The Fed’s Formation

When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it.

- Frédéric Bastiat – The Law. 1850

"Your Fed has become the creature from Jekyll Island." Those were the words of U.S. Senator Jim Bunning (Kentucky-R) for Federal Reserve Chairman Ben Bernanke during Bernanke's confirmation hearing held on Dec. 3, 2009. Bunning blasted Bernanke for causing the financial crisis of 2008, failing to watch over the banks, and for bailing out his "masters on Wall Street". Needless to say, Senator Bunning did not vote in favor on Bernanke's reappointment.

To understand his reference to Jekyll Island, one simply needs to learn the history of where, who, and why the Federal Reserve was created. The "where" was Jekyll Island in 1910, a small private resort island off the coast of Georgia which at the time was owned by J.P. Morgan. The "who" was a small cadre of the richest bankers in the world. The "why" was to craft a bill which would create an awesomely powerful banking cartel to get rich off national policies that itself created while passing the losses onto the taxpayer when times got tough.

Sound hard to believe? Before the great banker bailout of 2008, one might be tempted to dismiss this meeting as merely a conspiracy theory. But you need only read the words of the participants involved to discern their motives, and check the documents of the Federal Reserve to verify the Fed's history.

The original meeting to forge the Fed was intended to be secret, and thus the participants came up with an elaborate plan to disguise their true identities - using first-names only on the train ride over, assembling a new and carefully screened staff of caretakers for the Jekyll Island clubhouse while sending the usual staff on vacation, and coming up with a cover story that the purpose of the get-together was a duck-hunt, in case any reporters spotted them and asked what they were up to. In "Paul Warburg's Crusade to Establish a Central Bank in the United States", available on the Minneapolis Fed's website, author Michael A. Whitehouse writes:

"One evening in early November 1910, Warburg and a small party of men from New York quietly boarded Sen. Aldrich's private railway car, ostensibly for a trip south to an exclusive hunting club on an island off the coast of Georgia.

In addition to Warburg and Aldrich, the others, all highly regarded in the New York banking community, were: Frank Vanderlip, president of National City Bank; Harry P. Davison, a J.P. Morgan partner; Benjamin Strong, vice president of Banker's Trust Co.; and A. Piatt Andrew, former secretary of the National Monetary Commission and now assistant secretary of the Treasury. The real purpose of this historic "duck hunt" was to formulate a plan for US banking and currency reform that Aldrich could present to Congress.”

Even Warburg at first questioned the motives of this gathering, not knowing if he was included because the group knew what he preached and was interested in what he had to offer, or if he was to be involved as a conspirator in order to be muzzled. He soon saw that the Jekyll Island conference was pulled together because, as Warburg later wrote, Aldrich was "bewildered at all that he had absorbed abroad and he was faced with the difficult task of writing a highly technical bill while being harassed by the daily grind of his parliamentary duties."

Paul Warburg was a partner in Kuhn Loeb & Company and a representative of the Rothschild European banking dynasty. His brother was Max Warburg, head of the Warburg banking consortium in Germany and the Netherlands. Senator Nelson Aldrich, who was considered one the the most powerful men in Washington D.C., was a Republican "whip" in the Senate as well as a business associate of J.P. Morgan, and father-in-law to John D. Rockefeller, Jr. According to Jekyll Island Museum historian Tyler E. Bagwell, this group was also accompanied by Charles D. Norton, president of J.P. Morgan's First National Bank of New York.

The important thing to take notice here is that this group represented an enormous concentration of wealth. Author G. Edward Griffin writes:

An article appeared in the New York Times on May 3, 1931, commenting of the death of George Baker, one of Morgan's closest associates. It said: “One-sixth of the total wealth of the world was represented by members of the Jekyll Island Club”. The reference was only to those in the Morgan Group (members of the Jekyll Island Club). It did not include the Rockefeller group or the European financiers. When all of these are combined, the previous estimate that one-fourth of the world's wealth was represented by these groups is probably conservative”¹

Now if a group of the world's most powerful oil tycoons gathered in secret to write legislation to be presented to Congress, you can be sure that this legislation would be used for the benefit of the oil industry. If a group representing the biggest tobacco companies gathered in secret to write legislation, you can bet it would be used to benefit the big tobacco companies. If a group of bankers representing one-fourth of the world's wealth gathered in secret to create a bill, it doesn't take a genius to figure out that the bill would benefit the big bankers. The only trick to getting their bill passed was to use words sufficiently convincing that the legislation would be to protect the public, while hiding the nuts and bolts of the confusing mechanism that would benefit the bankers. The bankers promised a stable currency and an end to financial panics. History tells a different story. The Jekyll Island cabal succeeded and ultimately wound up with the Glass-Owen bill which authorized the creation of the Federal Reserve. In "The Balance of Power", available on the Kansas City Fed's website, author Tim Todd writes:

"Although the bill did not come forward until 1912, it had been under development for years, going back to a November 1910 meeting involving investment banker Paul Warburg and other on Jekyll Island, GA. The then-secret meeting was organized by financiers and bankers who recognized the nation's need for a central bank and wanted to begin the process. Because they did not think the public would welcome a plan crafted by bankers, they made extraordinary efforts to keep the meeting secret, such as using only first names and telling others that they were on a duck hunting trip. Details of the meeting were made public years later and, as it turned out, the shroud of secrecy has made the meeting an especially popular target for Fed critics even today. One of the best-known written criticisms of the Fed, in fact, is G. Edward Griffin's 1994 book, The Creature from Jekyll Island."

The dark day that the Federal Reserve Act was passed was December 22, 1913. Despite the promises of a stable currency and a country free from banking-panics, the Federal Reserve has presided over 2 depressions (two of which occurred within twenty years of the passage of the Act), many recessions, and a dollar which has lost 97% of its original value. In 2010, we find an American public desperate to find jobs, and a country teetering on the edge of financial collapse. At the same time, we're seeing the consolidation of large powerful banking interests and record bonuses for outfits such as Goldman Sachs. Reviewing the words of those bankers who crafted the Federal Reserve legislation at Jekyll Island, it's not so difficult to determine who would benefit and who would lose:

“Before the passage of this Act, the New York bankers could only dominate the reserves of New York. Now we were able to dominate the bank reserves of the entire country”

- Nelson Aldrich, The Independent. July 1914

"The results of the conference were entirely confidential. Even the fact there had been a meeting was not permitted to become public. Though eighteen years have gone by, I do not feel free to give a description of this most interesting conference concerning which Senator Aldrich pledged all participants to secrecy"

- Paul Warburg, The Federal Reserve System, Its Origin and Growth. 1930

"Despite my views about the value to society of greater publicity for the affairs of corporations, there was an occasion, near the close of 1910, when I was as secretive – indeed, as furtive – as any conspirator... I do not feel it is any exaggeration to speak of our secret expedition to Jekyll Island as the occasion of the conception of what eventually became the Federal Reserve System... If it were to be exposed publicly that our particular group had got together and written a banking bill, that bill would have no chance whatever of passage by Congress"

- Frank Vanderlip, Saturday Evening Post. Feb. 9, 1935

The great French political economist Frédéric Bastiat wrote in 1850: "It is easy to understand why the law is used by the legislators to destroy in varying degrees among the rest of the people, their personal independence by slavery, their liberty by oppression, and their property by plunder. This is done for the benefit of the person who makes the law, and in proportion to the power that he holds." Given that the Federal Reserve Act was passed in 1913 and given the terrible shape America now finds itself in despite the banker bailouts, it's tempting to say that Bastiat was ahead of his time. Though actually, he had recognized an age-old pattern. Government gets in bed with business and creates laws to benefit government and business at the expense of the people.

1G. Edward Griffin, The Creature from Jekyll Island (American Media, 2008), p. 6