Who
Owns The Federal Reserve?
The
Fed is privately owned. Its shareholders are private banks
By Ellen Brown
Global Research, February 08, 2014
Web of Debt and Global Research 8
October 2008
– The
Honorable 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.1 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.”2
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,”
webofdebt.com/articles, 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.”3
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.4 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.”5
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.8
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, and how we the people can get it back. Her eleven books include the
bestselling Nature’s Pharmacy, co-authored with Dr. Lynne Walker, and Forbidden
Medicine. Her websites are www.webofdebt.com and www.ellenbrown.com .
http://www.globalresearch.ca/who-owns-the-federal-reserve/10489
