The Simplicity of Auditing the Federal Reserve, Taking over Bankrupt Banks, and Making Them Vibrant Socially-Owned Banks

Posted 4 years, 8 months ago (Saturday, November 28th, 2009 at 1:45 pm) by jwsmith

Everyone is aware that the Federal Reserve has given trillions of borrowed and created dollars to corrupt bankers. Even Congressional members are demanding the “privately owned” U.S. Federal Reserve be audited so they and everyone else will know exactly to whom our money went and why.

The myth that the Fed is “privately owned” has been repeated so many times by so many who should know better, it is accepted by many as fact. In reality the Federal Reserve is already socially owned and, by law, controlled by Congress:

The Federal Reserve’s ultimate accountability is to Congress which at any time can amend the Federal Reserve Act [The last provision of the Federal Reserve Act of 1913, Sec 30]. Legislation requires that the Fed report annually on its activities to the Speaker of the House of Representatives, and twice annually on its plans for monetary policy to the banking committees of Congress. Fed officials also testify before Congress when requested.

The last provision of the Federal Reserve Act of 1913, Sec. 30, states, “The right to amend, alter or repeal this Act is expressly reserved.” This language means that Congress can at any time abolish the Federal Reserve System, buy back the stock to eliminate the fiction of private ownership, make it part of the Treasury Department, or altar its structure in any way it sees fit.

At the 6% interest established in law, surely the buyback cost will be less than 2% of the enormous sums the Fed would be valued at if privately owned. But the Fed has no value specifically because the massive profits beyond the small sums paid to those supposed owners are periodically turned over to the US Treasury as fast as it is earned. That the Federal Reserve has no oversight established in law is also a myth.

Who Owns and Who has Oversight Over the Federal Reserve, as Explained by Themselves, is not complicated. The quotes above and below are from this linked Federal Reserve webpage.

“The Federal Reserve System is not “owned” by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects. …

As the nation’s central bank, the Federal Reserve derives its authority from the U.S. Congress. It 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. …

However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as “independent within the government …

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.”

Federal Reserve Profits are paid to American Citizens

By law, the Treasury has claim to all income after expenses (which includes a standard 6% dividend to member banks). This can be found in the US Code .. TITLE 12 > CHAPTER 3 > SUBCHAPTER VI > § 290, Use of earnings transferred to Treasury.

The net earnings derived by the … Federal reserve banks shall, in the discretion of the Secretary, be used to supplement the gold reserve held against outstanding United States notes, or shall be applied to the reduction of the outstanding bonded indebtedness of the United States under regulations to be prescribed by the Secretary of the Treasury.

Simply pass a law that no one with a conflict of interest can be an officer of either the Treasury or the Federal Reserve and both will then clearly be understood as the socially-owned financial institutions under the control of Congress. Without those conflicts of interest, the massive corruption within the banking structure under President George Bush and continuing under President Barack Obama could never have taken place.

Reducing Other Conflicts of Interest

Some of the largest member banks within a Federal Reserve district which own stock in the Federal Reserve, and thus indirectly get to vote on Federal Reserve board members, are controlled by major banks in Europe.

That conflicts of interest of foreign bankers within American banks and the Federal Reserve is reason enough to exercise the right to buy back those shares and vote only for board members and a Board of Directors with no conflicts of interest, either foreign or domestic.

Had all the above been in place in the early stages of this 2008-09 financial collapse, those trillions of borrowed and created dollars would have been pointed at the real economy instead of at the very people who had created this crisis. Those corrupt bankers and financiers would have paid dearly for their thefts of our wealth, for the crashing of our economy, and the economy could have been quickly made whole. A shorter outline of  establishing that efficient economy is here.

More sources:  What is the Federal Reserve System? —–   Who owns the Federal Reserve?

What are the Federal Reserve’s responsibilities? —-    How is the Federal Reserve System structured?

How is the Federal Reserve funded? —–  Why did Congress want the Federal Reserve to be relatively independent?

Are the Federal Reserve System and Reserve Banks ever audited?—–     When was the Federal Reserve created?

Since the Federal Reserve has considerable discretion in carrying out its responsibilities, to whom is it accountable?

Socially Owned Banks are Many Times More Efficient than Private Banks

Socially owned banks being many times more efficient than private banks is easy to understand. After all, private banks crash, go public, are put back together by the government, and sold back out to new owners who continue extracting wealth, as opposed to producing wealth, as private banking was designed to do.

The only labor-created values within a banking structure are brick, mortar, and furniture. Those massive unearned values are based on a banks license. Yes private banks need millions of dollars in equity to start up but socially owned banks would need no such startup funds. They—in alliance with, and under the supervision of, the Federal Reserve—can create money any time it is necessary.

Scottish bankers figured out that costs of banking, using expensive hand accounting and including the costs of brick and mortar, is covered by 1% interest on loans made. With cheap electronic accounting, those costs are covered by ½ of 1% interest on loans.

All interest above those operating costs is earned money when returned to society to cover essential services, such as health care and education, if socially-owned. When privately collected, that extracted wealth, measured in money, is then automatically capitalized 10 to 30 times within the stock market. Capitalizing profits, both earned and unearned, gave capitalism its name and those capitalized unearned profits which properly should go to all members of society in roughly equal shares is the heart of the monopoly system which we are told does not exist.

Sixty Percent of Our Finance Capital is both Unearned and Unproductive.

For years we have pointed out that this massive unearned wealth is more than monopolists can spend on conspicuous consumption or that they can find a place to safely invest. Those domestically extracted surpluses (they are unearned) first buy up the wealth of other nations (known as the export of capital).

Those even higher unearned profits (one cannot rob a bank, get caught 10 years later, and keep the profits) increase the extracted and unspendable funds further. With overseas markets saturated, monopolists turn to gambling with each other. Those totally unproductive activities (derivatives, credit default swaps, etc.) reach into the real economy to extract more wealth properly belonging to all citizenry of the world. (The plunder by trade story explains how unearned wealth has been, and is being, extracted from the periphery of empire.)

That unearned wealth continually expands and eventually becomes so unbalanced it crashes the economy. William K Black alerts us that “Forty years ago our real economy grew better with a financial sector that received one-twentieth as large a percentage of total profits (2%) than does the current financial sector (40%).”  Thank you William K Black for that quantification of 95% of current finance capital being non-productive. A study of anUnderstandable Full and Equal Rights Economy will alert us that it is also unearned wealth.

William Black quantified the massive unearned finance capital within today’s economy that is reducing the efficiency of both domestic economies and world economies by fully 60% as our research has been saying for decades. Actually much more than 60% when one factors in the accumulative gains possible when Technology is fully shared with all nations.

This means that 95% of our finance capital is money that grew ever larger every year, eventually had no place to be safely invested, so they turned to gambling between themselves (derivatives, credit default swaps, and other totally unproductive endeavors),  and finally unbalanced and crashed the economy.

Managing an economy is not really complicated if the citizenry ever gain full and equal rights and vote in “their” representatives instead of voting in those who represent wealth and power.  This blog explains it a little deeper.  The same 170 word thesis as referenced several times above.

Our books go into it deeper yet.

Economic Democracy: A Grand Strategy for World Peace and Prosperity, Revised 2nd Edition, 2009

Money: A Mirror Image of the Economy, Revised 2nd edition, 2009

One important myth I do not address above is that “Private banks create money.” Citing 12 points, pages 32-33 in Money and pages 292-93 in Economic Democracy, I have very carefully set that myth aside. Those pages can be accessed at http://www.ied.info/books/economic-democracy-world-peace and those 12 points studied.

Point # 3 points out that no bank would go broke if they had the right to create money. To that I  would add that no where within today’s blog world, and I marvel at the brilliance of many of them, nowhere do you find an example of private creation of money actually having occurred. The simple truth is that if they could create money they would not be in crisis. Another simple truth is that Socially-owned banks can, under the guidelines of the Federal Reserve, create money while, as thoroughly addressed, private banks cannot.

The 170 word thesis cited above explains how simple an honest full and equal rights economy can be. When done explaining this I usually ask, “You never before heard one thing I just told you did you?” Most would say, “No I didn’t.” “And you understood every word I said, didn’t you?” “Yes I did.” “Could you see the flow of products and services one way and money the other way within that efficient economy?” “Yes I could.” Please study that thesis carefully and point out to me any social need you see that is not automatically provided within that full and equal economic rights structure.Nobody has yet pointed one out to me.

We are all in this together. Every one of you are sincerely looking for those answers. If you recognize how easily society can be cared for within a full and equal rights social structure, please join our efforts to get this to the world.
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4 Responses to “The Simplicity of Auditing the Federal Reserve, Taking over Bankrupt Banks, and Making Them Vibrant Socially-Owned Banks”

  1. On March 20th, 2010 at 6:40 pm, zynga said :

    lol some of the observations readers enter make me giggle, alot of times i ponder if they actually read the subject material and threads before leaving a comment or whether or not they simply skim the post title and prepare the initial thought that one thinks of. anyways, it is pleasant to look over smart commentary occasionally as opposed to the exact same, old blog vomit that i oftentimes observe on the web i’m off to take up a couple of rounds of facebook poker hasta la vista

  2. On June 22nd, 2010 at 3:47 am, education info said :

    Actually, I often see/read/hear things that I agree with you. Perfect Post.

  3. On September 5th, 2010 at 5:35 pm, George May said :

    This is a very good articles that explains how the banking system can be fixed. But I think the con game played by the bankers need to be explained to help people understand why a change is needed.

    When we borrow, banks create money out of thin air and demand interest for it:

    http://www.trading stocks.net/html/banks_create_money.html

    Money is NOT what is printed by the FED. Money is the credit, the IOUs created by the banks. The relentless inflation that we have seen for almost 100 years is the testimonial. Banks make these impossible promisses and when they get into trouble, they are made whole by the FED while the ordinary citizens loose their homes, businesses, their life time savings.

    Then average Joe works for 30 years to pay his mortgage with hard earned money, while the bank continues to have a claim on his house just because they created money by making a promise to pay (which they never fullfil). This fractional reserve banking and interest based monetary system is destined to fail. Deflationary crash is built into it. Therefore they allowed mortgage interest deduction from income, to make the music last longer. After they ran out of prime borrowers, they went through sub-prime. Otherwise deflationary crash would have arrived sooner. Therefore they changed the bankruptcy rules in 2005 to have a claim on borrowers’ future income. Then they created too big to fail and scared the congress to bail them out at tax payer expense. In other words, they ran the bankrupt system knowing that it would crash, but at the end the bill still went to the tax payer.

    An entire nation cannot borrow for decades, inflate the money supply and the prices (including stock prices) with borrowed money and hope that all will be fine when the borrowing stops! Why? Because when entire money supply is debt (which is principal), principal + interest cannot be paid back. It cannot be earned. Thus some of us are guaranteed to go bankrupt. This is the nature of deflation beast.

    Some claim that this makes mortgage contracts an “impossible contract” since some of the borrowers are guaranteed to foreclose. But due to the systemic problem, courts reject to hear it. It is time for people to understand how we are being conned and change the system for good. There is a way to make it fair and balanced and still have flexibility for growth. Benjamin Franklin realized it long time back.

    People (the representative government) can create it’s own money. Borrowers can borrow from other people (government banks) and the government can print and spend the interest portion into the economy via public services so that borrowers can earn it and pay back. This fixes deflation in a fair way (unlike printing money and giving only to the bankrupt banks).

    Inflation can be avoided when the government receives the interest payments from borrowers and destroys them since an equal amount has already been spent into the economy.

  4. On September 5th, 2010 at 5:36 pm, George May said :

    Link correction: How banks create money in the form of bank credit: http://www.tradingstocks.net/html/banks_create_money.html

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