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Q -- Who Owns The Federal Reserve?
A -- The Fed is privately owned. Its shareholders are private banks
See the link from #1 on the table on our first page where we explain why I
have changed my mind about reserves in all contexts. (mrc)
By Ellen Brown
URL of this article: www.globalresearch.ca/index.php?context=va&aid=10489
Global Research, October 8, 2008 / webofdebt.com
"Some people think that the Federal Reserve Banks are United States
Government institutions. They are private monopolies which prey
upon the people of these United States for the benefit of themselves
and their foreign customers; foreign and domestic speculators and
swindlers; and rich and predatory money lenders."
The above was written by The Honorable Louis McFadden, Chairman of the
House Banking and Currency Committee in the 1930s
The Federal Reserve (or Fed) has assumed sweeping new powers in the
last year. In an unprecedented move in March 2008, the New York Fed
advanced the funds for JPMorgan Chase Bank to buy investment bank
Bear Stearns for pennies on the dollar. The deal was particularly
controversial because Jamie Dimon, CEO of JPMorgan, sits on the
board of the New York Fed and participated in the secret weekend
negotiations.1 In September 2008, the Federal Reserve did something
even more unprecedented, when it bought the world?s largest insurance
company. The Fed announced on September 16 that it was giving an
$85 billion loan to American International Group (AIG) for a nearly
80% stake in the mega-insurer. The Associated Press called it a
"government takeover," but this was no ordinary nationalization.
Unlike the U.S. Treasury, which took over Fannie Mae and Freddie
Mac the week before, the Fed is not a government-owned agency. Also
unprecedented was the way the deal was funded.
The Associated Press reported:"The Treasury Department, for the first time
in its history, said it would begin selling bonds for the Federal Reserve in an
effort to help the central bank deal with its unprecedented borrowing needs."2
This is extraordinary. Why is the Treasury issuing U.S. government
bonds (or debt) to fund the Fed, which is itself supposedly "the
lender of last resort" created to fund the banks and the federal
government?
Yahoo Finance reported on September 17:
"The Treasury is setting up a temporary financing program at the
Fed's request. The program will auction Treasury bills to raise
cash for the Fed's use. The initiative aims to help the Fed manage
its balance sheet following its efforts to enhance its liquidity
facilities over the previous few quarters."
Normally, the Fed swaps green pieces of paper called Federal Reserve
Notes for pink pieces of paper called U.S. bonds (the federal
government's I.O.U.s), in order to provide Congress with the dollars
it cannot raise through taxes. Now, it seems, the government is
issuing bonds, not for its own use, but for the use of the Fed!
Perhaps the plan is to swap them with the banks' dodgy derivatives
collateral directly, without actually putting them up for sale to
outside buyers.
According to Wikipedia (which translates Fedspeak
into somewhat clearer terms than the Fed's own website):
"The Term Securities Lending Facility is a 28-day facility that
will offer Treasury general collateral to the Federal Reserve Bank
of New York's primary dealers in exchange for other program-eligible
collateral. It is intended to promote liquidity in the financing
markets for Treasury and other collateral and thus to foster the
functioning of financial markets more generally. . . . The resource
allows dealers to switch debt that is less liquid for U.S. government
securities that are easily traded."
"To switch debt that is less liquid for U.S. government securities
that are easily traded" means that the government gets the banks?
toxic derivative debt, and the banks get the government?s triple-A
securities. Unlike the risky derivative debt, federal securities
are considered "risk-free" for purposes of determining capital
requirements, allowing the banks to improve their capital position
so they can make new loans. (See E. Brown, "Bailout Bedlam,"
webofdebt.com/articles, October 2, 2008.)
In its latest power play, on October 3, 2008, the Fed acquired the
ability to pay interest to its member banks on the reserves the
banks maintain at the Fed. Reuters reported on October 3:
"The U.S. Federal Reserve gained a key tactical tool from the $700
billion financial rescue package signed into law on Friday that
will help it channel funds into parched credit markets. Tucked into
the 451-page bill is a provision that lets the Fed pay interest on
the reserves banks are required to hold at the central bank."3
If the Fed?s money comes ultimately from the taxpayers, that means
we the taxpayers are paying interest to the banks on the banks' own
reserves -- reserves maintained for their own private profit. These
increasingly controversial encroachments on the public purse warrant
a closer look at the central banking scheme itself. Who owns the
Federal Reserve, who actually controls it, where does it get its
money, and whose interests is it serving?
Not Private and Not for Profit?
The Fed's website insists that it is not a private corporation, is
not operated for profit, and is not funded by Congress. But is that
true? The Federal Reserve was set up in 1913 as a "lender of last
resort" to backstop bank runs, following a particularly bad bank
panic in 1907. The Fed's mandate was then and continues to be to
keep the private banking system intact; and that means keeping
intact the system's most valuable asset, a monopoly on creating the
national money supply. Except for coins, every dollar in circulation
is now created privately as a debt to the Federal Reserve or the
banking system it heads.4 The Fed's website attempts to gloss over
its role as chief defender and protector of this private banking
club, but let's take a closer look. The website states:
* "The twelve regional Federal Reserve Banks, which were established
by Congress as the operating arms of the nation's central banking
system, are organized much like private corporations -- possibly
leading to some confusion about "ownership." For example, the Reserve
Banks issue shares of stock to member banks. However, owning Reserve
Bank stock is quite different from owning stock in a private company.
The Reserve Banks are not operated for profit, and ownership of a
certain amount of stock is, by law, a condition of membership in
the System. The stock may not be sold, traded, or pledged as security
for a loan; dividends are, by law, 6 percent per year."
* "The Federal Reserve] is considered an independent central bank
because its decisions do not have to be ratified by the President
or anyone else in the executive or legislative branch of government,
it does not receive funding appropriated by Congress, and the terms
of the members of the Board of Governors span multiple presidential
and congressional terms."
* "The Federal Reserve's income is derived primarily from the
interest on U.S. government securities that it has acquired through
open market operations. . . . After paying its expenses, the Federal
Reserve turns the rest of its earnings over to the U.S. Treasury."5
So let's review:
1. The Fed is privately owned.
Its shareholders are private banks. In fact, 100% of its shareholders
are private banks. None of its stock is owned by the government.
2. The fact that the Fed does not get "appropriations" from Congress
basically means that it gets its money from Congress without
congressional approval, by engaging in "open market operations."
Here is how it works: When the government is short of funds, the
Treasury issues bonds and delivers them to bond dealers, which
auction them off. When the Fed wants to "expand the money supply"
(create money), it steps in and buys bonds from these dealers with
newly-issued dollars acquired by the Fed for the cost of writing
them into an account on a computer screen. These maneuvers are
called "open market operations" because the Fed buys the bonds on
the "open market" from the bond dealers. The bonds then become the
"reserves" that the banking establishment uses to back its loans.
In another bit of sleight of hand known as "fractional reserve"lending,
the same reserves are lent many times over, further expanding the money
supply, generating interest for the banks with each loan.
It was this money-creating process that prompted Wright Patman,
Chairman of the House Banking and Currency Committee in the 1960s,
to call the Federal Reserve "a total money-making machine." He
wrote:
"When the Federal Reserve writes a check for a government bond it
does exactly what any bank does, it creates money, it created money
purely and simply by writing a check."
3. The Fed generates profits for its shareholders.
The interest on bonds acquired with its newly-issued Federal Reserve
Notes pays the Fed's operating expenses plus a guaranteed 6% return
to its banker shareholders. A mere 6% a year may not be considered
a profit in the world of Wall Street high finance, but most businesses
that manage to cover all their expenses and give their shareholders
a guaranteed 6% return are considered "for profit" corporations.
In addition to this guaranteed 6%, the banks will now be getting
interest from the taxpayers on their "reserves." The basic reserve
requirement set by the Federal Reserve is 10%. The website of the
Federal Reserve Bank of New York explains that as money is redeposited
and relent throughout the banking system, this 10% held in "reserve"
can be fanned into ten times that sum in loans; that is, $10,000
in reserves becomes $100,000 in loans. Federal Reserve Statistical
Release H.8 puts the total "loans and leases in bank credit" as of
September 24, 2008 at $7,049 billion. Ten percent of that is $700
billion. That means we the taxpayers will be paying interest to the
banks on at least $700 billion annually ? this so that the banks
can retain the reserves to accumulate interest on ten times that
sum in loans.
The banks earn these returns from the taxpayers for the privilege
of having the banks' interests protected by an all-powerful independent
private central bank, even when those interests may be opposed to
the taxpayers -- for example, when the banks use their special
status as private money creators to fund speculative derivative
schemes that threaten to collapse the U.S. economy. Among other
special benefits, banks and other financial institutions (but not
other corporations) can borrow at the low Fed funds rate of about
2%. They can then turn around and put this money into 30-year
Treasury bonds at 4.5%, earning an immediate 2.5% from the taxpayers,
just by virtue of their position as favored banks. A long list of
banks (but not other corporations) is also now protected from the
short selling that can crash the price of other stocks.
Time to Change the Statute?
According to the Fed's website, the control Congress has over the
Federal Reserve is limited to this:
"The Federal Reserve is subject to oversight by Congress, which
periodically reviews its activities and can alter its responsibilities
by statute."
As we know from watching the business news, "oversight" basically
means that Congress gets to see the results when it's over. The Fed
periodically reports to Congress, but the Fed doesn't ask; it tells.
The only real leverage Congress has over the Fed is that it "can
alter its responsibilities by statute." It is time for Congress to
exercise that leverage and make the Federal Reserve a truly
federal agency, acting by and for the people through their elected
representatives. If the Fed can demand AIG's stock in return for
an $85 billion loan to the mega-insurer, we can demand the Fed's
stock in return for the trillion-or-so dollars we'll be advancing
to bail out the private banking system from its follies.
If the Fed were actually a federal agency, the government could
issue U.S. legal tender directly, avoiding an unnecessary
interest-bearing debt to private middlemen who create the money out
of thin air themselves. Among other benefits to the taxpayers. a
truly "federal" Federal Reserve could lend the full faith and credit
of the United States to state and local governments interest-free,
cutting the cost of infrastructure in half, restoring the thriving
local economies of earlier decades.
Ellen Brown, J.D., developed her research skills as an attorney
practicing civil litigation in Los Angeles. In Web of Debt, her
latest book, she turns those skills to an analysis of the Federal
Reserve and "the money trust." She shows how this private cartel
has usurped the power to create money from the people themselves,
and how we the people can get it back. Her eleven books include the
bestselling Nature's Pharmacy, co-authored with Dr. Lynne Walker,
and Forbidden Medicine. Her websites are www.webofdebt.com and
www.ellenbrown.com .
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