Loading summary
Transcript1 lines
- [00:00]
A
Today I'm going to tell you about a meeting in 1910. Six men, a private island, fake names, a duck hunting cover story. And the institution they secretly built on that trip is right now deciding what's in your bank account. Stick with me for this one. Let's go. What is up, everybody? Welcome to the Daily Wolf on Yahoo. Finance. I'm your host, Scott Melker, also known as the the Wolf of all streets. Now we're going to do something a little bit different today. Today I want to tell you about the most powerful institution in your life. The one that decides what your savings are worth, what your house costs, what your paycheck actually buys at the grocery store on a Tuesday. And I'd be willing to bet that most of you, if I really pushed you on it, couldn't actually tell me what it is. I'm talking about the Federal Reserve. And I want to walk you through this calmly and carefully because the more I've looked at it over the years, the more I realized you don't even really need me to be angry about it. The facts are going to do all the work themselves. So let's start at the very beginning, the real beginning, not the one you read about in most textbooks. In November of 1910, six men got on a private rail car in New Jersey traveling under fake names, first names only, so the staff wouldn't even recognize them. And they went down to a private island off the coast of Georgia called Jekyll island to a private club. And for about a week and a half they wrote the blueprint for what would become the Federal Reserve. Now, I want to give you the names because this isn't folklore. This is on the Federal Reserve's own history page. Senator Nelson Aldrich, Republican of Rhode island, the most powerful Republican in the Senate at the time, whose daughter, by the way, was married to John D. Rockefeller Jr. Henry Davison, senior partner at J.P. morgan. Frank Vanderlip, President of National City bank, what we now call Citibank. Paul Warburg from the Wall Street Investment Bank. Kuhn, Loeb, A Piat Andrew, the Assistant Secretary of the treasury, and Arthur Shelton, Aldrich's personal secretary. Look at that list. One senator, one treasury official and four of the most powerful private bankers in America. They controlled a quarter of the world's wealth at the time. That's who drafted the Central bank of the United States in secret on a private island under fake names. And they kept this a secret for over 20 years. The men in that room flat out denied the meeting ever happened until one of them Frank Vanderlip finally wrote about it in 1935 in the Saturday Evening Post in his own memoir, under his own name. And here's what he said. Quote, I was as secretive, indeed as furtive as any conspirator. That's his word. Conspirator. In his own confession in a national magazine about the meeting that founded the Federal Reserve. The bill those men wrote got passed three years later, in December of 1913, as the federal Reserve Act. The bankers wrote that bill that created the agency that would regulate the banks. None of this is a conspiracy theory. It's just the founding story told to you by the conspirators themselves. Now, let me tell you what the Fed actually is. And before I do, just notice the name for a second. Federal Reserve. It sounds like part of the government, right? Federal, like the FBI. Sounds like a safety net, a reserve money set aside for you for emergencies. It's neither. It's not federal in any normal sense. It's a hybrid. And there's no actual reserve sitting somewhere waiting to save you. The name is marketing. It's gaslighting. Here's what it actually is. The Fed isn't one bank. It's a system. There's a Board of Governors in Washington. That part is actually a government agency. Fine. But There are also 12 regional Federal Reserve banks. New York, Chicago, San Francisco, and so on. And those 12 regional banks, the ones that actually do all the work, that handle the money, that run the plumbing of the entire financial system, those 12 banks are not government entities. They are private corporations, and they are owned by their member banks by law. The 12 regional banks that actually run the system, owned by JPMorgan, Citi, Wells Fargo, bank of America, the very banks the Fed is supposed to regulate. Those banks are the legal shareholders of the regional Federal Reserve bank. Banks required by law to buy stock, paid a dividend on it up to 6% a year off the Fed's earnings. Listen to that again. The banks that the Federal Reserve regulates are the legal shareholders of the Federal Reserve. And they collect a statutory dividend every year from the institution that's supposed to be policing them. Imagine if Pfizer and Merck owned shares in the FDA and got paid an annual dividend by law, out of the regulator's earnings. You would lose your mind. There would be hearings, there would be perp walks. But because it's banks, nobody talks about it. It just is. For over 100 years now. Just wait. It gets better. Because each of those 12 regional Federal Reserve banks has a board of nine directors and six of those nine are elected by the member banks. Six out of nine. Two thirds of the board of each regional Fed is picked by the very banks that regional Fed is supposed to oversee. They wrote the rules, they built the building, they picked the cops. And then we wonder every single time why nobody at a big bank ever goes to jail. And one quick aside before I get to the Money, that magical 2% inflation target the Fed is always trying to hit. It comes from a guy in New Zealand in 1988 who said it off the cuff on a television interview. That's it. That's the foundation. Look it up. The single most important number in modern monetary policy was a quip on TV in New Zealand. So what gets paid before that money goes back to the Treasury? First operating expenses, then those 6% dividends to the member banks. And then, and this is the part nobody talks about. In 2008, after the financial crisis, Congress quietly authorized the Federal Reserve to start paying interest to the banks on the reserves they hold at the Fed. Just for parking money there, for doing nothing. The banks deposit money at the Federal Reserve and the Federal Reserve pays them interest on it. Risk free interest out of the Fed's earnings. For years this didn't matter that much because rates were near zero. In 2021, the Fed paid the banks about $5.5 billion in interest on reserves. Then they jacked up rates to fight the inflation they had created and watch what happens. By 2023, the Fed paid the banks $116 billion on reserves, plus another 62 billion on repos. By 2024, the interest on reserves alone was over $168 billion billion in a single year paid by the Federal Reserve to private banks for the simple act of holding their money at the Fed while the rest of us were being told we needed to tighten our belts because of the inflation that they had caused. $186 billion, that's roughly the entire annual budget of the US Department of Education handed to banks for sitting there. And here's the punchline. Because of all that money going out to the banks, the Federal Reserve itself ran a loss in 2023, a loss of about $114 billion. The central bank of the United States in the red by over $100 billion, which means by law the Fed stops sending anything to the treasury until it earns those losses back. So billions of dollars that would have gone to the public, gone to the banks as interest for sitting there. They are the shareholders. Now I want to walk you through a specific example. Because the Structure I just described isn't theoretical. Let's go back to September of 2008, when AIG, the giant insurance company, collapsed during the financial crisis. The Federal Reserve bailed it out with an initial commitment of $85 billion. Which eventually grew to over 180 billion. Largest corporate rescue in American history at the time. And then watch what happened next. AIG took that money, taxpayer money, our money, and used it to pay off its counterparties, the banks that had bet against the housing market. And the Federal Reserve insisted those banks be paid 100 cents on the dollar even though they had been negotiating discounts. The Fed said no and made them whole. Goldman Sachs got roughly $13 billion. Societe General, a French bank, got over 16 billion. Deutsche Bank, Merrill lynch, bank of American billions more. Each American taxpayer money funneled through AIG straight into the largest banks in the world. The TARP Special Inspector General called it a backdoor bailout. And the names of who got paid were kept secret for months. The public didn't find out until well after the fact. And here's the part you really need to hear. The Treasury Secretary at the time, the man running point on the bailout was Hank Paulson. And Hank Paulson, before he was Treasury Secretary had been the chief executive officer of one Goldman Sachs, the CEO. He was directing taxpayer money to his former firm. And by his own records, he was on the phone with Lloyd Blankfein, the current Goldman CEO, more than 20 times during the height of the crisis. And when AIG needed a new CEO installed during the bailout, the government picked Edward Liddy, who at the time sat on the board of directors of Goldman Sachs and personally owned millions of dollars in Goldman stock that would have been wiped out if AIG hadn't paid Goldman in full. That's the room. Same people, same firms, regulating each other, rescuing each other decade after decade. And the man who was a sitting governor on the federal board through all of this in the room while it was happening, was a 38 year old wunderkind named Kevin Warsh. The youngest Fed governor in history at the time. And as of last week, that same Kevin Warsh just got sworn in as the 17th chairman of the Federal Reserve. He'll be the wealthiest Fed chair in American history. Personal holdings reportedly over $100 million with billions from his wife. So the man who was in the room for the largest backdoor transfer of public money to private banks in American history is now running the entire institution with nine figures worth of the very assets those bailouts inflated. That's not opinion. That's the public record. And in case you think this is just ancient history, fast forward to March of 2023. Silicon Valley bank collapsed 44 hours from announcement to closure. SVB was a bank that catered to wealthy tech founders and venture capitalists. 94% of the deposits at SVB were uninsured above the FDIC's $250,000 limit. Under normal rules, those depositors would have lost a chunk of their money. That's how the system is supposed to work. But that's not what happened. Within 48 hours, the Fed, the FDIC and the treasury invoked something called the Systemic risk exception and guaranteed every single deposit at SVB, no matter how large. Wealthy tech investors with tens of millions of dollars in single accounts made completely whole overnight. Compare that to a place like First national bank of Lindsay in Oklahoma which failed later the same year. Depositors above the cap, regular small town account holders lost their money. No exception invoked. No emergency meeting on a Sunday night. The rule isn't the rule. The rule is if you're connected enough, the Fed will move heaven and earth to make you whole. And if you're not, you're on your own, two tiered, right out in the open in our lifetime. And the part that should really make you furious is that there is nothing you can do about any of it. You can't vote out the Fed chair. You, you can't sue the Fed for its monetary policy. You can't even fully audit the Fed. There's a specific statutory carve out the 1978 Federal Banking Agency Audit act that explicitly prohibits the Government Accountability Office from auditing the Fed's monetary policy decisions. The most consequential decisions this institution makes are by federal statute off limits to the people's auditors. That's why the audit the Fed movement has existed for decades. Because right now, by law, you legally can't. And then Jerome Powell, who just rotated out his chair, spent most of 2021 telling the American people that the inflation we were watching tear through our grocery bills was transitory. It was the word of the year. He was wrong. Spectacularly wrong. That inflation went on to hit a 40 year high and the consequence for being that wrong for that long on the single most important economic question of the decade. He got reappointed by President Biden, Congressman, confirmed 80 to 19 and ran the Fed for four more years. Anywhere else in life, you get something that big, that wrong, you're done at the Fed. You don't get fired, you get reappointed. A book deal and A speaking tour. So, look, I'm not running the cheap version of this argument. The people inside the Fed are not cartoon villains. The problem isn't the people. It's the structure. A structure that was designed on purpose, in secret, by the people it was supposed to constrain to look like a public agency while functioning in critical ways like a private cartel. It's not a conspiracy. It's not incentives. It's structure. It's an institution doing exactly what it was built to do. And what it was built to do is not what they told you it was built to do. So if you followed me this far, you might be sitting there going, okay, what do I do? I can't vote it out. I can't audit it. I can't reform it. Well, here's what I figured out. You don't fix the Fed. You opt out of needing it. Because every single problem we just walked through comes down to one. The dollar. The currency. The measuring stick. And the dollar in your account isn't just a number. It's your time. It's your work. The hours of your life converted into something you can hold. And every time, they print more of it. They're not creating wealth. They're skimming yours, quietly, constantly, and forever, like I've told you before. And they control the printer. They decide who gets the new money first. They reward their shareholders with it. They paper over every crisis with more of it. And every dollar you've ever earned, every dollar you've ever saved, lived inside the system, under their rules, measured by their ruler. And there is, for the first time in human history, a money that sits completely outside of all that. A money with a fixed supply. A money no Fed chair can print more of. A money that's not owned by JP Morgan or Citi or bank of America. A money with no chairman, no board, no Jekyll island, no shareholders. It just is. 21 million. Forever. Bitcoin is the answer to the question this entire monologue just raised. It is the exit from the building the Fed was built inside of. It's not perfect. It's volatile, it's young. But it's the only money on Earth that the people we just spent 14 minutes talking about cannot touch. They can't dilute it. They can't vote themselves a dividend out of it. They don't own it. They didn't design it. They can't print it. It's genuinely the photo negative of the Federal Reserve. So, look, I'm not telling you to be angry at people. I'm telling you to be clear eyed about a structure. The Fed was designed in secret by the banks for the banks, and it still functions that way. The window dressing has changed. The fundamental architecture has not. And the first step to anything ever changing is for enough of us to see it plainly without flinching, without being told we're crazy for noticing. You are not crazy for noticing. I'll see you on Monday.