Profile: US Federal Reserve
US Federal Reserve was a participant or observer in the following events:
Arthur Porth, a Wichita, Kansas, building contractor, files a claim in a Kansas court to recover his income tax payment of $151. Porth argues that the 16th Amendment is unconstitutional because it places the taxpayer in a position of involuntary servitude contrary to the 13th Amendment. The court rules against Porth, but the defeat does not stop him. For 16 years Porth continues battling the income tax requirement, finding new and inventive challenges to the practice. He claims that the 16th Amendment “put[s] Americans into economic bondage to the international bankers,” a claim that the Southern Poverty Law Center will call “a thinly veiled anti-Semitic reference to the supposed ‘international Jewish banking conspiracy.’” He also argues that because paper money is not backed by gold or silver, taxpayers are not obligated to pay their taxes because “Federal Reserve notes are not dollars.” In 1961, Porth files an income tax return that is blank except for a statement declaring that he is pleading the Fifth Amendment, essentially claiming that filling out a tax return violates his right of protection from self-incrimination, a scheme that quickly becomes popular among anti-tax protesters. Porth becomes an activist and garners something of a following among right-wing audiences, traveling around the country distributing tax protest literature that includes a book, A Manual for Those Who Think That They Must Pay an Income Tax. He even issues his own “arrest warrants” against “bureaucrats” whom, in his view, violate the Constitution. In 1967, Porth is convicted of a number of tax evasion charges, but, as the Anti-Defamation League will later write, “he had already become a grass-roots hero to the nascent tax protest movement.” His cause is championed by, among others, William Potter Gale, who will go on to found the racist, anti-government Posse Comitatus movement (see 1969). Gale uses the newsletter of his Ministry of Christ Church, a church espousing the racist and anti-Semitic theology of Christian Identity (see 1960s and After), to promote Porth and the early tax rebellion movement. Porth exhausts his appeals and goes to jail; though sentenced to five years’ imprisonment, he only serves 77 days. One of Porth’s most active followers is his lawyer, Jerome Daly, whose activism eventually leads to his disbarment (see December 9, 1968 and After). Daly meets Porth in 1965 and files his own “protest” tax return just days before Porth is indicted by a grand jury. Daly is also convicted of tax evasion; in 1969, a federal appeals court will issue a ruling invalidating what has by then become known as the “Porth-Daly Fifth Amendment Return.” Porth receives the support of several far-right organizations, many of whom tie their racist views into his anti-tax protests. In a 1967 article for the far-right American Mercury magazine, tax protester and editor Martin A. Larson writes, “The negroes in the United States are increasing at a rate at least twice as great as the rest of the population,” and warns that the tax burden posed by blacks “unquestionably doomed… the American way of life.” Larson will later write regular columns for the white supremacist magazine The Spotlight, in which he will call black women prostitutes whose “offspring run wild in the streets, free to forage their food in garbage cans, and grow up to become permanent reliefers, criminals, rioters, looters, and, in turn, breeders of huge litters of additional human beings belonging to the same category.” He will also write several books promoting Porth’s anti-tax protest strategies. [Southern Poverty Law Center, 12/2001; Anti-Defamation League, 2011]
Minnesota attorney Jerome Daly defends himself in a lawsuit filed by the First National Bank of Montgomery, in a case later cited as First National Bank of Montgomery v. Daly. The bank sues Daly in Credit River Township, Minnesota, after foreclosing on his property for nonpayment of his mortgage, and seeks to evict Daly. Daly, a well-known anti-tax protester who has filed “protest” tax returns in the past (see 1951-1967), argues that the bank never actually loaned him any money, but merely created credit on its books. Since the bank did not give him anything of tangible value, he argues, the bank has no right to his property. Both the jury and the Justice of the Peace presiding over the case, Martin V. Mahoney, agree, and declare the mortgage “null and void.” In his ruling, Mahoney admits that the verdict runs counter to provisions in the Minnesota Constitution and some Minnesota statutes, but contends that such provisions are “repugnant” to the Constitution of the United States and the Bill of Rights in the Minnesota Constitution. Mahoney finds in his ruling that all Federal Reserve paper money has no intrinsic value. Initially, Daly retains his right to the property and has his mortgage revoked, but the bank appeals the case and the verdict favoring Daly is reversed, as is a similar lawsuit brought by Daly against another bank. The Minnesota Supreme Court begins proceedings against Mahoney and Daly for “constructive contempt” of the law. Mahoney’s death in 1969 voids the proceedings against him, but Daly is subsequently disbarred for his arguments, which the Minnesota Supreme Court finds entirely fraudulent, “unprofessional,” and “reprehensible.” The case and its reasoning will be frequently cited in lawsuits challenging the US banking system, particularly the practice of “fractional reserve banking.” The case has no value as precedent, but will often be cited by groups supporting a government-owned central bank or opposing the Federal Reserve system. [State of Minnesota, County of Scott, First National Bank of Montgomery v. Daly, 12/9/1968 ; State of Minnesota, County of Scott, First National Bank of Montgomery v. Daly, 1/12/1969 ; US District Court for the District of Utah, 10/28/2008; Minnesota State Law Library, 5/27/2010]
The logo of the Posse Comitatus. [Source: Underground News Network]The Posse Comitatus, an anti-Semitic, right-wing “Christian Identity” organization (see 1960s and After), is founded by retired dry-cleaning executive Henry L. Beach in Portland, Oregon, who calls his organization the Sherriff’s Posse Comitatus (SPC) or Citizen’s Law Enforcement Research Committee (CLERC). Beach has supported Nazism since the 1930s, and formerly led a neo-Nazi organization called the Silver Shirts (see January 31, 1933). The Posse Comitatus is quickly taken over by William Potter Gale, a retired Army colonel who founded a similar organization called the US Christian Posse Association in Glendale, California, and manages to roll the two groups, and a few other loosely organized entities, into one. The Posse Comitatus dedicates itself to survivalism, vigilantism, and anti-government activities; its bylaws state that no federal or state governmental entity has any legal standing, and only county and town governments are legitimate. Furthermore, the organization believes that the entire federal government is controlled by Jews, and as such has no authority over whites. Beach’s original Posse manual states, “[O]fficials of government who commit criminal acts or who violate their oath of office… shall be removed by the posse to the most populated intersection of streets in the township and, at high noon, be hung by the neck, the body remaining until sundown as an example to those who would subvert the law.” According to a 1986 advisory published by the IRS, “members associated with some of the Posse groups wear tiny gold hangmen’s nooses on their lapels.” Posse members refuse to pay taxes whenever they can get away with it, and ignore laws that they feel cannot be enforced by “the enemy.” Instead, they claim to abide by a “common law,” defined as a set of principles that they themselves create and change at will. The organization begins making inroads into the farm communities of the Northwest and Upper Midwest after federal mismanagement of agricultural policies threatens the livelihood of many area farmers; the Posse tells them, “Farmers are victims of a Jewish-controlled government and banking system, federal taxes are illegal and loans need not be repaid.” Some area farmers embrace the message, and the Posse begins heavily recruiting in Michigan. [Ian Geldard, 2/19/1995; Nicole Nichols, 2003]
Anti-Government, Anti-Tax Ideology - The Posse Comitatus believes that the federal and state governments are inherently illegal and have no authority whatsoever; the highest elected official of the land, it says, is the county sheriff, who can form juries and call out “posses” of citizens to enforce the law as necessary. The movement strongly opposes paying taxes, particularly to the Internal Revenue Service (IRS), and considers money issued by the Federal Reserve System as illegal. It says that the Constitution’s 16th Amendment, which gave Congress the right to tax citizens’ incomes, was illegally ratified and therefore unconstitutional; moreover, it says, careful examination of federal law tells it that income taxes are entirely voluntary. The Federal Reserve System is, as one Posse publication puts it, “a private monopoly which neither the people nor the states authorized in the Constitution.” The Federal Reserve’s printed money violates the Constitution. Some, but not all, Posse Comitatus members also express racist and separatist views similar to those of Christian Identity believers (see 1960s and After); these members say that the Federal Reserve is controlled by a small cabal of international Jewish bankers who intend to destroy the American economy. [Mark Pitcavage, 5/6/1996; US Constitution: Sixteenth Amendment, 2011; Anti-Defamation League, 2011] Posse Comitatus members use the threat of violence, and sometimes actual violence, to express their anti-tax and anti-government ideologies (see 1972 and 1974).
Township Movement - The Posse spawns a directly related ideology, the “township movement,” led in part by Utah resident Walt P. Mann. Township advocates advocate setting up small sovereign communities that are answerable only to themselves. The Posse will set up a “constitutional township” on a 1,400-acre plot in Wisconsin and name it “Tigerton Dells,” posting signs that say, “Federal Agents Keep out; Survivors will be Prosecuted.” Tigerton Dells will appoint its own judges and foreign ambassadors before federal authorities seize the property (see 1984).
Movement Spreads throughout Northwest, Plains States - By 1976, an FBI report says that the Posse Comitatus movement will consist of up to 50,000 adherents throughout the Northwest and Great Plains states. The center of the movement is at Tigerton Dells; Posse members there will disrupt local government meetings and assault public officials. The farm crisis of the early 1980s will allow the Posse to begin converting angry, frightened farmers throughout the region. In 1996, the Anti-Defamation League’s Mark Pitcavage will write, “The Posse offered up targets for people to blame: the courts, the money system, the federal government, the Jews.”
Waging Legal Battles - While some Posse members offer violence to law enforcement and public officials (see February 13, 1983 and After), most of their battles with the government take place in court. Posse members most frequently use two common legal strategems: filing frivolous liens on the properties of public officials who oppose or anger them, particularly IRS agents, and flooding the courts with a barrage of legal documents, filings, motions, and appeals. The liens carry no legal weight but sometimes damage the recipients’ credit scores and interfere with the recipients’ ability to buy or sell property. The court documents, often written in arcane, archaic, and contradictory legal language, clog the court system and frustate judges and prosecutors. A related tactic is the establishment of “common law courts,” vigilante courts that often threaten public officials. [Mark Pitcavage, 5/6/1996]
Inspiration to Other Groups - The Posse Comitatus’s ideology will inspire other anti-government groups, such as the Montana Freemen (see 1993-1994).
Entity Tags: US Federal Reserve, William Potter Gale, Walt P. Mann, Internal Revenue Service, Posse Comitatus, Federal Bureau of Investigation, Henry L. Beach, Mark Pitcavage, Sherriff’s Posse Comitatus, US Christian Posse Association
Timeline Tags: Domestic Propaganda, US Domestic Terrorism
Arizona tax protester Marvin Cooley writes a best-selling book, The Big Bluff, documenting the struggles of his fellow anti-tax protester, W. Vaughn Ellsworth. Cooley, whose gruff tirades against the IRS and the federal government make him popular on the far-right speaking circuit—in 1971, he wrote to the IRS: “I will no longer pay for the destruction of my country, family, and self. Damn tyranny! Damn the Federal Reserve liars and thieves! Damn all pettifogging, oath-breaking US attorneys and judges.… I will see you all in Hell and shed my blood before I will be robbed of one more dollar to finance a national policy of treason, plunder, and corruption”—includes sample letters and copies of his own tax returns in his book. Among Cooley’s adherents is Robert Jay Mathews, who will go on to found the violent neo-Nazi group The Order (see Late September 1983). In 1970, the 17-year-old Mathews, still living with his parents in Phoenix, becomes a sergeant-at-arms for some of Cooley’s meetings. In 1973, Mathews will use Cooley’s income tax theories to fraudulently list 10 dependents on his W-4 tax form, a common protest tactic that winds up with Mathews convicted of tax fraud (see 1973). Cooley, a vocal proponent of tax protester Arthur Porth (see 1951-1967)‘s “Fifth Amendment Return” strategy (refusing to pay taxes on Fifth Amendment grounds) will go to jail for tax evasion in 1973 and again in 1989. [Southern Poverty Law Center, 12/2001; Anti-Defamation League, 2011]
Frank Sturgis, one of the Watergate burglars. [Source: Bettmann / Corbis]A covert unit of President Nixon’s “Plumbers” installs surveillance equipment in the headquarters of the Democratic National Committee in Washington’s Watergate hotel and office complex. The Washington police report an attempt to unscrew a lock on the door of the Committee’s office between 11 p.m. and 8 a.m., but do not know as yet who tried to force the lock. Some of the five men caught burglarizing the same offices six weeks later (see 2:30 a.m.June 17, 1972) are currently registered at the Watergate Hotel, according to subsequent police investigations. [Washington Post, 6/18/1972; Gerald R. Ford Library and Museum, 7/3/2007]
Change of Plans - According to one of the burglary team (see April-June 1972), Eugenio Martinez, the original plan centers on a fake “banquet” in the Watergate hotel for their fake company, the Ameritus Corporation, to be held in a private dining room that has access to the elevators. While team leader and White House aide E. Howard Hunt hosts the banquet, Martinez and the other burglars will use the elevator to go to the DNC offices and “complete the mission.” Virgilio Gonzalez, a locksmith, will open the door; Frank Sturgis, Reinaldo Pico, and Felipe de Diego will act as lookouts; Bernard Barker will get the documents; Martinez will take photographs; and James McCord will “do his job,” apparently involving electronics that Martinez does not understand.
First Time Failure - Apparently they do not follow their plan. Instead, Hunt and the seven members of what Martinez calls “McCord’s army” enter the Watergate complex at midnight, and they enter and sign in under the eye of a policeman. McCord explains that they are all going to work at the Federal Reserve offices on the eighth floor, an explanation Martinez feels is shaky. They are unable to get in through the doors of the sixth floor, and are forced to cancel the operation. Martinez recalls that while the others attempt to get in to the sixth floor, McCord is busy doing something else on the eighth floor; at 2 a.m., he sees McCord on the eighth floor talking to two guards. What McCord is doing, Martinez does not know. “I did not ask questions, but I thought maybe McCord was working there,” he will later recall. “It was the only thing that made sense. He was the one who led us to the place and it would not have made sense for us to have rooms at the Watergate and go on this operation if there was not someone there on the inside.” Hunt is furious at the failure to get into the DNC offices, and reschedules the operation for the next night. Gonzales flies to Miami and brings back his entire set of lockpicking tools. Martinez questions the laxity of the plan—the lack of floor plans, information about the elevators, knowledge of the guards’ schedules, and no contingency plans for failure. Hunt tells him, through Barker: “You are an operative. Your mission is to do what you are told and not to ask questions.”
Success - The second try is successful. Gonzalez and Sturgis get through the doors and usher everyone in, with one of them calling over their walkie-talkie, “The horse is in the house.” Martinez recalls taking “thirty or forty” photographs of campaign contributor documents, and McCord plants three phone taps, telling the others that while the first two might be discovered, the third will not. They return to their hotel rooms about 5 a.m. [Harper's, 10/1974]
Entity Tags: Reinaldo Pico, US Federal Reserve, Richard M. Nixon, Felipe de Diego, Democratic National Committee, Bernard Barker, ’Plumbers’, Frank Sturgis, James McCord, E. Howard Hunt, Eugenio Martinez
Timeline Tags: Civil Liberties, Nixon and Watergate, Elections Before 2000
Kamal Adham. [Source: Adham Center]Beginning in 1978, a group of foreign investors attempt to buy First American Bankshares, the biggest bank in the Washington, D.C., area. This group is fronted by Kamal Adham, the longtime Saudi intelligence minister until 1979. In 1981, the Federal Reserve asks the CIA for information about the investors, but the CIA holds back everything they know, including the obvious fact that Adham was intelligence minister. As a result, the sale goes through in 1982. It turns outs that Adham and his group were secretly acting on behalf of the criminal Bank of Credit and Commerce International (BCCI), and BCCI takes over the bank. [Washington Post, 7/30/1991; US Congress, Senate, Committee on Foreign Relations, 12/1992] Time magazine will later report that “the CIA kept some accounts in First American Bank, BCCI’s Washington arm.” But additionally, “Government investigators now have proof that First American had long been the CIA’s principal banker. Some of the more than 50 agency accounts uncovered at the bank date back to the 1950s. BCCI owned the CIA’s bank for a decade.” [Time, 3/9/1992] The CIA soon learns that BCCI secretly controls the bank, if the CIA didn’t already know this from the very beginning. By 1985, the CIA will secretly inform the Treasury Department on the bank’s control by BCCI, which would be illegal. But no action is taken then or later, until BCCI is shut down. Sen. John Kerry’s BCCI investigation will later conclude, “even when the CIA knew that BCCI was as an institution a fundamentally corrupt criminal enterprise, it used both BCCI and First American, BCCI’s secretly held US subsidiary, for CIA operations. In the latter case, some First American officials actually knew of this use.” [US Congress, Senate, Committee on Foreign Relations, 12/1992]
Ben Klassen, the founder and leader of the Church of the Creator (COTC—see 1973), mails unsolicited copies of his booklet, “The Brutal Truth About Inflation and Financial Enslavement—The Federal Reserve Board—The Most Gigantic Counterfeiting Ring in the World,” to people and organizations he feels might be interested in his views. The essay alleges that “the Federal Reserve banks are owned, lock, stock, and barrel, by a criminal gang of ‘International Bankers,’” and claims, “The Federal Reserve owns the US government and manipulates it like a puppet, solely for the interests of this avaricious international gang of Jewish jackals, who control the world, its money, and its economy.” The essay concludes, “Now that you understand the Jewish program of piracy, looting, and enslavement by means of the Federal Reserve and money manipulations, now get the rest of the story and the program of the Church of the Creator by reading their White Man’s Bible: Nature’s Eternal Religion” (see 1981). [Anti-Defamation League, 1993]
The US Federal Reserve, under recent Carter appointee Paul Volcker, declares that it will begin a major policy shift by tightening the money supply. Its main method of doing so will be significant increases in the interest rate. [Campbell, 2005, pp. 194-195]
President Jimmy Carter signs the Depository Institutions Deregulation and Monetary Control Bill into law. Carter says the bill will “help control inflation, strengthen our financial institutions and help small savers.” Among the bill’s main provisions are raising of ceilings on the interest paid to small savers and a substantial enhancement to the monetary control powers of the nation’s central bank, the Federal Reserve System. The main provisions of the law:
Permanently overrides state-imposed ceilings on mortgage rates unless states act within three years to reenact them.
Wipes out for three years interest rate limits on agricultural and business loans of more than $25,000.
Increases to 15 percent from 12 percent the maximum interest rate on credit union loans, with even higher rates possible for periods up to 18 months.
Continues use of credit union share drafts, bank’s automatic transfer accounts and remote service units.
Simplifies truth-in-lending laws.
Requires lenders to repay consumers for overcharges.
Authorizes federal savings and loan associations to expand their consumer loan and credit card operations and allows them to offer trust services.
Gives the Federal Reserve a more effective reach by establishing a universal and uniform system of banking reserves. Over an eight year period all depository institutions, including savings and loan associations and mutual savings banks, will be encouraged to post reserves with their chapter Federal Reserve banks which will be 12 percent of all transactions as opposed to the tiered structure at 16 1/4 percent, leaving those that left the Federal Reserve System prior to the enactment of this law at a competitive disadvantage until they themsleves register their funds with the Federal Reserve. [New York Times, 4/1/1980, pp. 1]
William Bergman. [Source: Publicity photo]An unexplained significant increase in the amount of US currency in circulation causes one economist to later consider whether some individuals might have had foreknowledge of the impending September 11 attacks. Between June and August 2001, the currency component of the “M1 aggregate”—which includes currency in circulation and demand deposits—reported by the US Federal Reserve, increases by the greatest amount over the June-August period since 1947, the first year for which this data is reported. [Sanders Research Associates, 9/16/2005; Devine and Miles, 1/20/2006 ] Economist William Bergman, who works at the Federal Reserve Bank of Chicago from 1990 to 2004, will later point out: “The August increase alone was the third largest single monthly increase since 1947, trailing only December 1999 (with pre-Y2K concern as well as terrorism threats) and January 1991 (the onset of US military action in Iraq, and an important enforcement month in the BCCI money laundering scandal).… The above-average growth in currency in July and August 2001 totaled over $5 billion.” Bergman will suggest the spike in currency growth might indicate some people possessing foreknowledge of the 9/11 attacks: “[A]nyone mindful that their financial assets might be seized or otherwise at risk after the attacks converted their bank accounts to a more liquid asset before the attacks.” He will explain: “Under money laundering and other laws, including those applied in a time of war or a declared national emergency, assets in the banking system can be frozen and seized. The implied incentives help explain a related phenomenon called ‘wartime hoarding.’ Historically, in wartime, currency in circulation outside of banks has tended to rise relative to other forms of money like bank deposits.… Was ‘wartime hoarding’ at work right before 9/11? The conversion of bank accounts into currency could have been responsible for the surge in currency in July and August 2001.” A less sinister alternative explanation for the currency surge might possibly be the currently deteriorating banking conditions in Argentina. [Sanders Research Associates, 1/4/2006] There is also a high level of fear within the US government and intelligence community around this time, about the threat in general of an imminent terrorist attack (see Summer 2001, June-July 2001, June 28, 2001, and June 28, 2001). As the Government Accountability Project will in 2006 write: “The [Federal Reserve’s] failure to date to publicly address the growth in currency in mid-2001 is conspicuous. If a benign explanation exists, or if for whatever reasons the currency growth is irrelevant, the Fed should say so publicly, and explain why this is the case. A failure to do so raises… troubling questions.” [Devine and Miles, 1/20/2006 ] Also around this time, on August 2, 2001, the Federal Reserve Board of Governors issues—without explanation—a letter to Federal Reserve banks, which emphasizes the importance of monitoring suspicious activity reports (see August 2, 2001). [Spillenkothen, 8/2/2001]
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $20 million in $1, $5, and $10 bills. The money is drawn from the Development Fund for Iraq (DFI) and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. This is the first of several shipments, totaling some $12 billion, that will be made over the next 14 months. [US Congress, 2/6/2007 ]
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $179.3 million in cash during this month. The money is drawn from the Development Fund for Iraq (DFI) and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ]
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $465.9 million in cash during this month. The money is drawn from the Development Fund for Iraq (DFI) and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ]
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $391.2 million in cash during this month. The money is drawn from the Development Fund for Iraq (DFI) and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ]
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $808.2 million in cash during this month. The money is drawn from the Development Fund for Iraq (DFI) and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ]
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $400.0 million in cash during this month. The money is drawn from the Development Fund for Iraq (DFI) and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ]
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $464.0 million in cash during this month. The money is drawn from the Development Fund for Iraq (DFI)and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ]
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $500 million in cash during this month. The money is drawn from the Development Fund for Iraq (DFI)and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ]
“Brick” of $400,000 in U.S. Currency (4,000 $100 bills) [Source: Federal Reserve Bank of New York] (click image to enlarge)At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $1.5 billion in cash. The money is drawn from the Development Fund for Iraq (DFI) and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ; Reuters, 2/7/2007]
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $750.4 million in cash during this month. Payments in the same amount will be made in March (see March 2004) and April (see April 2004). The money is drawn from the Development Fund for Iraq (DFI) and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ]
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $750.4 million in cash during this month. Payments in the same amount are made in February (see February 2004) and April (see April 2004). The money is drawn from the Development Fund for Iraq (DFI)and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ]
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $750.4 million in cash during this month. Payments in the same amount were made in February (see February 2004) and March (see March 2004). The money is drawn from the Development Fund for Iraq (DFI)and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ]
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $1 billion in cash during this month. The money is drawn from the Development Fund for Iraq (DFI) and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ]
Pallets of US Currency Arriving in Iraq [Source: US Congress. House Committee on Government Reform] (click image to enlarge)At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $2.4 billion in cash. This is the largest cash pay-out of US
currency in Federal Reserve history. This shipment is quickly followed by another large shipment three days later (see June 25, 2004). The money is drawn from the Development Fund for Iraq (DFI)and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ; Reuters, 2/7/2007]
Cash shipments to Iraq by month [Source: US Congress. House Committee on Government Reform] (click image to enlarge)The US Federal Reserve sends the Coalition Provisional Authority (CPA) in Baghdad $1.6 billion on giant pallets aboard military C-130 cargo planes. This is the last of a series of several shipments that began in April 2003 (see April 2003). The money was drawn from the Development Fund for Iraq (DFI)and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. Most shipments were under $1 billion, except for this one and two others, one in December, and one just three days before (see December 12, 2003 and June 22, 2004). Together these shipments amount to $12 billion, some 363 tons of palleted cash. This shipment and the other June shipment of $2.4 billion (see June 22, 2004) account for almost half of the total amount shipped to Iraq. There will be no more shipments to the CPA after this date because on June 28, authority to govern Iraq, and hence the authority to manage Iraq’s funds, will be transferred to Iraq’s new Interim Government (see June 28, 2004). [US Congress, 2/6/2007 ; Reuters, 2/7/2007]
Hours after the Coalition Provisional Authority hands over Iraqi sovereignty to an interim government (see June 28, 2004), the CPA sends requests to the Federal Reserve Bank in New York asking that an additional $1 billion be withdrawn from Iraq’s accounts at the Federal Reserve and be shipped to Iraq. The request is rejected on grounds that the CPA no longer has authority to manage Iraq’s assets. Since April, the Federal Reserve has shipped some $12 billion dollars to the CPA. Five billion of this was sent just within the last six days (see June 22, 2004 and June 25, 2004). A Federal Reserve document states that “effective as of the time AMB Bremer transferred authority (which is being reported in the press as 10:26 am in Baghdad), the CPA no longer had control over Iraq’s assets…. [S]ubsequent to transfer of sovereignty, COL Davis of the CPA sent us $200 million in payment orders to be executed today in New York. We have informed the Colonel that we are not in a position to honor these instructions. Second, also subsequent to the transfer of sovereignty, COL Davis sent us an instruction to transfer $800 million from the DFI main account into the new DFI subaccount, which we understand informally was created by AMB Bremer to hold funds that are ear marked internally within Iraq for payments connected to existing contracts. We have also informed COL Davis that we are not in a position to honor this instruction either (especially since it would require liquidating $1 billion worth of the CBI’s [Central Bank of Iraq] holdings of USG [US Government] securities.” [US Congress, 2/6/2007, pp. 9 ]
Libertarian Representative Ron Paul (R-TX), contemplating a run for the 2008 presidential nomination, discusses the many federal programs, agencies, and bureaus he would eliminate if he had the power. He would do away with the CIA, the Federal Reserve, the Food and Drug Administration (FDA), the IRS, and the Department of Education, among others. He would eliminate Social Security, Medicare, and Medicaid. He would abolish the federal income tax (see April 28, 1999). He would zero out federal funding for public education, leaving that to local governments. Paul recently refused to vote for federal funds to aid victims of Hurricane Katrina, explaining that to do so would “rob” other Americans “in order to support the people on the coast.” He routinely votes against federal subsidies for farmers. He supports absolute gun rights, and absolutely opposes abortion, though he thinks regulations supporting or denying abortion should be left up to the states. He wants to repeal federal laws regulating drugs and allow prohibited drugs such as heroin to be sold legally. Paul says the US should withdraw from the United Nations and NATO, and wants the country to stop giving foreign aid to any country for any reason, calling such assistance “foreign welfare.” He even says President Lincoln should never have taken the nation to war to abolish slavery. Referring to the years before the income tax, Paul says: “We had a good run from 1776 to 1913. We didn’t have it; we did pretty well.” As for Social Security, “we didn’t have it until 1935,” Paul says. “I mean, do you read stories about how many people were laying in the streets and dying and didn’t have medical treatment?… Prices were low and the country was productive and families took care of themselves and churches built hospitals and there was no starvation.” Historian Michael Katz describes himself as aghast at Paul’s characterization of American life before Social Security. “Where to begin with this one?” he asks. “The stories just break your heart, the kind of suffering that people endured.… Stories of families that had literally no cash and had to kind of beg to get the most minimal forms of food, who lived in tiny, little rooms that were ill-heated and ill-ventilated, who were sick all the time, who had meager clothing.” Charles Kuffner of the Texas progressive blog Off the Kuff writes, “I can only presume that the Great Depression never occurred in whatever universe Paul inhabits.” [Washington Post, 7/9/2006; Charles Kuffner, 7/10/2006]
Entity Tags: United Nations, US Food and Drug Administration, North Atlantic Treaty Organization, Ron Paul, US Department of Education, US Federal Reserve, Charles Kuffner, Central Intelligence Agency, Internal Revenue Service, Michael Katz
Timeline Tags: Global Economic Crises, Domestic Propaganda, 2008 Elections
Alan Greenspan, the former head of the US Federal Reserve, charges in his newly published memoir that the US invasion of Iraq was largely driven by the Bush administration’s desire to control Iraq’s oil reserves. Greenspan says in his book The Age of Turbulence: Adventures in a New World, that he is “saddened that it is politically inconvenient to acknowledge what everyone knows—the Iraq war is largely about oil.” [Agence France-Presse, 9/16/2007; Sunday Times (London), 9/16/2007] In subsequent interviews with the press, though, Greenspan has backed off of his assertion a bit. Iraq’s oil was “not the administration’s motive,” he now says, and goes on to say that the overthrow of Saddam Hussein was essential for the US’s economic stability. “I’m just saying that if somebody asked me, ‘Are we fortunate in taking out Saddam?’ I would say it was essential.” He adds, “I have never heard them basically say, ‘We’ve got to protect the oil supplies of the world,’ but that would have been my motive.” He says he made that argument to White House officials, and one of them told him, “Well, unfortunately, we can’t talk about oil.” [Washington Post, 9/17/2007] Greenspan says he advocated the overthrow of Saddam Hussein, not because of weapons of mass destruction, but because he was convinced Hussein wanted to control the Strait of Hormuz, through which much of the world’s oil passes. That would enable Hussein to threaten the US and its allies, a situation Greenspan found untenable. [Columbia Journalism Review, 9/17/2007] “Iraq was a far greater threat than Iran to the world scene,” he says. [New York Times, 9/17/2007] Greenspan says he believed Hussein should go, but not necessarily through military action. “I wasn’t arguing for war per se. [But] to take [Hussein] out, in my judgment, it was something important for the West to do and essential, but I never saw Plan B”—an alternative to war. In August 2002, seven months before the invasion of Iraq, a National Security Presidential Directive signed by Bush stated as one of the objectives of the invasion was “to minimize disruption in international oil markets.” Greenspan says, “If Saddam Hussein had been head of Iraq and there was no oil under those sands, our response to him would not have been as strong as it was in the first Gulf War. And the second Gulf War is an extension of the first. My view is that Saddam, looking over his 30-year history, very clearly was giving evidence of moving towards controlling the Straits of Hormuz, where there are 17, 18, 19 million barrels a day” passing through. Disruption of even 3 to 4 million barrels a day could have translated into oil prices as high as $120 a barrel, Greenspan now says, and that would have triggered “chaos” in the global economy. Ousting Hussein achieved the purpose of “making certain that the existing system [of oil markets] continues to work, frankly, until we find other [energy supplies], which ultimately we will.” [Washington Post, 9/17/2007]
To assist in the merger of Bear Stearns Companies, Inc. and JP Morgan Chase & Co., the US Federal Reserve authorizes the New York Fed to form Maiden Lane LLC, a Delaware limited liability company. Once established, Maiden Lane is extended credit by the Fed to acquire certain Bear Stearns assets. Maiden Lane funds the purchase of the Bear Stearns asset portfolio of mortgage related securities, residential and commercial mortgage loans, and associated hedges through senior and subordinate loans of approximately $29 billion from the New York Fed, and a much smaller amount, approximately $1.15 billion, from JP Morgan Chase. As of March 14, 2008, the asset portfolio has an estimated fair value of approximately $30 billion. [Federal Reserve Bank of New York, 3/2008]
The United States Federal Reserve has lent Wall Street’s largest investment bank billions of dollars, as the credit crisis threatens to spiral into a full-blown banking crisis. In developments currently rocking the world’s financial markets, the Fed and rival Wall Street bank, JP Morgan Chase, are funneling emergency loans to Bear Stearns, whose exposure to battered credit markets has led to a crisis of confidence in its ability to continue trading. In accelerating numbers, clients and trading partners are pulling business from Bear Stearns, after rumors of its solvency began circulating. During a last-minute conference call with investors, management at the investment bank warned that its emergency lending facility with the Federal Reserve has failed to staunch the bleeding. “We have been subject to a significant amount of rumor and innuendo in the past week,” says Bear Stearns chief executive Alan Schwartz. “We attempted to provide some facts but, in the market environment, the rumors intensified and a lot of people wanted to act to protect themselves first from the possibility that the rumors were true, and wait till later for the facts.” Bear Stearns appears most fragile of Wall Street’s major investment banks, since the July 2007 collapse of two internal hedge funds, providing initial clues about the scale of the unfolding credit crisis. Shares across the banking sector plunge as analysts fear that the Fed’s willingness to intervene suggests that Bear’s future is pivotal to the banking system, and that its failure precipitates losses that may cascade through its trading partners. Bear Stearns stocks are in freefall, closing down 47 percent. Pierre Ellis at New York’s Decision Economics said, “Clearly the Fed is addressing what they feel is a systemic risk very aggressively.” [Belfast Telegraph, 3/15/2008]
AIG logo. [Source: American International Group (AIG)]In an historic move, the federal government bails out insurance corporation AIG with an $85 billion loan, giving control of the firm to the US government. After resisting AIG’s overtures for an emergency loan or other intervention to prevent the insurer from falling into bankruptcy, the government decided AIG, like the now-defunct investment bank, Bear Stearns, was “too big to fail” (see March 15, 2008). The US government will lend up to $85 billion to AIG. In return, the government gets a 79.9 percent equity stake in warrants, called equity participation notes. The two-year loan will carry a LIBOR interest rate plus 8.5 percentage points. LIBOR, the London InterBank Offered Rate, is a common short-term lending benchmark. The bailout comes less than a week after the government allowed a large investment bank, Lehman Brothers Holdings Inc., to fold (see September 14, 2008). As part of the loan agreement, Treasury Secretary Henry Paulson insists that AIG’s chief executive, Robert Willumstad, steps aside. Willumstad will be succeeded by Edward Liddy, the former head of insurer Allstate Corp (see September 18, 2008). [Wall Street Journal, 9/16/2008] Shares in AIG drop to $3.75 on the news. [Bloomberg, 3/5/2009]
After President Bush and US Treasury Secretary Henry Paulson push through a long-sought change in how bank mergers are taxed, Bloomberg News sues the Federal Reserve for failing to reveal loan recipients. The change will deprive US taxpayers of as much as $140 billion in tax revenue. As the economy continues its downward spiral into what is called the worse economic crisis since the Great Depression, sources say that a late September $700 billion bailout is “a quiet windfall for US banks.” [Washington Post, 11/10/2008] The legality of Treasury-negotiated equity deals for many US banks is questioned by tax attorneys, as well as nearly $2 trillion that Ben Bernanke of the Federal Reserve handed out in emergency loans before the $700 billion Troubled Asset Relief Program, or TARP, was enacted (see October 3, 2008). The Fed refuses to reveal which corporations received loans, or what collateral has been presented. Sources say that this secrecy is a legal violation. The Federal Reserve’s lending is significant because the central bank has stepped into a rescue role that was also the purpose of the TARP bailout plan, although without safeguards put into the TARP legislation by Congress. Total Fed lending topped $2 trillion for the first time and has risen by 140 percent, or $1.172 trillion, in the weeks since Fed governors relaxed the collateral standards on September 14. The difference includes a $788 billion increase in loans to banks through the Fed and $474 billion in other lending, mostly through the central bank’s purchase of Fannie Mae and Freddie Mac bonds. [Bloomberg News, 11/10/2008; AlterNet, 11/14/2008]
To facilitate AIG’s ability to complete its corporate restructuring, the New York Federal Reserve, as authorized by the US Federal Reserve, creates Maiden Lane II LLC and Maiden Lane III LLC to fund the purchase of certain multi-sector collateralized debt obligations (CDOs) from certain AIG Financial Products Corporation (AIGFP) counterparts. The Asset Portfolio purchase will be made in two stages, with Maiden Lane II LLC lending AIG $26.8 billion on November 25, 2008, and Maiden Lane III LLC lending AIGFP and its counterparties $2.5 billion on December 18, 2008 (see March, 2008). [Federal Reserve Bank of New York, 11/10/2008]
US Treasury Secretary Timothy Geithner announces a much bigger plan to rescue the US financial system than previously predicted or envisioned, including a much greater government role in markets and banks since the 1930s (see March 15, 2008). Although the administration provides few details, one central portion of the plan that investors most desired to learn about creates bad banks that rely on taxpayer and private investor funds to purchase and hold bad assets racked up by the banks from subprime mortgages, derivatives, and credit defaults. An additional focal point of the plan stretches the final $350 billion that the Treasury may use for the bailout, relying on the Fed’s capability to create money. This last tranche of funding allows the government to be involved in the management of markets and banks. For example, with the credit markets, the administration and the Fed propose to expand a lending program that spends as much as $1 trillion as a replacement for the $1.2 trillion decline between 2006 and 2008 for the issuance of securities backed primarily by consumer loans. The third component of the plan gives banks new capital to lend, but banks that receive new government assistance will have to cut the salaries and perks of their executives and limit dividends and corporate acquisitions. Banks must also publicly declare more information about their lending practices. With the newly proposed Treasury requirements, banks will have to give monthly statements on how many new loans they make, yet the plan stops short of ordering banks to issue new loans or requiring them to account in detail for the federal money. The Obama administration’s commitment to flood the banking system with funds will combine the $350 billion left in the bailout fund; the rest of the money will be from private investors and the Federal Reserve. Some market observers, along with some federal legislators and economists, criticize the plan for its lack of details. [New York Times, 2/10/2009]
Citigroup CEO Vikram Pandit is in talks with the US government to increase the amount of public ownership of the bank in a move both politicians and bank bosses hope will avert the need for the ailing corporation to be taken into FDIC receivership (see March 15, 2008). Talks commenced after Citigroup shares dropped more than 20 percent in late trading on Friday, leaving the business with a share value of $10.6 billion, with balance sheet assets of $1.95 trillion. Government receivership of Citigroup is seen as politically unpalatable, and US taxpayers could conceivably own up to 40 percent of Citigroup. Economists see government takeover of the corporation as evidence of other major banks struggling with insolvency. The failure of major banks will have calamitous repercussions. The US treasury says it remains committed to helping the banking industry recover without taking complete control. “Because our economy functions better when financial institutions are well managed in the private sector, the strong presumption… is that banks should remain in private hands,” the Treasury Department said in a joint statement with the Federal Reserve. Speculation that a major Wall Street institution could be taken into public ownership toppled the market on Friday, February 20; likely targets were heavily rumored to be Citigroup and Bank of America. Bank of America lost nearly half its share value in three days before rallying late Friday afternoon. The latest talks center on a Treasury Department proposal to convert preference shares in Citigroup into new ordinary shares. This move would not involve additional taxpayer funds, but taxpayers would surrender the guaranteed dividends that come with preference stock, as well as some degree of protection in the event of a corporate collapse. Serious questions remain, such as the price at which new shares are issued. Estimates of the size of the government’s eventual stake range from 25 percent to 40 percent. With this move, Barack Obama’s administration would become a major presence on Citigroup’s ordinary share register, thus diluting the interests of existing investors, and heightening fears of political pressure being brought on US banks. Some analysts suggest that banks relying on taxpayer bail-outs are being encouraged to focus lending and liquidity on the national US market. [Guardian, 2/23/2009]
Citigroup logo. [Source: Citigroup]The latest government bailout gives Citigroup bond holders excellent terms and doesn’t provide the bank with new money. Instead, Citigroup cut expenses with the elimination of preferred stock dividends, and also converted shares into common equity at an above-market-value of $3.25, positioning itself to take the first hit if it encounters additional losses. Analysts are predicting that the company’s losses will continue to increase. Since the beginning of 2009, Citigroup’s stock has fallen 78 percent. “Debt holders could eventually be required to participate in further government-led restructuring actions,” Standard and Poor’s says. [Bloomberg, 3/2/2009] Citigroup CEO Vikram Pandit tells investors that increasing the bank’s “tangible” common equity from $29.7 billion to as much as $81 billion should “take confidence issues off the table,” about the bank’s loss absorption ability. The bank lost $27.7 billion in 2008, and is predicted to lose $1.24 billion during the first six months of 2009. “There’s no difference here,” says Christopher Whalen, co-founder of Institutional Risk Analytics, a Torrance, California risk-advisory firm. “It won’t fix revenue, and you’re still going to see loss rates.” Whalen says that the government’s efforts are mainly protecting other financial institutions and foreign goverments that are Citigroup bonds holders. “The taxpayer is funding the operating loss and protecting the bondholders,” Whalen notes. “The subsidy for the banks will become one of the biggest lines in Washington’s budget.”
Government Should Organize Citigroup, AIG Bondholders - Whalen also says it would be better if the government organized Citigroup and insurer American International Group Inc. bondholders, since the insurer received a $150 billion US bailout, and also made a deal with the government to convert some of its debt to equity. US government investment fell by more than 50 percent, and the government plans to convert up to $25 billion of its preferred stock to common shares, gaining a 36 percent stake in the bank. At Friday’s closing price of $1.50, government investment is worth approximately $11.5 billion. The bank itself has a stock market value of $8.2 billion as of market closing on February 27.
Analyst: Investors Should Avoid Citigroup Shares - Richard Ramsden, head of a group of analysts at Goldman Sachs Group, recommends that investors avoid investing in Citigroup shares: “It is unclear whether this is the last round of capital restructuring, which means that existing equity may be further diluted in the future.” The bank’s move to convert preferred shares to common equity led Moody’s Investors Service to adjust its senior debt rating for the bank from A3 to A2. Standard and Poor’s also changed its outlook on the bank’s debt from negative to stable. “Citi will face a tough credit cycle in the next two years, which will likely result in weak and volatile earnings,” S&P analyst Scott Sprinzen says. “We cannot rule out the possibility that further government support may prove necessary.” With the first two Citigroup rescue bailouts, the US Treasury bought $45 billion of preferred stock, and the Federal Reserve and FDIC guaranteed the bank against all but $29 billion of losses on a $301 billion portfolio of assets. With the third bailout, the Treasury, the Government of Singapore Investment Corporation, Saudi Prince Alwaleed bin Talal, and other preferred stockholders, agreed to take common stock at $3.25 a share, giving up dividends. The chairman of the House Ways and Means Committee, Charles Rangel (D-NY), says: “The administration and the past administration have tried so many different ways that we can only hope and pray that this time they get it right. It seems like with the banks it is a never-ending thing.” [Bloomberg, 2/28/2009]
Third US Rescue Forces Citigroup Board Changes - The Obama administration demonstrated its willingness to force changes on executives at top banks that receive taxpayer-funded rescue packages by pressing Citigroup to reorganize its 15-member board with new, more independent members. The move sends a message to Wall Street that there are consequences when taxpayer dollars are used to save them. “The government is the new boss, and the new executive committee is no longer on Park Avenue,” says Michael Holland who, as chairman and founder of New York’s Holland & Co., manages nearly $4 billion in investments. [Bloomberg, 3/2/2009]
Entity Tags: Government of Singapore Investment Corporation, Christopher Whalen, Charles Rangel, Alwaleed bin Talal, AIG (American International Group, Inc.), Federal Deposit Insurance Corporation, Vikram Pandit, US Department of the Treasury, Citigroup, Richard Ramsden, Moody’s Investors Service, Standard & Poor’s, Michael Holland, Institutional Risk Analytics, Scott Sprinzen, US Federal Reserve
Timeline Tags: Global Economic Crises
On the same day AIG announces the biggest loss ever in corporate history (see October-November 2008), the bailout of the troubled insurer is again increased and its terms eased. First, the US Treasury and Federal Reserve announce a plan to spend up to $30 billion more on preferred shares. However, the Treasury says the dividend on preferred stock, previously 10 percent, might fall. In addition, the bailout’s terms and conditions are altered to give the insurer a billion-dollar-a-year break on interest and dividend payments. [Bloomberg, 3/5/2009; Reuters, 4/17/2009] The size of the bailout, initially $85 billion, has now more than doubled, and the terms have been eased repeatedly (see September 16, 2008, October 8, 2008, and November 10, 2008).
US Federal Reserve Chairman Ben Bernanke tells a Senate committee that having to rescue the insurer AIG made him “more angry” than any other episode during the financial crisis. “AIG exploited a huge gap in the regulatory system, there was no oversight of the financial products division,” Bernanke says. “This was a hedge fund basically that was attached to a large and stable insurance company.” In addition, on this day stock in AIG closes at 43 cents. [Bloomberg, 3/5/2009]
In a speech to the Tulsa Chamber of Commerce, Federal Reserve Bank of Kansas City President Thomas Hoenig declares that US banks’ ability to remain viable during a deeper recession—while undergoing federal government stress tests—demonstrates that most don’t need more taxpayer money. “Although the United States has several thousand banks, only 19 have more than $100 billion of assets,” Hoenig says. “After supervising authorities evaluate their condition, it is likely that few would require further government intervention.” Designed to demonstrate how much extra capital banks may need to survive a deeper economic downturn, the stress tests are to conclude by April 30, 2009, with the 19 biggest banks’ test results to be disseminated to President Barack Obama in meetings with his economic team. Hoenig reiterates his view that the government shouldn’t prop up failing financial institutions but take them over temporarily and wind them down, as with the 1984 takeover of Continental Illinois National Bank & Trust Co. “I encourage Congress to enact a new resolution process for systematically important firms,” he says. “There has been much talk lately about a new resolution process for systemically important firms that Congress could enact, and implement it as quickly as possible, but we do not have to wait for new authority. We can act immediately, using essentially the same steps we used for Continental. An extremely large firm that has failed would have to be temporarily operated as a conservatorship or a bridge organization and then reprivatized as quickly as is economically feasible. We cannot simply add more capital without a change in the firm’s ownership and management and expect different outcomes.” Hoenig declares that calling a firm “too big to fail” is a “misstatement” because a bank deemed insolvent “has failed.” “I believe that failure is an option,” he says. After the government’s fourth rescue of American International Group Inc. (AIG), Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke called for new powers to take over and sell off failing financial companies, and also called for stronger regulation to constrict risks that might endanger the financial system. The Federal Deposit Insurance Corporation has the authority to take over failing firms, and dispose of their assets, but no such authority exists for non-banking financial firms such as a hedge fund or AIG, which have extensive links throughout the banking system. During a Q&A after his speech, Hoenig tells the audience that the Fed must be prepared to make a timely removal of its stimulus to deter a period of high inflation that could be likened to that of the early 1980s. “You cannot wait until you know for sure the economy is recovering,” Hoenig says, adding that “employment growth tends to lag” and may not be the best indicator of recovery. “We will watch every indicator of data that suggests we have a recovery under way.” He also says that if the US manages its economy well, the US dollar should remain the world’s reserve currency. “It is a matter of running your economy properly,” he says. “When the US does that, and I think we will, I think we will remain the largest, most successful reserve currency on the face of the earth.” [Bloomberg, 4/9/2009]
The insurer AIG, bailed out by the US government the previous year (see September 16, 2008), is in talks with the US Federal Reserve over extra credit, according to the Financial Times. The negotiations concern a $5 billion credit line that could be used to facilitate the sale of the company’s aircraft leasing business. [Reuters, 4/17/2009]
A photo from Glenn Beck’s ‘The Civilest War’ broadcast on Fox News. Beck is at far left. [Source: Fox News]Fox News talk show host Glenn Beck writes an article for Fox News promoting his upcoming special program The Civilest War, which he says is an expose of the “tyranny” of the Federal Reserve over the American economy. Beck compares the program to the popular science fiction movie The Matrix, explaining that in the movie: “Nothing was real, the world people lived in was a fabrication—a computer program. Our lives have been like that movie and it is not about Barack Obama. It’s about Obama and [George W.] Bush and [Bill] Clinton and [George H. W.] Bush. It has been going on for years, it is just a play and it goes back to the progressive movement—on both sides of the aisle. In the movie the hero is offered two pills: red to learn the truth about the Matrix; blue to go on living blissfully ignorant to what is really going on. The way to take our country back will short-circuit the Matrix we are living in. And it has to do with gun rights, state’s rights, and what I call the civilest war. It is too much to get into now—but next week take the ‘red pill’ and get the truth.” The hour-long program begins with an adaptation of the famous poem by Martin Niemoller, rewritten by Beck as follows: “I think this is the problem. First they came for the banks. I wasn’t a banker, I didn’t really care. I didn’t stand up and say anything. Then they came for the AIG executives. Then they came for the car companies. Until it gets down to you. Most people don’t see—they are coming for you at some point! You’re on the list! Everybody’s on the list. You may not be rich—as currently defined.” The show features a Utah Republican legislator accusing the federal government of imposing “tyranny” on the citizenry, neo-Confederate historian Kevin Gutzman who gives a very different explanation of the meaning of “constitutional” liberties that would abolish suffrage for women and rights for minorities, and a Montana militia member, Gary Marbut, who concludes that the most sacred rights of the US citizen are to keep and bear arms. [Fox News, 5/2009; Fox News, 5/8/2009; Crooks and Liars, 5/15/2009] Author David Neiwert, an expert on right-wing extremism, notes that the ideas Beck is promoting in The Civilest War are identical to those promulgated by far-right “Patriot” and militia movements in the 1990s, including the idea of absolute “state sovereignty” (see 1983-1995). The ultimate idea behind Beck’s proposals, Neiwert writes, is the dissolution of the federal government and the transformation of the United States into 50 independent and disparate national entities. One of the earliest proponents of Beck’s ideas, Neiwert writes, was former Colorado state legislator Charles Duke (R-CO—see May 15-21, 1996), who still has deep ties to militia and anti-government organizations in the Western states. [Crooks and Liars, 5/15/2009; Crooks and Liars, 5/15/2009]
Entity Tags: Gary Marbut, Charles Duke, Barack Obama, Fox News, William Jefferson (“Bill”) Clinton, Martin Niemoller, David Neiwert, Glenn Beck, US Federal Reserve, George W. Bush, George Herbert Walker Bush, Kevin Gutzman
Timeline Tags: Domestic Propaganda
Wells Fargo & Co. confirms that it is not one of the 10 megabanks that will repay TARP capital and also says it is not hastening to repay the money. There had been rumors, perhaps because it had objected to the TARP funding in 2008, that Wells was prepared to write a check to repay its $25-billion TARP infusion—at any given moment—to escape government restrictions on executive pay, dividends, etc., but these rumors are now found to be false. The San Francisco-based bank bought Wachovia Corporation last year when it was on the verge of collapse and in its statement Wells cites its need to focus on assimilating loss-ridden Wachovia. “We want to pay back the government’s investment on behalf of the US taxpayer at the earliest practical date, but we haven’t applied yet to our regulators to repay the investment,” the statement says. From the beginning, Wells Chairman Richard Kovacevich stoked anti-TARP sentiment and opposed his bank’s inclusion in the program. Mr. Kovacevich said then-Treasury Secretary Henry Paulson “forced” the money on the bank because Mr. Paulson believed that all of the nation’s largest banks should have been TARP participants so that none appeared to be singled out for federal involvement. Mr. Kovacevich also attacked the government’s “stress test” of the 19 major banks to determine whether they had enough capital to survive a worse-than-expected economy over the next two years. “We do stress tests all the time on all of our portfolios,” Kovacevich said, according to Bloomberg News. “We share those stress tests with our regulators. It is absolutely asinine that somebody would announce we’re going to do stress tests for banks and we’ll give you the answer in 12 weeks.” On May 7, the Federal Reserve judged Wells and nine other major banks short of capital and Wells was ordered to raise $13.7 billion in additional capital by November 2009. The following day, Wells quickly raised $8.6 billion in a stock sale. Wells says it will “work closely with our regulators to determine the appropriate time to repay the TARP funds while maintaining strong capital levels.” [Los Angeles Times, 6/9/2009]
The Congressional Oversight Panel, charged with monitoring the $700 billion TARP, says that as long as banks keep large amounts of toxic assets on their books, regulators should conduct stress tests on them. Noting that the worst-case unemployment rate used in recent bank stress tests will soon be surpassed, panel chair and Harvard law professor Elizabeth Warren tells Congress’s Joint Economic Committee, “We have not actually broken through the worst-case scenario, but the numbers are bad and they’re heading in the wrong direction.” The Congressional Oversight Panel, which includes a former senator and a current member of the House of Representatives, also advocates replicate periodic tests as long as banks hold “appreciable amounts” of illiquid mortgage securities. Warren says the “US unemployment rate average for 2009, now at 8.5 percent, will soon exceed the 8.9 percent as the worst-case scenario used in regulators’ capital evaluations of the 19 largest US bank holding companies.” Unemployment climbed to 9.4 percent in May; many analysts expect the rate to increase. “The worst-case scenario number for 2009 is in fact not the worst case. We’re going to see worse numbers,” Warren affirms. Ordered for the top 19 US bank holding companies by the US Treasury Department, the panel’s monthly report says the stress tests used a risk-modeling approach that, in its totality, was “reasonable and conservative.” However, the panel also says that an external party would find it impossible to imitate the loss projections forming the core of the tests. Warren adds that to ensure they are valued properly, the oversight panel will also review transactions in which banks repurchase stock warrants from the Treasury. Valuation of warrants, intended to provide taxpayers a potential for gains from government capital injections, will be a key focus of the panel’s July report. While the panel’s report acknowledges that the stress tests had a positive effect on market confidence, it cautions against assigning too much value to them. “They do not model bank holding company performance under ‘worst case’ scenarios and, as a result, they do not project the capital necessary to prevent banks from being stressed to near the breaking point,” the panel says. Warren notes her oversight board was rebuffed although it “pressed really hard on the Fed” for more stress test details. She adds that the Treasury under Secretary Timothy Geithner has been more open. She also tells lawmakers that giving the panel subpoena power would make it easier to acquire documents and testimony from officials at Treasury and the Federal Reserve. [Reuters, 6/9/2009]
The World Bank predicts a 2.9 percent contraction in the global economy and adds that unemployment and poverty will continue to rise in developing nations in 2009. The revised previous estimate of a 1.7 percent decline causes a slide in US and European stocks and commodities. Three months ago, the World Bank issued a new estimate of 2 percent in 2010. Although the S&P 500 remains up 33 percent from its 12-year low in March, since June 12, the index has fallen 5.1 percent. Last week, the S&P 500 lost 2.6 percent, as a turndown in crude oil wounded fuel producers and Standard & Poor’s rating agency downgraded 18 banks’ credit ratings. Speaking in Paris today, economics professor Nouriel Roubini—who predicted the current financial crisis as early as 2006—says the global economy could suffer another slump due to higher oil prices and increasing budget deficits. “I see the worry of a double whammy” because of energy costs and fiscal burdens, thus increasing the risk of a setback in the economic recovery. He says that oil might rise to $100 a barrel. The increase in the value of the dollar blunted the appeal of commodities as an alternative investment, and sent copper, gasoline and oil prices lower. Amid the resignations of two more board members, bringing the total of departing directors to seven since April, Bank of America stock falls 6.1 percent to $12.41, the bank’s steepest intraday decline since May 15. It is expected that at the end of their two-day meeting on June 24, Federal Reserve officials might announce that the US is showing signs of surfacing from the worst recession in 50 years, although, after their last meeting in April, they announced that the economy would “remain weak for a time.” It is anticipated that central bankers will keep the benchmark interest rate in the range of zero to 0.25 percent. [Bloomberg, 6/22/2009]
Richard Mack speaks to a tea party rally in Post Falls, Idaho, in November 2009. [Source: Rajah Bose / New York Times]The New York Times publishes a large front-page story on America’s “tea party” movement. The report is written by staff reporter David Barstow, who researched the story for five months, first joining a bus tour by the Tea Party Express (see August 28, 2009) and then staying for the month of October in and around Spokane, Washington, to interview tea party members and others, such as white supremacist militia members, who have some affiliation with tea party organizations. The first person he mentions is a retiree named Pam Stout, who once worked for federal housing programs and is now aghast at the government’s handling of the economic crisis. She told Barstow that one day “she awoke to see Washington as a threat, a place where crisis is manipulated—even manufactured—by both parties to grab power.” She went to a tea party rally, then a meeting of the Sandpoint Tea Party Patriots, where she surprised herself by nominating herself for president. Under her leadership, the Sandpoint group joined a coalition, Friends for Liberty, that includes representatives from Glenn Beck’s 9/12 Project (see March 13, 2009 and After), the extremist, anti-Communist John Birch Society (JBS—see March 10, 1961 and December 2011), and the Oath Keepers (see March 9, 2009 and March 2010), a far-right militia organization. Stout told Barstow that her family worries that she has become enmeshed in a group of conspiracy theorists and ad hoc revolutionaries, but she said she has never felt more engaged. [New York Times, 2/15/2010; Columbia Journalism Review, 2/18/2010]
Increasing Tilt towards Anti-Government Militia Ideology - Barstow writes that many tea party members are like Stout, with an inclination to conservative anti-government politics, but also with a fear of eventual government tyranny that has driven them to join the movement. “These people are part of a significant undercurrent within the tea party movement that has less in common with the Republican Party than with the Patriot movement,” he writes, “a brand of politics historically associated with libertarians, militia groups, anti-immigration advocates, and those who argue for the abolition of the Federal Reserve. Urged on by conservative commentators, waves of newly minted activists are turning to once-obscure books and Web sites and discovering a set of ideas long dismissed as the preserve of conspiracy theorists, interviews conducted across the country over several months show.” Many tea partiers hold former President Bush and President Obama in equal contempt, holding them jointly responsible for deliberately undermining the Constitution and the free market system “for the benefit of a shadowy international network of wealthy elites” (see February 4-8, 2010). Coalition groups like Friends of Liberty are “forming hybrid entities of tea parties and groups rooted in the Patriot ethos. A fear of government tyranny is one of the most common ideological threads running through virtually all tea party organizations.”
Targeting Republicans as Well as Democrats - Barstow continues: “These coalitions are not content with simply making the Republican Party more conservative. They have a larger goal—a political reordering that would drastically shrink the federal government and sweep away not just Mr. Obama, but much of the Republican establishment, starting with Senator John McCain” and other Republicans whom they consider part of the “government conspiracy” to destroy democracy. While tea parties routinely target Democrats in elections, they are also targeting more moderate Republicans, especially those who support ideas or legislation that they feel is part of the “conspiracy.” Republicans who supported the government bailouts of large corporations are being targeted, as are those who support global warming legislation or who have shown any impetus to work with the White House or with Congressional Democrats (see January 29, 2010). Barstow notes that the tea party movement is anything but homogenous and rigidly organized: “It is an amorphous, factionalized uprising with no clear leadership and no centralized structure.” Some groups are “essentially appendages of the local Republican Party,” but many are not. However, many of the beliefs espoused by individual tea partiers tend to be reflected in most groups. Not all believe that Obama wants to impose a dictatorship, with or without McCain’s help, but many do. The frustration expressed by Stout in the economy and the government’s response to it is echoed throughout tea party groups in every state.
Turning to Radical Ideologies and Conspiracy Theorists - One of the tea partiers’ favorite thinkers is Fox News talk show host Glenn Beck (see March 29, 2009). Beck’s often-revisionist, often-inaccurate opinions led many tea partiers to read the Federalist Papers (or, more often, right-wing blogs about the Federalist Papers), conspiracist “exposes” of the Federal Reserve, and the novels of Ayn Rand and George Orwell. Online resources tailored for tea party organizations provide a wealth of what Barstow calls “radical critiques of Washington.” Two of the primary sites are ResistNet.com and InfoWars, both of which combine far-right ideology with a plethora of conspiracy theories covering everything from 9/11 and the Federal Reserve to the New World Order (see September 11, 1990). Some tea partiers are joining with militia groups, or forming their own, and making stockpiles of food, gold, and weaponry to prepare for the end of civilization. Many tea party leaders say they believe that a return to a strict adherence to constitutional law would solve most of the nation’s problems, but many of them espouse a radical view of the Constitution, such as that delineated by radical Constitutional revisionist W. Cleon Skousen (first popularized among the tea party community by Beck—see 1963). Many want to completely do away with Social Security, Medicare, Medicaid, the federal income tax, and most government agencies, all of which they say violate the Constitution. Some go even farther, advocating secession, states “nullfying” federal laws, and the formation of citizen militias. The tea parties in the Pacific Northwest, Barstow writes, have been shaped by influences such as libertarian Representative Ron Paul (R-TX) and by the sometimes-violent anti-government activism of northern Idaho (see Early 1970s, 1980-1982, 1983-1995, and February 15, 1995). The 1992 standoff at Ruby Ridge (see August 31, 1992), which occurred in nearby Idaho, is a touchstone for many tea partiers, just as it was for Oklahoma City bomber Timothy McVeigh (see August 21-31, 1992). Many, but not all, tea party members and groups embrace the “birther” conspiracy theory that Obama is not a natural American citizen. A favorite news blog, WorldNetDaily, routinely electrifies the movement by warning of new White House plans to build massive internment camps and stuff them with tea party members, or of plans to send waves of United Nations troops throughout the nation to confiscate Americans’ guns. ResistNet regularly warns that Obama is trying to convert Interpol, the international police organization, into his own personal police force, and advises tea partiers to “grab their guns.” Tea partiers like Mary Johnson of New Mexico points to the Bush-era wiretapping scandal as proof that the government can, and is, preparing to bring democracy to an end. As the groups’ fear and contempt for the federal government grows, Barstow writes, they turn more frequently to “fringe” groups such as white supremacist, anti-government militias. In Indiana, a militia coalition called Defenders of Liberty is networking with tea party groups and other “Patriot” organizations throughout the state. Darin Stevens, the leader of the Spokane 9/12 project, told Barstow that before tuning in to Beck’s show, he had paid almost no attention to politics. After the recession hit and his personal financial structure started to collapse, he began watching Beck. “I had no clue that my country was being taken from me,” he explains. He began the Spokane chapter of Beck’s 9/12 project, and was astounded that 110 people attended the first meeting. Stevens now belongs to the Oath Keepers as well as the 9/12 Project. Spokane tea partier Leah Southwell became a convert after stumbling on Paul’s speeches on YouTube. Southwell turned from being a successful Mary Kay makeup sales representative to being a self-described member of “the uprising.” Southwell, through Paul, is now fully supportive of the Patriot ideology, and holds as evident truth a number of conspiracy theories involving the Bilderberg Group, the Trilateral Commission, and the Council on Foreign Relations. “The more you know, the madder you are,” she told Barstow. “I mean when you finally learn what the Federal Reserve is!” Southwell is now a local official with the John Birch Society. She says that the affiliation between organizations like the JBS and the tea parties will continue to grow: “Most of these people [tea partiers] are just waking up.” Former car salesman Richard Mack, a longtime militia supporter who co-wrote Ruby Ridge survivor Randy Weaver’s memoirs, is a favorite speaker at tea party events. “People just do not trust any of this,” Mack told Barstow. “It’s not just the fringe people anymore. These are just ordinary people—teachers, bankers, housewives.”
Amorphous Structure - Local tea party groups often join, in one degree or another, one of several competing national tea party organizations such as ResistNet or the Tea Party Express, most of which are organized, staffed, and funded by conservative lobbying groups such as FreedomWorks (see February 16-17, 2009, February 19, 2009 and After, February 27, 2009, March 2, 2009, March 13, 2009 and After, April 14, 2009, and April 15, 2009) or Americans for Prosperity (see Late 2004, February 16-17, 2009, February 19, 2009 and After, and April 2009 and After). Some tea party groups have been joined by, or in some cases overrun by, other groups, from “birthers” to militias, supporters of Lyndon LaRouche, pro-gun groups, and the sovereign states movement. Many coalitions such as Friends of Liberty were formed in opposition to what leaders called the endless “hijack attempts” by state and county Republican Parties. Dann Selle of the Official Tea Party of Spokane told Barstow, “We had to stand our ground, I’ll be blunt.”
Support from Elected Politicians - Rick Perry, the governor of Texas and a possible 2012 Republican candidate for president, has joined with Texas tea parties in supporting the state’s secession from the United States. Nevada Republican Joe Heck, who ran for Congress in 2008, attacked both parties for moving the nation towards “socialist tyranny” and solicited tea party support at a rally in Las Vegas. Indiana Republican Richard Behney, running for the US Senate, told tea party supporters that if the 2010 elections did not turn out to his liking: “I’m cleaning my guns and getting ready for the big show. And I’m serious about that, and I bet you are, too.” [New York Times, 2/15/2010]
Entity Tags: ResistNet, Richard Behney, Richard Mack, Republican Party, Ron Paul, US Federal Reserve, Tea Party Express, WorldNetDaily, Sandpoint Tea Party Patriots, W. Cleon Skousen, Timothy James McVeigh, Pam Stout, Oath Keepers, New York Times, Mary Johnson, Defenders of Liberty, 9/12 Project, Americans for Prosperity, Barack Obama, Dann Selle, Fox News, FreedomWorks, Friends for Liberty, Glenn Beck, Leah Southwell, John McCain, Darin Stevens, John Birch Society, James Richard (“Rick”) Perry, InfoWars, Joe Heck, David Barstow
Timeline Tags: Domestic Propaganda
Fox News talk show host Glenn Beck, speaking on his daily radio program, claims that President Obama released his “long form” birth certificate (see April 27, 2011) to distract the press from a press conference being given by Federal Reserve chairman Ben Bernanke. Beck says: “The president of the United States is about to speak shortly [about his birth certificate]. Stations, we will carry it live, live, live on this program. Gas prices, sure, out of control. Middle East, sure, on fire. Ben Bernanke going to give the first press conference for the Fed for the first time in 97 years today, but today is the day the birth certificate is released. You have got to be kidding me. Are we really down to this? We’re really down to this? The birth certificate? I mean, it was bad when we were down to the, you know, Final Four in the brackets, but now we’ve got the birth certificate talk and the president is going to hold a press conference.… [T]his is because Bernanke is speaking today. Watch the markets move today. Why is the Fed—this is what I’ve been trying to figure out—why is the Fed holding a press conference for the first time in 97 years? Why? Something is coming gang, something is coming. Now at the same day, the same time, why is the president of the United States choosing today to release the birth certificate?… There is no way this is being released today for no reason. There’s no way. They’ve had this for two years—three years this has been going on. This rumor was started by Hillary Clinton. This was a Clinton tactic.… So now they’ve had it since Clinton. They could have done this since Clinton. So why?” [Media Matters, 4/27/2011; Media Matters, 4/27/2011] Former Governor Sarah Palin (R-AK) makes the same claim. In a post on her Twitter account, Palin writes: “Media, admit it. Trump forced the issue. Now, don’t let the WH distract you w/the birth crt from what Bernanke says today. Stay focused, eh?” [Media Matters, 4/27/2011]
Mo Brooks. [Source: Public domain / Wikimedia]Many Congressional Republicans, particularly “tea party” freshmen, believe that not only is the Obama administration lying about the potentially catastrophic consequences of a US credit default that would follow the failure of Congress to raise the nation’s debt ceiling (see April 30, 2011, May 20, 2011, June 26, 2011, and July 11-12, 2011), but some even say that a credit default would be ultimately good for the nation. President Obama is joined by House Speaker John Boehner (R-OH), the chairman of the Federal Reserve, and Moody’s credit rating agency in saying that Congress’s failure to raise the debt ceiling by August 2 would be an economic disaster and must be avoided. But Representative Eric A “Rick” Crawford (R-AK) says otherwise. Crawford says all Obama would have to do to handle a default and the subsequent halt in US borrowing would be to use existing tax revenue to pay for what Crawford sees as “essential” federal services: the military, Medicare and Social Security, and interest on existing debt. If other government services, programs, and agencies such as the FBI, veterans’ benefits, and others would be interrupted, Crawford says that would be acceptable. “That wouldn’t work for just a few days. That would work for a few years,” he says, adding that he will not vote for a debt ceiling increase unless it is coupled with massive federal spending cuts. Budget deficits require “that we take some painful measures now. I’d rather swallow that bitter pill today.” Most of the cuts Crawford and fellow Republicans want would be in social safety-net programs, from Social Security, Medicare, Medicaid, and disability benefits to funding for education and veterans programs. Crawford and a number of House Republicans simply refuse to accept statements that economic calamity would result from a missed deadline, the Washington Post reports. That opinion, the Post says, will make raising the debt ceiling far more difficult than similar ceiling raises of previous years. Representative Mo Brooks (R-AL) says that not raising the debt ceiling would actually benefit the economy in the long run. Raising the debt ceiling, he says, just enables the federal government to spend itself into more debt. “A debt ceiling problem, as large as it is, is not anywhere near as a big or as bad as” more debt, he says. He adds that the government can continue paying creditors even if it is refused further credit. “There should be no default on August 2,” he says. “In fact, our credit rating should be improved by not raising the debt ceiling.” Most financial leaders in government and the private sector believe that the US credit rating will be dropped, perhaps significantly, if the US defaults on its debt, and the consequences of that drop could send the nation’s economy into a full-blown recession or even a depression. Even Boehner says the debt ceiling must be lifted. “Missing August 2nd could spook the [stock] market,” he says. “And you could have a real catastrophe. Nobody wants that to happen.” An Obama official recently said of legislators like Crawford and Brooks, “These are the kinds of people who get eaten by bears.” Washington Monthly editor Steve Benen writes: “The problem that plagues the nation is not about competing parties, ideologies, or creeds. It comes down to a dispute between those who believe empirical reality exists and deserves to be taken seriously vs. those who don’t. With Republican members of Congress and their supporters choosing the latter, it’s increasingly difficult to imagine the United States thriving in the 21st century.” [Politico, 5/13/2011; Washington Post, 7/14/2011; Washington Monthly, 7/15/2011]
Entity Tags: Morris Jackson (“Mo”) Brooks, Jr., Barack Obama, Eric A. (“Rick”) Crawford, Moody’s Investors Service, US Congress, John Boehner, Washington Post, Obama administration, US Federal Reserve, Steve Benen
Timeline Tags: Global Economic Crises
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