Sunday, August 7, 2011

Who Owns The Federal Reserve?

The Fed is privately owned. Its shareholders are private banks
by Ellen Brown
October 8, 2008

"Some people think that the Federal Reserve Banks are United States Government institutions. They are private monopolies which prey upon the people of these United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; and rich and predatory money lenders."
Louis McFadden, Chairman of the House Banking and Currency Committee in the 1930s

The Federal Reserve (or Fed) has assumed sweeping new powers in the last year. In an unprecedented move in March 2008, the New York Fed advanced the funds for JPMorgan Chase Bank to buy investment bank Bear Stearns for pennies on the dollar. The deal was particularly controversial because Jamie Dimon, CEO of JPMorgan, sits on the board of the New York Fed and participated in the secret weekend negotiations. In September 2008, the Federal Reserve did something even more unprecedented, when it bought the world's largest insurance company. The Fed announced on September 16 that it was giving an $85 billion loan to American International Group (AIG) for a nearly 80% stake in the mega-insurer. The Associated Press called it a "government takeover," but this was no ordinary nationalization. Unlike the U.S. Treasury, which took over Fannie Mae and Freddie Mac the week before, the Fed is not a government-owned agency. Also unprecedented was the way the deal was funded. The Associated Press reported:
"The Treasury Department, for the first time in its history, said it would begin selling bonds for the Federal Reserve in an effort to help the central bank deal with its unprecedented borrowing needs."

This is extraordinary. Why is the Treasury issuing U.S. government bonds (or debt) to fund the Fed, which is itself supposedly "the lender of last resort" created to fund the banks and the federal government? Yahoo Finance reported on September 17:
"The Treasury is setting up a temporary financing program at the Fed's request. The program will auction Treasury bills to raise cash for the Fed's use. The initiative aims to help the Fed manage its balance sheet following its efforts to enhance its liquidity facilities over the previous few quarters."

Normally, the Fed swaps green pieces of paper called Federal Reserve Notes for pink pieces of paper called U.S. bonds (the federal government's I.O.U.s), in order to provide Congress with the dollars it cannot raise through taxes. Now, it seems, the government is issuing bonds, not for its own use, but for the use of the Fed! Perhaps the plan is to swap them with the banks' dodgy derivatives collateral directly, without actually putting them up for sale to outside buyers. According to Wikipedia (which translates Fedspeak into somewhat clearer terms than the Fed's own website):

"The Term Securities Lending Facility is a 28-day facility that will offer Treasury general collateral to the Federal Reserve Bank of New York's primary dealers in exchange for other program-eligible collateral. It is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally. . . . The resource allows dealers to switch debt that is less liquid for U.S. government securities that are easily tradable."

"To switch debt that is less liquid for U.S. government securities that are easily tradable" means that the government gets the banks' toxic derivative debt, and the banks get the government's triple-A securities. Unlike the risky derivative debt, federal securities are considered "risk-free" for purposes of determining capital requirements, allowing the banks to improve their capital position so they can make new loans. (See E. Brown, "Bailout Bedlam,", October 2, 2008.)

In its latest power play, on October 3, 2008, the Fed acquired the ability to pay interest to its member banks on the reserves the banks maintain at the Fed. Reuters reported on October 3:

"The U.S. Federal Reserve gained a key tactical tool from the $700 billion financial rescue package signed into law on Friday that will help it channel funds into parched credit markets. Tucked into the 451-page bill is a provision that lets the Fed pay interest on the reserves banks are required to hold at the central bank."

If the Fed's money comes ultimately from the taxpayers, that means we the taxpayers are paying interest to the banks on the banks' own reserves - reserves maintained for their own private profit. These increasingly controversial encroachments on the public purse warrant a closer look at the central banking scheme itself. Who owns the Federal Reserve, who actually controls it, where does it get its money, and whose interests is it serving?

Not Private and Not for Profit?

The Fed's website insists that it is not a private corporation, is not operated for profit, and is not funded by Congress. But is that true? The Federal Reserve was set up in 1913 as a "lender of last resort" to backstop bank runs, following a particularly bad bank panic in 1907. The Fed's mandate was then and continues to be to keep the private banking system intact; and that means keeping intact the system's most valuable asset, a monopoly on creating the national money supply. Except for coins, every dollar in circulation is now created privately as a debt to the Federal Reserve or the banking system it heads. The Fed's website attempts to gloss over its role as chief defender and protector of this private banking club, but let's take a closer look. The website states:

* "The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation's central banking system, are organized much like private corporations - possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year."

* "[The Federal Reserve] is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms."

* "The Federal Reserve's income is derived primarily from the interest on U.S. government securities that it has acquired through open market operations. . . . After paying its expenses, the Federal Reserve turns the rest of its earnings over to the U.S. Treasury."

So let's review:

1. The Fed is privately owned.
Its shareholders are private banks. In fact, 100% of its shareholders are private banks. None of its stock is owned by the government.

2. The fact that the Fed does not get "appropriations" from Congress basically means that it gets its money from Congress without congressional approval, by engaging in "open market operations."

Here is how it works: When the government is short of funds, the Treasury issues bonds and delivers them to bond dealers, which auction them off. When the Fed wants to "expand the money supply" (create money), it steps in and buys bonds from these dealers with newly-issued dollars acquired by the Fed for the cost of writing them into an account on a computer screen. These maneuvers are called "open market operations" because the Fed buys the bonds on the "open market" from the bond dealers. The bonds then become the "reserves" that the banking establishment uses to back its loans. In another bit of sleight of hand known as "fractional reserve" lending, the same reserves are lent many times over, further expanding the money supply, generating interest for the banks with each loan. It was this money-creating process that prompted Wright Patman, Chairman of the House Banking and Currency Committee in the 1960s, to call the Federal Reserve "a total money-making machine."

He wrote: "When the Federal Reserve writes a check for a government bond it does exactly what any bank does, it creates money, it created money purely and simply by writing a check."

3. The Fed generates profits for its shareholders.

The interest on bonds acquired with its newly-issued Federal Reserve Notes pays the Fed's operating expenses plus a guaranteed 6% return to its banker shareholders. A mere 6% a year may not be considered a profit in the world of Wall Street high finance, but most businesses that manage to cover all their expenses and give their shareholders a guaranteed 6% return are considered "for profit" corporations.

In addition to this guaranteed 6%, the banks will now be getting interest from the taxpayers on their "reserves." The basic reserve requirement set by the Federal Reserve is 10%. The website of the Federal Reserve Bank of New York explains that as money is redeposited and relent throughout the banking system, this 10% held in "reserve" can be fanned into ten times that sum in loans; that is, $10,000 in reserves becomes $100,000 in loans. Federal Reserve Statistical Release H. puts the total "loans and leases in bank credit" as of September 24, 2008 at $7,049 billion. Ten percent of that is $700 billion. That means we the taxpayers will be paying interest to the banks on at least $700 billion annually - this so that the banks can retain the reserves to accumulate interest on ten times that sum in loans.
The banks earn these returns from the taxpayers for the privilege of having the banks' interests protected by an all-powerful independent private central bank, even when those interests may be opposed to the taxpayers' -- for example, when the banks use their special status as private money creators to fund speculative derivative schemes that threaten to collapse the U.S. economy. Among other special benefits, banks and other financial institutions (but not other corporations) can borrow at the low Fed funds rate of about 2%. They can then turn around and put this money into 30-year Treasury bonds at 4.5%, earning an immediate 2.5% from the taxpayers, just by virtue of their position as favored banks. A long list of banks (but not other corporations) is also now protected from the short selling that can crash the price of other stocks.

Time to Change the Statute?

According to the Fed's website, the control Congress has over the Federal Reserve is limited to this:

"[T]he Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute."
As we know from watching the business news, "oversight" basically means that Congress gets to see the results when it's over. The Fed periodically reports to Congress, but the Fed doesn't ask; it tells. The only real leverage Congress has over the Fed is that it "can alter its responsibilities by statute." It is time for Congress to exercise that leverage and make the Federal Reserve a truly federal agency, acting by and for the people through their elected representatives. If the Fed can demand AIG's stock in return for an $85 billion loan to the mega-insurer, we can demand the Fed's stock in return for the trillion-or-so dollars we'll be advancing to bail out the private banking system from its follies.

If the Fed were actually a federal agency, the government could issue U.S. legal tender directly, avoiding an unnecessary interest-bearing debt to private middlemen who create the money out of thin air themselves. Among other benefits to the taxpayers. a truly "federal" Federal Reserve could lend the full faith and credit of the United States to state and local governments interest-free, cutting the cost of infrastructure in half, restoring the thriving local economies of earlier decades.

Ellen Brown, J.D., developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and "the money trust." She shows how this private cartel has usurped the power to create money from the people themselves.

The government of Bangladesh responds to The Economist!

Aug 5th 2011, 14:52 by The Economist | LONDON

The Economist received the following letter from the government of Bangladesh in response to a recent article:

"Our attention has been drawn to an article on India and Bangladesh, “Embraceable you”, published in The Economist in its issue dated July 30th. We are disappointed, as the report is less than well researched and contains elements of misinformation and a misrepresentation of facts. What is more unfortunate is that the writer uses some words and sometimes draws analogies which lack decency and professional ethics. We are furnishing relevant information to put the issues in the right perspective.

The writer is of the view that the ruling Awami League (and its allies) came to power through “bags of Indian cash and advice”. This is a blatant lie and aptly speaks about the writer’s utter disrespect for responsible journalism. The international community, including independent observers, hailed the historic elections in December 2008 as the freest ever in the history of the country, which was reflective of the aspirations of the people. His comment is also a slur on the democracy-loving people of Bangladesh – one of the largest democracies in the world. His observation that the transit facilities between the two countries are to meet Indian security needs at the expense of the interests of Bangladesh is also misplaced as both countries are expected to benefit immensely from it.

Bangladesh attaches the highest importance to its relations with India. These relations are time tested and based on shared history, culture, language, religion, traditions and values. The traditional relations were infused with a new dynamism following the landmark visit of Prime Minister Sheikh Hasina to India in January 2010 as the leadership of the two countries agreed to embark on a new era of co-operation for mutual benefit with the objective of fighting the common enemy of poverty and under-development. This signifies closer engagement in areas as diverse as joint water resources management, land boundary demarcation, trade, power, connectivity, infrastructure, culture, education, etc.

The writer may be interested to know that as a part of the initiative of the government of Prime Minister Sheikh Hasina to return to the values and spirit that inspired the nation during the war of liberation, it has undertaken an exercise to honour those foreign friends who stood by the people of Bangladesh and contributed to the attainment of statehood in 1971. In this context it is widely felt that the seminal role played by the then Prime Minister of India, Mrs Indira Gandhi, deserves a special recognition. Thus she was conferred with the Bangladesh Freedom Honour (posthumously), the highest state honour for foreigners which was handed over to Mrs Sonia Gandhi when she visited Bangladesh to attend a special conference on autism. The writer has undermined both Bangladesh’s struggle to attain statehood through its glorious war of liberation as well as the hand of friendship and support extended by India to Bangladesh when he refers to the Freedom Honour as ‘a gong’ in a negative manner.

It may be noted that the government of Prime Minister Sheikh Hasina has undertaken a proactive policy for building up relations with not only India but with all of her neighbours in South Asia. Towards this end, there have been exchanges of high level visits from Bhutan, Sri Lanka and the Maldives. One of the most significant developments in this regard has been the decision of the government to grant both Nepal and Bhutan use of Chittagong and Mongla ports for transit trade to third countries. In addition to this, Bangladesh is working to provide smooth and seamless connectivity between Bhutan, Nepal and India and to extend it through Myanmar to the countries of South-East Asia and beyond. Perhaps unknown to the writer is that this connectivity is not only through rail and road; Bangladesh has offered use of two airports situated in the north of the country to Bhutan for its own use. Bangladesh is also working on intensifying shipping linkages with Sri Lanka which will benefit not only bilateral trade but will also help to enhance trade relations with the Maldives, which has so far been stymied by a lack of air and shipping linkages between the two countries. Taking connectivity and regional co-operation one step further, Bangladesh is also working towards a joint water resources management in a sub-regional context involving Bhutan, Nepal, India and Bangladesh. This envisages water resources management for flood control and mitigation as well as augmentation of dry season flows of common rivers. An added benefit will be hydro-power generation to meet the incremental energy requirements of one of the most economically dynamic areas of the world today.

While mentioning about opposition’s boycott of Parliament, the writer says that the Honourable Prime Minister Sheikh Hasina is “becoming increasingly autocratic”. This speaks about his poor knowledge about the numerous initiatives taken by the government to institutionalise democracy in the country. The writer is perhaps aware that the Dauphine University, a prominent Parisian university, awarded a gold medal to Honourable Prime Minister Sheikh Hasina on 25th May 2011 in recognition to her outstanding contribution to institutionalising and strengthening democracy, and also for her achievement in empowering the women of Bangladesh. In line with the spirit of accommodation, the present government, for the first time in history, has allocated the chairmanship of the two important standing committees of the Parliament to the opposition parties who hold only 40 seats out of 345. Even the post of deputy speaker was offered to the opposition. Despite the welcome gesture from the government, the opposition parties, quite ironically, have been boycotting parliamentary sessions for narrow political gains which undermines the country’s democratic process.

The initiative of the present government to try the people involved in genocide, crimes against humanity, war crimes and other crimes under international law, stems from the fundamental norms of a civilized society. It is reflective of the primacy of the rule of law and the rejection of impunity. The initiative draws from the overwhelming popular support for putting the perpetrators of war crimes on trial and is not prompted by any feeling of vendetta against any individual or any political party.

Without giving any research-based statistics, the writer mentions that “corruption flourishes at levels astonishing even by South Asian standards”. Fighting corruption and establishing good governance has been one of the priorities of the Government and neither any member of the present Prime Minister’s family nor any Cabinet member bears the stigma of being corrupt though corruption remains a major challenge for the country. Keeping with the election mandate, the present government introduced an electronic public procurement system to ensure transparency which was possible due to the government’s determination to digitalise the country. The allegation of building a personality cult around Bangabandhu Sheikh Mujibur Rahman, Father of the Nation of the Prime Minister, is just another example of poor judgment about the role of the great leader in the epic struggle of the country. The government, as per its election mandate, is trying to uphold the true history of the independence of the country which was subjected to distortion by successive military and pseudo-military governments. As regards to the “vindictive” treatment shown to Muhammad Yunus, the Nobel laureate, the writer should have known that it was Honourable Prime Minister Sheikh Hasina herself who had a distinct role in patronizing and thus in making micro-credit, Grameen Bank and Professor Yunus familiar globally. The government’s recent actions about Grameen Bank were taken to uphold the rule of law and not to harass anyone. The verdict of the courts, which are fiercely independent, was just reflective of the facts on the ground.

A closer look at the article indicates that the writer is carrying out the agenda of a quarter who are out to wage a smear campaign about Bangladesh and its present government led by the Honourable Prime Minister Sheikh Hasina who has, through her extraordinary courage, personal sacrifice and inspiring visionary leadership, brought the country back on track of democratic governance, made the country a model for women’s empowerment, food security, disaster management, poverty alleviation, and pursuing a people-centric peace building policy nationally as well as regionally and internationally. People in the region have already started enjoying the benefits of her government’s strong stand against terrorism and extremism."

Md. Shameem Ahsan
Director General (External Publicity)
Ministry of Foreign Affairs