I see Bob is also reading it, and so maybe we'll get some comments from him. I won't promise to keep you informed, but if you think you might want to read it yourself, click on the graphic below for more information.
What I will do, is give you a few quotes from the first chapter. (And by the way, I stumbled upon Jekyll Island in one of my meanderings around the country. Very cool. A resort for the ultra rich back a hundred years ago or so. Now a Georgia state park.)
We pick up at a train station in New Jersey...
The Journey to Jekyll Island
The secret meeting on Jekyll Island in Georgia at which the Federal Reserve was conceived; the birth of a banking cartel to protect its members from competition; the strategy of how to convince Congress and the public that this cartel was an agency of the United States government
[...]
And so, as the passengers drifted off to sleep to the rhythmic clicking of steel wheels against rail, little did they dream that, riding in the car at the end of their train, were seven men who represented an estimated one-fourth of the total wealth of the entire world. This was the roster of the Aldrich car that night:
1. Nelson W. Aldrich, Republican "whip" in the Senate, Chairman of the National Monetary Commission, business associate of J.P. Morgan, father-in-law to John D. Rockefeller, Jr;
2. Abraham Piatt Andrew, Assistant Secretary of the U.S. Treasury;
3. Frank A. Vanderlip, president of the National City Bank of New York, the most powerful of the banks at that time, representing William Rockefeller and the internaitonal invesment banking house of Kuhn, Loeb & Company;
4. Henry P. Davison, senior partner of the J.P. Morgan Company;
5. Charles D. Norton, president of J.P. Morgan's First National Bank of New York;
6. Benjamin Strong, head of J.P. Morgan's Bankers Trust Company;
7. Paul M. Warburg, a partner in Kuhn, Loeb & Company, a representative of the Rothschild banking dynasty in England and France, and brother to Max Warburg who was head of the Warburg banking consortium in Germany and the Netherlands.
[...]
The elite group of financiers was embarked on an eight hundred mile journey that led to Atlanta, then to Savannah and, finally, to the small town of Brunswick, Georgia. [...] [T]he Sea Islands that sheltered the coast from South Carolina to Florida already had become popular as winter resorts for the very wealthy. One such island, just off the coast of Brusnwick, had recently been purchased by J.P. Morgan and several of his business associates, and it was here that they came in the fall and winter to hunt ducks or deer and to escape the rigors of cold weather in the North. It was called Jekyll Island.
[...]
Even after arrival at the remote island lodge, the secrecy continued. For nine days the rule for first-name-only remained in effect. Full-time caretakers and servants had been given vacation, and an entirely new, carefully screened staff was brought in for the occasion. This was done to make absolutely sure that none of the servants might recognize by sight the identities of these guests. It is difficult to imagine any event in history - including preparation for war - that was shielded from public view with greater mystery and secrecy.
The purpose of this meeting on Jekyll Island was not to hunt ducks. Simply stated, it was to come to an agreement on the structure and operation of a banking cartel. The goal of the cartel, as is true with all of them, was to maximize profits by minimizing competition between members, to make it difficult for new competitors to enter the field, and to utilize the police power of government to enforce the cartel agreement. In more specific terms, the purpose and, indeed, the actual outcome of this meeting was to create the blueprint for the Federal Reserve System.
[...]
Competition also was coming from a new trend in industry to finance future growth out of profits rather than from borrowed capital. This was the outgrowth of free-market interest rates which set a realistic balance between debt and thrift. Rates were low enough to attract serious borrowers who were confident of the success of their business ventures and of their ability to repay, but they were high enough to discourage loans for frivolous ventures or those for which there were alternative sources of funding - for example, one's own capital. [...] Even the federal government was becoming thrifty. It had a growing stockpile of gold, was systematically redeeming the Greenbacks - which had been issued during the Civil War - and was rapidly reducing the national debt.
Here was another trend that had to be halted. What the bankers wanted - and what many businessmen wanted also - was to intervene in the free market and tip the balance of interest rates downward, to favor debt over thrift. To accomplish this, the money supply simply had to be disconnected from gold and made more plentiful or, as they described it, more elastic.
Now, here's where my one accounting course comes in. The one thing I remember is that banks are permitted to make loans at ten times the amount of reserves they hold. In other words, banks are loaning (to reap the rewards of interest) money they do not have.
Here, then, were the main challenges that faced that tiny but powerful group assembled on Jekyll Island:
1. How to stop the growing influence of small, rival banks and to insure that control over the nation's financial resources would remain in the hands of those present;
2. How to make the money supply more elastic in order to reverse the trend of private capital formation and to recapture the industrial loan market;
3. How to pool the meager reserves of the nation's banks into one large reserve so that all banks will be motivated to follow the same loan-to-deposit ratios. This would protect at least some of them from currency drains and bank runs;
4. Should this lead eventually to the collapse of the whole banking system, then how to shift the losses from the owners of the banks to the taxpayers.
A number of sources say we are at number 4.
I think this will be an interesting read.
No comments:
Post a Comment