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WILLIAM P R O X M I R E , Wisconsin, Chairman
J O H N T O W E R ,Texas
E D W A R D W. B R O O K E ,Massachusetts
T H O M A S J.M CI N TY RE ,New Hampshire
B O B P A C K W O O D ,Oregon
JESSE H E L M S ,North Carolina
AD LA I E. S TE V E N S O N ,Illinois
JAKE G A R N ,Utah.
JOS EPH R. BI D EN ,JR.,Delaware
R O B E R T M O R G A N ,North Carolina


ANTHONY T. CLUFF,MinorityStaffDirector

M O N D A Y , J U N E 9, 1975


The committee met at 10 a.m. in room 5302 of the Dirksen Senate


Present: Senators Proxmire and Garn.

The CHAIRMAN. The meeting will come to order.

This morning we meet to consider the nomination of Philip C.
Jackson,Jr.,tobe a Governor of the Federal Reserve Board.
Senator Allen from Alabama will introduce Mr. Jackson.


Senator ALLEN. Mr. Chairman and members of the committee. It

is an honor and pleasure for me to present Philip C. Jackson, Jr.,to
the committee and to endorse hisnomination and urgethe committee
to approvethe nomination.I might say at the outset,Mr. Chairman,
I'mauthorized tosay to the committeethatMr. Jackson'snomination

has the enthusiasticendorsementof my distinguished colleague, Mr.
Sparkman,formerly chairmanof thiscommittee.SenatorSparkman is
enroute from Alabama by train and,inasmuch as Mr. Sparkman does

not fly,he asked me to express his regrets in not beingable to be on
handtoendorse Mr. Jackson personally. Mr. Chairman, the nomina
tion ofMr. Jackson,as Governorof theFederal Reserve Board is a
nonpoliticalappointmentand certainlythisisacasewherethe position
soughtthe man rather than the man seeking the position, which is
somewhatofanoveltyinGovernment today.
Mr. Jackson has been an outstanding servant in Alabama.He was
born in Birmingham,Ala. He has lived in Alabama all his lifeand he

isoneof ouroutstanding citizens.He was educated at the University
of Alabama and he attended the School of Mortgage Banking at

Northwestern University in Chicago.He has been associated with
the Jackson Co.,which is a mortgage banking companyin Birming

ham .Later I'm surehe will testify to the fact thatimmediately before

beingcontacted aboutthispositionhe soldhisinterestin thiscompany
and has no interest whatsoever in the company. There would be no
conflict of interest at all in this matter.

Mr.Jacksonhad a very distinguishedbusinesscareer.He isdirector

of Alabama Power Co.,in Birmingham . He is a member of the Ad
visory Board ofthe First NationalBank of Birmingham.He is chair
man of the Advisory Committee of Federal Mortgage Association


andison the BoardofDirectorsoftheMortgage BankersAssociation
of America.

He has beenpresidentand was for the years 1971 and 1972 of the

Mortgage Banking Association of America.
He has been contributing to the textbook “Mortgage Banking.”
He has been active in business and civic and charitable work in

Birmingham and in Alabama for allof his life.
I'm sure, Mr. Chairman, thatyou will check with Mr. Jackson
about his various philosophies—his fiscal policy and philosophy and
hismonetary philosophy and policy.

Coming from the business world, from which he does .come, I
would feel that,in addition to beinga fiscalconservative,Iwould say

that on monetary policies hewould certainly bear inmind the need
for an expandingmoney supply and the availability of money atlow
rates of interest. He would recognize the power of the Federal Re

serve Board, both to check inflation and to get us out of recession,
and he would recognize that there is a fine line of activity there that
the Board could engage in.And hewillspeak forhis philosophy
I would think thathe would tilta littlebit in the directionofhaving

adequate moneys available for investment purposes in the country.
He would seek to promote astableeconomy,a growing economy,with
emphasis on sound businesspractices, but with a recognitionthat if

weought to grow economicallyin this country,money must be made
available forinvestment purposes.It must bemade available at rates
ofinterest that the buying public can accommodate with.
Mr. Chairman,I believe that Mr.Jackson isan outstanding person
who has been named to the Board.He is a young man ,and I ieel he

has many years of distinguished service to render to the Federal
Reserve Board and to the country.
I thank you.

The CHAIRMAN. Thank you Senator Allen for a very, very fine
statement.We appreciate your strong endorsement of the nominee.
Mr. Jackson,would you like to make any opening statement?
Mr. JACKSON. I have no statement at this time, Mr. Chairman.

The CHAIRMAN.There are a coupleof regular,standard questions
that the committee asks of nominees for the Federal Reserve Board

and other top policypositions.
One, we had a chance to look at your financial holdings. As I
understand it,you have been cleared interms ofno conflictofinterest.

You have taken the position that you will put your holdings into a
blind trust;is that rig
Mr. JACKSON.That is correct.

The CHAIRMAN. Does that include all of your holdings? One of
the great problems for you is there isnothingyou can invest in.No
matter what you invest in,it is affected by your policy.It is a very
difficult position, unless,I guess,you doput your holdings into a
blind trust. I presume that iswhatyou aredoing?
Mr. Jackson. The trust is intheprocessof being prepared, and I
expect to complete itprior to takingthe oath of office, sir.

The CHAIRMAN. Would you respond favorablyinrequests to testify
before this committee or other committees of Congress?
Mr. JACKSON.Yes,sir.

impressive background. I would like to ask oneor two questions


further.Did you have anykind oftraining orany experiences or any
opportunity to study monetary policy as such?
Mr. JACKSON. During undergraduate days that was part of a
normal economics course at theUniversityof Alabama.Sincethat
time,as a person who has made his living in trying to anticipate

monetary policy actions in the buying of mortgages at some risk,
I have studied monetary policy in that context, but I have never
been a formal student ofmonetary policy.

The CHAIRMAN. What do you see as the principal functions of the
bankingsystem ?

Mr. JACKSON.To provide a vehicle throughwhich theeconomic
and personal resources ofthe country can beutilized anddeveloped.
The CHAIRMAN. How important is the availability of credit at
moderate rates to the growth of our economy?
Mr. JACKSON.What do you mean by moderate ?

The CHAIRMAN.I would like to ask you.Handle it any way you


Mr. JACKSON.Moderate is a relative adjective.It islike the ques
tion, "how is your wife?” “Compared to who?" It is difficult to
answer it,Mr. Chairman. You can answer itoneway,saying, “moder
ate” to the man who has none,would be more than he has.

The CHAIRMAN.I am glad you are consideringitthatway.We get

some witnessessaying theybelieve in moderaterates,without coping
with the word "moderate.” I am gladyou recognize that this isaacriti
calpoint.What Iam getting at,ofcourse,isthekind of thing Senator
Allen referred to in his introduction.

We are in a serious recession.There is every indication,including
the most optimistic kind of projections,that we willhave high unem

ployment for 3 or 4 years,at leasteven with substantial growth.
I am anxious to see as much activity in the private sector as possible

rather than in the public sector.One way todo itishave credit avail
able as freely as you can.

Senator Allen mentioned the other aspect,ifyou go too far in that
direction, which is you suffer from inflation, because the money
supply gets too big.Just give me your reaction to how we meet this
problem .

Mr. JACKSON.I think the only fairanswer toyou,sir,is that

presently have all the facts on which to make even a personal
judgment.I think one ofthethings that we are going to have to look

at,as we face the issue,is,No. 1, what will betheeffect of current

fiscalpolicy. Thatis,thepotential effect that may take place,in the
near future, together with the reaction of the private sector onthe
efforts that themonetary authorities have already made.It would be
m y judgmentthatthe questionisopen.

The CHAIRMAN.Letme get to that in a littlemore detail later on.
You are responsibleformonetary policy primarily.Ourresponsibility
is the fiscal responsibility and themonetary responsibility.

Let me ask you another aspect.The Federal Reserve Board isa

regulatory body,too. You regulate the member State banks.What
viewsdoyou have on the adequacyofourpresentfinancialinstitutions
with respect to solvency? Do you have any feeling of concern with


Mr. JACKSON.They are more concerned about the short-term rates.

The CHAIRMAN.Iflong-term rates don't comedown,we will con
tinue in a housing depression; isn't that logical? Unless long-term
rates come down, you will not be able to finance housing.

Mr. JACKSON.Ithink the fundamental question,to which I do not
have the answer,is,what would be the attitude of consumers about
the rates as they exist?

The CHAIRMAN.What I am talking about is thefact ifyouhave a
9-percentrate,only aa small proportionof the population can afford to
buy homes,lessthan30percent, some peoplesaylessthan 15percent.
So,under these circumstances,it would seem to me we have to find
some way of making housing money available at a lower rate,a rate
they canafford,below 9 persent.

Ihopeyou cancontribute tothat on the Board,because you will
beundoubtedlythehousingexpert.Youare theonlyman ontheBoard
with the kind of experience you have bad in housing.It hasbeen a
great concern of the former chairman of this committee, Senator
Sparkman,who has been Mr. Housingin the Senate formany,many
years,and many of us feel thisisthesingle mostimportant industry
to lead us out of the recession.Ifwe can get housingstarted,itwould
be 2 million jobs,and it would bea great momentum .

Mr. Woodcock said that the best way to help the automobile
industrywas tohelphousing.Thiswassomethingon which theFederal
Reserve Board can make a substantialcontribution.

I have a number of other questions, but I will yield the floor to

Senator Garn .

Senator GARN . This entire discussion has gone on all year long

between thedistinguished chairman andI primarilybeing theonesto

carry iton.I do not disagree at all with Senator Proxmire on need for

additional housing starts and jobs that will come from that and
spinoffs into otherareas of theeconomy. I have been stating allyear

long as that primary cause isFederaldeficit spending.I firmly sub

scribe to thecrowding out theory. I do not see thatitmakes much
sense when we,in the Congress,and ourfiscal policy,arethe primary
cause of the lack of availibility of money,for reasonable ormodest
interest rates or whatever that means .

Then we come back with housing bills to subsidize 6 or 7 percent
mortgages.Governmentcausestheproblem, and Government comes
back in to solvethe problem which,I think,they could solve by not
spending so much money in a deficit manner.

Do you subscribe to the crowding out theory? Do you think it
exists and makes lessmoney availablein the privatesector and drives

interest rates?

Mr. JACKSON. If you are asking whether crowding out may or may

not occur,it willto a significant degree depend on how much, and
how many,and of whatnature,other borrowers are in the market

seeking creditat the same timeas the Treasury may be.The answer
to that question,I don'tknow.Much would dependon the natureof
the economy at the time.

Senator GARN. This year,or fiscal year 1976,I estimate we will
have at least a$ 75 billion budget deficit.What is your estimate of
how that willaffect the marketnext yearwhen the Government has
to go out and borrow ? You will beinvolved as a Federal Reserve


Governor.That money has to come from your printing it or your

borrowing it in the private sector.How would the crowding-out
theoryworkwithyouborrowing$75 billionorareyou creatingitnext
Mr. JACKSON. I don't have an answer today for the question you
are asking.

Senator Garn. I don't expect you to have a specific answer,
because we are all guessing.The economists we had parading before
us thisyear,were wrong inregard to 1975,no matterwho theywere,
conservative or liberal.

Do you think a deficit of $75 billion will cause crowding out and
much higher long-term interest rates?
Mr. JACKSON.I don't think there is a question in my mind that
many times interest rates areinfluenced bywhat exists,but,more so,
by people's attitudes about what will exist in the future.Some have

felt,in thelast fewmonths,that the crowding out concept will be

valid, and have made decisions on that assumption. You have seen
people pay higherinterest rates than they otherwise would have paid,
iftheyhadnot believed inthe crowding-out theory.
Senator GARN.You made a statement that I agree with that you

can't separate fiscaland monetary policy.Inlightof the fiscal policy
of the Congress and the huge deficits we are continuing to build up
each and every year how do you feel about the pressurefor greatly
increasedmonetarysupplyby theFederal ReserveBoard.Somepeople
are talking aboutasmuch as 10-percent increase.
Mr. JACKSON.I think the only answer Ican giveyou isIdon'tknow.

Idon'thave allthefactsonwhich to base ajudgment.
Senator GARN.You are going into a job as amember of the Federal
Reserve Board. You must have some opinions.Not being a member

of the Boardyet,I am sure you have nothad opportunity tolook at
theirfigures. Iam not trying topin you to specific numbers.That is
why I'm phrasing my questions in broad generalities.
You must havesomeopinion as to where we ought to go.Chairman
Burns talked in wide ranges, 5 to772 percent.

Mr. Jackson.It would be my hope at the Federal Reserve Board
notto basemy decisions on my hunches or opinions but on the best
available information at my command and the Board's command.

I am not trying to dodgeyour question.I do think in thelong run
inflation is a serious problem inthis country and is a problemthat
must be faced not only by the Federal Reserve Board, but by the

Congressaswell.To theextentthatinflationcontinuestobeaproblem
it shouldbe aproper concern of the Congress as well as theFederal

Reserve Board. Based on the actions of either,the other may react
to counterbalance that from time to time.

Senator GARN.Even though we allrecognize that the recession is
serious, that we do have high unemployment problems,do you feel
in the longer term that inflation ismore of a problem than thecurrent

recession?Ido phrase itin thelong term.I'mnot talking about asof
today,do you think inflation is more of a problem than recession?

Mr. Jackson. I think inflation is a problem in the entire world.
Itis a problem that must be faced.
Senator GARN.I have no further questions at this time,Mr. Chair
man .


The CHAIRMAN. Your answers are frank and helpful, because they

indicateyou do have an open mind. I'm concernedabout the import
anceofhaving aman appointed by the Presidentof the United States
and confirmed by the Senate and who has a record of fine success as

you have inthebusinesswillbein aposition on the Board to exercise,
independent judgment.
I am not saying there have been rubber stamps of the chairmen in
the past,but there have been allegations to that effect.One way you
get that,especially coming to a monetary policy field where you have
not had as much experience as you have in housing is by having a
staff available.

One of theproblemswith respect to the FederalReserve Boardis

that the staffis tightly controlled by the chairman.That happensin
some of the congressional committees. I hope it is not truein this
Committee .

Senator GARN.I agree with that.

The CHAIRMAN.Have you had opportunity to be informed by the

Chairman ofthe Board and othersas to theavailability of thestaff
toyou?Wouldyou befreeinmakingupyourmind on theappropriate
increase inthemoney supply?Wouldyou be freeto consultprivately
and directly with members of the staff at the Federal Reserve Board

ordo you have to go through the Chairman?

Mr. JACKSON.It is my understanding from previous members of
the Board,Mr. Chairman, that each member of the Board is free to

discusshis personalpoints of view, and the facts with any member of
the staff.As far as I'm able to learn,based on preliminary discussion
with the other members of the Board,you are free tohave those


The CHAIRMAN.Would you have any staff at all to advise you
directly, two or three experts?
Mr.JACKSON.It'smy understanding, and I'mnotfamiliarwith the
details,that the Board members each have an administrative assistant

of his choice to work under him.At the same time it is my under
standing that each Board member has access to all members of the

The CHAIRMAN.Do you think that one adviserwould beadequate,
oneadministrative assistant?Maybe I shouldn't say "adviser."
Mr. Jackson.I don't think one man can give you all the answers

tothe questions,no,sir.
The CHAIRMAN.Do you think each member should have hisown
staff?One of the things that concerns us is the bureaucracy. Every
policymaker who has a staffofhis own,ifthey did,itwould be burden

some. Our monetary policyisso important,do youthink itwould be
wise to consider having Governors with somewhat more advice

available to them,directly by people they appoint,people that they
can rely on.

Mr. Jackson.Ihave never thoughtof the issue and I don'thave an

opinion.Offhand, having seven members of the Board of Governors

with each havingtheirownstaff,mightmake itmoredifficulttoarrive
ataconclusionsatisfactoryto anybody.Againitmightnot.Irecognize
the value of independentjudgment.

The CHAIRMAN.Iagree,and Ithink allofus hereagree,Senators
Allen, Garn and I want todiscourage increase in the bureaucracy.At


thesametimewhereyouhaveamenenteringapositionofgreat policy
makingpowerwe want toseehe getsgoodindependentadvicewe can
rely on.

your view,istheFederalReserveBoardindependentofthePresi

dent and executive branch?

Mr. JACKSON.M y understandingis that the Federal Reserve Board
is a creature of the Congress.
The CHAIRMAN. Its a creature of the Congress?
Mr. JACKSON. Yes,sir.

The CHAIRMAN. I'm glad to get that response,because that ismy

Do you believe that when the Federal Reserve Board takes major
action such as interest rate changes, tightening of money supply orin

effect it would have on the number of houses tobe built or the effect

on thehousing industry?
When Chairman Burns toldus what themonetary policy was to be
for the following year -it was very welcome- butwhenhe does it,
wouldn't it be wise to tell us what consequence that would have on
Mr.JACKSON.The committee might well consider whether it would

wantthe Chairman to giveareactiontohousing.I thinkitwould be a
mistake to isolate housingper se.The ramifications for all sectors as

well as any specialized sector of the economy ought to be of interest
to the committee.

The CHAIRMAN.How abouttherateofinflationandunemployment.

Wouldn't itbe a good idea to indicate iftheyhave a monetarypolicy
of a certain kindthat theyexpect a certainrate of inflation,range of
inflation or range of unemployment?
Mr. JACKSON.I'mnot sure I'm getting theexact thrustofyour ques

tion, Mr. Chairman.As I understand your question,you are saying
would the FederalReserve Board properlysay,ifwe do this,thenthis

willnaturally result?

The CHAIRMAN. I'm not saying that.

Irecognizethesethings arenotinanywaycontrollableandneverwill

a ertainpolicyand hopei
bein afreesystem . You can followac
aresultand itmay not.When theFederal Reservecomesinwith a par
ticularmonetary policyandit isexpectedtobemore expansivethan in
thepast,and itisappropriatebecausewe have arecession,maybe they
would at the sametime give some indication ofthe generalpattern
thatthey expect prices and employment or growth,economic growth,

to take.

Ifthey did that,wewould have some notion ofthebasis,thereason
for their adopting of the particular monetary policy.
Mr. JACKSON.I thinkyour judgment issuperior to mine in that
respect. I don't honestly have one.

The CHAIRMAN.Well, the Federal ReserveBoard isin the position
to do this.They have the computers, excellent staff, fineeconomic

staff,one of thebestor thebestin Washington. They would be in a

betterpositionthanIwouldbe orany otherMemberof theCongress

would be.They musthave some idea ofthe impact ofwhat they are
doingorhow do theydeterminethatparticularpolicy?
Mr. JACKSON.I understand what you are saying.

The CHAIRMAN.Why won'titbedesirableto tellus?


Mr. JACKSON.If the committee and the Congress wishes, I don't
know why it could not say anything that the Congress wants them
to say .

The CHAIRMAN.Why wouldn'titbe desirable?They haven'tdoneit.
Mr. JACKSON.I don't know .

The CHAIRMAN.We not only have high unemployment now,9.2

percent,the highestsince the GreatDepression.W e have atremendous
idleness of ourplants. They are operating at less than two-thirds of

the preferredlevel of capacity. It makes sensethat putting idle m a
chinery and idle people back to work is not inflationary. It couldget

inflationaryatsomepoint,butthereseems tobenodangerofinflation
inthenear future atleastfor thenextyearortwo.

When we press the Federal Reserve Board to expand the money
supply at rates sufficiently high for a moderate recovery they raise
thespecter of future inflation.I agree that thatis a specter that is
somewhat in the future and is very real,but itisinthe distantfuture
in my view.

Why shouldn'twebe engagingin amoreexpansivemonetarypolicy

than we have had or thanGovernor Burns is projecting in viewof the


Mr. Jackson.We arecontinuing to have a relativelyhighrate of
inflation even with theidle capacity today.That has got to be part

of the equation on which anyjudgment isbased.
The CHAIRMAN.What concernsme about thatjudgment isthatthe
inflation is not related, however, to the demand situation. We have

pricesgoing up forobvious reasons. Oneis the jump of pricein the

oil in the world. The other is the fact that we have had

in 1973 and

1974 we had thefoodpriceproblem which was serious.We had two
devaluations of the dollar that increased the price of imported goods
and some thatwe exported tosome areas.Those are the factorsrather

than shortages.

Thereisnoareanow thatIcanthinkofwherewehaveanyshortages.
Steel is operating at a far lower level than it was a few months or a
year ago.Oil, we have plenty available and so forth.So that where is

there the pressure onresources, on too much demand ? Where is
there a situation where a lesser demand would ease up the anti
inflation problems?Where is there the prospect that greater demand
would cause inflation?

Mr.JACKSON. I thinkthen the question,as Iunderstandit,is,ifwe
have thissituationbasedon the presentmonetarypolicyshould threre
notbeways to expand the monetary policy?
The CHAIRMAN. Exactly. That is right. For the time being. I'm

notsaying doingitforyears,butfor3 or4 or5 months.
Mr. JACKSON.Basedonwhat Icanread,from thereportsofvarious

people testifying before this committee, and others,thereare some

who feel we are in a turning position in the economy and the rate of

capacity utilization may go up.
The CHAIRMAN. Won't an expansive monetary policy do exactly
that ?

Mr. JACKSON. I think the question, sir,is whether or not we are

getting the turn in the economy that we all hope for today basedon

the present monetary policy or whether it would takeadditional

monetary easetosustain theturn thatpeople expect tobe happening.


The CHAIRMAN.The rate ofunemployment increased recently.All
the projections —the government's own projection is 8.7 percent for

this year and 7.9 percent for next year.Then they don't expect it to
go be below 7.3 percent for 3 years.

And even this assumes we would have the fastest growth we have
had since World War II,which seems super optimistic. If we were
operatingat 5 percentunemployment instead of9 percent,we would
be producing $200 billionmore.

Monetarypolicy,it seems,would bea good way to get there.In
your opinion,is there any substantial dangerof inflation takingoff
again in the near future,can we count on,in the future,deceleration
ofthe rate of inflation this year and next year?

Mr. JACKSON. I would hope it would not take place.The answer
is,I don't know,Senator.
The CHAIRMAN. If we do get inflation and it is possible,because
nobody knows the answer but if we do get inflationit isunlikely to
come from pressure on scarce resources. It is more likely to come

from unpredictablefood shortage orwar in the Middle East.

Thatwon'tbe the result ofa tightermonetary policy.What will

happento theinterestratesinthenextfewyears?

Mr. Jackson. One thing I have admired was something Peter

Drucker saidinhis books.There are only two thingsyouknow about
thefuture. No. 1,it will be differentfrom the past, and No. 2,it will
be different than what you thinkitwill be.

The CHAIRMAN.Thereisnoway tohaveeconomicpolicy,monetary
or fiscal policy unless you makesome assumptionson the future.If

you assume that the future is completely unknown there isno way to
take policy positions at all.The policypositions you take will have

effectnextmonth ornextyear.Therefore,you must make theassump
tionasto what interest rates and what employment and what prices
are likely to be.
Mr. JACKSON.Ibelieveyou asked me what Ifelttoday.I'mnotin a
positiontoinfluence thatjudgment.I'mnot amember oftheBoard of

The CHAIRMAN.You are abouttobethough.We areconsideringyou
for it.

Mr. Jackson.Yes,sir.

The CHAIRMAN.Ifyou dobecome amember oftheBoard,won'tyou
have to make these judgments?
Mr. JACKSON.Yes,sir.

The CHAIRMAN.How willyou go about makingthem ?
Mr. JACKSON.I will use the best informationI have available from
allstaffresources and then use thebestjudgment I have to do what is
best for the country.

The CHAIRMAN.Well,this is one area where you have had a good
background.As amortgage bankeryou had tohave opinions about in
terest rates. I think, therefore, it is a fair question and a question

whereyou would be competentto give us ananswer. Thequestion is
what do you expectinterestrates to do.Not what you predict or fore
cast or know, but what do you expect interest rates todo.
Mr. JACKSON. Based on my mortgage banking experience,I think
interestrates will tend to be level orturn slightlydownward.

The CHAIRMAN. What do you assume about the money supply


Mr. JACKSON. I assume it will continue to grow, particularly the

largerdefinition ofitthathas to do withsavings accounts.
The CHAIRMAN.Idon'tthinkyou canfind aquarteryearwhere M -2

hasn't grown.I'm talkingabout M -1.Do you expect it to grow at
more than a 6-percentrate?
Mr. JACKSON.I think Chairman Burns testified thatitwould be the

presentobjective to grow between5 and772percent.
The CHAIRMAN. What do you expect?

Mr. JACKSON. If the Fed expects it to grow at that rate,its judg
ment would be better than mine.

The CHAIRMAN. What would happenifthemoney supplyincreased
in a somewhat more rapid way? What would happeninstead of in
creasing at 5 to 7% itwould increase at8 percent?
Mr. Jackson. No. 1,you couldfind short-terminterestratescoming

down.The investor reaction in the longer term market might make
longer term rates go up.
The CHAIRMAN . Wh a t is the best bet?

Mr. JACKSON. Probably different from either of those results.
The CHAIRMAN.How would it cause longer term interest rates to
go up.You say cyclical effect?

Mr. JACKSON. Ithink thereare many peopleinvestinginthe long
term market who feel that ultimately over a short number of years,

if we have substantially lower short-term rates, this will produce
inflation that will in turn reducethe value of their long-term invest
ments.So they want a rate high enough to make their long-term
investments compensate for sucha reduction.

The CHAIRMAN.They want it.What doyou do with your money ?

You aresittingthere with halfaamilliondollarsasyouare,or alittle
more.You are sittingthere with that kind of money,what do you do
with it?

Mr. JACKSON.For the present, many of the people that might

ordinarily be making long-term investments are now making short
and intermediate investments because of this concern.

The CHAIRMAN. How long can the thrift institutions hold on?

Mr. JACKSON. I would personallyhopenotmuch longer.That hope
is based on the feeling that sooner or later the managers of these
thriftinstitutions will be convinced that the rate of inflation will go
down and stay down and they would be safe in making long-term

The CHAIRMAN.What do you think now,what do you think the
Fed can do to stimulate housing?
Mr. Jackson. Aside from anything else, the fundamental task is

to generate an attitudein thiscountry thatthe Governmentis com
mitted to the control of inflation and that its resources will be used
to control inflation.

The CHAIRMAN . H ow does the Fed do it?

Mr. JACKSON. By its policies and by its actions.

The CHAIRMAN.What policies do they follow?
Mr. Jackson.It continues to take proper concern for inflation as
a part ofitsmonetary policyfor the country.
The CHAIRMAN.How do they dothat? I don't want to beunfair,
but you're giving me an answer,which is a good answer,but I want

to see where it leads.


You say theyshouldfollow apolicy thatisnoninflationary andhas

concern.What does that mean? What do they do about the money
Mr. JACKSON.I think they do the job that the Congress assigned
them to do as best they can .

The CHAIRMAN.Well,areyou tellingme, or are you not,if they
follow the policy of Dr. Burn's outline with a 5 to 7% increase in the

money supply that that will best serve the interests of housing and
the mortgage market?

Mr.JACKSON. I can't tell you that any specificrate of growth will
have directly a specific impact on thehousingmarket.I think the
two best cures ofour problems in the housing industry are a sound
monetary and fiscal policy.
SenatorALLEN.Excuseme,Mr. Chairman,Ineed tobe on the floor.
Will you excuse me ?

The CHAIRMAN. Your Senator is conscientious. He is on the floor

asmuch or more thanany Member ofthe Senate.
Mr. Jackson. Thank you, and I wish to publicly express my ap
preciation to him for joiningus today.
Senator ALLEN . Thank you .

The CHAIRMAN.What isyour opinion about variable ratesmort

Mr. JACKSON.I think they deal with a fundamental problem that

probablyisgoingtobedifficulttosolve.The problemishow toprovide
the lender an increased rate of return without costing the borrower
too mu ch .

The CHAIRMAN.Ifeltthe same way.Thatis a tough problem.But
how do we proceed? Do we permit experimentation with it of a
limited extent?

We have instructed the Home Loan Bank Board not to permit

variable rate mortgages,but certain States like California have
permitted their State S. & L. to proceed withit.Do you think this is

a logical way to see how these work out,or do you think we should

not take that chance?

Mr. Jackson.Any type of experiment that we can do that will

better enable the thriftinstitutions to respond to pressures that are

placed on them and particularly, their earning capacity, is an effort

in the right direction.Whether isproves to bea right answer,nobody
knows .

It iscertainly appropriate that we continue to exploretheseissues
such as the considerationrecently given by your committee and in
the financial institutions bill.We have to do something.
The CHAIRMAN.I take it from your answer,you do not think it
wise to simply go ahead with the variable ratemortgages and permit

them to beused whenever the national institutions wish to use them .
The degree of constraint seems to be about right.

Mr. JACKSON.I have no objection to the congressional approach in

this matter.

Senator GARN.I was interested in the chairman's lineof question
ing aboutadditional staff.W e will find outsoon what his attitude is
in givingjunior Senators additional staff.
The CHAIRMAN.All Senators have at least 20 staff members.There

isno Senator that has less than 18 or20,ifhe wants to use the staff.


SenatorGARN.The proofof thepuddingwillbe inthe vote;do we

Have specialists or use the clerk here? I don't intend to pursue it

further, but I couldn't resist making the observation.
One of the things I think is important, you talk about attitudes.
I don't think it makes very much difference how much stimulus

Congress tries to put in with variouspump-priming programs or how
much the Federal Reserve decides whether it is 5, 772 or 10 percent

increase in the money supply as long asbusinessmen,consumercredit
mortgage lenders, etc. are out there trying to outguess what the
Fed andCongress are trying todo and theyare afraidofwhat Congress
or the Fed might do or not do to them,then we're not going to see
the kind of recovery that thechairman and I would like to see.

What I'm saying and Ithink you agreeisthat until we get con
fidence built in this country, confidence that the economy will be
more stable and that they are not afraid of political whime of the

Congress, or possible temporary decisions of the Federal Reserve,
that all the money in the world, increase in money supply, pump

primingwill not get us out of theproblem .
Would you agree that part of the problem of the Federal Reserve

and Congress isto buildconfidencein the economy,that people can

trust us,that we will make reasonable,sensible,commonsense deci

sions and that is at least as much a factor in this recovery as the
amount of money we pump into it?

Mr. JACKSON.I don't think there is any doubt that the American
consumer has had his confidence shaken in certain aspects. Along
with business investment, we have to convince the consumer that

here,again,he can continue togo forward.

Senator GARN.On theFederal Reserve,you have banking where

you will be comingin with housing expertise and background in that

area,would you feel that thesingle most important thing we can do

inthe housing market istoestablish somestabilityin thelonger term
projects,so that the confidence does exist,builderswill dare togo out,
Tenderswilldare tomake long-term commitments.
Don't you think thatisalargepartofsolving thehousingproblem?
Mr. JACKSON. Yes,sir.
Senator GARN . I certainly agree with that. If we stay on the
ups and downs ofthe rollercoaster— ifI were in the privatesector,
Iwould be scared to death with what Congress is doing with those
upsand downs.I hope as a member ofthe Federal Reserve,you can
instill some of that confidence.

I have nothing further,Mr. Chairman.

The CHAIRMAN.What isyour opinion about regulationQ?
Mr. Jackson. Iam not sure when you say,“What isyour opinion
about regulationQ ?” what you mean.

Thé CHAIRMAN. Do you favor having alimitation on the rate of
interest that can be paidby banks and S.& L’s.?

Mr.Jackson.I don'tthink thereisany question thatsucha regu

lation isnecessarynow.Ithinkthequestionisshouldwe evereliminate
it,and ifso,overwhat period andifso,how.



The CHAIRMAN.How about that?

Mr. JACKSON.I think in the long-term,we should move toward the

elimination of regulation Q.
The CHAIRMAN.How a long a term?

Mr. JACKSON.I can't giveyou an answer in years or months.The
answerliesmore in wheneverwe are able toadjust the earning ability,
ofthrift institutionsso they can more effectively compete.
The CHAIRMAN.Would it take more than 2 years?
Mr. JACKSON. Yes,sir.
The CHAIRMAN. More than 5 years?

Mr. JACKSON.Itwould depend on theaction the Congress takes to

make the thrift institutionsmore
The CHAIRMAN . What action can we take?

Mr. JACKSON. To broaden theprospect oftheir ability to invest in
other thingswhich would in turn improve theirearnings.
The CHAIRMAN. When you say " other things,” you mean things
other than mortgages?
Mr. JACKSON. Yes,sir.

The CHAIRMAN. When they do it, what happens to the housing
Mr. JACKSON. Simultaneously, it is necessary for the Congressto
take action to encourage otherpeopleto invest in mortgages. For
instance,theDepartment ofHousingand Urban Developmenthas the

powerto insuremortgages and the Veterans Administration to guar
antee home mortgages. The Government has given the Department

ofHousing and Urban Developmenttheright to giveitsfullfaith,and
credit to the mortgage-backed debentures. Recently the Chicago
Board ofTradehas opened afuturesmarketinsuchdebenturesthrough
which fluctuationsinrate can be hedged like commodities. Iwould like
to hopethat this in turn offers substantial opportunity tocut down

on aproblem thathas existed inthethrift institutionsfor alongtime.

The thrift institutionhas a substantialshort-term liability with

long-term assets.In addition to that,inorder to financeconstruction,
a.thrift institution is called on to give a builder or developer a long

term commitment of maybe 2 years before the actual mortgages are
made. In the meantime,the thrift institution is absorbing that time

priceriskduring that period and in turn,itssavers arehaving to help
pay for the cost of that risk inone way or another. If the time-price
riskcan bereduced,itwillbenefit the people who areultimate usersof
the money

If this development in the Chicago Board of Trade will enable.
builders of housing to hedge this future risk in a way similar to the

way other peoplehedge commodity prices, it will be of significant
assistance toward helping the thrift institutions and people in the
housingmarket to getloans on a more favorable basis,because there
are lesspeople absorbing lessrisk.
The CHAIRMAN. To what extentis this device for mortgageholders
being used?

Mr. JACKSON.Not at allnow,because itwas opened in thelast few

The CHAIRMAN . Last few what?

Mr. Jackson.It is in the process of being opened and the details
arejust now being completed. It will be available in the next few
weeks .


The CHAIRMAN.This isa veryinteresting operation. Itsoundslike

it may be promising.II wonder ifit is,or a pipedream . You are the
first witness that broughtit up and I am glad you have.We should
know about it.It sounds like something to explore.
You say itisnot being used at allnow ?

Mr. JACKSON.PerhapsMr. Coan could answer the question.My

understandingisthatitwill be available in amatter
ofweeks ordays,

that trading will actually begin.

The CHAIRMAN.Iunderstand itisbeingworked on now and itwill
be 6 months to a year or 2 years to get going and then there is some
question as to whether it will work.

How big adifferentialdoyou think isappropriatenowinregulation
Q?As youknow now,itwas aquarter.Itwentfrom halftoa quarter;
funds flowed outof the savingsand loan institutions in a considerable

a m o u n t.

Mr. Jackson.I don'tbelieve any arbitrary decision should be made

about what is a proper relationship. It is whatever relationship

works. It is the result you intend toproduce, not the actual spread
between a half or quarter, that produces the result.

The CHAIRMAN.The charts we have seen indicate that when you
have acne halfdifferential thatthe savers aremore inclined togo into
the savingsand loaninstitutions,much more.Since we have the one
quarterdifferential,there has been a great flowin favor of thebanks.
Mr. JACKSON.I have not seen that chart.

TheCHAIRMAN.Let me ask you now - not on futurepolicy, butdo
youthink the Fed,on balance,isfighting or contributing toinflation
in 1972 ?
Mr. Jackson.I don'thonestly have an opinion.
The CHAIRMAN. That was the year- and election year- results of
the year when

theFed increased themoney supplybyabout8 percent.

It wasalso ayearof great prosperity compared to what we have now,

year ofrelatively lowunemployment.
You don't have an opinion as to whether that contributed to infla

tion. You seem to have an opinion now that anythinghigher than
772 percent may be inflationary, increase inmoney supply this year.

At that time itwas8 percent,unemploymentwas5percent andyou
don'thave an opinionas to whether itisinflationary.
This year unemployment is 9.2 percent, industry isoperating at &

far lower rate of capacity and you say if we go above 72 percent,it
would be inflationary.

Mr. Jackson.If I conveyed that opinion, I was mistaken.I do not

havea firm impression of whetlier the 5 to 7% percent would be

inflationary or not today.

The CHAIRMAN. In June of 1974,until March of 1975,we had a

relatively smallincrease in the money supply,about 2% to3percent.

Was monetary policy contributingto the present recession then,
fighting inflation or showing a neutral force ofsome kind?
Mr.JACKSON. The strong feelingamong most people in thecountry,
including the President, was that inflation was the primary enemy

in the country. On thatbasis, the Federal Reserve policy coincided
with the feeling of the administration and Congress.
The CHAIRMAN.Do you think thatfeeling,
was wrong?


Mr. JACKSON.Hindsight is wonderful. It may well have been a

mistakeat thattime.
The CHAIRMAN. Was it a mistake or not?

Mr. JACKSON. It looks like,based on the rate of change,that it

probably was.

The CHAIRMAN. It seems to me to be a conspicuousand emphatic

andtragic mistake; 2% percent increase in money supply when un

employment was increasing steadily and sharply, going from672 per

centto9percentandthelastquarterof1974 andfirstquarterof1975,
What is the difference in using monetary policy to fine tunethe

economyand usingthe fiscalpolicy forthatpurpose?

Mr. JACKSON.Ithink the basicproblem is the experience in this
country isthat fiscalpolicy ismore difficultto handle on a fine-tune


The CHAIRMAN.Monetary policy iseasier?
Mr. JACKSON. Monetary policyhas to be used infillingin the gap.
The CHAIRMAN. I hesitate toask you this question based on your

previous answers.
Do you believein yourown ability to finetunetheeconomy?
Mr. JACKSON.As an individual,I am one of270 million consumers.

Therefore, my individual judgments in a free economylike ours do

The CHAIRMAN.My questionisdoyou believein your ownability

to fine tune the economy?I take itfrom everything you said,your
answer isno.Becauseyou
can'tforesee thefuture.Ifyou can'tforesee

the future,thereis no way to fine tune the economy.

Mr. Jackson.Basedonmy personalindependent judgment,based

on what I know now,I couldn't do it.

The CHAIRMAN.What about ArthurBurns'ability to doit?
Mr. Jackson. His judgment and ability would be substantially
better at this point than mine.

The CHAIRMAN. Do you think he should try to fine tune the

Mr. JACKSON.I think he is in a position to help lean against the
The CHAIRMAN.Would you beinclined togo alongwithDr.Burns'


judgment until you havemoreexperience inmonetary policy.

Mr. Jackson. I would think his judgment should be considered

with a lot of others. As far as my parroting his own conclusions,I
would not.From the oath of office, I'm the person responsiblefor my

vote.Therefore,I have to serve my own conscience and ability and
vote theway I think it'sproper to vote.

The CHAIRMAN.You havetold me that Dr. Burnshas more ability
in this area than you have at the present time. How would you
reconcile that discrepancy with the oath of office you aretalking

about ?

: Mr. Jackson.
JACKSON I would say his judgmentalong with other members
of thestaff and the Board should be consideredin trying to make a
judgment. I wouldsay while he has great ability andhas earned a
great dealofrespect, he isnot the onlypersonwithabilityorstature
on the staff of the Board of Governors or on the Board itself.

The CHAIRMAN.Does it make any sense to have three, and
counting the SEC,four regulatory agencies?Should we consolidateit?


Mr. Jackson.I think thatisone issue the Congress should address
itself to simultaneously with thefinancial institutions question.To a
large measure,what the Congress decided to do with the financial

The CHAIRMAN. As a Member of Congress,I'm asking youyour
advice on this.

Mr. JACKSON.I personally think some modification of the super

visory functions should be made .

The CHAIRMAN.Would you favor having a single bank regulatory
agency so you can standardize the regulationsand so you won't

haveregulationsby laxityor competitionby laxity?
of responsibility through the funnel concept ofsupervision.
a tendency touse thatsupervisor thati
There tendstobea
smost lax.
The CHAIRMAN.If thatis true,why won'titbe wise toconsolidate
the regulatory bodies as Dr. Robertson has proposed? Would you

favor that?

Mr. JACKSON. I would favor thatas a broadprinciple;yes,sir.
The CHAIRMAN. Inside the Federal Reserve Board,wouldthe Fed
be the regulatory body or should it be another?

Mr. Jackson. I don't have a judgment as to which would be the

best body. It would depend on the financial institutions to be

The CHAIRMAN. The Federal Reserve Board has theresponsibility

andpower of beinga monetarypolicy organization.
Mr. Jackson.The two functions complementeachother.
The CHAIRMAN.Do you have a view on so-calledliabilitymanage

ment ? Should we restrict the banks in raising funds?Should we limit

the extent of total liability that can be comprised ofFederal funds?
Mr. Jackson.I have difficulty in hearing the question.
The CHAIRMAN. I asked whether you favored the so-called liability
management? Should we restrict theway that banks raise funds?For

example, I asked should we limit the percent of total liability that
canbe comprised by Federal funds?

Mr. Jackson. I would think purely statutory constraints mightin
thelong term prove to be a mistake.I think the circumstancesunder
which these constraints might

The CHAIRMAX. How can regulatory constraints operate?

Mr. Jackson. Ibegyour pardon,Mr. Chairman.

I have difficulty inhearing.
Having the Fed or Comptroller, whoever the regulator is,deter
mine the constraints.That might well be wise.
The CHAIRMAN. Would you urge that as a Member of the Board ?

Mr. JACKSOX. I don'thavesufficient background or judgment to
speak finally and unconditionally on that question.I do see thedan
gers ofcertain types of liability structures in the banking system

thatwill produceproblemsforthe Federal system and the banks and


The CHAIRMAX. How long isyour appointment for?
Mr. Jacksox.January 31, 1982.
The CHAIRMAN. Do you thinkyou will be any less independent
and act any less independently asif you had been appointed for a
full 14-year term ?

Mr. JACKSON.No,sir.


The CHAIRMAN. Why are 14-year terms necessary. Would you
favor reducing terms to 5 years,7,or 10 years?

Mr. Jackson. Idon't have a judgment. I think the main point
that needs to be taken intoaccount in anyconsideration of the term
ofserviceofanymember oftheFederal Reserveisthatitbesufficiently
long forhim to haveindependent judgment.

The CHAIRMAN. You feel that'1982, that is 7 years, would serve

asfaras you are concerned?
Mr. JACKSON . Yes,sir.

The CHAIRMAN.Now,the Chairman isappointedfora 14-year term
as a Governor,but his appointment as chairman isonly 4years. His
appointment of chairmanis not confirmed by the Senate.I'his could

make him more the President's man than the Congress' man. You
said the Fed should be the creature of the Congress and independent
of the President.

Would you favor requiring Senate confirmation of the President's

Mr. JACKSON.Ihaveno objection to that.As you know,the Federal
Reserve acts as a creature ofthe Congress and the provision for the

appointment ofthechairmanispart oftheact.If theCongress wishes
tochange it,why shouldn't it?

The CHAIRMAN.Wouldn't that be logical? Wouldn't it follow from

the congressional assertion that this is a congressional power?
Mr. JACKSON.I have no objection to thatpersonally.
The CHAIRMAN.As a Governor, one of your duties will be to super
vise the affairs of the 12 Federal Reserve banks.Would you tell us

briefly what this will involve, supervising affairs of the 12 Reserve
banks ?

Mr. JACKSON.As you know,the Federal Reserve Act establishes in
definitive terms the extent to which the Board of Governors does

supervise theReservebanks.The Congress establishedthatrelationship
between the Board of Governors and the Reserve banks and gave

them certain powers over the appointment of Directors,salaries,and
So on .

The CHAIRMAN.Will thispower you have as Governor involve
selection of the presidents of Reserve banksinany way?
Mr. JACKSON.You are asking me a technical question,and I don't
know the answer to it.

The CHAIRMAN. As I understand the Board must approve the
selection and the nominations are made by the Directors ofthe banks;
is that correct?

Mr. Jackson.I hesitate to answer,because I'm not positive of the
proper requirements.

The CHAIRMAN.Will supervising the Reserve banks involve you in
settingand approving theReserve bank budgets?
Mr. JACKSON . Yes,sir.

The CHAIRMAN. Will itinvolve you in auditing expenditures of

Reserve banks and evaluating the effectivenessof theirmanagments?
Mr. JACKSON.Yes,sir.

The CHAIRMAN.Congresshasentrustedresponsibility for supervis
ing the Reserve banksto the Board of Governors and establishes a
, Congress gave the five Federal Reserve
Federal-local committee,
banks'presidents equal responsibility for the conduct of open market

policy with the other governors. How can the presidents play an


independent role in forming monetary policy as they are supposed
to dowhen the governors with whom theyserve and vote on the
FOMC are theirsupervisors. You supervise their selection, and the
job they doand yet,they are supposed tobeindependent ofyou and
servingon the Open Market Committee.How canitbe?
Mr. JACKSON.Ithink here again, iftheselection process isproper

by thedirectorsoftheFederalReserveBank,then thesepeopleshould
be capableof independent judgment and should be in turn required

to exercise it.

The CHAIRMAN.Isn't that likeletting the staff of this committee
vote with the members?

Senator GARN.Actually, that isn'tfaroff.

Mr. Jackson.If you properly selectthe staffthey will be honest
enough about
t he question about which you askthem.That is the

way with the FederalReserve System.If you askthem to and require
that theyexercise independentjudgment, they should becapable of
doing so.

The CHAIRMAN.We shouldn't rely on men but law.Why should
we provide forPresidentialappointment for6yearsfor the nomination

of the office of Reserve bank presidentwith confirmation bythe
Senate,so they do have that degree of independence.They would be
selectedby the President and confirmed by the Senate.
Mr. JACKSON.I never thought about the specific question enough
to give you an informed judgment.
The CHAIRMAN.It's agreat power they have.
Mr. JACKSON.I have no informed judgment to give you.

The CHAIRMAN.Why shouldn'twe require that all FederalReserve
bank income regardless of source be sent to the Treasury. It is a

creatureofthe Congress,therefore,shouldn't weappropriate thefunds
they use and bein a position topasson theiractions aswedonotnow,
because they are able to fund themselves.

Mr. JACKSON.Havingnot been involved in the detailed operation

of the FederalReserve,I can't answer that question directly.How
ever,I can give you an answer in another context.It has been my
experience as a person who deals with the Department of Housing

and Urban Development.

The CHAIRMAN.Do youknowhow much the Fed spentlastyear?
Mr. JACKSON.Around $500 million.
The CHAIRMAN . I understand itis$550 million.They have doubled

their expenditures in the last 5 years and their rate of increase is
more rapidthan the Federal spending.Why shouldn't we provide
for the GAO to audit them. That isinthe operation ofthe Reserve
Bank and Board. GAO should audit the efficiency of the Board.
That would keep GAO out of monetary policy because they do not

have the technical expertise.With respect to the efficiency and

legality,why shoudn't they audit them ?

Mr. JACKSON.It's my experience in private relationships-and I
recognize the different valuesystems thatexist between the Federal
Reserve andprivate relationships— that all too often that audits,in
the context in which I believeyour question is framed, produce a
few isolated instances of improper action and expenditure. In private
relationships the audited organization then usually overreacts to
that condition, so they end up spending more money rather than less.
Whether it would be truewith the Federal Reserve,I can't say.

20 .

The CHAIRMAN. I think it isan interesting observation. The
Defense Department and H E W might give a similar response.Most
people would argue that the GAO servesa tremendously useful
purpose by being available to investigate these enormousagencies
that spend this colossal amount of money. They have 2,000 or3,000
auditors and experts there.Why should the Fed besingled out as the
only one on which we can'tcheck to see if there areimproprieties or
mistakes or inefficiencies.

Mr Jackson.I don't have an answer to your question.
The CHAIRMAN.When you fellows get on that Board,like all of

us,you don't like to giveup anything you have.Having GAO pry
into youroperations would maybe be giving up something.
I havea couplemore questions.I apologize for takingas longas I
Ihave.Business Week reports in its latest issue that the heartof the
disclosure battles are going on between the banks and Fed on the one
hand and the SEC on theother in which the Securities and Exchange
Commission is requiring the bank holding companies to disclose

informationabout their loansand about the soundnessof their loans
and aretryingtorequire them to doitand the Fed isresistingitand
so arethebanks,one answer given by astock analyst isthis:
If all banks upgraded disclosuresat thesame time,told aboutthe

difficulty they arehavingwith theirloans,ifthecomptrollerpublished
a list gradingeveryone's loans there would be no bruhaha. But
Chemical and Manufacturers Hanover don't want to be the guinea
pigs Why won't it be appropriate and logicalto provide that kind
of disclosure ?

Are you familiar with what I am talking about?

Mr JACKSON I'm generally familiar, but not in adequatedetail to
respond accurately tothe thrust of your question.One of thethings
that concerns everybody is the fact if we get into a psychological
situation where there may besome question aboutthe viabilityof a

specificbanking institution, the exposure of all of its problems may

inturn create a problem in and of itself.
The CHAIRMAN. You can say that about any firm, Lockheed.You

can say it about United States Steel,General Motors,or whatever.
But we have had a policy now since the early 1930's of disclosure so

the investor is told before he invests in the security of a company.

It seems to me logical we should tell them the samethings about our
banks .

Eric Lindmann yesterday reported inthe New York Times that
the Fed has refused up until now to publish any meaningful data on

the aggregate level ofloans in the banking system that have been
criticizedby bank examiners.Suppressing aggregatedata of this sort
will not be helpful to the longer range problem of calming public
attitudes toward the banking industry.
Now,doesitseem toyou logicalunder those circumstances that the
Fed which should be willing to publish data on theaggregate levelof
loans criticized by bankers, refuses to do so? Shouldn't this be
Mr. Jackson.In the context you explained it,itmay be.
The CHAIRMAN.Why shouldn't it be?
Mr. JACKSON.I don't know enough about the other side of thecoin

to respond to your question or statement, Senator.


The CHAIRMAN. It has been suggested a good hypothetical. An
investor is being requested to invest a million dollars in the bank
because they need more capital.At that time the Fed knows that
certainloans at the bank are not good ormay not be good.But they
don't tell the investor.He is asked as apublic servicetoprovide for

capitaland itisapublic interest action.Is that fairor isthatproper?
Would itnot seem to you to be logical to give any investor allofthe

Mr. JACKSON.I think thatisan issue goingon not only with regard
to banks,but allcorporations in this country.
The CHAIPMAN. In all other corporations theSEC has not doubt.
You have to make disclosure.Now they are saying it with respect to
the banks,but theregulatory bodies won't let them do.

Mr. Jackson.The questioniswhatispertinent.Irecognize thisisa
decision inwhich one investor's case may be pertinent,but in another
investor's case it may not be pertinent.

The CHAIRMAN. Give the public thefacts.Let them know .There
may be a large certificate of deposit involving a million dollars or

several million dollarsnot insured. It couldmean a devastating
blow for an investor.Mr. Jackson, I'm, as I said earlier, iinpressed

by your experience inmortgage banking. It'sgood to have a housing
expertnominatedforthe Board.But I'm disappointed inyourfeeling
that you couldn't answer many of these questions.

That is the whole purpose of these confirmation hearings and
confirmation by the Senate. Particularly with respect to the Federal

Reserve Board, because this isan agency that isa creatureofthe
Congress.I feel,except for the fact you are from Alabama, which is
certainly in your favor
Mr. JACKSON.Thank you,sir.
The CHAIRMAN.And thatyou are in housing,which isinyour favor,
you are flyingblind. It's hard to know what your advice or your
actions are likelyto be.Let me ask finally inlight of that,in view of
the answersyou have given expressing no opinionon the policy ques
tions you willface ifyou areconfirmed,do you feelpersonallyyouare
qualified tobe amember
oftheFederalReserve Boardandifso,why ?
Mr. JACKSON. I believe I am . I believe that the Federal Reserve

Board, in directing monetary affairs, needs theoutside viewpoint,
the experience ofpeople who havehad to deal in the real world of the
economy,thatisin turnreflected in the attitude of the people of this
country toward events,as well as in the absolute financial statistical

numbers thatcan be gathered.
As Senator Garn said,sometimes itisnotwhat is,but what we think
is, thatproduces a given result. Therefore, that typeof insight into

day-to-day activitieswould havevalue tothe Federal Reserve, par
ticularly when it comes to the field of housing about which you have
correctly expressed such concern.
The CHAIRMAN. That's a reasonable answer, but I would feel

better about itas a practical manwith practicalbusiness experience
if you had strong convictions and feelings and you communicated
those.I have a feeling if you have those convictions they haven't
been disclosed.

We are proceeding on the basis of not having a clear or under
standable recordas to what you intend to do orare likely to do as

a member of the Board .



Frankly, I would feel better ifall the answersyou havegiven had

contradicted my position.I would feel better ifyou had a strong

positionwith respect to them and told us how you.felt.

Thank you very much, and I wish yo u well.
The committee will stand in recess, subject to the call of the


[Whereupon, at11:37 a.m.,the hearing was adjourned,subject to

the call of the Chair.]

[Thebiographical summary of Mr.Jackson and additional informa
tion follow:]

Personal background
Born October 27,1928,in Birmingham Ala.
Son of Philip C. Jackson and Margaret Ellen Maddox .
Married - Barbara Ellis Ritch, June 26, 1954.

Children - Virginia Ellen, Philip C. III,and Florence Jean.

Mountain Brook Grade School, Birmingham.

Phillips HighSchool,Birmingham.
BirminghamSouthern College, Birmingham .
Univestity of Alabama, Tuscaloosa; B.S. in Commerce and Business Adminis
tration .

School of Mortgage Banking, Northwestern University,Chicago.
Business experience
Perfection Bedding Co., 1945-47 (summer job).
Robert Decker Insurance Agency,1949 (part-time schooljob) .
Jackson Company, Birmingham , since1949; now vice president in charge of
mortage loan department and director.
Business organizations
Director,Alabama Power Co. Birmingham .
Director, Perfection Bedding Co. Birmingham .

Member,advisory board,FirstNational Bank of Birmingham .
Chairman, advisory committee, Federal National Mortgage Association,
Washington .

Board of Governors,Mortgage Bankers Association ofAmerica.
Civic affairs

Trustee,Huntingdon College,Montgomery,Ala.

Director, Metrolpolitan Birmingham Y M C A .
Executive Board Member, BoyScouts Council, Birmingham.

Director,Metropolitan Development Board, Birmingham.
Trustee,Archaeological Research Association of Alabama.
Religious affiliation

Member,official board, First United Methodist Church,Birmingham.
Past service

Mortgage Bankers Association of America: President 1971–72; vice presi

dent, 1969–71; received Distinguished Service Award 1965.

Contributingauthoroftextbook “Mortgage Banking.
Lecturer, Schools of Mortgage Bankingat Stanford University, Michigan
State University, University ofMiami, and Northwestern University.

Mortgage Bankers Association of Alabama, past president.
Birmingham Board of Realtors, past president.

Methodist Home forthe Aging,past vice chairman of trustees.
Birmingham Festival of Arts,vice president.

Metropolitan Birmingham YMCA,pastpresident.


Washington, D.C.,June 5,1975.

Chairman,Committee on Banking, Housing and Urban Affairs,
U.S. Senate, Washington, D.C.

DEAR M R .CHAIRMAN:The purpose ofthisletteristo recommendmost strongly
to your Committee andto theSenate, the confirmation ofMr. Philip C. Jackson,
Jr. as a member of the Board of Governors of the Federal Reserve System .

I first met Mr. Jackson shortly after I came to F N M A in 1970. Mr. Jackson
played a key role in the development of the Jackson Company of Birmingham,

Alabamainto one of the most respected mortgage banking companies in the
nation. Elected the 1972 President of the Mortgage Bankers Association of

America,Mr. Jackson is,to my personal knowledge,one ofthe mortgage banking

industry's most articulate and able spokesmen and leaders.
Until more recently, Mr. Jackson was the Chairman of the F N M A Advisory

Committee and as such, and in anearlier tenure on the Committee,I have found
hiscounseland advicetobe most helpful.
Ibelieve his wide experience in business, in financialmatters and his knowledge

ofthe housing industry clearly qualify him for the high level of public service to

which he hasbeen nominated.

I am pleased to endorse Mr. Jackson's nomination and hope that he will be


I would appreciate it,Mr. Chairman, ifthis letter could be made a part of the

hearing on Mr. Jackson's nomination .


Chairman ofthe Board and President.


FRIDAY , JUNE 20, 1975



The committee met at 9:05 a.m.,in room 5302,Dirksen Senate
Office Building, Senator William Proxmire, chairman of the committee,presiding.

Present: Senators Proxmire, Sparkman, and Garn.
[Senator Packwood was unavoidably absent becauseof ameeting
with a number of other Senators.]
The CHAIRMAN.The committee will come to order.

Thecommittee has been reconvened to hear again thenominee for

the Federal Reserve Board, Philip C. Jackson, Jr. Mr. Jackson
appearedbefore thiscommittee acoupleofweeks ago andatthat time
hewas questioned primarily by SenatorGarn andmyself.Itwasmy
feeling atthat timeanditwould seem tobeshared that Mr. Jackson's
responses were not adequate.He was not as responsive as I feel we

have aduty torequireofawitnesstobeinyourposition.

The difficulty, Mr. Jackson, is that as you know the Federal Re

serve Board,and as you told us franklywhen you appearedlasttime,
isacreature of Congress, and independent of the executive branch.
think that gives us a particular responsibility to make sure those who

serve on theBoardhavedisclosed to theCongresswhattheiropinions
are,what their position is,what theirattitudes are and soforth.
Thiscommittee isthe only agencyofthe Congress and of thepublic
that willhave an opportunity to question you andin viewof the fact
thatas aGovernor of the Federal ReserveBoard you will havevery
considerable power , there are

a few people in theeconomy that have

anything like thepower the Federal Reserve Board has to affect
credit, interest rates,inflation,employment.
For this reason,and because you're not being appointed simply
for a year when you will come back again for another go around,
but for7 years in this case,I think it'svery important that we elicit
from youyour views in greater detail than we succeeded in doing

last time.

I'm not saying that we should demand a technical understanding
of all the problems becauseit is a highly technical job,and almost
everybody appointed has to learn to someextent after their appoint
ment, but I think as an intelligent- and you are undoubtedly an

intelligent and able businessman and banker- you must have
developed some views on many of these things and we're going to try
to seeif we can elicit some responses and,of course,thiscommittee

is honored by the fact that the former chairman of the committee,
the present chairman of the Foreign Relations Committee,is here
this morning. He wanted very much to be here last time but was


unable to, and we are delighted to start off by turning this over to
Senator Sparkman to ask some questions.

SenatorSPARKMAN.As you stated,Mr. Chairman,Idid not have

an opportunity to be present at theprior hearing of Mr. Jackson.I
returned to Washington on the 10th instead of the9th.You might be

interested toknowwhy Iwaslate in returning after the recess. We
always travel between Washington and Birmingham by train. We

have excellent train service, the Southern Railway, which I think is
perhaps the best railway system in the country. We intended to

leaveAlabama on a Sunday whichwould have put us back here on
Monday morning and in time for Mr. Jackson'sfirst hearing. How
ever,at that time Southern Railwaychanged the schedule of therun
to Birmingham to 3 days a week instead of 7 days a week, and

Sunday was omitted. We had to wait until Monday tocatch the
train to come back.I am sorryI missed theârst hearing.
I have known Phil Jackson formany years and his father before

him .I have not been able to read all ofthe transcript of the first
hearing.Itseems tome thatperhaps someofthequestionspropounded

him he could not answer because--well, I'llask him this ques
tion.Before I doask him any questions let me say thatI didnot

nominate PhilJackson.Iwouldhavebeenhappy todoso,butChair

man Burnstelephoned me oneday and askedme ifI would approve
of Phil's selection. Chairman Burns had selected him. I was very

happy to endorse Phil and I am very glad that Chairman Burns
recommended him to the President forthis position.
Phil,how long have you been engaged in the home mortgage,real
estate, and mortgage banking business?

Mr. Jackson. Istarted work for Jackson Co. on October 1,1949,

on a full-time basis.I worked two summers before that during my
college days, and I have been in it since that day.

Senator SPARKMAN.When you commenced work who was the head
of the Jackson Co.?

Mr. Jackson.Well,my fatherwas president up until the day before
yesterday when the firm was sold to a local commercial bank. M y
job duringthoseyearswas to head themortgagebankingdepartment.
Senator SPARKMAN. How long was your father connected with that

Mr. Jackson.I think my father started in that business just in
time to see the collapse of 1929. His father, in turn, started the
company about 1904.

Senator SPARKMAN.In other words,you're the third generation?
Mr. JACKSON . Yes, sir.

Senator SPARKMAN. You have had a great deal of experience
during that time,I take it,on money matters,interest rates, avail
ability of mortgage credit and so on?
Mr. JACKSON.The family has been in that business for a good

Senator SPARKMAN.After being nominated or selected by Chair
man Burns, did you have any briefing by the Federal Reserve?
Mr. JACKSON. No ,sir.

Senator SPARKMAN. In other words, you came here without any
briefing and you simply responded to the questions as best you could
with thelimited knowledge you had of the working of the Federal
Reserve Board ;ism y assumption correct?


Mr. Jackson.Yes,sir. The Federal Reserve supplied me with
copies of the Federal Reserve Act,with brief pamphlets concerning
the operationof the system and some of the testimony made by
members of the Board before the various committeesrecently. I

believe those were the principal pieces of information that I got

from them .

Senator SPARKMAN. Of course, the Federal Reserve, as the chair

man of the committee hasstatéd, is a creature of Congress and is
supposedly separate from the executive branch of the Government,

The Board determines the policysofarasmoneysupply isconcerned
and things of thatkind. Do you have any particular knowledge as
to how the Federal Reserve Board worked,its policy on expanding

and contracting themoney supply and so forth?

Mr. JACKSON.If I understand your question, the Federal Reserve

Board operates through the Federal Open Market Committee in
the purchase and saleof Government securities of various types to
supply additional reserves to the banking system, and then it also
operates through the establishment of various rates of reserves on

varioustypes of deposits in the banking system either to expand or
contractthe supply of reserves that are available in our banking

system today.

Senator SPARKMAN. Certainly you are correct.But more precisely
I am asking about the policy as to the need of thecountry at any
particular time to have the money supply expanded or contracted.
Mr. JACKSON. It's my understanding that the goal of the Federal

Reserve is to producesufficient money and credit in the banking

system to enable the country to have sustained growth without

inflation. That's the fundamental policy.

Senator SPARKMAN. Then inyour opinion, that is, that the best

way tocontrolinterestrates,toholdthem atasteady levelor atleast

to have moderate increases and decreases instead of a sudden break
increase in the money or a sudden decrease?

Mr. JACKSON. Yes, sir. M y recollection is one of the reasons the
Federal Reserve was established was to eliminate the money panics

that existed prior to the time the systemwas established.
Senator SPARKMAN. I think that's right, to stabilize the money
Mr. JACKSON. Yes,sir.

Senator SPARKMAN. And you recognize that as being the “real”

function of the Federal Reserve Board,to stabilizemoney conditions?
Mr. JACKSON. Yes, sir.

Senator SPARKMAN. Earlier this year Congress passed legislation,
which was worked out with Chairman Burns, that the Board would

supply this committee with information, I believe,6 months ahead of
time on the increase or decrease

The CHAIRMAN.Basedon his goal for the next year,but updated
every quarter as to how they might modify it.We wanted 6 months.
He proposed a year.

Senator SPARKMAN. You are right.We asked for6 months and we
worked it out more or less in agreement here in the committee on the

basis that the chairmanhas justdescribed.
Phil, do you feel that's a good policy?


Mr. Jackson. Sir,as long as the Federal Reserve isa creature of

the Congress,I think the Congresshasthe righttoaskanythingit
thinks the Federal Reserve should supply.

Senator SPARKMAN.However,you would expect Congress toask
only what was reasonable, though, wouldn't you?


Mr. Jackson. I'm sure there are going to always be differences

about what might bereasonable undera given set of circumsta ces,
but I happen to believe that if the Federal Reserve is a creature of
CongressandtheCongress wants theFederal Reserve todo something,

the Federal Reserve should do itwhether the Federal Reserve thinks

it's reasonable or not.

SenatorSPARKMAN. I'm not talking about the power of Congress
to do that. I'm talking about ourworking out a program with the
Federal Reserve whereby Congress iskeptinformedasto the Board's
projection for the future.

Mr. Jackson.Ipersonally think that'sthe reason we were formed.
Senator SPARKMAN. This committee thought so, and Chairman
Burns, as I say,worked it out with the committee,and I'thinkthat
it does make a definite contribution to the stability of the money
situation and,in turn,of the stabilityof interest rates.
Most of your pastexperience has been in mortgages andmortgage
financing,has itnot?

Mr. JACKSON . Yes,sir.
Senator SPARKAAN. And real estate transactions?
Mr. JACKSON. Yes,sir.

Senator SPARKMAN. You recognize the importance of, shall I
say,a fairly steady rate of interest on home mortgages?

Mr. Jackson. Relativelystableratesare waysto produce a more
stable home mortgage market ora market of any type. That's not
to say they should be stable at rates which are too high for people to

do business, but wild fluctuations produce abnormal profits and

abnormal rates and abnormal concerns and makes peoplehesitant to

do business,both consumers and lenders.

Senator SPARKMAN. For a long timewe have,I don't like to use
the word trouble,but I guess that is the best word,we had trouble

with the FederalReservewith reference to housing.I can remember
when --who was the Chairman of the Board from Utah
The CHAIRJAN . Eccles.

Senator SPARKMAN. Yes, and then,of course,BillMartin. They
were alwaysafraid ofinflation,inflation,inflation;butIcan remember

the time when the Federal Reserve took practically no interest in
housing. To the credit of Dr. Burns, he has been most helpful in

moving along a good mortgage market and home building program.
Dr. Burns has had interestin housing.

Mr. Chairman,ifI remember correctly,Dr. Burns was instrumen

talin getting the G N M A establishedand the tandem plan working,

which has been most helpful to subsidizing housing primarily.

Mr. JACKSON. M y recollection is Chairman Burns did have some
voice in the administration at the time, the tandom plan was estab
lished and G N M A was created.

Senator SPARKJAN. As I recall,Dr. Burns was one of the key au
thors of these two matters.Nevertheless, I think the Federal Reserve
Board in the last few years,even though tobegin with was not much

interested -has become interested in housing and mortgage credit.I


recall testimony from theFederal ReserveBoard- perhaps 25 years
ago - to the effect that 800,000 housing units a yearwas asmuch as
thecountry ought to have.We couldn't get along very well on that

number of units today,could we?
Mr. JACKSON. No,sir.
Senator SPARKMAN.But the pointI wish to make is the Federal
Reserve has been helpful in thehousing field.

"Idon't have any more questions,Mr.Chairman.Ido have a state
ment that I'd liketoput in therecord.
The CHAIRMAN . Fine.

[Statement of Senator Sparkman follows as though read:]

Senator SPARKMAN.I am pleased to support the nomination of Mr.
Philip C. Jackson as a member of the Board of Governors of the Fed

éralReserve System .I believethat his long experience as a business
man inmortgagebanking and housingwillmake him aa valuablem e m
ber of the Board of Governors.

As everyoneknows, the policies of the Federal Reserve Board are

probably the single most important factor affecting mortgagecredit
and housingconstructioninoureconomy.We need aman ontheBoard
whounderstands housing and thenecessity for a national policy that
can be effective in maintaining the flow of mortgage credit to meet
the Nation's housingneeds.I believe that Mr. Jacksonissuch a man.
His experience,notonlyinrunning amortgagebanking business,but
as a pastpresident of the Mortgage Bankers Association of America,
providedhim with abackground thatcanbemostuseful to theBoard
and,Ibelieve,most effectiveas an advocateforthehousingindustryin
formulatingFederalReserveBoard policy:

I have known Mr. Jackson formany years,firstas a mortgage

banker in Birmingham,Ala.,and later aspresident of the MBA. As

president of the mortgage bankers,he often testified before our Sub
committee on Housing and Urban Affairs.I always found his testi

mony and thoughts on legislation before usboth sound and construc

tive.He was an outstandingwitness and responded to questions ina
superiormanner.He was,andis,astrongadvocate ofmortgagecredit
policies helpful to the housing industry, and I would expectthat he
canbe depended on to carry this advocacy to the Board meetings
ofthe Fed.W e do not now have anyone onthe Board who knows

housing,and I can think ofno one better qualified to fillthis position
than Mr. Jackson.

:: I think it important to note that Mr. Jackson has notspent his

timeonly at his mortgage bankingbusiness.His record willshow a
broad interestincivicmatters and otherbusiness organizations where

heis active on boards or advisorycommittees representingthe public

interest.He has assistedin writingabook onmortgagebanking and
has lectured extensively at universities onmortgagebanking subjects.
1.Istrongly support thePresident'schoice and recommendthatthe
committee vote favorably for his confirmation.
TheCHAIRMAN.Mr.Jackson,couldyou tellushow many timesyou
have talkedwith Dr. Burns beforeyouappearedbefore thecommittee
lasttime over the years?


Mr. Jackson.I first talked to Dr. Burns concerning the potential
positionon the Federal Reserve Board in thesummer of 1974. At that
time he asked m e to visit him in his office and discuss the interest of

the Federal Reserve ingetting someone on the Board that had ex

perience in housing and mortgage finance. He then mentioned the

problems thatthebanking system washaving,particularly somecredit
problems.I toldhim atthattime thatIhadafull-timejob.Iwouldbe
glad to consider it,if Iwas nominated for the Federal Reserve,but
did not want to give him any commitment at that time about my
wanting to serve.

The CHAIRMAN.That was in August of 1974. What other times did

you meet with him ?

Mr. Jackson.I next saw Dr. Burns in September of1974 ata busi
ness trade association meeting and at that time he commented that it

lookedlike theneeds of the Board werestrongerinotherareas thanin
housing at that particular moment; therefore, Governor Coldwell
had been nominated and I believe was serving at that time, and I
told him ,fine, I felt that was a wise choice.

Then about,I would think,around the 1stof May,Mr. Chairman,
or maybe aa little earlier than that, a series of peculiar circumstances:
happened to me personally.
The CHAIRMAN.That was May 1975 ?

Mr. JACKSON.Yes,sir.A seriesof peculiar circumstanceshappened.
About 10:30 one morning the senior members ofm y family decided

to sell our family firm to the Birmingham Trust NationalBank and
informed me ofthat decision. That afternoon I gota call from Dr.
Burns' secretary asking if I would come up to talk to him about

potentialserviceon the FederalReserveBoard.I did,and I met with
him ,I believe,that Friday afternoon.

Since then,I may havehad two more personal visitsof a relatively

brief nature with Dr. Burns.

The CHAIRMAN.Now,Mr. Jackson,you toldme,andIapologizefor
not having explained at the beginning, that you do have trouble
hearing and that's one of the problemsthat you had last time,and I
will be as clear as I can be and don't hesitateat all to ask me to state

what Ihave said again ifyou don'thearme clearly.
Mr. JACKSON. Thank you, Mr. Chairman.

The CHAIRMAN.Today we arein an economicmess.There are some
modest indicationswe may be pulling outof it; especially in thelast
few weeks there have been some encouraging signs, butwe stillhave

enormously heavy unemployment; we still have very high inflation
based on any kind of historical experience;we have housingthat's:
just a basket case. There have been few times in our history when

housinghas been as bad.As amatter of fact,in May,although itwas
aresurgenceoverthe verylowlevelswe had lastNovember,itwas the
poorestMay in26yearsinviewof thenumber ofstarts,inviewofthe
fact that the countryhas increased insize,andso forth.It'sa very discouraging kind of situation.
So we are concerned that we — at least I am concerned and I think

many other Members of Congress are concerned that we take action
totry to correctthe situation,providemorejobs,withoutaggravating


How do wemeetthe problem ofgettingout ofthe recessionwithout


Mr. Jackson.Well, first, let me state that it's my personal view
that housing starts should be looked at in two separate components,

while interrelated,they are distinctly different.

First,thesingle-familycomponentthat alltoooftenwe emotionally

thinkof as being thehousingmarket.I really think the problemthere
liesin two areas.No. 1,inflation.There'sno question inmy mind that
inflation has been the No. 1 enemy for housing considered in the

single-family context.It'sdrivenupthepriceof houses.
For instance,lastyear,ifI understood the figures properly,we had
a10-percentincreaseinthe priceofsingle-familyhousing.Inprobably
one of theworstdepressionyears we have had in thelast10,the price
still went up 10 percent.

Second,of course,inflation isproducing higherinterest rates which
have,in turn, made it more difficult for people to buy even at the
existing pricelevels.
Themultifamily market ishurt for the same reasons but in different

ways. Inflation has hurt the multifamily market. In fact, I don't
think the public generally understands how much inflationhas con
fiscated values in commercial real estate and multifamily real estate,

and I mean confiscated values which existed before but no longer

Forinstance,ifyouown anapartment project asan individual and

thatapartmentisproducing$100,000innetrents- afteryou collected
all the rents and after you paid all the expenses and interest--and

levels of return on capitalare 5 percent,that apartment project,

theoreticallyat least,wouldbe worth $5 million, and probably was.
at onestage inoureconomy.But today,thatsame apartmentproject,

even ifit's continuing to produce the$100,000 in net rents,because

ratesofreturn on capitalhavegone upinthe 10-percentrange,isnow
only worth $1million,and the difference invalueshas effectively,been

Now,in addition to that, the multifamily market is going to be
difficultto restore.First,because thenetrents produced by the owner

ship ofnew multifamily apartments are not sufficient topay for the
costs ofcapital of theseunits;second,unfortunately,in thiscountry
thereis a subtle but nonetheless distinct change in the attitude of
our laws concerning therights of owners of the building versus the
rights of thetenant; and while I'm sure allof us can mention many
cases in which therights of the tenant have been improperly ignored
by the owner,at the sametime,the trend of increasing rightsof the
renters or the tenants in a building in precedence to the rights of the
owners isnot going to encourage new apartment development.

The CHAIRMAN.Letme just interrupt,Mr. Jackson,to say thatI
want to beas helpful as Ican toyou.I think what you are saying is
very interestingandindicatesa fine knowledge of housing;butthat's
not thequestion Iasked.

Thequestion I asked ishow do wesolvetheproblem ofgettingout
of the recession without rekindling inflation?Now housingmay be a
partofthis.Ifitis,tellus how and whatelsewe cando.
Mr. Jackson.I think we need to be patient. We willnot get out
ofthe recession quickly andeasily. I think the fearof inflation isone
of thereasons we willnot do so.The fear is still there and therisks are

still there. Ipersonally feel that the90 percent who are employed


should share someof the benefits of thatemployment with those un
employed and,:believe me; Senator, having become unemployed in
thelast30days, I'm more sympathetic to that pointofview. I may
be one of the people thatare creatingthat statistic. I don't mean to
be facetious aboutthatsituation,butI do feel thatifwe try to expand

the money supply at a veryrapidrate we run the risk of rekindling
inflation and in the long term producing evengreater unemployment
than we have now .

The CHAIRMAN . Then what does the Fed do? I don't want to

Mr. JACKSON.Inm y opinion the Federal Reserve should continue

to increase the money supplyat a rate that some people would call
moderate and some peoplewould call toorapid.
The CHAIRMAN .Roughly;what is that rate?

Mr. JACKSON.I think the rate outlined by Dr. Burns before this
committee was in the 5 to 7% range over thenextyear,which in my

mindlooksreasonable.Ipersonally think that we'retalking toomuch

about the wrongmeasureofthe money supply:

The CHAIRMAN .What is the rightmeasure?
Mr. JACKSON. I personally think M3, which includes not only

demand deposits, currency; and time deposits of commercial banks,

but also the savings deposits in ourthrift institutions is abetter
measure. Ipersonally think we're seeing a dramatic change inthe
attitude ofthe American public toward how they maintain their
money .

The CHAIRMAN.What rates should My be increased?
Mr. Jackson. Dr. Burns suggested that the target of the Federal

Reservewas 10 to 12 percent over the next year.I personally don't
see any objection to that.In fact,Iwould probably think that would
be areasonablerateofexpansion.Variouscomponents Iwould expand
at different rates.

The CHAIRMAN.You feel ifwe get the increase between 10 and 12
in Mz and5 to7%,in M ,thiswillprovidethecreditwe need,agradual
moderation of interestrates,and move usup out of the recession?
Mr. JACKSON. Yes,sir.

The CHAIRMAN.What views do you have on the presentadequacy
of financial institutions with respectto solvency?W e know wehave
had avery serious problem withthe Franklin Bank and the San
Diego Bank, and many people feel that our banks have been over

Mr. JACKSON. After thinking about thatquestion since our last
session, I'd like to respond asfranklyas I can and asdirectly as I can

based primarily on my opinions and not a detailed study, as you
k now .

First, Ithink ourfinancial system issolvent as a whole,but at the
same time, I feel that ifwe'regoing to get expansion in credit, par
ticularlyin the commercial bankingsystem, we are going to need to
expand that capitalbasein order to make the expansionpossible.
.Ho w do you dothat?
Mr. JACKSON. Several ways. No. 1, recognize that commercial

banksshouldnotdispensescarcecapitaland theevenscarcerqualified
people into nonbanking activities. For instance,I personallyfeelthat

while theFederal Reserve has authority tocontrol bank holding
companies'expansion into otherfields,one of the primary things that


should belooked atis,“do theyhave adequate capitaltogo into this

new area ?"

The CHAIRMAN.How aboutbanks getting into mortgage banking?
Mr. Jackson.Ipersonally think many banks wouldgive anything
if they had not gotten into mortgage banking because as far asIcan

see,it's beenthe biggest loser and thebiggest eaterup of capital of

any part of the bankingsystem inthe lastyear.In fact,here again,

I suspect that that mightbe one of the reasons Chairman Burnswas.
interested in my service on the Federal Reserve Board, to do what I

could to try toextricatesome of the
The CHAIRMAN.Would you be inclined to take a skeptical view of
applications to require banks under the Holding Company Act not to
engage in mortgage banking?

Mr. Jackson.I wouldn't say not to engage in mortgage banking
per se.I would want them to verycarefully show me wheretheyhave
theabilityand the personnel andthe money toput up to doitproperly
withoutputtingstrainsontheircapital tosustain theirnormal regular
The CHAIRMAN. Because that's so hard to administer on a case by

casebasis without chargesoffavoritism and withoutfeeling confusion

on the part oftheindustry,why not simply cleanly provide that the

banks wouldn't get intomortgage banking?
Mr. JACKSON. Because, among otherreasons, they could do it
within the bank itself.There's no prohibition about thebank making
mortgagesand then, in turn,sellingthem.In fact,probably one of the
largestis the Bank of America which has been doing itforyears.
The CHAIRMAN.Let's get back to the original question.What are

you going to doabout the inadequatecapital which you andI agree
isaproblemforthebanksandyousaidyouwould preventbanksfrom
gettinginto the nonbanking activities.How will you do that?
Mr. JACKSON.Don't allow them toget in unless they can demon

strate they have adequate capital andpersonnel to dotheir banking
functionsfirst and only to theextent they have more than adequate

personnel to dothatshould they bepermitted toengage inany other
activities. That's thepreservation of capital.I recognizethat.
No. 2, I personally feel that-here again I'm speaking of real
estate loans because that's the thing I know most about— the Federal

Reserve isgoing to need to work very carefully with banks that have
high risk real estate loans,many of which are in default, to try to

help extricate these banks from the potential impairment of their
capital abilities that these defaulted loans represent on their balance
sheets. And Ithink the proper question is "that's fine, but how are
you going to do it?”

First, it's extremely important that we recognize the difference
between a nonearning asset- I mean an asset on which you're no

longer accruing interest versus an asset that represents total loss.
Now the accounting profession is proposing some very interesting
rules that will assure that a bank, or any other corporation for that
matter, properly represents the cost of carrying these dead assets,

by usingan imputedinterest concept.Ithinkthat,in turn,willfairly
state these assets on the books ofthe banks.But it's quite another

thing to force banks,who normally think of short term assetsand
liquid assets,to sell these real estate properties that they may have


foreclosed,or to quickly demand repayment of debt from their real
estate development borrowers.

For instance, we were talking about the family's experienceback
in the previous decades. Our firm in the city ofBirminghamhad a
severe real estate depression. We represented a large number of
insurancecompanies. The insurance companies that forced the real
estate to be sold quickly suffered severelosses. The insurance com
panies that moved withpatience to rehabilitate the properties and
then to orderlymarket those properties ended up making a profit.
I personally feelwith that kind ofposture among the banks' real
estate assetswill beprofitable.The Federal Reserveat the same time

should stand by with asupply of additional temporary credit,or
whatever ittakes to get them over thishump,until these properties
can be marketed .

The CHAIRMAN. My time is about up.Before I yield to Senator
Garn,let me just ask if you'd like to round out your question by
indicating what the bankscan do positively toincrease their capital.
As Iunderstoodit,youhavegivenus someveryinterestingsuggestions
on how they can preserve the capital they have and use it more

effectively. Do youhave any ideas on how they can increase their


Mr. JACKSON.Well,of course, internal earnings are one way. If
we can get them out of some ofthese high-risk loan situationsthat
haveproduced highlosses they willin turnproduceinternal earnings.
One follows the other.

The CHAIRMAN.How about goinginto thecapital market?
Mr. JACKSON. In the capitalmarkets? I think that the banks are

going to have to seek additionalcapitalin the capital markets certain
ly. Iwould personally hope that it would not be through some forms

of debt, asthey areapparentlytempted to do.I personally would
hope itwould be in theform ofold-fashioned common stock.
The CHAIRMAN. Senator Garn .

Senator GARN.Ihave no additional questions,Mr. Chairman.
The CHAIRMAN.Some bigbanks have hadproblems, the Franklin

Bank andtheSanDiegoBank,forexample.Do youhaveajudgment

about this situation? Do you have any judgment about that specific
kind ofproblem ?
Mr. JACKSON. It strikes me that from what I can read in the news
papers,and that's my only basis of information,that those bank fail

ures resulted from banks investing too largely in highly speculative
assets whichdropped invalue substantially.Those represented situa
tions where the banks did notuse prudence in the typeofinvestments

and loans that they made,whether it be speculation in foreign cur

rency or improper loansor loansthat proved to be a mistake. For
instance — again talking about real estate becausethat's the thing I
know most about— it's my understanding that there was a forced
merger in South Carolinawhich, while itmight not have involved

quiteas many dollars as the size of the banks youmentioned,may
have had just as much impact in the community.That was because
ofpoorreal estate investment.

Îhe CHAIRMAN. One of the problems this committee is getting
increasinglyinterested inisthatthe Fed and the SecuritiesExchange
Commission, both of whom are under this committee's legislative

jurisdiction,seem to be clashing on disclosure.Some people believe


thatfailureof thebanks todiscloseproblem loansas soon astheyare
discovered encourage banks to takeimprudent risks and inviteman
agers of liquidfunds toput them inriskybanksby purchases oflarge
CD's and sales of Federal funds.

Now, as you know, those large CD's are insured only in minor

parts,$40,000, therefore theregulatoryagencies— the bankregulatory
agencies,including the Fed,seem to feela compulsion tokeepshaky
banks solvent long enough to get claimants of uninsured C 's and
Federal funds out,and this can lead tounwise policies.
Do you havea feeling aboutthat? First,letme put it this way to
make itdirect.How doyou feelaboutthe requirement that the SEC
has been urging that banks disclose fully to investors the quality and
character oftheir loans?

Mr. Jackson.Ipersonallyfeelit'sa very appropriaterequirement.
I think thecruxof thatdiscussionisthe problemofdefiningwherethe
problems lie.For instance,Imentioned the term “nonearning asset.

An asset that is not accruing interest is what I'm reallytalking
about, and that is the thing that the SEC has required be part of
the disclosure.


buy stock in abank under those circumstances normally would sus
pect that,ifit isnolonger accruinginterest the asset maybe worth
lessand should be deducted from the net worth of the bank in deter
mining what true value would be.You and I know thatthefact that

you'renot accruingintereston aloandoes notmean thatyou're going
to write it off totally.

The CHAIRMAN.To put this in perspective,Chairman Burns has
indicated that if the banks are required to make the kind of full
disclosure of their loan account it would make it hard for them to

get the capital they need and would impede economic recovery.Do
you have any fearson those grounds?

Mr. Jackson.Ithink your statements arefundamentally correct,

but at the same time may have gone beyond the necessity for dis

closure.In otherwords,I personallyfeelthatno disclosureisamistake.

I thinkthe problem is to try and define what type of disclosure is
appropriate under these circumstances.
Forinstance,I personally feel that ifa bank were to state we have
x dollars worth of loans on our books that are notearning interest
and this represents x dollars per share ofour capital and we expect
that the recovery on these loans would be 100 cents on the dollar
afterimputed interest is deducted at so much, then I could at
leastlook and say thatlooks reasonable.

However,the problem is,as I understand it,difficult to describe
in a prospectus. Not onlyto describe what exists,but it is difficult
to define.For example, if I'm making aloanand the borrower is30

days past due, I may decide as aprudentbanker to classify that

loan as anoninterest accruingloan.On the other hand,you say,well,
know that borrower and he's got temporary problems andhe will

pay up in 90 days.W e are not going to put it on nonaccrual until

he's 90days past due.If I'm under somepressure with my capital,
it would be tempting for me to say, well,until that borrower gets 6

months past dueI'mnot going to touch him.


The CHAIRMAN. I see the dilemma, but doesn't it seem logical

that the agency to determine how toresolve itis theagency thathas
the responsibility to requireall people who sell securities to state the

truth?They have hadvast experience formany years,the Securities
and Exchange Commission. Why notsimply require the banks to

conform with what they requirein disclosure?
Mr. JACKSON.If theS E C will be careful enough to set up aset of

rules so that everybody would operate under the same rules,I per
sonallysee no objection to that.

TheCHAIRMAN.Well,areyou saying thatthe SEC hasgot different
rulesdiscriminating more against thebanks?

Mr. JACKSON.I don'tknow whether they are ornot,Mr. Chairman,
but the danger is thatall too often people who arenot skilled in a

particular specializedline of endeavor may require accounting pro

'cedures,forinstance,that may distort rather than clarify the position
of the sharesbeingoffered.

So I personally think ifSEC will be very careful to work with the
Fed and the Controller in setting up a set of rules for instance,
duringthe previous hearing the question was asked why no figures
were disclosed for the entire country. I personally don't see any
reason why the nationwide experience wouldn't be appropriate so
that people

The CHAIRMAN.Wouldn't itbe very beneficialon the part of the
banking system on the whole if therewere this disclosure? It seems

to m e it would restore investor confidence.

Mr. JACKSON.If you start with a common definition, yes.But if
you start with a diversity of definitions the finalresultsaren't going
to be worthwhile.If you start with a common definition,I personally
feel that nationwide disclosure would help the whole situation and
The CHAIRMAN.That's very helpful. Now many Members of
Congress have urged the Board through its open market account to

buyhousing agency paper. Confiningits purchases exclusively, as
they do now,to Treasury securities, the Board resisted this idea but

recentlyhas made some progress.As of April30,the Board'sportfolio
of Treasury securities was $87.8 billion,while agency paper held only
$5.2 billion.
If you were confirmed,will you press for greater purchasing of

housing agencypaperby the Board?
Mr. JACKSON.Yes, sir.And let me give youa specific example.
Many people in the Congress,and agencies, and theFederalReserve,

and in the countryas a whole,don't understand what powerful tool,

obtained through this committee,that the Department of Housing

and Urban Developmenthas to obtain funds in preferenceto most

sectors of the money market through theissuance of G N M A mort

gage-backed securities.There areover$18billionof these outstanding
now and I understand that the figure may goas high as $24 billion

relativelysoon.These securities enjoy thefull faith and creditof the
United Statesand I personally think one of the things the Federal
Reserve should do tomake a more orderly market in those securities.

would beto buy and sell the G N M A mortgage securities through the

open market.


TheCHAIRMAN.So you would arguethe 6 or 7 percent theyhold

in the housing securities is inadequate.You wouldpress for ahigher

Mr. JACKSON.I don'thavethefactualinformation toknow whether
the holdings of housing securities represent a higher total holdings of



go inand buy allhousingsecuritiesperseuntil they reach anabnormal

percentage ofallhousing securitiesoutstanding,but I do thinkthat
they should buy housing securities. As Isaid,personally I think

GNMA represents anoutstandingopportunity.It'smy understanding

for instance,right now those securities are traded ona marketspread
or commissionof about one-half of 1 percent.It strikesme that the

Fed couldimprove thatspread and inturnmake housinglesscostly to
the public atlarge.

The CHAIRMAN.One of the problems for housing and forthe re
covery of the economy in general is the feeling that the Federal
Government has gottenso very deeply indebt it's going to have to

borrow somuch money thatit'sborrowingisgoing to crowdoutother

Now ifin the next year we recover,as we all hope we will, and
interestratesrise, as we hope they willnot,and theydo begin to rise
and private investors arecrowded out of the money and capital
markets,what should the Federal Reserve Board do?

Mr. JACKSON.If the Treasury crowds out other borrowers in the
money market,the Congress and the administration effectively will
be putting the Fed on a very difficult spot because you charge the
Federal Reserve with control of inflation.But if the Federal Reserve

mustexpand themoney supply purely to accommodate the needs of

the Treasury, it'smy personal opinion that they would in fact be

ingof our economic recovery which will hurt us.
I personally feel that the crowding out theory isvalid as a theory,
although I personally don't feel thatcrowding out will occur in 1975.
I think many of us may feel that. For one reason, many lenders and
investorshave lost alotofmoney and there have been some bad loans

and bad investments in the last year.As a result, our investors are

becoming highlyselective about where theyput their money.As a
consequence of that, people with relatively low grades of credit or

marginal credit can't get it at any price. So I wouldn't be surprised

thatwe wouldn't suspect the Treasury crowded outmany of these
borrowers when in fact the Treasury would not have crowded them


willing to take thosetypesofrisks again.

The CHAIRMAN. You have indicated there wouldn't be any danger

of that this year.

Mr. JACKSON.No ,sir.
The CHAIRMAN.H ow about next year?

Mr. JACKSON.Ipersonallyfeel thekey to the crowdingout question
isthe abilityofCongresstoliveunderthebudgetarylimitationswhich
it's imposed on itself.If the Congress lives up to the $68.9 billion

I'mnot sure of theexact figure— budget deficit that the Congress has
established, then the country in turn will be confident thatnot only


the Federal Reserve— but the Congress,the administration and the
entire economy will put deficitspending in a proper perspective and
can rely on the Congress to do so.As a result, I think that will

probably do as much toward improvingthe money market and

thelong-term recoveryasanything thatcould happen,certainlymore
than anything the Federal Reserve could do.
The CHAIRMAN.Do you now havean opinionas to whetheryou and

the publicwould be better servedby having a professional staff

appointed for helping you in addition to your administrative aid,
tohave asaGovernoroftheFederal ReserveBoard?I'mtalkingabout

four or five or six people responsible directly to you.
A s yok
unow ,
there are several hundredstaff people at theFederal Reserve Board.
There are over a thousand,I understand,and some - I'm not asking
for more peopleto be appointed. What I'm saying is using thestaff
there andif you had asmallgroup of fiveorsixof those thousand and
so would the other six members of the Board, would you think it

would bedesirable? Would that mean in your view that you would

probablybe ableto arriveatwiser decisions and soforth,or do you

think this is not necessary?

Mr. JACKSON. I don't think it's necessary. That's one question
previously asked me that I wentand got some answers to before I
came back today,Senator.I asked verydirectly not only some other

members of the Board of Governors but to the staff- could I get

independent counsel and would I have access directly toanybody

that worksthere for personal advice,informationof any sort without
fear, threat or constraint on the part of any other member ofthe
Board? I was assured that that was unconditionally true and for that

reason I think fragmenting the staff upinto littlepockets would be
a mistake, from an operational point of view as well as an overall
point ofview.
The CHAIRMAN.I don't necessarily agree with that. I don't know

enough aboutitmyself.Itjust seemstome to be wise to consider the

possibilityandIsuggestyou might want toreconsiderthatpossibility

and discuss it with former members of the Board and with others,

but ifyou have gone into itin that detail and feel that one aid isall
you'd want or need, I certainly understand your position and that's
the kind of answer that wouldbe helpful to the committee.

Do you have an opinion on whether inflationwill accelerate or

decelerate the second half of this year or next year?
Mr. JACKSON.I think inflationwill continue to decelerate.

Mr. JACKSON.Why ? I think that our businesses and our industries

have not recognized, among other things,one of the fundamental
causes of inflation. We have concentrated so much on inventory
adjustment, changes in raw materials, expectationsof rises and so
forth, changes inpurchases,thatI don't think we have recognized
that the Americanconsumer has changedhis attitude about what he
wants and the shape he wants it in and the price he's willing to pay

for it;I think it'sgoing to take through thesecond half of this year
tomake some of thoseadjustments.
For instance, there aretwo industries that most people think are

likelyto lead usout of the depression -housing andautomobiles.
There's been publicity that builders are having to rethink the type


of houses they're building for the American consumer. As I men

tioned, Idon't think multifamily housing willleadhousing upward.

Ithink theAmericanpublicistakinga differentattitude aboutwhat

kind of car they're going to buy andit's going totake the automobile

companies a good while to adjust theirproduction means and sales
techniques and other things,inorder to produce the type of cars the
American people want,and until they do that
The CHAIRMAN.Buthereyou have the situationyoupointed out
yourself,thatinspite ofthefact thedemand forhousing has gone up
the price has gone up;the demand for automobiles has gonethrough
the floor andyet the price has gone up.The demand for steel has
plummeted in the last severalmonths and the price hasn't dropped
one bit.The demand for chemicals has gone down and the pricehas
gone up.There's a seriesof articles in the Wall Street Journal on this

phenomenonand depending on how you look atittheheroic efforts by
these industriestomaintain their prices when allthelaws of classical
economics should have their prices fallingwhen they're operating far

below capacity,and yet they aremaintaining theirpricein the face
of this.This is what is discouraging to me,combined with the fact
that we do havethe likelihood of increased energy prices which,of
course,has an inflationary effect on the economy.
Mr. JACKSON. I share your concern. This is one reason that I
remain concernedabout the future prospect of inflation. I see too

many businesses in this countrythat price their product not on

what itshould be bought foror willbeboughtforby theconsumer,
but ratheronwhat itcosts them to produce it.I don't see the market

place demand /supply relationshipworking in too many instances. I
don't see the demand/supplyworking in too many labor relationships
as well.People stillexpectinflationwillbehere.Until we canreorient
their thinking and regalvanize the risk of loss that these industries
have,I think we've got built-in attitudes toward inflation that will
make it much more difficult to contend with.

The CHAIRMAN. The Fed,in addition to telling us what their goals

arethisyear,theChairmanhassaid5 to712 percentwould be hisgoal
forthe comingyearfromnow to ayearfromnow roughly,should they

indicate the results they expect?That is,what the Fed expects to
happen toprices andwhatitexpects tohappentogrowth and employ
ment, so that we can have somebasisforevaluating the goals, some
basisforfacing them?I realize thisisdifficultand I realize thiswould
be only an estimate, that it would be very strongly qualified.
Mr. Jackson. First,let me quickly say I think it's within your
powers to ask them to produceit whether they want to or not.In
other words, there might be a lot of intense discussion about the
wisdom ofit,but ultimately the power rests with the Congress tomake

the Fed do what it wishes. Fundamentally, I can see why the Con
gresswouldwant them todoso,simplybecausethey could then under
standthemonetary reports inbettercontext.However,ifyou getoff
into that briar patch,ifI can use that expression,II suspect thatit's
going to create more second-guessing and demonstrate more vividly
to the public and tothe Congress thatmonetary policy or monetary

actionorwhatever the action oftheFedmightbeisatbest animper

fect tool.


The CHAIRMAN.Why wouldn't that be healthy and wholesome?
Can't we learn from our mistakes? We see what we tried to do and

what happens.If it's a good performance,fine. If it's a bad perform
nance, then itwould inform us that we need some new policy,some

Mr. JACKSON.Unfortunately, as you know, the public tends to
concentrate on the mistakes and not on the rightguesses, and I
suspectThe CHAIRMAN . That's not a bad idea. That's the way we learn,
isn't it?

Mr. Jackson.Well,I think we learn by our mistakes,but some
times we distort the mistakes when we concentrate on them rather
than thethings we do right.
The CHAIRMAN.At any rate,your answer is that if the Congress
wants to do it,all right, and the Fed ought to conform,but they
ought to do itwiththeireyesopen,recognizingitmight

Mr. Jackson. Certainly,the more detailed instructions the Con
gress gives the Federal Reserve, toa certain extent,the lesssleepless
nightsthemembers of the Federal Reserve have tospend on whether
their decisions were proper.

The CHAIRMAN. What do youthink is likely tohappento short
1 doesfollow the guidelines that
term and long-term interestrates ifM ,

the chairmanhas indicated ?

Mr. JACKSON.I personally feel the short-term rates will continue
downward,but at a reduced pace than we have seen recently. I think
long-term interest rates will come down more dramatically.
The CHAIRMAN . Really?

Mr. JACKSON.Yes,sir;due to two reasons.No. 1,as Imentioned,I
don't thinkwe'regoingtogettheeconomicrecovery andthe demands
that we would like to have. No. 2,I think the expectation of future

inflation will diminish,the longer we have reduced economic activity.
The memories of 1974 are stillextremely vivid in the minds of people
with funds for investment or for saving.

The CHAIRMAN. I don't want to be unfair, but you seem to be
saying as we continue in a recession,the high level ofunemployment,

that the expectation of inflation will diminish and that thiswill tend
tobring long-term interestrates down.Is that right?
Mr. JACKSON. Yes,sir.Don't misunderstandme .I'm not saying
the reasons for which it occurred are desirable, but that doesn't

change my attitudeabout theresults that I expect tohappen.
The CHAIRMAN.It sounds like you expect we will bein recession

for some time,at least with a high levelofunemployment and alower
level ofproduction, than we wouldhave ifwe had 5 percent.
Mr. JACKSON. I personallywould.
The CHAIRMAN.Do you think Fed actions have importance and
lasting effects on interest rates?

Mr. Jackson.I think Fed actionshave immediate importance,but
I personally don't think the Fed can lean against the tide,so to speak.

Its actions produce reactions on the partof the market,but I person
allyfeelthat theFed cannot controlinterestratesperse over thelong
term .

The CHAIRMAN. Do you nowhavean opinionwhether monetary

1 in
policy was inflationary in 1972 when M ,
creased to9 percent in the


secondyearofrecovery,when unemploymentwassomuch lowerthan
it is now ?

Mr. JACKSON.This is one of the reasons I hesitate to answer that

question, because ifI serve this Board I'm going to have to live with
those people; and making public statementsmay not endear me to
theirhearts;but it'smy personal opinion,in hindsight, thatanything
we failedtodo for the last4 years prior to 1974 thatwasn't intention

allyleaning against inflation wasamistake.We should have paid the
price earlier and longer and continuously.
The CHAIRMAN.But that was the year whenyou had the most con

spicuous increase in themoney supply and the year of substantial
recovery and ayear of relatively low unemploymentcompared to the
situation now .

Mr. Jackson.That may have been the biggest of the series ofmis
takes onthe part ofus all.

The CHAIRMAN. What dangers do you see in banks buying large
amounts of Federal funds and selling large amounts or volumes of

CD's .

Mr.Jackson.I personally think thatit'stime thatthe banksquit

being hotmoney shops to the extent that they are leveraging both
assets and liabilities to an extent that exceedstheir capital base and
exposes them to risk ofthe money market,both as to maturities and
rates. Unfortunately, though, this runs contrary to one ofour other
desires,and that's to expand the monetary baseon which bankscan
operate.But I think it'shighly risky.If we'regoing tohave acapital
short banking system , we'vegot to be careful about how much of
that we allow.

The CHAIRMAN.There's been some complaint that the regulatory
agencies,three ofthem,have beenpermitting akind of competition of
laxity, that theyget banks to become subjectto their regulationby

being easier in their regulations and not really serving the public
interest and not preserving the soundness of bankingand so forth.
Do you think the bankingregulatory system isworking well;and
ifit'snot,what do you think can be done about it?

Mr. JACKSON.I think it hassome imperfections and particularly

in regard to this competition of laxity that you described.I think it's

timethe Congress concentrated some of those responsibilities in one
place so we've got one set of criteria that everybody can follow.

The CHAIRMAN.That'sveryhelpful.Would itbedesirabletorequire
some confirmation of Reserve bank presidents?

Mr. JACKSON.Ipersonally don'tthink so.Among otherreasons,it
mean they probably would allhave totake acutinsalary and
therefore it would
The CHAIRMAN.Why would they take a cut in salary?

Mr.Jackson.I would guess that,ifconfirmed,they would as a

result be subject to the executive pay schedule,and I would suspect
that most ofthem make more than $40,000 today.

The CHAIRMAN.Some of them make $90,000.
Mr. JACKSON.I don't have any idea what they make,but I would
suspect it's more than $40,000.

The CHAIRMAN.What's wrong with these poor fellows maybe
making only $60,000 instead of $90,000 in viewof the fact theyare
appointed by theGovernment,in view of the fact that theyhave
a publicresponsibility and theirpowerderives,to agreatextent,from


the Government? Why shouldn't their salary be subject todebate
and discussion? And maybe it ought to be higher. Why shouldn't it
be subjecttomu
Mr.JACKSON. I think we're talking about two different things.

No. 1,whether the salary is subject to congressional confirmation.
The CHAIRMAN. Why say “their salaries?" I just jumped a step
here and assumed what you're talking about is that the Senate is
going to confirm them .Thenwemight startlookinginto theirsalaries.
Recently we had legislation on the floor to limit the salary of the
Chairman of Amtrak, for example,and I voted against it.I wanted

the high salaries. I think you get what you payfor and I feelthe
same way about a Reserve bank president, andI was outvoted then
and I assume I might be again;but I don't see anything wrong with
that procedure.
If the House and Senate decide they should get less,what's the

matter with that?

Mr. JACKSON. I would personally think it might be more ap

propriatefor the Senateto confirm those people who serve on the
Federal Open Market Committeerather than the Senate having
confirmation directly over the presidents.
The CHAIRMAN. That's why I asked the question, because they
do serve on the Open Market Committee.
Mr. JACKSON. If I serve as Governor of the Federal Reserve

Board,yes,I would,and these people do,too,under thepresentrule.
I understand the thrust ofyourquestion, butI wouldthink it'smore
important to confirm those people that serve on that committee
ratherthan allFederal Reservebankpresidents perse,simply because
these people havea vast amount of administrative responsibilityin

running the individual banks that is not directly pertinent to the
Open Market Committee's considerations.

The CHAIRMAN. How do you feel about thePresident'sdesignation

every 4 years of one of the Governors as Chairman ?

Mr. JACKSON. I personally see that that's reasonable. I can see
the wisdom , and yet the dangers of consideration to have that con
current with the President's term . If that's concurrent with the
President's term,it's not in

The CHAIRMAN. It wouldn't be concurrent.I agree with yo u


it shouldn't be concurrent.

Mr. JACKSON. I personally see that seems like a reasonable term
for any member,yes, sir.
The CHAIRMAN . It seemed to many of us, especially to some
people in the House but in the Senate too,that it's strange to have

an importantpublic agencydecidingitsown expenditures andwithout
audits by the Government, which is true of the Federal Reserve

Board.You don't have a GAO audit in the Federal Reserve Board,
as you know .

Do youhaveanopiniononproposalstorequiretheFederalReserve

Boardto go through the normal appropriations procedure or GAO

Mr. JACKSON.I think there are two partsto your question.First,
whether the Federal Reserveshould be audited by the GAO ; and
next,whether all of its expenditures should be subject to appropria
tions procedure;and theyshould be separated.


Personally,I donot— I would liketo hope that the Congress would

not put theFederal Reserve Board under the appropriations pro

cedure.My experience indealing with the other departments ofthe
Federal Government is when the need is greatest they always seem
to be the shortest on funds with which tohire the people to getthe

job done,and I think particularly ofHUD over which I have had
direct experience. For this reasonI personally would hope that the
Congress would not put the Federal Reserve under that type of
constraint so that it could better respond in its primary function of
operating the reserve partof the banking system.
TheCHAIRMAN.How about acompromise?How about alimitation

instead of annualappropriations? I'm inclined toagree with you on
annual appropriations. So there would be some direct review. After
all,it's a creature of the Congress.The Federal Reserve Board not to

have anycongressional discipline as to where itspends itsmoney and

not auditing by theGAO so we don't havea comprehensive notion

of wherethemoneyisspent- I'm notsuggesting this in any criticism
of Dr. Burns or Martin or any of thefine people that serve. It's
just as amatter ofprocedure,we don't know what'sgoing to happen
in thefuture.Wouldn't we be better served in having more knowl
edge? This is the purpose of this.
Mr. JACKSON. I think you answered yourown question. Wedon't
know what's going to happen in thefuture.If the Congress couldtell
the Federal Reserve how many banks are going to getintodifficulty,
how many food stamps thatthe Congress is going toask them to
administer, then perhaps it might be more reasonable.But I believe

thehistoryof our country isany time the Congressestablishes ceilings
they, in effect,become absolute expenditures.
The CHAIRAIAN. You Governorsof the Federal Reserve don't give
the banks under yourjurisdiction a blank check.
Mr. JACKSON.N o , sir.

The CHAIRMAN. You auditthem very carefully.Why shouldn't we

the Congress, do the same thing of you?
Mr. JACKSON. The difference is that our control over budgets, I

hope--and I'm not sure ofmy factshere-isentirely flexibletorecog

nizequicklychanging conditions.The appropriations procedureofthe

Congress, in my experience, isrelatively inflexible.
The CHAIRMAN. Well, the Defense Department has an annual
budget farmore complicated than the Federal Reserve and far bigger
than the Federal Reserve. Well, at any rate, I think I understand
your position on this and I think itisresponsive.
Finally—and I have gone into quite a length here but I will ask
just one other question.Can theeconomy be fine-tuned? Does any

body haveenoughknowledge and expertise tofine-tune itor should
we,asMiltonFriedman suggests,resign and sticktoa longrunpolicy

consistent with achieving maximum employment withoutinflation as
a longrun matter ?

Mr. JACKSON. I personally don't think any oneperson or any
one group can fine-tune theeconomy per se.I think they can try.

I thinktheycan do thebesttheyknow how.But insofar as producing
assuredresults,I don't think they can.

The CHAIRMAN.Should they try? You see what I'm getting at is
whether or not we should follow a policy of having a steady increase


in the money supply commensurate with the long-term goal for the
ec o no my .

Mr. JACKSON. Our economy,Mr. Chairman, in my view,is not a
mathematical model thatproduces results in mathematical formulas,
but it'sa social creature that producesresults entirely differentfrom

anything any of us expectbased on the original concept. Therefore

any mathematical proposal made in advance, no matter by whom ,

is bound to be wrong; and it takes some creature- in the history
of most Western nations, a central bank - to try to lean against the

wind and moderate changes produced by changing expectations.
and changing occurrences.
SenatorSPARKMAN.Mr. Chairman,I have some pro forma questions

to put to him regarding conflict of interest and appearancebefore a
congressional committee.

The CHAIRMAN. Yes. The nominee has indicated that clearly he
has no conflict of interest.He's indicated he will appear before this
committee and other committees when requested todo so.
Mr. JACKSON. Yes,sir.

Senator SPARKMAN.Then I have no furtherquestions.
The CHAIRMAN.Mr.Jackson,I want tosay that I think you have
been far more responsive this time. I thinkyour coming back has

been most helpfulto us and has given us a much betterpicture of

what your position is.
I happen to disgree with you on some of your positions.I agreed
with you heartilyon others,butI think youhave given us a better
understanding of your attitude and your competence too,sowe are
in a much better position now to evaluate your qualifications for the
Board.Thank you vey much .

Mr. JACKSON. Thank you,Mr. Chairman.If the committee would
like,in connection withm y previoushearing, I would like to submit
a personal statement outlining
The CHAIRMAN. If you would like to make any statement now,
that would be fine.Why don't you go ahead now ?
Mr. JACKSON. To illustrate the reasons I was reticent to answer
before, Iwill tryto summarize this,although if the committee would
like, Iwill include itin toto.

First, I feel extremely strongly that anyone that takes onthe
positionfor which I have beennominated has got to approach it
with no bias,no personal prejudice,anything of that sort; relying on

thebestfactsavailabletothemonmakingdecisionsand approaching
any of these major policy issueswith a veryopen mind.

As aresult,priorto my hearing before, Iintentionally didnottry

tocome to any foregone conclusions aboutsome of these policies.
Next, as I have taken thesepolicy positions today, I recognize
quickly that becauseI havenot had thedepth ofexperienceor infor

mation that should be available to officers of the Federal Reserve,

that it's entirely possible that after I have had that information I
may have a change of attitude and I was concerned that the com
mittee might properly question the candor of my original remarks
if I answered thequestion one way today and find that proper and
better facts produce a better conclusion later.
Finally,as the committee knows,the Federal Open Market Com
mittee isa committee of 12 people and any member of the Federal

Reserve Board has only one vote.If I am to have influence on that


committeebeyondthe84percent vote thatI'd have,thosemembers

ofthatcommitteehavegottofeelconfident thatI don'ttakepositions
unless I havedone my homework and done the job in themanner

that they think appropriate beforearrivingatconclusions.
I think I'm runningtherisk today of takingpublicpositions that
may be contraryto whatI conclude the proper position should be
later,andImay be properly questionedaboutwhy did I
Ihavesuch a
change of heart.However,asthe committee knows,despite all these
personal reservations, I do recognize the need of this committee to
make proper inquiry with regard to my views so they in turn can
reflect them to the Senate and the Senate can in turn make the
decision on the appropriateness of m y nomination.

The CHAIRMAN.Well,Mr. Jackson,letme just quicklyrespond to

that because I think what you have said this morning canhave a
bearing on other nominees for the Federal Reserve Board and other

officers and the attitude they take before they come before the

Ithinkit'sfinethatyouhaveanopenmind andit'sverywelcomethat
you indicated that you wanted tomaintain that.At the same time,

as you alsoindicated,Ithink we have arightand duty to elicitfrom
nominees what their attitude is and what their position is on the

critical issues they are going to face so we can be as well informed as

possible.I don't see how we can do that if people say,"M y mind is
completely open on every issue,on every subject, and I'm not going
totake a position.”
I think you have handled that very well thismorning by indicating
the positions that you have are tentative, should be tentative.
think the worst thingwe can doin our society isto be frozen in con

crete.We allgrow andlearn as time goes on and I think it'sperfectly
proper to change and I wouldn't expect to hold you to anything or

anybody would expect to hold you to anything you have indicated
this morning if you find as time goes on that that position was in
er ro r .

Mr. JACKSON.Thank you,Mr. Chairman.

The CHAIRMAN.As far as yourrelations with others, Ican tellyou

from havingservedintheSenateforanumberofyears,that veryfew

people are going tohold against you the fact that you may disagree
with them . Ifyou have a personal animosityagainst them, ifyou're
unfair to them in some way they will resent it and maybe retaliate,
but I thinkifyou disagreebecause you sincerely believeone view and
them another Ican't imagine thatthat wouldweaken your influence
in any way.You would be respected as aman of strong views.But I
don'tseewhy thatshould affectyourrelationshiporyoureffectiveness
with your colleagues.We allhave thesame problem.
Senator Garn and I agree wholeheartedly on some things and
disagree on others,but we're good friends and we getalong well and I
don't resent any position he's taken and I don't think heresents any

position I've taken,and thesame is true of Senator Sparkman, and
I think that undoubtedly will be true with your relations withyour
fellow members on the Board of Governors.

Senator GARN.Mr. Chairman,I'd just like to say that Ihave been
much more pleased with the testimony today, too. I shared some of
the chairman's feelings in the first interview,that you were not being


as responsive as I thought you should be,and I think we recognize
thatas people gain moreinformation, Icertainlyhave changed some

opinions,after5 months in the Senate,thatIhadayear agobeingon
the outside.

I think the Chairman, SenatorSparkman, and I would all be
surprisedif you didn't have some change of opinion as you get into
the Board and learn more about it. I'm sure that these more senior

Senatorshave changedtheir minds a few times over theyears.As a
matteroffact,Iwouldn'tworryaboutchangingit.Some Congressmen
and Senators change their mind daily two or three times on the

same issue.

So I appreciateyour testimony today.
Mr. JACKSON.Thank you,Senator Garn.

The CHAIRMAN.Thank you verymuch,Mr. Jackson.
The committee stands in recess.

[Whereupon,at 10:20 a.m.,the hearing was adjourned.]