Fannie/Freddie

[bmrigs]

I didn't say having accountability to Congress is a good thing. Just stating that it is accountable to Congress and correcting the wrong info about the Fed being a private company.

BTW, no I am not naive, I do not buy into "the sky is falling."

Well fltoo, please tell me how the Federal Reserve is a goverment owned or public institution and not held by private interests? Im all ears......

[fltoo]

Once again, it is made up of private banks, answers to Congress, does not issue stock, therefore not privately owned.

It is owned by no one.

[bmrigs]

Once again, it is made up of private banks, answers to Congress, does not issue stock, therefore not privately owned.

It is owned by no one.

LOL fltoo. It has never been audited by Congress and it doesnt ask Congress if it can raise or drop interests rates. There is no Congressional Committee that oversees it. It has no budget. Its meetings are private and not open for public record. It doesnt issue stock, therefore it is not PUBLICALLY OWNED. It is made up of private banks, I gave you the list. A large portion of which are foreign controlled. The goverment is at the mercy of this banking cartel because the government has to go to the Fed for its money. The hand that gives is over the hand that recieves. Hub stated some facts about the origin of the Federal Reserve. You should read the book "The Creature from Jekyll Island" by Edward Griffin. There is a reason why this Central Bank was created out of secrecy. I will end this with a quote of a wise Congressman that was determined to let Americans know about this cartel and its intentions:

Congressman Louis McFadden, (1920-31), stated: "When the Federal Reserve Act was passed, the people of these United States did not perceive that a world banking system was being set up here. A super-state controlled by international bankers and industrialists...acting together to enslave the world...Every effort has been made by the Fed to conceal its powers but the truth is--the Fed has usurped the government."

[fltoo]

Sorry, typo on privately, but you got the message.

You argue for the sake of argument brigs, LOL. I, in no way, am in support of the Fed, government interference in private enterprises, government bailouts, etc.

I am in BK due to the government constraints put on small businesses, so trust me, I am in agreement with your views, just not in agreement with your doom theories.

The economy is cyclical. The S&L and present day crisis is due in part to mortgage lending practices. The appraisal process was cleaned up after the S&L crisis and the FICO score underwriting process will be cleaned up after this mess.

We will then move forward til the next problem hits.

[WhatMoney]

From: http://webskeptic.wikidot.com/federal-reserve-ownership
That means I didn't write this so if you want to attack me I could care less - I will ignore you. Like the author said - do your own research instead of parroting a 1983 conspiracy article, the source for these unproven claims.

Alleged Federal Reserve Ownership

The Alleged owners

Rothschild Bank of London
Warburg Bank of Hamburg
Rothschild Bank of Berlin
Lehman Brothers of New York
Lazard Brothers of Paris
Kuhn Loeb Bank of New York
Israel Moses Seif Banks of Italy
Goldman, Sachs of New York
Warburg Bank of Amsterdam
Chase Manhattan Bank of New York

So who does own the Federal Reserve?

Introduction
It seems that a consistent practice of "outrageous claim" sites is to repeat the same misinformation without research, then cross-link as though this is proof.

Let's look at an example where several sites have revealed the long-held secret owners of the Federal Reserve. Only a little research into the list would uncover the flaws.

Rothschild Bank of London
No such bank exists today.

The Rothschild name is used a lot in international banking conspiracy theories. And there was a time when the Rothschild family did have signficiant power in world banking.

But times change. Once considered one of the great fortunes of the world, the Rothschild empire is but a shadaw of it's former self. "Rothschild bankers of today being only a minor player in the global economy." - ([http://en.wikipedia.org/wiki/Rothsch...odern_business)

Warburg Bank of Hamburg
Currently doing business as "M.M. Warburg and Company" ([http://www.mmwarburg.de/en/bankhaus/adressen/] ) The Bank has not been owned or controlled by the Warburgs since the 1930s driven out by anti-semite practices in Nazi Germany.

"Reichsbank president Hjalmar Schacht told Max M. Warburg during a meeting in Berlin in September 1937 that he could no longer keep the bank…(it) was confiscated when the war broke out." ([http://www.mmwarburg.de/en/bankhaus/...938_1945.html])

"… Virtually all members of the Warburg family had fled to the United States or Great Britain by 1938." ([http://en.wikipedia.org/wiki/Warburg_family])

Rothschild Bank of Berlin
There is no such bank. Rothschilds does not even have an office in Berlin ([http://www.rothschild.com/grouppriva...tions/Germany])

Lehman Brothers of New York
Exists but not quite the power house it is protrayed. It is currently listed as 46th largest bank. The last Lehman to lead it died in 1969. Today it is a publicly held firm so it's major assets can be viewed in the annual report. And, no, ownership of a central bank is not listed as an asset.

Lazard Brothers of Paris
No such firm exists. Lazard Ltd is a publicly traded firm with a market value of $2B which is rather small compared to other major banks. It's major assets can be viewed in the annual report. http://www.nyse.com/about/listed/lcd...tml?ticker=LAZ

Kuhn Loeb Bank of New York
Has not existed since 1977 when it merged with Lehman. ([http://en.wikipedia.org/wiki/Kuhn,_Loeb_&_Co.])

Israel Moses Seif Banks of Italy
A search for the existance of this bank did not turn up a single reliable source.

Goldman, Sachs of New York Currently called Goldman, Sachs Group Inc, this is a real bank and a big one at that with $78B in market value. The annual report shows about $1B in assets but no Federal Reserve ownership. ([http://www2.goldmansachs.com/our-fir...l-report.html])

Warburg Bank of Amsterdam
No such bank could be found

Chase Manhattan Bank of New York
Merged and renamed to JP Morgan Chase

This one does exist and is pretty darn big. Since it is publicly traded, you can view the top shareholders and assets online.

So who does own the Federal Reserve?
The FRS is headed by the Board of Governor a Federal Agency with no mechanism of any sort for anything resembling private ownership.

The concept of ownership comes at the branch level which are organized similar to corporations. Member banks are compelled to subscribe to shares in their local Fed branch. These shares are very limited in their power. (For more detail, see [http://webskeptic.wikidot.com/federal-reserve-system])

Regardless of who the share owners are, the law is fairly clear about ownership of shares in a Fed branch:

Only member banks can own shares
All member banks must be domestic (i.e. a majority of the shares in a member bank must be owned by Americans)
Regardless of the number of shares a bank owns it has only one vote.
Regardless of the number of branches a bank has, it can only own shares and have it's vote in a single branch.
So involvement and influence in Fed branches is spread over thousands of banks.

And, of course, no bank has any vote within the Board of Governors which oversees the entire system.

Bottom line: The above list of secret owners has been parroted for decades by gullible conspiracy theorists who accept it without question.

Note to any conspiracy theorists reading this and getting outraged: Suppress your normal reaction to attack the author and the source.

Instead, invest your energy in doing some original research and make your information iron-clad.

Yes, there are evil people out there wanting to do bad things. Stop diverting attention with this out-of-date nonsense and document something current and accurate.

External Links:
[http://www.apfn.org/APFN/fed_reserve.htm]
[http://www.adl.org/special_reports/c...fed/print.asp]
[http://www.scribd.com/doc/334135/Mem...erve-District]
[http://en.wikipedia.org/wiki/List_of_billionaires]
[http://www.onlinebankingreport.com/resources/100.html]

[WhatMoney]

Myth #5. The Federal Reserve is owned and controlled by foreignersWho Owns the New York Federal Reserve Bank?as of June 30, 1997 the top eight shareholders were

Chase Manhatten Bank
Citibank
Morgan Guaranty Trust Company
Fleet Bank
Bankers Trust
Bank of New York
Marine Midland Bank
Summit Bank.

All of the major shareholders seen here and all of the banks on the complete list are either nationally- or state-chartered banks. All of them are U.S.-ownedGlobal Domination Through the Back Door?Does the New York Fed Call the Shots?Conclusion Footnotes:
1. State chartered banks have the option of becoming member banks of the Federal Reserve System. Interestingly, only 10% of have done so.

2. Compact Disclosure CD-ROM, v3.0

Referenceshttp://www.geocities.com/CapitolHill...flaherty5.html

[fltoo]

Gullible conspiracy theorists?

You mean, like, Chicken Little?

[bmrigs]

All smokescreens. Do you really think the owners wanted their names exposed especially the likes of the House of Rothschild. They put up many fronts and hide behind numerous corporations and banks. And they can throw some money at a professor to "dispel" the truth of the matter. They called it Federal Reserve to make it sound like the govt controls it. Why the secrecy of its origin? Because Constituitionally, only Congress can coin and regulate the value thereof, not some blood sucking international bankers content on enslaving all of us for their profit. This isnt a conspiracy theory when men in politics and industry talk about it. Mislead Americans like to defend the Federal Reserve like it was some Godsent to help America stabilize the economy. That if we had a Central Bank then it could stabilize the dollar and stop depressions and recessions. Well, what has happened since 1913. One depression, and many recessions and a dolllar that lost 95% of its value. They gave us a fiat currency that has caused monetary inflation out the ass. But go ahead and think that the Federal Reserve is this benign innocent bank looking out for your interests. We are going to see real soon in the not too distant future......

[JRScott]

You cannot nationalize the Federal Reserve Bank because it is privately owned and controlled. The govt needs to tell those owners that we are no longer interested in allowing you to issue the currency with interest and we will print our own money.

There are congressman talking about nationalizing airlines to save them, course he retracted afterwards said he wasn't serious.

Basically you'd have the Treasury department run an audit of the Federal Reserve Bank. Any such Audit should note several irregularities. Then you just shut them down, remove their unconstitutional printing of money due to mismanagement and then have the Treasury Dept print new notes (though constitutionally it should be Congress ).

[JRScott]

Irregardless of who owns it, it is clearly not a Federal Institution as it has as rigs says no oversight committee, never has had to report its finances to congress etc. It is a autonomous unit within our nation that has in essence enslaved us by printing money til it is worthless. Allowing all financial institutions to operate in insolvency. (Less than 3% of total deposits on hand is insolvent).

[WhatMoney]

Myth #6: The Federal Reserve has never been audited

BY: Edward Flaherty, Ph.D. Department of Economics College of Charleston, S.C.

An often repeated Federal Reserve conspiracy theory is that the Fed has never been audited. "Every year Congress introduces legislation to audit the FED," wrote Thomas Schauf, "and every year it is defeated."7 Why? Conspiracy theorists such as Schauf, Gary Kah (1991), and Pat Robertson (1994) say the reason is that the Fed is involved in an international plot to subvert U.S. sovereignty and create a one-world government. Naturally, the Fed will not permit Congress to audit its activities, lest it discover this treasonous plan and shut it down.

How much truth is there to this claim? Has the Fed ever been audited by Congress or anyone else? The Fed controls U.S. monetary policy and can act with a great deal of independence from Congress and the executive branch. Clearly, such awesome power requires some sort of regular public oversight at the very least to insure that the Fed is doing its job efficiently and effectively, and to detect any abuses of power or fraud. This essay explores the claim that the Fed has never been audited and finds that it is completely false.

A Brief History of Federal Reserve Audits

Since its inception in 1913 the Federal Reserve System has been subjected to a variety of financial and performance audits by Congress, the executive branch, and private accounting firms, although responsibility for this task has shifted from time to time. From 1913 to 1921 the Board of Governors, then known as the Federal Reserve Board which sets monetary policy and regulates the activities of the Federal Reserve Banks, was audited annually by the U.S. Treasury Department. In 1921 Congress created the Government Accounting Office (GAO) and assigned it to audit the Board until 1933. In the Banking Act of 1933, Congress voted specifically to remove the Board from the GAO's jurisdiction. From 1933 to 1952 audit teams from the twelve Federal Reserve Banks performed the annual examination of the BOG's books. From 1952 to 1978, the Board, under authorization from Congress, decided to employ nationally recognize accounting firms to conduct the audits of itself to insure independent oversight. This provided an external evaluation of the adequacy and effectiveness of the examination procedures.1

In 1978 Congress passed the Federal Banking Agency Audit Act (31 USCA 714). It placed the Federal Reserve System back under the auditing authority of the GAO. The Act significantly increased the access of the GAO to the Federal Reserve Banks, the Board, and the Federal Open Market Committee (the FOMC). Since then, the GAO has conducted over 100 financial audits and performance audits of the three Federal Reserve bodies.3

Scope of GAO Audits

Some of the more important GAO performance audits of the Fed have been in the areas of bank supervision, payment systems activities, and government securities activities. In the first area, the GAO examined how well the Fed was enforcing its regulatory powers over its member banks. In 1992 it drew attention to the Fed's sluggish compliance with regulatory reforms mandated by the Foreign Bank Supervision Act of 1991. In examining the Fed's payment system activities, the GAO made the Fed aware of how its pricing policies for such services as check-clearing affected private suppliers of check-clearing services, and also suggested ways to speed up the process of check collections. Security markets for government debt is a crucial market, and GAO performance audits of the Fed have lead to more openness in the primary dealer system, particularly concerning the disclosure of price information. The GAO is also involved in several ongoing performance audits of the Fed such as analysis of risks and benefits of interstate banking, regulation of derivatives, and the budget of the Federal Reserve system.2

Audits By Private Accounting Firms

Financial audits of the Fed are also conducted regularly. Each Reserve Bank is audited every year by independent General Auditors who report directly to the Board of Governors. These examinations involve financial statement audits and reviews on the effectiveness of financial controls. Each Reserve Bank also has its own internal audit mechanisms. The Board contracts each year with an outside accounting firm to evaluate the audit program's effectiveness. Price Waterhouse conducted an audit of the Board's 1994, 1995, 1996, 1997, and 1998 financial statements and filed this report in the Board's 1996 Annual Report (nearly identical ones appear in other Annual Reports):

We have audited the accompanying balance sheets of the Board of Governors of the Federal Reserve System (the Board) as of December 31, 1995 and 1994, and the related statements of revenues and expenses for the years then ended. These financial statements are the responsibility of the Board's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted accounting standards and Government Accounting Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estmates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion the financial statements referred to above present fairly, in all material respects, the financial position of the Board as of December 31, 1995 and 1994, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.

As discussed in Notes 1 and 3 to the financial statements, the Board implemented Statement of Financial Accounting Standards No. 112, Employers' Accounting for Postemployment Benefits, effective January 1, 1994. In accordance with Government Accounting Standards, we have also issued a report dated March 25, 1996 on our consideration of the Board's internal control structure and a report dated March 25, 1996 on its compliance with laws and regulations.4

The Board has also contracted with Coopers & Lybrand to conduct annual financial audits of the Board and the individual Federal Reserve Banks.

Exemptions to the Scope of GAO Audits

The Government Accounting Office does not have complete access to all aspects of the Federal Reserve System. The Federal Banking Agency Audit Act stipulates the following areas are to be excluded from GAO inspections:

(1) transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization; [here's your chance conspiracists - the Fed talks to foreign governments in secret - whoaa!! ]

(2) deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, open market operations;

(3) transactions made under the direction of the Federal Open Market Committee; or

(4) a part of a discussion or communication among or between members of the Board of Governors and officers and employees of the Federal Reserve System related to items.

In 1993 Wayne D. Angell, then a member of the Board of Governors, submitted testimony before a House subcommittee on the reasons for the restrictions on GAO access. He commented, By excluding these areas, the Act attempts to balance the need for public accountability of the Federal Reserve through GAO audits against the need to insulate the central bank's monetary policy functions from short-term political pressures and to ensure that foreign central banks and governmental entities can transact business in the U.S. financial markets through the Federal Reserve on a confidential basis.2

In reference to a bill that would lift the constraints placed on the GAO's audit authority over the Federal Reserve, Angell stated,
The benefits, if any, of broadening the GAO's authority into the areas of monetary policy and transactions with foreign official entities would be small. With regard to purely financial audits, the Federal Reserve Act already requires that the Board conduct an annual financial examination of each Reserve Bank...The process of conducting financial audits is reviewed by a public accounting firm to confirm that the methods and techniques being employed are effective and that the program follows generally accepted auditing standards...Further, a private accounting firm audits the Board's balance sheet...Finally, and more broadly, the Congress has, in effect, mandated its own review of monetary policy by requiring semiannual reports to Congress on monetary policy under the Full Employment and Balanced Growth Act of 1978...In addition, there is a vast and continuously updated body of literature and expert evaluation of U.S. monetary policy. In this environment, the contribution that a GAO audit would make to the active public discussion of the conduct of monetary policy is not likely to outweigh the disadvantages of expanding GAO audit authority in this area.2
For more on GAO restrictions, you can search the Government Printing Office website for GAO report T-GGD-94-44, entitled "Federal Reserve System Audits: Restrictions on GAO's Access."

The Budget of the Federal Reserve and Other Oversight

The budget of the Federal Reserve system is determined by each Bank and the Board of Governors. Stephen L. Neal, the Chair of the House Subcommittee on Domestic Monetary Policy in 1991, stated that "Congress plays no direct role in setting or authorizing the Fed's budget. Control of its own budget is an essential component of the independence the Fed must enjoy."1 Additional oversight of the Federal Reserve System derives from the ability of Congress to expand or to contract the Fed's powers. On numerous occasions Congress has seen fit to change the Fed's structure, alter its mission, and grant it new or different powers. In 1935 Congress changed the composition of the Board of Governors to give it more independence, and it allowed the Board to determine the discount rate for all Federal Reserve Banks rather than allow each Bank to set its own rate. In1978 Congress mandated the Fed's new goal to be full employment and price stability. In 1980 Congress granted the Fed new regulatory powers over non-member banks.

Many other government reports on the audits of the Federal Reserve system are available on-line through the Government Printing Office website. Three interesting GAO reports on Federal Reserve finances and performance are:

Federal Reserve Banks: Innaccurate Reporting of Currency at the Los Angeles Branch, (9/30/96, GAO report AMID-96-146).

Federal Reserve Banks: Internal Control, Accounting, and Auditing Issues, (2/9/96, GAO report AMID-96-5).

Federal Reserve System: Current and Future Challenges Require Systemwide Attention, (6/17/96, GGD-96-128).

Conclusion
It is obvious that the Federal Reserve System is and has always been audited. It is difficult to imagine how Kah, Schauf, and other conspiracy theorists could not have come across this evidence in the course of their research. Perhaps they are merely poor researchers. Or maybe they are reluctant to acknowledge facts which contradict their basic thesis. Either way, their credibility among skeptical readers takes a sharp hit by making such obvious factual errors.

For more on how the Federal Reserve system is audited, see the New York Federal Reserve's FedPoints.

References

1. "The Budget of the Federal Reserve System," Hearing before the Subcommittee on Domestic Monetary Policy...[House], July 18, 1991, U.S. Government Printing Office, Serial no. 102-59.

2. H.R. 28: "Federal Reserve Accountability Act of 1993," Hearing before the Subcommittee on Domestic Monetary Policy...[House], October 27, 1993, U.S. Government Printing Office, Serial no. 103-86.

3. Public Law 95-320, "Federal Banking Agency Audit Act," July 21, 1978.

4. Annual Report, 1996, Board of Governors of the Federal Reserve System.

5. Kah, Gary (1991), En Route to Global Occupation. Layfayette, La.: Huntington House.

6. Robertson, Pat (1994). The Turning Tide. Dallas: Word Publishing.

7. Schauf, Thomas (1992). The Federal Reserve. Streamwood, IL: FED-UP, Inc.

8. United States Code Annotated, U.S. Government Printing Office.

http://www.geocities.com/CapitolHill...flaherty6.html

[bmrigs]

There are congressman talking about nationalizing airlines to save them, course he retracted afterwards said he wasn't serious.

Basically you'd have the Treasury department run an audit of the Federal Reserve Bank. Any such Audit should note several irregularities. Then you just shut them down, remove their unconstitutional printing of money due to mismanagement and then have the Treasury Dept print new notes (though constitutionally it should be Congress ).

Ok Scott. I see your point, but who has balls in Congress or any president whether dem or repub who is going to attack the Fed. Do you think they will allow an audit? We cant even get an audit of the Gold in Fort Knox by the Treasury Dept. There is speculation that most of it got funneled back into Europe during the Nixon administration. There have been attempts by members of Congress to audit or expose the Fed, like Congressman McFadden, who's life had been threatened because of it. The only canidate that spoke out against the Fed was Ron Paul and all they had to do was ridicule him out of the race before he was a threat. He would of never made it to the White House talking about abolishing the Fed and IRS. The banksters would of made sure of it.

[WhatMoney]

Debunking the Federal Reserve Conspiracy Theories (and other financial myths)

By: Edward Flaherty, Ph.D. Department of Economics College of Charleston, S.C.

Facts: Yes, the Federal Reserve banks are privately owned, but they are controlled by the publically-appointed Board of Governors. The Federal Reserve banks merely execute the monetary policy choices made by the Board. In addition, nearly all the interest the Federal Reserve collects on government bonds is rebated to the Treasury each year, so the government does not pay any net interest to the Fed.

Facts: No foreigners own any part of the Fed. Each Federal Reserve bank is owned exclusively by the participating commercial banks and S&Ls operating within the Federal Reserve bank's district. Individuals and non-bank firms, be they foreign or domestic, are not permitted by law to own any shares of a Federal Reserve bank. Moreover, monetary policy is controlled by the publically-appointed Board of Governors, not by the Federal Reserve banks.

Fact: Independent accounting firms conduct full financial audits of the Federal Reserve banks and the Board of Governors every year. The Fed is also subject to certain types of audits from the Government Accounting Office.

Facts: The Federal Reserve rebates its net earnings to the Treasury every year. Consequently, the interest the Treasury pays to the Fed is returned, so the money borrowed from the Fed has no net interest obligation for the Treasury. The government could print its own currency independent of the Fed, but there would be no effective safeguards against abuse of this power for political gain.

Facts: The Federal Reserve banks have only a small share of the total national debt (about 7%). Therefore, only a small share of the interest on the debt goes to the Fed. Regardless, the Fed rebates that interest to the Treasury every year, so the debt held by the Fed carries no net interest obligation for the government. In addition, it is Congress, not the Federal Reserve, who is responsible for the federal budget and the national debt.

Facts: Kennedy wrote E.O. 11,110 to phase out silver certificate currency, not to issue more of it. Records show Kennedy and the Federal Reserve were almost always in agreement on policy matters. He even signed legislation to give the Fed more authority to issue currency.

Facts: McFadden was incorrect regarding the Fed costing the government money. However, later economic analysis agrees with him that Federal Reserve policy blunders had a substantial role in causing the Depression. However, his implication that this was done deliberately has no basis in fact. Moreover, for a dozen years prior to his rant, McFadden had been the chairman of the House subcommittee that oversaw the Federal Reserve. Why didn't he do anything to reform or abolish the Fed while he had the chance?

Facts: The banking system is indeed able to create money with a mere computer keystroke. However, a bank's ability to create money is tied directly to the amount of reserves customers have deposited there. A bank must pay a competitive interest rate on those deposits to keep them from leaving to other banks. This interest expense alone is a substantial portion of a bank's operating costs and is de facto proof a bank cannot costlessly create money.

Fact: The term 'lawful money' does not refer to gold or silver coin, but to types of money which the government would permit banks to use when tabulating their reserves. These types of money included, but were not limited to, gold and silver coin.

The Nine Myths

Myth #1: The Federal Reserve Act of 1913 was crafted by Wall Street bankers and a few senators in a secret meeting.


Myth #2: The Federal Reserve Act never actually passed Congress. The Senate voted on the bill without a quorum, so the Act is null and void.


Myth# 3: The Federal Reserve Act and paper money are unconstitutional


Myth# 4: The Federal Reserve is a privately owned bank


Myth #5: The Federal Reserve is owned and controlled by foreigners.


Myth #6: The Federal Reserve has never been audited.


Myth #7: The Federal Reserve charges interest on the currency we use.


Myth #8: If it were not for the Federal Reserve charging the government interest, the budget would be balanced and we would have no national debt.


Myth #9: President Kennedy was assassinated because he tried to usurp the Federal Reserve's power. Executive Order 11,110 proves it

The Legendary Tirade of Louis T. McFadden

Links to Nine Myths are here: http://www.geocities.com/CapitolHill...erveFacts.html

[bmrigs]

Edward Flaherty, Ph.D. Department of Economics College of Charleston, S.C.

A tool, bought and paid for by the owners of this country.

[WhatMoney]

The Legendary Tirade of Louis T. McFadden

BY: Edward Flaherty, Ph.D. Department of Economics College of Charleston, S.C.

Louis T. McFadden was a member of the House of Representatives in the twenties and thirties and is one of the heros of the Federal Reserve conspiracy theorists. A Republican from Canton, Pennsylvania, he was the chair of the House Banking and Currency Committee during the twenties, but was merely a Committee member by 1932. He used his position in Congress occasionally to crusade against the Federal Reserve, a stance Gary Kah (1991) implies may have cost McFadden his life. On June 10, 1932 the House was debating a bill which would would expand the types of securities the Federal Reserve could trade when conducting monetary policy. McFadden used this opportunity to launch a twenty-five minute tirade against the Federal Reserve, and in so doing became a legendary champion amongst conspiracy theorists. However, just because a claim appears in the Congressional Record does not necessarily mean it is true. Here I present excerpts from his speech with my comments and analysis (the entire text may be found in the Congressional Record, pages 12595-12603).

Mr. Chairman, we have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal reserve banks. The Federal Reserve Board, a Government board, has cheated the Government of the United States out of enough money to pay the national debt. The depredations and the iniquities of the Federal Reserve Board and the Federal reserve banks acting together have cost this country enough money to pay the national debt several times over. This evil institution has impoverished and ruined the people of the United States; has bankrupted itself, and has practically bankrupted our Government. It has done this through defects of the law under which it operates, through the maladministration of that law by the Federal Reserve Board and through the corrupt practices of the moneyed vultures who control it (C.R. p. 12595).
Once the hyperbole and histrionics are deducted, there is little remaining of substance in the above quotation. McFadden makes the claim that the Federal Reserve had cost the federal government enough money to "pay the national debt several times over." Is he correct?

Disbursements of Federal Reserve Profits, 1914-1931 (millions)

Total Revenues $970.7
Net Expenses 363.3
-------
Profit 607.4


Paid as dividends 102.0
Payments to Treasury 147.1
Retained by Fed 358.3
Source: Annual Report, 1995, Board of Governors of the Federal Reserve System, pp. 298-99.


In this table we see that from 1914 to 1931 the Federal Reserve system collectively earned profits totalling $607 million. About $102 million was distributed to member banks as dividends, and about $147 million was paid to the Treasury as a "franchise tax." The Federal Reserve banks kept the remaining $359 million. The national debt in 1932 was $19.5 billion, so even if the Federal Reserve had been paying all its profits to the government during this time, it would have been enough to pay only 3 percent of the national debt -- a far cry from McFadden's "several times over." Moreover, the Federal Reserve's total revenues for the period were $971 million, so if the entirety of the System's revenues had gone straight to the Treasury, it still would not have been sufficient to make McFadden's claim even remotely accurate.

McFadden then covered a wide variety of topics related to the Federal Reserve Board. He accused it of assisting Trotsky's efforts during the Russian Revolution, of being controlled by international bankers, of debasing the currency, and of many other fascinating transgressions. He also invoked the testimony of Father Charles E. Coughlin, the Catholic priest who would later become famous for his radio broadcasts in support of Hitler's National Socialist agenda.

We can study the accuracy of these claims, as well. The first one is new to me, and I have not the slightest idea whether it is true, although given that McFadden had trouble with a claim which could be easily verified, it seems wise to invoke skepticism on his more fantastic accusations. Generally, this accusation is consistent with the "Protocols of the Learned Elders of Zion," originally published in 1903 in czarist Russia. It is supposed to be an "internal" document proving the alleged international Jewish conspiracy, but is now believed to be a hoax (Johnson, 1983). Translations into English were popularized in the U.S. in the twenties by Henry Ford. Perhaps this was McFadden's source. The second claim is false, as I show in another essay (See Do Foreigners Own the Fed?). The claim that the Fed debased the currency is also false. To "debase" a currency means to reduce its purchasing power, which happens when the general level of prices in the economy rises over time. This is usually caused by excessive growth of the money supply. Yet, the price level in 1932 was lower than it was in 1914, indicating that the opposite of a debasement had occurred.

McFadden also made some important and accurate arguments. During his speech on the House floor, he stated,

From the Atlantic to the Pacific our country has been ravaged and laid waste by the evil practices of the Federal Reserve Board and the Federal reserve banks and the interests which control them ... This is an era of economic misery and for the conditions that caused that misery, the Federal Reserve Board and the Federal reserve banks are fully liable (C.R. pp. 12596-97). What did McFadden mean by "economic misery?" This was the very worst time of the Great Depression. The unemployment rate was approaching 25 percent of the labor force, which to this day stands as record for the U.S. economy. Homelessness, deprivation, and starvation, usually reserved for the ultra-poor in this country, were now stalking millions of former members of the middle class. "Economic misery" was an understatement. Most economic historians would agree with McFadden that the policies of the Fed during this period were the primary cause of the Depression. A mild recession in the summer of 1929 turned into a banking panic after the stock market crash in October of that year. Banks, which owned stocks and made loans to customers for the purpose of acquiring stocks, suddenly found a large portion of their assets nearly worthless as a result of the crash. Many of them began to fail, taking with them the deposits of millions of families (at the time there was no deposit insurance).

This sort of thing had happened many times before, but the Federal Reserve was created in 1913 in part to mitigate its effects as the banking system's "lender of last resort." In the midst of the first severe wave of bank failures in 1930, the Fed was deadlocked on what to do, eventually deciding to do nothing. Several more waves of bank failures followed and the Depression was well underway. Thus, the crisis can reasonably be blamed on the erroneous policies of the Federal Reserve Board. See Milton Friedman and Anna Schwartz, A Monetary History of the United States for a detailed account of this event.

In my view, however, McFadden goes too far in terming the Fed's policies as "evil" or its consequences deliberate. As Friedman and Schwartz showed, the Fed essentially made an honest error in judgement, although a hideously costly one. There is absolutely no evidence that the Federal Reserve intended to create the Great Depression. Such a motive would not make any sense from the Fed's point of view. The Depression created a highly unstable economic and political environment. Why would the Fed intentionally create the sort of conditions that would seriously endanger its own existence?

Finally, after McFadden's twenty-five minutes of ranting had expired, Senator Benjamin Strong of Kansas commented on the oratory he had just heard:

There is a disease that afflicts mankind which is very vicious. It warps the judgement, it narrows the vision, it even causes men to see red, to make mountains out of mole hills. This disease has sometimes been referred to as B.A. Ladies may refer to it as "tummy" ache, but out in the wide-open spaces men call it the "belly" ache, and I know of no man of my acquaintance that has this disease in so violent a form as the gentleman from Pennsylvania, Mr. McFadden.

I have not the time to refer to the many charges he makes against the Federal Reserve system, but I call attention to the fact that for 12 years he has been the chairman of the Banking and Currency Committee of this House and did not see fit during that time to remedy any of the evils of which he now complains. It seems to me entirely out of place to wait until he is retired as chairman of that great committee and then assault all of the institutions of which it has control (C.R. p. 12603).

References:
Congressional Record, June 1, 1932 to June 11, 1932, U.S. Government Printing Office.

Johnson, George (1983). Architects of Fear. Boston: Houghton Mifflin.

Kah, Gary (1991). EnRoute to Global Occupation. Layfayette, La.: Huntington House Publishers.