Submitted by: Francis Soyer
Intro To The Federal Reserve Bank and Federal Reserve SystemMany investors today, as they learn more about the nature of the Federal Reserve, are asking themselves how the US, the supposed land of the free, permit a non-Government-based cartel to take control of its monetary system? Who controls the Fed? And just how did they attain this unbelievable power to operate with the Government’s approval?
To answer all of these questions, we need to put on our winter coats and step back in time to a New Jersey train platform on a cold wintery night in November 1910…
At first glance, nothing around us would look unusual. The train at the platform was comprised of your standard chair cars which would be converted to sleepers at night. Poorer passengers took the cars closer to the engine, while the more well off sat and slept in cars behind the dining car.
However, one thing was very unusual about this particular train. And that something unusual was a single private train car located at the end of the train.
Unlike the others cars whose interiors were dreary affairs of metal and wood, this car’s interior was filled with rich mahogany, velvet, and polished brass. And unlike the other cars which had regular train porters, this car had private servants who were scurrying about stocking the bar and cigar boxes. Finally, unlike the other railcars whose sides were marked with numbers, this particular car had a single plague reading “Aldrich.”
As in Senator Nelson Aldrich, Republican “whip,” investment associate of JP Morgan, and father in law to John D Rockefeller, Jr.
Aldrich arrived at the train car first, decked out in the finest clothes imaginable and accompanied by several porters carrying his luggage. However, once he arrived, he was soon joined at his private car by six guests.
Each guest arrived separately so as not to imply that they knew each other. Indeed, two of them bumped into each other on the platform, they feigned ignorance of each other’s identity. They only addressed one another by first name both in public and in Aldrich’s private car. In fact, their identities were kept so secret that even Aldrich’s servants didn’t know who the six guests were.
Fortunately for us, G. Edward Griffin, author of The Creature From Jekyll Island has painstakingly proved their identities. As he notes, they were:
1) Nelson Aldrich, Senator of Rhode Island and Republican “whip,” Chairman of the National Monetary Commission business associate of JP Morgan and father-in-law to John D. Rockefeller, Jr.
2) Abraham Andrew, Assistant Secretary of the Treasury.
3) Frank Vanderlip, President of National City Bank of New York, the most powerful US bank at the time, representing William Rockefeller and the international investment house of Kuhn, Loeb, & Co.
4) Henry Davidson, Senior Partner at the JP Morgan Company.
5) Charles Norton, President of JP Morgan’s First National Bank of New York.
6) Benjamin Strong, head of JP Morgan’s Bankers Trust Company.
7) Paul Warburg, partner of Kuhn, Loeb, & Co, a representative of the Rothschild banking dynasty in England and France, and brother to Max Warburg who was head of the Warburg banking consortium in Germany and the Netherlands.
Together, these six men, represented interests that controlled one fourth of the world’s entire wealth. That is not a typo. These individuals represented the
four most powerful groups in the Anglo-American banking world. They were:
From the US From Europe
Rockefellers Rothschilds
Morgans Warburgs
The train took Aldrich’s private car to Georgia where it was unfastened from the rest of the train. The men then boarded a ferry to Jekyll Island: a private vacation resort recently purchased by JP Morgan and several business associates. To maintain secrecy, the resort’s normal staff were put on vacation and all new servants and porters were brought in.
During the next nine days, these seven men (still only using their first names to avoid recognition) hatched out a plan to create the system that would eventually become the Federal Reserve banking system.
The reason for their doing this was simple: competition.
The Nationals Vs. The Non-Nationals
Before the creation of the Federal Reserve banking system, the US’s banking system was divided into two types of banks: national banks and non-national banks.
National banks received their charters from the Federal Government and could issue their own notes, or money. These were the “old money” vanguard of the banking system, the elite banks based in NY and backed by the noble class families mentioned before.
In contrast, non-nationals were private banks that operated without government charters. These were the “upstarts” of the US banking industry, springing up mainly in the south and west.And the nationals were none too pleased about their presence.
The upstarts were not only giving banking a bad name (the industry suffered 1,748 bank failures from 1890 to 1910), but they were also eating into the Old Vanguard’s profits: as early as 1896, non-national banks controlled up to 54% of the US’s savings deposits.
A second, more pressing issue was also on the minds to the Anglo-American banking giants as they journeyed to Jekyll Island: the US monetary system was moving away from debt usage to private capital.
Because there was no centralized system for determining interest rates, banks set their own interest rates. This in turn, kept the money supply relatively tight as there were strict limits on how many loans banks could generate relative to their assets. Because of this, many corporations were seeking funding privately or from operations (cash reserves).
G. Edward Griffin, in The Creature From Jekyll Island, notes that from 1900 to 1910, some 70% of corporate funding was generated internally, rather than taking out loans.
In other words, big business was moving away from dealing with the banks. This was a huge issue for the Anglo-American banking giants as I shall explain.
Let’s say that back in 1900, Joe America makes a deposit of $100 in ABC bank, earning an interest rate of 1%. ABC then turns around and using Joe’s $100 as reserves, lends out as much as $1,000 at an interest rate of 5%.
In essence the bank has just created $900 out of thin air. However, by doing this the bank is now earning $50 in interest (5% on $1,000) while paying out $1 to Joe (1% of $100) thus pocketing $49 in profits.
As you can imagine, this set-up was obscenely profitable for the banks, which is why the Morgans, Rothschilds, et al were so concerned that Corporate America was moving away from borrowing to fund growth.
Moreover, the fractured nature of the banking system (there were no set rates or capital standards) meant that banks had a tendency to go under. Consider that in the early 20th century, banks in general often lent out ten times the amount of money they held in deposits, assuming it unlikely that any large number of customers might decide to cash out at the same time.
Even more insane, more reckless banks typically only had 3% of deposits in actual cash on hand (the rest was often tied up in short-term loans and investments).
This obviously put the bank in a very tenuous position. Suppose Joe decides to withdraw his $100? Or what if Joe wrote a check for $50 to buy some groceries? Well, if the grocery store clerk used the same bank as Joe, there was no problem because no physical cash had to actually leave its vaults.
However, if the Grocer took the check to another bank and cashed it, then $50 in actual physical cash would have to leave Joe’s bank and be transferred to the other bank. Multiply this by a few hundred transactions at a time when most banks only had 3% of reserves in physical cash and you quickly realize why nearly 2,000 banks went under between 1890 and 1910.
