"When Bankers Fear to Act"

Floyd Norris in the New York Times has an interesting article that laments the fact that, unlike past financial crises, no one has stepped forward to encourage the sort of risk-taking needed to restore order to the markets.

Even though I enjoyed the piece, ultimately, the effort to look for a single agent to rally the industry misses the peculiar and deeply-rooted nature of our current mess. After all, Hank Paulson has repeatedly waded in to try to find solutions to pressing problems with very little success. Admittedly, the Treasury is a comparatively disadvantaged position, but nevertheless Paulson have endeavored to play the very role that Norris calls for.

So what is different now? The is one element Norris alludes to but does not tease out sufficiently: the financial markets have grown so large and complicated that the number of financial firms involved and the number of big problems they face are too large to be tackled. Just look at the monoline mess. You have several insurers, each with its own set of financial players that will be hurt in the case of a loss. Moreover, you have a large free rider problem. It’s impractical to involve all the exposed parties in a bailout effort; the number is easily in the thousands. But limiting the salvage operation to the ones who will be hurt the most means that they are aiding the rest too.

Now in the past examples that Norris cites, bankers stepped forward even though they no doubt faced similar free rider issues. He makes the mistake of attributing action back then to leadership. I would argue the failure of firms to step forward now is due to a shift in values.

The generational change in orientation towards markets and self-interest as primary guides for behavior has has a very destructive effect on action in support of the collective good. It’s difficult to imagine many children from upper middle class families today doing what young people did in the 1960s, demonstrating against the war (and risking going to jail), going to the South to register blacks to vote (risking their lives). Too many of the people I know who give time and money to charities are motivated to a significant degree by the networking opportunities.

In the old days, most people in the markets felt they had duties, and those might entail taking losses for the sake of the industry and one’s reputation. As we have discovered, individuals and firms are now willing to chuck reputation if the costs get too high and duty is a four letter word. It’s for fogies and fools.

But there is a bigger problem than the shift in values. Due to the complexity of the markets and the instruments and the number of flashpoints, there is insufficient capacity to analyze the problem and negotiate solutions.

We commented upon this last year with a vastly simpler crisis scenario (this is a small section of a considerably longer discussion):

So what could happen now? Let’s say we have another day like Feb 27, but Bernanke isn’t able to reassure markets. We see further ratcheting down and panic spreading to other markets.

….the lack of an LTCM in a that kind of meltdown is vastly worse. You can’t get people into a room, knock heads together, and force a solution. The problem is too big and spread out for that to work….

Now imagine that it isn’t a single institution, but even a handful of medium sized ones that add up to the market presence of a big one. Or a large institution plus a few middling ones. You get the picture. The diversification of the current system in most cases will reduce the risk of systemic failure. But with derivatives, with the right (meaning wrong) conditions, like another 1998, I am not at all confident that we are better off now.

In the scenario above, we argued that the simultaneous failure of multiple large-ish hedge funds would be too managerially demanding for Wall Street to manage. There wouldn’t be enough top executive and legal bandwidth to handle multiple crisis negotiations in parallel.

Now consider: what we were worried about was a mere hedge fund rescue. That is actually not a hugely complicated operation (the big issue is the fighting among the creditors and the need to reach agreement pretty quickly, because these firms can go down fast). That is far less complicated than figuring out what to do with problems that involve not just the financial dealers, but end investors and (ultimately) flawed structures and bad incentives.

In parallel, we have a subprime/housing crisis (which one might call a securitization crisis) which has led to wide-scale problems in affiliated markets, such as SIVs, asset backed commercial paper, and potentially the credit default swaps market if the monoline problems are not resolved. And if the securitization machine remains broken (likely) banks will be forced to carry more loans on their balance sheets, which will lead to a systemic reduction in leverage on an ongoing basis. We also have an auction rate securities crisis. Leveraged loans and commercial real estate aren’t quite at the crisis level, but they will lead to further balance sheet damage.

There are too many problems on too many fronts for the regulators or the industry to analyze and come up with solutions. Each is fiendishly complex. So instead we are getting patchwork, symptom-oriented approaches.

And the worst is even if the industry knew what to do, there isn’t enough capital in the large institutions to execute a rescue, even in one crisis area. They’ve been forced to go begging to the sovereign wealth funds, who are already signaling that they are not keen to extend themselves any further. And they are far from done with taking writedowns.

So that’s a very long winded way of saying Norris’ piece misses the depth and complexity of our current situation.

From the New York Times:

Where is the next J. P. Morgan?

In times of market crisis, the safest course for any one market participant may be the riskiest course for the entire market. If everyone wants to sell, prices can go in only one direction.

In past financial crises, it has fallen to someone — regulators, investment banks or even a single banker — to organize collective action and avert disaster.

Such moves involved persuading people to take steps that seemed to go against their own private interests. Buy stocks when everyone wants to sell? Lend money to a bank in danger of failing, when your own bank might need the money tomorrow? Join with others to buy securities from a desperate seller, rather than try to maximize your own profits from his precarious position? It goes against the basic principle of markets, that your job is to look out for yourself.

But all those things have happened in the past. Unfortunately, nothing like them is happening in the current crisis.

In 1907, Morgan demanded that presidents of New York trust companies — then a type of second-class bank — act together to save one of their own, the Trust Company of America, from a bank run.

The presidents, wrote Robert F. Bruner and Sean D. Carr in their book, “The Panic of 1907,” were “convinced that it was their primary responsibility to conserve their assets in order to survive the financial storm that was swirling around them.” Morgan said that would simply assure that all would fail, one by one.

Morgan, then the dominant figure in American finance, called the presidents to a Saturday meeting in his library — and locked the door. Not until dawn Sunday did he let them out, after they had committed the needed cash.

In 1987, on Tuesday, Oct. 20, it appeared that the crash of the previous day was going to get worse. Market makers had little capital and less appetite to risk it, and one by one trading in the shares of major companies was halted because there were no buyers. In Chicago, the futures market was talking about halting trading in stock index futures because there were not enough stocks trading to know what the futures were worth.

That changed when two major brokerage firms — Goldman Sachs and Salomon Brothers — sent word to the New York Stock Exchange floor that they would buy any stock in the Standard & Poor’s 500 if their orders were needed to keep the shares trading. Just after that word was sent, the market turned around.

In 1998, when a possible hedge fund failure seemed to threaten the financial system, it was the Federal Reserve Bank of New York that called in all the major financial institutions and organized a bailout.

But efforts to organize concerted action this time have been limited. Treasury Secretary Henry M. Paulson Jr. has sought to get agreements in two areas — renegotiating mortgages and putting together a fund to deal with one of the early manifestations of the problem, the threatened collapse of odd financial instruments called structured investment vehicles — but there has been no visible effort to deal with the underlying problem.

In part, that may reflect the slow realization of what is at stake. For many months, we called it the subprime mortgage crisis, because that was where the problem first became apparent. But that label is far too narrow, and serves to obscure what is at stake.

“Rather ominously, borrowing costs for even the most creditworthy of firms have started to rise,” said Paul Ashworth, an economist with Capital Economics in London. Homeowners who can still get mortgages have seen rates rise in recent weeks, and banks say they are tightening their standards for both credit cards and commercial real estate loans.

“The principal cause for concern today is the paralysis of the credit markets,” Martin Feldstein, a Harvard economist and an adviser to President Ronald Reagan, wrote in The Wall Street Journal this week. “The collapse of confidence in credit markets is now preventing that necessary extension of credit. The decline of credit creation includes not only the banks but also the bond markets, hedge funds, insurance companies and mutual funds. Securitization, leveraged buyouts and credit insurance have also atrophied.”

The latest area of crisis is one that Morgan would have recognized in 1907. The major Wall Street houses — from Morgan Stanley and Goldman Sachs to Citigroup and Merrill Lynch — have refused to commit capital to the auction-rate market, a market that was supposed to allow investors to sell each week, via an auction that set interest rates.

Now many auctions are failing. That has left customers unable to sell securities that were supposed to have virtually guaranteed liquidity, and it has left the issuers — who paid fees to the banks to conduct the auctions — paying ridiculously high interest rates. It’s not easy to get both borrowers and lenders feeling angry and abandoned, but Wall Street has managed the feat.

When the crisis storms gathered in late 2007, much of the problem was with complicated securities — collateralized debt obligations, for example — that were extremely difficult to analyze. The failure of buyers to step up may have been rational. But that is not true with some of the auction-rate securities. They represent loans to borrowers that by any standard should be deemed good credits.

But the big banks were unable or unwilling to either buy the securities or find customers to buy them. That lack of action has damaged the reputation of each of the houses, in ways that would have been unthinkable a few months ago. But the bosses are scared. They no longer are sure just how adequate their capital is, and they are afraid to commit it while the financial crisis swirls around them. Some got their jobs because their predecessors were too willing to take risks.

It is not clear what the Fed or the Treasury could, or should, do now. The players can no longer be gathered into a single room, and they are regulated in different countries around the world, if they are regulated at all. Things are far more difficult because many of these markets are unregulated, making it difficult to gauge who is at risk and for how much.

But it is hard to see this ending until something is done to, in Mr. Feldstein’s words, assure “that necessary extension of credit.” Lowering interest rates will not, by itself, do that so long as the banks and investors are too scared to lend money at any rate.

In their book on the Panic of 1907, published last year before the crisis began, Mr. Bruner and Mr. Carr hailed Morgan’s actions, as well as the Fed’s 1998 move to salvage the hedge fund. But they warned, presciently as it turned out, that the current environment might hamper similar efforts in a new crisis.

“In a globally complex financial system, will such collective action be possible if the crisis is triggered beyond the reach of any of today’s regulators?” they asked.

So far, it appears the answer is no.

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  1. a

    Is it really an environment where there is risk-aversion? It seems more like we are passing from an environment where risk was undervalued, to one where it is more correctly valued. People can borrow money readily, they just need to pay more. Now perhaps it is understandable that they think they should be able to borrow at the old rate – everyone wants a good deal to continue for as long as possible – but good deals don’t last forever.

  2. vlade

    Yves, I fully agree with your last point. There’s too much of bubble money in the offing (read credit created not by the central banks), and that will have to substantially disappear before this mess will be cleaned up.
    Given that the credit was in the first place created/helped by the banks, they cannot be the saviours.

    ZIRP policy from Fed would save the market, with the cost being hyperinflation and dollar loosing its status.

    The best solution is the recession, but that solution I believe will be politically unpalatable – especially to a new president in a years time. I can’t imagine a president who would promise America blood, toil, tears and sweat to win the election next year – but that’s what America needs IMO.

  3. Anonymous

    Why do we need a rescue. I have made a ton of money buying puts on homebuilders and financial stocks. Why is it considered legitimate to make money when stocks go up but not when they go down?

  4. S

    The idea that some savior is going to rush in is to ignotre the fundamental rot of the past decades.The system is not easily fixed becasue the entire complex is built on sand. Luckly the productivity donors are in a similairly intractable problem, but eventually the system adapt as all complex systems do and it will be to the detriment of the US. This is just the start.

  5. Anonymous

    The financial sector has become too big to fail along with our cozy American lifestyle which reflect a Disneyland approach to life. Finger pointing and rear view economic babble will continue filling the pages of the NYT for many years.

  6. doc_holiday_and _the_walking_wounded

    It is the worst of times, as Bush & Coup ignore reality, and continue on with the abuses of 8 years — while the new clowns and puppets tout opptomistic and euphoric rhetoric which downplays any conceptual or intellectual connections related to the harsh realities falling quickly into place. By default, one of the puppets will become president and live with the fear of appearing to know too little about too much, or is that visa versa?

    We continue to have economic chaos, which will continue to inflate faster than any of these fools can hope to adapt. No one has a clue as to how much damage has been done and what lies ahead. How could anyone presume to understand the real-time, on-the-fly physics of this slow motion train wreck?

    This economy is like the body of someone in a head on collision with a freight train that is waiting for an ambulance, as they lie in shock, while bystanders gawk at the wreck and pass by with curiosity. The ambulance is bogged down in rush hour traffic and the drunk drivers headed home from happy hour who block the way — hear the noise of the music that blocks out the sirens.

    The ambulance will arrive (late) and then a long, slow challenging journey back to the hospital will result in emergency diagnostics that will be adjusted in proportion to to the insurance plan available for narrow’d treatment options, and then a semi-ethical doctor will perform invasive exploratory surgery in an attempt to diagnose why the victim is still in shock, with vital signs fading faster than the policy premiums.

    As Neil Young once screamed, with Stills, “sooner or later….. it all gets real…. walk on…”

    We are living amongst the walking dead, sorry to tell yah!

    Also see:

    Banks Lose to Deadbeat Homeowners as Loans Sold in Bonds Vanish – [2008-02-22] – ‘ “If you’re going to take my house away from me, you better own the note,” said Lents, 63, the former chief executive officer…
    Death by Slow-Motion Asphyxiation – [2008-02-22] – ‘And reform of financial institutions, hardly, as so far we’ve seem some modest write offs, no doubt forced by accountants cover…
    Is Time Running Out for Bond Insurers? – [2008-02-22] – ‘Bond insurers guarantee bonds held by investors from default, agreeing to pay interest and principle if the issuer doesn’t do s…
    Did The Auditors Trigger The Sell-Off of Auction Rate Securities? – [2008-02-22] – ‘Many companies changed the way they account for auction-rate securities on their balance sheets, sometimes classifying them as …
    GMAC, ResCap cut deeper into junk by S&P – [2008-02-22] – “GMAC LLC and its Residential Capital LLC mortgage unit were cut several notches deeper into junk status by Standard & Poor&apos…
    Fitch: Unrealized Subprime Losses – [2008-02-22]
    Credit Default Swaps, a hedge funder’s view – [2008-02-22]
    Media blackout of Ron Paul – [2008-02-22]

  7. Anonymous

    On Thursday MBIA quit the Association of Financial Guaranty Insurers, a trade group, after 22 years, due to disagreements over the right direction for the industry.???

    Whats up there???

  8. Max

    Nobody comes to the rescue because the problems are too big to fix even with concerted efforts.

    The financial system is insolvent, the country has been on a debt binge for twenty-something years, good luck fixing that.

  9. Anonymous

    OT: Under the OS, once the bonds or a portion of the bonds were redeemed, the owners of such bonds or portions thereof ceased to be entitled to any benefit or security under the bond resolution.”
    The ruling reverses the one the panel issued on May 31, 2006, in which the three judges had said that FSA “has standing as a purchaser of a contingent interest in the bonds” by virtue of its insurance policy. The panel had said that under its insurance policy, FSA “shall become the owner of the bond, any appurtenant coupon to the bonds or right to receipt of payment of principal or interest on the bond.” Stephens appealed that ruling.
    The case revolves around a solid waste disposal facility in Cordele, Ga., which never reached its operational capacity and was shut down several months after startup. The facility was financed initially with short-term bank loans and, later, with tax-exempt bonds issued by the Solid Waste Management Authority of Crisp County, Ga. The bonds defaulted in 2000, forcing FSA to pay the bondholders.
    FSA filed a lawsuit in the U.S. District Court for the Northern District of Georgia in late 2000 charging Stephens with federal securities fraud and state common law fraud violations. The bond insurer claimed the underwriter misled it, in a request for proposals for credit enhancement and in bond documents, about the operational capability of the facility and the facility’s ability to bring in enough revenue to pay debt service on the bonds.
    But Stephens argued that it owed no duty to disclose information to FSA and claimed that the insurer had failed to conduct adequate due diligence on the facility and the financing.


    In a highly unusual and potentially far-reaching ruling, a three-judge federal appeals court panel yesterday reversed itself and found that insurer Financial Securities Assurance Inc. has no standing to bring securities fraud charges against underwriter Stephens Inc., for alleged misrepresentations made in connection with $69.6 million of now-defaulted bonds that were issued by an authority in Georgia in 1998 to finance completion of a solid waste disposal and recycling facility.

  10. Rich

    Just as a hook into the woods requires a similar shot to get out, the antidote to this current crisis of confidence contains the disease. That is, a re-securitization of affected assets, but this time structured correctly.

    Today’s market problems are due in small part to credit performance and in large part to flawed CDO structures. As a former CMO and CMBS structurer, I quickly learned that two of the most important principles needed for successful scecuritizations are (1) homogeneous assets and (2) relatively predictable cashflows. Current CDO structures containing a mish-mash of assets with limited credit histories possess neither of these characteristics.

    And, to make matters worse, many CDOs contain market value stop loss puts which hedge idiosyncratic risk but exacerbate systemic risk.

    So, to fix today’s problems and restore confidence in markets, the solution is simply for all market participants to unwind all these securitizations and use the assets to re-capitalize new structures constructed correctly. Then, assets can be priced according to true credit quality, not to the lowest credit quality of the SPV.

    Will this ever happen…?

  11. Mac

    I agree with your analysis Yves, being the system is far too complex for a single rescuer. However, your statement:

    “The generational change in orientation towards markets and self-interest as primary guides for behavior has has a very destructive effect on action in support of the collective good. It’s difficult to imagine many children from upper middle class families today doing what young people did in the 1960s, demonstrating against the war (and risking going to jail), going to the South to register blacks to vote (risking their lives). Too many of the people I know who give time and money to charities are motivated to a significant degree by the networking opportunities.”

    I think is over egging the pudding a tad.

    One thing that has been written about is the sea change with the way financial firms are managed – from partnerships to public companies.

    Certainly 30 years ago you cannot imagine the obfuscated market given that partners had there own skin in the game, and conversely, they had some personal interest to get things fixed.

    Now, you can put a company in a deep hole and get paid $55M for the trouble of leaving it. How can you expect somebody to lead and take risks when they are beholden to diverse shareholder interest, and in addition to being in a ‘no loose’ position of getting a solid paid out even if it all goes all terribly wrong?

  12. Yves Smith


    Although I have said before that securities firms should not be public for precisely the reasons you cited (you can’t have parties in a position to create systemic risk that are neither heavily regulated nor having insufficient incentives to be careful), I do believe the shift in values away from a sense that community/collective needs were important to ones where the markets and individual interest takes the fore, does play a role that is insufficiently recognized.

    It’s fair to say I didn’t adequately make that case. It’s hard to find simple examples, but consider: in the 1970s, in New York’s fiscal crisis, Felix Rohatyn was able to broker a solution which kept the city from declaring bankruptcy. Rohatyn didn’t collect any fees for this action, which as the preeminent banker of his day, no doubt took him away from lucrative client business (unlike, say Peralla Weinberg, who are no doubt being compensated for their work to try to rescue the monoline insurers. Admittedly, they may be taking a less-than-usual rate, but even then, they have likely take on this assignment deeming it to be good for business, while those involved in the NYC rescue did it because they felt it was important to salvage the city).

    Rohatyn himself has said that financiers at major financial institutions very much wanted to find a solution for New York, while today, they are “”multinationals more interested in Argentina’s emerging market, than in New York’s [stability and potential.]”

    Increasingly, companies and individuals conduct their affairs through impersonal transactions. I used to buy fish from a local fishmonger. I had an account with him. I would never in a million years not pay him on time; I knew that would be disruptive to his business. And similarly, he’d never try to pull a fast one on me. Most people will not screw someone they with whom they feel they have a relationship.

    But now we have lots of vendors (start with health insurers) who are keen to use whatever ruse they can to wriggle out of their commitments. And consumers are correspondingly also more willing to walk from contractual obligations if the cost of exit is deemed acceptable.

    And that in turn feed back into the willingness of big institutions to stick their necks out to rescue the system. Why should they when that sort of action goes against the culture? Even if some are willing to take the risk, there are enough players who won’t carry their weight to make it well night impossible to rally a big enough group to do the job.

  13. Anonymous

    Yves I agree with your comments on norms and cultural changes. We are more individualistic and less socially responsible. Possibly more corruption in finance, more fraud. Certainly seems that way in real estate.

    In any case, the irony is devastating: this has been a “conservative” era of “moral” and “family” values. Hah.

  14. Mac

    I think in a lot of ways we are reaping what we have sown. We know that securitisation of mortgages can be Good Thing, yielding more access to loans at better terms. But it can also lead to the “somebody else’s problem” or the obfuscation we see in the market.

    Just as you had a fishmonger, my father 35 years ago had a bank manager. That bank manager gave him a loan (since he could see the savings history, etc), and held onto that loan. My dad paid back the bank, because he knew the bank manager and knew it would affect his business (as well of course himself – lets be honest here).

    When you had a fishmonger, how surprised would you have been if some numbnut had sent you a payment demand because your fishmonger had sold your account to him? More to the point, how much would you be inclined to pay said numbnut when he cannot find the account transfer agreement (as we are now hearing such whining from the MBA “just because” banks cannot find the loan documentation)?

    But those days are past, and such access to those that dealt with us on a one-to-one basis are past. Pointing the fingers at some kind of moral slippage in today’s society sounds just like my granddad when he spoke of the “kids of today” compared to those at the turn of the century. His point of view was the world went to the dogs after the Great War.

    I wonder how far into market complexity of securitisation and structured finance we would have gone if it hadn’t been for the subprime/housing bubble trigger…

  15. Deborah

    I agree on the change in social values, but right about now the comparisons are not equitable. 1987 after the drop stocks were not over priced as they are now.

    It seems to me the “step up to the plate” idea is “buy my bubbled assets and get me off the hook.” I don’t see the “greater good” you suggest.

  16. Yves Smith


    That may be the sort of operation that Norris had in mind, and I agree that shoring up overpriced assets in the long run is good for no one. But that isn’t the only form intervention (or needed risk taking) can make.

    In the auction rate securities markets, the dealers have stopped putting in backup bids and are letting the auctions fail. This is a repudiation of the role of an issuer. If you sold the paper, you are supposed to make a market, or in this case, provide a bid. It as a disgrace that the Port Authority’s ARS went to 20%. An investment bank could have put in a bid at 10%, looked like a good guy, and still made out like a bandit.

    In a more general sense, it appears (note I can’t be certain here) that dealers are less willing to make markets in adverse times, as when asset values are falling, Historically, dealers felt an obligation to make a market (although some would withdraw in times of free fall).

    Similarly, as discussed in another post, it’s peculiar that the investment banks haven’t stepped up to bail out the monolines. The estimates of losses to them individually and collectively say that a rescue is cheaper than letting them fail, but instead, they’ve twisted in the wind for a month, and now Dinallo has succeed in advancing the idea of a breakup plan, which makes matters worse for the banks.

    In the example of the rescue of New York City that I alluded to before, again it wasn’t a simple “let’s put a bid under the market” operation either.

  17. nokoolaid

    I think the key to this is understanding the very root causes and outcomes of past recessions or the Depression. In 1907, JP Morgan came to the rescue. Why did he come to the rescue?
    Here is an excerpt from reactor-core.org:

    “Historian Frederick Lewis Allen tells in Life magazine of April 25, 1949, of Morgan’s role in spreading rumors about the insolvency of the Knickerbocker Bank and The Trust Company of America, which rumors triggered the 1907 panic. In answer to the question: “Did Morgan precipitate the panic?” Allen reports:

    “Oakleigh Thorne, the president of that particular trust company, testified later before a congressional committee that his bank had been subjected to only moderate withdrawals … that he had not applied for help, and that it was the [Morgan’s] ‘sore point’ statement alone that had caused the run on his bank. From this testimony, plus the disciplinary measures taken by the Clearing House against the Heinze, Morse and Thomas banks, plus other fragments of supposedly pertinent evidence, certain chroniclers have arrived at the ingenious conclusion that the Morgan interests took advantage of the unsettled conditions during the autumn of 1907 to precipitate the panic, guiding it shrewdly as it progressed so that it would kill off rival banks and consolidate the preeminence of the banks within the Morgan orbit.”

    The “panic” which Morgan had created, he proceeded to end almost single-handedly. He had made his point. Frederick Allen explains:

    “The lesson of the Panic of 1907 was clear, though not for some six years was it destined to be embodied in legislation: the United States gravely needed a central banking system…”

    In 1907, the year of the Morgan-precipitated panic, Paul Warburg began spending almost all of his time writing and lecturing on the need for “bank reform.” Kuhn, Loeb and Company was sufficiently public spirited about the matter to keep him on salary at $500,000 per year while for the next six years he donated his time to “the public good.”

    Working with Warburg in promoting this “banking reform” was Nelson Aldrich, known as “Morgan’s floor broker in the Senate.” Aldrich’s daughter Abby married John D. Rockefeller Jr. (the current Governor of New York is named for his maternal grandfather).

    After the Panic of 1907, Aldrich was appointed by the Senate to head the National Monetary Commission. Although he had no technical knowledge of banking, Aldrich and his entourage spent nearly two years and $300,000 of the taxpayers’ money being wined and dined by the owners of Europe’s central banks as they toured the Continent “studying” central banking. When the Commission returned from its luxurious junket it held no meetings and made no report for nearly two years. But Senator Aldrich was busy “arranging” things. Together with Paul Warburg and other international bankers, he staged one of the most important secret meetings in the history of the United States Rockefeller agent Frank Vanderlip admitted many years later in his memoirs:

    “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 Jekyl Island as the occasion of the actual conception of what eventually became the Federal Reserve System.”

    The secrecy was well warranted. At stake was control over the entire economy. Senator Aldrich had issued confidential invitations to Henry P. Davison of J. P. Morgan & Company; Frank A. Vanderlip, President of the Rockefeller-owned National City Bank; A. Piatt Andrew, Assistant Secretary of the Treasury; Benjamin Strong of Morgan’s Bankers Trust Company; and Paul Warburg. They were all to accompany him to Jekyl Island, Georgia, to write the final recommendations of the National Monetary Commission report.

    At Jekyl Island, writes B. C. Forbes in his Men Who Are Making America:

    “After a general discussion it was decided to draw up certain broad principles on which all could agree. Every member of the group voted for a central bank as being the ideal cornerstone for any banking system.” (Page 399)

    Warburg stressed that the name “central bank” must be avoided at all costs. It was decided to promote the scheme as a “regional reserve” system with four (later twelve) branches in different sections of the country. The conspirators knew that the New York bank would dominate the rest, which would be marble “white elephants” to deceive the public.

    Out of the Jekyl Island meeting came the completion of the Monetary Commission Report and the Aldrich Bill. Warburg had proposed the bill be designated the “Federal Reserve System,” but Aldrich insisted his own name was already associated in the public’s mind with banking reform and that it would arouse suspicion if a bill were introduced which did not bear his name. However, Aldrich’s name attached to the bill proved to be the kiss of death, since any law bearing his name was so obviously a project of the international bankers.

    When the Aldrich Bill could not be pushed through Congress, a new strategy had to be devised. The Republican Party was too closely connected with Wall Street. The only hope for a central bank was to disguise it and have it put through by the Democrats as a measure to strip Wall Street of its power. The opportunity to do this came with the approach of the 1912 Presidential election. Republican President William Howard Taft, who had turned against the Aldrich Bill, seemed a sure-fire bet for reelection until Taft’s predecessor, fellow Republican Teddy Roosevelt, agreed to run on the ticket of the Progressive Party. In America’s 60 Families, Ferdinand Lundberg acknowledges:

    “As soon as Roosevelt signified that he would again challenge Taft the President’s defeat was inevitable. Throughout the three-cornered fight [Taft-Roosevelt-Wilson] Roosevelt had [Morgan agents Frank] Munsey and [George] Perkins constantly at his heels, supplying money, going over his speeches, bringing people from Wall Street in to help, and, in general, carrying the entire burden of the campaign against

    Perkins and J. P. Morgan and Company were the substance of the Progressive Party; everything else was trimming.

    In short, most of Roosevelt’s campaign fund was supplied by the two Morgan hatchet men who were seeking Taft’s scalp.” (Pp.110-112)

    The Democrat candidate, Woodrow Wilson, was equally the property of Morgan. Dr. Gabriel Kolko in his The Triumph of Conservatism, reports: “In late 1907 he [Wilson] supported the Aldrich Bill on banking, and was full of praise for Morgan’s role in American society.” (Page 205) According to Lundberg: “For nearly twenty years before his nomination Woodrow Wilson had moved in the shadow of Wall Street.” (Page 112)

    Woodrow Wilson and Teddy Roosevelt proceeded to whistle-stop the country trying to out-do each other in florid (and hypocritical) denunciations of the Wall Street “money trust”-the same group of Insiders which was financing the campaigns of both.

    Dr. Kolko goes on to tell us that, at the beginning of 1912, banking reform “seemed a dead issue… The banking reform movement had neatly isolated itself.” Wilson resurrected the issue and promised the country a money system free from domination by the international bankers of Wall Street. Moreover, the Democrat platform expressly stated: “We are opposed to the Aldrich plan for a central bank.” But the “Big Boys” knew who they had bought. Among the international financiers who contributed heavily to the Wilson campaign, in addition to those already named, were Jacob Schiff, Bernard Baruch, Henry Morgenthau, Thomas Fortune Ryan, and New York Times publisher Adolph Ochs

    The insiders’ sheepdog who controlled Wilson and guided the program through Congress was the mysterious “Colonel’1 Edward Mandel House, the British-educated son of a representative of England’s financial interests in the American South. The title was honorary; House never served in the military. He was strictly a behind-the-scenes wire-puller and is regarded by many historians as the real President of the United States during the Wilson years. House authored a book, Philip Dru: Administrator, in which he wrote of establishing “Socialism as dreamed by Karl Marx” As steps toward his goal, House, both in his book and in real life, called for passage of a graduated income tax and a central bank providing “a flexible [inflatable paper] currency.” The graduated income tax and a central bank are two of the ten planks of The Communist Manifesto.

    In his The intimate Papers 0/ Colonel House, Professor Charles Seymour refers to the “Colonel” as the “unseen guardian angel” of the Federal Reserve Act. Seymour’s work contains numerous documents and records showing constant contact between House and Paul Warburg while the Federal Reserve Act was being prepared and steered through Congress. Biographer George Viereck assures us that “The Schiffs, the Warburgs, the Kahns, the Rockefellers, and the Morgans put their faith in House… Their faith was amply rewarded.

    In order to support the fiction that the Federal Reserve Act was “a people’s bill,” the insider financiers put up a smoke-screen of opposition to it. It was strictly a case of Br’er Rabbit begging not to be thrown into the briar patch. Both Aldrich and Vanderlip denounced what in actuality was their own bill. Nearly twenty-five years later Frank Vanderlip admitted: “Now although the Aldrich Federal Reserve Plan was defeated when it bore the name Aldrich, nevertheless its essential points were all contained in the plan that finally was adopted.”

    Taking advantage of Congress’ desire to adjourn for Christmas, the Federal Reserve Act was passed on December 22, 1913 by a vote of 298 to 60 in the House, and in the Senate by a majority of 43 to 25. Wilson had fulfilled to the insiders the pledge he had made in order to become President. Warburg told House, “Well, it hasn’t got quite everything we want, but the lack can be adjusted later by administrative process.”

    There was genuine opposition to the Act, but it could not match the power of the bill’s advocates. Conservative Henry Cabot Lodge Sr. proclaimed with great foresight, “The bill as it stands seems to me to open the way to a vast inflation of currency… I do not like to think that any law can be passed which will make it possible to submerge the gold standard in a flood of irredeemable paper currency.” (Congressional Record, June 10, 1932.) After the vote, Congressman Charles A. Lindbergh Sr., father of the famous aviator, told Congress:

    “This act establishes the most gigantic trust on earth… When the President signs this act the invisible government by the money power, proven to exist by the Money Trust investigation, will be legalized…

    This is the Aldrich Bill in disguise…

    The new law will create inflation whenever the trusts want inflation…

    The Federal Reserve Act was, and still is, hailed as a victory of “democracy” over the “money trust.” Nothing could be farther from the truth.

    The whole central bank concept was engineered by the very group it was supposed to strip of power. The myth that the “money trust” had been defrocked should have been exploded when Paul Warburg was appointed to the first Federal Reserve Board-a board which was handpicked by “Colonel” House. Paul Warburg relinquished his $500,000 a year job as a Kuhn, Loeb partner to take a $12,000 a year job with the Federal Reserve. The “accidentalists” who teach in our universities would have you believe that he did it because be was a “public spirited citizen.” And the man who served as Chairman of the New York Federal Reserve Bank during its early critical years was the same Benjamin Strong of the Morgan interests, who accompanied Warburg, Davison, Vanderlip et al. to Jekyl Island, Georgia, to draft the Aldrich Bill.

    How powerful is our “central bank?” The Federal Reserve controls our money supply and interest rates, and thereby manipulates the entire economy-creating inflation or deflation, recession or boom, and sending the stock market up or down at whim. The Federal Reserve is so powerful that Congressman Wright Patman, Chairman of the House Banking Committee, maintains:

    “In the United States 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 System, operating the money powers which are reserved to Congress by the Constitution.”

    Neither Presidents, Congressmen nor Secretaries of the Treasury direct the Federal Reserve! In the matters of money, the Federal Reserve directs them! The uncontrolled power of the “Fed” was admitted by Secretary of the Treasury David M. Kennedy in an interview for the May 5, 1969, issue of U.S. News & World Report:

    “Q. Do you approve of the latest credit-tightening moves?

    A. It’s not my job to approve or disapprove. It is the action of the Federal Reserve.”

    J. P. Morgan created artificial panic used as excuse to pass Federal Reserve Act Morgan was instrumental in pushing U. S. into WWI to protect his loans to British government. He financed Socialist groups to create an all-powerful centralized government which international bankers would control at the apex from behind the scenes. After his death, his partners helped finance the Bolshevik Revolution in Russia.

    And, curiously enough, the Federal Reserve System has never been audited and has firmly resisted all attempts by House Banking Committee Chairman Wright Patman to have it audited. (N. Y. Times, Sept.14, 1967.)

    How successful has the Federal Reserve System been? It depends on your point of view. Since Woodrow Wilson took his oath of office, the national debt has risen from $1 billion to $455 billion The total amount of interest paid since then to the international bankers holding that debt is staggering, with interest having become the third largest item in the federal budget. Interest on the national debt is now $22 billion every year, and climbing steeply as inflation pushes up the interest rate on government bonds. Meanwhile, our gold is mortgaged to European central banks, and our silver has all been sold. With economic catastrophe imminent, only a blind disciple of the “accidental theory of history” could believe that all of this has occurred by coincidence.

    When the Federal Reserve System was foisted on an unsuspecting American public, there were absolute guarantees that there would be no more boom and bust economic cycles. The men who, behind the scenes, were pushing the central bank concept for the international bankers faithfully promised that from then on there would be only steady growth and perpetual prosperity. However, Congressman Charies A. Lindberg Sr. accurately proclaimed:

    “From now on depressions will be scientifically created.”

    Using a central bank to create alternate periods of inflation and deflation, and thus whipsawing the public for vast profits, had been worked out by the international bankers to an exact science.

    Having built the Federal Reserve as a tool to consolidate and control wealth, the international bankers were now ready to make a major killing. Between 1923 and 1929, the Federal Reserve expanded (inflated) the money supply by sixty-two percent. Much of this new money was used to bid the stock market up to dizzying heights.

    At the same time that enormous amounts of credit money were being made available, the mass media began to ballyhoo tales of the instant riches to be made in the stock market. According to Ferdinand Lundberg:

    “For profits to be made on these funds the public had to be induced to speculate, and it was so induced by misleading newspaper accounts, many of them bought and paid for by the brokers that operated the pools…”

    The House Hearings on Stabilization of the Purchasing Power of the Dollar disclosed evidence in 1928 that the Federal Reserve Board was working closely with the heads of European central banks. The Committee warned that a major crash had been planned in 1927. At a secret luncheon of the Federal Reserve Board and heads of the European central banks, the committee warned, the international bankers were tightening the noose.

    Montagu Norman, Governor of the Bank of England, came to Washington on February 6, 1929, to confer with Andrew Mellon, Secretary of the Treasury. On November 11, 1927, the Wall Street Journal described Mr. Norman as “the currency dictator of Europe.” Professor Carroll Quigley notes that Norman, a close confidant of J. P. Morgan, admitted: “I hold the hegemony of the world.” Immediately after this mysterious visit, the Federal Reserve Board reversed its easy-money policy and began raising the discount rate. The balloon which had been inflated constantly for nearly seven years was about to be exploded.

    On October 24, the feathers hit the fan. Writing in The United States’ Unresolved Monetary and Political Problems, William Bryan describes what happened:

    “When everything was ready, the New York financiers started calling 24 hour broker call loans. This meant that the stockbrokers and the customers had to dump their stock on the market in order to pay the loans. This naturally collapsed the stock market and brought a banking collapse all over the country because the banks not owned by the oligarchy were heavily involved in broker call claims at this time, and bank runs soon exhausted their coin and currency and they had to close. The Federal Reserve System would not come to their aid, although they were instructed under the law to maintain an elastic currency.”

    The investing public, including most stock brokers and bankers, took a horrendous blow in the crash, but not the insiders. They were either out of the market or had sold “short” so that they made enormous profits as the Dow Jones plummeted. For those who knew the score, a comment by Paul Warburg had provided the warning to sell. That signal came on March 9, 1929, when the Financial Chronical quoted Warburg as giving this sound advice:

    “If orgies of unrestricted speculation are permitted to spread too far . the ultimate collapse is certain … to bring about a general depression involving the whole country.”

    Sharpies were later able to buy back these stocks at a ninety percent discount from their former highs.

    To think that the scientifically engineered Crash of ’29 was an accident or the result of stupidity defies all logic. The international bankers who promoted the inflationary policies and pushed the propaganda which pumped up the stock market represented too many generations of accumulated expertise to have blundered into “the great depression.”

    Congressman Louis McFadden, Chairman of the House Banking and Currency Committee, commented:

    “It [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 the rulers of us all.”

    The end result, if the Insiders have their way, will be the dream of Montagu Norman of the Bank of England “that the Hegemony of World Finance should reign supreme over everyone, everywhere, as one whole super-national control mechanism.” (Montagu Norman by John Hargrave, Greystone Press, N.Y., 1942.)

    The establishing of the Federal Reserve System provided the “conspiracy” with an instrument whereby the international bankers could run the national debt up to the sky, thereby collecting enormous amounts of interest and also gaining control over the borrower. During the Wilson Administration alone, the national debt expanded 800 percent.

    Two months prior to the passage of the Federal Reserve Act, the conspirators had created the mechanism to collect the funds to pay the interest on the national debt. That mechanism was the progressive income tax, the second plank of Karl Marx’ Communist Manifesto which contained ten planks for SOCIALIZING a country.

    One quite naturally assumes that the graduated income tax would be opposed by the wealthy. The fact is that many of the wealthiest Americans supported it. Some, no doubt, out of altruism and because, at first, the taxes were very small. But others backed the scheme because they already had a plan for permanently avoiding both the income tax and the subsequent inheritance tax.

    What happened was this: At the turn of the century the Populists, a group of rural socialists, were gaining strength and challenging the power of the New York bankers and monopolist industrialists. While the Populists had the wrong answers, they asked many of the right questions. Unfortunately, they were led to believe that the banker-monopolist control over government, which they opposed, was a product of free enterprise.

    Since the Populist threat to the cartelists was from the Left (there being no organized political movement for laissez-faire), the Insiders moved to capture the Left. Professor Quigley discloses that over fifty years ago the Morgan firm decided to infiltrate the Leftwing political movement in the United States. This was not difficult to do since these Left groups needed funds and were eager for help to get their message to the public. Wall Street supplied both. There was nothing new about this decision, says Quigley, since other financiers had talked about it and even attempted it earlier. He continues:

    “What made it decisively important this time was the combination of its adoption by the dominant Wall Street financier, at a time when tax policy was driving all financiers to seek tax-exempt refuges for their fortunes…” (Page 938)

    Radical movements are never successful unless they attract big money and/or outside support. The great historian of the Twentieth Century, Oswald Spengler, was one of those who saw what American Liberals refuse to see that the Left is controlled by its alleged enemy, the malefactors of great wealth. He wrote in his monumental Decline of the West (Modern Library, New York, 1945):

    “There is no proletarian, not even a Communist, movement, that has not operated in the interests of money, in the direction indicated by money, and for the time being permitted by money — and that without the idealists among its leaders having the slightest suspicion of the fact.”

    While the Populist movement was basically non-conspiratorial, its Leftist ideology and platform were made to order for the elitist Insiders because it aimed at concentrating power in government. The insiders knew they could control that power and use it to their own purposes. They were not, of course, interested in promoting competition but in restricting it. Professor Gabriel Kolko has prepared a lengthy volume presenting the undeniable proof that the giant corporate manipulators promoted much of the so-called “progressive legislation” of the Roosevelt and Wilson eras-legislation which ostensibly was aimed at controlling their abuses, but which was so written as to suit their interests. In The Triumph of Conservatism (by which Kolko mistakenly means big business), he notes:

    the significant reason for many businessmen welcoming and working to increase federal intervention into their affairs has been virtually ignored by historians and economists. The oversight was due to the illusion that American industry was centralized and monopolized to such an extent that it could rationalize the activity [regulate production and prices] in its various branches voluntarily. Quite the opposite was true. Despite the large numbers of mergers, and the growth in the absolute size of many corporations, the dominant tendency in the American economy at the beginning of this century was toward growing competition. Competition was unacceptable to many key business and financial interests…”

    The best way for the Insiders to eliminate this growing Competition was to impose a progressive income tax on their competitors while writing the laws so as to include built-in escape hatches for themselves. Actually, very few of the proponents of the graduated income tax realized they were playing into the hands of those they were seeking to control. As Ferdinand Lundberg notes in The Rich And The Super-Rich:

    “What it [the income tax] became, finally, was a siphon gradually inserted into the pocketbooks of the general public. Imposed to popular huzzas as a class tax, the income tax was gradually turned into a mass tax in a jiujitsu turnaround

    The Insiders’ principal mouthpiece in the Senate during this period was Nelson Aldrich, one of the conspirators involved in engineering the creation of the Federal Reserve and the maternal grandfather of Nelson Aldrich Rockefeller. Lundberg says that “When Aldrich spoke, newsmen understood that although the words were his, the dramatic line was surely approved by ‘Big John [D. Rockefeller]… ‘” In earlier years Aldrich had denounced the income tax as “communistic and socialistic,” but in 1909 he pulled a dramatic and stunning reversal. The American Biographical Dictionary comments:

    “Just when the opposition had become formidable he [Aldrich] took the wind out of its sails by bringing forward, with the support of the President [Taft], a proposed amendment to the Constitution empowering Congress to lay income taxes.”

    Howard Hinton records in his biography of Cordell Hull that Congressman Hull, who had been pushing in the House for the income tax, wrote this stunned observation:

    “During the past few weeks the unexpected spectacle of certain so-called ‘old-line conservative’ [sic] Republican leaders in Congress suddenly reversing their attitude of a lifetime and seemingly espousing, through ill-concealed reluctance, the proposed income-tax amendment to the Constitution has been the occasion of universal surprise and wonder.”

    The escape hatch for the Insiders to avoid paying taxes was ready. By the time the Amendment had been approved by the states (even before the income-tax was passed), the Rockefellers and Carnegie foundations were in full operation.

    One must remember that it was to break up the Standard Oil (Rockefeller) and U. S. Steel (Carnegie) monopolies that the various anti-trust acts were ostensibly passed. These monopolists could now compound their wealth tax-free while competitors had to face a graduated income tax which made it difficult to amass capital. As we have said, socialism is not a share-the-wealth program, as the socialists would like you to believe, but a consolidate-and-control-the-wealth program for the Insiders. The Reece Committee which investigated foundations for Congress in 1953 proved with an overwhelming amount of evidence that the various Rockefeller and Carnegie foundations have been promoting socialism since their inception. (See Rene Wormser’s Foundations: Their Power and Influence, Devin Adair, New York, 1958.)

    The conspirators now had created the mechanisms to run up the debt, to collect the debt, and (for themselves) to avoid the taxes required to pay the yearly interest on the debt. Then all that was needed was a reason to escalate the debt. Nothing runs up a national debt like a war. And World War I was being brewed in Europe.

    In 1916, Woodrow Wilson was re-elected by a hair. He had based his campaign on the slogan: “He Kept Us Out of War!” The American public was extremely opposed to America’s getting involved in a European war. Staying out of the perennial foreign quarrels had been an American tradition since George Washington. But as Wilson was stumping the country giving his solemn word that American soldiers would not be sent into a foreign war, he was preparing to do just the opposite. His “alter ego,” as he called “Colonel” House, was making behind-the-scenes agreements with England which committed America to entering the war. Just five months later we were in it. The same crowd which manipulated the passage of the income tax and the Federal Reserve System wanted America in the war. J. P. Morgan, John D. Rockefeller, “Colonel” House, Jacob Schiff, Paul Warburg and the rest of the Jekyl Island conspirators were all deeply involved in getting us involved. Many of these financiers had loaned England large sums of money. In fact, J. P. Morgan & Co. served as British financial agents in this country during World War I.

    While all of the standard reasons given for the outbreak of World War I in Europe doubtless were factors, there were also other more important causes. The conspiracy had been planning the war for over two decades.

    The assassination of an Austrian Archduke was merely an incident providing an excuse for starting a chain reaction.

    After years of fighting, the war was a complete stalemate and would have ended almost immediately in a negotiated settlement (as had most other European conflicts) had not the U. S. declared war on Germany.

    As soon as Wilson’s re-election had been engineered through the “he kept us out of war” slogan, a complete reversal of propaganda was instituted. In those days before radio and television, public opinion was controlled almost exclusively by newspapers. Many of the major newspapers were controlled by the Federal Reserve crowd. Now they began beating the drums over the “inevitability of war.” Arthur Ponsonby, a member of the British parliament, admitted in his book Falsehood in War Time (E. P. Dutton & Co., Inc., New York, 1928): “There must have been more deliberate lying in the world from 1914 to 1918 than in any other period of the world’s history.” Propaganda concerning the war was heavily one-sided. Although after the war many historians admitted that one side was as guilty as the other in starting the war, Germany was pictured as a militaristic monster which wanted to rule the world. Remember, this picture was painted by Britain which had its soldiers in more countries around the world than all other nations put together. So-called “Prussian militarism” did exist, but it was no threat to conquer the world. Meanwhile, the sun never set on the British Empire! Actually, the Germans were proving to be tough business competitors in the world’s markets and the British did not approve.

    In order to generate war fever, the sinking of the Lusitania a British ship torpedoed two years earlier-was revived and given renewed headlines. German submarine warfare was turned into a major issue by the newspapers.

    Submarine warfare was a phony issue. Germany and England were at war. Each was blockading the other country. J. P. Morgan and other financiers were selling munitions to Britain. The Germans could not allow those supplies to be delivered any more than the English would have allowed them to be delivered to Germany. If Morgan wanted to take the risks and reap the rewards (or suffer the consequences) of selling munitions to England, that was his business. It was certainly nothing over which the entire nation should have been dragged into war.

    The Lusitania, at the time it was sunk, was carrying six million pounds of ammunition. It was actually illegal for American passengers to be aboard a ship carrying munitions to belligerents. Almost two years before the liner was sunk, the New York Tribune (June 19, 1913) carried a squib which stated: “Cunard officials acknowledged to the Tribune correspondent today that the grey-hound [Lusitania] is being equipped with high power naval rifles… ” In fact, the Lusitania was registered in the British navy as an auxiliary cruiser. (Barnes, Harry E., The Genesis of the War, Alfred Knopf, New York, 1926, p.611.) In addition, the German government took out large ads in all the New York papers warning potential passengers that the ship was carrying munitions and telling them not to cross the Atlantic on it. Those who chose to make the trip knew the risk they were taking. Yet the sinking of the Lusitania was used by clever propagandists to portray the Germans as inhuman slaughterers of innocents. Submarine warfare was manufactured into a cause celebre to push us into war. On April 6, 1917, Congress declared war. The American people acquiesced on the basis that it would be a “war to end all wars.”

    During the “war to end all wars,” insider banker Bernard Baruch was made absolute dictator over American business when President Wilson appointed him Chairman of the War Industries Board, where he had control of all domestic contracts for Allied war materials. Baruch made lots of friends while placing tens of billions in government contracts, and it was widely rumored in Wall Street that out of the war to make the world safe for international bankers he netted $200 million for himself.

    Colonel” House (I) was front man for the International banking fraternity. He manipulated President Woodrow Wilson (r) like a puppet Wilson called him “my alter ego.” House played a major role in creating The Federal Reserve System, passing the graduated Income tax and getting America into WWI. House’s Influence over Wilson Is an example that In the world of super-politics the real rulers are not always the ones the public sees.

    German born International financier Paul Warburg masterminded establishment of Federal Reserve to put con trol over nation’s economy in hands of international bankers. The Federal Reserve controls the money supply which allows manipulators to create alternate cycles of boom and bust, i.e., a roller coaster economy. This allows those in the know to make fabulous amounts of money, but even more important, allows the Insiders to control the economy and further centralize power in the federal government.

    While insider banker Paul Warburg controlled the Federal Reserve, and international banker Bernard Baruch placed government contracts, international banker Eugene Meyer, a former partner of Baruch and the son of a partner in the Rothschilds’ international banking house of Lazard Freres, was Wilson’s choice to head the War Finance Corporation, where he too made a little money.*

    (*Meyer later gained control of the highly influential Washington Post which became known as the “Washington Daily Worker.”)

    It should be noted that Sir William Wiseman, the man sent by British Intelligence to help bring the United States into the war, was amply rewarded for his services. He stayed in this country after WWI as a new partner in the Jacob Schiff-Paul Warburg-controlled Kuhn, Loeb bank.

    World War I was a financial bonanza for the international bankers. But it was a catastrophe of such magnitude for the United States that few even today grasp its importance. The war reversed our traditional foreign policy of non-involvement and we have been enmeshed almost constantly ever since in perpetual wars for perpetual peace. Winston Churchill once observed that all nations would have been better off had the U.S. minded its own business. Had we done so, he said, “peace would have been made with Germany; and there would have been no collapse in Russia leading to Communism; no breakdown of government in Italy followed by Fascism; and Nazism never would have gained ascendancy in Germany.” (Social Justice Magazine, July 3, 1939, p.4.)

    The Bolshevik Revolution in Russia was obviously one of the great turning points in world history. It is an event over which misinformation abounds. The myth-makers and re-writers of history have done their landscape painting jobs well. The establishing of Communism in Russia is a classic example of the second “big lie” of Communism, i.e., that it is the movement of the downtrodden masses rising up against exploiting bosses. This cunning deception has been fostered since before the first French Revolution in 1789.

    Most people today believe the Communists were successful in Russia because they were able to rally behind them the sympathy and frustration of the Russian people who were sick of the tyranny of the Czars. This is to ignore the history of what actually happened. While almost everybody is reminded that the Bolshevik Revolution took place in November of 1917, few know that the Czar had abdicated seven months earlier in March. When Czar Nicholas II abdicated, a provisional government was established by Prince Lvov who wanted to pattern the new Russian government after our own. But, unfortunately, the Lvov government gave way to the Kerensky regime. Kerensky, a so-called democratic socialist, may have been running a caretaker government for the Communists. He kept the war going against Germany and the other Central Powers, but he issued a general amnesty for Communists and other revolutionaries, many of whom had been exiled after the abortive Red Revolution of 1905. Back to mother Russia came 250,000 dedicated revolutionaries, and Kerensky’s own government’s doom was sealed.

    In the Soviet Union, as in every Communist country (or as they call themselves-the Socialist countries), the power has not come to the Communists’ hands because the downtrodden masses willed it so. The power has come from the top down in every instance. Let us briefly reconstruct the sequences of the Communist takeover.

    The year is 1917. The Allies are fighting the Central Powers. The Allies include Russia, the British Commonwealth, France and by April 1917, the United States. in March of 1917, purposeful planners set in motion the forces to compel Czar Nicholas II to abdicate. He did so under pressure from the Allies after severe riots in the Czarist capitol of Petrograd, riots that were caused by the breakdowns in the transportation system which cut the city off from food supplies and led to the closing of factories.

    But where were Lenin and Trotsky when all this was taking place? Lenin was in Switzerland and had been in Western Europe since 1905 when he was exiled for trying to topple the Czar in the abortive Communist revolution of that year. Trotsky also was in ‘exile, a reporter for a Communist newspaper on the lower east side of New York City. The Bolsheviks were not a visible political force at the time the Czar abdicated. And they came to power not because the downtrodden masses of Russia called them back, but because very powerful men in Europe and the United States sent them in.

    Lenin was sent across Europe-at-war on the famous “sealed train.” With him Lenin took some $5 to $6 million in gold. The whole thing was arranged by the German high command and Max Warburg, through another very wealthy and lifelong socialist by the name of Alexander Helphand alias “Parvus.” When Trotsky left New York aboard the S.S. Christiania, on March 27, 1917, with his entourage of 275 revolutionaries, the first port of call was Halifax, Nova Scotia. There the Canadians grabbed Trotsky and his money and impounded them both. This was a very logical thing for the Canadian government to do for Trotsky had said many times that if he were successful in coming to power in Russia he would immediately stop what he called the “imperialist war” and sue for a separate peace with Germany. This would free millions of German troops for transfer from the Eastern front to the Western front where they could kill Canadians. So Trotsky cooled his heels in a Canadian prison-for five days. Then all of a sudden the British (through future Kuhn, Loeb partner Sir William Wiseman) and the United States (through none other than the ubiquitous “Colonel” House) pressured the Canadian government. And, despite the fact we were now in the war, said, in so many words, “Let Trotsky go.” Thus, with an American passport, Trotsky went back to meet Lenin. They joined up, and, by November, through bribery, cunning, brutality and deception, they were able (not to bring the masses rallying to their cause but) to hire enough thugs and make enough deals to impose out of the gun barrel what Lenin called “all power to the Soviets.” The Communists came to power by seizing a mere handful of key cities. In fact, practically the whole Bolshevik Revolution took place in one city-Petrograd. It was as if the whole United States became Communist because a Communist-led mob seized Washington, D. C. It was years before the Soviets solidified power throughout Russia.

    The Germans, on the face of it, had a plausible excuse for financing Lenin and Trotsky. The two Germans most responsible for the financing of Lenin were Max Warburg and a displaced Russian named Alexander Helphand. They could claim that they were serving their country’s cause by helping and financing Lenin. However, these two German “patriots” neglected to mention to the Kaiser their plan to foment a Communist revolution in Russia. The picture takes on another dimension when you consider that the brother of Max Warburg was Paul Warburg, prime mover in establishing the Federal Reserve System and who from his position on the Federal Reserve Board of Directors, played a key role in financing the American war effort. (When news leaked out in American papers about brother Max running the German finances, Paul resigned from his Federal Reserve post without a whimper.) From here on the plot sickens.

    For the father-in-law of Max Warburg’s brother, Felix, was Jacob Schiff, senior partner in Kuhn, Loeb & Co. (Paul and Felix Warburg, you will recall, were also partners in Kuhn, Loeb & Co. while Max ran the Rothschild-allied family bank of Frankfurt.) Jacob Schiff also helped finance Leon Trotsky. According to the New York Journal-American of February 3, 1949: “Today it is estimated by Jacob’s grandson, John Schiff, that the old man sank about 20,000,000 dollars for the final triumph of Bolshevism in Russia.” (See Chart 6.)

    One of the best sources of information on the financing of the Bolshevik Revolution is Czarism and the Revolution by an important White Russian General named Arsene de Goulevitch who was founder in France of the Union of Oppressed Peoples. In this volume, written in French and subsequently translated into English, de Goulevitch notes:

    “The main purveyors of funds for the revolution, however, were neither the crackpot Russian millionaires nor the armed bandits of Lenin. The ‘real’ money primarily came from certain British and American circles which for a long time past had lent their support to the Russian revolutionary cause…

    De Goulevitch continues:

    “The important part played by the wealthy American banker, Jacob Schiff, in the events in Russia, though as yet only partially revealed, is no longer a secret.”

    General Alexander Nechvolodov is quoted by de Goulevitch as stating in his book on the Bolshevik Revolution:

    “In April 1917, Jacob Schiff publicly declared that it was thanks to his financial support that the revolution in Russia had succeeded.

    In the Spring of the same year, Schiff commenced to subsidize Trotsky …

    Simultaneously Trotsky and Co. were also being subsidized by Max Warburg and Olaf Aschberg of the Nye Banken of Stockholm … The Rhine Westphalian Syndicate and Jivotovsky,. whose daughter later married Trotsky.”



    Paul Warburg Max Warburg


    Jacob Schiff Col. House


    N.E.P. TROTSKY Hitler



    Harriman Alfred Milner

    RockefeIler Rothschild

    Vanderlip J. P. MORGAN & CO


    Schiff spent millions to overthrow the Czar and more millions to overthrow Kerensky. He was sending money to Russia long after the true character of the Bolsheviks was known to the world. Schiff raised $10 million, supposedly for Jewish war relief in Russia, but later events revealed it to be a good business investment. (Forbes, B. C., Men Who Are Making America, pp.334-5.)

    According to de Goulevitch:

    “Mr. Bakhmetiev, the late Russian Imperial Ambassador to the United States, tells us that the Bolsheviks, after victory, transferred 600 million roubles in gold between the years 1918 and 1922 to Kuhn, Loeb & Company [Schiff’s firm].”

    Schiff’s participation in the Bolshevik Revolution, though quite naturally now denied, was well known among Allied intelligence services at the time. This led to much talk about Bolshevism being a Jewish plot. The result was that the subject of financing the Communist takeover of Russia became taboo. Later evidence indicates that the bankrolling of the Bolsheviks was handled by a syndicate of international bankers, which in addition to the Schiff-Warburg clique, included Morgan and Rockefeller interests. Documents show that the Morgan organization put at least $1 million in the Red revolutionary kitty.*

    Still another important financier of the Bolshevik Revolution was an extremely wealthy Englishman named Lord Alfred Milner, the organizer and head of a secret organization called “The Round Table” Group which was backed by Lord Rothschild (discussed in the next chapter).

    De Goulevitch notes further:

    “On April 7, 1917, General Janin made the following entry in his diary (‘Au G.C.C. Russe”-At Russian G.H.Q.-Le Monde Slave, Vol. 2, 1927, pp.296-297): Long interview with R., who confirmed what I had previously been told by M. After referring to the German hatred of himself and his family, he turned to the subject of the Revolution which, he claimed, was engineered by the English and, more precisely, by Sir George Buchanan and Lord (Alfred] Milner. Petrograd at the time was teeming with English… He could, he asserted, name the streets and the numbers of the houses in which British agents were quartered. They were reported, during the rising, to have distributed money to the soldiers and incited them to mutiny.”

    De Goulevitch goes on to reveal: “In private interviews I have been told that over 21 million roubles were spent by Lord Milner in financing the Russian Revolution.”

    It should be noted parenthetically that Lord Milner, Paul, Felix and Max Warburg represented “their” respective countries at the Paris Peace Conference at the conclusion of World War 1.

    If we can somehow ascribe Max Warburg’s financing of Lenin to German “patriotism,” it was certainly not “patriotism” which inspired Schiff, Morgan, Rockefeller and Milner to bankroll the Bolsheviks. Both Britain and

    Hagedorn, Herman, The Magnate, John Day, N.Y. See also Washington Post, Feb. 2, 19f8, p. 195.)

    America were at war with Germany and were allies of Czarist Russia. To free dozens of German divisions to switch from the Eastern front to France and kill hundreds of thousands of American and British soldiers was nothing short of treason.

    In the Bolshevik Revolution we see many of the same old faces that were responsible for; creating the Federal Reserve System, initiating the graduated income tax, setting up the tax-free foundations and pushing us into WWI. However, if you conclude that this is anything but coincidental, your name will be immediately expunged from the Social Register.

    No revolution can be successful without organization and money. “The downtrodden masses” usually provide little of the former and none of the latter. But Insiders at the top can arrange for both.

    What did these people possibly have to gain in financing the Russian Revolution? What did they have to gain by keeping it alive and afloat, or, during the 1920’s by pouring millions of dollars into what Lenin called his New Economic Program, thus saving the Soviets from collapse?

    Why would these “capitalists” do all this? If your goal’ is global conquest, you have to start somewhere. It may or may not have been coincidental, but Russia was the one major European country without a central bank. In Russia, for the first time, the Communist conspiracy gained a geographical homeland from which to launch assaults against the other nations of the world. The West now had an enemy.

    In the Bolshevik Revolution we have some of the world’s richest and most powerful men financing a movement which claims its very existence is based on the concept of stripping of their wealth men like the Rothschilds, Rockefellers, Schiffs, Warburgs, Morgans, Harrimans, and Milners. But obviously these men have no fear of inter national Communism. It is only logical to assume that if they financed it and do not fear it, it must be because they control it. Can there be any other explanation that makes sense? Remember that for over 150 years it has been standard operating procedure of the Rothschilds and their allies to control both sides of every conflict. You must have an “enemy” if you are going to collect from the King. The East-West balance-of-power politics is used as one of the main excuses for the socialization of America. Although it was not their main purpose, by nationalization of Russia the Insiders bought themselves an enormous piece of real estate, complete with •mineral rights, for somewhere between $30 and $40 million.

    We can only theorize on the manner in which Moscow is controlled from New York, London and Paris. Undoubtedly much of the control is economic, but certainly the international bankers have an enforcer arm within Russia to keep the Soviet leaders in line. The organization may be SMERSH, the international Communist murder organization described in testimony before Congressional Committees and by Ian Fleming in his James Bond books. For although the Bond novels were wildly imaginative, Fleming had been in British Navy intelligence, maintained excellent intelligence contacts around the world and was reputedly a keen student of the international conspiracy.

    We do know this, however. A clique of American financiers not only helped establish Communism in Russia, but has striven mightily ever since to keep it alive. Ever since 1918 this clique has been engaged in transferring money and, probably more important, technical information, to the Soviet Union. This is made abundantly clear in the three volume history Western Technology and Soviet Economic Development by scholar Antony Sutton of Stanford University’s Hoover Institution on War, Revolution and Peace. Using, for the most part, official State Department documents, Sutton shows conclusively that virtually everything the Soviets possess has been acquired from the West. It is not much of an exaggeration to say that the U.S.S.R. was made in the U.S.A. The landscape painters, unable to refute Sutton’s monumental scholarship, simply paint him out of the picture.

    At Versailles, this same clique carved up Europe and set the stage for World War II. As Lord Curzon commented: “It is not a peace treaty, it is simply a break in hostilities.” In 1933, the same Insiders pushed FDR into recognizing the Soviet Union, thus saving it from financial collapse, while at the same time they were underwriting huge loans on both sides of the Atlantic for the new regime of Adolph Hitler. In so doing they assisted greatly in setting the stage for World War II, and the events that followed. In 1941, the same Insiders rushed to the aid of our “noble ally,” Stalin, after his break with Hitler. In 1943, these same insiders marched off to the Teheran Conference and proceeded to start the carving up of Europe after the second great “war to end war.” Again at Yalta and Potsdam in 1945, they established the China policy … later summarized by Owen Lattimore: “The problem was how to allow them [China] to fall without making it look as if the United States had pushed them.” The facts are inescapable. In one country after another Communism has been imposed on the local population from the top down. The most prominent forces for the imposition of that tyranny came from the United States and Great Britain Here is a charge that no American enjoys making, but the facts lead to no other possible conclusion. The idea that Communism is a movement of the downtrodden masses is a fraud.

    None of the foregoing makes sense if Communism really is what the Communists and the Establishment tell us it is. But if Communism is an arm of a bigger conspiracy to control the world by power-mad billionaires (and brilliant but ruthless academicians who have shown them how to use their power) it all becomes perfectly logical.

    It is at this point that we should again make it clear that this conspiracy is not made up solely of bankers and international cartelists, but includes every field of human endeavor. Starting with Voltaire and Adam Weishaupt and running through John Ruskin, Sidney Webb, Nicholas Murray Butler, and on to the present with Henry Kissinger and John Kenneth Galbraith, it has always been the scholar looking for avenues of power who has shown the “sons of the very powerful” how their wealth could be used to rule the world.

    We cannot stress too greatly the importance of the reader keeping in mind that this book is discussing only one segment of the conspiracy, certain international bankers. Other equally important segments which work to foment labor, religious and racial strife in order to promote socialism have been described in numerous other books. These other divisions of the conspiracy operate independently of the international bankers in most cases and it would certainly be disastrous to ignore the danger to our freedom they represent.

    It would be equally disastrous to lump all businessmen and bankers into the conspiracy. One must draw the distinction between competitive free enterprise, the most moral and productive system ever devised, and cartel capitalism dominated by industrial monopolists and international bankers. The difference is the private enterpriser operates by offering products and services in a competitive free market while the cartel capitalist uses the government to force the public to do business with him. These corporate socialists are the deadly enemies of competitive private enterprise.

    Liberals are willing to believe that these “robber barons” will fix prices, rig markets, establish monopolies, buy politicians, exploit employees and fire them the day before they are eligible for pensions, but they absolutely will not believe that these same men would want to rule the world or would use Communism as the striking edge of their conspiracy. When one discusses the machinations of these men, Liberals usually respond by saying, “But don’t you think they mean well?”

    However, if you think with logic, reason and precision in this field and try to expose these power seekers, the Establishment’s mass media will accuse you of being a dangerous paranoid who is “dividing” our people. In every other area, of course, they encourage dissent as being healthy in a “democracy.”

    One of the primary reasons the Insiders worked behind the scenes to foment WWI was to create in its aftermath a world government. If you wish to establish national monopolies, you must control national governments. If you wish to establish international monopolies or cartels, you must control a world government.

    After the Armistice on November 11, 1918, Woodrow Wilson and his alter ego, “Colonel” House (the ever present front man for the Insiders), went to Europe in hopes of establishing a world government in the form of the League of Nations. When the negotiations revealed one side had been about as guilty as the other, and the glitter of the “moral crusade” evaporated along with Wilson’s vaunted “Fourteen Points,” the “rubes back on Main Street” began to waken. Reaction and disillusionment set in.

    Americans certainly didn’t want to get into a World Government with double-dealing Europeans whose specialty was secret treaty hidden behind secret treaty. The guest of honor, so to speak, stalked out of the banquet before the poisoned meal could be served. And, without American inclusion, there could be no meaningful World Government.

    Aroused public opinion made it obvious that the U. S. Senate dared not ratify a treaty saddling the country with such an internationalist commitment. In some manner the American public had to be sold on the idea of internationalism and World Government. Again, the key was “Colonel” House.

    House had set down his political ideas in his book called Philip Dru: Administrator in 1912. In this book House laid out a thinly fictionalized plan for conquest of America by establishing “Socialism as dreamed by Kari Marx.” He described a “conspiracy”-the word is his which succeeds in electing a U.S. President by means of “deception regarding his real opinions and intentions.” Among other things, House wrote that the conspiracy was to insinuate “itself into the primaries, in order that no candidate might be nominated whose views were not in accord with theirs.” Elections were to become mere charades conducted for the bedazzlement of the booboisie. The idea was to use both the Democrat and Republican parties as instruments to promote World Government.

    In 1919 House met in Paris with members of a British “secret society” called The Round Table in order to form an organization whose job it would be to propagandize the citizens of America, England and Western Europe on the glories of World Government. The big selling point, of course, was “peace.” The part about the Insiders establishing a world dictatorship quite naturally was left out.

    The Round Table organization in England grew out of the life long dream of gold and diamond magnate Cecil Rhodes for a “new world order.”

    Rhodes’ biographer Sara Millin was a little more direct. As she put it: “The government of the world was Rhodes’ simple desire.” Quigley notes:

    “In the middle 1890’s Rhodes had a personal income of at least a million pounds sterling a year (then about five million dollars) which he spent so freely for his mysterious purposes that he was usually overdrawn on his account…”

    Cecil Rhodes’ commitment to a conspiracy to establish World Government was set down in a series of wills described by Frank Aydelotte in his book American Rhodes Scholarships. Aydelotte writes:

    “The seven wills which Cecil Rhodes made between the ages of 24 and 46 [Rhodes died at age forty-eight] constitute a kind of spiritual autobiography… Best known are the first (the Secret Society … .), and the last, which established the Rhodes Scholarships…

    In his first will Rhodes states his aim still more specifically: ‘The extension of British rule through out the world… the foundation of so great a power as to hereafter render wars impossible and promote the interests of humanity.’

    The ‘Confession of Faith’ enlarges upon these ideas. The model for this proposed secret society was the Society of Jesus, though he mentions also the Masons.”

    It should be noted that the originator of this type of secret society was Adam Weishaupt, the monster who founded the Order of Illuminati on May 1, 1776, for the purpose of conspiracy to control the world. The role of Weishaupt’s Illuminists in such horrors as the Reign of Terror is unquestioned, and the techniques of the Illuminati have long been recognized as models for Communist methodology. Weishaupt also used the structure of the Society of Jesus (the Jesuits) as his model, and rewrote his Code in Masonic terms. Aydelotte continues:

    “In 1888 Rhodes made his third will … leaving everything to Lord Rothschild [his financier in mining enterprises], with an accompanying letter enclosing ‘the written matter discussed between us.’ This, one surmises, consisted of the first will and the ‘Confession of Faith,’ since in a postscript Rhodes says ‘in considering questions suggested take Constitution of the Jesuits if obtainable…'”

    Apparently for strategic reasons Lord Rothschild was subsequently removed from the forefront of the scheme. Professor Quigley reveals that Lord Rosebury “replaced his father-in Law, Lord Rothschild, in Rhodes’ secret group and was made a Trustee under Rhodes’ next (and last), will.”

    The “secret society” was organized on the conspiratorial pattern of circles within circles. Professor Quigley informs us that the central part of the “secret society” was established by March, 1891, using Rhodes’ money. The organization was run for Rothschild by Lord Alfred Milner, discussed in the last chapter as a key financier of the Bolshevik revolution. The Round Table worked behind the scenes at the highest levels of British government, influencing foreign policy and England’s involvement and conduct of WWI. According to Professor Quigley:

    “At the end of the war of 1914, it became clear that the organization of this system [the Round Table Group] had to be greatly extended. Once again the task was entrusted to Lionel Curtis who established, in England and each dominion, a front organization to the existing Round Table Group. This front organization, called the Royal Institute of International Affairs, had as its nucleus in each area the existing submerged Round Table Group. In New York it was known as the Council on Foreign Relations, and was a front for J. P. Morgan and Company in association with the very small American Round Table Group. The American organizers were dominated by the large number of Morgan ‘experts,’ … who had gone to the Paris Peace Conference and there became close friends with the similar group of English ‘experts’ which had been recruited by the Milner group. In fact, the original plans for the Royal Institute of International Affairs and the Council on Foreign Relations [C.F.R.] were drawn up in Paris…

    Joseph Kraft (C.F.R.), however, tells us in Harper’s of July 1958, that the chief agent in the formal founding of the Council on Foreign Relations was “Colonel” House, supported by such proteg6s as Walter Lippmann, John Foster Dulles, Allen Dulles and Christian Herter. It was House who acted as host for the Round Table Group, both English and American, at the key meeting of May 19, 1919, in the Majestic Hotel, Paris, which committed the conspiracy to creation of the C.F.R.

    Although Quigley stresses the importance of Morgan men at the creation of the organization known as the Council on Foreign Relations, this organization’s own materials and “Colonel” House’s own memoirs reveal his function as midwife at the birth of the C.F.R.

    The C.F.R.’s Twenty-Fifth Annual Report tells us this of the C.F.R.’s founding at Paris:

    The Institute of International Affairs founded at Paris in 1919 was comprised, at the outset, of two branches, one in the United Kingdom and one in the U.S.

    Later the plan was changed to create an ostensible autonomy because, “… it seemed unwise to set up a single institute with branches.” It had to be made to appear that the C.F.R. in America, and the R.I.I.A. in Britain, were really independent bodies, lest the American public become aware the C.F.R. was in fact a subsidiary of the Round Table Group and react in patriotic fury.

    According to Quigley, the most important financial dynasties in America following WWI were (in addition to Morgan) the Rockefeller family; Kuhn, Loeb & Company; Dillon Read and Company and Brown Bros. Harriman. All were represented in the C.F.R. and Paul Warburg was one of the incorporators. The Insider crowd which created the Federal Reserve System, many of whom also bankrolled the Bolshevik Revolution, were all in the original membership. In addition to Paul War burg, founders of the C.F.R. included international financial Insiders Jacob Schiff, Averell Harriman, Frank Vanderlip, Nelson Aldrich, Bernard Baruch, J. P. Morgan and John D. Rockefeller. These men did not create the C.F.R. because they had nothing better to do with their time and money. They created it as a tool to further their ambitions.

    The C.F.R. has come to be known as “The Establishment,” “the invisible government” and “the Rockefeller foreign office.” This semi-secret organization unquestionably has become the most influential group in America.

    One of the extremely infrequent articles to appear in the national press concerning this Council was published in the Christian Science Monitor of September 1, 1961. It began this way:

    “On the west side of fashionable Park Avenue at 68th Street [in New York City] sit two handsome buildings across the way from each other. One is the Soviet Embassy to the United Nations… Directly opposite on the southwest corner is the Council on Foreign Relations-probably one of the most influential semi-public organizations in the field of foreign policy.”


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