The Federal Reserve System is the primary regulatory agency governing the U.S. banking industry. It has singular importance in setting monetary policy and many economists believe it has substantial influence on the course of the business cycle. Yet, could it be that the most important economic institution in the United States is actually owned by foreigners? Gary Kah (1991) and Eustace Mullins (1983) authored separate books alleging that a secretive international banking elite owns and controls the Fed. Furthermore, his shadowy group uses its power to manipulate financial markets and to control the U.S. economy.
The focus of both books is the Federal Reserve Bank of New York. What we typically call the ‘Fed’ is actually a two level system: 12 regional Federal Reserve Banks (the New York Fed is one of them) and the Board of Governors that runs them (Alan Greenspan is the Board’s chair). Gary Kah claimed foreigners directly own the New York Fed, the largest and most important of the dozen regional institutions. Through it the international collaborators control the entire Federal Reserve System and reap its gigantic profits. Eustace Mullins agreed on the importance of the New York Fed, but instead claimed it is owned indirectly by foreigners – through a European banking club he termed the “London Connection” which controls the Fed’s policies from abroad.
Are any of allegations true? In this article I focus on whether foreigners own the Federal Reserve Bank of New York either directly or indirectly, whether it controls the enitre of the Federal Reserve System, and whether foreigners receive the Fed’s large annual profits.
Wayne Jett, economist and author of “The Fruits of Graft”, rejoins the program to discuss the history and the status of the Federal Reserve. He explains how the Federal Reserve has been a complete disaster for regular Americans while enriching the small number of foreign elites who actually own and control the Federal Reserve and the money of the United States.
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Who Owns the New York Federal Reserve?
Each of the twelve Federal Reserve Banks is organized as a corporation in much the same way as many other firms. According to Kah, foreigners own a controlling interest in the shares of the New York Fed. He claimed that “Swiss and Saudi Arabian contacts” identified the top eight shareholders as
Rothschild Banks of London and Berlin
Lazard Brothers Banks of Paris
Israel Moses Seif Banks of Italy
Warburg Bank of Hamburg and Amsterdam
Lehman Brothers of New York
Kuhn, Loeb Bank of New York
Chase Manhatten Bank, and
Goldman, Sachs of New York (Kah, p. 13).
He also described these groups as the bank’s “Class A shareholders” (p. 14). This is curious because Federal Reserve stock is not classified in this manner. It can be either “member stock” or “public stock,” but there are no such things as ‘Class A’ shares. However, the directors of a Federal Reserve Bank are separated into classes A, B, and C depending on how they are appointed (12 USCA §302). This may have been the source of Kah’s confusion.
Eustace Mullins compiled a very different list. He reported that the top 8 stockholders of the New York Fed were
Chase Manhatten Bank
Morgan Guaranty Trust
Manufacturers Hanover Trust
Bankers Trust Company
National Bank of North America, and
Bank of New York.
According to Mullins these institutions in 1983 owned a combined 63% of the New York Fed’s stock. These American banks, in turn, were owned by European financial institutions. Since the commercial banks in the New York Fed’s district elect its board of directors, the London Connection is able to use their American agents to pick the Bank’s directors and ultimately control the whole Federal Reserve System.
… The most powerful men in the United States were themselves answerable to another power, a foreign power, and a power which had been steadfastly seeking to extend its control over the young republic since its very inception. The power was the financial power of England, centered in the London Branch of the House of Rothschild. The fact was that in 1910, the United States was for all practical purposes being ruled from England, and so it is today (Mullins, p. 47-48).
He remarked further that the day the Federal Reserve Act was passed in 1913, “the Constitution ceased to be the governing covenant of the American people, and our liberties were handed over to a small group of international bankers”
Who Gets the Fed’s Profits?
Gary Kah and Thomas Schauf (1992) also maintain that the huge profits of the Federal Reserve System are diverted to its foreign owners through the dividends paid to its stockholders. Kah reports “Each year billions of dollars are ‘earned’ by Class A stockholders of the Federal Reserve” (Kah, p. 20). Schauf further laments by asking, “When are the profits of the Fed going to start flowing into the Treasury so that average Americans are no longer burdened with excessive, unnecessary taxes?”
The Federal Reserve System certainly makes large profits. According to the Board’s 1999 Annual Report, the System had net income totaling $26.2 billion, which would qualify it as one of the most profitable companies in the world if the System were a typical corporation. How were these profits distributed? $342 million, or 1.4% of the profits, were paid to member banks as dividends. Another $479 million, or 1.8%, was retained by the 12 Reserve Banks. The balance of $25.4 billion — or 96.9% of the profits — was paid to the Treasury. Obviously, Schauf’s statement that the member banks are getting “billions” in dividends every year is absurd. In addition, the Fed has been rebating its profits to the Treasury since 1947.
The Federal Reserve System is controlled not by the New York Federal Reserve Bank, but by the Board of Governors (the Board) and the Federal Open Market Committee (FOMC). The Board is a seven-member panel appointed by the President and approved by the Senate. It determines the interest rate for loans to commercial banks and thrifts, selects the required reserve ratio which determines how much of customer deposits a bank must keep on hand (a factor that significantly affects a bank’s ability create new credit), and also decides how much new currency Federal Reserve Banks may issue each year (12 USCA §248). The FOMC consists of the members of the Board, the president of the New York Fed, and four presidents from other regional Federal Reserve Banks. It formulates open market policy which determines how much in government bonds the Fed Banks may buy or sell – the major tool of monetary policy (12 USCA §263).
The key point is that a Federal Reserve Bank cannot change its discount rate or required reserve ratio, issue additional currency, or purchase government bonds without the explicit approval of either the Board or the FOMC. The New York Federal Reserve Bank, through its direct and permanent representation on the FOMC, has more say on monetary policy than any other Federal Reserve Bank, but it still only has one vote of twelve on the FOMC and no say at all in setting the discount rate or the required reserve ratio. If it wanted monetary policy to go in one direction, while the Board and the rest of the FOMC wanted policy to go another, then the New York Fed would be out-voted. The powers over U.S. monetary policy rest firmly with the publicly-appointed Board of Governors and the Federal Open Market Committee, not with the New York Federal Reserve Bank or a group of international conspirators.