Banks Went Too Far With Calls to Nationalize

BY CHRIS PETHERICK

have gone too far even for their own good. A federal judge ruled on Aug. 24 that the Federal Reserve, the United States’ privately owned and controlled central bank, must release secret details surrounding $2 trillion in loans it has made to unknown financial institutions worldwide. New-York-based Bloomberg News, owned by New York City Mayor Michael Bloomberg, filed the lawsuit (Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York) charging that the public had the right to know the facts about the loans made by the Fed since taxpayers were ultimately on the line for the money. Lawyers for the media outlet argued that U.S. taxpayers had a right to know of “the risks” surrounding the Fed’s lending practices since the public is an “involuntary investor” in the financial institutions, which received loans and other assistance, including loan guarantees. There is certainly cause for concern here. The Federal Reserve’s balance sheet shows that the central bank’s activity has grown significantly since the economic downturn first hit in the summer of 2008. In the past six months alone, the Fed’s assets—banks log loans as assets, not liabilities—have doubled since the economic recession first hit, amounting to untold trillions of dollars. This money, which has been loaned into circulation by the Fed, has been handed out like candy to banks around the world. Prior to Manhattan Chief U.S. District Judge Loretta Preska’s decision, Fed officials had wanted to keep secret specific information on loans amounting to over $2 trillion, which had been made by 11 different Federal Reserve funding arms. They claimed that revealing the details about who got the loans and how much each organization received could lead to investors selling off stock in those banks or customers pulling their savings. Ironically, the ruling against the Fed came as a result of a Freedom of Information Act (FOIA) lawsuit brought by Bloomberg. Enacted in 1966, FOIA gives individuals and organizations the power to sue the U.S. government in order to obtain previously unreleased information and documents controlled by federal agencies. But the Federal Reserve is not federal at all; it is an independent organization that operates with no accountability in a gray zone outside the public and private sectors. According to official policy, the Fed is “an independent entity within the government, having both public purposes and private aspects.” However, the structure of the Federal Reserve System belies its quasi-public claim. The Fed is actually owned by private banks, which buy stock in the 12 regional Federal Reserve Banks that make up the operating arms of the system. Not every bank in America is a member. But all nationally chartered banks, including the biggest in the world, hold stock in the Federal Reserve. Smaller state-chartered banks, on the other hand, have the option of choosing whether they will be members. And while the president of the United States appoints the top bankers of the Federal Reserve’s decision-making board, it is clear that the choices are spoon-fed to him by those in the moneyed class. Despite what the Fed claims, no elected official or bureaucrat in the legislative, executive and judiciary branches of the government has any oversight over the central bank. Congress abdicated control in 1913 upon passage of the Federal Reserve Act. Short of amending that legislation, today’s legislators have no say whatsoever in the Fed’s decisions regarding monetary policy. It should be added that the American people have nothing to do with how the Federal Reserve and, more generally, the fractional reserve banking system function in the modern age. The Fed creates money by loaning it to banks, which, in turn, loan it to individuals, businesses and governments. In other words, before one dollar touches a citizen’s hand, it is already costing you money and turning a profit for the bankers. No one knows why these issues were not addressed at length in Bloomberg’s lawsuit as editors at the media outlet failed to return repeat emails sent by this writer, which posed the question about the private nature of the Fed. Whatever their reasons were, this allowed the judge to rule in favor of the organization seeking the information and will hopefully force transparency on the top bankers. “Considering the nature of the banking situation, which these guys—the Fed and the people it represents—brought on the world, hurray for that judge,” Stephen Zarlenga told this writer in an exclusive interview. “Most people think that the Fed is a part of the government. The Fed knows better, and I think the judge probably does so, too. But if [the Fed] wants to pretend they’re part of the government—so be it. That’s the minimum direction we have to move in to get transparency.” ” 

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* The Legalized Crime of Banking is available from Brandywine House Books & Media for $20 by mailing check, money order or cash to P.O. Box 638, Cheltenham, Md. 20623. Call toll-free (866) 656-7583 to order by Visa, MasterCard, Discover or American Express.

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