FEDERAL RESERVE: How it began
by Gregg Humphrey:
The platform was full of the bustle of excursionists rushing back and forth from the cargo bay and the passenger entrances to get onto the train before the final call. After the ‘all aboard,’ the train started moving, stopped, and began moving again, but in the opposite direction. All of the possible reasons for this strange action flashed through each of the minds on board, only to be forgotten after a quick bump, and the continuation of the train in its original direction. None of the other travelers were aware of the attachment of an additional car. This final car had the curtains drawn, leaving only the slightest sliver of window exposed, showing only darkness beyond. On the side of this peculiar car, ALDRICH was carved.
The riders of this New Jersey railroad car in November 1910 included the
[caption id="" align="alignleft" width="132" caption="Senator Nelson W. Aldrich (click to ENLARGE)"]
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widely known Nelson W. Aldrich, an influential Senator, business affiliate to J.P. Morgan, and father-in-law to J.D. Rockefeller, Jr. (Griffin 5). With him, rode six passengers. Each ad agreed to hold to a first name basis in order to conceal their identity.
[caption id="" align="alignright" width="144" caption="Click to ENLARGE"]
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These very special travelers journeyed to Raleigh, North Carolina, then to Atlanta, Georgia, and finally off the coast of Brunswick, Georgia, to the remote piece of land known as Jekyll Island (Griffin 7).
Accompanying Aldrich was six of the most dominating characters of the economy in 1910. On this privately owned island, several meetings were conducted with the purpose of establishing a system for a banking monopoly (Griffin 8), later called the Federal Reserve.
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Aldrich’s six guests were unknown for many years. Nevertheless, because of elapsed time, their identities have been uncovered. The participants are as follows: “Abraham P. Andrew, the Assistant Secretary of the U.S. Treasury;
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Frank A. Vanderlip, president of the National City Bank of New 
York (now Citibank), the most powerful of the banks at that time, representing William Rockefeller and the international investment banking house of Kuhn, Loeb & Company (Vanderlip later revealed himself as a member of the “First Names Club”);
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Henry P. Davison, senior partner of the J.P. Morgan Company (new, Chase J.P. Morgan);
[caption id="" align="alignright" width="73" caption="Charles D. Norton"]
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Charles D. Norton, president of J.P. Morgan’s First National Bank of New York;
[caption id="" align="alignleft" width="71" caption="Benjamin Strong (Click to ENLARGE)"]
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Benjamin Strong, head of J.P. Morgan’s Bankers Trust Company;
[caption id="" align="alignleft" width="73" caption="Paul M. Warburg (click to ENLARGE)"]
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and Paul M. Warburg, a partner in Kuhn, Loeb & Company, a representative of the Rothschild banking dynasty in England and France, and brother to Max Warburg who was the head of the Warburg banking consortium in Germany and the Netherlands” (Griffin 5).
The first leakage of information about these high-profile meetings was an article in Leslie’s Weekly written in 1916, six years after the occurrence, by B.C. Forbes, the later patron of Forbes Magazine. The article featured Paul Warburg and started out with the description of the journey of the seven men. Forbes continued with the purpose of the article, which was to tell “the real story of how the famous Aldrich currency report, the foundation of our new currency system, was written” (Griffin 9).
[caption id="" align="alignleft" width="192" caption="Morgan (Left) Rockafeller (Right) (Click to ENLARGE)"]
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The men of the Jekyll Island meetings acted in place “of the world’s leading banking consortia: Morgan, Rockefeller, Rothschild, Warburg, and Kuhn-Loeb” (Griffin 12). Despite the distrust between this tedious alliance, they were united by a common enemy: the competition from the people. In this period, US banks doubled in number in the previous ten years. These banks were concentrated in the South and West. Before the establishment of the Federal Reserve, banks were restricted to the area in which they were given the charter. Therefore, the banks in the South and West were competing with the New York banks because the New York banks, being in the Northeast, were incapable of going into the South and West to crush the rising competition. The new competition for the New York banks caused a decline in their ability to grasp more of a market share (Griffin 12). This was a problem because it was affecting these executives directly. It was lowering their profitability, and in these self-centered, elitist men’s minds, this just could not happen.
After the Federal Reserve in operation for only about a year, Aldrich was able to be more unrestrained with his opinions. In an article called The Independent Aldrich made the arrogant remark that “Before the passage of this Act, the New York bankers could only dominate the reserves of New York. Now we are able to dominate the bank reserves of the entire country” (Griffin 20).
The solution to the ‘problem’ of the people’s competition, confronted at the Jekyll Island meetings, was the establishment of a cartel. “A cartel is a group of independent businesses which join together to coordinate the production, pricing, or marketing of their members” (Griffin 11). This ensured that “the public [would] pay higher prices for their goods or services than would be otherwise required under free-enterprise competition” (Griffin 11). Aldrich said it himself. He said, “The organization proposed [the Federal Reserve,] is not a bank, but a cooperative union of all the banks of the country for definite purposes” (Griffin 19), exactly: a union of banks (Griffin 19).
The decision to create a central bank has been in dispute for centuries. Presidents Andrew Jackson and Thomas Jefferson were strongly against the formation of a central bank, along with many other figures throughout history. “Sir Ernest Harvey, the Comptroller of the Bank of England, noted…that a central bank should have the sole right of note issue; should serve the needs of commercial banks and other financial institutions; should be the principal fiscal agents of its government; should have the main responsibility for the maintenance of the gold and foreign-exchange reserves of the nation; and should have principal responsibility for the control of the volume and use of money in the interest of economic stability and growth” (Beckhart 1). This constitutes also as the definition of what the Federal Reserve was chartered to accomplish. Therefore, a central bank, which has been fought against by some of the nation’s greatest leaders, had been established, under a different name, and been in operation for a little less than a hundred years, yet has been off the radar of the general population, in spite of the fact that the entire system was built on the exploitation of United States citizens.
On the Federal Reserve’s website (http://www.federalreserve.gov/ ), they post their self-proclaimed responsibilities as follows: “1. Conduction the nation’s monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices; 2. Supervising and regulation banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers; 3. Maintaining the stabilityof the financial system and containing systemic risk that may arise in financial markets” (Fleckenstein 5). These proclaimed duties, stated above, are in contrary to the facts of their actual operations. Therefore, not only was the Federal Reserve built on the greed of its founders, but also purports to have certain responsibilities while in reality, operate under the definition of a central bank.
The Federal Reserve was cleverly designed around “fiat” money. Upon the creation of the Federal Reserve, banks were permitted to compose “checkbook money out of nothing” (Griffin 26). This means that the bank could loan out money, which they did not have in their vaults, as credit, and collect interest on the loan. If the loan cannot be paid back, the bank had not lost any concrete money, just an entry in the bookkeeping. (Griffin 26-27). Therefore banks specializing in these “problem loans” are more profitable than most banks, according to the Banking Safety Digest (Griffin 31). However, because the system was built on essentially nothing, the system becomes very unstable, carrying the possibility of collapse at any sudden change.
[caption id="" align="alignleft" width="240" caption="December 11, 1930 "Run" on Bank of the United States - New York City (Click to ENLARGE)"]
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This actually occurred in December of 1930. Although the Federal Reserve had been established in order to “control” the monetary system, this fiat currency basis proved to be more unstable that even the engineers of the system had anticipated. Ofter the stock market crash in October of 1929, a small merchant in New York City visited a branch of the Bank of United States where he asked to sell his stock in that Bank. The gentleman that waited on this stockholder dissuaded him from selling the stock, arguing that the stock was a good investment. Somehow, a rumor quickly spread in area that the Bank was insolvent. As many as 20,000 to 25,000 people crowded the streets in front of the Bank wishing to withdraw their deposits. One man stood in line for hours in order to make a total withdrawal of only $2.
The banks do not expect that the account holders will not come all at once demanding the money in their accounts. This run on the bank (Griffin 13) would result in immediate bankruptcy. This happened on December 11, 1930 at a Bank of the United States in New York. The previous day, a man had gone into the branch, and because the bank did not have the money currently in their vaults, the man left empty handed. The news spread that the bank denied him his money, causing the remainder of the account holders to flock to the bank demanding their money. Over the next few days other banks in New York experienced a “run”. Then, banks in other States experienced similar difficulties.
[caption id="" align="alignleft" width="74" caption="FDR (Click to ENLARGE)"]
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Immediately after taking the oath of office in March 1933, President Franklin Delano Roosevelt ordered all banks across the country to lock their doors while it could be determined which ones were strong enough to reopen and to restore bank customers’ faith.
Thirty-six states had already called bank holidays on their own. (for an excellent comparison between the bank closings in the 1920s & those of the 1930s see NBER Macroexonomics Annual Report 2000).
[Modern Perspective]After the collapse of so many banks because of various issues (including banks using depositors’ funds to make “risky” investments in the stock market without the depositors’ knowledge and/or permission) Congress passed the 1933 Glass-Steagall Act. In 1999, then President Clinton signed into law the Gram-Leach-Bliley Act of 1999, which essentially emasculated Glass-Steagall. For more information about this as the cause of our present economic situation, see “Broken Glass” and “More Broken Glass” elsewhere on this site. [back to the article at hand]
William Jennings Bryan was a strong oppositionist to the establishment of the Federal Reserve. Because of the power that his influence yielded as a Democratic member of Congress, Bryan’s opposition created a problem to the beneficiaries of the establishment of the Federal Reserve. He was ultimately persuaded by “phony compromises…which gave the appearance of public control and government issue but which, in fact, did neither” (Griffin 403). He was bribed with the position as Secretary of State, in which he ultimately resigned.
The Federal Reserve System was created strictly to benefit its patrons, under the pretense that it was established for the benefit of the people. The economy has been based on this system, and therefore is based on a system of instability and, indirectly, based on nothing.
The Video Below is presented by G. Edward Griffin, author “The Creature from Jekyll Island” quoted variously above:
CLICK FOR FULL SCREEN MODE
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