, I think on issues of this kind the
kind of communication that you speak about is important to have
and so I would hope from time to time in the normal course of'
events we might even speak about these issues.
Dr. SEGER. Sir, I would like to buy you lunch also. Having lived
in Detroit straight through since 1967, I'm sure that the people I
know will be ringing my bell, so to speak, to make sure that-if I'm
not following events there on my own-they keep me informed.
Senator RIEGLE. I appreciate that suggestion and especially I
think it is important as long as this regional representation issue is
a really fundamental issue and it's not easy to stay up to speed on
regional issues when you are here and absorbed in the whole range
of issues in terms of the international financial difficulties, the consumer responsibilities, and so forth and so on.
But those are critical inputs and I just want to finish by making
an observation on the auto industry that undergirds why the price
earnings ratios are so low at the present time. And that is that the
industry is beset with a whole host of problems.
I'm not going to take the time to talk through each one today.
We spent some time on exchange rates and foreign competition
and some on interest rates, some on just what the business cycle
itself will do with the auto industry and especially if we get socked
in after having been socked so hard in a relatively short space of
Obviously the question of labor management relations and the
improvements some of which have been made and more of which
need to be made on the whole question of productivity. All of these
things fit into this puzzle here in such a way that to really have a
sense for the dynamics of the industry takes effort and the industry in my view, if the import limitations come off, the industry is
going to face very, very tough sledding and it's going to get tough
in a hurry unless the Japanese voluntarily hold off.
There is no guarantee that they necessarily will. But if the Japa- nese market share starts to rise sharply, we're in for horrendous
difficulties. It's going to hit the companies differently and so you
can't just look through the window of one company. You've got to
look at all of them.
Dr. SEGER. May I just make a comment about the question of
looking at more than GM. Among my personal acquaintances, actually my best friend, is a board member of AMC. I have gone to
school and continued a friendship with a fellow who just switched
from comptroller at Ford to another job there. I think I have a lot
of people available, so that I don't have to just read some little
from "Ward's Automotive Report" or the "Survey of Current Business." As I said, these people know me well enough that they

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wouldn't hesitate to ring my bell. Also, if I needed informationbecause it is a very complex industry as we both know-and if I
felt that being away for a while, I hadn't seen, let's say, some of
the recent numbers on cost competitiveness, I wouldn't hesitate at
all to call the people who are our friends; and I can get through to
It isn't like just having to go to a PR guy or industry relations
fellow. Information is very important to keep on top of these
Senator RIEGLE. Well, let me just say something to you along
that line and that can be very valuable. But just ponder this, you
know, on your way home today and that is when you put the
future problems of the industry at about a 5 on a 10 scale, if you
talk to the heads of these other companies today other than GM, in
private conversations they put that number much closer to the 10
level-an 8 or 9-and including the companies that you mentioned,
so I'm not sure that-Dr. SEGER. I haven't called them up and asked them the question
you just asked me.
Senator RIEGLE. Well, maybe you should do that. And they may
be so busy with their own problems they haven't thought to call
you. But I think you're going to have an affirmative obligation, not
just wait for somebody to come and pull your chain to find out.
What I'm saying to you is one of the things that concerns me is I
think your level of apprehension isn't what it should be. I'm not
saying that in any kind of harsh way, so don't misunderstand me.
I'm saying the financial markets are sending off a very different
signal so there is a difference between how the financial markets
in the aggregate see it and how you see it. There's a difference between how the auto people that I'm talking to privately at the tops
of these companies, with the exception of GM, see it, and that's a
variance with how you see it.
So one of the first things I say is, why is there this gap?
Dr. SEGER. I haven't talked to the very top bananas. I indicated
to you the level of my friendships.
Senator RIEGLE. Maybe it's not just a question of talking to top
bananas. Maybe you're not getting good information because of
who you are talking to.
I was just saying to you that the level of apprehension is far
higher than that.
Leaving the auto companies aside, you're a free market person,
I'm a free market person. The Wall Street Journal has got a big
message for you today. If you don't see it then there's maybe a
blind spot that you need to deal with. That is, the markets are capitalizing GM at four times earnings and Ford and Chrysler at
three. They are telling you something. They are not screaming it in
your face but they are if you take a look at those numbers or think
about it.
They are telling you that there are some big problems out there
and they are not willing to value these earnings very highly because they don't think it will last. So either the market is wrong or

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it's right. If it's right, whatever is causing this apprehension is
something that you do have an obligation to think about long and
This requires more than thinking on your feet and getting the
questions right. I think you now carry a permanent obligation to
figure out what the market is saying. I'm not expecting you to be
an expert per se on the auto industry, but I think you now have to
become one because of this regional responsibility in a way in
which you can stand up and answer that question in sort of a 35minute presentation that you might give to a national group and
say, look, this is what the markets are saying and this is what I
think they are saying. I either agree or I disagree. But I think you
have to be able now to develop that level of insight and knowledge
and present it. That's how I see it. So I'd just ask you to reflect on
that. I'm just offering that as an observation to you.
Let us move ahead here. I want to go next to the Continental
Bank situation.
We've seen an unprecedented bailout effort made in the case of
Continental. In other words, we've stepped outside the rule of the
game we've been applying to other banks, smaller banks and so
forth, with an ironclad sort of Federal guarantee, a guarantee of
the full size of the deposits above $100,000 and so forth.
It's set off all kinds of questions about fairness, equity, and
double standards, and what have you. The reason that's been given
for this emergency action, this $7 .5 billion bailout which still has
not been fully accomplished as you know, was that the international financial system was really in jeopardy of collapse.
If there is any hesitation at all about going in and shoring up
this situation and sort of locking it in place, do you agree that this
situation was that important and the overall level of vulnerability
was such that that's an accurate reading of the situation and therefore this kind of step had to be taken?
Dr. SEGER. I don't have any confidential information from Continental. I've never been provided that.
Senator RIEGLE. I'm asking really your professional judgment as
an observer, an economist, and as a potential Fed Board Member.
Dr. SEGER. I understand that. But I didn't have a confidential
report dropped in front of me on the shape of Continental the day
before; that might give me a different insight than what I have just
as a professor who is observing things in general and also who
hasn't seen this kind of information.
My sense, from reading the New York Times day by day, blow by
blow accounts of how the pressure built, the scariness, the so-called
run, is that you didn't see people out in the street like we had in
Detroit in 1933. Now you don't need to; you can have a run just by
using a wire transfer, and that's what's happening. CD's were not
being rolled over. They were very dependent on that; more than 50
percent of their total source of funds, the so-called hot money was
from CD's.
Senator RIEGLE. I'm just going to stop and ask you two specific
questions because I want you to make your plane, and I want to
move to a lot of things.

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Was this special intervention justified in your opinion and necessary? No. 2, was it for the reason that there was some potential of
a ripple effect to an international financial collapse, which was
widely said at the time by the people who made the decision?
That's really the two questions.
Your judgment about that. Was it necessary? Did it need to be
done? And is that the reason it needed to be done?

Dr. SEGER. What I'm developing is the case that it apparently
was necessary, because of this tremendous run via wire transfer on
the Continental Bank. They had a tremendous number of dollars
placed in that bank by foreign banks, Japanese banks, German
banks. They were very vulnerable.
As you get a question of confidence being raised, these people
who are the big shooters, the .real professional fund managers all
talk to each other, and as soon as there is a question about the integrity or the health of a bank, the word spreads like wildfire.
When a bank in Japan or a couple of banks start to have questions
about the safety of their funds because they are way over the
$100,000 cutoff, this is no doubt about it; their reaction is to start
pulling these dollars out.
As I said, that spread. That led to a liquidity crisis, and that's
what I'm pointing to as a justification for having some special attention given to the Continental Illinois incident.
In terms of the Federal Reserve involvement, it was basically
working as a lender of last resort. It is well established for central
banks to enter this kind of a situation where there is a tremendous
liquidity problem, where the individual institution cannot have
been expected to supply that much liquidity in house. We expect
institutions to have liquidity for reasonable deposit outflow, but
you don't expect them to be self-insured against catastrophe.
The fact that Continental was able to go in and borrow at the
Federal Reserve discount window, from the lender of last resort,
that has happened before for big banks and even smaller banks.
Senator RIEGLE. Let me stop you here.
We are going to need to rest of the afternoon if we can't really
get to the question that I'm asking and maybe we'll have to do
that, because we can go to that longer explanation next if we really
need to have that.
But what I'd like to start with is a judgmental answer and then
the reasoning for the answer, if it looks like we need it.
Dr. SEGER. My judgmental answer was that Continental Bank
had to be-Senator RIEGLE. The intervention had to take place in your view.
You're convinced that there was a need for the intervention. The
answer to that is, yes.
Dr. SEGER. There was a liquidity crisis.
Senator RIEGLE. And there was the need for the kind of intervention we saw; right?
Now, the next question is was the intervention required because
had it not taken place we might have seen any kind of a broader
run on the financial system or on other banks with problems and

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the possibility of what has been generally described in the press as
the threat of the potential of some kind of an international financial collapse?
Dr. SEGER. I think there definitely was a "potential," in quotes,
because the whole confidence matter is so important to financial
institutions. If you were to have gotten a major failure such as
Continental going under, then it would have been in my judgment,
a repeat or partial repeat of what we saw back in 1933, if there
hadn't been intervention-where the big depositors of other banks
would have seen the problems at Continental and then they would
have started pulling their funds out of the other banks and other
banks would have got in trouble. They would have had a liquidity
crisis. They would have had to have been helped out. You get a
chain reaction through the domestic economy, ultimately worldwide.
Senator RIEGLE. So, we really, in your mind, were at the point of
that kind of risk. In other words there was the potential for that to
happen and that that potential was real enough that in your mind
that justified the intervention?
Dr. SEGER. In my judgment, yes, sir.
Senator RIEGLE. Now, that's important because that it seems to
me also then becomes a statement of how fragile things are.
If the potential of this bank going down in turn created genuine
concern that could have set off a chain reaction, if had not otherwise been managed, which is what in effect you've just said, then,
to step back a step, that then poses another question, and that is,
what is the overall state of things? In other words, what kind of
precarious situation are we in if one event, like Continental Illinois, suddenly comes bang, right into the center of the radar screen
and that were to go down and set off this chain reaction?
It seems to me that is a statement about what is the overall set
of conditions that we're operating in right now. What is the nature
of the international financial system? It's soundness? The degree to
which credit relationships are overextended? The interconnection
of all of the different bits and pieces?
I take it then that you acknowledge that the international financial situation is fragile enough at this point that an event like the
Continental Illinois is something that could really sort of knock the
whole thing haywire?
Dr. SEGER. The domestic financial system has problems. The
worldwide financial system has problems, but I would just suggest
that if an institution the size of Continental, the seventh or
eighth-I've seen both numbers used-largest in this country, if it
had had a liquidity crunch to the extent that it did have, and it
had been in 197 4 rather than 1984, that even then, in conditions
that in general were a little less-to use your term-"fragile," than
they are today, that kind of a bank in difficulties would have had a
tremendous impact-even had it been 1964. My point is, a big glob
makes a much bigger splash than a small glob does.
Senator RIEGLE. I agree. Is it also fair to say, however, that today
it's just not Continental Illinois in isolation. It's that plus the debts
of the less-developed countries. A whole pattern of events taken together that create a much higher sense of apprehension.

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Dr. SEGER. There are two different points here, and I may not be
distinguishing them well enough. What I am saying is-and this
was proven, by the way, in Michigan in the 1930's-that when you
get a liquidity crisis, started by the failure of one problem bank of
lack of confidence or some other event, the crisis often leads to attacks on banks that are very sound. As the news spreads and depositors grow nervous over the safety of their funds, heavy withdrawals can lead to failures of those sound ones. Of course, we
didn't have deposit insurance at all in 1933, at the time of our
crisis in Michigan, the so-called Bank Holiday.
Nevertheless, even though we do now have insurance up to
$100,000 per account, the people above that level are obviously at
risk for those dollars. To the extent that there is a question on one
bank, if that shakes the confidence in others, then you can have
runs on other banks that are perfectly good, sound, healthy banks.
This liquidity crisis, that happened in the 1930's could happen
Senator RIEGLE. But you see this gets to a very subtle point and
it's a subtle distinction that's come up two or three other times. It's
the whole question of certain market expectations, market psychology and whether that's a rational reading of events, and whether
things really aren't all that bad. But yet you can have a crisis because people sort of do irrational things and don't really look carefully enough at reality. So that can enable a person to kind of go
down two roads at once on the same issue, and in a sense really not
say anything.
I guess my concern here is, you know, it's one thing if the
market sort of panics and stampedes and goes out and we have a
collapse, because there really is no problem but everybody thinks
there's a problem.
Dr. SEGER. I didn't say there were no problems.
Senator RIEGLE. I know you didn't, but I want to make it clear,
so it's clear exactly what I'm asking and what you're saying. So
that we know because others are going to read this record and that
is, is this a situation where everything is basically pretty sound
and pretty squared away and you just get a random event and it
sets off a lot of panic. People go out and react to the panic and suddenly, you know, you could have a collapse going on that wasn't
really based on anything more than just people sort of misreading
the situation or are we finding now, in the case of Continental Illinois, that Continental Illinois is not an isolated event. It's part of a
large pattern of financial difficulties that are looming all around
the globe and that everybody is very nervous about it. So much so,
that the President just met with the heads of government of the
Western European countries to talk about it. And so that in fact
the whole situation is in some perilous condition out there right
So that Continental Illinois coming along as one more event on
the margin was in the context of this larger picture about which
there is great apprehension. One of the reasons why real interest
rates today are higher than they've been in a long, long time.

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So it's important for you to give a clear sense as to whether the
background factors really are something that rational thoughtful
people should be alarmed about and if that's the context in which
Continental Illinois is taking place or whether in your view the
market is really sort of behaving in an irrational way and that
things behind it all are really pretty solid, pretty squared away and
there's really not that much cause for alarm and that if we sort of
had a collapse it would be all by accident because everybody sort of
just really didn't know what they were doing.
Dr. SEGER. You misread my comments, sir, or misheard them.
What I'm saying is that when you get to a liquidity crisis involving a bank the size of Continental, that it is important to deal with
that size problem at any time; if you don't, then the failure of a
bank that size could trigger other failures, even if the other banks
are absolutely 101 percent healthy specimens. That's all I'm saying.
Senator RIEGLE. Yes.
Dr. SEGER. I got very worried about financial institutions at the
State level when I was dealing daily with very confidential and
specific numbers about the health of individual banks. In 1982 I
was biting my nails. I know you don't think I do that, but I was.
And to me it was very, very scary.
Senator RIEGLE. But you re not biting your nails today.
Dr. SEGER. I think we've made some progress. I'm not a Pollyanna.
Senator RIEGLE. They've changed to enough of a degree to when
you were really alarmed and biting your nails 2 years ago, you're
not really alarmed and you're not biting your nails today.
Dr. SEGER. I'm not spastic about them, because, as I said, we've
gone from my panic point to grave concern. I'm not biting my
nails. I'm paying attention. Getting back to the financial markets,
they have a marvelous propensity for extreme behavior. They're
either hysterically optimistic or hysterically pessimistic, with very
few stops in between.
When I was a banker I dealt with these people all the time, and
I'm not saying that that's wrong, but I'm just indicating that they
often get on either side of the extremes of the range, and absolutely it is a problem. The Continental situation would have had to
have been dealt with, in my humble opinion, even if every other
bank in the United States and every other bank in Europe had
been sound, because it could have spread.
Senator RIEGLE. In the last 20 years, have you seen any other instance like the Continental Illinois instance where the Federal
Government has responded this way? I'm talking about the complete backing and complete guarantee right around the existing
bank. I know of no case like this. This is one of a kind.

Dr. SEGER. Two different things. In terms of being the lender of
last resort, the Federal Reserve has dealt with other cases before.
Franklin National Bank in 1974, this little bank that I indicated
that I had to close.
Senator RIEGLE. They fully backed the deposits above $100,000?
Dr. SEGER. That isn't the Federal Reserve.

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Senator RIEGLE. I'm not talking about the Federal Reserve. I'm
talking about the whole bailout.
Dr. SEGER. But there is a distinction to be made here. I'm not
just trying to be picky, but they're two different things. One is the
Fed opening the discount window. This was made available to this
little bank below the $20 million cutoff, while we were trying to
find somebody to acquire them. It wasn't on the front page of the
newspapers, but the discount window was made available to help
them out through this period of trauma. We eventually had to
close it, but, nevertheless, that's not unusual and that's not just reserved for the biggies.
The unusual thing is to have the FDIC come in and to go above
this cutoff of $100,000 per account; that was the rare thing. That's
what I haven't seen before, although I've been told that they have
gone in to deal with a couple of mutual savings banks in a special

Senator RIEGLE. I don't think in that way-I'm not familiar with
any other precedent equal to this one in modern times in the last
20 years, and I gather you're not either.
Dr. SEGER. No.
Senator RIEGLE. This is unique. It stands out. Well, let's leave
that point, because I want to go to others. But I think the question
of whether or not that indicates that the overall economic and financial structure, world economic and financial structure is in a
particular type of jeopardy right now is important. I think the Continental Illinois intervention says that it is. I think the regulators
are affirmatively saying that by taking these extraordinary steps.
Without a long answer, I gather that you're not comfortable
saying that, yes, you think that's true. You think something different than that is the case here.
Dr. SEGER. Again, I can't read their minds, but it is true that
they've viewed this as a very severe problem. Again, they had to
deal with it, and it was very important. In my judgment, that
would have been the case. I'm not denying the fragility. I'm just
saying that even if we weren't faced with a less than healthy overall financial system, I think when you're dealing with this sized organization, with billions of dollars deposits in it-including those of
correspondent banks, school districts, counties in Illinois, and foreigners-that kind of situation would have deserved a lot of attention. I don't know if the number would have been $7 billion, I have
no idea. But it would have deserved a lot of attention, even if we
didn't have this bigger problem. But we do have the bigger problem, so that reinforced their judgment even more.

Senator RIEGLE. I mentioned to you yesterday some data in yesterday's Wall Street Journal about the fact that the middle class is
shrinking, which concerns me a great deal, and I am going to give
you two sets of statistics which I mentioned to you yesterday, but I
wouldn't expect that they would be fresh in your mind today, out
of the Wall Street Journal article yesterday. I am going to ask
unanimous consent that it be put into the record at this point in its
entirety at the end of this exchange.
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It says: ·
Statistics from the U.S. Census Bureau show that families with annual incomes of
between $15,000 and $35,000, using 1982 dollars as a base-

In other words, they're holding it constant herethat families in that range of from $15,000 to $35,000 made up 44 percent of all
the families in the United States in 1982, but that has dropped from a figure of 53
percent, where it was in 1970.

So this band of people with incomes adjus_ted for inflation
and so forth has been shrinking from 53 down to 44 percent over a
12-year period.
Now some people say that if you tr_y to define the middle class as
including people from $15,000 to $35,000, that's not the right
income band to pick. So if you take a different income band, which
is $15,100 to $25,200, and you use that as your definition of the
middle-class income level, that group also has been declining. It
has gone down from 28.2 percent in 1967 down to 23.7 percent in
1982. So what we see is, we see that sort of middle-income band
shrinking as a percent of the population.
I'm deeply distressed about the data, because it confirms what
otherwise we're seeing in many forms in the industrial base, certainly in our State, and so forth, what are the implications of this
in your mind when you see data like this from the Census Bureau
that shows that the middle class is shrinking proportionately in
our population? What does that say to you?
Dr. SEGER. To begin with, I had a second yesterday to take a look
at the article you mentioned. Apparently the article indicates that
economists who are demographers have split opinions about the
meaning of this report; that was pointed out in the article. Obviously I think one of the great strengths of America has been a
strong, big middle class. We both agree, it has certainly been that
case in Michigan.
I think, though, if you look in detail at the numbers, the reason
that the middle class has shrunk-whichever set of data you use,
and I looked at it very quickly, so I didn't memorize the numbersto that there was movement from both ends. It was shrinking because some people went out of the middle class and went into the
higher end. Others fell out of the middle down to a lower range.
We've had a lot of people in this country-and I say this as a working woman-who have gone from middle class to higher class incomes, because they've got two wage earners in the family.
More women are working; more than half of adult women are
now working. Also they're having opportunities to work in more
professional kinds of jobs, which we both know.
There has been the shrinkage for two reasons. One is people
having a higher income, going out that route. Then there are the
others that have gone the other way. Also, as I recall, going
through it very quickly, those data are for 1982, when the recession
was still on, and it was a very severe part of it. I would think, if
census were to redo those numbers in 1984 and maybe eventually
they will-that with people called back to work, with longer workweeks, with overtime pay, that that will help flesh that so-called
middle class out a little bit from where it was in 1982. I don't know
if it is going to pop back up to 53, or whatever.

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Senator RIEGLE. I think the direction you're going here-I just
want to tell you directly-I find troubling. Yes, there are some
mitigating circumstances. Yes, you can put a good face on these
numbers, and you can sort of start there.
Dr. SEGER. I didn't say there was no problem.
Senator RIEGLE. I know, but we haven't got to the problem yet.
Everything I've heard you say so far has to do with sort of saying,
you know, there's a good side to this problem, or if you're going to
talk about the problem-Dr. SEGER. That's not good, but it is an explanation of a part of
the story of the shrinking middle class.
Senator RIEGLE. What I'd like to do is hear your thoughts about
the problem part of it. That's really what I'm interested in hearing,
if you think there is a problem part. Maybe, in a sense, in your
mind, it's all these other factors that sort of explain it away, and
basically, you end up saying this is no big deal. You're certainly
entitled to have that view, if that's your view. That's what I want
to understand, OK.
Dr. SEGER. On all these things I've never said there are no problems. I've just tried to be a fair analyst who looks at everything
and doesn't try to hang any numerical change on one factor that
may pop into my head first. I tried to get a fair assessment.
Senator RIEGLE. That's fair enough, but I want to do-what I try
to do is I try to get you to your bottom line, what I understand is
your bottom line, and then we can sort of back up and find out
what makes up the bottom line. The way you tend to respond is
that you tend to respond by providing a whole balance of factors;
we may or may not get to the bottom line at the other end. So
what I have had to learn how to do is, I have had to learn how to
listen to the way you answer to decide qualitatively where you put
the most emphasis, because those are the things you tend to talk
about first; the things that you put the least emphasis on, you tend
to talk about last. That's the pattern I'm getting over 4 days worth
here. The way I try to structure my question to you is, if this is a
real problem for the country, there are a lot of people alarmed
about it, I happen to be alarmed about it, I wanted to find out, as
an economist, and as a person coming out of Michigan, whether
you see this as a problem that you're alarmed about.
The headline on the story and the reason it is a lead story on the
Wall Street Journal of yesterday is that this is a very important
national topic, that this is not just another magazine. This is the
Wall Street Journal.
Dr. SEGER. Isn't the next line "Economists split over importance"
or something like that?
Senator RIEGLE. Yes, it does say that. It says "Is the U.S. middle
class shrinking alarmingly? Economists are split." Well, I don't
have 10 economists at the table; I only have 1, and you're the one
that's being nominated to the Federal Reserve System and I want
to know what you think, and I don't want you just to rehash what
everybody else thinks. I'm not interested in hearing that, because
I'm not putting everybody else on the Federal Reserve Board.
You're the only person that's going. So I'm interested in your
views, and I have no problem sitting here, as long as you want and
listening to you sort of playing back to me on this side, some people

36-314 0 - 84 - 19

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think this, and on this side, some people think that. What I'm
really interested in is, what do you think? What is your bottom
line? What is your judgment? You're not just starting out. You're
at the same point on your career, in a sense, that I am, so you've
got judgments that you formed over a period of time. This is an important issue. And you come out of what used to be the Nation's
breadbasket, so you ought to be loaded on this issue. You ought to
have some very strong opinion, in my view, and you ought to know
why you have it.
So when I ask you the question, I don't think-I mean, it's not
an effort to try to sort of take you into an area where I don't think
you should be prepared. I mean, I think you should leap at a question like this, and I think you should have feelings about it, and I
think you should have some basis for what those feelings are based
on. So I'm a little surprised when I pose a question like that, because, frankly, this is a home run ball. This is what we refer to as
a home run ball. Somebody who is a witness, you take an issue that
presumably they ought to be right square in the center of, and you
give them a chance to knock it right out of the park by giving
them a wide open shot at the question and not trying to lead them
to this answer or that answer, or what have you. But when you're
served up a question like that, it ou~ht to be kind of a meat and
potatoes answer for you, and you don t have a judgment to express,
that concerns me, because that's one of the things that presumably
you can take to the Board, that the Board doesn't now have.
It goes back to this regional representational question. Coming
out of a Michigan perspective, you or I or anybody else who is an
economist and who deals with numbers, financial trends, circumstances, wage levels, a whole mix of factors, who doesn't have an
opinion, I mean a qualified, substantive, solid opinion on this issue,
then I would question whether we can make the contribution
there. That's the point I'm driving at.
So I don't want a rehash of the article. I want to know what you
think. I want to know what you've seen, what your sense is. I want
you to take me as far as you can into whatever your own personal
opinion is and what you base that on. That's what I'm looking for.
Dr. SEGER. The reason I mentioned the other material was to
narrow down what I thought was the statistical size of the problem. Having said that, I am very concerned. Those specific numbers are 1982 as I recall.

A big part of the problem of the shrinking middle class, is the
trend in unemployment in the industrial heartland, smokestack
America, whatever you care to call it. Many of the people who
have been laid off because of the factories closing for cyclical reasons or for longer term structural reasons were ones who were
firmly implanted in that middle class: steelworkers, autoworkers,
other kinds of manufacturing employees, and many of those are
now part of what I call the structurally unemployed. That structural unemployment does show up in various numbers, including our
unemployment rate, but it also shows up in these kinds of statistics, income distribution numbers.
Digitized by



AB I said, I am aware of it and I am concerned about it and it is
one of the problems that we bave to deal with as a Nation, not just
in isolation, but because it's tied to this bigger problem that we've
discussed before about the health of our basic industries.
[Article from the Wall Street Journal follows:]

Digitized by



Population Puzzle
Is the U.S. Middle
Shrinking Alarmingly?
Economists Are Split
Decline of Smokestack Firms
And Rise of Service Units
Seem to Spur the Trend
Effect of Two-Income Home


By VrCTOC F. 2'aiAHA
Sr.JI~.,,._ W'AM.&ftaSl'JOUIUolAL
JOHNSTOWN, Pa.-Unlll rece,tJy, Kmll
Clllllidffld Futu
at me of
A lhlrd-eoneralkla
Bethlebem Slftl CO.'s sprawl!Dr tnstalla·
$30,000 a ywuons here, he wu
wllen lhe cote oven he worked at doled in
Alter more !hall a year of unemployment
and • brief llint Rll!Dr ncuum cleaners
door to door, Mr. Farkas recently landod a
Job u a clerk In a men's clolhlDr IICre m
Jolmltown's tidy Kain-. Tllere, Ule 51yuNJld latlJerol lllreell1'11cf Ille mlnlm1m1


- . SU5 u bow-.
" lt'1al11r-,0 Mr:,_-.
' 'We can1albdtoIVoattooa11111,J11101'e.
car every
Alld we """1 be 1'1t111r a two years, eltller." .
1111d 11emocnpilm,
Saine palnllDf to Ule pllpt al lnmdreds of -

N.,_, reply -•odl-.e ans·
.. director of
l)'sts. Fabian Unden, -

UleConferellce-..i•s ~ -

Center, blames Ille lllalilllcs hldlcallar •
lhrtnldnr middle clsss III lal1' pan .., aw
_...,. baby boom. TIie )'QIIIJ baby
boomers eatertnr Ille work l<lrce In rec,m
years haft ffelled Ule ranlla of low·tncome
h.....-, be says. As tlJe baby boomers
rrow older, their incomes 'll1ll rise, be


Pn>f. Thumw dlsputes this reasonln(.
"Thert ls oo rtuon to belle-.e tlJat bulllc
more mldmort older people will
dlo-clus jobs," he says. "AD tncreue In
supply _,,t lead to an Increue tn de-



One democraphtr wbo . c1a1ms to be
above ldeolOC)I, Bryant Robey, edltor of
American Demorrapblcs ma,utne, says,
"There's still a middle of the rood, but more
and more people are off m Ule iboul·

Women"s Rele
Mr. Robey believes that tJJe primaJy
cause of the income SPIit ls the tn,nc1 inWard

more women in Ille wor1< force. ''Thole wttll
more education and a husband sliDlllcanUy
boost family eamtngs." be says. "'l'bm,
wbo havt Im educatloll and are dlwn:ed
have lower nrnlnp," tncreumr t1Je 1111111ber o1 knr·tnccme
l&lldl -al dllplaced - - Uu Mr. Fanu, 111 U1e - · · middle
Of all tlJe lamllles below U1e C.... Bir
clus ls lllnntlllc, apedally In pw:,,s Jae reau's
tbresbold in 11112. a ll&r1llnf •
Indeed, 11a11st1ca !l'om Ule U.S.
beaded by women. Of au tJJe lllnl·
Census Bureau sbow Ural lamllles with an- lies were
headed by women In 1982, more lhu
nual eamtn,s of between l15,0IIO ud $35,000 one-tlltrd UYed In poverty. Natlonwtde, lhe
(uslnf 11112 dollars u a bUll) made up ..,. bureau repol1ed an 8.1% rise In lhe poverty
in population during 1982, in 3U mllllon. '!'bat
of all Iamlllel ID 1112, down !l'om 1970. Other ec:onom1rts lDllst U1e mlddle increued tlJe poverty rate to IS%, tlJe blet,cJus ls alive and well. Tirey attribute any esr such rate since 1966. The poverty tllresh·
perceived decline In mlddle-lDc:ome families
•.Id In 1982 for a family of lour was $9,862;
in democrapblc 1ac10r1 Urat 'll1ll tum
figures for l!ltll aren"t yet available.
rather Uw, to IJ"OUlld,
Bui conservatives dispute Ule llanlfi·
ea.nee of these statistics, espec1a.Uy 1n an
election year when Dernocnus are expected
TIie _ , bas spllt-alanr po- io malce an Issue of " fairness" in such matlitical lines. Generally, llberals accept tlJe 1ers. Thomas Moore, tlJe director of domes-of llllrllltlDrmlddleclaa.AJeadlnr tic studies at the Hoover lmlltutlon at Stan·
ls Later C. Tlrurow' ford University, argues Iha! povtrty stalls·
expanmt of 1h11 des overstate Ibo number of poor people beaneccamnlcl
.,Teclurolclo,·111111 ·callaUle cause
_ .pnleaarutJJeKuaadlu_
researchers don 't add in such DIIIICUb
. , . , . . _ . . , . _ . , CIIIICl!lll far Amm· beneflls as food stamps or MedlcaJd when
calculalinf lamlly lneonm.
can polhlcal dl!mocncy.''


What Is Middle Cius!
Cloudlnc Ille debate la tJJe lnablllty of
economists to settle on a ddnfUon tor the
middle class. People ...,.,.Uy think o1
themselves as mlddle cJus unless Urey are
paupers or mlllllJllalres. Aud IOCloloclsta ol·
ten dlYide the •ut middle clssa into upper
and .lower strata. But many the mcome ca1-r of SlS,000 to IJ5,0IO a
year for lhe middle cJus becauR S3S,OflO la
a Cemus Bureau break point In caJcwaun,
lncomt distribution. fl'be M1t. and bJpest,
breall point ls SS0,000 and above. Famllles
eanunr SS0,000 or more a year climbed in
II% of the popul&Uon In 1982 from ,,., In
1970, us Inc 1982 dollars u a bull.1
Another commonly used dellnJUon of lhe
middle clus ls housebokls wtlh Incomes between 7S<;. and 12S'I', of tlJe median. '!'bat
would bracliet lhe middle cJus between SIS,·
100 and S2S.200 in 1982. By this measure, the
middle clus has f)lo beeJJ decJIJllnf, in
abou1 23,7'!. of boulellolcla In 1982 lrom
m 1967.
Those wbo C0IISlder lhe middle clus to
be declininc often Ilnl< lhe trend to the c1ec11ne in smokestack industr1es and the rise
in the service sector. "Hlp-teclmo!oey tndustnes sucb as mlcroeiectronJa tend in



Digitized by



have two ltveJs of i.ncome distributions" high ror en(ineers and other profrs.sionals
and low for assembly workers, says Prof.
Thuro••. In contrast. sucll s mokestacl< ind us·
t."ies as automobiles, steel and machine
tools have been "repm;itortes of middle-class
JoUs." he says, "and when they s hrink, the
middle class shrinks with them. "
People employed in producing durable
roodsmalteup ll"l, oftheworJ<lo n:etoday,
down from 13% a. decade ago. Meanwhile,
theservicesse ctor. characteriZ.edbyuneven
income distribution, has been gaining. An
example is the fasl ·growtng medical Indus·
try. which includes brain surgeons as well
as crderlies. Another is the fast·food indus·
try. with a handfuJ of well-pa.kl executives

Whether this Is really a rec:ovtry," says a 30year-okl unemployed ri veter wbo doesn't
want his n ~ used beca use he is emba~
..-....d by bis pllgl>L "There 's a difference
-bttwtt11 ~ng a Job and malc!ng a Uvlng,"
he adds. He made Sll an hour at a Bethle·
hem plant.
His compllllnt Is heard often by COW1·
selors at Mainstream Access Inc .. a firm
here that ttaclles Job-hunting skills to laid·
oU worktrs. " We get a Jot of poople w1>o 1
say, 'That job isn 't worth my while; It only
pays S5 an hour.· ·· says Ann Homer. a
counse lor. " They usually come bacJc tn a
month or twu and say, 'WeU, I'll consider
it.' "
" The polarization here Is alarming,"

says William Pilder, managing panner of
Johnstown is being
and legions of minimum-wage hambuJ"&'er Mainstream Access. relatively
well off resplit iDto two camps:
and pensions allow
"For RTVices as a whole.
portant observation Is tha1 there tends to be
a concentration of employment in bftterthan-average and poorer-than-average
Jobs, " says Thomas M. Stanback Jr. in his

book "Services : The New Economy."


Some who suUscribe to the view that the
middle class is shrinking predict cenain
consequonces. Candee Harris, a Brooltlngs
lnstJtution research analyst, says the trend

will spur low-income workers. such-as secre·
tanes. to unionize. Sbe fears that increasiJ'lg
competition for high-paying Jobs wUI lead to
" more conflicts in the lower economic
strata." As evidence. she cites the violf."nce

that occurred last year when Greyhound

Corp. tried to replace strtkine drivers with

newJy hired workers.
loimstown,. •where a forerunner of the
Bessemer steelmaking process was devel·
oped In 1858, has long been a magnet for

succeedinf generations of German, Welsh,
Slavic and southern European Immigrants

with mlddJe.class. aspirations. In the last

crntury. the city bas weathered three catastropluc floods; now. ft is strugrling to over-

come the woes of us steel and coal lndus·

them to enjoy a high standard ol living here.

··a groWine number of very poor people
who don 't want to leave the area and aren 't
wtll employed," Mr. Pilder says. Hf says a
si milar phenomenon is occurrine in other
old induslml towns such as AUoo, Ohio,
and Gary. Ind.
Polariza tion Is also occuning In major
urban centers such as New Yoric and San
Francisco as the middle class 1s forced out
by the high costs of housing. In San Fran·
cisco. Rick and J ean Williams: for example,
own a SlS0.000 home in a fonnerly working
class neighborhood. They can afford
neighborhood With their combined tncome of
over SS0,000. He is a research attomfY for
, the ca.Itfomia Court of Appeals and she ls a :
oman at ~acy's.
j saJesw_
. While people like the WIJl iarnses are pro- 1
pelled above the middle class by their two
Incomes, some working-class families are
propelled into the middle class when the
~~!11an goes t~ work. It all goes to show that
.1t s very dJfflcult to draw ~eeprng conclu·
sions on the fate, of the mu!dle class from
lhe data we have," says Gordon Green , a
Census Bureau demographer.

Local employment In ·those fields has
plunged to 12,000 from about 40.000 in the
tarly 19505, says Bill Findley, a labor-mar·
ket analyst With the state's Bureau of Em·
ployment Security. "Johnstown Is In step
With the nation 's transition from a goods·
producing economy to a service-producing
fCOIIOl'Tly." be says. ·
Job growth Is concentrated in such low·
wa,e , fields as health ·care, retailing and
food service. " We're talking about joUs that
pay anything from the minimum wage to $5
or S6 an hour. With few or any benefits," Mr.
Findley says. In contrast. the average wage
In Jobnstown's metals Jndustry Is $10.SS a.n

>,,; a result, thousands of unemployed
Bethlehem and U.S. Stttl Corp. workers
here face th• prospe<:t of a permanently di·
mlnished standard of living. ''There are joUs
startlnc "' pop up, but the wages and hen ..
na are so slclmpy that you've got to wonder

Digitized by


Senator RIEGLE. Do you know what the m~rchandise_ tr~de deficit is running at on an annual level basis at the present time? Dr. SEGER. A little over $100 billion.
Senator RIEGLE. It's about $130 billion based on the most recent
data. We're on sort of an exponential curve here so we're up. The
first estimate was that we might break $100 and the next estimate
was that we might break $120. Then the next estimate was we
might break $130. Now the talk is, based on last month's numbers,
we're running at about $135 billion level.
In other words, it's changing so fast that even an economist like
yourself who pays attention to these things-Dr. SEGER. I'm sorry. I hadn't taken just 1 month and multiplied
it by 12.
Senator RIEGLE. Yes, but the most relevant information normally, unless you've got some reason to think that the most recent
month is an aberration if you're on a sharply rising trend curve,
the most recent month probably tells you a lot more than the
month 4 months ago, especially if they all show this number sort of
breaking out and going higher and higher. And I can just tell you
that the serious economists in this town are concerned about it.
They are very concerned. They're more concerned today than
they were 3 months ago and stories are being written about that. I
don't know if you've been reading those stories or not but there is a
genuine sense of alarm about the size of the merchandise trade deficit and how rapidly it's increasing and no one knows quite what to
make of it because we've never been there before.
This is a whole new kind of problem for the United States in
terms of this scale of problem. So now we are finding roughly $135
billion. If we stay at this level for a 12-month cycle here, leaving
the country, I mean, it's like equity going out. Some of it comes
back in the form of loans which is of course debt rather than
equity and we are finding ourselves not just losing the value added
in this economy, so it's not just the sum total of the $130 billion.
It's the stream of what that money would otherwise do if it were
kept in our society. It's an enormous problem. It's one that I am
personally extremely concerned about in terms of what it means
for the future of the country.
It's part of this story. One of the reasons the middle class is
shrinking is that those are the jobs that are disappearing.
Dr. SEGER. I said that was part of the problem in smokestack
America. I didn't specifically go into that, but that is one of the
Senator RIEGLE. And I'm taking it the next step because the merchandise trade deficit now having achieved this level and rising as
sharply as it is, taking this money out of the country is creating a
problem where in order to get the money back interest rates have
to go higher because, if interest rates aren't higher, if we're not
successful in the bidding that has to go on for the capital that's
floating around-now you start connecting all of these things and
we find ourselves in ap od4 situation where we are becoming a net
borrowing Nation. A strange condition for the United -States to be
in. As our savings rate is low we're spending more money than we
can afford, including a massive Federal deficit that keeps piling up.
With all of the Federal debt refinancings that are coming along

Digitized by


and we've got to finance the trade deficit, suddenly we need money.
More money than we are able to generate in our own society.
So we are borrowing it from the rest of the world at very high
rates. Fortunately for us at least they've been willing to loan us
the money so far, so we haven't run into a crunch where suddenly
the whole thing stops because we can't get our hands on somebody
else's capital.
It may stop. There's great concern, as you know, as to whether
the value of the dollar might change and even with high interest
rates, we may not be able to attract as much capital as we have.
I take this time to say this because all of this winds right back
around to the Federal Reserve Board table where it is proposed
that you will sit. Again, I'm not sure today around that table that
all these relationships are being interconnected. That people are
putting it all together and sort of taking it all the way back
through the chain of commerce, taking it through value added,
taking it back to smokestack America. Taking it back because I
have a feeling that these problems are so big, and they are so new
and different, that the textbooks and the language-none of the
nice handy techniques for dealing with it have been invented yet
because the problems are of a different scale and a different type
and are overtaken by new realities.
My hope is-and I talked with Paul McCracken about you yesterday. My hope is that rather than have somebody who would show
up at the Federal Reserve Board who is there with sort of a smattering of a lot of different sort of economic information, sort of
little bit of supply side, little of this, little bit of that and so forth.
Some of that is fine.

If somebody is going to come out of our region I want them to be
able to walk into the Board with some insight and some perceptions that relate to this whole new profound, interconnected set of
problems. But I don't see much evidence that the Fed today recognizes or understands or is necessarily taking account of and if you
weren't in there to sit down representing our region and couldn't
reflect those new realities in a way that would help them start' about these problems differently, then in my view you
shouldn t be there because that's the value of having somebody out
of our region right now and that's to take these kinds of things
that people are struggling to try to sort of quantify.
This also leads back to another question. When I asked at the
outset of the hearings, you know, the things that you might have
written, I asked you in person; I asked because I really wanted to
know and I want to know today because I'd like to find out that
you've got some views on the problem.
I'd like to find that you've been concerned enough about it that
you've done some digging on it. That maybe you've given some lectures or some speeches or you've written an article, or that you
have an informed view because that's what has to be taken into
the Fed Board. So I wouldn't have to ask you about it now if I
knew it or if I had read it a week ago and so forth. We could be
talking about something different. In fact, we wouldn't be having
Digitized by


the hearing now. We'd have been able to wrap it up a long time
I think you have an affirmative obligation to make sense out of
these kinds of things coming, as you do, from where we do if you
are going to take this job. I feel very strongly about that and it
wouldn't matter who else was coming out of our region. I would
have exactly the same expectation and requirement.
You happen to be the person that was nominated. It could have
been somebody else from some other part of the State. But this is a
requirement I think you carry with you. So I think you've got to
try to make some sense out of this. The Ph.D. and the business experience that you have and what you've seen in your personal life
and the way you've come along, you ought to be able to make as
much sense out of this today as anybody. Even if we are having to
invent new ways of thinking about it. Invent new language. Invent
new concepts to get outside of the rigid talk that other people have
been peddling for a long time that may not fit the new reality. So
that's the obligation that I see you as carrying and I might say to
you I carry the same obligation only in a different job responsibility. I have to try to make sense out of these new things the same
way you do.
So I take the time to explain this to you because if you don't see
what I'm driving at, we've spent a lot of time here for nothing. We
must deal with the requirement to be able to make sense out of
what's happening in our region in a way that reallr would let you
make a contribution to the Board. I don't think you re there just as
a traffic cop. I don't think you're just there as one more vote on the
margin to sit through the debate and be a pleasant person. I think
your requirement there is to go in there and take something that's
fresh and solid and meaningful and insightful with respect to our
region of the country.
One R_iece of it has to be this. You don't have to take it from me
that it s an important issue because I don't do the copy assignments for the Wall Street Journal. When the Wall Street Journal
is writing this as a lead item in their newspaper it's because it's an
important problem. Therefore, it's one that I think you have the
responsibility to be out in front of and not sort of trailing along
somewhere behind, you know, just having general familiarity. I
think you've got to get into these things.
Do you think banks today can be profitable if they stick to their
traditional lines of business? In other words, my question is
this-Dr. SEGER. New bank powers.
Senator RIEGLE. I'm asking from the point of view of profitability. Can a well-managed bank in today's society go out and do the
traditional banking functions and be profitable? Or in order for a
well-run bank to be profitable today, in your mind, does it have to
be given new kinds of business in which it can go and earn the
profits that it can't earn by traditional methods?
Dr. SEGER. I think banks have to be given some new powers. The
exact extent of the new powers and the exact nature of them and
the importance of those powers to the profitability of the banks, I
think, is very closely related to the type of bank it is, if it's a regional or an international bank or if it's some little bank, say, out
Digitized by


in a rural area in Michigan. They probably wouldn't take advantage of a lot of the new powers if we gave them to them because
they still have a more traditional way of operating and that's OK.
Many of them do very nicely. They have good profit margins and
they are solid as a rock, so to speak.





But others, some of the bigger ones, particularly in the larger
cities, are the ones that I think have felt more of the competition
from outside banking. That's where the lines are crossing and in
those areas they do need the additional powers so they can compete
effectively with nondepository institutions that are coming in and
trying to offer what we used to think of as bank-type services.
Senator RIEGLE. I'm not clear on this. Let me try to get this clear
in my mind.
When I think of the traditional lines of banking in terms of commercial lending, personal lending, home mortgages, the kinds of activities we normally have associated with banking, if I take those
lines of business and on the other hand I take certain advantages
that banks are given, deposit insurance, the Federal Reserve
window, the multiplication of reserves to create lending power. I
take tax treatments that are unique to banking. I take all these
things and say to myself, a well-managed bank-I'm not talking
about one that starts with huge problems from predecessor generations-but a well-managed bank it seems to me ought to be able to
make money in a deregulated interest rate environment. You
know, you pay more, you charge more. That's sort of the way
things work in the retail business, whether selling T-shirts or selling credit. A well-managed bank ought to be able to be profitable
in the traditional lines of work without having to branch into
whole new lines of business because if you carry that argument far
enough you could say, well, sporting goods, for example, is a good
business so let's get the banks into the sporting goods business. Or
long-term health care facilities because, you know, they can't make
a profit that's required in the other area.
Tell me why it is in your opinion that banks can't be profitable?
Well-managed banks carrying out the traditional lines of business,
and I'm talking about banks generally. Obviously they go from Citicorp down to the small bank. But I'm talking about taking the
whole range of banks as such. Why can't they be profitable if they
are well managed.
Dr. SEGER. You referred to deregulation. I was in favor of deregulation and still am.
One thing deregulation brought about is a major pickup in competition. Furthermore, deregulation has led to a narrowing of what
we call the net interest margin, the gap between the interest that
is paid for funds and the interest that's earned on loans and investments. This is a very competitive environment, you know. When
you go to make a loan there are other people out there, other institutions out there that are also willing to make those loans; it's a
dogfight. This is leading to a narrowing of margins and those narrowing trends show up, by the way, in industry statistics. It's not
just for a bank or a couple of banks. There is that aspect.
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In order then to compensate for this narrowing net interest
margin, the banks are having to try to earn more of their income
in the form of fees for services, because the way they will cover
their noninterest expenses-which are wages, property taxes on
the building, lights and all those-is to generate this fee income.
The big push, as I see it, is to have new opportunities for earning
those fees, and that is basically the statement of the problem.
Senator RIEGLE. If banks can't be profitable in the traditional
lines of business, there's two ways we can approach it. Net profit.
I'm not necessarily at the point where I'm prepared to buy the
premises that they can't be profitable and successful. I think that
most can and many are. Obviously, if you go through a transition
from one sort of historical level of interest rates and ratchet up to
a new level of interest rates, you're stuck with obligations in the
lower rates, like mortgages. That's a special issue, but I'm setting
that aside here and talking about a bank that isn't saddled with
decisions of that kind. I'm talking about whether today, starting
from scratch with the advantages banks have been given, could
they be expected to be profitable in well-managed traditional lines
of business.
My basic judgment tells me that they ought to be able to; perhaps I'm wrong, but let's say they couldn't be, which seems to be
the proposition you're arguing. You're arguing, competition has
gotten so tough from nonbanking sources, that a well-managed
bank today can't expect to be profitable in the traditional lines of
business. That I take it is your assertion.
Dr. SEGER. Definitely. They would be less profitable in this environment and perhaps unprofitable; many would be unprofitable.
Senator RIEGLE. They would all be less profitable, and some
would not be profitable. So help me a little more here. I mean, 10
percent wouldn't be profitable; 50 percent wouldn't be profitable or
90 percent wouldn't be profitable? Just give me a rough sense as to
how you see that. Is it just impossible, or do you think most of
them would be profitable, but maybe not at the profit level they
might like?


Dr. SEGER. We've already seen their overall profitability shrink
in the last couple of years. That's been an industry trend-not just
net interest margins, but looking at, say, the broad measures of
profitability, such as returns on assets. Those numbers have been
skinnying down.
Senator RIEGLE. Let's say, if it's your feeling that in the traditional lines of business a well-managed bank can't be profitable
enough, either because it's not making any profits or because it's
making less profits; something's got to be done to improve profitability. It seems to me that there's two ways you can go. Banks perform a service. They are special. That's why there are all kinds of
special features, including deposit insurance, which we don't give,
for example, to Merrill Lynch. If Merrill Lynch wants to make a
loan to somebody, fine, but we treat banks quite differently, and
properly so.
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It seems to me that if banks on balance need to be more profitable, there are two ways we could do it. We could help them in some
fashion, for instance, tax policy, paying interest on reserves, various things trying to strengthen their profitability. That would be a
way to get their profitability up if that's perceived as the problem.
Or we can say, "Look, you can't be profitable in traditional lines of
business, so we're going to let you, even help you, go into four or
five new lines of business." Maybe it's selling corporate securities,
or underwriting corporate securities. Maybe it's the real estate
business, or maybe it's selling dogfood. Whatever it is. But in some
way to go out and increase profits, presumably in a way that
doesn't create a problem of safety and soundness, doesn't impair
the public confidence in terms of the security of the money in the
banking system, and so forth and so on. And, of course, not too
much financial concentration. We don't want to imitate the Germans with a handful of banks rather than a nice diversified system
that we've had in this country.
Why are you automatically persuaded, or why are you persuaded
that the way to go here is to move them out into new lines of business, whether it be in the securities area or some of the other areas
we talked about earlier? What h~ prompted you to decide that
that's the route to go rather than the alternative I've described
which is that: If the banks have a profit problem, there is another
way to fix it besides moving them off into other lines of business?
Dr. SEGER. Two reasons, basically. One is, using your example of
Government aid of some sort, many banks already have a relatively low tax bill, so we say, because they hold municipal securities, or
they have a lot of leases on their books, or they've got tax credits of
various sorts.
Senator RIEGLE. Many banks pay no taxes.
Dr. SEGER. We're not on different sides on this. I think the latitude for assistance in that way is probably limited. The second
thing is, I really believe, as a public policy matter, that giving
banks more powers in those areas where it makes sense-and as I
said, I've never written a long list that lets them do everything,
sell dogfood or run an auto repair shop; that's never been part of
my view-in areas that are related to the things they do now, that
they have the expertise to do, that do not violate the safety and
soundness standards is good, because it also means more options. If
they're supplying these services, it means more options for individuals like myself..
Senator RIEGLE. OK. Let me ask you this question. I see what
your logic is. If what has happened is that the competition has
come along, and is so tough, so skilled, or somehow, more effective
that it has whittled away the profit margins of all the traditional
lines of business within banks and the banks haven't been able to
figure out how through greater efficiency or whatever, to control
their profit margins, so their profits have been eaten away in those
lines. Why isn't that same thing goinr to happen in the new lines
of business? If, in the area where they ve pad the greatest- expertise
and the greatest experience, their profit margins have been whittled down to the point now where we're prepared to say that they
can't be profitable enough, why isn't precisely that same thing
going to happen in the new lines of business that you offer them?

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Dr. SEGER. If I may use my example of underwriting municipal
revenue bonds, I think if the banks were to be allowed to enter this
arena, that, in fact, there would be some squeezing of what are now
maybe typical fees that are paid by municipalities for these kinds
of financing. That's a plus for the municipality, but I don't think
they would be squeezed from today's levels to almost nothing.
Senator RIEGLE. What does it do for bank profitability?
I mean if they come in and they're not competing against other
Wall Street types who do the revenue bond business, and they're
going to try to come in, and they're going to try to offer that service at presumably a lower price, a better service and get it, why
aren't the Wall Street people-they're going to fight back. They're
not going to give up this business without a fight. They know the
What is there to suggest that there's some nice, neat incremental
profit margin to be made in what will obviously be an intensely
competitive business, especially the prohibition on any tie-in relationships, so that somebody doesn't have to strong arm to have to
deal with the bank because of their techniques of credit relationships. But assuming all that's ruled out, why aren't we likely to
find that even if the municipality out there gets a somewhat lower
rate, and you might want to argue that, but that they're just as
likely to get the lower rate, because the margins won't go down in
terms of the guys who are now doing the business rather than the
banks coming along and, bang, moving into an area that they've
not been in, and somehow they're going to be able to come up with
a whole new profit margin that nobody else has been able to find.
I am wondering if there is a pot of gold down that track. That
really is my question. If there is, why do you think there is. Explain that to me.
Dr. SEGER. I don't believe I used the words "pot of gold."
Senator RIEGLE. No, that's mine. We're trying to beef up net
Dr. SEGER. Giving them more powers of a limited type, gives
them an opportunity to earn fee income. Even if the fees on such
things as underwritings or discount brokerage, would be less than
they are today with the banks outside of that market-I can't
prove this, of course, that the market is so limited that having the
banks enter it would drive the fees from something to nothing; I
think the banks could still earn fees on this kind of business.
Senator RIEGLE. Presumably, they might be able to do so, but the
question is, if you look at that fee as a percent of the assets of the
bank-Dr. SEGER. I'm not looking at it that way.
Senator RIEGLE. But you have to in the end, because that's what
determines the question of whether the increment of profitability
has really improved your situation, because we're starting from a
premise that says banks today can't be profitable enough in the
traditional lines of business off their asset base.
Now we're saying, OK, we're going to give them new lines of
business to get in, but there are costs associated with that, so
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they've got to devote a certain amount of resources of the bank to
go into the new line of business, management, building, utilities, as
well as the direct costs, and so forth.
So the premise that you're advancing is that there's new profit
there. There's profit there that is greater than the relationship to
assets, the profits that they're now able to earn on the old lines of
I want to know what you base that supposition on that there is
this differentially higher profit margin, in terms of utilization of
asset and a new line of business that's going to solve their problem.
Dr. SEGER. The kinds of powers that I'm talking about are ones
that I support based on my experience in banking, which certainly
does not include working for 15,000 banks but only for two. These
are powers that involve activities that I think are sufficiently closely related to the kinds of things banks now do legitimately and legally. I hate to beat this example to death, but it's one that I
happen to know very well, because I used to work with bank investment people who did underwriting: The people wearing the
same hats, sitting at the same desks, in the same building, with an
MBA, can underwrite municipal revenue issues just as they've
been underwriting the municipal GO's. Maybe you'd have to add a
little more man or woman power, I don't know, but it's not like
starting from scratch. There are economies of scale her~, and I
think that, in fact, they would be adding more to their fee
income or their noninterest income-that's the way banks refer to
it-than they would be adding to their noninterest expense.
As long as that's true, if you add more to noninterest income
than to noninterest expense, then that's a net contribution to your
Senator RIEGLE. It's an interesting question as to whether or not
this is the degree to which we've got a bank profit problem and
what the bank profit problem stems from and how to solve it. And
you've presented some of the thoughts that you have on this issue.
I'm going to ask you one more question and then, as I say, we're
going to give you some questions to answer for the record.
If the Federal regulatory agencies are going to make ad hoc decisions to insure deposits above $100,000 for people that put their
money in the Continental Illinois Bank, shouldn't they do the same
thing for depositors-I'm looking forward now-who go above
$100,000 in another bank, the bank down the street from Continental Illinois, maybe First Chicago? Shouldn't it be true for a smaller
bank in Michigan or Illinois that has to go out and compete to try
to get the same $100,000 plus deposit, that they're going to try to
go to a city government or something that's got $150,000 that they
want to put in an account? Shouldn't all banks be on an equal footing with respect to at least deposit protection, so that all the rest of
the banks will not get aced out because you're giving special privileges to Continental Illinois that you're not giving to other banks,
particularly to small banks? They have a tough enough time as it
If we're going to extend that special privilege, shouldn't it be extended to all banks?

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Dr. SEGER. The way the FDIC operated in dealing with bank
problems, failing banks, until the Penn Square incident in 1982,
was basically to give full insurance protection to these accounts
above the cut off. When it had a bank that was in trouble, the regulators would try to find a merger partner to avoid a failure. If
that didn't work, the bank would be declared insolvent and the
FDIC appointed receiver.
The FDIC and other regulators would have other banks that
were somewhat healthier standing in the wings that would bid on
the carcass. We were really pushed to handle failure in this way.
We had this other institution assume all the liabilities of the carcass and purchase selected assets from it, and the FDIC would take
those that the acquiring bank didn't take. I don't care what it's
called, but the effect on the banking system and on the American
economy was to make our bank failures in this country painless.
If you think about it, this was not changing the insurance coverage and saying, "All deposits are covered in a straightforward
way"; but behind the scenes, we were really doing that. That was
the way it happened. Where policy really changed its direction
rather dramatically was the failure of Penn Square in July 1982.
Here's a bank that got into deep trouble, was closed on Fourth of
July weekend, as I recall, and there wasn't a bank able to assume
all those liabilities and to purchase selected assets. They just let it
go flop and, for the first time, in my recollection anyway, we had a
real failure.
People had money in Penn Square above the cutoff. Right in our
State of Michigan we had a number of credit unions, for example,
that were in there with several million dollars. It hurt when that
bank was closed and you discovered that deposit coverage is really
$100,000. It isn't for $5, or $6, or $7 million.
Senator RIEGLE. You know what the smaller size bankers are
saying now? They are saying there's two sets of rules here. If
you're a big bank like Continental Illinois and if you get into trouble, your deposits above $100,000 are going to be covered 100 percent which is a signal to all the people who have deposits to make
to dump them into Continental Illinois. Whereas the bank this
person would be speaking for somewhere else which is trying to
compete for the same money can't do so because they can't offer
the insurance above $100,000. So they lose that deposit to Continental Illinois and they say, wait a minute, this isn't fair. And if Manufacturers Hanover goes in the soup the same way at some point,
as some thought it might, and they get the same kind of treatment,
the big guys are operating under a different set of rules than anybody that's smaller. Doesn't that bother you? Don't they have a legitimate complaint? Or do they have to take a look at it and say
the world's not fair because they are not big and in trouble and
they have to work with a handicap that the others don't have to
work with.
Dr. SEGER. I certainly understand their gripes, their arguments;
absolutely. And as indicated when we were talking about Continental's situation, a liquidity crisis at a very big bank, one of the biggest in this country, is, as a national policy issue, or policy pro~

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lem, greater for us than when a $16 million bank in southern Illinois gets into trouble. I agree, it is not fair, but apparently, when
pushed to the wall with a crisis, decisions are made on a crisis.
Senator RIEGLE. And you are willing to accept that as necessary?
Dr. SEGER. I didn't make those decisions. But when you get into a
real crisis I think you do the best you can; not all decisions are perfect. There are trade offs. And at that point, I think they look at
the damage that would have been done by just letting this thing go
versus the issues of fairness and equity. The decisionmakers said,
''based on our evaluation of the pluses and minuses, we are going
to go with it."
Senator RIEGLE. What do you think this means today for somebody in New York, say, that's thinking about putting $1 million
into Citicorp or putting $1 million into a savings bank, or some
other financial institution, an S&L, or whatever, at a competitive
rate, an equivalent rate, in the State of New York. If that person
knows, based on what they've just seen in Continental Illinois and
what everybody who is in a position of responsibility says, "It's the
way the world is and you've got to face it that's the breaks of the
game and the world isn't always fair," and in a sense, you are signing on to that same philosophy with your answer, why doesn't that
automatically mean that that person, that decisionmaker with a $1
million to put in some depository institution, is going to figure that
there's no sense breaking this into a lot of different pieces? We can
send it over to Citicorp because Citicorp is as big as Continental Illinois, and if Citicorp gets into big trouble, obviously they are going
to take the same position that they took in Continental Illinois and
$1 million is covered. So I'm going to put it over there and I'm not
going to put down the street in the savings bank, or the savings
and loan or something else because the deposit insurance protection is going to cut off at a $100,000 there because these are the
small fry.and the small fry don't matter.
Now I think that kind of thinking is going on today and I think
if you and I were sitting there having to manage as fiduciaries for
a $1 million investment, we had to place and you wanted protection
on the full million, not just the first $100,000, you could break it
into 10 pieces and farm it around to 10 institutions or, because that
isn't even an ironclad guarantee if they all go down at once, you
might very well be better off to send it all down to Citicorp, because
'there is this great big neon sign which has just gone on that the
Federal Government regulators are saying, "Put it in the big guys
and we'll cover it all." And you are in a sense, affirming that that
has to be the case just as a pragmatic judgment.
How do we live with that in the future? I mean if that's going on
now, if that's the message we're giving and it's altering investment
decisions, where is the fairness in that? Don't we have to correct
this somehow?

Dr. SEGER. I thought I stated clearly, that it is unfair.
Senator RIEGLE. But isn't it distorting our investment decisions
as it relates to other institutions, not just Continental Illinois.

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Dr. SEGER. Of course the Continental incident happened rather
recently, a little over 1 month ago. I don't pretend to .have the last
word on this, but so far I don't see evidence of this happening in
the numbers.
An individual institution may be able to tell you that they are
feeling that, and I would certainly respect their knowledge of their
institution more than my knowledge of their institution. But I
don't think it shows up this soon in the broader numbers; I hope it
doesn't. It's too bad that kind of precedent had to be set, because
then it does raise these issues.
But the reason I mentioned the way things operated until 1982 is
that little banks, big banks, medium banks-everybody-was basically sheltered because of the wal a failure was dealt with, which
was as a P&A. As I said, we really went through a period, sir, of
practically pain-free failures and, therefore, a lot of people, big corporations, school districts, individuals-Senator RIEGLE. That's what we've got here now. We've got a
pain-free failure in the case of Continental Illinois for anybody
that's deposited over $100,000. I mean this is the very thing you
are worried about, which is now being perpetuated now in a new
Dr. SEGER. It was that way for everybody. There was no discrimination.
Senator RIEGLE. Now the problem is that it's just that way for
some and not for others. Intead of having that there for everybody,
it's an inequity that's there for the big guy and not for the little
Dr. SEGER. I don't run the FDIC but, as I have heard Mr. Isaac, I
thought what he was trying to do was to ultimately introduce some
discipline into the system.
Senator RIEGLE. But he caved in. That was the whole party line
until suddenly something happened that was so big that it didn't
work any more. So now you've got a double standard. The big guys
get taken care of and the little guys don't and, you know, I think
that's a legitimate matter of concern. I think you have some responsibility to figure out how to get rid of the inequity. I don't
think it's enough to do to just step back from it and say that's the
way it is and we are going to do something special for the big ones
and that that's going to have an impact on funding flows over a
period of time but that we're not going to do the same for the small
ones. That's not acceptable; is it? I don't think it is.
Dr. SEGER. The answer is once we get through this period of fragile confidence and near-crisis atmosphere, I think we have to deal
with the FDIC issue. How much insurance should be provided per
account? How is the insurance handled? Do we have risk-based premiums? Do we try to put more of a burden on the individual depositor who is placing these funds so that he knows that in fact
these are at risk.
All these kinds of things that were being talked about I suggest
are going to have to be put on the table again. Over these next few
months we are trying to limit the fallout, shall we say, of the Continental affair; then we can get back to handling the basic issues of
what we do with FDIC insurance. I'm not saying we can just walk
away from it.

Digitized by


Senator RIEGLE. Let me touch on one other item and then we'll
be finished here.
I've not raised this before and I don't think we want to raise it
now because it's not a pleasant subject to raise and it takes us off
~>n an entirely different road but I want to raise it enough so that I
can put a question to you and get an assurance from you.
In the past there have been times when you've gotten into sort of
a verbal slugfest with people and have made statements that have
been sort of questionable: When you were in your regulatory capacity in Michigan some critics were impunging your motives or characterizing your behavior in cutting personal terms. You are aware
of what I'm referring to, I'm sure.
And there are articles that I have seen and I have here where
you've responded in kind. In other words somebody's taken a swipe
at you. I think in a tasteless fashion, and you've responded to them
in the same vein and have been quoted that way, particularly in
one article here for example. It's in the Detroit Free Press, which
I'm sure you're probably familiar with.
The headline is "Bank Regulator Puts In Her 50 Cents Worth"
and it goes on in this vein. I'm not going to get into the characterizations here back and forth between yourself and anybody else,
whether it be legislators or interest-group persons. But I want to
say to you that I question in my own mind whether that's appropriate conduct. I don't have any reach over that because this is
when you were a State regulatory figure. So, this is sort of in that
ball park.
But I want to say to you that I think that kind of conduct is totally inappropriate. I think at this level in terms of both the Federal level and the Federal Reserve Board, no matter how provocative
a comment someone might make about you or is reported to have
made about you, I don't think that is sufficient grounds to respond
in kind.

I just would like to get an assurance from you that you see it
that way and that no matter how somebody else might choose to
conduct themselves and how excessive they may be in their language or characterizations, that you won't operate to that standard. That you'll operate to a higher standard.
Dr. SEGER. I can assure you that I would.
As long as you've raised the issue, I would also like to be given a
couple of minutes to explain it. First of all, it goes back to December 1981. Second, I was introduced at a meeting by an employee of
the Michigan Bankers Association. This fellow gave me a roasttype introduction, kidded me about being tall; kidded me about
eating too much. It was funny; people were laughing. The writer of
that article, sir, was not there. After the employee got through
with this whole long roast, including his characterization of me, I
stood up and, before talking about deregulation and some legislative changes in Michigan, in response to his roast humorously
spoke the couple of sentences which you have there.
If you just recorded what's on one of these TV roast shows and
then ran it as a newspaper column, I suggest to you that it would

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36-314 0 - 84 - 20


look far different than if someone said this at a roast-type introduc- ·
tion. This was a humorous response, two sentences worth. Then I
went on to give a talk.
Senator RIEGLE. I don't particularly want to dignify it by using
the quotes here, and I'm not going to.
Dr. SEGER. I'm telling you what the background is.
Senator RIEGLE. I understand, and I'll get to that in just a
second. I don't want to dignify this by including the verbiage as
such in the record here, because I think it's unworthy of the kind
of hearing that we've been conducting, but I think the larger question of the characterizations and the choice of language of the characterizations is important, profoundly so, at the level of the Federal Reserve Board. Whatever anybody else might do isn't necessarily
a justification for somebody else to do something, I mean, you
know-Dr. SEGER. That's what I argued; I'm just saying it was humorous.
Senator RIEGLE. Well, I don't know whether it was humorous or
not. I wasn't there, and I take your account for it in terms of it sort
of being a roast-type situation, whether it was or wasn't, you were
nevertheless a banking commissioner, and when you open your
mouth in a public setting, even if the press isn't to your knowledge,
there, when you're speaking to a group, you're speaking as a public
person. You were then; you would be if you were on the Fed. So,
you know, it's not sufficient ~o make a differentiation that if you're
there and somebody introduced you in a roast fashion, you're still a
public official, that that gives you a license to go ahead and use, I
think, uncouth characterizations here which someone else may
have used on you before. I don't think that's the proper kind of
conduct, and I don't want to rehash the whole thing, because I'm
concerned about what your sense of the norms of conduct would be
if you were on the. Federal Reserve Board.
I guess what I'm saying to you, if the same kind of an event happened, and you were introduced somewhere else as a member of
the Federal Reserve Board and somebody introduced you in a roasttype introduction, with sort of some wisecrack comments, that use,
I think, bad language and insulting characterizations from whatever their source, I think if you were to respond in kind, that
would be inappropriate to a Fed Board member. I think it would
reflect badly on you and reflect badly on the Board. It would reflect
badly on anybody that had anything to do with this process.
So if you thought that standard was.appropriate at that level, I
would say to you that I don't think it was, even in the setting that
you described, if you're quoted accurately, if these are the words
you spoke. But I don't think the words were appropriate in that
setting then for a public officeholder responsible to, I think, set a
standard of conduct that's on a higher level. If another public official believes imprudently, that's their responsibility. It doesn't justify the response by yourself.
But I would hope, if you're confirmed at this level, that this kind
of thing, if you're ever confronted by this kind of a situation again,
that you'll resist whatever temptation you have to respond in kind
and will not respond in kind.
Dr. SEGER. I certainly would behave differently.

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Senator RIEGLE. I appreciate that. Frankly, I don't even like
bringing it up, because I think it demeans this process, but I want
to make sure we are not going to encounter this thing in the
future, because I think it would be unfortunate if that happened,
and you've assured me that would not happen, and I appreciate
that assurance.
Let me say that I appreciate your responses to the committee
over the whole period of time, and to me particularly, because
there have been a number areas you and I have gone into, in addition to the private conversation that we had before your hearing
took place. And I appreciate your patience. It's not easy to sit in
the witness chair and go through these things. And I appreciate
the fact that that's a trying experience.
I think the reason that there have been a lot of questions raised
is because this is a critically important appointment coming at a
critically important time where there is great apprehension about
the financial system and where things are going. So I think, but for
that, this would have moved along faster.
AB I also said at the outset, I think if your views on a lot of these
subjects had been known or had been public so that they could
have been digested ahead of time, there would not have been a
need to sort of spent all the time going through it either by me or
by others.
In any event, we appreciate your being here. I hope you can still
make the plane today. We'll look forward to talking again on another occasions.
The committee stands-Dr. SEGER. I was just going to thank you for giving me the opportunity to talk with you here and in your office and to say, in general, these are to me terribily complex issues, terribly complex problems. I'm unable to give one or two sentences, off-the-top-of-myhead, simplistic answers to issues that I think need a lot of study
and a lot of analysis and a lot of looking at; many of them are very
Maybe we don't have the absolute answer at this moment. That's
the impression that I want to leave, I think. I take the issues very
seriously, and I don't have "smart alee" type answers to them.
Senator RIEGLE. I appreciate that point, and I appreciate the fact
that you're working on them. We're not known for short answers
around here either. That's not something that's a mark of the
Senate, generally. And these are complex issues. So I know that
you're working on them and thinking about them and don't have a
reflex answer, an ideological sort of one-line fix-it answer on given
issues, and I appreciate the fact that that's the case.
Certainly, I'm going to consider everything you said in that vein.
Dr. SEGER. Thank you.
Senator RIEGLE. The committee stands adjourned.
[Whereupon, at 2:30 p.m., the hearing was adjourned.]
[Biographical sketch of nominee and appendix follow:]

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2. /Id far a can ba ~ . whether you have any plans aftar compllltl"I IIMfflment lelYlc:e to .....,_ employment. lllllllatlon or practice with yaur l)l9Vlous ..,.
ployw, buslneu ftrm, aaoclatlon or Clfllllnlzatlon.

,J f"'7 it,,;,R~.,_.....,f'

,,./_,.;_ .

made yau

commltmint to• job after you leav9 .,..,,,1111111?


4. Do you expect ta -



Future employnwlt
1. Indicate
firm, auoclatian or Clfllllnizatlon If you.,. confirmed by the S--.



In the position to which ydll'hne bMn~Mmed..

the full term for which you have been appolntedf

Digitized by




Continuation of OUestion No. 15


October 1976 - Decmnber 1977
Independent research on "Redlining• and consu1ting jobs.

October 1976 - Present
Whole period pursuing flexible schedule of teaching,
research, lecturing, consulting and public service.
July 1974 - September 1976
Bank of the Commonwealth, Detroit, Michigan, (since
merged into Comerica Bank-Detroit) Arthur F.F.
Snydu, President (now Vice Chairman of the Board,
U.S. Trust CompaljY, 30 Court Street, Boston.,,.MASS.
02108.• Phone: (617)726-7138) • . Vice President,
Senior Vice President and Divisional Vice President
in charge of Economics and Investments. Quit banking •
to pursue mid-career change of teaching, consulting
and research.
February 1976 - Ju1y 1974
Detroit Bank and Trust (now Comerica-Detroit), Detroit, JU,
· Don Mandich, Chairman of the Board.
Chief Economist.
Quit to <JO to Bank of the
September 1964 - February 1967
Federal Reserve Board, Washington, D.c.
Peter Keir, Chief
Financial Economist, capital Markets Section,
Quit to go into banking.
September 1959 - September 1964
Went back to University of Michigan to work parttime on Ph.D. in Finance and Business Economics.
Also, worked part-time at various campus jobs:
Teaching Fellow in Finance for Professor Thomas Gies,
313-764-2323. Resident Assistant in Women'• Residence
Balls, Dean Deborah Bacon (now retired). Left to take
full-time job when started working on dissertation.
February 1957 - September 1959
Federal Reserve Bank of Chicago - Trained in Chicago
and sent to its Detroit Branch. Russ Swaney, Vice
President-in-Charge (now retired), 753 s. Shore Drive,
Bolland, Michigan, (616) ~35-5440. Research Associate.
Quit to go to Graduate School for Ph.D.
February 1955 - February 1957
General Motors Corporation - Business Research Staff.
Gene Steininger, now General Director of Market Analysis
and Forcasting, Economics Staff, Detroit, Michigan,
(313)556-3123. Research Assistant. Quit to take better
job and one that was more involved with finance.

Digitized by



IS.=-""..::::.=:.=:..---...,-::.:r.:=.~:--"-:c:.-;:;..c:=.6-::.~,--,_p,_aJ, ......... ..u. ....


. -~


Ol!lltnl Michigan tkliv. ~. Pl.Msant, MI ·Pn)f.of financa Still
Ric:bnd au-, CmD., Fillllnca D!pt. Scbool

er Ian l'latka; DJan,

Jan. 1983 July'83 0llkland tm.versit:y
Rx:tmstar, MI
ltn Jl:lnlitz,llelln,Sc.'DOl of l!Xx:n. , .Hgt.
1 - of atsex:e to xeseaxd1 "Bllnk Soliday inMichigan",
lect:um and de miscellaneous CXXISUlting.
Jan.1981 Dec. '82

St.ate of Michigan,

Lansing, MI
Political llppointll8nt
of Finmx:ial Institutiais far
State of Midli.gan by Gov. Milliken (now living in Traver•
City, Michigan)
._x msigrm to ha teen Siding.

. . . Qwmjpja-,:

Aug. 1980

· 0llk1and tkii:vssl.t:y,

·. : '

.: -.~

R:x:bester, MI


. lt:n &irwitz, Dean, Sclxx>l of ECon::m1cs ' Managml!bt.
ccntract with Oakland in Spring 1980,
· · '.· ·mt that Novmb!r, GoYemor<en appointed me to the
· finmlcial regulatz:xr job effective January 1, 1981, ao I 4XXlk
t:10-)'mr i - of abaence to in Lansing, capitol, Michigan.

:. ,;_·:z: h a d ~

Jul.y 197!hluly 1980 - Illdl!pmident
aocncmic cutlcck.

and oonsulting, lectures


hanl<iDl1 and

Jan.1978 ->June 1979 - tkiiversit:y of Michigan, Am Arbor, MI
Dam1 Floyd bid (&Jsiness Sclxlol Dean - ro,, retired)


Adjunct Asa:x:. Professor of B.Jsiness Q:>n:litions.
taachiDi the
of a professor ai l.elM!.

-I: -

Digitized by



March 2, 1984

President Ronald Reagan
The White llouse
Washington, D.C. 20006
Dear President Reagan:
Please accept this letter as support for the appointment of
Dr. Martha Seger as a member of The Federal Reserve Board.
Dr. Seger served as Commissioner of the Financial Institution Bureau
for the State of Michigan and has various educational credits and
business experience which should qualify her t'--"erve as a member of
The Federal Reserve.
I would encourage your consideration for her appointment to The
Federal Reserve Board.

Digitized by


2532 Spring Arbor Road

Phone: 787-5010

March 7, 1984

President Ronald Reagan
The White House
Washington, D. C,


Dear Mr, P.resident:

I'm writing you to recommend that you appoint Dr. Martha
Seger to the Federal Reserve Board.
She has been a very
capable and effective person, she has three degrees from
the University of Michigan including a MBA in Finance and
Ph.D. in Finance and Business Economics, she has a broad
background and I feel would be of great value to you.



Mary N. Bentley, M.D.

Digitized by




PH~NE !117 374."'2

A08El=IT l


February 27, 1984

The President
The White House
Washington, D.C.
Mr. President:
I am writing to endorse and support the
.po_s_sible candidacy . o_f Dr~ __ Marhta §_e9er__alL.~
~Pf?iiit_~ii'to~~~~deraCRes_e_rve Board.
Dr. Seger served as Commissioner of the
Financial Institutions Bureau for the state of
Michigan for two years. During those two years I
had many opportunities to work and meet with Dr.
Seger, and was always impressed by the way she
handled every situation.
She was thorough and
very fair in her decisions, and treated everyone
in a satisfactory manner.
With Dr. Seger's economic education and
experience, I think she would be an excellent
choice as an appointee to the Federal Reserve
Respectfully yours,

jJ t'.&J
R. E. Clark
REC: ib




Digitized by



P:O. BOX5210
(313) 569·7979

April 3, 1984

The President
The White House
Washington, O.C.


Mr. Presidents

This is to support the-appaintment of Or. Martlla~r
to the Board of Governors of the Federal Reserve.
Our experience with Or. Seger is as a "banker's bankf,
a wholesale financial institution serving credit unions in
Or. Seger has headed the Michigan Financial
Institution Bureau which regulates our activity.
We have found or. Seger to be equitable and consistent
in her administration of the laws and bylaws which regulate
us, but most importantly, she brought t.c. the organization a
level of economic and financial understanding which was
unique in that position.

Speaking for our Board of Directors and the many credit
unions which appreciate the value Or. Seger can contribute
to our monetary system, we believe that her appointment will
be of great benefit to this country.



General Manager


StK\'IN(:; CKtDIT UNIONS 11'1 l"IICNl(:;AN

Digitized by



,onald L. Zllo, Pmldent


P.O. Boa449/Souot, Hnon. >llchlgon49090/616637-2141

March 5, 1984

President Ronald Reagan
The White House


Pennsylvania Avenue

Waohington, D.C.



.:St::- Ge It-


I am extremely pleased to He that the Adllini1tration
n&idering the appointment of Martha Saga to the Board of Governor& of
/_; e Federal ll,eserve Systda.

I've knovn Martha for the paot 25 years when ahe was firat eaploye4
Bank of
•• a research econolli1t at the Detroit Branch, Federal
Chicago• where I spent twenty yearl, becoming a Vice President before
She has all the credential•, tha
moving into commercial banking.
intuitivenes1, and the drive to be one of the better governor• of our
In addition, aha is almost aa big as Volcher, not only 1n
physical stature. If you do appoint her, you will have a very strong
candidate for his successor• ahould that day come along.
Currently, I am the Chief Executive Officer of a $115 llilliOD
independent community b1nlr. and knov Martha froa the uandpoint of a
central banker, the laTae money center bank.a 1D Chicago and Detroit, and
Michigan. llhila
from the 1tandpoint of a c011111unity banker 1n
in acadeaia, 1he al10 ha1 developed
a good many of her
a tremendous background in the real world and understand& the difference
between theory and practice..
I humbly add my strongest rccOlllllendation that you appoint thia
outstanding individual.


South Haven/South Haven Suburban/Bloomingdale/Saugatuck/Fennville

Digitized by




Credit l)1ion National Association, Inc.
5710 MINERAi.. POINT RO.• BOX 431 • MADISON, WI 53701 • I0&-231-...ao0


a -...

544 .............

r.:..kabe, IL 60901
lualn-. 815/937-7-449

June 20, 1984

Chai1"11an Jake Garn
U.S. Senate
Washington, DC 20510
Dear Senator Garn:

On May 31, 1984, President Reagan announced his intention to
n011inate Dr. Martha R, Seger to be a member of the Board of
of the Federal Reserve System, Soon the Senate will be
asked to confirm Dr. Seger's nomination for a 14-year term on the
Federal Reserve Board fr011 February 1, 1984.
The Credit Union National Association (CUNA), which
representa credit union leagues in each state, the District of
Columbia and Puerto Rico, strongly endorse Or. Seger's nomination
for this Federal Reserve Board position. Dr, Seger's academic

credentials as a professor of finance at the Central Michigan
University and the University of Michigan, her regulatory
expertise as a past Banking Commissioner for Michigan's state
chartered financial institutions, as well aa her previous tenure
as a financial economist at the Federal Reserve, comprise an

extraordinarily diverse blend of experience which is both
substantive and pragmatic.
Tha more than 19,000 federally and state chartered credit
unions represented by CUNA are cooperative, non-profit

associations that serve more than 50 million members.


credit unions, specializing in the consumer credit needs of

working America, applaud the standards of excellence and public
aervice demonstrated by Dr. Seger in her professional career.
On behalf of the credit union movement, and the CUNA
membership in particular, I ask you to expeditiously approve the
Federal Reserve Board nomination of Dr. Martha Seger,

Harold T. (Tom) Welsh



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1351 E. Jefferson Avenue
Detroit, Michigan 48207
June 26, 1984

Honorable Edwin (Jake) Garn
United States Senate
Washington, D.C.
Dear Senator Garn:
This letter is in total support of Martha Seger's
nomination by President Reagan to serve on the
Federal Reserve Board.

Ms. Seger has been a member of the Detroit Area
Economic Forum and several other economists'
organizations in Detroit and Michigan.
She has distinguished herself amongst her Michigan
peers as a practical and hard-working economist.
We hope you will vote to confirm her nomination.


Digitized by



Detroit & Northern
Home ome.
Ha ................





(IOI) .....

February 21, 1984

The President
White House
Washington, D. C.


Dear Mr. President:
I highly recomnend Dr. Martha R. Seger as an appointee to the Federal
Reserve Board.
During the past two years in which she served as the C0111111ssioner of
the Financial Institutions Bureau in Michigan, sllrdid a very comnendable job for the financial industry and also for the citizens of the
State of Michigan.
She is knowledgeable about the industry and also 1s a strong eco1101111st.
I hope you w111 give Dr. Seger every consideration.

F. J. Halonen

36-314 0 - 84 - 21

Digitized by



/ .~ . Detroit & Xorthcrn
d Chief becut,ve Of'hc:er


Quincy Strwl / -

February 21, 1984

The President
White House
Washington, D. C.


Dear Mr. President:
The name of Dr. Martha Seger has been submitted to you as an
appointee to the Federal Reserve Board. I highly reco11111end
her candidacy.
She is a capable administrator. When she was Co11111issioner of
the Financial Institutions Bureau in Michigan, she aggressively
addressed the problems facing the financial institutions during
a very difficult period. She was well thought of and respected
by the government people with whom she worked and by the
financial institutions she supervised •.
I hope you will give her name every consideration.


/)// ...£--/ 1.-->tl--.
J:,,c__ .lc-11/
K. D. Seaton

Digitized by



(_) ..2-2700










February 16, 1984

President Ronald Reagan
The White House

Washington, D. C. 20500



Dear Hr. President:
I'm writing this letter in s14RPort of Dr. Martha Seger to be appointed
to the Federal Reserve Board. I have been aguainted with Dr. Seger
for a nu..'!lber of years. The closest association we have had with her
was during her term as Col!l!Dissioner of the Financial Institutions iureau for the State of Michigan. She served in this capacity under Govenor William Milliken, being appointed in January 1991. In my opinion,
she was the most outstanding Commissioner we have had in t."le State of

Michigan for many years. She handled her job in a very professional
manner and she ia extremely adept in dealing with people.

Dr. Seger's educational and employment background is extremely impressive.
She belongs to many important associations and has been named by Business

Week as one of the top 100 corporate women in the United States.

I urge you to consider the appointment or Dr. ~ger to this important

Very truly yours,
Eaton Federal Savings and Loan Association


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of America
FftH,•1 S•..,ng,s Auoc,,1r,on


=~; :~, ~-,;

February 22, 1984

The -rable llonald W. llugan
The llbite BouH
Waahincton, D.C. 20500

Dear Pre11dent Reagan:
I haT• learned that Dr. Kart.ha S.aer bu been propo1ed ••
ppointee to the Federal 1laaerve Board and I • writing to you today
o expre11 ay ain.cere endor1eaent of Dr. Seger'• candidacy.


Dr. S•1•r aerYed under Governor Milliken •• Coaa111ioner of
financial Inatitutiona for the State of Michigan froa January, 1981
to December, 1982, in which ·capacity 1be acted •• the replatiAC
authority o••r 1avinga inatitutiona in the 1tate. I found her an
vbo . .1ntained her indlf)endenc• and balance
deapite tr•endoua preaaure frc.. the Deaocratic controlled atate
legislature and oq;anized labor. She vaa 1trai1htforvard, con1i1tant
and evenhanded in her adainiatration during .a period of
for the thrift industry, particularly iD the atate of Kichiaan.
Dr. Seger 11 an educator 1D the field• of finance and ecouoaic1 1
bavi'DI taught at
UniTeraity of Michigan and ao1t recently at
here in 1outheaateru Michiaan. She be1 alao
u Vice Prelident and Chief Econoai1t for the Detroit lank and Truat
Coapany, now Coaerica, lnc. • for


Al a lifelona Republican and a aeaber of the llapublican Rational
eo..ittee I heartily
Dr. Martha Seger and re1pectfully urge you
to con1ider her •• your appointee to the Federal

Digitized by





February 17, 1984

President Ronald Reagan
The White House
Washington, D.C. 20500
Dear Mr. President:

I have personally known Dr, Seger for many years and know her to be highly
qualified for this position. She very capably served as Con,nissioner of
the Financial Institutions Bureau during the last two years of the Milliken
administration, and served as Financial Economist studying financial
institutions and capital markets at the Federal Reserve Board in Washington
for 3 years.
Dr. Seger has three degrees from the University of Michigan including an
MBA in finance and PhD in finance and business economics. In 1976, she was
named by Business Week as one of 100 top corporate women in the United
Based on Dr. Seger's impressive credentials, as well as her knowledge and
experience in the field of financial economics, I am sure you will agree
that she belongs on the Federal Reserve Board.



Digitized by





.,... Wll:ST NICNte,AN AYll:NUII:

February 20, 1984

TIU.... l•••l ..... noo

The President
The White House

Washington, D.C.
Dear Mr - President:
The purpose of this letter is to help introduce you to Dr_ Martha
Seger, who I suggest you consider as an appointee to the Federal
Reserve Board.
Dr. Seger served as Commissioner of the Financial Inatitutiona

Bureau of the State of Michigan for several yeara and performed
her many duties in an outstanding and exemplary manner. Martha'•
credentials prepare her ideally to sit on the Federal Reserve Board.
Her biography is included for your information.
From time to time, outstanding people touch the public sector in a
manner that is unique. Martha is one of those people. I heartily
recommend that she be appointed to the Federal Reserve Board.



Digitized by




February 21, 1984

President Ronald Reagan
The White House
Washington, D. !=• 20500

Dear President Reagan:

I);_. Martha R. Sege;, currently on leave from the faculty of Qakland
University, has an outstanding reputation as an economist and expert on
financial institutions
I be] iexe Jih.~..J.J...!!n excellent cand~or
cone1deret1on to an eppo1ntroeot t.P the federal Reserve Board.
A graduate of the University of Michigan with MBA and Ph.D. degrees in
Finance and Business Economics, ahe served on the a,taff of the Federal
Reserve Board from 1964 to 1967. Following that, she was an economist
for Detroit Bank and Trust and Bank of the Commonwealth.
From 1981 to late 1982, she was the Commissioner of the Financial
Xnstitutions Bureau for the State of Michigan.
I: aincerely believe she has the background and experience to qualify for
this appointment.

Youra very truly,


1001 WOODWAIID AVENUE• DETII0'1, MICHIGAN 4a22I • TEL: 13131 . . . 1400

Digitized by




u.a. &!NATE

17117 l!IT


Digitized by



June 20, 1984

19811 J.,; ;;r-; /.'/ /: I I

tGP Public Relations, Inc.
173 1 5 Rougeway

Livonia, Michigan

The Honorable Jake Garn, Chairman
Senate Banking Committee
Dirksen Senate Office Building, #534
Washington, DC 20510


)eanne G. Paluzzi, APR

Dear Senator:
When president of the Michigan chapter of the National Association
of Women Business Owners, I became acquainted with Martha Seger as
head of the state's Financial Institutions Bureau. Since then, I
have also seen her expertise and eloquence with the Detroit Economic
Club economic forecasting lunches, Republican party events, and
other occasions.
Her willingness to listen and discuss various issues of great
concern to small businesses and her interest in assisting women
entrepreneurs into the system speaks well of her capabilities.
I am pleased to join the sentiments of the Small Business
Association of Michigan, of which I am a board member and incoming
Vice President-Federal Legislation, in support of her confirmation
to the Federal Reserve Bank.


Members of Senate Banking Committee

Digitized by



. . . . . ..,._NOUSt OSHCI


<rongrts.s or tht ilnittd ·£,tatts


\i-\DllSt of 'Rqnumtatilltl
mashinp. B.a::. lOflS


,.. ....

. . . . ...
. . . . . .,..IITllln'

January 20. 1984

Honorable John S. Herrington
Assistant to the President for
Presidential Personnel
The White House
Washington; D. C. 20500
Dear John:
Enclosed please find a copy of a letter which I have recently
received from the Michigan Bankers Association in support of the appointment

Dr. Martha Seger as a member of the Fede"ral Reverse Board of Governors.
I would like to join the association with my support, and would
appreciate being advised as to the outcome of thi&-appointment. Thank
you for your time and attention to this matter.
With all good wishes,

/7ere7L. f\


Member of Congress

GVJ: le

Digitized by







Al(A (616)09!1 j9l4

February 14, 1984

K/3 The
President of the United
The White House
Washington, D.C.



Appointment to the Federal Reserve Board

Dear Mr. Pre!ident1
Shortly you will be reviewing candidates for Governor of the
Federal Reserve Board. ~tha R. Seger is one of the candi- •
tes and I would ur e ou to
o nt her to this BoAl::d. I
own art a, through the savings an loan industry, to
be highly qualified, and I am sure you will agree after reviewing her credentials.
Again, I would certainly appreciate your cansidering Martha

Seger for this position.

Thank you.

B. Roke


Digitized by






February 29, 1984

The President
The White House
Washington, DC 20500


Dear Mr. President:
I am writing this letter to you to recormnend that Dr. Hartna
R. Seger be appointed a member of the Board of Governors of
the Federal Reserve System.
Dr. Seger began her career at General Motors Corporation,
where she worked for two years before g·oing to work at the
Federal Reserve Bank of Detroit. After that, she obtained her
MBA-and Ph.D. degrees from the University of Michigan, where
she also did work for Dr. Paul McCracken. Her ""'f)erience also
includes two years as an Economist with the Federal Reserve
Board in Washington, seven years as Chief Economist with
Comerica Bank (Michigan's second largest bank), two years with
the Bank of the Commonwealth and seven years in various
teaching and lecturing positions at three large universities.
Her latest experience has been with the State of Michigan as
Commissioner of Financial Institutions.
I personally came in contact with Dr. Seger when I was a
director of the Bank of the Cormnonwealth. l worked closely
with her since, as Vice President in Charge of Economic
Investments, she was the bank officer working with the
directors on the Investment Cormnittee.
lam sure you have a file on Dr. Seger which details her
accomplishments in more detail. l would appreciate it very
much if you would include my letter of recommendation in her
file. I also understand that one of my predecessors as
President of The Economic Club of Detroit, Russ Swaney, has
written to you on her behalf.



Digitized by


Insurance -

Real Eslate

• • WAP..Ol'ION STlltttT,



February 27,1984
President Ronald Reagan
The White House
Washington, D.C.

Dear Mr. President,
It's my und~rstanding'that Dr. Martha Seger is being recommended for appointment to the Federal Reserve Board. Every-•
thing I know about her indicates that she is highly qualified
for the position and I would hope that her appointment would
be approved. I've been in the Real Esta~ and Insurance
business for over 20 years and am very much aware of how
important it is to have the right people on the Federal

Reserve Board. I believe her to be one of the kind we need.
Thank you for taking into consideration my letter when a
decision is made.


Digitized by




E•ecuri~ VI« Pr•sid•nt

6705 Wut St. Jos,ph Highway, Lansing, Michigan 48917
Telephone: 517/327-1600

January 13, 1984

The Honorable Guy Vander Jagt
United States Representative
2334 Rayburn House Office Building
Washington, D•.c. 20515
Dear Congressman Vander Jagt:.
The Michigan Bankers Association wishes to commend to your
attention our support for the appointment of Dr. Martha Seger
as a member of the Federal Reserve Board of Governors.
We are aware that Dr. Seger's credentials are known to your
office and that others are actively supporting this effort.
The purpose of this communication is to advise you that the
Michigan Bankers Association enthusiastically supports her
candidacy. ·
Our officers enjoyed an excellent working relationship with
Dr. Seger while she served as Michigan's Financial Institutions Bureau Commissioner. Her energy, candor and aggressiveness benefited the financial industry and the State of
Michigan. She is highly regarded in Michigan financial
circles and we believe would make an excellent contribution
on the Board.
We urge favorable consideration of her appointment to the

Donald A.• Booth
Executive Vice President

,irm•n of th• Bo•rd

i•curity B•nk, ION/A

Firrr v;c. Prnitwnt
Chairman •nd Pr•ithnt
N•tion.J B•nk of HASTINGS

Fint of-Arnffiu B•nk

Corp019tlon, KALAMAZOO

Digitized by

Fim Via Prwsk»nt
N•tional BMk of DETROIT




P.0 60X 5210


1~00 PROV!0£J\;(E DRIVE


(313) 557-3200

The President
The White House
Washington, D. C. 20500

Mr. President:
It has been widely publicized in Michigan that••·or, Marthe..-·
·seger is-your choice for appointment to the Federal Reserve
Board. MicfiTga'ilc:i:-fidft~·unions are e x t r e m e ~ @ ~ ~
~Seger 1 s talents are being thus recognized fo~·so important a position.

The Michigan Credit Union League is the trade association
representing nearly 700 credit unions in our state. The
League's Board of Directors, which numbers 23 men and women,
voted a strong endorsement for Dr. Seger's nomination at its
March 15-16 meeting and directed that this action be conveyed
to you and to the Senate Banking, Housing and Urban Affairs
Credit union people know Dr. Seger from her two years as
commissioner of the Michigan Financial Institutions Bureau.
Her forthright approach to her position, and her knowledge of
financial matters, made a very favorable impression within
the Michigan credit union movement and gained her many admirers.
There were numerous occasions when she was the speaker at credit
union gatherings, invariably receiving a friendly and positive
response. Of course, Dr. Seger has impressive academic credentials as an educator and economist.
We believe you have made a good cqoice in Dr. Seger.

Robert T. Lynch




Proud of our past .. prepared for the future.

Digitized by



michigon Retoilers Associotion
Lorry L. ITleyer
Chief Executive Officer

June 20, 1984

The Honorable Jake Garn, Chairman
Senate Banking Committee
S.D. 536, Senate Office Building
Washington, D.C. 20510

Dear Senator:
By means of this letter, the Michigan Retailers Association would like
to go on record in support of the nomination and confirmation of Dr.
Martha Seger as a member of the Federal Reserve Board of Governors. We
feel that her membership on the board will very definitely be a positive force in the future monetary policy of this nation.
We would hope that her confirmation process would reach a satisfactory
conclusion in the very near future so that she can take her seat on the
board. We have found here to be extremely competent in both monetary
and fiscal matters during her tenure as Financial Institutions Commissioner in Michigan.
We appreciate the opportunity to recommend Dr. Seger.


221 r1orth Pine St. Lansing, michigon 48933 517/372-5656

Digitized by


;E 1117



1123 WASHINGTON AVE. • BAYCITY, MICHIGAN • (517)11124611

February 23, 1984

President Ronald Reagan
Washington, D. c.
Dear Mr. President:
This leeter is in ;upport of the proposed appointment
of Dr. Martha Seger to the Federal Reserve Board.
You undoubtedly have a resume of Dr. Seger's many
academic and professional qualifications for such an
appointment. To those, I wish to add my personal
recommendations based on her excellent accomplishments while Commissioner of the Financial
Bureau of the State of Michigan.
With over thirty
of management
with the
Financial· Institutions Bureau and four different commissioners, by comparison Dr. Seger did by far the
most outstanding job. Her decisions were based on
solid preparation and sound logic. Industry financial
problems received fair hearings and conservative, progressive solutions.

It is a pleasure for me to forward this endorsement of
Dr. Seger's appointment to the Federal Reserve Board
based on my personal business experiences with the
Financial Institutions Bureau of the State of Michigan
while she was its commissioner.


Chairman of the Board



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June 19, 1984

Wash,ng10,-, O.C




Washmglon. D C
National Board Al'prHtntatlq

Susan Mage,

The Honorable Jake Garn,
Committee on Banking, Housing
and Urban Affairs
United States Senate
Washington, D.C. 20510

U,ura Henoe rS0!1

Dear Chairman Garn:

Pr~spec1 .'.sioc,111es
ROd<~111e MD


Financial Director
RobinO~ e•le


Gill,anR .. do

.......... ;. ".udc.. tnc

C•eh.i St;rele

The National Association of Women Business owners
supports the nomination of Martha Seger to become a member
of the Federal Reserve Board. NAWBO is a national membership organization with chapters across the country which
is devoted to increasing opportunities for women entrepreneurs. As such, it recognizes the fundamental importance
of the Federal Reserve Board and believes that this qualified woman should join its ranks. Accordingly, we urge
the Committee to vote favorably on this nomination and
send it promptly to the Senate floor.



. ;.~e-

Lll\'yA.ssoc,a1es toe:



ia Littlejo ,
Pre 'dent ·
Nat'onal Association of
Women Business Owners


Char1ol1!' Ta ~lo<
CTA-AMana 11em!'r11Groop



1710 Connecticut Avenue, NW• Washington, DC 20009 • 202-667-9337

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February 17, 1984

The President
The White House
Washington, D.C.
Dear Mr. President:
It has come to our attention that the name of Dr. Martha R. Seger
has been submitted to.the White House for consideration as an
appointee·to the Federal Reserve Board. This letter is being
written in support of Dr. Seger's candidacy.
Dr. Seger has an outstanding professional and educational background that would bring much talent and experience to the position.
She has served as the Cormnissioner of the Financial Institutions
Bureau during the last two years of-the Milliken administration for
the State of Michigan and has dealt fairly with the various types
of financial institutions she regulated. Her background is both
extensive and thorough, and rather than enU111erate her accomplishments in this letter, please read the attached biography.
After knowing Dr. Seger on both a personal and professional level,
we would like to highly recommend her for this candidacy.

w. J. Bacarella, Jr.


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February 21, 1984

The President
The White House
Washington, D.C. 20500
Dear Mr. Preai.dent;
I am writing to recommend that you appoint Martha R. Se11er;·Ph.D. to thl
Board of Governors of the Federal Reserve Board.
Dr. Seger baa served with distinction in academic, bankin11 and aovernment

As Chairman of the Michigan Savings and Loan League, I had the pleasure of
working with Dr. Seger while she
of Financisl
for the State of Michigan.
Her academic background in finance and economics and her brilliant career in
education, banking and government make her eminently well qualified to HrVe
on the Federal Reserve Board.
I believe that you would find her
on politic a, economics and the proper
roll of government very much akin to yours.


Wendell C. Gat s. II



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(517) 787-9700

February 22, 1984

President Ronald Reagan
The White House
Washing·ton, D. c.
Dear Mr. President:
I am writing concerning the recommended appointment of Dr. Martha Seger
to the Federal Reserve Board.
I became acquainted with Dr. Seger when she was appointed as Commissioner
of the Financial Institutions Bureau for the State of Michigan by Governor
Milliken. She very capably served in that capacity and I was very impressed
with how she efficiently handled her responsibilities and how she fairly
dealt with the various types of financial institutions which she regulated.
Dr.·seger has three degrees from the University-<>f Michigan including
an MBA in Finance and a Ph.D. in Finance and Business Economics. She
has taught at various universities and has a broad financial background.
She has also served as Financial Economist studying financial institutions
and capital markets at the Federal Reserve Board in Washington.
Dr. Seger has served in various civic capacities and is a member of
the following organizations: Economic Club of Detroit, Women's Economic
Club, National Association of Business Economists, American Economics
Association, American Finance Association and the President's Club University of Michigan. In 1976, Dr. Seger was named by Business Week
as one of the 100 top corporate women in the United States.
Dr. Seger is very knowledgeable about the various financial intermediaries,
her business and educational background demonstrate her capabilities
and makes her an excellent candidate for consideration as an appointee
to the Federal Reserve Board. I am happy to recommend her and encourage
your consideration of her appointment.
Sincerely yours,

Richard E. Clifton

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tL..r<J :,tLU KIJ T !,I\ V IN\J~



(517) 787-9700

March 5 , 1984

President Ronald Reagan
The White House
Washington, D.C.


Dear Mr. President:

It has ~ome to my atlention that Dr. Martha Seger has been
reco111Dended for consideration as an appointee to the Federal
Reserve Bank. Many of us in Michigan have come to know of
Dr. Seger well.
As you know, she has been involved in various financial areas

all of her professional life. Cer~ainly, many capable people
have been reco111Dended to you for this appointment. However,
I feel the fact that Dr. Seger has held high-level positions
in both the private as well as the public-eector uniquely
qualify her for this position.
I recoDDDend Dr. Seger highly and urge you to give her serious
Sincerely yours,


kiessandro P. DiNello
Vice President

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(517) 787,9700

February 27, 1984
President Ronald Reagan
The White House
Washington, D.C. 20008


Dear Mr. Reagan:

Consideration Is currently being given to the appointment of Dr. Martha Seger

to the fedeca1 Reserve Board
Dr. Seger was appointed as Commissioner of the Michigan Financial Institutions
Bureau in January of 1981 by Governor Milliken. Sb~ is very j(11ow)edee•ble o(
f!11ancial institutions and has handled her responsibilities effici~~!:·.
The dell"ees Dr. Seger received from the University of Michigan were an MBA
In Finance and a Ph.D. In Finance and Business Economics. As Financial Economist,
she studied Financial Institutions and capital markets at the Federal Reserve
Board In Washington. In addition, ahe has taught at various universities, which
has broadened her backll"ound.
Dr. Seger is a member of the following organizations: Economic Club of Detroit,
Women•• Economic Club, National Association of Business Economists, American
Economics Association, American Finance Association, and the President's Club
or the University of Michigan. In 1976, Dr. Seger was named by Business Week
u one or 100 top corporate women In the United States.
D.r,...,Segei:-!.l..inowladgeable business ao<LeducJ!tlonal background make her an

~celle_nt candidate for considerat~e>J'I as an appointee to the .E.e~eut.Ye
Board. I am very pleased to recommend her and encourage your consideration
or6er appointment.

Assistant Vice President

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(517) 787-0215

, l \/ .

February 28, 1984

President Ronald Reagan
The White House
Washington D. C. 20006
Dear Mr. President,

I would like to express my support for the appointment of Dr.
Martha Seger to the Federal Reserve Board.
I feel she is an excellent choice. Her background makes her
very knowledgeable in the Financial Industry. She has worked at
several Financial Institutions, has served under Governor William
Milliken as commissioner of Financial Institutions, and has taught
Finance for several years. She was also chosen by Business Week as
one of the top 100 corporate women in the United States.
I am happy to recommend Dr. Martha Seger and encourage your
consideration for her appointment.

Sincerely yours,

Pamela I. Sauber
Assistant Vice President

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(517) 784-3118

February 28, 1984
President Ronald Reagan
The White House
Washington, D. C. 20006
Dear Mr. President:

I am writing concerning the recommended appointment of Dr. l!artha Seger
to the Federal Reserve Board.
Dr. Seger was appointed as Commissioner of the Financial Bureau for the
State of Michigan by Governor William Milliken. She capably served in
that capacity and efficiently handled her responsibilities. Dr. Seger
dealt fairly with the financial institutions she regulated.
Dr. Seger has several degrees from the University of Michigan, including
a MBA and a PH.D. in Finance and Business Economics. She has taught at
various universities and has a broad financial background. Dr. Seger baa
also served in various civic capacities and in 1976 was named by Businese
Week as one of the top 100 corporate women in the United States.
Dr. Seger is very knowledgeable about the various financial intermediaries.
Her business and educational background makes her an excellent candidate
for appointment to the Federal Reserve Board. We need more capable women
1n top government positions.

Carmeline Chappel
Asst. Vice President
Operational Manager

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Sturgis Savings & Loon
111·125 E. CIIICAQO IID. • BOI ICIO • ITURCIS, 111. 410tl

February 16, 1984

Ronald L. Reagan
The President
The White House
Washington, o. c.


Dear Mr. President:

I am writing this letter in suo
an appointee of the F
Being a president of a savings and loan in Michigan, I have
first-hand awareness of her abilities and good thinking
habits. She understands banking operatioiis and financial
management from the banking view, while remaining concerned
about the consumers. She is a very strong woman who does
not hide under the shield of •woman's Lib"--she doe• not


Our institution has

her 1001.


about recommending

cc: file

tsNAM..1"'1 U,.,.,CE: COLON

W _Ctucago Road al St. JoHph, Bo• 355
While P,geon. Ml. 49099
Telephone 616'483-96&8

105 E. Stale St. Bo• 60e


Digitized by

Colon Ml. 49040 616/432·3229







June 5, 1984

Dr. Martha Seger
Finance Department
School of Business
Central Michigan University
322 Grawn Hall
Mt. Pleasant, MI 48859
Dear Dr. Seger:
Congratulations on your nomination to the Federal
Reserve Board.
I know that you will bring to this
im~ortant post both a high degree of professionalism and an equally high degree of knowledge
about our economic and banking system.
I always enjoyed working with you when you were in
state government and I am sure your colleagues at
the "Fed" will find you a charming person to deal
I suspect that you may even find a bit of
stuffiness from time t0 time that you, in your own
inimitable way, will be able to reduce.

S t ~ Steinborn
Chief Assistant Attorney

Digitized by


'TELl ..MONl

••••1 3J,-5•AO
'?!>) !,01.,TH SMOIIIE DltlVE



e President,
ite House,
shington,D.C. 20500
ar Mr. President,
purpose in writing you is to recommend a former
:sociate of mine, Miss Martha Seger for appointment
; a member of The Board of Governors of The Federal
,serve System.
·. Seger's first job af'ter she received her BA degree
: the University of Michigan was with General Motors·
0 rporation.
After two years with General Motors she
,me to work for me when I was the executive officer
: Charge of Detroit's Federal Reserve Bank •
. ss Seger left the bank after three years to return
: the University of Michigan to get her ~A and Ph.D.
?grees. During this time she did research work for
~. Paul W, McCrJcken.
~nee then I have followed her career with-±nterest,
~. Seger is a well !mown- economist with a tremendous
~ckground. In addition to working for the Federal
~serve Bank in Detroit and Chicago she spent two
~ars as an economist with the Federal Reserve Board
, Washington.
Jrrently she is Professor of Finance at Central Mich~an University and is a director of Comerica Bank,
etroit, Michigan's second largest bank,
~. Seger's experience in economics and banking makes
er eminently qualified for this very important positon, She also is a Republican and one of your fans,
s you are aware, your personnel officer in the Exective Office has a complete file on Dr. Seger.
ou will remember me as President of The Economic
lub of Detroit when you addressed our club during
~e Presidential campaign of 1976,
~ank you for your consideration,
Sincerly yours,

~PIL .&_,,_='l,,

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February 17, 1984

,sident Ronald Reagan
, White House
10 Pennsylvania Avenue
;hington, o.c. 20500
,r Mr. President,
The name of Dr. Martha R. Seger has been submitted
your staff for consideration as an appointee to the
,eral Reserve Board.
Dr. Seger has a distinguished background in the
!lds of education and commercial banking. She served
a Financial Economist at the Federal Reserve Board,
1dying financial institutions and capital markets and
:ved very capably as Commissioner of the Michigan
~ancial Institutions Bureau.
Or. Seger's credentials and reputation are of the
~hest caliber and I strongly recommend her for the
sition for which she is being considered.


t· .

f .-~



Dennis B. Deutsch

31731 Northwestern Highway, Suite 101, Farmington Hills, Michigan 48018

Digitized by

/313) 855-0550




United States --n-ust Company
Arthur F. F. Snyder
Vin· Chairman of lhe
Board of 01rec1ors

March 1, 19811

The President
The White House
Washington, DC "20500
Dear Mr. President:
This letter is writtim on behalf of Dr. Martha R. Seger. It
is my understanding that she is being considered as a member of the Board of Governors of the Federal Reserve
I am certain that you are aware of her educational and
working history. I write to recommend her specificalll'..,. because
she worked with me as the Chief Economist of the Bank of
the Commonwealth while I was its president. From there she
went to the State of Michigan as Commissioner of the
Financial Institution.
Dr. Seger Is a woman of unique capacity. She would bring
understanding to the Federal Reserve System and credit to
the United States and to you as our President. I recommend
her without reservation.

30 COun S1reet. BoSiOfL


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. _ftEET
. _ _N__c>_ ST
_ LA
us WUT_co~_T

N. MICHIGAN .tll04
_ __

. Tl'l.OHONE 7ll--AOI

February 25, 1984

President Ronald Reagan
The white House
Washington, D- c.

Dear l'lr. Pres1dent:

I am wr1ting in regards to the recom;ru:n~d anpointment of
Seger tc,_~~- fede,r.aJ._lleser'Le.Jl.~




Dr. Seger has served as Financial Economist studying financial
inst1tutions and capital markets at the Faderal Reserve Board in
Washington. She has a broad financial background and has taught at
varlous universities. She has three d~grees from the University of
Michigan, including an MBA in Finance and a Ph.D. in Finance and
Business Economics.

Dr. Seger has served in various .clvic capacities and is a member
of the follwong organizations: Nation.9.l Association of Business
Economists, American Economics Assoclatlon, American Finance
Associatlon, President's Club - University of Klchlgan, and the
Econom1c Club of Detroit. In 1976 Business Week named Dr. fArtha
Seger as one of the 100 top corporate women ln the United States.
Dr. Seger ls very knowledgeable about the various financial
1ntermediaries. Her business and educational background demonstrate
her capabllfties, and make her an excellent candidate for consideration as an appointee to the Federal Reserve Board. I am

pleased to recomJJend her, and I -encourage you .... conslderat1on of

her appointment.--·




\.,..-< < ..·._.

'-i;ynn V. Vermeulen
Director-Security Savings