FED up? Hundred years of manipulating the US dollar
Adrian Salbuchi - December 23, 2013 - RT America
Monday 23 December marks the 100th Anniversary of the creation of the Federal Reserve System - the Central Bank of the United States of America.
The mainstream media are keeping remarkably quiet about this key milestone.
No doubt, they know only too well that growing millions of workers inside and outside the US are realizing that a century of central banking monopoly in the hands of a private clique of usurer banksters is enough. More than enough!
âTwas the night before ChristmasâŠ
âŠwhen all through the house, not a creature was stirring, not even a mouseâ. These words written by 19th Century American poet, Clement Clarke Moore, aptly describe the scene a hundred years ago when the Federal Reserve Act was discretely rubberstamped in the US Congress: true, hardly a mouse was stirring either in the House or in the SenateâŠ But the big rats were definitely there to vote in their act!
1913: Woodrow Wilson was President of the United States; World War One was but eight months away; and three years earlier a very hush-hush meeting had taken place at mega-banker, John Pierpont Morganâs, private estate on Jekyll Island off the coast of Georgia.
Bloomberg News described this in a February-15, 2012 article as âa secret meeting that launched the Federal Reserve Bank. In November 1910, a group of government and business leaders fashioned a powerful new financial system that has survived a century, two world wars, a Great Depression and many recessions.â
Thatâs the Bloomberg Version. The ugly truth is probably exactly the opposite: in November 1910 a group of government, banking and business leaders fashioned a powerful new financial system that triggered, promoted and imposed a century of conflict and genocide, including two world wars, a Great Depression, many recessions and systematic mega-banker bailouts using taxpayerâs money.
In 1995, American investigator and author, G. Edward Griffin, published what is clearly the most authoritative book on the âFEDâ â as it is colloquially called in banking circles and by the mainstream media â âThe Creature from Jekyll Islandâ.
Griffinâs book describes how a top secret conspiracy â sorry, canât think of a better phrase â of very high-powered bankers, government officials and foreign agents met to plan the take-over of the American economy, finance and national currency, the US Dollar, to then wage global wars of conquest.
Bloomberg went on to describe how Rhode Island Senator, Nelson Aldrich, whose daughter married John D. Rockefeller Jr, âinvited men he knew and trusted, or at least men of influence who he felt could work together: Abram Piatt Andrew, assistant secretary of the Treasury; Henry P. Davison, a business partner of JP Morgan's; Charles D. Norton, president of the First National Bank of New York; Benjamin Strong, another Morgan friend and the head of the Bankers Trust; Frank A. Vanderlip, president of the National City Bank; and Paul M. Warburg, a partner in Kuhn, Loeb & Co. and a German citizen.â
Paul Warburg was the actual mastermind behind the FED. Interestingly, his main partner at KĂŒhn, Loeb & Co, Jakob Shiff, had just financed the Japanese war against the Russian Tsar; he would later channel 20,000,000 US dollars via a Russian exile living in Brooklyn by the name of Lev Davidovich Bronstein (better known as Leon Trotsky) to ensure the 1917 victory of the Bolshevik Revolution.
Neither 'Federal', nor 'Reserve', nor a 'Bank'
Actually, itâs a âsystemâ. Officially, the âFederal Reserve Systemâ wields full control over the US Dollar, not to serve the American people but on the contrary the interests of private bankers, who hold its very special type of stocks and shares.
In practice, the FED is over 95 percent privately-owned, is not integrated into the US Government, nor accountable to any branch of government. There is nothing âFederalâ about it as it lies fully outside the government system of checks-and-balances.
Nor does it âReserveâ anything. Rather it arbitrarily prints all the money the mega-bankers and power elites need to keep the âglobalizedâ world rolling in the direction that they wish and need. This includes such things as multi-trillion dollar âquantitative easingsâ to keep Goldman Sachs, Bank of America, CityCorp, Wachovia and JPMorgan Chase happy and âhealthyâ; financing clandestine and terror operations to overthrow the governments of Iran, Nicaragua, Argentina, Cuba, Chile, Syria, Libya, Vietnam and many others; waging decades-long wars against Afghanistan, Pakistan, Iraq, Africa and Latin America; unflinchingly supporting âlittle Israelâsâ genocide in Palestine and its âdemocraticâ 400-bomb strong nuclear program; and keeping Wall Street on permanent life-support.
Finally, it is definitely no âBankâ in the sense of a financial institution promoting the credit needs of the real economy for the benefit of the vast majority of the working populationâs needs.
Rather, the FED supports the financial needs of the global war system, covert operations, usury, drug dealers, and the global banksters.
The FED answers to no one. It clearly does not serve âWe the Peopleâ of the US or anywhere else. Its purpose is to serve the global power elites, regularly meeting to plan world government through entities like the Council of Foreign Relations, Trilateral Commission, Bilderberg, World Economic Forum and others forming part of todaysâ intricate planetary web of global money power.
Straight from the horseâs mouth
In a Public Broadcast System (PBS) interview on âNews Hourâ aired on September 18, 2007, US journalist Jim Lehrer had this Q&A session with former decades-long Fed Chairman (and JP Morgan bank officer) Alan Greenspan:
Jim Lehrer: âWhat is the proper relationship between a chairman of the Fed and a president of the United States?â
Alan Greenspan: âWell, first of all, the Federal Reserve is an independent agency, and that means, basically, that there is no other agency of government which can overrule actions that we take. So long as that is in place and there is no evidence that the administration or the Congress or anybody else is requesting that we do things other than what we think is the appropriate thing, then what the relationships are donât frankly matter.â
Huh? If youâre a US citizen, you should re-read the above once or twice.
The FED System lies at the root of US âsuperpowerâ status. Allow me to explain how the FED scam really works from the point of view of someone living in Argentina - a very down-trodden country repeatedly made to bite the dust by the global power elites through their local agents imposed upon us through money-power âdemocracyâ.
This means that every time Argentina needs to buy 100 dollars-worth of, say, oil, medicines or technological components, the Argentine people must work to earn those 100 dollars through exports and genuine work.
By comparison, every time the US Government needs to buy 100 dollars-worth of oil, medicines or whatever, all they need to do is tell the Fed to print 100 dollars and thatâs that. Letâs just say that this makes it much easier to be a âsuperpowerâ.
OK, the mechanismâs not that simple, but this certainly explains schematically how the whole US-Dollar power system really works. It also explains why the elites wonât tolerate anybody challenging the dollar.
Oh, when the Fed... comes marchinâ inâŠ
Look at the worldâs oil market. It is a monopoly run by three global trading centers located in New York, London and Dubai. The idea is to ensure that âpetro-dollarsâ flow around the world 24/7, and only incidental small amounts should flow back into the US financial system.
This explains why when in late 2002 Saddam Hussein decided he would do his UN-sanctions authorized âOne Billion Dollars Iraqi Oil for Foodâ trade with the West in euros instead of dollars, he was quickly visited by the Fedâs military branch in March 2003.
Or take Muammar Kaddafi who in 2011 was about to launch a program to trade Libyan and North African oil using a new gold-backed currency â the gold dinar. He too got a little visit from Peace Prize Barack and Babylon Hillary. Do you begin to see the pattern?
But donât think that the FEDâs global financial enslavement system is simply aimed outside the US; it kicked off a century ago by first silently enslaving the very people of the United States it is supposed to serve.
Hereâs how that works: every time the US Government decides to put money into circulation â those 1, 5, 10, 20, 50, 100 dollar bills weâre all so familiar with â instead of asking the government mint to print them at a pennyâs cost in paper and ink, the government instead asks the private banksters at the Fed to print those bills for the Treasury, in exchange delivering to the Fed interest-bearing US Treasury Bills and Bonds, which translates into trillions of dollarsâ in profits funneled to the private banking elite though the Fed.
It was all so well planned a hundred years ago, that just before the Federal Reserve Act was passed on December 23, 1913, they also maneuvered to close this parasitic circle, for if the US Government was to begin making gigantic interest payments to the Fed just for printing its own money, they first needed to have a revenue scheme in place to milk the American taxpayer: the Income Tax Act!
Actually, it was the 16th Amendment to the US Constitution passed by Congress in July 1909, and enacted as law in February 1913. Thus international banksters have been ripping off Americans and getting America to fight their wars as proxies for a full century, whilst most of the population havenât got a clue of whatâs going on.
Clearly, the FED lies so far above the US White House, Congress and Supreme Court, that over the past five decades no one has been able to have a proper audit done on its books and numbers. Oh, you Homer Simpsons!
Not that you havenât been warned. In 1923, Minnesota representative, Charles Lindbergh, father of the famous aviator, sent an early warning: âThe financial system has been turned over to the Federal Reserve Board which administers the finance system by authority of a purely profiteering group. The system is private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other peopleâs money.â
In the 60âs, republican senator and presidential candidate, Barry Goldwater, said âmost Americans have no real understanding of the operation of international moneylenders; the accounts of the Federal Reserve system have never been audited; it operates outside the control of Congress and manipulates the credit of the United States.â Today, former representative, Ron Paul, has been sending the same message.
Even president John Kennedy understood this when he issued Executive Order No. 11110 on June 4, 1963, ordering the US Treasury to print zero-interest public money to the tune of 4.3 billion dollars, fully bypassing the Fed. But he too ran into some trouble in Dallas barely five months later on 22 November.
Epilogue: Fed Up?
One would have thought that something as important as whether to continue to allow a private FED to operate in its present format, or revamping it, or even doing away with it after a whole century, would be something that should be squarely on the American and global public agendaâŠ big time!
And yet all we have is silence from the US Government, Congress and politicians; silence from world leaders; total silence from the mainstream media, and from the academic world.
And so you little parasitic mega-bankers running planet Earth: come Monday 23 December you can uncork all the champagne you like and celebrate your âOne Hundredth Masters of the Universe Slave Drivers Anniversaryâ, partying on straight into Christmas Day.
Then, come Thursday 26th, just carry on crucifying the entire world. For you it will be business as usual.
100 YEARS OF THE FEDERAL RESERVE
Posted by Ben Swann
New: âThe United States Federal Reserve announced Wednesday that it will start drawing down (i.e. âtaperingâ) its multibillion-dollar quantitative easing policies in 2014.
The Fed will begin tapering its $85 billion monthly purchases of Treasuries and Treasury mortgage-backed securities by $5 billion each starting in January.â
100 years ago, this December, the United States Congress created a central bank today, we know it as the Federal Reserve Bank of the United States. What most people donât know is that the bank isnât a federal entity and candidly, it really has nothing in reserves.
Is the Federal Reserve good for the United States? Is it even possible to get rid of it?
The first step toward truth is to be informed.
10 years ago, virtually no American knew anything about the Federal Reserve Bank. Most thought it was a government agency, an entity that helps to create and protect U.S. currency and our economy. Then came along the national rise of a Congressman from Texas by the name of Ron Paul.
One of the most impressive things about the career of now retired Congressman Ron Paul was the national attention he drew to the Federal Reserve Bank.
It was Congressman Paul who made millions of Americans aware of a simple truth. That the single entity with the most power and control over the U.S. dollar is not accountable to the American people.
So what exactly is the Federal Reserve?
To begin with, it is a private bank that serves as the exclusive bank of the U.S. government. Though it was created by Congress, the Federal Reserve does not answer to Congress. The President himself doesnât have direct oversight.
So what else does the fed do?
The Fed regulates financial institutions, manages the nationâs money and has incredible influence over the economy. The fed can raise and lower interest rates, in fact, they are the only entity able to do so.
That is very big deal because with that power, the fed is able to control the U.S. economy. can cause the life savings of Americans to lose value through inflation, controls the value of your investments, and even impacts employment rates and manufacturing outputs.
An awful lot of power for an entity that has no accountability to the U.S. people. so where did this central bank come from?
A writer by the name of G. Edward Griffin blew the modern lid off this story when he wrote a book called âThe Creature from Jekyll island.â
He spoke to me via Skype.
Ben: For folks who donât know the name, why is the book called âThe Creature from Jekyll Islandâ?
Griffin: Sure, because there is a lot of significance to it. Many people think itâs just a tricky title to attract attention which frankly thatâs some of the motive for doing that but Jekyll Island is a real island, Ben, as you well know, and itâs significant because it was on that island back in 1910 that the Federal Reserve was created. And thatâs an interesting fact of history that why should something as important as the Federal Reserve system be created any place other than Washington D.C.
Ben: How did the meeting at Jekyll Island in 1910 become a central bank in 1913?
Griffin: Back in 1910 when all of this happened, there was a great deal of concern in Congress and among the American people about this concentration of financial power in the hands of a small group of companies, financial centers, on Wall Street. The big banks, the big insurance companies, the brokerage houses and so forth. There was a clamor at that time for legislative reform, thereâs that word that we hear so much about. What happened is that the banks decided that the public was going to get its reform one way or the other, so why should they just sit back and let it happen? They decided to take the lead in that parade and make sure that they provide the so-called reform. They were going to draft this legislation and of course, if it were known that they were the ones drafting the reform legislation, it wouldnât sell too well. So there had to be a lot of secrecy about that particular period of history. Well what were they concealing? It wasnât just, they werenât concealing just the fact that they were the ones writing the legislation to control themselves but when you follow that thread you come to the realization was what they were doing is creating a cartel. You see these were competing banking companies within the industry and this was at the time of history when competition was being replaced by monopolies and cartels and this happened in spades as far as the banking industry is concerned. And on Jekyll Island they created a banking cartel to regulate itself, to set up its own rules, to offer it to the American people as though as it was some kind of banking reform and the stupid politicians in Washington accepted it and they passed this banking cartel agreement into law and they called it the Federal Reserve Act.
It was in 1913 that congress, in passing the âFederal Reserve Actâ violated the U.S. Constitution and essentially granted its power to create money to the Fed banks. Since 1913, the fed has ordered the printing of currency and then loaned it back to the government charging interest. The government levies income taxes to, among other things, pay the interest on the debt.
So when you take a dollar out of your pocket, look at what it says at the top. This is a Federal Reserve Note, currency issued by the Federal Reserve Bank.
In 1964, that changed. President John F Kennedy issued an Executive Order, 11110. It gave the Treasury Department the explicit authority: âto issue silver certificates against any silver bullion, silver, or standard silver dollars in the Treasury.â This means that for every ounce of silver in the U.S. Treasuryâs vault, the government could introduce new money into circulation based on the silver bullion physically held there.
These were United States Notes. As a result, of that executive order, more than $4 billion in United States Notes were brought into circulation in $2 and $5 denominations. $10 and $20 United States Notes were never circulated but were being printed by the Treasury Department when Kennedy was assassinated.
After his assassination, The United States Note Project ceased.
Ben: To your knowledge, Mr. Griffin, is that Executive Order that was issued by President Kennedy still active today?
Griffin: The Executive Order is not still in existence. It went through several transitions. First it was absorbed into another Executive Order, it was consolidated into another order, and then finally it was repealed, I think Johnson himself got rid of it. But thatâs really not the important question whether itâs still standing or not because it never did represent what many people thought it meant in my view. I checked into the allegation that President Kennedy had taken a stand against the bank and that he was going to put an end to the fiat money and go back to government issued notes. Thatâs the general idea and that therefore thatâs the reason he was killed. Unfortunately or fortunately, whichever the case may be, the record really doesnât support that at all. And every time I went to try and run down the origins of this myth as I call it, it just fizzled out unless somebody can give me some hard information that I havenât yet seen. I think itâs just one of those urban myths that is popular.
So what has the Federal Reserve Bank been up to in the past few years? As you probably know, the Fed has been holding interest rates at historically low rates. Meanwhile, the Fed has been creating between $40 and $80 billion dollars a month in U.S. currency. The name you have heard this by, quantitative easing.
The first round of Quantitative Easing came in late 2008 under President George W. Bush. The Fed initiated purchases of $500 billion in mortgage backed securities in order to help resolve the housing crisis. The Fed also cut the key interest rate to nearly 0%. QE1
The economy didnât improve, but banks sure got a lot of money.
So, under Bernanke, the fed was at it again. The second round of Quantitative Easing was from November of 2010 until June of 2011. The Federal Reserve went to work buying up $600 billion in U.S. Treasury Bonds to spur the economy. But again, it didnât work.
Part of the reason QE2 failed was because it wasnât meant to spur the U.S. economy. That $600 billion was given to foreign banks. During the QE2 funding period cash reserves of foreign banks grew from $308 billion to $940 billion
In the fall of 2012, came the beginning of QE3, in this case, the Fed began purchasing mortgage backed securities and treasuries at a rate of $85 billion dollars a month. What made this Quantitative Easing attempt different than others, there is no end to it.
In January of 2013 the Fed began what is called. QE4, an attempt to continue to purchase securities and hold interest rates down until the unemployment rate drops to below 6.5%.
In February of 2014, Janet Yellen will succeed Ben Bernanke as Fed chairman and has already said that her priority is to continue these programs even longer than was originally anticipated. Yellen says that unemployment is a bigger problem than inflation so the for the Fed it will be business as usual.
What you need to know: Is that in 1913, the original charter for the Federal Reserve Bank allowed it to exist for only 20 years. In 1927, the Fed charter was renewed.
Some believe that on December 23rd, 2013, the Fed charter runs out. That at the 100 year anniversary, the Fed will have to be renewed by Congress. Others say that the Fed does not have to be renewed, that it is a permanent entity. That happened they say in 1927 under the McFadden Act.
Whether that is true or not, here is something undeniable, in the 100 years that the federal reserve bank has been in existence, the U.S. dollar has lost 98% of its value.
The purpose of creating the Federal Reserve was to protect the dollar. The Fed hasnât done that.
The Federal Reserve Bank didnât stop the Great Depression, the Federal Reserve Bank has done nothing to improve the so called great recession. In fact, some can make the argument that the fed policies under Alan Greenspan in the early 2000âs and not only helped to create our current situation, but the Fed policies under Ben Bernanke have made the economy worse.
The bottom-line, the one entity that truly has the power to end the Fed is Congress, but if Congress were to do that then Congress would also have to be responsible for fulfilling its constitutionally mandated role to âto coin moneyâ and âregulate the value thereofâ.
The Federal Reserve was created 100 years ago. This is how it happened.
By Neil Irwin - December 21, 2013 - WashingtonPost
A century ago this week, Congress passed the Federal Reserve Act, creating a central bank for a nation that was only beginning its economic ascendance. This is the story of how it came to be, from a nearly catastrophic financial panic to secret meetings of plutocrats on the Georgia coast to the pitched battle in the halls of Congress, excerpted from The Alchemists: Three Central Bankers and a World on Fire.
The mustachioed man in the silk top hat strode to his private railcar parked at a New Jersey train station, a mahogany-paneled affair with velvet drapes and well-polished brass accents. Five more men â and a legion of porters and servants â soon joined him. They referred to one another by their first names only, an uncommon informality in 1910, intended to give the staff no hints as to who the men actually were, lest rumors make their way to the newspapers and then to the trading floors of New York and London. One of the men, a German immigrant named Paul Warburg, carried a borrowed shotgun in order to look like a duck hunter, despite having never drawn a bead on a waterfowl in his life.
Two days later, the car deposited the men at the small Georgia port town of Brunswick, where they boarded a boat for the final leg of their journey. Jekyll Island, their destination, was a private resort owned by the powerful banker J.P. Morgan and some friends, a refuge on the Atlantic where they could get away from the cold New York winter. Their host â the man in the silk top hat â was Nelson Aldrich, one of the most powerful senators of the day, a lawmaker who lorded over the nationâs financial matters.
For nine days, working all day and into the night, the six men debated how to reform the U.S. banking and monetary systems, trying to find a way to make this nation just finding its footing on the global stage less subject to the kinds of financial collapses that had seemingly been conquered in Western Europe. Secrecy was paramount. âDiscovery,â wrote one attendee later, âsimply must not happen, or else all our time and effort would have been wasted. If it were to be exposed publicly that our particular group had got together and written a banking bill, that bill would have no chance whatever of passage by Congress.â
For decades afterward, the most powerful men in American finance referred to one another as part of the âFirst Name Club.â Paul, Harry, Frank and the others were part of a small group that, in those nine days, invented the Federal Reserve System. Their task was more than administrative. Because the men at Jekyll Island werenât just trying to solve an economic problem â they were trying to solve a political problem as old as their republic.
Banking's rough beginning
The U.S. financial system needed remaking. The United States had a long but less than illustrious history with central banking. Alexander Hamilton, the first Treasury secretary, believed a national bank would stabilize the new governmentâs shaky credit and support a stronger economy â and was an absolute necessity to exercise the new republicâs constitutional powers.
But Hamiltonâs proposal faced opposition, particularly in the agricultural South, where lawmakers believed a central bank would primarily benefit the mercantile North, with its large commercial centers of Boston, New York and Philadelphia. âWhat was it drove our forefathers to this country?â said James âLeft Eyeâ Jackson, a fiery little congressman from Georgia. âWas it not the ecclesiastical corporations and perpetual monopolies of England and Scotland? Shall we suffer the same evils to exist in this country?â Some founding fathers, including Thomas Jefferson and James Madison, believed that the bank was unconstitutional.
By 1811, Madison was in the White House. The Bank of the United States closed down. Until, at least, Madison realized how hard it was to fight the War of 1812 without a national bank to fund the government. The Second Bank of the United States was founded in 1816. It lasted a little longer â until it crashed against the same distrust of centralized financial authority that undermined the first. The populist Andrew Jackson managed its demise in 1836.
Running an economy without a central bank empowered to issue paper money caused more than a few problems in late 19th-century America. For example, the supply of dollars was tied to private banksâ holdings of government bonds. That would have been fine if the need for dollars was fixed over time. But one overarching lesson of financial history is that thatâs not the case. In times of financial panic, for example, everybody wants cash at the same time (thatâs what happened in fall 2008).
Without a central, government-backed bank able to create money on demand, the American banking system wasnât able to provide it. The system wasnât elastic, meaning there was no way for its supply of money to adjust with demand. People would try to withdraw more money from one bank than it had available, the bank would fail, and then people from other banks would withdraw their funds, creating a vicious cycle that would lead to widespread bank failures and the contraction of lending across the economy. The result was economic depression. It happened every few years. One particularly severe panic in 1873 was so bad that until the 1930s, the 1870s were the decade known as the âGreat Depression.â There were lesser panics in 1884, 1890 and 1893
Then came the Panic of 1907, the one that finally persuaded American lawmakers to deal with their countryâs backward financial system. What made the Panic of 1907 so severe? A bunch of things that happened to converge at once.
It started with a devastating earthquake in San Francisco in 1906. Suddenly, insurers the world over needed access to dollars at the same time. In what was then still an agricultural economy, it was also a bumper year for crops, and an economic boom was under way â so companies nationwide wanted more cash than usual to invest in new ventures. In San Francisco, deposits were unavailable for weeks after the quake: Cash was locked in vaults so hot from fires caused by broken gas lines that it would have burst into flames had they been opened.
All of that meant the demand for dollars was uncommonly high â at a time when the supply of dollars couldnât increase much. This manifested itself in the form of rising interest rates and withdrawals. Withdrawals begat more withdrawals, and before long, banks around the country were on the brink of failure.
Then in October 1907, the copper miner turned banker F. Augustus Heinze and his stockbroker brother Otto tried to take over the market of his own United Copper company by buying up its shares. When he failed, the price of United Copper stock tumbled. Investors rushed to pull their deposits out of any bank even remotely related to the disgraced F. Augustus Heinze.
First, a Heinze-owned bank in Butte, Mont., failed. Next came the huge Knickerbocker Trust Co. in New York, whose president was a Heinze business associate. Depositors lined up by the hundreds in its ornate Fifth Avenue headquarters, holding satchels in which to stuff their cash. Bank officials standing in the middle of the room and yelling about the bankâs alleged solvency did nothing to dissuade them. The failure of the trust led every bank in the country to hoard its cash, unwilling to lend it even to other banks for fear that the borrower could be the next Knickerbocker.
The power of J.P. Morgan
It is true that the United States, in that fearful fall of 1907, didnât have a central bank. That doesnât mean it didnât have a central banker. John Pierpont Morgan was, at the time, the unquestioned king of Wall Street, the man the other bankers turned to to decide what ought to be done when trouble arose. He was not the wealthiest of the turn-of-the-century business titans, but the bank that bore his name was among the nationâs largest and most important, and his power extended farther than the (vast) number of dollars under his command. His imprint on the financial system has long survived him. Two of the most important financial firms in America today, JPMorgan Chase and Morgan Stanley, trace their lineage to John Pierpont Morgan.
When the 1907 crisis rolled around, Morgan held court at his bankâs offices at 23 Wall St. while a series of bankers came to make their requests for help.
Morgan asked the Treasury secretary to come to New York â note who summoned whom â and ordered a capable young banker named Benjamin Strong to analyze the books of the next big financial institution under attack, the Trust Company of America, to determine whether it was truly broke or merely had a short-term problem of cash flow â the old question of insolvent versus illiquid. Merely illiquid was Morganâs conclusion. The bankers bailed it out.
It wouldnât last â with depositors unsure which banks, trusts and brokerages were truly solvent, withdrawals continued apace all over New York and around the country. At 9 p.m. on Saturday, Nov. 2, 1907, Morgan gathered 40 or 50 bankers in his library.
The bankers awaited, as Thomas W. Lamont, a Morgan associate, put it, âthe momentous decisions of the modern Medici.â In the end, Morgan engineered an arrangement in which the trusts would guarantee the deposits of their weaker members â something they finally agreed to at 4:45 a.m. Medici comparisons aside, it is remarkable how similar Morganâs role was to that of Timothy Geithner, the New York Fed president, a century later during the 2008 crisis. Both knocked heads to encourage the stronger banks and brokerages to buy up the weaker ones, bailing out some and allowing others to fail, working through the night so action could be taken before financial markets opened.
With a big difference, of course: Geithner was working for an institution that was created by Congress and acted on the authority of the government. His major decisions were approved by the Fedâs board of governors, its members appointed by the president and confirmed by the Senate. His capacity to address the 2007â08 crisis was backed by an ability to create dollars from thin air.
Morgan, by contrast, was simply a powerful man with a reasonably public-spirited approach and an impressive ability to persuade other bankers to do as he wished. The economic future of one of the worldâs emerging powers was determined simply by his wealth and temperament.
Time for a change
Enough was enough. The Panic of 1907 sparked one of the worst recessions in U.S. history, as well as similar crises across much of the world. Members of Congress finally saw that having a central bank wasnât such a bad idea after all. âIt is evident,â said Sen. Aldrich, he of the silk top hat and the trip to Jekyll Island, âthat while our country has natural advantages greater than those of any other, its normal growth and development have been greatly retarded by this periodical destruction of credit and confidence.â
Legislation Congress enacted immediately after the panic, the Aldrich-Vreeland Act, dealt with some of the financial systemâs most pressing needs, but it put off the day of reckoning with the bigger question of what sort of central bank might make sense in a country with a long history of rejecting central banks. It instead created the National Monetary Commission, a group of members of Congress who traveled to the great capitals of Europe to see how their banking systems worked. But the commission was tied in knots.
Agricultural interests were fearful that any new central bank would simply be a tool of Wall Street. They insisted that something be done to make agricultural credit available more consistently, without seasonal swings. The big banks, meanwhile, wanted a lender of last resort to stop crises â but they wanted to be in charge of it themselves, rather than allow politicians to be in charge.
The task for the First Name Club gathered in Jekyll Island in that fall of 1910 was to come up with some sort of approach to balance these concerns while still importing the best features of the European central banks.
The solution they dreamed up was to create, instead of a single central bank, a network of them around the country. Those multiple central banks would accept any âreal billsâ â essentially promises businesses had received from their customers for payment â as collateral in exchange for cash. A bank facing a shortage of dollars during harvest season could go to its regional central bank and offer a loan to a farmer as collateral in exchange for cash. A national board of directors would set the interest rate on those loans, thus exercising some control over how loose or tight credit would be in the nation as a whole.
The men at Jekyll drafted legislation to create this National Reserve Association, which Aldrich, the most influential senator of his day on financial matters, introduced in Congress three months later.
A rocky reception
It landed with a thud. Even though the First Name Club managed to keep its involvement secret for years to come, the idea of a set of powerful new institutions controlled by the banks was a non-starter in this nation with a long distrust of centralized financial authority.
Aldrichâs initial proposal failed, but he had set the terms of the debate. There would be some form of centralized power, but also branches around the country. And what soon became clear was that the basic plan heâd laid out â power simultaneously centralized and distributed across the land and shared among bankers, elected officials, and business and agricultural interests â was the only viable political solution.
Carter Glass, a Virginia newspaper publisher and future Treasury secretary, took the lead on crafting a bill in the House, one that emphasized the power and primacy of the branches away from Washington and New York. He wanted up to 20 reserve banks around the country, each making decisions autonomously, with no centralized board. The country was just too big, with too many diverse economic conditions, to warrant putting a group of appointees in Washington in charge of the whole thing, Glass argued.
President Woodrow Wilson, by contrast, wanted clearer political control and more centralization â he figured the institution would have democratic legitimacy only if political appointees in Washington were put in charge. The Senate, meanwhile, dabbled with approaches that would put the Federal Reserve even more directly under the thumb of political authorities, with the regional banks run by political appointees as well.
But for all the apparent disagreement in 1913, there were some basic things that most lawmakers seemed to agree on: There needed to be a central bank to backstop the banking system. It would consist of decentralized regional banks. And its governance would be shared â among politicians, bankers, and agricultural and commercial interests. The task was to hammer out the details.
Who would govern the reserve banks? A board of directors comprising local bankers, businesspeople chosen by those bankers, and a third group chosen to represent the public. The Board of Governors in Washington would include both the Treasury secretary and Federal Reserve governors appointed by the president and confirmed by the Senate.
How many reserve banks would there be, and where? Eight to 12, the compromise legislation said, not the 20 that Glass had envisioned. An elaborate committee process was designed to determine where those should be located. Some sites were obvious â New York, Chicago. But in the end, many of the decisions came down to politics. Glass was from Virginia, and not so mysteriously, its capital of Richmond â neither one of the countryâs largest cities nor one of its biggest banking centers â was chosen.
The vote over the Federal Reserve Act in a Senate committee came down to a single tie-breaking vote, that of James A. Reed, a senator from Missouri. Also not so mysteriously, Missouri became the only state with two Federal Reserve banks, in St. Louis and Kansas City. The locations of Federal Reserve districts have been frozen in place ever since, rather than evolving with the U.S. population â by 2000, the San Francisco district contained 20 percent of the U.S. population, compared with 3 percent for the Minneapolis district.
And in a concession to those leery of creating a central bank, the Federal Reserve System, like the First and Second Banks of the United States, was set to dissolve at a fixed date in the future: 1928. One can easily imagine what might have happened had its charter come up for renewal just a couple of years later, after the Depression had set in.
Creation of a central bank
The debate over the Federal Reserve Act was ugly. In September 1913, Rep. George Ross Smith of Minnesota carried onto the floor of the House a 7-by-4-foot wooden tombstone â a prop meant to âmournâ the deaths of industry, labor, agriculture and commerce that would result from having political appointees in charge of the new national bank.
âThe great political power which President Jackson saw in the First and Second National banks of his day was the power of mere pygmies when compared to the gigantic power imposed upon [this] Federal Reserve board and which by the proposed bill is made the prize of each national election,â he argued.
It wasnât just the fiery populists who opposed the bank. Aldrich, the favored senator of the Wall Street elite, complained that the Wilson administrationâs insistence on political control of the institution made the bill âradical and revolutionary and at variance with all the accepted canons of economic law.â He wanted the banks to have more control, not a bunch of politicians.
For all the noise, the juggling of interests was effective enough â and the memory of 1907 powerful enough â for Congress to pass the bill in December 1913. Wilson signed it two days before Christmas, giving the United States, at long last, its central bank. âIf, as most experts agree, the new measure will prevent future âmoney panicsâ in this country, the new law will prove to be the best Christmas gift in a century,â wrote the Baltimore Sun.
The government, of course, hadnât solved the problem of panics. It had just gained a better tool with which to deal with them.
And opposition to a central bank, rooted as deeply as it was in the American psyche, didnât go away. Instead, it evolved. Whenever the economic tide turned â during the Great Depression, during the deep recession of the early 1980s, during the downturn that followed the Panic of 2008 â the frustration of the people was channeled toward the institution theyâd granted an uncomfortable degree of power to try to prevent such things.
But after more than a century of trying, the United States had its central bank. Before long, New York would supplant London as the center of the global financial system, and the dollar would replace the pound as the leading currency in the world. And as the years passed, the series of compromises that the First Name Club dreamed up a century earlier, and the unwieldy and complex organization it created, would turn out to have some surprising advantages â even in a country that had previously been better at creating central banks than keeping them.
Adapted from "The Alchemists: Three Central Bankers and a World on Fire," published in 2013 by The Penguin Press.