excerpted from the book

Web of Debt

The Shocking Truth About Our Money System And How We Can Break Free

by Ellen Hodgson Brown

Third Millennium Press, 2007, paperback

p105
Home foreclosures and evictions were occurring in record numbers [in the 1890s]. A document called "The Bankers Manefesto of 1892" suggested that it was all part of a deliberate plan by the bankers to disenfranchise the farmers and laborers of their homes and property. This is another document with obscure origins, but its introduction to Congress is attributed to Representative Charles Lindbergh Sr., the father of the famous aviator, who served in Congress between 1903 and 1913. The Manifesto read in part:

We must proceed with caution and guard every move made, for the lower order of people are already showing signs of restless commotion .... The Farmers Alliance and Knights of Labor organizations in the United States should be carefully watched by our trusted men, and we must take immediate steps to control these organizations in our interest or disrupt them... Capital [the bankers and their money] must protect itself in every possible manner through combination [monopoly] and legislation. The courts must be called to our aid, debts must be collected, bonds and mortgages foreclosed as rapidly as possible. When through the process of the law, the common people have lost their homes, they will be more tractable and easily governed through the influence of the strong arm of the government applied to a central power of imperial wealth under the control of the leading financiers. People without homes will not quarrel with their leaders.'

p106
The Bankers Manefesto of 1892

[While] our principal men ... are engaged in forming an imperialism of the world ... the people must be kept in a state of political antagonism... By thus dividing voters, we can get them to expend their energies in fighting over questions of no importance to us... Thus, by discrete action, we can secure all that has been so generously planned and successfully accomplished.

p106
Arundhati Roy

Those is positions of real power, the bankers, the CEOs, are not vulnerable to the vote, and in any case they fund both sides.

p111
President Theodore Roosevelt in 1906

Behind the ostensible government sits enthroned an invisible government owing no allegiance and acknowledging no responsibility to the people [corporate monopolies/trusts]. To destroy this invisible government, to befoul the unholy alliance between corrupt business and corrupt politics is the first task of the statesmanship of the day.

p114
Congressman Wright Patman, Chairman of the House Banking and Currency Committee, in a speech on the House floor in 1967

In the U.S. today, we have in effect two governments. We have the duly constituted government, then we have an independent, uncontrolled and uncoordinated government in the Federal Reserve, operating the money powers which are reserved to congress by the Constitution.

p114
Mayor John Hylan of New York, 1927, in a speech in the New York Times

The warning of Theodore Roosevelt has much timeliness today, for the real menace of our republic is this invisible government which like a giant octopus sprawls its slimy length over City, State, and nation... It seizes in its long and powerful tentacles our executive officers, our legislative bodies, our schools, our courts, our newspapers, and every agency created for the public protection.

[At] the head of this octopus are the Rockefeller-Standard Oil interest and a small group of powerful banking houses generally referred to as the international bankers. The little coterie of powerful international bankers virtually run the United States government for their own selfish purposes.

They practically control both parties, write political platforms, make catspaws of party leaders, use the leading men of private organizations, and resort to every device to place in nomination for high public office only such candidates as will be amenable to the dictates of corrupt big business.

These international bankers and Rockefeller-Standard Oil interests control the majority of the newspapers and magazines in this country. They use the columns of these papers to club into submission or drive out of office public officials who refuse to do the bidding of the powerful corrupt cliques which compose the invisible government.

p116
Monopoly the growth and abuse were at their height in the Gilded Age, the country's greatest period of laissez faire. he trusts were so powerful that the trend toward monopolizing industry actually worsened after the Sherman Act was passed)Before 1898, there were an average of 46 major industrial mergers a year. After 1898, the number soared to 531 a year. By 1904, the top 4 percent of American businesses produced 57 percent of America's total industrial production, with a single firm dominating at least 60 percent of production in 50 different industries. Ironically the trusts became the strongest advocates of federal regulation, since their monopoly power depended on the exclusive rights granted them by the government. By planting their own agents in the federal commissions, they used government regulation to gain greater control over industry, protect themselves from competition, and maintain high prices.

p116
There were many Robber Barons, but J. Pierpont Morgan, Andrew Carnegie, and John D. Rockefeller led the pack. Morgan dominated finance, Carnegie dominated steel, and Rockefeller monopolized oil. Carnegie built his business himself, and he loved competition; but Morgan was a different type of capitalist. He didn't build, he bought. He took over other people's businesses, and he hated competition. In 1901, Morgan formed the first billion dollar corporation, U.S. Steel, out of mills he purchased from Carnegie.

Rockefeller, too, dealt with competitors by buying them out. His company, Standard Oil, became the greatest of all monopolies and the first major multinational corporation. Before World War I, the financial and business structure of the United States was dominated by Morgan's finance and transportation companies and Rockefeller's Standard Oil; and these conglomerates had close alliances with each other. Through interlocking directorships, they were said to dominate almost the entire economic fabric of the United States.

Other industrialists, seeing the phenomenal success of the Morgan and Rockefeller trusts, dreamt of buying out their competition and forming huge monopolies in the same way. But with the exception of Carnegie, no other capitalists had the money for these predatory practices. Aspiring empire-builders were therefore drawn to Morgan and the other Wall Street bankers in search of funding.

... Those fortunate corporations favored with funding from Morgan and the other Wall Street bankers were able to monopolize their industries. But where did the Wall Street banks get the money to underwrite all these mergers and acquisitions? The answer was revealed by Congressman Wright Patman and other close observers: the Robber Barons were pulling money out of an empty hat. Their privately owned banks held the ultimate credit card, a bottomless source of accounting-entry money that could be "lent" to their affiliated corporate mistresses. The funds could then be used to buy out competitors, corner the market in scarce raw materials, make political donations, lobby Congress, and control public opinion.

p118
Although the Rothschilds were technically rivals of the Peabody/Morgan firm, rumor had it that they had formed a secret alliance... That could explain why, in the periodic financial crises of the Gilded Age, Morgan's bank always came out on top. In the bank panics of 1873, 1884, 1893, and 1907, while other banks were going under, Morgan's bank always managed to come up with the funds to survive and thrive.

p119
By 1890, Rockefeller owned all of the independent oil refiners in country and had a monopoly on worldwide oil sales. In 1911, the U.S. Supreme Court ruled that the Standard Oil cartel was a "dangerous conspiracy" that must be broken up "for the safety of the Republic."... In 1914, Standard Oil was referred to in the Congressional Record as the "shadow government." Following the Court's antitrust order, the Standard Oil monolith was split into 38 new companies, including Exxon, Mobil, Amoco, Chevron, and Arco; but Rockefeller secretly continued to control them by owning a voting majority of their stock.

p124
The Federal Reserve Act of 1913 was a major coup for the international bankers. They had battled for more than a century to establish a private central bank with the exclusive right to "monetize" the government's debt (that is, to print their own money and exchange it for government securities or I.O.U.s). The Act's preamble said that its purposes were "to provide for the establishment of Federal Reserve Banks, to furnish an elastic currency, to afford a means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes." It was the beginning of Fedspeak, abstract economic language that shrouded the issues in obscurity. "Elastic currency" is credit that can be expanded at will by the banks. "Rediscounting" is a technique by which banks are allowed to magically multiply funds by re-lending them without waiting for outstanding loans to mature. In plain English, the Federal Reserve Act authorized a private central bank to create money out of nothing, lend it to the government at interest, and control the national money supply, expanding or contracting it at will.

p124
Representative Charles Lindbergh Sr., who served in Congress between 1903 and 1913, called the Federal Reserve Act of 1913, "the worst legislative crime of the ages." He warned:

[The Federal Reserve Board] can cause the pendulum of a rising and falling market to swing gently back and forth by slight changes in the discount rate, or cause violent fluctuations by greater rate variation, and in either case it will possess inside information as to financial conditions and advance knowledge of the coming change, either up or down.

This is the strangest, most dangerous advantage ever placed in the hands of a special privilege class by any Government that ever existed .... The financial system has been turned over to ... a purely profiteering group. The system is private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people's money.

p125
Representative Louis McFadden, 1934, stating in the Congressional record:

Some people think that the Federal Reserve Banks are United States Government institutions. They are private monopolies which prey upon the people of these United States for the benefit of themselves and their foreign customers; foreign and domes tic speculators and swindlers; and rich and predatory money lenders. In that dark crew of financial pirates there are those who would cut a man's throat to get a dollar out of his pocket; there are those who send money into states to buy votes to control our legislatures; there are those who maintain International propaganda for the purpose of deceiving us into granting of new concessions which will permit them to cover up their past misdeeds and set again in motion their gigantic train of crime. These twelve private credit monopolies were deceitfully and disloyally foisted upon this Country by the hankers who came here from Europe and repaid its our hospitality by undermining our American institutions.

p125
The "Federal" Reserve is actually an independent, privately-owned corporation. It consists of twelve regional Federal Reserve banks owned by many commercial member banks, which hold Federal Reserve stock in an amount proportional to their size. The Federal Reserve Bank of New York holds the majority of shares in the Federal Reserve System (53 percent). Its largest shareholders are the largest commercial banks in the district of New York.

In 1997, the New York Federal Reserve reported that its three largest member banks were Chase Manhattan Bank, Citibank, and Morgan Guaranty Trust Company.

p126
The Federal Reserve is owned by Federal Reserve Banks, which are owned by American commercial banks, which are required by law to make their major shareholders public; and none of these banks is predominantly foreign-owned. That does not mean, however, that the banking spider is not in control behind the scenes. According to Hans Schicht ... the "master spider" has just moved to Wall Street. The greater part of U.S. banking and enterprise, says Schicht, is now controlled by a very small inner circle of men, perhaps headed by only one man. It is all done behind closed doors, through the game he calls "spider webbing." ... the rules of the game include exercising tight personal management and control, with a minimum of insiders and front-men who themselves have only partial knowledge of the game; exercising control through "leverage" (mergers, takeovers, chain share holdings where one company holds shares of other companies, conditions annexed to loans, and so forth); and making any concentration of wealth invisible. The master spider studiously avoids close scrutiny by maintaining anonymity, taking a back seat, and appearing to be a philanthropist.

Before World War II, the reins of international finance were held by the powerful European banking dynasty the House of Rothschild; but during the war, control crossed the Atlantic to their Wall Street affiliates. The role of master spider, says Schicht, fell to David Rockefeller Sr., grandson on his father's side of john D. Rockefeller Sr. and on his mother's side of Nelson Aldrich, the Senator for whom the precursor to the Federal Reserve Act was named. David Rockefeller was a director of the Council on Foreign Relations from 1949 to 1985 and its chairman from 1970 until 1985; he founded the Trilateral Commission in 1976; and he was instrumental in convoking the 1944 Bretton Woods Conference, at which the International Monetary Fund and the World Bank were devised, and in founding the elite international club called the "Bilderbergers." The Council on Foreign Relations (CFR) is an') international group set up in 1919 to advise the members' respective governments on international affairs. It has been called the preeminent ( intermediary between the world of high finance, big oil, corporate elitism, and the U.S. government. The policies it promulgates in its quarterly journal become U.S. government policy.

The Trilateral Commission has been described as an elite group of international bankers, media leaders, scholars and government officials bent on shaping and administering a "new world order," with a central world government held together by economic interdependence. Former presidential candidate Barry Goldwater said of it:

The Trilateralist Commission is international [and] is intended to be the vehicle for multinational consolidation of commercial and banking interests by seizing control of the political government of the United States. The Trilateralist Commission represents a skillful, coordinated effort to seize control and consolidate the four centers of power - political, monetary, intellectual, and ecclesiastical.

p128
Professor Carroll Quigley in his book Tragedy and Hope

The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to he the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations.

p128
Asia Times economist Henry C K Liu wrote in an article titled "The BIS [Bank of International Settlements] vs. National Banks", Asia Times, May 14, 2002

National banking systems are suddenly thrown into the rigid arms of the Basel Capital Accord sponsored by the Bank of International Settlements (BIS), or to face the penalty of usurious risk premium in securitizing international bank loans. Thus national banking systems are all forced to march to the same tune, designed to serve the needs of highly sophisticated global financial markets, regardless of the developmental needs of their national economies .... National policies suddenly are subjected to profit incentives of private financial institutions, all members of a hierarchical system controlled and directed from the money center banks in New York. The result is to force national banking systems to privatize .... National economies under financial globalization no longer serve national interests. They operate to strengthen... US financial hegemony in the name of private profit... Reversing the logic that a sound banking system should lead to full employment and developmental growth, BIS regulations demand high unemployment and developmental degradation / in national economies as the fair price for a sound global private banking system.

p129
The Bilderberger group in a June 2004 BBC special

... "an elite coterie of Western thinkers and power-brokers" who have been "accused of fixing the fate of the world behind closed doors." The group has been suspected of steering international policy and plotting world domination. But nobody knows for sure, because its members are sworn to secrecy, and the press won't report on its meetings.

p129
U.S. Congressman Oscar Callaway. 1917 stated on the Congressional Record:

In March, 1915, the J.P. Morgan interests, the steel, shipbuilding, and powder interests, and their subsidiary organizations, got together 12 men high up in the newspaper world, and employed them to select the most influential newspapers in the United States and sufficient number of them to control generally the policy of the daily press of the United States .... They found it was only necessary to purchase the control of 25 of the greatest papers. The 25 papers were agreed upon; emissaries were sent to purchase the policy, national and international, of these papers; ... an editor was furnished for each paper to properly supervise and edit information regarding the questions of preparedness, militarism, financial policies, and other things of national and international nature considered vital to the interests of the purchasers [and to suppress] everything in opposition to the wishes of the interests -served.

p130
historian Howard Zinn

Whether you have a Republican a Democrat in power, the Robber Barons are still there... Under the Clinton administration, more mergers of huge corporations took place [than] had ever taken place before under any administration... Whether you have Republicans or Democrats in power, big business is the most powerful voice in the halls of Congress and in the ears of the President of the United States.

p130
In The Underground History of American Education (2000), educator John Taylor Gatto traces how Rockefeller, Morgan and other members of the financial elite influenced, guided, funded, and at times forced compulsory schooling into mainstream America. They needed three things for their corporate interests to thrive: (1) compliant employees, (2) a guaranteed and dependent population, and (3) a predictable business environment. It was largely to promote these ends, says Gatto, that modern compulsory schooling was established.

p132
in 1895, in Pollock v Farmer's Loan & Trust Co. the Court held that general income taxes violate the constitutional guideline that taxes levied directly on the people are to be levied in proportion to the population of each State.

That ruling has never been overruled instead, the Wall Street faction decided to make an end run around the Constitution. In 1913, the Sixteenth Amendment was introduced to Congress as a package deal along with the Federal Reserve Act. Both were supported by the Wall Street Senator, Nelson Aldrich. The Amendment provided:

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.

Wealthy businessmen who had opposed a federal income tax were won over when they learned they could avoid paying the tax themselves by setting up tax-free foundations. The tax affected only incomes over $4,000 a year, a sum that was then well beyond the wages of most Americans. The Amendment was simply worded, the tax return was only one page long, and the entire Tax Code was only 14 pages long. It seemed harmless enough at the time ....

... The Tax Code is now a 17,000-page sieve of obscure legalese, providing enormous loopholes for those who can afford the lobbyists to negotiate them.

p136
A report issued by the Grace Commission during the Reagan Administration concluded that most federal income tax revenues go just to pay the interest on the government's burgeoning debt. Indeed, that was the purpose for which the tax was originally designed. When the federal income tax was instituted in 1913, all income tax collections were forwarded directly to the Federal Reserve. In fiscal year 2005, the U.S. government spent $352 billion just to service the government's debt. The sum represented more than one-third of individual income tax revenues t bat year, which totaled $927 billion.

As for the other two-thirds of the individual income tax tab, the Grace Commission concluded that those payments did not go to service necessary government operations either. A cover letter addressed to President Reagan stated that a third of all income taxes were consumed by waste and inefficiency in the federal government. Another third of any taxes actually paid went to make up for the taxes not paid by tax evaders and the burgeoning underground economy, a phenomenon that had blossomed in direct proportion to tax increases. The report concluded:

With two-thirds of everyone's personal income taxes wasted or not collected, 100 percent of what is collected is absorbed solely by interest on the Federal debt and by Federal Government contributions to transfer payments. In other words, all individual income tax revenues are gone before one nickel is spent on the services which taxpayers expect from their Government."

Even the third going for interest on the federal debt could have been avoided, if Congress had created the money itself on the Franklin/ Lincoln model. But the obscurely-worded Federal Reserve Act delegated the power to create money to a private banking monopoly; and Congress, like the sleeping public, had been deceived by the bankers' sleight of hand. The head had thundered and the walls had shook.

p137
Representative Charles Lindbergh Sr. warned on the day the Federal Reserve Act was passed:

This [Federal Reserve] Act establishes the most gigantic trust on earth. When the President signs this bill, the invisible government by the Monetary Power will be legalized. The people may not know it immediately, but the day of reckoning is only a few years removed.

p140
The stock market held little interest for most people until the Robber Barons started promoting it, after amassing large stock holdings very cheaply themselves. They sold the public on the idea that it was possible to get rich quick by buying stock on "margin" (Or on credit). The investor could put a down payment on the stock and pay off the balance after its price went up, reaping a hefty profit. This investment strategy turned the stock market into a speculative pyramid scheme, in which most of the money invested did not actually exist.' People would open margin accounts, not because they could not afford to pay 100 percent of the stock price, but because it allowed them to leverage their investments, buying ten times as much stock by paying only a 10 percent down payment. The public went wild over this scheme. In a speculative fever, many people literally "bet the farm." They were taking out loans against everything they owned - homes, farms, life insurance - anything to get the money to get into the market and make more money.

p140
A scheme [was established] between Benjamin Strong, then Governor of the Federal Reserve Bank of New York, and Montagu Norman, head of the Bank of England, to deliver control of the financial systems of the world to a small group of private central bankers.

... In February 1929, Norman and Strong concluded that a collapse in the market was inevitable and that the best course was to let it correct "naturally" (naturally, that is, with a little help from the Fed). They sent advisory warnings to lists of preferred customers, including wealthy industrialists, politicians, and high foreign officials, telling them to get out of the market. Then the Fed began selling government securities in the open market, reducing the money supply by reducing the reserves available for backing loans. The bank-loan rate was also increased, causing rates on brokers' loans to jump to 20 percent.

The result was a huge liquidity squeeze - a lack of available money. Short-term loans suddenly became available only at much higher interest rates, making buying stock on margin much less attractive. As fewer people bought, stock prices fell, removing the incentive for new buyers to purchase the stocks bought by earlier buyers on margin. Many investors were forced to sell at a loss by "margin calls" (calls by brokers for investors to bring the cash in their margin accounts up to a certain level after the value of their stocks had fallen). The panic was on, as investors rushed to dump their stocks for whatever they could get for them. The stock market crashed overnight. People withdrew their savings from the banks and foreigners withdrew their gold, further depleting the reserves on which the money stock was built. From 1929 to 1933, the money stock fell by a third, and a third of the nation's banks closed their doors.

p142
Many wealthy insiders also did quite well, quietly pulling out of the stock market just before the crash, then jumping back in when they could buy up companies for pennies on the dollar. While small investors were going under and jumping from windows, the Big Money Boys were accumulating the stocks that had been sold at distressed prices and the real estate that had been mortgaged to buy the stocks. The country's wealth was systematically being transferred from the Great American Middle Class to Big Money.

The Homestead Laws were established in the days of Abraham Lincoln to encourage settlers to move onto the land and develop it. The country had been built by these homesteaders, who staked out their plots of land, farmed them, and defended them. That was the basis of capitalism and the American dream, the "level playing field" on which the players all had a fair start and something to work with. The field was level until the country was swept by depression, when homes and farms that had been in the family since the Civil War or the Revolution were sucked up in a cyclone of debt and delivered into the hands of the banks and financial elite.

p144
Milton Friedman, professor of economics at the University of Chicago and winner of a Nobel Prize in economics

The Federal Reserve definitely caused the Great Depression by contracting the amount of currency in circulation by one-third from 1929 to 1933.

p144
Louis T. McFadden, Chairman of the House Banking and Currency Committee

[The depression] was not accidental. It was a carefully contrived occurrence The international bankers sought to bring about a condition of despair here so that they might emerge as rulers of its all.

p144
Louis T. McFadden, Chairman of the House Banking and Currency Committee, in 1934, filed a Petition for Articles of Impeachment against the Federal Reserve Board, charging fraud, conspiracy, unlawful conversion and treason. He told Congress:

This evil institution has impoverished and ruined the people of these United States, has bankrupted itself, and has practically bankrupted our Government. It has done this through the defects of the law under which it operates, through the maladministration of hat law by the Fed and through the corrupt practices of the moneyed vultures who control it.

p145
A document called "The Bankers Manifesto of 1934, an update of "The Bankers Manifesto of 1892," was reportedly published in The Civil Servants Yearbook in January 1934 and in The New American in February 1934 and was circulated privately among leading bankers. It read in part:

Capital must protect itself in every way, through combination [monopoly] and through legislation. Debts must be collected and loans and mortgages foreclosed as soon as possible. When through a process of law, the common people have lost their homes, they will be more tractable and more easily governed by the strong arm of the law applied by the central power of wealth, under control of leading financiers. People without homes will not quarrel with their leaders. This is well known among our principal men now engaged in forming an imperialism of capital to govern the world.

p157
From his first months in office, [FDR] implemented tough legislation against the Wall Street looting and corruption that had brought down the stock market and the economy. He took aim at the trusts and monopolies that had returned in force with the laissez-faire government of the Roaring Twenties. By 1929, about 1,200 mergers had swallowed up more than 6,000 previously independent companies, leaving only 200 corporations in control of over half of all American industry. FDR reversed this trend with new legislation, reviving the policies initiated by his cousin Teddy. He also imposed strict regulations on Wall Street. The Glass-Steagall Act was passed, limiting speculation and preventing banks from gambling with money entrusted to them. Regular commercial banks were separated from investment banks dealing with stocks and bonds, in order to prevent bankers from creating stock offerings and then underwriting or selling the offerings by hyping the stock. Banks had to choose to be either commercial banks or investment banks. Commercial banks were prohibited from underwriting most securities, with the exception of government-issued bonds, speculative abuses were regulated through the Securities Act of 1933 and the Securities Exchange Act of 1934.

... Needless to say, the Wall Street financiers were not pleased. "They are unanimous in their hatred of me," Roosevelt said defiantly, "and I welcome their hatred!" A clique of big financiers and industrialists was rumored to be so unhappy with the President that they plotted to assassinate him. Major General Smedley Butler testified before Congress that he had been solicited by Morgan banking interests to lead the plot.

He said he was told by a Morgan agent that Wall Street was about to cut off credit to the New Deal, and that Roosevelt "has either got to get more money out of us or he has got to change the method of financing the government, and we are going to see that lie does not change that method."

Change the method of financing the government to what? Hemphill had urged the government to issue its own Greenback-style currency, and Patman had proposed nationalizing the banks. Greenback-style funding was actually authorized by the Thomas Amendment, which provided that the President could issue $3 billion in new Greenbacks if the Federal Reserve Banks failed to fund $3 billion in government bonds." That authority was never exercised, but the threat was there. The plot to assassinate Roosevelt failed, but according to Smedley, it was only because he had refused to lead it.

As for Congressman McFadden's impeachment action against the Fed, he never got a chance to prove his case. His investigation was terminated by his sudden death in 1936, under suspicious circumstances.

... McFadden then died mysteriously of "heart-failure sudden-death," following a bout of "intestinal flue." His petition for Articles of Impeachment against the Federal Reserve Board for fraud, conspiracy, unlawful conversion and treason was never acted upon.

p160
Representative Wright Patman

Federal Reserve is a total moneymaking machine. It can issue money or checks. And it never has a problem of making its checks good because it can obtain the $5 and $10 bills necessary to cover its check simply by asking the Treasury Department's Bureau of Engraving to print them.

p162
Virtually all money in circulation today can be traced to government debt that has been "monetized" by the Federal Reserve and the banking system. This money is then multiplied many times over in the form of bank loans." In 2006, M3 (the broadest measure of the money supply) was nearly $10 trillion, and the Treasury securities held by the Federal Reserve came to about one-tenth that sum. Thus the money supply has expanded by a factor of about 10 for every dollar of federal debt monetized by the Federal Reserve, and all of this monetary expansion consists of loans on which the banks have been paid interest." It is this interest, not the interest paid to the Federal Reserve, that is the real windfall to the banks - this and the fact that the banks now have a moneymaking machine to back them up whenever they get in trouble with their "fractional reserve" lending scheme. The Jekyll Island plan had worked beautifully: the bankers succeeded in creating a secret source of unlimited funds that could be tapped into whenever they were caught short-handed. And to make sure their scheme remained a secret, they concealed this money machine in obscure Fedspeak that made the whole subject seem dull and incomprehensible to the uninitiated, and was misleading even to people who thought they understood it.

p163
Edward Griffin, in his book 'The Creature from Jekyll Island'

[The function of the Federal Reserve] is to convert debt into money. It's that simple..

p163
Edward Griffin, in his book 'The Creature from Jekyll Island'

[T]he Fed takes all the government bonds which the public does not buy and writes a check to Congress in exchange for them .... There is no money to back up this check. These fiat dollars are created on the spot for that purpose. By calling these bonds "reserves," the Fed then uses them as the base for creating additional dollars for every dollar created for the bonds themselves. The money created for the bonds is spent by the government, whereas the money created on top of those bonds is the source of all the bank loans made to the nation's businesses and individuals. The result of this process is the same as creating money on a printing press, hut the illusion is based on an accounting trick rather than a printing trick.

p167
The Fed reports that 95 percent of its profits are now returned to the U.S. Treasury." But a review of its balance sheet, which is available on the Internet, shows that it reports as profits only the interest received from the federal securities it holds as reserves. No mention is made of the much greater windfall afforded to the banks that are the Fed's corporate owners, which use the securities as the "reserves" that get multiplied many times over in the form of loans. The Federal Reserve maintains that it is now audited every year by Price Waterhouse and the Government Accounting Office (GAO), an arm of Congress; but some functions remain off limits to the GAO, including its transactions with foreign central banks and its open market operations (the operations by which it creates money with accounting entities). Thus the Fed's most important - and most highly suspect - functions remain beyond public scrutiny.

p190
Hedge funds were originally set up to "hedge the bets" of investors, insuring against currency or interest rate fluctuations; but they quickly became instruments for manipulation and control. Many of the largest hedge funds are run by former bank or investment bank dealers, who have left with the blessings of their former employers. The banks' investment money is then placed with the hedge funds, which can operate in a more unregulated environment than the banks can themselves. Hedge funds are now often responsible for over half the daily trading in the equity markets, due to their huge size and the huge amounts of capital funding them. That gives them an enormous amount of control over what the markets will do. In the fall of 2006, 8,282 of the 9,800 hedge funds operating worldwide were registered in the Cayman Islands, a British Overseas Territory with a population of 57,000 people. The Cayman Islands Monetary Authority gives each hedge fund at registration a 100-year exemption from any taxes, shelters the fund's activity behind a wall of official secrecy, allows the fund to self-regulate, and prevents other nations from regulating the funds.

p190
Derivatives are key investment tools of hedge funds. Derivatives are basically side bets that some underlying investment (a stock, commodity, market, etc.) will go up or down. They are not really "investments," because they don't involve the purchase of an asset. They are outside bets on what the asset will do. All derivatives are variations on futures trading, and all futures trading is inherently speculation or gambling. The more familiar types of derivatives include "puts" (betting the asset will go down) and "calls" (betting the asset will go up). Over 90 percent of the derivatives held by banks today, however, are "over-the-counter" derivatives - investment devices specially tailored to financial institutions, often having exotic and complex features, not traded on standard exchanges. They are not regulated, are hard to trace, and are very hard to understand.

p191
At one time, tough rules regulated speculation of this sort. The Glass-Steagall Act passed during the New Deal separated commercial At one time, tough rules regulated speculation of this sort. The Glass-Steagall Act passed during the New Deal separated commercial banking from securities trading; and the Commodities Futures Trading Commission (CFTC) was created in 1974 to regulate commodity futures and option markets and to protect market participants from price manipulation, abusive sales practices, and fraud. But again the speculators have managed to get around the rules. Derivative traders claim they are not dealing in "securities" or "futures" because nothing is being traded; and just to make sure, they induced Congress to empower the head of the CFTC to grant waivers to that effect, and they set up offshore hedge funds that remained small, unregistered and unregulated. They also had the Glass-Steagall Act repealed.

p193
Christopher White, in a report to the House Committee on Banking, Finance and Urban Affairs in 1994

The derivatives market... is the greatest bubble in history. It dwarfs the Mississippi Bubble in France and the South Sea Island bubble in England. This bubble, like a cancer, has penetrated and taken over the entirety of our banking and credit system; there is no major commercial bank, investment bank, mutual fund, etc. that is not dependent on derivatives for its existence. These derivatives suck the life's blood out of our economy. Our farms, our factories, our nation's infrastructure, our living standards are being sucked dry to pay off interest payments, dividend yields as well as other earnings on the bubble.

p193
The Office of the Comptroller of the Currency reported that in mid-2006, there were close to 9,000 commercial and savings banks in the United States; yet 97 percent of U.S. bank-held derivatives were concentrated in the hands of just five banks. Topping the list were JPMorgan Chase and Citibank, the citadels of the Morgan and Rockefeller empires.

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In 1992, George Soros and his giant hedge fund Quantum Group backed by Citibank and other powerful institutional speculators, used derivatives to collapse the currencies of Great Britain and Italy in a single day. The European Monetary System was taken down with them.

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John Hoefle, banking columnist for the Executive Intelligence Review (EIR), in 1998

We are on the verge of the biggest financial blowout in centuries, bigger than the Great Depression, bigger than the South Sea bubble, bigger than the Tulip bubble. The derivatives bubble, in which Citicorp, Morgan, and the other big New York banks are unsalvageably overexposed, is about to pop. The currency warfare operations of the Fed, George Soros, and Citicorp have generated billions of dollars in profits, but have destroyed the financial system in the process.

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Giant international banks are now major players in global markets, not just as lenders but as investors. Banks have a grossly unfair advantage in this game, because they have access to so much money that they can influence the outcome of their bets. If you the individual investor sell a stock short, your modest investment won't do much to influence the stock's price; but a mega-bank and its affiliates can short so much stock that the value plunges. If the bank is one of those lucky institutions considered "too big to fail," it can rest easy even if its bet does go wrong, since the FDIC and the taxpayers will bail it out from its folly. In the case of international loans, the International Monetary Fund will bail it out(In Sean Corrigan's descriptive prose:

[W]hen financiers and traders get paid enough to make Croesus kvetch for taking wholly asymmetric risks with phantom capital - risks underwritten by government institutions like the Fed and the FDIC ... . - this is not exactly a fair card game .

For every winner in this game played with phantom capital, there is a loser; and the biggest losers are those Third World countries that have been seduced into opening their financial markets to currency manipulation, allowing them to be targeted in powerful speculative raids that can and have destroyed their currencies and their economies. Lincoln's economist Henry Carey said that the twin weapons used by the British empire to colonize the world were the "gold standard" and "free trade." The gold standard has now become the petrodollar standard, but the game is still basically the same: crack open foreign markets in the name of "free trade," take down the local currency, and put the nation's assets on the block at fire sale prices. The first step in this process is to induce the country to accept foreign loans and investment. The loan money gets dissipated but the loans must be repaid. In the poignant words of Brazilian President Luiz Inacio Lula da Silva

The Third World War has already started .... The war is tearing down Brazil, Latin America, and practically all the Third World. Instead of soldiers dying, there are children. It is a war over the Third World debt, one which has as its main weapon, interest, a weapon more deadly than the atom bomb, more shattering than a laser beam.