As I write the title to this post I imagine some corporate “journalist” reading it and a tape starting to play in his or her mind, saying “Uh oh, conspiracy theorist alert!”
The term “conspiracy theorist” is what the gatekeepers of the status quo use to connect in people’s minds those who are skeptical of so-called “conventional wisdom” with “left wing lunatics”. Here is the formula that everyone must be made to understand:
Skepticism of conventional wisdom = conspiracy theorist = left wing lunatic.
I wouldn’t ordinarily consider the term “conspiracy theorist” to be offensive, if it wasn’t uttered with such contempt and used to imply that I am a lunatic. By the plain English meaning of the phrase, all it refers to is someone who thinks seriously about conspiracies. Anyone who doesn’t recognize that the history of the world is filled with conspiracies of major importance hasn’t read much history. Any
American who doesn’t recognize that
U.S. history is filled with conspiracies of major importance simply isn’t paying much attention.
Consider just our overthrow of the governments of sovereign nations, for example. Beginning in 1893, we overthrew, helped to overthrow, or went to war against the legitimate governments of dozens of sovereign nations, including
Hawaii (1893),
Cuba (1898),
Puerto Rico (1898), the
Philippines (1899-1902),
Nicaragua (1909),
Honduras (1912),
Iran (1953),
Guatemala (1954),
Indonesia (1965),
Vietnam (1961-73),
Chile (1973),
Panama (1989), and Iraq (2003-???). And
William Blum writes in “A Concise History of US Global Interventions, 1945 to the Present”, about United States intervention in 11 different Latin American countries during the Cold War.
I note the above as an introduction to this discussion of the Federal Reserve because I want to explain why I am skeptical of “conventional wisdom”. Each of the above noted events were either secret at the time they were carried out, or they were justified with lies. Though they are now so well documented by historians that they cannot be refuted, anyone who would have tried to discuss them at the time they were carried out would have been castigated for lack of patriotism and branded a “conspiracy theorist”.
My point then is that people who are skeptical of “conventional wisdom” are generally not lunatics – they are usually simply independent minded people who have been around long enough and who have paid enough attention to know that “conventional wisdom” should not be automatically accepted as reality.
What is the purpose of the Federal Reserve?I’m not an economist, I don’t know much about economics, and I’ve generally found reading on the subject to be dry, boring and very difficult to understand. Nevertheless I recently started reading “
The Creature from Jekyll Island – A Second Look at the Federal Reserve”, by Edward Griffin, because it was highly recommended to me by a fellow DUer, Larry Ogg.
Griffin describes the Federal Reserve as a cartel of private banks – meaning a group of banks joined together in order to maximize profits by reducing competition through the creation of a monopoly. In the case of the Federal Reserve, that particular cartel was legalized in 1913 with the enactment of the
Federal Reserve Act of 1913. Of course the U.S. public wouldn’t consciously enable the creation of a legalized cartel. So the
real purpose of the Federal Reserve System had to be disguised with a
purported purpose. Griffin explains the concept like this:
To cover the fact that a central bank is merely a cartel which has been legalized, its proponents had to lay down a thick smoke screen of technical jargon focusing always on how it would supposedly benefit commerce, the public, and the nation; how it would lower interest rates, provide funding for needed industrial projects, and prevent panics in the economy. There was not the slightest glimmer that, underneath it all, was a master plan which was designed from top to bottom to serve private interests at the expense of the public.
The origins of the Federal Reserve SystemGriffin describes the idea for the Federal Reserve System as originating in a highly secret meeting of seven of the wealthiest men in the world, taking place at Jekyll Island, off the coast of Georgia in 1910. The seven men included one of our nation’s most powerful U.S. Senators,
Nelson Aldrich, and six bankers. He uses several sources to document the highly secret nature of the meeting, including
an article written by one of its participants, Frank Vanderlip, 22 years after the passage of the Federal Reserve Act:
I do not feel it is any exaggeration to speak of our secret expedition to Jekyll Island as the occasion of the actual conception of what eventually became the Federal Reserve System… We were told to leave our last names behind us… We were instructed to come one at a time… where Senator Aldrich’s private rail car would be in readiness…
It was the names of all printed together that would have made our mysterious journey significant in Washington, in Wall Street, even in London. Discovery, we knew, simply must not happen, or else all our time and effort would be 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 in Congress.
A brief summary of how the System worksGriffin goes into great detail as to how the system works, and I’ll skip the great majority of that. This is how he summarizes the plan that emerged from the Jekyll Island meeting:
What emerged was a cartel agreement with five objectives: 1) stop the growing competition from the nation’s newer banks; 2) obtain a franchise to create money out of nothing for the purpose of lending; 3) get control of the reserves of all banks so that the more reckless ones would not be exposed to currency drains and bank runs; 4) get the taxpayer to pick up the cartel’s inevitable losses; 5) and convince Congress that the purpose was to protect the public.
Griffin explains objective # 4 in a chapter titled “The Name of the Game is Bailout”:
A primary objective of that cartel was to involve the federal government as an agent for shifting the inevitable losses from the owners of those banks to the taxpayers. That of course is one of the more controversial assertions made in this book. Yet, there is little room for any other interpretation when one confronts the massive evidence of history since the System was created.
He provides numerous examples of how this has worked. One of the most striking examples was the failure of Continental Illinois, our nation’s 7th largest bank,
when it failed in 1982. Griffin describes how its irresponsible policies led to huge profits even as the stage was being set for a massive failure. He describes the details of the failure, and then:
This was the golden moment… Without government intervention, Continental would have collapsed, its stockholders would have been wiped out, depositors would have been badly damaged, and the financial world would have learned that banks not only have to talk about prudent management, they actually have to adopt it. Future banking practices would have been severely altered, and the long-term economic benefit to the nation would have been enormous. But with government intervention, the discipline of a free market is suspended, and the cost of failure or fraud is passed to the taxpayers… Banks can operate recklessly and fraudulently with the knowledge that their political partners in government will come to their rescue when they get in trouble…
The final bailout package was a whopper. Basically, the government took over Continental Illinois and assumed all of its losses ($4.5 billion).
Doesn’t this sound eerily familiar to the
recent Federal Reserve actions with regard to Bear Sterns?
Even as the Bush administration insists it won't risk public funds in a bailout, American taxpayers may already be liable for billions of dollars stemming from Federal Reserve and Treasury efforts to quell a financial crisis.
History suggests the Fed may not recover some of the almost $30 billion investment in illiquid mortgage securities it received from Bear Stearns Cos., said Joe Mason, a Drexel University professor who has written on banking crises….
The record of the Federal Reserve SystemIf the Federal Reserve System really does serve the purpose of stabilizing our economy then one should be able to point to evidence of that. At least that’s what a “conspiracy theorist”… I mean a skeptic would say.
Griffin summarizes the record of the Federal Reserve System in stabilizing our economy:
Since its inception, it has presided over the
crashes of 1921 and
1929; the
Great Depression of ’29 to ‘39; recessions in
’53,
’57, ’69,
’75, and
’81; a stock market “
Black Monday” in ’87 (Is it just a coincidence that all those depressions and recessions began during Republican presidencies?); and a 1000% inflation….
The consequences of wealth confiscation by the Federal-Reserve mechanism are now upon us. In the current decade (the book was copyrighted in 1994), corporate debt is soaring; personal debt is greater than ever; both business and personal bankruptcies are at an all-time high; banks and savings and loan associations are failing in larger numbers than ever before; interest on the national debt is consuming half of our tax dollars…
Griffin concludes from this:
That is the scorecard 80 years after Federal Reserve was created supposedly to stabilize our economy! There can be no argument that the System has failed in its stated objectives… There has been more than ample opportunity to work out mere procedural flaws. It is not unreasonable to conclude, therefore, that the System has failed, not because it needs a new set of rules or more intelligent directors, but because it is incapable of achieving its stated objectives…. That leads to the question: why is the System incapable of achieving its stated objectives? The painful answer is: those were never its true objectives… It becomes obvious that the System is merely a cartel with a government façade… When there is a conflict between the public interest and the private needs of the cartel – a conflict that arises almost daily – the public will be sacrificed. That is the nature of the beast. It is foolish to expect a cartel to act in any other way….
This view is not encouraged by Establishment institutions and publishers. It has become their apparent mission to convince the American people that the system in not intrinsically flawed.
William Greider, in “
Secrets of the Temple”, reaches a similar conclusion:
At the time, the conventional wisdom… was that a government institution would finally harness the “money trust,” disarm its powers, and establish broad democratic control over money and credit… The results were nearly the opposite. The money reforms enacted in 1913, in fact, helped to preserve the status quo… Once the Fed was in operation, the steady diffusion of financial power halted. Wall Street maintained its dominant position – and even enhanced it.
My assessmentAs I said above, I’m not an economist, so I am certainly less qualified to evaluate Griffin’s arguments than a lot of other people.
What about the record of Federal Reserve System failures that Griffin speaks of? Well, I presume that those who defend the Federal Reserve System would say that our economic history would have been worse
without the System, and that it was worse before the System was initiated in 1913. I have no way of evaluating that. So I can’t prove to myself that Griffin is right. But as for those who would claim that we would be worse off without the Federal Reserve Act, I would expect them to be able to offer some proof of that, or at least some strong evidence in favor of that statement. In the absence of such evidence why should we have a system that requires our federal government to bail out wealthy banks when they get into trouble?
When large wealthy banks are on the verge of failure, they generally lobby the federal government to bail them out by claiming that if they fail our economy will suffer grave damage, there will be millions of unemployed, etc. etc. etc. Does it seem reasonable that banks would make such claims if they weren’t true? …. Ok, forget I said that.
The main reason I’m inclined to believe that Griffin’s account is right on the money for the most part, other than the fact that his book is extremely well written and meticulously documented with relatively easy to understand examples, is this: The idea that our government giving billions of dollars to super wealthy corporations because of their
failures somehow serves to stabilize our economy is…. well…. It sounds so similar to Reagan’s theory of “trickle down economics” or John McCain’s
economic stimulus plan of cutting the corporate tax rate from 35% to 25%, claiming that such a tax cut is “essential to U.S. competitiveness”, “will expand the U.S. economy, creating jobs and opportunities for prosperity”, and “lead to higher wages”. To believe that kind of stuff is almost in the same category as believing the Republican assertion that taxing inheritances even beyond $2 million is necessary to prevent ordinary families from going bankrupt.
To believe that we as a nation have to protect the wealthy from their failures in order to enjoy a stable economy just seems to me like the epitome of foolishness. How much extreme income inequality, joblessness and poverty does our nation have to experience before we wake up and realize what’s going on?