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- Section IV
- Follow the Money
Follow the Money
4500 BCE – 3000 BCE: Everywhere, “egalitarian tribal arrangements” dissolve into “the formation of class society with religion as its unifying force and the dominant class, something of a feudal nobility, extracting economic surplus from the producing majority.” Religious temples also served as banks. Assyriologists determine that excess crops were traded, often for silver, thus, the “value [of silver] was established by religious institutions, who accepted it as payment of tithes and other forms of taxation… there is some evidence that the overseer of the Treasury bore a religious title… The economic surplus collected in the form of taxes was directed toward the priests…” In the subsequent transition from egalitarian to hierarchal class relationships, it was the semi-divine kings who “levied non-reciprocal obligations (taxes) on the underlying population.”
2000 BCE: The relationship between religion and finance continued into this period. Evidence shows the temple of Jerusalem doubled as a financial institution, as well as the temple of Apollo at Delphi. European markets (fairs) all were initially established in front of local churches. Meanwhile, money began to evolve from ‘units of account’ (local economies) to a system of tallies—such as conch shells (China) or hazel sticks (Medieval Europe)—as trade expanded. Sturdier metallic “shapeless ingots” of copper or silver logically began replacing the flimsier types of tallies; many historians have mistaken these ingots for coins, but they still functioned as tallies (or units of account), which were broken by chisel to represent both sides of an economic exchange. When coins first appeared, they were specific to each city-state, and slowly came to bear the likeness of the ruler instead of the patron god, serving more as a form of self-aggrandizement; evidence shows that most people still preferred to use tallies instead of the king’s coins.
100 BC: “The ancient coins of Rome” were still being used as tokens, “the extreme irregularity of their weight” indicating that value was clearly not based upon any metallic standard. When Rome fell in the 4th century, its money disappeared. “As the archaeological finds of large ‘hoards’ of money imply, it was no longer routinely needed and, given the very small silver content of the coins of the late Roman empire, it is likely that they were literally dumped (Davies 1994: pp. 116-17).”
457-751 AD: During the 300-year reign of Frankish Kings, there was “complete liberty of issuing coins without any form of official supervision.” With no laws on currency at the time, economics still went off without any record of conflict between competing currencies. “There can be no doubt that all the coins were tokens and that the weight or composition was not regarded as a matter of importance. What was important was the name or distinguishing mark of the issuer, which is never absent.”
800 AD: During the Carolingian Dynasty in France, kings began to ‘charter’ vassals to mint their coins, who were even allowed to profit from performing this service; records indicate that the public often carried on economic exchange without using the king’s coins, which upset one king so much that he “devised a punishment to fit the crime of refusing one of his coins. The coin which had been refused was heated red hot and pressed on to the forehead of the culprit [to] show his punishment to those who see him.”
1000-1400 AD: Throughout the French feudal period, anyone could mint coins; “beside the royal monies, 80 different coinages [were] issued by barons and ecclesiastics, each entirely independent of the other, and differing as to weights, denominations, alloys, and types. There were, at the same time, more than twenty different monetary systems…for at least two centuries previous to the accession of Saint Louis in AD 1226, there was probably not a coin of good silver in the whole Kingdom.”
1662: England was slow to acquiesce to the private commodification of people as labor, though was fine with the church doing it; through the Act of Settlement of 1662 “the laborer was practically bound to his parish.” The Act “laid down the rules of so-called parish serfdom [and] was loosened only in 1795” to make “possible the setting up of a national labor market.”
1776 AD: Adam Smith writes the Wealth of Nations, where he erroneously attributes “instances of the use of commodities as money in modern times, namely that of nails in a Scotch village and that of dried cod in Newfoundland.”  Though all of Smith’s assertions about money as a commodity were eventually debunked, “it is curious how…Adam Smith’s mistake has been perpetuated.”
1782 AD: In the early days of the United States “the silver dollar was worth five shillings in Georgia, eight shillings in New York, six shillings in the New England states, and thirty-two shillings and sixpence in South Carolina…In consequence, when Alexander Hamilton wrote his report on the establishment of a mint, he declared that ‘that species of coin has never had any settled or standard value according to weight or fineness; but has been permitted to circulate by tale without regard to either.”
1781 AD: As the Revolutionary War continued, Alexander Hamilton was pondering how his country was going to pay for it. “Most commercial nations have found it necessary to institute banks”, Hamilton told Robert Morris, and thus began his belief that a central bank was necessary and proper for issuing the credit of the nation.
1791 AD: United States President George Washington signs the Bank of the United States into law, gives it a twenty-year charter, and appoints Alexander Hamilton as Secretary of the Treasury. “It opened for business in Philadelphia on December 12, 1791…branches opened in Boston, New York, Charleston, and Baltimore in 1792, followed by branches in Norfolk (1800), Savannah (1802), Washington, D.C. (1802), and New Orleans (1805). The bank was overseen by a board of twenty-five directors.” 
The War for Independence left the confederation of states with a devalued currency, war debt, inflation, and little economic opportunity in commerce or industry. In 1790, Alexander Hamilton submitted a report to Congress outlining his proposal to form a National Public Bank—a central bank that could issue paper money (currency, banknotes), and stabilize the money supply. The Bank was designed to collect tax revenue and distribute credit around the country through a branch network. It could pay the government bills, absorb the debt of the states, and loan money to the government in times of need. It’s first order of business was to take in the debt of all the states. “In addition to its activities on behalf of the government, the Bank of the United States also operated as a commercial bank, which meant it accepted deposits from the public and made loans to private citizens and businesses.” 
The Disappearing Money Powers Trick: A Disaster in Six Acts
Act I: Aaron Burr disguises the first privately funded bank inside a public water company, kills the competition—Alexander Hamilton—who had founded all of America’s first banks, then kills—through Congress—Hamilton’s U.S. Central Bank, the First Bank of the U.S., which was publicly funded.
Act II: Andrew Jackson, an early associate of Aaron Burr, continues Burr’s legacy by vetoing the attempt to charter a Third National Public bank, which ushers in the era of state (private) banks.
Act III: The Banking Act of 1864 attempts to fund state banks with national currency (the new dollar bill), which is seen as re-establishing ‘national banks,’ but is not the original model of a central public hub with branches; thus begins the era where ‘the tail wags the dog.’ Federal government now becomes the reactive backstop instead of the facilitator, and ‘Big Government’ is born.
Act IV: The Federal Reserve Act was a financial coup by Wall Street, who knew a Central Bank would finally have to be re-established but were determined never to let the government have control of it.
Act V: The McFadden Act of 1927 did something that Public Banks were never allowed to do: it removed the twenty-year charter from the Federal Reserve Banks so that they now exist in perpetuity—or until a two-thirds vote from Congress relinquishes Fed control over the people’s Money Powers. It also loosened restrictions on how banks could gamble with their money, as well as allowed them the right to branch out in any state that allowed state banks the same right (in 1933, when the country was financially ruined, it was FDR’s addition of a national public lending mechanism, the Reconstruction Finance Corporation—or RFC—that actually brought the country back, not the Federal Reserve).
Act VI: The Banking Act of 1935 removed the Federal Reserve Board from its initial meeting place in the U.S. Treasury to a separate facility, meanwhile removing the Treasury Secretary from the board (who was the previous chairman) as well as the Comptroller of the Currency (who used to charter all national banks). Now the Fed had sole control over the government’s Money Powers.
Constitution of the United States
Article I, Section 8, Clause 5: “[The Congress shall have Power…] To coin Money, regulate the Value thereof…”
Article I, Section 10, Clause 1: “[No State shall…] coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts.”
The Constitutional language is clear: Congress has the sole power to create the currency of the United States, and to charter the banks which deliver this money to the nation toward the various economic purposes set forth in the Preamble of the Constitution. No private (or even state) bank can create public money. Congress comprises a group of fellow citizens sworn to represent all the people of the United States, by upholding their shared constitutional beliefs, which were clearly enumerated within this founding document.
More than any other shared belief, money has become essential promote the general Welfare and secure the Blessings of Liberty, which is why the Money Powers were clearly established within the main body of the founding document.
Shared beliefs serve as the hub through which likeminded people connect. The Preamble of the Constitution is one such hub; it embodies the set of shared beliefs which in many ways are the only current connection Americans have to each other (besides our shared belief in money). Faux Originalists should take heed; laws—and the weapons that legitimize them—are not what bind one person to another; these are the tools of enslavement and coercion, not connection. Liberty—the internal mechanism through which each person exercises choice—existed well before some externally imposed rule bestowed it upon us.
Act I: A Case of Mistaken Liquidity
Religion is not where storytelling originated, but it is where oppressors first discovered the power of storytelling. To ‘control the narrative’ has long proved to be a subtle but effective tool for maintaining the status quo, and when the winners tell their stories—which are never the whole story—people cannot help but share them, because we are all born to transmit what we receive. The most well-known stories are the ones we were apparently meant to hear, amplified for reasons we can only assume serve someone’s rational self-interest. When important stories are clearly being downplayed, we can only assume that this also serves someone’s rational self-interest.
Take the story of American ‘founding father’ Alexander Hamilton, for instance, who was challenged to a duel and killed by Aaron Burr. The two pistols used in the duel currently reside at 277 Park Ave. in midtown Manhattan, which happens to be the headquarters of JP Morgan Chase & Co., the world’s largest private bank (as of 2023). So why would the pistols reside there?
Alexander Hamilton (as the first Secretary of the Treasury) was tasked to stabilize a newly formed nation left in financial disarray after its battle for independence. Hamilton convinced President George Washington, the Congress, and the Supreme Court that a National Public Bank would consolidate everyone’s debt, serve as a source of collecting and redispersing revenue, handle all the government’s financial obligations, and unite the country under a single currency (the various state currencies had been seriously and purposely devalued by the British during the war).
The First Bank of the United States was chartered for twenty years, where it exceeded every expectation, converting many who were initially skeptical. By the time the bank came up for renewal, however, Burr had killed Hamilton, and Hamilton’s party—the Federalists—were no longer in power. Still, there was something about the Bank that Hamilton had gotten right, and it had large bipartisan support; the recharter vote passed in the Senate, and the vote was deadlocked in the House. This is when Vice President George Clinton of New York went against his own party president (James Madison) and treasury secretary (Albert Gallatin) and put an end to Hamilton’s bank with his tie-breaking vote. So why would George Clinton do that?
It was 1791; Hamilton’s National Public Bank had just been signed into law when New York governor George Clinton began his profitable association with prominent New York lawyer, Aaron Burr. To secure Burr’s loyalty, Clinton appointed him New York State Attorney General, then backed him for U.S. Senator from New York, which Burr held from 1791-1797. Burr quickly returned the favor; when apparent voter fraud in three different counties marred the New York gubernatorial race in 1792, Burr was brought in—as state Senator and former State Attorney General—to rule on the controversy. Burr convinced the legislature to re-elect Clinton despite suspicions about the election process.
1799: former New York Senator (1791-1797) and soon-to-be vice president (1801-1805) Aaron Burr—a democratic republican—hatched a plan to wrest political control from the Federalist party, which had overseen the country since its founding. The democratic-republicans needed their own private source of money, which was problematic because only two banks existed in New York at that time—the National Public bank and the Bank of New York—and both were founded by Alexander Hamilton, who was a Federalist.
Burr decided to sidestep the laws currently in place (a practice he would often repeat) and elicited Hamilton’s help in establishing a water company called the Manhattan Company, under the pretense that the city was in desperate need of clean water. Once Burr got Hamilton to help secure its legal incorporation, he quietly amended the company charter to A) expand its capitalization, B) expand its board members, and C) expand the latitude of the board members to use this capitalization in broad unnamed ways. The amendments passed through undetected, ironically due to Hamilton’s endorsement.
Burr then proceeded to add George Clinton and other republican party members onto the water company’s board of directors, opened an office of “discount and deposit”—a bank—and began funding democratic-republican affairs, the first one being the election of Thomas Jefferson in 1800; Jefferson knew about the entire plot (correspondence has been found between Jefferson and prominent republican Edward Livingston). Democratic republicans credit this ploy with unseating the Federalists from office; in the bigger picture, though, this was the pivotal moment in U.S. economic history, where the Federalist agenda, to connect the people of the United States politically, socially, and economically, was unceremoniously discarded for a paradigm of pure rational self-interest; thus began the slow erosion of the People’s Federal Money Powers, along with their liberty.
When the Manhattan Company suddenly switched from selling water to selling money, only five months after Hamilton helped incorporate it, Hamilton quickly severed ties with Burr. Like George Washington and Thomas Jefferson, Hamilton never trusted Aaron Burr, but after being duped by Burr into creating the first private bank and partisan political action machine (the original PAC) Hamilton made it his personal mission to keep Burr from gaining any further political control.
Hamilton used his clout to secure Jefferson’s nomination over Burr in 1801, then stopped Burr’s bid for the New York governorship in 1804. This second snub was too much for Burr, who subsequently challenged Hamilton to a duel and killed him. Although dueling and murder were both illegal at the time, Burr never went to trial. In 1807, Burr was charged with treason, for his attempt to gather and train an armed militia, apparently looking for an opportunity to fight the Spanish and annex his own piece of Florida prior to the U.S. peacefully purchasing it; Burr admitted to as much, and had elicited Andrew Jackson’s help if Burr could provoke Spain to fight (in 1818, Jackson went rogue and utilized the same plan; it instead turned into a killing spree of his favorite three targets: Native Americans, runaway slaves, and British citizens; the Spanish basically gave Florida away to the United States after Jackson’s homicidal rampage, which incited $5 million in damages across the territory—over $1 billion by today’s standards).
Ultimately, it was Jefferson who tried to have Burr indicted for the highest crime possible; Burr left for Europe soon after. The Federalist party faded after Hamilton’s death. Clinton, who sat on the Manhattan Company board, predictably killed the First Bank of the United States with his tie-breaking vote in 1811, which effectively eliminated The Manhattan Company’s main competition. Hamilton, Federalism, and National Public Banks became collateral damage in America’s decisive turn toward hierarchal oppression.
Meanwhile, The Bank of the Manhattan Company grew strong; they purchased those dueling pistols in 1930; Chase National Bank, established in 1877, merged with the Bank of Manhattan Company to form Chase Manhattan Bank in 1955. In 1996, Chase Manhattan Bank merged with Chemical Bank Corporation, who then merged with JP Morgan & Co. in 2000. When Wall Street collapsed again in 2007, JP Morgan Chase & Co. picked up Washington Mutual and Bear Stearns. Oddly, Hamilton is the father of both public banking and private banking; it is only fitting that the instrument used to kill Hamilton would reside in the institution that killed his public bank. Although this is likely lost on JP Morgan Chase & Co. employees today, whoever purchased those pistols did so not to celebrate Hamilton’s legacy, but the demise of it.
Soon after the War of 1812, the United States was financially crippled again; Clinton had died of a heart attack and Jefferson was no longer in power. Politics was set aside, and the Second Bank of the United States received another 20-year charter in 1816.
Federalism espoused connection and men like Washington, Hamilton, and John Adams were true to this ideology; the National Public Bank was a natural extension of this ideology, but those who sought hierarchy knew that connection eroded the ability for one group to subjugate another, so that fortunes could be made.
As Federalism slowly eroded along with connection, one Federalist still stood guard, attempting to fight off the seemingly inevitable shattering of what those Federalist founders had achieved; first Supreme Court Justice John Marshall continued to preach from his pulpit to the deaf choir of opportunists about the difference between power and control.
Justice Marshall, like Hamilton, had the spirit of the law within him, so naturally trusted simple language, that could be interpreted as needed to serve future generations when making policy or legislative choices. For them, the Constitution served as a ‘living’ guideline for trustworthy leaders to promote the general welfare or provide for the common defense in whatever ways were necessary and proper at that time. Those disdainful of rules and of trust wanted the constraints upon them enumerated, so that they may either find ways around them, or cite them to legitimize some act of violence for which the law was never intended. The letter of the law is, and always has been, the perfect tool for oppression: strong enough to legitimize violence, yet permeable enough to step through or around on the way toward one’s rational self-interest.
Private bankers in Maryland did not like the competition the Second Public Bank had brought to their area; naturally, there was a feeding frenzy of private self-interest after the death of the First Bank in 1811, so the constitutionality of the Second Bank was bound to be challenged again, as it had 25 years before. In McCulloch versus Maryland (1819), Chief Justice Marshall again asserted that the National Public Bank was doing everything ‘necessary and proper’ for government to do toward promoting the General Welfare, and nothing else. Further, Marshall let it be known that the United States was a country, and not a loose Confederation of principalities, and thus federal law took precedence of state laws, should any other ‘conflict’ arise.
This did not bode well for state sovereignty. As in ancient Sumerian times, those who would be oppressors needed someone just insane enough to be their spokesperson; enter Andrew Jackson.
A Study in Disconnection, Example II: Andrew Jackson
“I regret I was unable to shoot Henry Clay or to hang John C. Calhoun.”—Andrew Jackson
Andrew Jackson was a pivotal figure in American history; through him, the communication of hierarchal violence (oppression)—which had slowly spread from ground zero across every land and over every ocean—was significantly amplified within the United States, where it still resonates nearly 200 years later.
Historical records on Jackson are clear enough: Jackson the child was born fatherless and lived penniless; his mother and brothers died from either sickness or war, leaving him an orphan at the age of fifteen. At age fourteen, he became a British prisoner of war; starved and abused, he contracted smallpox, and was left for dead. From that point forward he began a lifelong crusade to disperse his violent past onto everyone else.
Jackson the man was a murderer by today’s standards; he shot some of them himself and ordered the killing of several others. In the War of 1812, he ordered his own men killed for leaving their posts to go home; they left because the war had ended, except not for Jackson. His most famous victory—the Battle of New Orleans—was fought and won after the war was already over.
His favorite pastime was to escalate conflict, then settle the argument with guns; some estimates claim he fought in as many as 100 duels. If he missed someone, he would break dueling protocol and reload. He survived being shot (and shot at) several times. He had to leave one bullet lodged in his body because it was too close to his heart to be safely removed.
He rose from poverty to achieve great wealth and social standing on the backs of many slaves, who he beat mercilessly and even publicly. In one instance, he advertised that he would pay an “extra $10 for every 100 lashes doled out” to one runaway slave that was not even his ‘property.’ Jackson owned over 160 slaves and made money buying and selling them; he had slaves build his house and harvest his cotton, and even brought them to the White House when he won the presidency in 1829.
How was such a person able to win the presidency?
Act II: Better to Reign in Hell
When James Monroe departed the White House in 1824, the fifty-year reign of the “founding fathers” was over, and the next generation of leaders would have to carry the country forward. The people were reasonably uncertain about their future; no promising candidates stood out. In those days, presidential candidates benefited from the fact that campaigning for themselves was considered “uncouth.” Thus, Jackson’s loyal coalition of military officers and fellow slaveholders were able to do the campaigning for him; their strategy inadvertently established populism as a method for securing the common man’s vote. New voting rights, expanded even further during the 1828 election, allowed non-property-holding white males to finally vote. Jackson, although wealthy from slaveholding, still came from poverty and personally harbored dislike for anyone who was wealthy and white or poor and nonwhite. This resonated quite well with poor white people, so when they were allowed to vote, it was certain they would seek their revenge through this instrument. Thus, Jackson became the “man of the people.”
But Jackson was not a man for very many people. He proceeded to forcibly displace nearly 50,000 Native Americans from the South, which freed millions of acres that he and his loyalists utilized to expand slavery even further. He continued pushing the Mexican people out and began a campaign for the eventual annexation of Texas and California. He vetoed attempts for Congress to stop the expansion of slavery to the new western states Jackson was helping to secure. Jackson’s vision was clearly to build an economics based on slavery, and he had followers willing to help him do it. Sam Houston. James Gadsden. James K. Polk. These were Jackson’s early coalition and the names synonymous with finishing what Jackson had started: to clear the land and establish the property rights now known as the United States.
To say Jackson had a great plan for the country would be giving him credit he does not deserve. Jackson was merely the vessel through which to communicate one message: violence, or the language of disconnection. He ruled by veto, effectively disconnecting everyone else’s voice but his own. He severed three different cultures at the root and set them adrift. He legitimized violence through war, human trafficking, coercion, bribery, intimidation, grand larceny, and murder. It is important for History to give Jackson his proper due: Jackson and his coalition laid the groundwork for the Mexican American War and forced the U.S. into a Civil War to stop his bid to expand slavery further. Jackson, therefore, achieved his life purpose: he not only recommunicated the violence passed onto him, he amplified this positive feedback loop into a wave so large it propelled the United States into a theology of violence that we still preach today.
Violence is not what we preach, it is how we preach it. Our religious crusades—perpetrated in the name of Democracy, Capitalism, or Christianity—are a hierarchal method of communication so natural to us now, we do not even notice the violence we perpetuate. Jackson’s fellow slaveholders understood his message, however, and briefly immortalized his efforts when they placed his likeness on their Confederate $1,000 bill. His face suffered a serious downgrade by the time it appeared again in 1928, this time on the ‘Union’ $20 bill, but if Jackson had been alive to see it, he would surely have shot the person who dared to put his face on any paper money.
First Treasury Secretary Alexander Hamilton had fought for and established the First Bank of the U.S.; even though Clinton’s tie-breaking vote shut the First Bank down, The War of 1812 came along and suddenly everyone realized how effective the National Bank had been in maintaining balance within the economy, especially during times of war. Once the War of 1812 ended, the Second Bank of the U.S. was chartered for another twenty years, from 1816 until 1836, where it again had to be reinstated by Congress; unfortunately, Jackson was president at the time of its renewal, and had decided early on that he would never let the National Bank have a third run. Knowing this, Congress attempted to have the National Bank rechartered early, in 1832, and the recharter passed in both houses of Congress, before Jackson vetoed it. Jackson stated that as president, he had the right to declare the National Bank unconstitutional independent of any rulings on the matter by Congress or the Supreme Court, which, of course, is incorrect.
On March 28, 1834, Congress did something it had never done before or since—it censured a sitting president. Jackson not only killed the National Bank, but he also proceeded to rob it of all its money, then placed the money in various state banks of his choosing (80 percent of this money came from private investors). To do this, he had to fire the current Treasury Secretary, who had refused to give Jackson the money—on clear constitutional grounds—then subsequently appointed another Treasury Secretary who would give him the money. That man was Roger B. Taney, who had helped Jackson throughout his crusade to get rid of the public bank. Why was Jackson (and Taney) so hellbent on eliminating the Second Bank?
When the Second Bank first reestablished business in the various states in 1816, wealthy state bankers attempted to challenge the constitutionality of the Bank, but their plan backfired. In McCulloch v Maryland (1819), the Supreme Court not only declared the National Bank constitutional, but it also reiterated that federal law had supremacy over state law where any of these laws conflicted. This was the real sticking point for the slaveholding states, who never wanted a ‘United’ States, but a loose ‘Confederation’ of states, each with their own agenda; this agenda centered around the violent hierarchal oppression of other peoples, which needed guns, money, limited federal government interference, and a bundle of entitlements referred to as ‘states’ rights.’
Thomas Jefferson was an early advocate of states’ rights. Jefferson and Jackson were men of similar nature; both claimed to loathe the potential abuse of power, yet both were among the most abusive of power in U.S. history, once they had control of it. Both side-stepped Congress and the Supreme Court more than once, wielding executive power less like presidents and more like monarchs.
Although the National Bank was initially opposed by Thomas Jefferson, so-called Jeffersonians began to see its usefulness in developing the country and maintaining a financial balance. It was only the state banks that really wanted the public banks gone, because public banks were stable and state banks were not. State banks always lent out more than they could afford to risk, which made depositors jumpy and created panics and bank runs in every decade where the states had control of money creation.
“Let the end be legitimate, let it be within the scope of the constitution, and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the constitution, are constitutional.”—Chief Justice John Marshall, in McCulloch v Maryland (1819)
In 1830, Chief Justice John Marshall was not much longer for the Earth, but continued to fight for his originalist position that the United States was one entity, and thus the liberty of all Americans was under the equal protection of the federal government. The money powers were essential to the protection of this liberty and so remained a focus of Marshall until his death in 1835.
“No State shall… coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts;” nevertheless, states like Missouri were issuing their own paper money and loaning it out to its citizens. One Hiram Craig of Missouri, a farmer, defaulted on his loan, and the Missouri Supreme Court ruled that Craig must pay it back.
The U.S. Supreme Court decided to weigh in; Marshall overturned the state court’s ruling, citing that money issued by states is unconstitutional, per Article I, Section 10, Clause 1. Therefore, in 1830, federally created currency was deemed constitutional and everything else was deemed unconstitutional (by the way, this has never changed; there has never been a ruling of constitutionality for the private money being used today). Further, this ruling made clear that the federal government was not responsible for the debts incurred by the machinations of the private sector.
This ruling was decidedly inconvenient for those individuals who wished to exercise their liberty upon others while still retaining the blanket of security the Federal Government provided. When Kentucky created a state bank in 1820, the Bank of the Commonwealth of Kentucky, a similar situation soon occurred: one John Briscoe took out a loan, received banknotes, then defaulted on the loan, whereupon a Kentucky court ruled he must repay the money. The difference this time was that Andrew Jackson was now aware of this conflict between Marshall’s agenda and his agenda.
The Supreme Court stalled on hearing the case until Jackson could appoint replacements to the bench; meanwhile, Marshall passed away. By the time the case was heard in 1837, only one justice from the 1830 decision remained: Justice Joseph Story, the last “Statesman of the Old Republic.” Meanwhile, Jackson had appointed his friend Roger B. Taney to the Chief Justice position, to continue their crusade for privately created money.
Interestingly, the court ruled that because the bank could be sued separately from the state, it was in fact not connected to the state, thus neither was its money; therefore, the money was not so much unconstitutional as non-constitutional. If this was true, then the state could still not force Briscoe to pay this debt because the state now had no legal connection to this non-constitutional money arbitrarily issued by a private corporation. Further, as established in Craig v Missouri (1830), the state also has no obligation to cover for the arbitrary debts incurred by any such privately owned banks. This is where the whole logic of privately created money falls on its face, yet to this day, the people’s government is somehow burdened with the debts that banks accrue as private corporations issuing money outside the jurisdiction of the Constitution.
The Money Powers—now detached from the reality of constitutional backing—began building on this shaky new ground. The wildcat banking era (1837-1865) started when Jackson took all the money from the Second National Bank and put it in the state banks, now chartered without any federal oversight. Briscoe v Bank of Kentucky (1837) no longer allowed states to fund banks, per the ruling of the Supreme Court, so oftentimes private banks issued notes backed by the ‘faith and credit’ of no one in particular. Fifty percent of the banks failed during this period leading up to the Civil War, thanks to Andrew Jackson.
Act III: A Time to Tear Down, and a Time to Build
1850s AD: European banks help finance 30,000 miles of U.S. railway tracks in the U.S.; this transportation infrastructure connects the economy, allowing for a medium of economic exchange. A steel industry becomes necessary; meanwhile, towns spring up beside these railroad tracks, stabilized by connection to essential goods. State banks are too unstable to support this growth; again, people look to the government to stabilize the money supply.
1860-1862 AD: 1,562 state banks exist, yet there are 7,000 different bank notes in circulation; 5,500 of them are determined to be fraudulent. This is how dysfunctional the banking system had become, and it made for severely limited trade across state lines.
1862 AD: Lincoln’s Legal Tender Act of 1862 authorized $150 million in “non-interest-bearing notes in denominations as small as $5”—these ‘greenbacks were used for domestic purposes, to keep goods flowing, pay taxes, and even buy war bonds. They became the “first real paper money ever issued by the United States government.”
War is a great moneymaker for those who own the money; Lincoln issued greenbacks to avoid borrowing money from London or Wall Street. Jackson had set the world on fire and disconnected the money hose; Lincoln was determined not to let outside interests profit from it. Once positive results were seen from the initial injection of currency, a second Legal Tender Act, passed in 1863, authorized another $300 million in greenbacks.
February 25, 1863 AD: The National Currency Act of 1863 established the dollar as our national currency. Despite what some literature attempts to portray, the ‘greenback’ was a huge success precisely because it was a unit of account and not tied to the gold standard, though many tried to compare the two for no logical reason, except to assert some stubborn belief. Similarly, state banks—like gold standards—also represented a stubborn belief for which a large portion of the country was willing to suffer, and because these beliefs were not based on reasoning, no amount reasoning was going to alter them.
Likely, some people believe national banks were re-established through this Act, but the First and Second Bank of the U.S. were central banks, where the money was created then disseminated to communities through connecting branches; this new conversion of existing state banks created stand-alone, privately-owned (and operated) money-renting businesses, which is a considerably different arrangement, and why instability continued to mar the banking system.
Lincoln also needed to rid the country of all the fraudulent currency, so gently applied a 2% annual tax to all bank notes issued by state banks, in the hope this would ‘nudge’ people toward the correct decision to use the new currency. Unfortunately, state bank notes only declined by 25% in that first year.
Here is some of the original language from the National Currency Act for reference:
Sec. 6. And be it further enacted, that persons uniting to form such an association [a bank] shall, under their hands and seals, make a certificate which shall specify—
First. The name assumed by such association.
Second. The place where its operations of discount and deposits are to be carried on, designating the State, Territory, or district, and also the particular city, town, or village.
1864 AD: The National Bank Act of 1864 is a curious piece of legislation, firstly because it was not originally called The National Bank Act. The original title of the 1864 act read like this:
“An act to provide a national currency secured by a pledge of United States bonds, and to provide for the circulation and redemption thereof.” For the purposes of this discussion, it will be called the Act of 1864, to distinguish it from its many amendments.
Originally, the act was simply an extension of the National Currency Act of 1863 but did establish a ‘Comptroller of the Currency’ to reside within the U.S. Treasury and nudge state banks to issue Lincoln’s new public currency instead of the many privately created (and mostly fraudulent) bank notes. This bill is clearly of great interest to the proponents of what would become the Federal Reserve, judging my how much the language of the bill was altered throughout history for no apparent reason. Given that the bill was clearly not abrogated by the passage of the Federal Reserve Act, logic dictates that this bill serves as a foundation for it; because that was never the intention of the Act of 1864, logic further dictates that those who needed the Act of 1864 to serve as a foundation for a Private Central Bank would need to alter the language sufficiently to make this scenario plausible.
Lincoln wanted to rid the country of privately created money, which had started growing out of control once Jackson vetoed the charter of the Second National Bank and questioningly legitimized private money creation within the framework of ‘states’ rights’ (through the 1837 Briscoe v. Kentucky decision). He knew that reestablishing a Central Public Bank was impossible where no unity existed, and where money had gotten politically tied to states’ rights; it would certainly have been rejected by southern states. His compromise was to ‘nudge’ already established state banks to register through the federal government to rent out this new federal paper currency based on the debt of the nation, the same as Hamilton had done many years prior.
This compromise, however, opened the door for private banks to issue public money, which appears to have formed a bridge to legitimizing the Federal Reserve Act, where a private National Bank could issue privately created money based on—and backed by—the public debt of the nation. The problem with this, beside the fact that there is no constitutional grounds for it, is that the Act of 1864 was apparently not legally ‘sound’ enough to serve as the foundation for such a leap, thus amendments were necessary.
Unceremoniously, onJune 20, 1874 AD, Congress amended the title of the Act of 1864: “An act entitled ‘An act to provide a national currency secured by a pledge of United States bonds, and to provide for the circulation and redemption thereof,’ approved June 3,1864, shall hereafter be known as the national-bank act.” The bill appears otherwise unchanged.
Here is the language of the Act of 1864 as it was originally amended from the 1863 Currency Act:
Sec. 6. And be it further enacted…
First. The name assumed by such association, which name shall be subject to the approval of the comptroller.
This addition makes sense because the Office of the Comptroller was established through the Act of 1864. The following amendments were then added 46 and 69 years (respectively) after the Federal Reserve Act (1913) had rendered them seemingly null and void:
- 1959—Par. First. Pub. L. 86–230 substituted “which named shall include the word ‘national’ and be” for “which name shall be”.
- 1982—Par. First. Pub. L. 97–320 struck out “and be subject to the approval of the Comptroller of the Currency” after “national”.
Laying these changes out, here is how the language changed over time:
1864: First. The name assumed by such association, which name shall be subject to the approval of the comptroller.
1959: First. The name assumed by such association,which named shall include the word ‘national’ and be subject to the approval of the comptroller.
1982: First. The name assumed by such association,which named shall include the word ‘national.’
Chronologically, these changes are very curious. In 1874, when the act was changed to the National Bank Act, there were no National Banks; even more curious is how many articles claim that banks during this period were required to change their names to “the National Bank of…” when therewas absolutely no verbiage requiring banks to do this. This wording was only added in 1959, 46 years after the Federal Reserve Act replaced the Act of 1864.
Meanwhile, the Banking Act of 1935 relieved the Comptroller of the Currency from his duties at the Federal Reserve, though supposedly the Comptroller still performs the chartering process of National Banks to this day; perplexingly, someone in 1982 (47 years after the Comptroller had been relieved of duty by the Federal Reserve) went out of their way to officially remove the language from the bill.
1865 AD: The National Banking Act of 1865 was needed because the 2% nudge was not enough to get state banks to abandon their notes and use the new currency. The tax on state bank notes was raised to 10%, which proved enough of a deterrent for people to stop circulating all but $4 million worth of state bank notes by 1867. By 1870 there were 1,638 nationally registered banks; only 325 state banks were still in business.
1868 AD: Ratification of the Fourteenth Amendment was meant to protect ex-slaves from having their civil liberties infringed upon within the states; instead, corporate attorneys use the amendment to argue that the rights of corporations are equal to the rights of newly freed slaves. In 1888 the Supreme Court used an off-the-record pre-trial comment to establish legal precedent in Pembina Consolidated Silver Mining Co. v. Pennsylvania: “Under the designation of ‘person’ there is no doubt that a private corporation is included in the Fourteenth Amendment”.
1890 AD: There are now 2,250 state banks and 3,484 nationally registered banks; state banks bounced back by reinventing themselves; they had lower capital and reserve requirements, and were easier to charter than nationally registered banks, but their main feature was the creation of checkbook money; this workaround allowed depositors to write checks in lieu of exchanging bank notes, to avoid being charged any tax. It is estimated that only 10% of the national money supply was in the form of paper currency by this time.
1892 AD: There are now 3,733 state banks and 3,759 nationally registered banks. With the creation of checkbook money—which completely bypassed the need for any national bank notes—the people were still not unified under one currency, like Hamilton’s First and Second Banks. The stage was set for a government Central Bank to be reinstated, to avoid a second (economic) civil war.
1893 AD: During the late 1880s and early 1890s, severe weaknesses begin to appear in the economy. By this point, the railroads had naturally become crucial to the U.S. economy (if money was the blood, transportation was the veins and arteries of the system); because government failed to recognize that its best role would be as the facilitator—not the regulator—of economics, it had punted crucial economic infrastructure rights to the private sector, which was climbing all over themselves attempting to ‘own the means of production.’ When one railroad was forced to declare bankruptcy, the people began to panic.
Panics, if well-orchestrated, are excellent opportunities for the predators to snatch up the weaker prey; as railroad stocks collapsed, the railways fell into the hands of two ‘money trusts;’ in the bigger game, this was a victory. Panics (like wars) are a strategic tool for the wealthy to consolidate more wealth, although they will result in economic ‘downturns’; those at the bottom of the hierarchy are less financially ‘adaptable’ and thus become the collateral damage in these scenarios.
1902 AD: With bank panics in every decade since Jackson vetoed National Public Banking out of existence, support started growing for the Fowler Bill, which proposed a Central Public Bank using the U.S. Treasury as the source of tax collection and dispersal of monies. The bill was eventually shot down using political fearmongering about ‘central banks.’ Wall Street could see that the people were getting fed up with panics; if a central bank was inevitable, Wall Street knew it needed to be in control of it.
January 1906 AD: A Wall Street commission is formed after Wall Street banker Jacob H. Schiff speaks to the New York Chamber of Commerce, urging that plans be drawn up for a privately-run central banking system, warning that locating a Central Bank within the U.S. Treasury would not be good for business. The five-person commission—comprised of JP Morgan advisors and top New York businessmen—drafted the plan, which was then handed over to Senator Nelson Aldrich—head of the Senate Finance Committee (and John D. Rockefeller Jr.’s Father-in-Law) to peddle around Congress.
January-March 1907 AD: Industrialists are tried and found guilty of monopolistic practices. John D. Rockefeller’s Standard Oil was found guilty of 536 counts of price-fixing, and fined $29 million, which he never paid (the government was forced to pay it for him).  Standard Oil, the American Tobacco Co., and E. H. Harriman railroads were all charged with violating the Sherman Antitrust Act.  Public sentiment was turning against the robber barons; a change was needed, and J.P. Morgan stepped out of the shadows ever-so-slightly, and took care of business.
October 1907 AD: The Panic of 1907 strikes, seemingly out of nowhere. Some bankers got arrested, some killed themselves, and some closed their doors for good; the rest had to deal with JP Morgan, who in the end came away with the Consolidated Steamship Co., the Tennessee Coal & Iron Co., the Hamilton Bank, the Mercantile Trust, the Trust Company of America, and Lincoln Trust, among other acquisitions.
May 1908 AD: Nelson Aldrichintroduces the Aldrich–Vreeland Emergency Currency Act, which passed only because republicans had considerable control of both houses (several republicans even voted against it); naturally, Wall Street made a big propaganda push to have the bill passed as well. The emergency funds were never used, because the Act was merely designed to form a National Monetary Committee and put Aldrich in charge of it; this became the vessel through which the Federal Reserve Act was created.
November 1910 AD: After nearly two years of peddling their central banking ideas without success, Aldrich and Wall Street heavy-weights meet secretly at JP Morgan’s Jekyll Island Hunt Club in Georgia; for nine days they churn out what was soon to be known as the ‘Aldrich Plan;’ everyone knew that Congress would reject any bill framed by Wall Street bankers, so Aldrich had to claim it as his own.
January 1911 AD: The Aldrich ‘Plan hits the Senate floor to overwhelming criticism and is voted down; most people see through it immediately as a bid for Wall Street control of the central banking system. His National Monetary Commission spends a year revising it, and the Aldrich Bill is finally proposed in 1912.
1911 AD: Congressman Charles Lindberg, Sr., in front of the Rules Committee, puts the pieces together on Wall Street’s plans: in 1907, agriculture and industry had one of their best years, yet somehow Wall Street ruins it by causing a panic yet again.  “Wall Street knew the American people were demanding a remedy against the recurrence of such a ridiculous, unnatural condition. Most senators and representatives fell into the Wall Street trap and passed the Aldrich-Vreeland Emergency Currency Bill. But the real purpose was to get a monetary commission, which would frame a proposition for amendments to our currency and banking laws, which would suit the Money Trust. The interests are now busy everywhere, educating the people in favor of the Aldrich plan. It is reported that a large sum of money has been raised for this purpose. Wall Street speculation brought on the Panic of 1907.”
November 5, 1912 AD: Woodrow Wilson defeats William Howard Taft to win the presidential election. Wilson campaigned against the Aldrich Bill, so in the House, Representative Carter Glass presents a near carbon copy resolution of the Aldrich Plan (though few knew it, because it was kept secret within the House committee); the major difference in the Glass plan was that it called for up to 20 regional banks, to appear to ‘decentralize’ power. In the Senate, Robert L. Owen offered up nearly the same resolution (because he was directed by NMC advisor A. Piatt Andrew, who helped write the Aldrich Bill); the Owen bill lowered the number of regional banks to 12, as well as the capital requirement, so smaller banks might have some representation. Between the 19th—when the bill was presented—and the 23rd—when the bill was suddenly brought to the Senate floor for a vote—any capitulation to smaller banks was removed.
1913 AD: John Maynard Keynes, assigned the job of studying money in India, looks at the anthropological literature on ancient Mesopotamian money practices, that used money as units of account only, which undermined the ‘classical economics’ theories of Adam Smith, Thomas Malthus, and David Ricardo, which the world currently practices.
February 28, 1913 AD: After nine months of hearings, the Pujo Committee on Concentration of Control of Money and Creditsubmits its findings:
- 341 officers of J.P. Morgan & Co. sit on the boards of the top 112 high-level corporations, which represent 85% of the value of the New York Stock Exchange ($22.5 billion of the total value of $26.5 billion).
- A consortium led by J.P Morgan, George F. Baker, and James J. Stillman had control of no less than 18 financial corporations, and “had gained control of major manufacturing, transportation, mining, telecommunications, and financial markets throughout the United States.” 
- Also named in the report were Paul and Felix M. Warburg, Jacob H. Schiff, Frank E. Peabody, William Rockefeller, and Benjamin Strong, Jr. 
No one went to jail, but no one denied it, either. It also appears that the “great private banking houses” were involved in financing Wall Street activities and that the Comptroller may have also been involved in the cover up of these large transactions.
September 8, 1913 AD: the final version of the Glass Bill passes the House with little debate (the Representatives had very little knowledge of banking, so offered no resistance). The Senate debate drags on for months, with many different proposals ranging from total government control to total private control; none of them gain any traction.
December 19, 1913 AD: with some Senators already gone on holiday, a revised Owen bill comes to the floor for a vote; it represents the Senate’s version of the Federal Reserve bill, which really is the same bill Carter Glass had passed in the House, minus the parts most offensive to Republican Senators; none were ever allowed to see the House bill to comprehend this. Majority Democrats pass the Owen Bill. With business concluded, many leave for Christmas.
Act IV: When ’tis Done, then ’twere Well It Were Done Quickly
For The Record: December 23, 1913 – Senate Floor
The following transcript was taken from the Congressional Record the day the final version of the Federal Reserve Act was passed in the Senate, then signed directly afterwards by then-President Woodrow Wilson.
The Senate had passed the Owen version of the bill four days earlier. The bill was then altered in an unofficial House-Senate committee, where no Republicans were invited; those who had remained behind during the break were then handed the final draft of the bill and instructed to convene on the Senate floor, where a final vote was taken. Only 44 Senators answered the initial roll call, though the vice president indicated for the record that 48 had answered, and “a quorum was present.” A quorum generally requires at least 51 Senators to be present; 19 more Democrats filtered in before the final vote was taken, so presumably the vice president knew they were standing by and thus officially indicated the presence of a quorum for the record.
The exchange mostly features Republican Senator Joseph Bristow from Kansas, and Senator Robert Owen from Oklahoma. Bristow was only a Senator for 6 years; his main achievement was to pen the resolution that became the Seventeenth Amendment to the Constitution; prior to that time, Senators were elected by state legislatures, which often fell into the hands of powerful private interests, as they do today. Bristow’s Amendment made sure the People got to vote their Senators into office. He joins a long list of people who tried, however vainly, to help the American people retain control of their government.
. . .
VICE PRESIDENT. The Secretary will call the roll [44 answer] …Forty-eight Senators have answered to the roll call. There is a quorum present…In accordance with the unanimous-consent agreement, the Chair lays before the Senate the report of the committee of conference of the Senate to the bill (H.R. 7837) to provide for the establishment of Federal reserve banks, for furnishing an elastic currency, affording means of rediscounting commercial paper, and to establish a more effective supervision of banking in the United States, and for other purposes.
Mr. GALLINGER. Mr. President, ordinarily a conference report ought to be read, but I ask unanimous consent in this case that the reading of the report be dispensed with, as it is in print.
Mr. BRISTOW. Mr. President, the conferees who participated in the conference on this bill have made certain changes in the bill, some of which I think are bad.
Mr. LA FOLLETTE. Mr. President, would it disturb the Senator if I should ask him…who did participate in this conference…?
Mr. BRISTOW. As to those who participated in the conference I am not advised. I was a member of the committee of conference appointed by the President of the Senate, but I had no knowledge as to the meeting of the conferees until after the report as it is before us had been made, printed, and placed upon the desks of Senators. I was then notified by the chairman of the committee that there would be a meeting of the committee of conference at 4 o’clock, two hours after this report of the committee of conference of the two House of Congress on the bill (H.R. 7837) to provide for the establishment of Federal reserve banks… had been placed upon my desk. I, in company with the Senator from Minnesota [Mr. NELSON], visited the room where we were invited to appear. We found the chairman of the committee and the Democratic members of the committee of conference there, and were given to understand that they had perfected the conference report. We were then invited to express our opinion of it, but I preferred to express my opinion where it might appear in the RECORD, rather than in the privacy of the committee room, and that I shall undertake to do this morning.
I see this report is signed by the Democratic members of the committee. Of course, I did not sign it because I was not invited to sign it, and I should not have done so, anyway, for I did not know—at the time the report was prepared—what it contained…
Mr. BRISTOW. Mr. President, the first important change to which I desire to call the attention of the Senate is the creation of an organization committee, consisting of the Secretary of the Treasury, the Comptroller of the Currency, and the Secretary of Agriculture. This committee will organize this Federal banking system and prepare it for the possession, I suppose, of the Federal board which is afterwards to be appointed. Since the bill provides also that the Comptroller of the Currency shall be a member of the Federal board, it simply authorizes a committee, consisting of the Secretary of the Treasury and the Comptroller, two members of the board, and the Secretary of Agriculture, who is not ex officio to be a member of the board, to organize the system. It is a political committee pure and simple, consisting of political officers of the administration, to take charge of this great Federal banking system and organize it; and it will be organized, of course, along political lines, as evidently is intended by the nature of the organization committee which created it. It is one of the astounding things that this measure, which we were told some two months ago was not to be political in any sense of the word, should have developed into a strictly partisan political institution, its organization to be perfected by the political party that holds Andrew Jackson as one of its patron saints. I should like to invite any historian to point to any political inconsistency on the part of any political organization in the history of free government that is any more striking than for the party of Andrew Jackson to put upon this country such a political banking machine as has been created by this bill…
Then, on page 8 of this conference report, is found another interesting change. It is well known to the Senate that those of us who supported the Hitchcock bill sought…to have public ownership of the stock and Government control of the banks. That bill the Senate refused to accept, and it created a banking system the stock of which is to be owned by the banks and controlled by the banks. There was a provision placed in the bill as it passed the Senate which would enable the public to take any stock that the banks did not want…The House provision also permitted the directors of class C to represent on the board of the regional banks the public stockholders. I want to read that provision as it passed the Senate:
“… voting power thereon shall be vested in and be exercised solely by the class C directors of the Federal reserve bank in which said stock may be held, and who shall be designated as “voting trustees…[and] shall exercise the same power as member banks in voting for class A and class B directors.”
Now, I want to read it as the conference committee agreed upon it, and I should like the attention of every Senator:
“Stock not held by the member banks shall not be entitled to voting power.”
If the stock is not taken by the banks and is sold to the public, then that stock has no representative, has no voting power upon the regional bank board, and the board elected by the banks that do participate, whether five banks or a thousand banks, have absolute control of the regional banks…The public might own a majority of the stock of a regional banks, but still the banks would have absolute power, and the stock owned by the public has no representation. The directors appointed by the Government cannot act as its trustees in voting it, for the provision covering that has been stricken out. They will have no voice whatever in electing the directors. The few banks that might participate will control the whole thing.
Mr. OWEN. Mr. President, I will advise the Senator that it was satisfactory to the conferees for the two Houses.
Mr. BRISTOW. Yes…Anything that increases the power of the banks and takes from the people representation seems to be entirely satisfactory to the conferees, as other changes in the bill clearly demonstrate…I call the attention of the Senator from Wisconsin to this [next part]:
“No director of class C shall be an officer, director, employee or stockholder of any bank.” [it had read “No director of class B or of class C shall be an officer, director, employee or stockholder of any bank.”]
The bill as it passed the Senate provided that none of the directors of the regional banks should be directors in member banks. That has been cut out, however; and there is no reason
now why a director of the City National Bank of New York, or the Chase National Bank, or the First National Bank of Muskogee, Okla., or any other place, should not be one of the
directors of the regional banks. That is a new idea that seems to have been born in conference, because it was in neither bill…
Now, I wish to call attention to a change on page 33. It relates to the accepting of drafts or bills of exchange…The words “or domestic shipment” have been cut out, so that member banks now can accept drafts and bills of exchange only for the exportation or importation of goods, and not for domestic shipment. I should like to know why the dealer in foreign merchandise, whether he is importing it or exporting it, is given an advantage over the dealer in domestic merchandise on exactly the same kind of paper.
Mr. OWEN. I will say to the Senator from Kansas that the chairman [OWEN] yielded with very great reluctance on this point, because he had a very strong opinion in favor of it, and had caused it to be put in the bill in the first instance.
Mr. BRISTOW. The effect of striking that out, as the Senator knows, is that a bank may deal in acceptances on imported merchandise, but not on domestic-manufactured merchandise.
Mr. OWEN. Yes, and I made the argument the Senator is now making in favor of it. I caused it to be put in the bill in the first instance, and insisted upon its remaining in the bill, but it was struck out by the House conferees because they said it would cause inflation of credit. I disagreed with them, and I agree with the Senator from Kansas that it ought to have remained in.
Mr. WILLIAMS. I ask permission out of order to introduce a bill. [The Republicans had prepared their own version of the bill to present, but the PRESIDING OFFICER, a democrat, refuses to let him speak, invoking unanimous consent to only speak about the democratic version of the bill, though in reality they never asked for consent from anyone.]
Mr. GRONNA. I want to ask the Senator from Kansas a question, as I am very much interested in this particular paragraph, which relates to acceptances of drafts and bills of exchange. As I understand the paragraph, acceptances can be made only for shipment of goods that may have been imported or exported.
Mr. BRISTOW. That is right.
Mr. GRONNA. Is it not true that…this forecloses the right of the farmer or the agricultural class to have their drafts drawn against bills of lading of their grain and their stock? Are they not excluded from this regional bank?
Mr. BRISTOW. Yes.
Mr. GRONNA. That is another gross discrimination in favor of the exporter and against the domestic shippers of this country.
Mr. BRISTOW. The packing house can take advantage of these acceptances; the banks can accept for any exportation of products, but the shipper of cattle to a domestic packing house or the shipper of grain or cotton to a domestic mill is barred from the privilege of having his drafts accepted, and so in the case of the mill shipping to a customer, it is a discrimination in favor of the exporter and against domestic trade. I think it is an infamous thing…a conference means that the conferees of the two Houses shall meet and discuss a measure and come to an agreement as to its provisions if they can.
Mr. GALLINGER. A full and free conference.
Mr. BRISTOW. A full and fee conference. It is the unbroken precedent of the Senate that members of both political parties represented on the conference committee shall participate...This is a violation of the unbroken precedent, and I think it was because the chairman of the committee believed that the Republican conferees might vote with members of the Democratic conference, and thereby probably put in or take out of the bill some of his pet measures [the reality is that the House did not want the Republicans to see that the two bills were nearly identical, and that the final alterations—added a la Aaron Burr, circa 1799—were penned by Wall Street advisors]. Because of that, I have been told he refused to sit in the conference that was held with the Republican members present…[and] who has denounced the Aldrich bill, then accepted its most offensive provisions and covered them with a mask to deceive the American people, and he knows it. I now come to the … provision on page 42, which requires the Federal reserve bank to receive on deposit at par from member banks or from Federal reserve banks checks and drafts, and so forth. That will come as a severe blow to the small country banker, who has so violently protested against that provision.
Now, I want to take up section 7. Every provision in this bill that was in the interest of the banks has been retained. The provisions that were stricken out were provisions in the interest of the public...I want to speak just a few words about the insurance of deposits. It has been attacked upon this floor with great violence. A provision was placed in the bill which…would have been of advantage at least to some parts of the United States…
The present postal savings bank is simply a scheme or a system very largely for the insurance of deposits. The Government takes the money from the people and pays 2 per cent interest on it. The day that it is deposited in a post office an officer goes across the street and deposits it in a bank, and the bank pays the Government 2 ½ percent. The postal savings-bank system was instituted for the purpose of giving the people who were afraid of banks a safe place to put their money. They had confidence in the Government, but not in the banks…The argument that was made for the postal savings banks was that it would bring money out of hiding; that such money would be deposited in the post offices, where those who are skeptical as to the safety of banks would have no doubt about its safety. It has resulted in bringing out something over $30 million that has been deposited in our post offices.
As I said, the same day this money is taken by the postmaster and deposited with a bank, the bank pays the Government 2 ½ percent; that is, the Government insures the safety of that fund to the depositor and charges him one-half of 1 percent for it…yet we are told it is unsafe to take a part of the profits of a regional bank and insure depositors in the member banks against loss. The fight that has been waged here against depositors’ insurance is an unjustifiable assault upon as sound an economic principle as ever was woven into the statutes of the United States. It ought to have been in this bill…
The Senator from Oklahoma can preserve the features in this bill that add to the profits of the bank of which he is one of the owners, but he lets go out the only provision that would insure the safety of the funds of the people who deposit in those banks.
Mr. SHAFROTH [defending the honor of Mr. OWEN]. I should just like to say in a minute that during the conference consideration the Senator from Oklahoma insisted three or four times upon this amendment being in. It was denied by the House conferees. They made the claim that they were going to have a perfected system. The action of the Senator from Oklahoma was absolutely loyal to the provision which the Senator from Kansas is referring to.
[Arguments ensue that imply that the democrats felt outnumbered by the House Representatives and could have used the help of the Republicans to stand more firmly on these issues. Mr. REED says the House conferees inferred that if the bill was rammed through now, they could fix it later—Mr. BRISTOW comments that this rarely gets done, and it is best to get the bill right the first time, in case amendments are blocked further down the road: “you may say, “we will legislate on this subject in the future.” Yes, possibly’ but now is the time.”]
[Mr. BRISTOW continues his assault on Mr. OWEN, by reading the minutes from the CONGRESSIONAL RECORD, on page 4719, of September 5, that stated that many democratic senators had attacked the Senator from Rhode Island, Mr. LIPPITT, for supporting a tariff on cotton while having an “interest in some cotton mills…It was alleged that the tariff on cotton was directly in his interest.] While the tariff on a cotton fabric may be of general interest to the manufacturers of cotton fabrics throughout the country, it cannot be located specifically and directly in the interest of a single manufacturer as personal legislation [however] if a Senator own a large interest in a bank and he votes for a provision which increase the earnings of that particular bank, does he not vote to increase his own personal fortune in a direct way and not in a general way such as would be the case under the tariff bill? I maintain that he does…I now want to read a clipping which has been handed me, which is as follows:
OWEN INVESTS IN NEW BANK—SENATOR WILL BE BIG STOCKHOLDER OF ST. LOUIS INSTITUTION.
Senator Robert L OWEN, chairman of the Senate Committee on Banking and Currency, last night confirmed a report that he is to be a large stockholder in a national bank now being organized in St. Louis. The head of this institution will be the Rev. Dr. J.T.H. Johnston, president of the Reserve National Bank of Kansas City.
The new institution will absorb a number of other St Louis banking concerns, among them the German Savings Institute and the Commonwealth Trust Co., the latter being one of the influential financial concerns of that city. [The organization of Federal Reserve banks appears to have proceeded prior to the bill being passed.]
Mr. BRISTOW: My allegation is that this bill had been drawn in the interest of the banks; that the Senator from Oklahoma, as the chairman of the committee, has a large interest in banks, that the profits which will accrue to those banks directly will add to his personal fortune; that he has voted to increase the dividends on the stock of the regional banks…that he has voted against permitting the public to hold the stock of these regional banks and has insisted that it shall be held by the member banks; and that he has voted against giving the Government the control of the regional banks and in favor of the [Federal reserve] banks controlling the regional banks, [all this, Mr. BRISTOW asserts, is in violation of rules Thomas Jefferson laid down for the Congress when legislating; again, it is likely this was the bribe given to OWENS for pushing the bill through; bankers leaking this to the media ahead of time would be strategically clever—it makes no sense for OWENS to announce this].
Mr. BRISTOW: In closing I desire to say that this bill contains a concentration of power that has never been lodged in any Federal officer since the Government was established. It puts in the hands of the Secretary of the Treasuryand his subordinate officer, the Comptroller of the Currency, a power over the banking and currency affairs of this Nation greater than has ever been held by any man in the history of any civilized nation over the banking and currency of that nation. [At the time, the Treasury Secretary was William Gibbs McAdoo, President Wilson’s son-in-law; later, both Treasury Secretary and Comptroller would be removed from the Fed, giving complete control over to the private sector.]
Mr. REED [chiming in for the third time with the same argument…]: the Senate conferees had contended for the…insurance provision of this bill until it became manifest that a disagreement would result. A disagreement would of course have delayed the final passage of this bill and possibly would have imperiled its passage at all…Under those conditions we yielded. The House, through its conferees, stated to us that it was their fixed purpose to prepare and bring in a bill which would work out a consistent, harmonious, and effective plan for the insurance of bank deposits. Under those conditions it would have been a foolish thing for the Senate to have insisted and longer delayed the passage of this bill.
Mr. NELSON: When a bill is referred to a committee of conference…it has been understood from time immemorial, from the beginning of our system of parliamentary law, that such a conference should be a full, fair, and free conference, open to all the members of the committee.
What are the facts in this case? When the conferees met, the Republican member were not permitted to be present…Mr. President. I have served in four different legislative bodies in my day, and I have never before had such an experience as what I have just undergone…The conference was ordered on last Saturday. The Democratic members of the conference committee met that afternoon or evening; they met again on Sunday morning, and continued in session until 3 or 4 o’clock on Monday morning. They had come to an agreement among themselves, and their report was printed. The Republican members were never consulted or invited to the conference. About 10 o’clock yesterday morning I received a telephonic message from the chairman of the committee [Mr. OWEN] asking me to meet with them. I went over to his room a few minutes after that time, between half past 10 and 11 o’clock. I found the chairman of the committee there and the Senator from Missouri [Mr. REED]. I said, “I suppose you have agreed to your conference report?” Yes; we have.” “There is nothing for us to do, then?” “No.” I walked out. I heard nothing more. Then afterwards, between 12 and 2 o’clock, the chairman of the committee [Mr. OWEN] called me out of the Chamber and handed me the printed conference report which I hold in my hand, and said, “I wish you would look this over.” Subsequently, at 4 o’clock, we were summoned before the committee. After the Democratic members had had a conference over the bill, lasting from Saturday noon until Monday morning at 3 or 4 o’clock, we were called up…and they said, “here is what we have agreed upon. What have you to say…? What could we say?…When the President of the Senate appointed me as one of the members of the conference committee I was appointed as a Senator from the State of Minnesota. Under the Constitution my mandate was as strong, my power of attorney was as comprehensive as that of the Senator from Oklahoma or of any other Senator in this body…By the conduct of the six Democratic conferees you have…disfranchised the State of Minnesota, the State of Kansas, and the State of South Dakota, States equal to your States under the Constitution, whose representatives in this body were appointed as members of the conference committee.
I have heard a good deal said about the commission of the Democratic Party to legislate. They may have a great commission, for all I know; but under the Constitution of the United States we are all here on a footing of equality; we are here as representatives of great States, entitle to equal consideration. When you fail to give us fair and equal consideration, you to that extent disfranchise the great States we represent…I think, Mr. President, that bye and bye…this Democratic legislative tyranny that has been inflicted upon us at this session will be something that even the Democrats will be as ashamed of as they are ashamed of some of their actions in the past.
[Overall, it is not clear the Democrats understood what they had given away to the private sector at the expense of the people and of their Liberty; Mr. NEWLANDS had a comment worth mentioning]:
Mr. NEWLANDS. I regret…that the committee did not strike out the phrase “not more than 12”…Federal reserve cities…I believe that whilst 8 may be sufficient in the first instance, the number ought to be gradually increased, increased beyond 12, and increased finally in such way as to give a reserve city to each State, organizing each State into a reserve district composed of the State and the National banks of that State as member banks. I believe if we should pursue that system by a constant evolution we would eventually have a reservoir at Washington in which would be deposited a considerable part of the funds of the reserve banks required by this law to be turned over by the member banks to them, and that thus we would have a great central reservoir at Washington from which money could be supplied directly to any reserve bank that might be under stress without going through the formula of calling upon one reserve bank to aid another reserve bank.
Mr. THOMAS: Mr. President, I regret that I have not heard more concern expressed for the…small depositors, upon whose collective funds a first lien is imposed…The Government of the United States, the States of the Union, municipalities everywhere require security for their deposits, no matter how solvent the depositaries may be…yet such is the contradiction of human nature that the very men who recognize and apply this rule in other transactions denounce as unwise, as wrong in principle, and as socialistic in practice the proposition to throw the same safeguards around the deposits of that class of people which can least afford to lose them…Mr. President, I cannot understand why our Senate conferees, all of whom I believe are favorable to the principle, and most of whom voted for the amendment upon this floor, should have yielded for any purpose or for any consideration to the House demand for its excision. Tell me that the House demanded it? Why, that is no reason. The conferees of the other House naturally stood for the bill which had passed that body. Why should not those who represented us upon that body have been equally insistent, equally obdurate, equally obstinate?…I cannot escape the conviction that two…members of the other body [Carter Glass and ?], at the other end of this building, by their successful insistence upon having their own way, have become the ultimate authors of this legislation…it is my impression also that the near approach of the Christmas holidays and the desire of Senators and of Members to get away from here and go back to their homes and their families has had something to do with the surrender of some of its vital provisions…[however] we are sent here to legislate for 100,000,000 people upon perhaps the most important measure of this or any other administration…
Mr. TOWNSEND. Mr. President, I have not heretofore occupied much of the time of the Senate in discussing this bill. I have known that debate was useless…I do not think it is a proper course for a party to pursue to enact legislation affecting the great interests of the country, without due regard as to whether such legislation is right or wrong, in order to meet a political emergency.
I charge that this bill is a political measure, and one which does not meet the honest, uncoerced approval of a majority of this Senate…The most conspicuous example, possibly, is the senior Senator from Nevada [Mr. NEWLANDS], who seems to have very profound convictions on matters proposed for legislation…I believe…[that] if it were not a political measure, having been made so by a seeming necessity, there is not a doubt in the mind of a single Senator in this Chamber that we would have had a different bill from the one now before us; we would have had a bill founded upon the needs of the country, and it would not be the one that we are now considering…I think that this bill creates a political machine—one of the greatest political machines that has ever been created by legislation…So, Mr. President, believing, as I do, that this bill is not carefully framed, believing that it is possible under it—nay, probable under it—to inflate the currency to such an extent as to bring disaster to the country, believing that it is framed upon partisan lines for political purposes and that a currency bill should not be a partisan measure…I have felt it my duty to vote against this conference report.”
Finally, the vote is called. Article I, section 5 of the Constitution requires that a quorum (51 senators) be present for the Senate to conduct business. Often, fewer than 51 senators are present on the floor, but the Senate presumes a quorum unless a roll call vote or quorum call suggests otherwise. The roll call officially listed 48, though only 44 answered the roll call. Presumably, by the time the vote was taken, 19 more ‘yeah’ votes showed up (as well as 4 ‘nay’ votes), and the bill is passed, then signed by President Wilson immediately afterwards. This all occurred on December 23, 1913. Several Republican Senators indicated that never in the Senate had a bill been drawn up without discussion from both sides of the aisle, but this is only because the main points of the bill were not drawn up in Congress.
1917 AD: Charles A Lindberg, Sr. brings articles of impeachment against members of the Federal Reserve Board of Governors, including Paul Warburg and William P. G. Harding, charging that they were involved “… in a conspiracy to violate the Constitution and laws of the United States …” further charging that the Federal Reserve Bill constituted “The worst legislative crime of the ages.”
April 5, 1918 AD: The War Finance Corporation was created to fund important sections of the country while WWI was being fought. Comprised of the Secretary of the Treasury and four other members, this public corporation was also aided by a seven-member Capital Issues Committee appointed by the President (which included some Federal Reserve Board Members), that served in an advisory capacity. In effect, the corporation operated as a public bank that helped loan money to industries such as agriculture, livestock, canning, the railroads, etc.; overall, this public financing corporation loaned out $700 million. It set the precedent for government-created financial institutions, necessary because the private banking industry was not accountable to provide for the equal protection of all citizens.
February 6, 1920 AD: A resolution is made at the start of session.
SENATE RESOLUTION 298, Reported by Mr. Moses:
IN THE SENATE OF THE UNITED STATES, February 6, 1920. Resolved. That there be printed one thousand five hundred copies of the national banking act as amended to date for the use of the Senate document room. Attest: GEORGE A. SANDERSON, Secretary
Note: Here is the Original Text of National Bank Act of 1864:
“Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, that there shall be established in the treasury department a separate bureau, which shall be charged with the execution of this and all other laws that may be passed by congress respecting the issue and regulation of a national currency secured by United States bonds. The chief officer of the said bureau shall be denominated the Comptroller of the Currency, and shall be under the general direction of the Secretary of the Treasury.
Here is the Amended Version (no date is provided for this amendment, or whether it was voted upon by either house of Congress):
100. Sec. 324.—There shall be in the Department of the Treasury a bureau charged with the execution of all laws passed by Congress relating to the issue and regulation of a national currency secured by United States bonds and, under the general supervision of the Federal Reserve Board, of all Federal reserve notes, the chief officer of which bureau shall be called the Comptroller of the Currency and shall perform his duties under the general directions of the Secretary of the Treasury.
Note.—Section 10 of the Federal reserve act provides that the Comptroller of the Currency shall be an ex officio member of the Federal Reserve Board and shall, in addition to his salary as Comptroller, receive the sum of $7,000 annually for his service on said board. 6, §10 (par.), 38 Stat. 261.
Act V: Till Death Do Us Part
February 25, 1927 AD: Congress passes the McFadden Act; while the First and Second Banks of the U.S. were both basically vetoed out of existence once their twenty years were up, this bill allowed the Federal Reserve to extend in perpetuity; this was granted seven years before its charter would expire. Three years later, the country was in shambles. Laughably, the reason the Act was initiated was because “bankers, businessmen, and politicians concurred” that the Federal Reserve was a success with bankers, businessmen, and politicians. It also allowed Federal Reserve banks the ‘equal opportunity’ to branch out as extensively as state banks, “in the spirit of fairness.”
January 22, 1932 AD: The Reconstruction Finance Corporation Act established a corporation, along the same lines as the War Finance Corporation, that was owned by the federal government “to aid in financing agriculture, commerce, and industry…” It acted as a public bank that ran through the Treasury, and with additional amendments (June 1932 and July 1933), the RFC could loan its funds to state and municipal governments, as well as help recapitalize smaller banks.
Overall, around $57 billion dollars was injected into the RFC, where it funded projects that could be repaid through self-liquidating loans (loans for essential infrastructure that are naturally paid back during usage, like utility bills on water and electricity, or tolls on bridges and tunnels). The loans helped build roads, bridges, dams, houses, schools, post offices and farms, all of which ultimately paid for itself with interest.
“The RFC funded the San Francisco Bay Bridge, the California Aqueduct, the Pennsylvania turnpike, and 3 bridges over the Mississippi river” [when private investors funded the Oakland Bay Bridge in 1996, the price tag rose to $12 billion, which will not be paid off until 2049). The public bank worked so well, it again was forced to a halt, along with other New Deal measures deemed outside the reach of federal authority.
While the private sector deemed the promotion of General Welfare outside the purview of federal government, it wholeheartedly supported all demands for the Common Defense. War was just plain good for business, so the RFC was brought back to cover our World War II expenses. The precedent was now solidly entrenched: Public Banks were excellent for funding wars, but much too excellent for everything else.
February 27, 1932 AD: Five years after glorifying the Fed, The Banking Act of 1932 (AKA the Glass-Stegall Act of 1932) created the Federal Open Market Committee (FOMC) and solidified its modern role controlling the money supply. In the manner of quantitative easing, the Fed purchased over $1 billion in government securities in three months, halting deflation; fear of inflation had them dial back on the money expansion; the system collapsed again less than a year later.
May 27, 1933 AD: The Securities Exchange Act of 1933 was the first federal securities law passed to rein in Wall Street; it focused on “insider trading, the sale of fraudulent securities…manipulative attempts to drive up share prices,” etc., that were rampant among traders and institutions leading up to the depression, which naturally hurt the amateur investor the most.
June 16, 1933 AD: Plan B, and the passing of the second Glass-Steagall Act, orNational Banking Act 1933. In this version, the FDIC (deposit insurance) was instituted; this was the same deposit insurance that Republicans fought to keep in the Federal Reserve Act of 1913, but the Democrats yanked from the bill in secret committee. Crucially, it separated commercial banking from investment banking, to stop Wall Street from speculating with their customer’s deposit money. It also did not allow the Federal Reserve Board any FOMC voting rights. Finally, Regulation Q forbid banks rewarding customers with interest on their checking accounts, to gain their deposits; this competition led banks toward risky behavior trying to recoup all the interest money they were doling out. Though this bill would systematically be dismantled through the years, it proved to be insightful regulatory legislation.
1934 AD: The Securities Exchange Act of 1934 established the Security Exchange Commission (SEC) to oversee stock, bonds, and securities, as well as the financial professionals who sell them (brokers, dealers, advisors). Everyone listed on the New York Stock Exchange must answer to the SEC and submit financial disclosure reports.
Act VI: Don’t Call Us, We’ll Call You
August 23, 1935 AD: The National Banking Act 1935 reorganized and centralized the Federal Reserve system; it forced all the regional Fed banks to act as one unit by handing discretionary monetary policy directly to a Federal Board of Governors; they alone could set reserve requirements, discount rates, and interest rates for deposits, or engage in open market operations. They removed themselves from the offices of the U.S. treasury, then removed the Treasury Secretary and the Comptroller of the Currency from their seats on the board. They were no longer part of the federal government, they only let the BEP know how much ‘money to print.’
Interestingly, the initial bill attempted to keep the Treasury Secretary and Comptroller on the Board and give the President a voice in policy decisions, but all the Wall Street players who initially helped the Federal Reserve Act passed came out of the woodwork and testified on the House and Senate floor to kill any government involvement in their Central Bank. Winthrop Aldrich (chairman of Chase National Bank), James Warburg (son of Paul Warburg and vice chairman of the Bank of the Manhattan Company), Edwin Kemmerer, who was on the original National Monetary Commission, and Henry Parker Willis, who had originally served on the Federal Reserve Board. This push was as big as the one that got the Federal Reserve Act passed.
1938 AD: Congress establishes the Federal National Mortgage Association (“Fannie Mae”), a government-sponsored enterprise (GSE) designed “to buy and securitize FHA-insured mortgages,” which provided a secondary market for banks to offload their mortgage debt. This New Deal provision came about after 25% of Americans had their homes foreclosed by private banks after the Great Depression hit; it was meant to keep people in their homes by backing up their debt with local banks, meanwhile helping the construction of more affordable housing options. Later, as Wall Street began packaging up the debt in many risky ways, it received the distinction of being ‘the world’s biggest hedge fund’ for the “privatization of profits (for shareholders and executives) in good times but the socialization of downside risk (for the taxpayer).” Freddie Mac (the Federal Home Loan Mortgage Corporation (FHLMC) came along in 1970.
All GSEs are ‘enterprises’ that provide ‘financial services’ but are deemed different from government-sponsored financial institutions like the War Finance Corporation or the Reconstruction Finance Corporation, which loan money directly toward projects. It is important to note that these government-sponsored financial institutions did, on many occasions, recapitalize private banks so that they might continue to provide services to all Americans; all these government institutions are basically taking on the original role of public banking, that the Federal Reserve System is incapable of providing: to establish Justice, ensure domestic Tranquility, provide for the common defense, and (especially) to promote the general Welfare.
1956 AD: The Bank Holding Company Act is passed, which extends the 1933 restrictions on banks by including bank holding companies (that own two or more banks), similarly restricting them from non-banking activities, and preventing them from purchasing banks in multiple states.
1975 AD: Congressman Wright Patman (Texas) audits the Federal Reserve. Patman had called for the Federal Reserve to be nationalized since the 1960s (to make the U.S. Central Bank ‘public’ again, bringing the borrowed Money Powers back to Congress); Patman’s persistence forced the Fed to relinquish some of the profits it gains when taxing the American citizen to enact its money creating operations.
December 1986 AD: Banks are already working around the Glass-Steagall Act, but efforts ramp up to repeal the legislation; there is a risk-taking element in banking that does not want to simply provide a service, and it has become accepted as part of “the business of banking.” The government concern is that the gambling is purely to enrich the savvy gambler at the expense of the novice investor, who is simply looking for somewhere to park excess cash.
The Federal Reserve is not part of government, however, and the Board decides to “reinterpret” Section 20 of the Glass-Steagall Act, which bars commercial banks from being “engaged principally” in the securities business, and instead allows banks to allot up to 5 percent of their gross revenues toward underwriting services. Bankers Trust, a commercial bank, serves as the first choice of the Fed board to engage in certain commercial paper (“unsecured, short-term credit”) transactions. In its decision, the Board concludes that to be “engaged principally” in an action means to be “mostly” engaged in it, and thus the erosion of Section 20 (which was already occurring quietly) becomes official.
1987 AD: The Federal Reserve Board overrides Chairman Paul Volcker after proposals from Citicorp, J.P. Morgan and Bankers Trust similarly ask for the “loosening of Glass-Steagall restrictions” on them as well, and suddenly banks officially take on underwriting commercial paper, municipal revenue bonds, and mortgage-backed securities, among other businesses. The Fed subsequently approves an application by Chase Manhattan, too. When questioned on this, the Fed Board indicates its plans to raise the limit from 5 percent up to 10 percent “at some point in the future.” By August, former director of J.P. Morgan Alan Greenspan takes over as chairman of the Fed board, eager to deregulate Wall Street so that government is only needed as a financial backstop and nothing more.
January 1989 AD: The Fed Board approves the expansion of the Glass-Steagall Section 20 loophole to include dealing in debt and equity securities; J.P. Morgan, Chase Manhattan, Bankers Trust, and Citicorp engage much more of their revenue toward underwriting. By the end of the year, the Fed Board officially raises the limit to 10 percent of revenues, as promised. J.P. Morgan is the first to ramp up its underwriting business to this new level. Throughout this time, Wall Street is attempting to push through legislation to repeal Glass-Steagall, but always fall short on the votes. Failure is attributed to A) squabbles between insurance companies, securities firms, and both large and small banks over the spoils of a legislative victory, and B) the continuing battle over who should regulate Wall Street—the Federal Reserve or the Government.
December 1996 AD: Alan Greenspan asserts that bank holding companies can own investment banks on the side, and those ‘affiliates’ can gamble up to 25% of their money in “securities underwriting.” This effectively eviscerates the 1933 Act, as the Fed says these risks have proven to be “manageable;” although the Glass-Steagall Act has been incapacitated, the legislation still exists, so a push is made to kill it dead.
1998 AD: Traveler’s Insurance Group and Citicorp force the issue and announce the largest corporate merger in history, creating a prototype financial conglomerate, complete with commercial banking, securities underwriting and insurance coverage. In the proceeding showdown, Wall Street ultimately must pay off politicians to the tune of $350 million to secure their votes (the FIRE sector—Finance, Insurance, Real estate, and Election cycle industries—target the Banking Committee members, as well as other financial committees attempting to influence legislation; it pays off in the end).
1999 AD: The Gramm-Leach-Bliley Act of 1999 was the culmination of 25 years of hammering on the Glass-Steagall Act of 1933, which was put in place to keep banks and securities firms separated. The GLBA, also known as the Financial Services Modernization Act, allowed banks to use customer deposits to invest in derivatives. Bank lobbyists said they could not compete with foreign firms without these provisions and promised to protect their customers. In the scheme of hierarchal economics, financial intermediaries now lined up to safely drain value out of every possible risky investment imaginable; commercial banks, investment banks, stockbrokers, pooled investment funds, and stock exchanges are designed for people with too much money and nothing tangible to do with it; now investors could access personal debt in a collective way, and tap into the automatic interest attached to all debt instruments; even small banks could “originate” loans simply to “distribute” them to the larger underwriters. When risk is diffused, it no longer feels as risky, precipitating more and more risky behavior.
2000 AD: The Commodity Futures Modernization Act of 2000 amended both the Securities Exchange Act of 1933 and the Securities Exchange Act of 1934, so that no restrictions previously placed on Wall Street existed anymore. Credit default swaps and other derivatives were now free from regulation; Congressional legislation always takes precedence over state regulations, so even though many states prohibited instruments like energy derivatives, for example, this legislation nullified its authority.
An interesting array of people were connected to the passage of these Acts: The wife of Senator Phil Gramm (who pushed the bill through Congress) was former Chairwoman of the Commodities Future Trading Commission and an Enron board member (Enron was naturally a major contributor to Senator Gramm’s campaign). Alan Greenspan and former Treasury Secretary Larry Summers lobbied openly for the bill’s passage. Legal experts voiced their concerns to President Clinton, then-Treasury Secretary Rob Rubin, and Fed Chairman Alan Greenspan about leaving the derivative market unregulated; Brooksley Born, chairwoman of the Commodity Futures Trading Commission, had even drawn up a proposal for how to safely manage this emerging ‘market,’ but all of them shot it down and shelved it for what would become the Commodity Futures Modernization Act, which they buried in a 10,000-page authorization bill and moved through Congress virtually unchallenged. Importantly, this was the financial model Wall Street had always wanted: to disperse risk in derivative form and sell it all over the world, to hedge against any ‘downturns.’