Lacker leak sounds like Dudley’s 2011 chats

B ACK in 2011, I caught William

Dudley, the president of the New York Federal Reserve Bank, having meetings he wasn’t supposed to have with some of Wall Street’s top players. And nobody cared. Nobody cared despite the fact that Dudley could have easily passed along all sorts of confidential information to these people, who would have immediately known how to profit enormously from what they were being told.

I am mentioning this because the head of the Richmond, Va., Fed, Jef

frey Lacker, abruptly resigned last week for doing far less bad than Dudley might have done.

Lacker says he took an October 2012 phone call from an analyst at an investment advisory firm and had a conversation about something the Fed was considering — the purchase of $40 billion worth of mortgage bonds — to try to help the economy.

Much of that information had al- ready been in the newspapers but, still, Lacker’s conversation was useful to the analyst, who issued a report to his clients the next day.

Lacker was in charge of the Richmond Fed for 13 years and should have known better. And he did apologize — only it was years too late and after he missed an earlier opportunity to admit what he did.

Lacker said he won’t be charged with any crime. But he said something else interesting: “In 2015, I was interviewed again as part of a separate investigation conducted by the US Attorney’s Office for the Southern District of New York” and others.

A “separate investigation” would imply that there is more to come. And, let’s hope, investigators are looking into any leaks that might have come out of the New York Fed — those that could have occurred during the meetings I wrote about and any others.

Lacker is a pip-squeak compared with Dudley, who has a permanent position on the Fed’s policy-making Open Market Committee — and whose bank controls the trading operations for the whole Fed.

I looked it up, and Lacker’s conversation with the analyst didn’t occur during the Fed’s so-called blackout period, which starts a week before its policy meetings. As I wrote back in 2011, several of Dudley’s meetings did.

During these blackout periods, Fed officials are supposed to clam up — and make no public pronouncements, which I assume would cover Dudley’s informal dinners.

As I wrote back in January 2011, I have no way of knowing what Dudley discussed at his blackout-period meetings. But unless he and his guests sat mute and expressionless during their meetings, there’s a good likelihood that something could be gleaned from the New York Fed president’s remarks.

Just so those investigators in the “separate” investigation don’t have to go to any trouble, I’m going to repeat here some of what I wrote back then.

At one of the questionable Dudley meetings, in March 2011, the Fed’s blackout period ran from March 10 to 18. On March 11, Dudley met with Jan Hatzius, chief economist of Goldman Sachs. Dudley had once worked at Goldman, so he and Hatzius were friends.

Dudley’s calendar says it was an “informal meeting” that took place from 6 p.m. to 7 p.m. at the Pound and Pence restaurant near the New York Fed.

That was on Dudley’s calendar, as was the notation “PRE-FOMC BLACKOUT PERIOD,” written in bold, all caps. So his assistant was clearly trying to warn him about restrictions.

Let’s hope the separate investigation that Lacker mentioned is of the New York Fed. And, if they don’t already, investigators now know where to look.

Last Thursday, I wrote about the Federal Reserve’s remarks that it would probably start to wind down the trillions in bond purchases it made during the quantitative easing stimulus program.

I explained that these bonds were purchased with fake money — money that was “printed” for the sole purpose of purchasing the bonds, s, which in turn kept interest rates exceptionally low.

I also explained the dilemma that the Fed now faced in what to do with those bonds. Can’t just throw them away — or burn them in a pile with Alan Greenspan’s biography as kindling.

I suggested that the Fed would be forced to “monetize” the bonds by turning them over to the Treasury.

This is seen as very inflationary by economists since it creates more money that people could spend on goods and services — which drive up prices.

But it also will allow the Treasury to pay down some of the $20 trillion in US debt — which is also inflationary.

But there was one thing I left out of that column, and a reader named Keith Ryan, senior vice president of wealth management at UBS, pointed it out.

The Fed has actually already been monetizing “small” amounts of the interest income from the QE bonds by turning over its profits to the Treasury Department yearly. So billions of dollars of this fake QE money — interest on bonds bought with this newly printed money — have already flowed into the economy. It hasn’t done much to help economic growth, with the nation’s GDP estimated to be rising at a less than 1 percent annual rate in the first quarter of 2017 after a gain of only 1.6 percent during all of 2016. So far, all of this is just tinkering with the interest received on the bonds bought with QE money. It’s going to get a lot more interesting, and dangerous, when the Fed starts doing whatever it tries to unwind — that is, get rid of — the actual bonds it purchased. will