More Mystery and Intrigue…Just What the Heck IS the “Fed”, Anyway?

So I’m declaring today to be “Conspiracy Theory Thursday” and we’re going to talk about one of the biggest, juiciest conspiracy theories out there— the Federal Reserve.

Just what the heck IS the Federal Reserve, anyway?

Well, let’s start with what it isn’t:

  1. It’s not a bank
  2. It’s not “Federal” or owned by the United States government
  3. It has no reserves

What?!?! Then what exactly IS it? And how did it come into being? Well, that’s where it gets interesting….

Have you ever read the book, The Creature from Jekyll Island, by G. Edward Griffin? This is the book that changed my investing life. This book reads like the best, juiciest, spine-tingling, page-turning, nerves-on-edge mystery/thriller, and yet, is a thoroughly researched and stunningly accurate history of our country’s banking system.

It begins in the year 1910, on a railway station platform in the dead of night, where seven men boarded the private “Aldrich” car, between them representing an estimated one-fourth of the total wealth of the entire world. (I kid you not— 1/4 of the world’s total wealth was held by just SEVEN men!)

Here is who they were:

    1. Nelson W. Aldrich, Republican “whip” in the Senate, Chairman of the National Monetary Commission, business associate of J.P. Morgan, father-in-lw to John D. Rockefeller, Jr.;
    2. Abraham Piatt Andrew, Assistant Secretary of the U.S. Treasury;
    3. Frank A. Vanderlip, president of the National City Bank of New York, the most powerful of the banks at that time, representing William Rockefeller and the international investment banking-house of Kuhn, Loeb & Company;
    4. Henry P. Davison, senior partner of the J.P. Morgan Company;
    5. Charles D. Norton, president of J.P. Morgan’s First National Bank of New York;
    6. Benjamin Strong, head of J.P. Morgan’s Bankers Trust Company;
    7. Paul M. Warburg, a partner in Kuhn, Loeb & Company, a representative of the Rothschild banking dynasty in England and France, and brother to Max Warburg who was head of the Warburg banking consortium in Germany and the Netherlands.

[1]

This meeting on Jekyll Island between these seven powerful men has been confirmed by multiple sources, including B.C. Forbes, the founder of Forbes magazine, Paul Warburg himself in his 1930 book entitled The Federal Reserve System, Its Origin and Growth, and many others (you can see the whole list for yourself if you decide to read The Creature from Jekyll Island, which I highly recommend).

Perhaps most compelling, however, is the account from Frank Vanderlip himself, written in the February 9, 1935 issue of the Saturday Evening Post, where he said,

“…There was an occasion, near the close of 1910, when I was as secretive—indeed, as furtive—as any conspirator…. 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 and as unobtrusively as possible to the railroad terminal on the New Jersey littoral of the Hudson, where Senator Aldrich’s private car would be in readiness, attached to the rear end of a train for the South…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 by Congress.[2]

The purpose of this meeting at Jekyll Island (incidentally, the island was owned by JP. Morgan and several of his business associates) was to come to an agreement on the structure and operation of a banking cartel that they could legalize within the United States government. The goal of this cartel (like any self-respecting cartel) was to reduce competition, increase profitability, and to use the police power of the government to enforce the cartel agreement. In other words, the purpose and the actual outcome of this meeting was to create the blueprint for the Federal Reserve System.

=====> Conspiracy Theory Alert! <=====

OK, if you have your skeptical hat on (which of course you should always be wearing), you may be finding this conclusion to be preposterous. The Fed, a cartel? But that’s crazy! That Griffin guy must be off his rocker, and that Kung Fu Girl, too. Looney tunes!!!

But stick with me a moment…. so what exactly IS the Fed?

Let’s go to their website and see:

“On December 23, 1913,the Federal Reserve System, which serves as the nation’s central bank, was created by an act of Congress. The System consists of a seven member Board of Governors with headquarters in Washington, D.C., and twelve Reserve Banks located in major cities throughout the United States. The seven Board members constitute a majority of the 12-member Federal Open Market Committee (FOMC), the group that makes the key decisions affecting the cost and availability of money and credit in the economy. The other five members of the FOMC are Reserve Bank presidents, one of whom is the president of the Federal Reserve Bank of New York.”

Hmmm. So it is a group of banks, who together determine and control the entire monetary policy for our country. What is the definition of “cartel”?

cartel: group of firms or nations who attempt to control price or supply of a commodity (such as oil) through mutual restraint on production. Although such collusion among sovereign countries (such as in OPEC) is grudgingly accepted, it is illegal among corporations.[3]

So there you have it, your conspiracy theory for today: the Fed is a cartel of banks.

So what do you think? Innocent group of bankers working for the common good of the people, or evil group of bankers working primarily for their own profits, the people be damned? I have my opinion, of course, :), but what do you think? Let me know in the comments below!

There is so much more important information in Griffin’s book that I really do hope that you’ll be able to get your hands on a copy and read it. I got mine from a used book seller on Amazon.com, but I bet your local library has a copy, too.

And as to how this “changed my investing life”… Well, after reading this book, I began to dig much deeper into the issue of fiat currency versus sound money, monetary history (they don’t teach you this stuff in school!), and began investing in gold and silver, which have done very well over the last ten years.

More importantly, however, this book reawakened my skeptical, critical-thinking brain (I knew it was in there somewhere!) and caused me to reexamine my beliefs about our government and leaders, what people SAY versus what people DO, and let me look at the financial crisis of 2008 in a new light.

Anyway, read the book!

10/14/2011 Update: I just found a video interview on Google Videos with the author himself, so if you’re more of a video person than a book person you’re in luck (although it’s 42 minutes long, so make sure you have your favorite beverage and some popcorn handy!):

To your financial enlightenment and success,

— Kung Fu Girl

[1]The Creature from Jekyll Island, by G. Edward Griffin, pg. 5
[2]“From Farm Boy to Financier,” by Frank A. Vanderlip, The Saturday Evening Post, Feb. 9, 1933, pp. 25, 70.
[3]BusinessDictionary.com

***Full Disclosure: yes, those are “affiliate” hyperlinks above but I find it super-irritating when someone recommends something to have to go search for it myself when they can just give me a link and make it easy for me. 🙂 You, of course, may feel differently and you’re welcome to go to Amazon on your own and search for it or hit your local library.