Federal Reserve Originally a Populist Movement? Ha!

Gregory D. L. Morris, a member of the editorial board of the Museum of American Finance, recently came out with a piece in Bloomberg entitled "How a Populist Outage Gave Birth to the Federal Reserve: Echoes" which goes over the history of central banking in the U.S. and how the Federal Reserve Act was a reaction to the Panic of 1907.  Morris claims that the Fed's creation was in reaction to the public's outcry over financial panics.  He writes:

On Nov. 2, 1907, John Pierpont Morgan assembled the presidents of several prominent trust companies in the library of his Fifth Avenue mansion. The illiquidity of their firms had caused what is known today as the Panic of 1907. Morgan forced those rich and powerful men to wait and worry, and by the next morning he had strong-armed them into an agreement that ended the crisis.

It wasn't the first time that Morgan, a private citizen, had come to the rescue of the financial community. And the reaction among the public, and at all levels of government, was a mixture of shame and anger. In response, Congress created a central bank six years later, on Dec. 23, 1913.

This, to put it gently, is patently false.  As anyone who has actually done any studying of the origins of the legalized criminal cartel known as the Federal Reserve System knows it was not a product of angelic Congressman rushing in to save the ignorant public but a blatant power grab by the financial elite.  As libertarian economist Murray Rothbard noted:

During the 1890s, in the new field of large-scale industrial corporations, big-business interests tried to establish high prices and reduced production via mergers, and again, in every case, the merger collapsed from the winds of new competition. In both sets of cartel attempts, J. P. Morgan and Company had taken the lead, and in both sets of cases, the market, hampered though it was by high protective, tariff walls, managed to nullify these attempts at voluntary cartelization.

It then became clear to these big-business interests that the only way to establish a cartelized economy, an economy that would ensure their continued economic dominance and high profits, would be to use the powers of government to establish and maintain cartels by coercion, in other words, to transform the economy from roughly laissez-faire to centralized, coordinated statism. But how could the American people, steeped in a long tradition of fierce opposition to government-imposed monopoly, go along with this program? How could the public's consent to the New Order be engineered?

Like most central banking apologists, Morris acknowledges financial panics and busts but never questions why the arose in the first place.  He attributes the Panic of 1907 to the illiquidity of the big banks and trust firms but makes no peep about the U.S. Treasury, under the direction of Secretary and Central Bank-wannabe Leslie Shaw, and its blatant policy of inflation from 1905-1907.  Such a policy, like all fiat generated booms, eclipsed into a deflationary bust as people increased their cash balances.  Government allowed major banks to suspend specie payments, as occurs in most major financial panics, essentially taking a skewer to basic property rights.

"Socialism has never and nowhere been at first a working-class movement," proclaimed Nobel laureate and economist Fredriech Hayek and indeed that was the case with the creation of the Federal Reserve.  Rothbard again exposes this procedure:

The first step in such mobilization was to win the support of the nation's academics and experts. The task was made easier by the growing alliance and symbiosis between academia and the power elite. Two organizations that proved particularly useful for this mobilization were the American Academy of Political and Social Science (AAPSS) of Philadelphia, and the Academy of Political Science (APS) of Columbia University, both of which included in their ranks leading corporate-liberal businessmen, financiers, attorneys, and academics.

Like any movement pushing for centralized power, leaders from academia, big business, and the government began a propaganda campaign to drive for legislation creating a central banking system.  In the winter of 1907-1908, the AAPSS, APS, and Columbia University threw a few symposiums calling for the adoption of central banking.   Former Assistant of the Treasury and top executive at the prominent National City Bank of New York, which represented the interests of the Rockefeller family, Frank Vanderlip candidly explained the real reason behind such a push for centralization was that the dog-eat-dog competition that dominated the banking industry was too much for the elite financial bearers to deal with.  The horrible thing was, as Vanderlip put it, "each institution stands alone, concerned first with its own safety, and using every endeavor to pile up reserves without regard."

Yes, being that rigorous competition leads to lower prices and increased efficiency in every other industry, it certainly can't be allowed in banking.  How else would the banker class be able to dominate if such productive competition were to take place?

A number of commissions were financed to study the creation of central banking in the following years which culminated into the infamous retreat to J.P. Morgan's vacation spot known as the Jekyll Island Club.  There, members of the financial elite, with the help of Senator Nelson Aldrich of Maryland, put the nail in the coffin of American democracy in monetary affairs by crafting the Federal Reserve bill.  A century, and devaluation in the value of the dollar by 95% later, the U.S. has waged a campaign of unsustainable welfare programs and endless warfare financed by money printing.

The Federal Reserve bill was not a product of populism but of a coordinated effort between members of the Rockefeller, Morgan, and Kuhn, Loeb families along with the backing of academia and government proponents.  Success came as the Federal Reserve, a government sanctioned cartel which garners the benefit of coordinated inflation while offsetting the disastrous consequences to the lower and middle class, has reigned supreme with the guns of Washington always protecting it.

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I am gonna spruce this up a bit and submit somewhere but I think it's a good first draft.  There is a lot to cover and I don't wanna go into incredible detail (especially when Rothbard has already done it incredibly well).

To further drive the point that central bankers are part of the "good ole' boys club" home, it is now being rumored that a formed ECB deputy head is the front runner to replace G-Pap as the next glorious leader to head the burning ship known as Greece.  He is currently a professor of public policy at the Kennedy School of Government at Harvard.  In other words, he is the perfect tool for the job.

In other central banking news, it looks like the Draghi-lead ECB is hell bent on keeping Italy afloat (to no avail though) by continually purchasing bonds, via Zerohedge:

When last week Italian bonds threatened to plunge every single day (to levels seen earlier today, when the spread between the 10 Year BTP and the Bund has soared to 490 bps), many speculated that the ECB intervened every single day, and occasionally two or even three times daily. Now we have confirmation that in his first week on the job, Mario Draghi is already well on route to undoing everything that his predecessor did previously: his first action as head of the ECB was a surprise lowering of rates, and now he has bought double the amount that the ECB purchased in the prior several weeks, and the most since September 16.

 Looks like Draghi is in competition with Bernanke to get that prime spot in central banker hell.  Look for continued money printing as the EU sideshow continues.

I will end with pointing out this fascinating video of Jack Abramoff explaining how he corrupted the incredibly corruptible Congress:

I can't help but feel that being a D.C. lobbyist would be so incredibly easy and a huge money maker considering all the money up for grabs.  Too bad that stupid little thing called a conscience interferes with my pursuance of such a job, perhaps it will shut up soon.