Why Angell Got Clobbered For Speaking Off The Cuff

Wayne D. Angell, the former Federal Reserve governor and Kansas wheat farmer, is proud of his reputation as a blunt Midwesterner who is never afraid to speak his mind--on the record. No wonder he has gotten himself into a passel of trouble. In Washington, where candor is a capital offense, Angell has committed a cardinal sin: failing to keep his head down and his mouth shut.

Now chief economist at Bear, Stearns & Co., Angell confirms that he is being investigated by the Securities & Exchange Commission. The SEC is looking into whether he violated securities laws by allegedly passing confidential Fed information to his clients on Apr. 19, less than three months after leaving the bank.

INSIDERS. The probe stems from a briefing Angell gave some 500 Bear Stearns clients about prospects for future interest-rate hikes. Angell said his educated guess was that 8, 9, or 10 of the 12 regional Federal Reserve banks had asked the Fed's board of governors to raise the discount rate. His guess turned out to be a tad too educated for some.

At the time, eight reserve banks had requested a discount-rate hike. Since the

information is confidential,

the Fed's inspector general launched an internal investigation to see if Angell had obtained or used inside information for private gain. Angell, who insists he based his estimate purely on smart analysis, believes the probe was ordered by Fed Chairman Alan Greenspan, who may have been irked by Angell's recent critiques of monetary policy in The Wall Street Journal and by news accounts that Angell was making as much as $100 a minute for advising clients on interest-rate trends. Greenspan's spokesman refused to discuss Angell's theory.

Fed Inspector General Brent L. Bowen quickly cleared the former governor of any wrongdoing. Indeed, Angell says with amusement that only when Bowen interviewed him did Angell realize that he was on the mark. "Thanks for confirming my guess," he recalls saying. Fed officials consider Angell a straight arrow and weren't surprised he was cleared. "I just assumed that Wayne was guilty of nothing else but being too indiscreet," says one ex-colleague. "You're asking for trouble when you start making guesses about sensitive information, but everyone knows Wayne yaks and things just come out."

That should have been the end of the story. But then Representative Henry B. Gonzalez (D-Tex.), chairman of the House Banking Committee and a longtime critic of the Fed's secretive ways, got into the act. Gonzalez insisted that the Fed turn its report over to the SEC and pushed SEC Chairman Arthur Levitt Jr. into launching the first investigation of a former Fed governor.

Gonzalez had no new evidence to press the case. His motivation? Politics, no doubt, plays a big role: The banking chairman is a fiercely partisan populist who condemns the Fed whenever it raises interest rates, and Angell is a Republican anti-inflation hawk who spent eight years prodding the Fed toward a tight-money policy.

Angell's indiscretion also gave Gonzalez an opening to push another agenda. He wants the Fed to require employees who leave the central bank to sign a nondisclosure agreement similar to gag rules the CIA and the Pentagon impose on departing employees to protect national secrets. Greenspan rejected the idea as unnecessary, and Fed officials believe Gonzalez is making an example of Angell to put heat on the Fed chairman. "The real issue is the gag rule, but Wayne brought this on himself by being so vocal," claims a Fed source.

SILENCE IS GOLDEN. The allegation against Angell is baseless. For one thing, it doesn't take a former Fed governor to guess how many Reserve banks might have requested an interest-rate hike; any shrewd Fed watcher familiar with the views of the bank presidents could come reasonably close. And why would Angell disclose confidential information in front of a large crowd? Moreover, knowing how many banks have requested a discount-rate increase is useless information for predicting what the board of governors might do. At times, it has rejected a unanimous request to change rates; at other times, it has made a rate move at the request of just a single bank.

Angell almost certainly will be exonerated by the SEC, but it could take months. Meanwhile, he would be well advised to show some discretion and follow the time-honored motto of other former Fed officials who have cashed in their monetary expertise for private-sector rewards: Silence is golden. And Gonzalez would be wise to drop the gag-rule issue. Secrets at the Fed are perishable, there already are laws against disclosing confidential information, and nondisclosure agreements are impossible to enforce. Surely the banking chairman has more important problems to deal with.

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