Wall Street Reform and Consumer Protection Act Title XI: Federal Reserve System Provisions
Wall Street Reform and Consumer Protection Act Title XI: Federal Reserve System Provisions
Those who cannot learn from history are doomed to repeat it.
The Federal Reserve System is the central nervous system to the financial sector. It is also the single greatest cause of civil unrest in the United States.[i] After the Federal Reserve came into being, corporations moved the nation from monopoly capitalism to financial capitalism. The real economy based on tangible goods and services competed with and was usurped by a synthetic economy based on financial products, credit terms, and interest rates. This transformation contributed to economic destabilization.
The secondary market for Alt-A, subprime, and jumbo mortgages collapsed when Countrywide’s Angelo Mozilo used the phrase “Great Depression” in a July 24, 2007 investor conference call. That triggered the subprime meltdown and global panic.[ii] On July 30, 2008, President George Bush signed The Housing and Economic Recovery Act into law. The law authorized the Federal Housing Administration to offer jumbo sized mortgages. The Federal Reserve then became the secondary market for the nation’s mortgage market under the guise of quantitative easing.
The public backlash followed with 95,000 signers of the Audit the Federal Reserve petition. Many argued that the Federal Reserve was unconstitutional. The backlash was the result of a widespread awareness of the economic risks posed by a central business model that rested on fractional reserve lending, fiat currency, exclusive control of the money supply, control over monetary policy, relationships with foreign central banks, and secrecy.
President George Bush signed into law the Emergency Economic Stabilization Act on October 3, 2008. This law authorized the $700 billion Wall Street bailout through the Troubled Asset Relief Program (TARP). The Panic of 2008 resulted, which was the marketplace’s rejection of government intervention in the free market as investors again dumped their shares of overvalued financial sector stocks. Charges of crony capitalism and widespread social and political dissent with groups calling for an audit or an end to the Federal Reserve followed. Congressman Ron Paul (R-Texas) tapped into the public’s pulse beat with his 2008 book Deception and Abuse at the Fed[iii] and his 2009 book End the Fed.[iv]
On February 17, 2009, President Barack Obama signed the American Recovery and Reinvestment Act of 2009 into law. This law authorized over $800 billion in deficit spending, which is borrowing from abroad through the Federal Reserve’s sale of U.S. Treasury bills, notes, and bonds.
President Barack Obama signed the Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) into law on June 21, 2010. Within the Dodd-Frank Act is Title XI, which is Federal Reserve System Provisions. This can be found between pages 750 and 766, which covers nine sections. Lawmakers went so far as to say that the Dodd-Frank Act was the most significant financial reform legislation since President Franklin Delano Roosevelt’s New Deal. Yet, so little of the Dodd-Frank Act is understood and even less is understood about central banking and the Federal Reserve.
U.S. Central Banking History
Through the Federalist Papers, Alexander Hamilton proposed that the nation have a single currency and a central bank. Thomas Jefferson objected to the creation of a central bank, because the Constitution never authorized one, and that such a bank would result in widespread speculation at the risk of economic stability. Jefferson also reflected the fears of others in the agrarian south that financial power would move and concentrate in the commercial north. President George Washington disagreed as did the majority within the Congress. They pointed to Article I, Clause 18, the “necessary and proper” clause, of the Constitution. Hamilton became the nation’s first U.S. Department of the Treasury Secretary.
On April 25, 1791, Congress granted a 20 year charter to the First Bank of the United States. The federal government became a 20 percent shareholder, and private interests owned 80 percent.[v] The Bank of England and other private shareholders were the owners of that central bank, which was located in Philadelphia while the city was the seat of the federal government. A 72 percent inflation rate followed within five years of its charter.[vi] The First Bank of the United States lasted until 1811 when President James Madison refused to renew its charter.
After the dust settled from the War of 1812, Congress granted another 20 year charter on April 10, 1816 for the Second Bank of the United States. Like the first central bank, the federal government owned 20 percent of the shares, and private interests owned 80 percent.[vii] During his second term in 1833, President Andrew Jackson bypassed the need for a central bank with concentrated power by using state banks, and then opposed renewal of the bank’s charter in 1836. The assassination attempt against Jackson failed.
During the 77 years between the end of the nation’s second central bank and the beginning of the Federal Reserve, a nationwide interest in banking, economic stability, and monetary policy in the form of a debate between the gold standard versus an asset-backed standard based on both gold and silver took hold. The issue climaxed under Congressman William Jennings Bryan (D-Nebraska). Though the presidential hopeful lost the election, his memorable Cross of Gold speech on July 6, 1896 called attention to the fact that the gold standard would benefit the affluent, not the average person. His closing line in that speech was,
“…You shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold….”
This was a class warfare issue since, as Congressman Bryan had argued, only the affluent with fixed investments throughout history have sought a gold standard. L Frank Baum’s 1899 book The Wonderful Wizard of Oz appeared, and through metaphor according to Ben Still, the director of the 2010 documentary film The Secret of Oz, laid out the means by which the American people could establish economic stability without a central bank.[viii]
After the Panic of 1907, New York City financiers called for another central bank. Congress consulted with European central bankers to provide the guidance and the business model. Congressman Carter Glass (D-Virginia) introduced House Resolution 7837, which called for a central bank. The U.S. Congress established the nation’s third central bank on December 23, 1913 through the Federal Reserve Act. The new law established that participating national banks within each of the 12 districts would become shareholder-member banks of that district’s Federal Reserve bank.[ix] President Woodrow Wilson was a progressive, and like other progressives of the era, believed that scientific management of various aspects of life including the economy was possible. In a dissenting comment, Congressman Charles A. Lindbergh Sr. (R-Minnesota) said, “From now on, depressions will be scientifically created.”
The stock market crash of October 29, 1929, the banking panic of 1933, and the Great Depression followed. Economist Milton Friedman would later conclude that the Federal Reserve caused the Great Depression by contracting the money supply by one third.[x] As important, the Federal Reserve had no concern for nonmember banks. The nation’s central bank did nothing as non member banks failed as a result of the foreclosure crisis that resulted in repossessions and an angry public that got even with penny auctions. President Franklin Delano Roosevelt’s New Deal was not a banker bailout. It was true financial reform and financial regulation that worked until 2000 when concerted efforts were made to dismantle the Glass-Steagall Act.
President John F. Kennedy issued Executive Order 11110 on Jun 4, 1963. This authorized the U.S. Treasury to issue U.S. Treasury Notes that competed with Federal Reserve Notes.[xi] Some conspiracy theorists believe that Kennedy’s drive to usurp the role of the Federal Reserve led to his assassination. Between January 1963 and October 1964, only $768 million of the 1957B Series silver certificate was issued, with the the signatures of Kathryn O’Hay Granahan and C. Douglas Dillon.[xii]
Over the years a series of books appeared to fill the vacuum left by academic textbooks. These investigative and alternative narratives describe how the Federal Reserve runs more than just monetary policy in the United States. Some of these books include:
Eustace Mullins’ 1952 book Secrets of the Federal Reserve;
Gary Allen’s 1972 book None Dare Call it a Conspiracy;
William Greider’s 1987 book Secrets of the Temple: How the Federal Reserve Runs the Country; and
G. Edward Griffin’s 1994 book The Creature from Jekyll Island: A Second Look at the Federal Reserve.
These researchers and authors were trailblazers, because they wrote about central banking, monetary policy, and economics when the public schools system was failing due to the introduction of new math and home economics not designed to promote financial literacy and functional competence.
After the subprime meltdown, Alan Greenspan told Jim Lehrer in a PBS NewsHour interview:
“…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….”[xiii]
Comments like that went against the grain of the right to know and accountability in government. While Ron Paul supporters demanded an audit, activists across the nation launched the End the Fed! campaign, those in financial media used the Freedom of Information Act (FOIA). FOIA requires federal government agencies to make their documents available to the press and public when requested.
The FOIA Requests and Lawsuits
On October 25, 2008, Bloomberg News filed a FOIA request with the Federal Reserve Board in connection with $2 trillion in loans made to troubled banks.[xiv] On November 7, 2008, Bloomberg News bumped it up a notch and filed a lawsuit against the Federal Reserve Board. At issue was the quality of the collateral the troubled banks like Citigroup Inc., JPMorgan Chase & Co., and Goldman Sachs Group Inc. posted in exchange for the significant line of credit.[xv] The relevance of a financial news agency’s FOIA request through Bloomberg LP v. Board of Governors of the Federal Reserve System was in connection with its readership, which has an interest in fully understanding the viability of financial sector firms. The Federal Reserve denied the FOIA requests made by Bloomberg News. On August 24, 2009, District Judge Loretta Preska of the Southern District of New York ruled in favor of Bloomberg News.[xvi]
On March 23, 2009, The New York Times sued the Federal Reserve Board and the Treasury Department under the FOIA. The paper wanted:
The calendars of Federal Reserve Board chairman Ben Bernanke and U.S. Treasury secretary Henry Paulson;
Information about the Federal Reserve’s new lending programs;
Communications among Paulson, Timothy Giethner, and those working with the Troubled Asset Relief Program; and
Federal Reserve memos that would reveal the central bank’s position on the Wall Street bailout.[xvii]
The U.S. Treasury handed over 10,096 pages, but redacted important information from the documents. [xviii]
On January 12, 2009 the parent company of FOX Business News filed Fox News Network, LLC v. Board of Governors of the Federal Reserve System. The lawsuit stemmed from two prior FOIA requests made on November 10 and 18, 2008 that went unaddressed within the time required by law, and that were denied on January 9, 2009.[xix] On July 30, 2009, however, the U.S. District Court in Manhattan ruled against FOX News and stated that the Federal Reserve Board was within its rights to withhold more than 6,000 pages of documents.[xx] The court upheld its decision on March 19, 2010 when FOX News failed in its appeal.[xxi]
The calendar records obtained through The New York Times FOIA request revealed that the Federal Reserve Bank of New York awarded BlackRock Financial Management Inc. three no-bid contracts valued at $71.3 million to manage and liquidate that central bank’s $20.8 billion worth of troubled securities acquired from American International Group, Inc. (AIG).[xxii]
The true cost of the $700 billion Wall Street bailout, depending on the sources, ranges between a low of $2 trillion and a high of $23.7 trillion. A third source estimated that the true cost of the bailout would be 20 times higher than the $700 billion—or $14.4 trillion. Congress has no idea where the bailout money went, because the Federal Reserve refused to completely disclose the details. The high end figures exceed the actual losses in the real economy due to the speculative derivatives market, which was $600 trillion in 2008 according to the U.S. Government Accountability Office (GAO).
The complex nature of finance, currency exchanges, and derivatives frustrates law makers due to the lack of transparency and true accountability by the Federal Reserve. This is perhaps best illustrated in Congressman Alan Grayson (D-Florida) and Federal Reserve Chairman Ben Bernanke’s cat and mouse dialogue at the July 21, 2009 Capitol Hill hearing concerning a $553 billion money trail on central bank liquidity swaps.
Grayson: “So who got the money?”
Bernanke: “Financial institutions in Europe and other countries.”
Grayson: “Which ones?”
Bernanke: “I don’t know.”
Grayson: “Half a trillion dollars, and you don’t know who got the money?”
Grayson: “Is it safe to say that nobody in 1913 [when the Federal Reserve was established] contemplated that your small little group of people would decide to hand out a half trillion dollars to foreigners?”
Grayson’s inquiry and Bernanke’s responses fed into the public demands for an audit.
Rhetoric and Reality
The Federal Reserve System, in its own words, has responsibilities that fall into four categories, which are: [xxiii]
Conducting the nation’s monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices;
Supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers;
Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets; and
Providing certain financial services to the U.S. government, to the public, to financial institutions, and to foreign official institutions, including playing a major role in operating the nation's payments systems.
The public perception and criticism of the Federal Reserve’s responsibilities may be summarized as the following:
Expanding and contracting credit produces the boom and bust cycles;
Tightening credit during a bust cycle followed by widespread unemployment;
Transferring wealth from the many to the few takes place during the bust cycles through widespread discounted shopping opportunities across many asset classes;
Deflating the currency by monetizing the federal government’s obligations and deficit has led to a 95 percent decline in the value of the U.S. dollar and an increase in price levels;
Regulating the capital assets of member banks, but not zealously enforcing consumer protections through existing regulations, results in a corporation oriented focus; and
Promoting economic destabilization through regulation that turns on the flow of global capital and floods the American economy with excess credit that results in widespread losses with little legal recourse.
The disconnect between theory and practice, the widespread recognition that “we’ve been here before” as history repeats itself, and comments on the floor of Congress that the Federal Reserve covertly provided $5.5 billion to Saddam Hussein were behind the calls to audit the Federal Reserve.[xxiv]
H.R. 1207: Federal Reserve Transparency Act of 2009
Most Americans, who understand the role of the nation’s central bank, believe that the Federal Reserve was culpable in creating the housing bubble, the subprime meltdown, the Panic of 2008, and the post meltdown national malaise. The Federal Reserve System is made up of 12 privately owned and closely held central banks. It is also a federal government agency and a banking regulator. As a private central bank, it has primary obligations to its shareholders. As a regulator, its primary concerns have addressed capital reserves not regulatory enforcements that would protect the customers doing business with member banks.
The concerns about the Federal Reserve, however, transcend the nation’s mortgage finance market. At the macro level, the issues go to the heart of the history of central bankers financing both sides of a conflict in order to benefit from sovereign debt payable to them. At the micro level, the issues go to the Federal Reserve allegedly destroying meeting minutes in connection with misleading reporters in connection to stolen Federal Reserve notes tied to the Watergate burglary.[xxv]
Congressman Ron Paul (R-Texas) was the nation’s leading voice in calling for a true audit of the Federal Reserve. H.R. 1207: Federal Reserve Transparency Act of 2009 that Congressman Paul presented to be part of the Wall Street reform bill had one serious problem. HR: 1207 had no constraints on scope, time period, or areas under the control of the Federal Reserve. If it had been included and passed, the door would have been opened for the GAO to do an unconstrained audit and to then recommend to Congress to shut the Federal Reserve down through a phase out and to restore the U.S. Treasury to resume its earlier functions.
H.R. 1207 was not watered down. H.R. 1207 suffered from legislative bait and switch. It was killed. The media reported that Congressman Mel Watt (D-North Carolina) “amended” the original proposal in committee in a complete redo without a bill number. In fact, Senator Bernie Sanders (I-Vermont) proposed Senate amendment 3728, and it served as the substitute. The end result was a Federal Reserve friendly disclosure not much different from the disclosures already taking place with the Maiden Lane LLC transactions that are connected with TARP, which are posted to the Federal Reserve Bank of New York’s website.
Title XI - Federal Reserve System Provisions
Between 1913 and 2010, the Federal Reserve Act has been amended over 200 times. With many of the amendments, the Federal Reserve has acquired more responsibilities while also becoming more accountable to Congress. As of October 21, 2010, the Federal Reserve was responsible for overseeing 33 regulation categories.[xxvi] In spite of the added amendments and greater regulatory oversight, the United States has continued to suffer from economic instability.
Section 1101 of Title XI of the Dodd-Frank Act again amends the Federal Reserve Act to recognize the broadened lending authorities that the Federal Reserve may exercise as well as the disclosure requirements to Congress for emergency lending actions.
Section 1102 defines the terms under which the Comptroller General of the United states may audit or carry out an examination of a covered transaction involving an institution's access to the Federal Reserves credit facilities. Any audit of a covered transaction may not disclose the details of the parties or the amounts borrowed in a covered transaction. The Maiden Lane, Maiden Lane II, and Maiden Lane III transactions associated with the Wall Street bailout are not subject to the nondisclosure provision as the details of these transactions were posted to the website of the Federal Reserve Bank of New York.
Section 1103 states the Federal Reserve will publish on its website the report from the Comptroller General, annual financial statements, the regular report to Congress pursuant to emergency lending, and other information to help the public better understand the operations of the Federal Reserve. This section defines a covered transaction as “any open market transaction with a nongovernmental third party” or advance made after the enactment of the Dodd-Frank Act. The Federal Reserve's Inspector General shall conduct a study to be published the the Federal Reserve's website on the central bank’s exemption from Freedom of Information Requests and the public's ability to access information about the bank's administration of emergency credit facility lending, discount window lending, and open market operations.
Section 1104 defines the two-thirds vote procedure for the Board of Governors with two-thirds of the members of the Federal Deposit Insurance Corporation (FDIC) to determine a liquidity event, or an emergency, that requires the guarantee program.
Section 1105 defines the roles of the Federal Reserve and the FDIC in guaranteeing obligations during “times of severe economic distress.” This section also states that FDIC shall define the terms and conditions with the approval of the Secretary of the U.S. Department of the Treasury under which financial guarantees will me made to distressed institutions. Additional debt guarantees will require the President’s request and a joint resolution of Congress with a 10 hour cap on debate equally divided between the majority and minority leaders.[xxvii] The FDIC shall charge member institutions fees and charges for administration and to cover anticipated losses.
Section 1106 amends the Federal Deposit Insurance Act to clarify the role of the agency as a receiver of failed institutions.
Section 1107 amends the Federal Reserve Act regarding a Federal Reserve bank’s governance by the chief executive officer, who is appointed by Class B and Class C bank directors with the approval of the Board of Governors of the Federal Reserve System.
Section 1108 amends the Federal Reserve Act pursuant to Vice Chairman’s supervision and development of policies and regulations for depository institution holding companies and financial firms under the supervision of the Board of Governors of the Federal Reserve System. The Vice Chairman will have the semi-annual reporting responsibilities to Congress.[xxviii]
Section 1109 is the audit of the Federal Reserve, and in part states that the Comptroller General of the GAO “shall conduct a one-time audit of all loans and other financial assistance provided during the period” between December 1, 2007 and June 21, 2010. This one time, limited inquiry will delve into the:
Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Term Asset-Backed Securities Loan Facility, the Primary Dealer Credit Facility, the Commercial Paper Funding Facility, the Term Securities Lending Facility, the Term Auction Facility, Maiden Lane, Maiden Lane II, Maiden Lane III, the agency Mortgage-Backed Securities program, foreign currency liquidity swap lines, and any other program created as a result of ... the Federal Reserve Act.[xxix]
The scope of the GAO’s examination is further limited to five areas, which in the words of the Dodd-Frank Act are:
The operational integrity, accounting, financial reporting, and internal controls of the credit facility;
The effectiveness of the security and collateral policies established for the facility in mitigating risk to the relevant Federal Reserve Bank and taxpayers;
Whether the credit facility inappropriately favors one or more specific participants over other institutions eligible to utilize the facility;
The policies governing the use, selection, or payment of third-party contractors by or for any credit facility; and
Whether there were conflicts of interest with respect to the manner in which such facility was established or operated.[xxx]
Moreover, the GAO has one year to audit the Federal Reserve to make sure that the central bank did not violate hiring laws with regard to race and creed in selecting its governors. More importantly, the GAO will determine if there are any conflicts of interest when member banks elect board governors.
Congress recognized the inbuilt conflicts of interest in its August 1976 study “Federal Reserve Directors: A Study of Corporate and Banking Influence.”[xxxi] The Congressional study uncovered that many of those who sat on the boards of the 12 Federal Reserve banks also sat on the boards of corporations within the military and industrial complex.
The GAO’s examination will result in a report to Congress with recommendations that will include ways in which the Federal Reserve can better represent the public through changes to the selection process for Federal Reserve bank directors.
The Federal Reserve will publish on its website by December 1, 2010 some of the transaction details that came under question between December 1, 2007 and June 21, 2010. This limited disclosure will restate the FOIA reportage made by Bloomberg News, The New York Times, and FOX News.
Printing money, deflating the currency, is what central banks do when there are no outside customers due to prior policies. Quantitative easing (QE) is an academic euphemism for economic malfeasance. The targets of quantitative easing policies are to prop up three asset classes: the equities market (stock prices), the real estate market, and the bond market for mortgages and government debt.
There are two advantages of devaluing the dollar. First, the government’s debt is repudiated through repayment of debt owed to foreigners with currency that is worth less. Second, American exports will rise since their costs will be lower against other currencies. Foreign governments view currency manipulations as trade wars. Economic history, however, teaches that currency manipulations in the1930s led to World War II.
The Federal Reserve became the secondary market for mortgages after the subprime meltdown. The quantitative easing summary, known as QE1, is as follows:
November 25, 2008: Purchase of $100 billion of Government Sponsored Enterprise’s direct obligations and $500 billion in mortgage backed securities (MBS);
December 16, 2008: Federal Open Market Committee (FOMC) Statement evaluates benefits of purchasing longer-term U.S. Treasury securities;
January 28, 2009: FOMC Statement stands ready to expand QE program;
March 18, 2009: FOMC Statement expands MBS program to $1.25 trillion, purchases up to $300 billion of longer-term U.S. Treasury securities; and
August 27, 2010: Fed Chairman Ben Bernanke hints at QE2.[xxxii]
In November 2010, the Federal Reserve launched QE2 and committed to purchase $600 billion in U.S. Treasuries at the pace of about $75 billion per month through June 2011. This was in response to Japan and China’s reduced investment in government debt issued by the United States.
In the post-meltdown era, the Federal Reserve’s monetary policies are attacked from all sides, and even from within, for different reasons.[xxxiii] Trade associations and beneficiaries of the FIRE economy—finance, insurance, and real estate—have their fortunes pegged to low interest rates. Low rate policies, however, are disincentives for prudence and saving and target the lower 80 percent of the economy. Reduced savings results in an over reliance on credit, which is what produced the nation’s economic challenges. For corporations, low rates encourages risk taking that would not be as prevalent in a higher interest rate environment. Depreciating the dollar means that the United States will repudiate some of its debt and repay its bond holders in currency worth less than what was borrowed. Corporations are hoarding $943 billion in cash, which signals a lack of confidence in the economy’s direction and results in halted hiring and production.[xxxiv] Another bubble created by financial central planning in defiance of the dictates of the free market is a set up for economic collapse and what could follow.
The Federal Reserve’s actions as the backstop to the American government and the financial system has drawn almost universal criticism, because artificially keeping interest rates low distorts the real economy, creates bubbles, and leads to busts. The magnitude and ramifications of the Federal Reserve’s policies have produced a historic move by some investors—they have placed $10 billion into Treasury Inflation Protected Securities (TIPS) that have a negative yield when adjusted for inflation.[xxxv]
Japan’s lost decade was the result of a commercial real estate bubble followed by its central bankers engaged in Keynesian policies and near zero interest rates. Fiscal spending policies designed to jump start the economy at a rate fast enough in order to generate tax revenues to offset the newly acquired government debt rarely works.
Economic history shows that Max Warburg, the brother of Paul Warburg—the founder of the Federal Reserve—managed the Reichsbank under Adolph Hitler. Quantitative easing is what brought the Weimar Republic to an end and enabled political extremism to take hold of Germany. Under Warburg’s management, the Weimar Republic’s economy collapsed, because the central bank interfered with the free market, and printed more money than the tangible assets that were in the real economy. When Hitler consolidated his power over Nazi Germany, he repudiated the national debt owed to foreigners collected by the Bank for International Settlements and ousted the Warburgs. Then, all hell broke loose as Hitler attempted to impose on the world his vision for a New World Order.[xxxvi]
Central banking is a perennial topic and part of the great conversation of the ages. The founding father’s grappled with the issue. The following generation’s debated and issued heated words over central banking. And, it is no different today.
In the past, it could be said that banking and farming didn’t mix. The business models, variables, and lender and borrower expectations were so different. In the present, many might argue that central banking and economic stability don’t mix. And, some might argue that central banking and global peace don’t mix since there is an economic driver that sees war production and the nation’s required deficit spending enabled by borrowing through the Federal Reserve to wage war as a positive contributor to the nation’s Gross Domestic Product.
Gene L. Dodaro, an interim replacement, took the helm of GAO when David M. Walker resigned as Comptroller General. Walker’s message to the United States when he left the GAO was that the nation was at the precipice of financial disaster and had refused to attest to the accuracy of the nation’s true debt position due to accounting problems with the Department of Defense, federal agencies, and the government’s inability to consolidate financial statements. Walker went to work with the Peter G. Peterson Foundation, which in 2008, distributed the disturbing national debt-focused documentary film I.O.U.S.A.
The Federal Reserve was tasked to manage the currency and to keep the nation’s employment levels sufficiently high. Since the Federal Reserve came into being in 1913, the U.S. dollar has lost over 95 percent of its value, which is due to excessive credit, fiat currency, and legislation that permit the federal government to not have a budget or deficit constrained by the value of assets like gold and silver. This has resulted in price increases that have nothing to do with supply and demand factors that are typically used to describe the causes of inflation. Moreover, the nation’s economy has suffered from boom and bust cycles as a result of the financial sector’s manipulation of the markets at the expense of ordinary households and investors. Finally, the Federal Reserve has enabled deficit spending that has placed the United States into the position that it will never be able to pay off the national debt or meet the nation’s entitlement obligations like Social Security. The overall impact of the Federal Reserve’s management of the money supply on most Americans has been devastating. Many recognize that the appearance of prosperity of the American middle class was an illusion propped up by mortgage and consumer debt.
Congress, instead of placing blame on the Federal Reserve for the nation’s economic instability, placed blame onto the U.S. Department of Housing and Urban Development, which is accountable to Congress. The Dodd-Franck Act held the nation’s central bank harmless, and instead granted it more responsibilities. Better disclosure and transparency with confidentiality of transaction details were maintained. These are good investigative steps, but do not constitute an unconstrained audit with complete transparency. Moreover, the audit provision of the Federal Reserve is limited to Wall Street’s collapse, but does not take up the concerns that prompted Congressman Ron Paul to propose the audit.
Peter Hébert is a mortgage finance and real estate industry subject-matter expert and CEC trainer with a master of business administration degree in finance and marketing from Mount St. Mary's University in Emmitsburg, Maryland. Hébert is the author of Mortgaged and Armed (Freedom House Press, July 2010), which is available on Amazon.com. His upcoming books The Collapse of Home Prices and the Foreclosure Crisis and Predator Nation will be available in 2011. He can be reached at [email protected].
[i] Stephen Gandel, “Will the Federal Reserve Cause a Civil War?,” The Curious Capitalist: Commentary on the economy, the markets, and business, Time.com October 19, 2010.
[ii] The author sat in on this historic conference call, and believes that this date will become universally recognized as the final trigger that released the panicked sell off across the global financial markets.
[iii] Ron Paul, Deception and Abuse at the Fed, University of Texas Press, 2008.
[iv] Ron Paul, End the Fed, Grand Central Publishing; 1st edition, September 16, 2009.
[v] “A History of Central Banking In the United States,” The Federal Reserve Bank of Minneapolis, 2010; Online at www.minneapolisfed.org/community_education/student/centralbankhistory/bank.cfm.
[vi] Thomas J. DiLorenzo, “What Hamilton Has Wrought,” LewRockwell.com, October 6, 2008
[vii] Gareth Davis and Senior Sophister, “The Destruction of the Second Bank of the United States Rationale and Effects,” The Student Economic Review, Trinity College Dublin, School of Mathematics, December 1994; Online at www.maths.tcd.ie/local/JUNK/econrev/ser/html/destruction.html.
[viii] Ben Still, “The Secret of Oz,” 2010; Online at www.secretofoz.com.
[ix] “Frequently Asked Questions, Federal Reserve System,” The Federal Reserve Board, March 7, 2007; Online at www.federalreserve.gov/generalinfo/faq/faqfrs.htm
[x] Milton Friedman interview with National Public Radio, January 1996.
[xi] John F. Kennedy, Executive Order 11110 - Amendment of Executive Order No. 10289 as Amended, Relating to the Performance of Certain Functions Affecting the Department of the Treasury, June 4, 1963 inside John T. Woolley and Gerhard Peters, The American Presidency Project [online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=59049.
[xii] G. Edward Griffin, “The JFK Myth: Was he assassinated because he opposed the Fed?,” Freedom Force International, December 13, 2006; Online at www.freedomforceinternational.org/freedomcontent.cfm?fuseaction=jfkmyth
[xiii] Jim Lehrer, “Greenspan Examines Federal Reserve, Mortgage Crunch,” PBS NewsHour, September 18, 2007; Online at http://www.pbs.org/newshour/bb/business/july-dec07/greenspan_09-18.html.
[xiv] Mark Pittman, “Bloomberg Sues Fed to Force Disclosure of Collateral (Update1),” Bloomberg, November 7, 2008; Online at www.bloomberg.com/apps/news?pid=newsarchive&sid=aKr.oY2YKc2g.
[xv] Mark Pittman, “Fed Refuses to Disclose Recipients of $2 Trillion (Correct),” Bloomberg, December 12, 2008; Online at www.bloomberg.com/apps/news?pid=newsarchive&sid=apx7XNLnZZlc.
[xvi] Bloomberg LP v. Board of Governors of the Federal Reserve System, Southern District of New York, August 24, 2009; Online at www.zerohedge.com/sites/default/files/Bloomberg%20lawsuit%20judgment.pdf.
[xvii] Hannah Bergman, “FOIA suits over bailout documents mount up,” The Reports Committee for Freedom of the Press, March 30, 2009; www.rcfp.org/newsitems/index.php?i=10677.
[xviii] Hannah Bergman, “FOIA suits over bailout documents mount up,” The Reports Committee for Freedom of the Press, March 30, 2009; www.rcfp.org/newsitems/index.php?i=10677.
[xix] Opinion and Order Substantially Granting Defendant's Motion for Summary Judgment and Denying Plaintiff's Motion for Summary Judgment in Fox News Network, LLC v. Board of Governors of the Federal Reserve System, United States District Court Southern District of New York, June 30, 2009; Online at www.nylj.com/nylawyer/adgifs/decisions/073109hellerstein.pdf.
[xx] Hannah Bergman, “Fox loses FOIA suit against Federal Reserve,” The Reports Committee for Freedom of the Press, July 31, 2009; www.rcfp.org/newsitems/index.php?i=10939.
[xxi] FOX NEWS NETWORK v. BOARD OF GOVS. OF FED. RES. 601 F.3d 158 (2010) FOX NEWS NETWORK, LLC, Plaintiff-Appellant, v. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, Defendant-Appellee. Docket No. 09-3795-cv. United States Court of Appeals, Second Circuit. Argued: January 11, 2010. Decided: March 19, 2010; Online at www.leagle.com/xmlResult.aspx?xmldoc=in%20fco%2020100319065.xml&docbase=cslwar3-2007-curr
[xxii] “AIG RMBS LLC Facility: Terms and Conditions, Federal Reserve Bank of New York,” December 16, 2008; www.newyorkfed.org/markets/rmbs_terms.html; and Jo Becker and Gretchen Morgenson, “Geithner, Member and Overseer of Finance Club,” The New York Times, April 26, 2009; www.nytimes.com/2009/04/27/business/27geithner.html?_r=1&pagewanted=all.
[xxiii] “Frequently Asked Questions, Federal Reserve System,” The Federal Reserve Board, March 7, 2007; Online at www.federalreserve.gov/generalinfo/faq/faqfrs.htm.
[xxiv] Congressman Ron Paul’s testimony inside Ron Paul, “Ron Paul vs. Bizarre Ben Bernanke,” LewRockwell.com, February 27, 2010
[xxv] Ron Paul, “Ron Paul vs. Bizarre Ben Bernanke,” LewRockwell.com, February 27, 2010
[xxvi] “Regulations,” Board of Governors of the Federal Reserve System, October 21, 2010: Online at www.federalreserve.gov/bankinforeg/reglisting.htm
[xxvii] This is a public relations damage control measure.
[xxviii] This section serve to remove the Chairman of the Federal Reserve System’s Board of Governors from the Congressional inquisitions that can become adversarial and hostile, and which are aired live on C-Span.
[xxix] “The Wall Street Reform and Consumer Protection Act, Title XI - Federal Reserve System Provisions,” U.S. Congress, June 21, 2010, Page 764.
[xxx] “The Wall Street Reform and Consumer Protection Act, Title XI - Federal Reserve System Provisions,” U.S. Congress, June 21, 2010, Page 764 and 765.
[xxxi] “Federal Reserve Directors: A Study of Corporate and Banking Influence,” Staff Report for the Committee on Banking, Currency and Housing, House of Representatives, August 1976.
[xxxii] Bill McBride, “A QE1 Timeline,” CalculatedRisk, October 3, 2010; Online at www.calculatedriskblog.com/2010/10/qe1-timeline.html.
[xxxiii] Tom Hoenig, the president of the Federal Reserve Bank of Kansas City, is among them.
[xxxiv] Karen Brettell, “U.S. companies hoarding almost $1 trillion cash: Moody’s,” Reuters, October 27, 2010: Online at http://news.yahoo.com/s/nm/20101027/bs_nm/us_corporates_cash_moodys.
[xxxv] Daniel Kruger, “Treasury Draws Lowest Yield on Record at 10-Year TIPS Auction,” Bloomberg Businessweek, November 4, 2010; Online at www.businessweek.com/news/2010-11-04/treasury-draws-lowest-yield-on-record-at-10-year-tips-auction.html.
[xxxvi] Adolf Hitler, The New World Order, 1928. This is the sequel to Mein Kampf;