by Tom Baugh

Warning: This is probably the most disturbing article I have written. If you have been upset by simple statements from me such as “the upcoming election (whichever) won’t matter” or “The Constitution is about power, not freedom”, then this one won’t help your stress level much. If this describes you, turn back now.

Think you know about radiological dirty bombs? You know, the usual: easily-detected, a suicide mission for the operator, etc. All of these are comforting things that we are told to believe (usually by some perky blonde after talking about what star is in jail for what). Think again. I’ve sat on the idea in this article for over two years now since stumbling across hints of it while researching Starving the Monkeys. Recently I’ve come across confirmations from multiple sources that, yes, the idea is relatively widespread. It is a well-kept secret, but only from you. Rest uneasy, the bad guys already know about this idea.

As the twenty-eight foot rental truck emerged from the east side of the Holland Tunnel, the driver flipped the switch flopping around on the seat behind him. This signal traveled along the pair of twisted wires leading to a small, neat hole drilled from the cab through to the spacious cargo area behind him. But, instead of an explosion, this signal triggered the operation of a handful of electric motors and a heater in the apparatus behind him. Tied to the electrical power system of the truck’s engine, this equipment hardly caused any effect on the vehicle’s power as it climbed the grade from under the Hudson River toward Manhattan. By the time the driver reached Canal Street, the weapon had already started its slow operation.

So far, not bad, right? A simple truck bomb with some kind of delay thingy? Hardly. Now, what you are about to read is possible, but requires the resources of a small nation, or very large company. Fortunately, simply publishing this makes the latter less likely. The former is up to us, and how willing we are to let the bad actors among us continue to wage economic war around the world. On a practical level, this may read like a recipe, but several details have been changed to protect your innocence. No one who doesn’t already know how to do this isn’t going to put one of these together in a storage unit somewhere after reading this article, not even if they follow some of the rabbit trails I mention.

Had anyone bothered to inspect the vehicle, they would have found most of the cargo area occupied by pairs of large, inverted, conical bins arranged throughout the length of the truck. These bins, appropriately enough, struck their designer as resembling miniature missile silos. One bin of each pair contained a liquid substance, the other a granular solid. Piping above the liquid bins had delivered a freshly prepared load of the active ingredient (we’ll call it “A”) from a garage specially equipped for the manufacture and purification of this substance out in New Jersey less than an hour before. Soon, the area immediately around that foreclosed garage would be declared uninhabitable, but no one would notice this in the media frenzy which would soon embroil the island fortress from which economic terrorism is waged on the world’s economies.

I’m not going to tell you what substance A is. Think of this as my contribution to non-proliferation. Unfortunately, most of the actual bad guys (not the ones we are fighting) already know how to do this. And there isn’t just one simple choice for substance A. No, there’s lots of options. And there’s gobs (technical term) of raw material, or feedstock for this stuff, just lying around. You can even see big piles of the feedstock from space in certain states.

The second substance (we’ll call it “B”), a dirty-tan granular material the appearance and consistency of cheap brown sugar, was indefinitely inert, and so required no special handling or precautions. This material had been prepared first, and had sat in a grain silo in Eastern Pennsylvania for two years waiting for its mate.

I’m not going to tell you what this one is, either, but again, the actual bad guys already know. I’ve also changed a few technical details to further cloud things. But, it wouldn’t take a motivated someone of the right background more than a couple of months of intense study to figure out the details. Science is like that: a powerful weapon in the hands of those who know. This is why Johnny lags children from all the other countries in the world in math and science. Our own crop of domestic bad guys fear a smart Johnny more than they fear made-up bad guys abroad.

And no, for those readers of “Starving the Monkeys”, these substances aren’t one of those black holes of knowledge I mention about halfway through that book. Those are even more, uh, interesting than what we’re talking about here.

Once the switch had been engaged, several events happened simultaneously. First, valves opened allowing metered amounts of the liquid to splash onto an augured quantity of the solid leaving its bins like so much chicken feed. This wet mixture passed through an additional auger section where it was mixed thoroughly, and then entered a screw press similar to that used for making wood fuel pellets. Instead of pellets, though, a thick wet spaghetti emerged from the dies then passed over a screened roller which blew hot air over it. Mostly dry now, the brittle extrusion rattled apart, with clumps of the now intimately mixed materials falling through a specially prepared chute, along with the waste hot air stream, just behind the rear axle of the vehicle. No one watching the truck pass by would even notice the tan material falling from the cargo area. The few who might would simply dismiss it as dried mud falling from the axle and wheel wells.

Not all bad things go boom or have the sniffles. Yep, keep seizing those bottles of water before people get on airplanes. And stealing almost full cans of toiletries from passengers.

Once mixed, the material did nothing at all. At least not to the naked eye.

Much like the weapons of economic mass terror launched by financial wizards in New York and elsewhere. Simple plundering profit at first, until the devastating effects are felt by the innocent months and years later.

But at the atomic level, something very interesting was happening. The material began to come alive. First, at totally random intervals, the nuclei of substance A began to emit high-energy alpha particles. Alpha particles are merely helium nuclei stripped of their electrons. This simple material is harmless, except at the energies the substance began to vomit them. At those energies, these lighter-than-air particles are deadly if ingested. This is what killed Alexander Litvinenko in 2006, high-energy alpha particles streaming from the well-known Polonium-210 poison he had ingested. Polonium-210 is also well-known as an initiator material in primitive atomic bomb designs, a radioactive power source for space vehicles, and a subject of study for weapons labs worldwide, including the Weizmann Institute in Israel, where a couple of oopsies killed a half-dozen or so scientists by accident a few decades back before they learned how to handle this deadly poison.

This isn’t to imply that Mossad assassinated Livinenko with Polonium-210, or that they have in the past assassinated even our own government officials who opposed Israel. If they wanted to do that, simple guns and bullets suffice. Along with a willing media to help propagandize the outcome. Based where, I wonder?

But this liquid, consisting of a solution of substance A compounded in a simple, yet uncommon, salt, doesn’t contain Polonium-210. That isotope would be far too expensive, too detectable, and much too fast-acting for the dried mud which had by now been scattered along the southern half of Broadway as the truck neared the raging bull. No, this material released the deadly yet secretive alphas much more slowly than Polonium-210, and is unfathomably cheaper (and abundant worldwide). But these alphas alone aren’t a problem unless swallowed or inhaled. No, despite their high energies, they can’t even escape an aluminum can, or a small air gap. The driver of the vehicle is perfectly safe, as is the equipment inside the cargo area. No suicide missions here.

Alphas, unlike x-rayish gammas, also can’t be detected from outside the truck, or at a distance in the open, in other words. And did I mention there were big piles of the feedstock for this stuff in lots of places? Besides that, you can buy Polonium-210, or a convenient substitute, if you know where to look and aren’t easily alarmed. But again, the actual bad guys already know this. And probably laughed at the private little joke in what I just said.

An alpha-emitter, even one as deadly as Polonium-210, has to be ingested or in intimate contact with some other material before that target material could be affected. Intimately mixed with the granules by first wetting and then being augured through a die, that is exactly what happened. Now our alphas come slamming into the nuclei of substance B, spalling neutrons off of them like splinters from a sheet of plywood hit with a twelve-gauge shotgun. There isn’t a one-to-one conversion, of course, since almost all of the alphas miss their targets; our shotgun marksman is blindfolded and standing in the mostly empty space at the subatomic level. Plus, the target nuclei wear electron Kevlar which turns glancing blows into complete misses. Never fear, though, the few hits that do barrel straight in are enough. Shortly after the machinery began to operate, neutrons begin pouring out of the dried mud by the millions, but even this is still undetectable at street level, for even a tiny BB still contains trillions upon trillions of iron nuclei.

A good-sized plutonium bomb wipes out a city by burning through less than a kilogram of its own mass. Its neutron yield is stupendously higher, but there’s a lot more nuclei in the tons of material we’re talking about here. Imagine a really big plutonium bomb on the slow cycle.

Give them time, though, because proper selection of substance A allowed the driver of the truck to complete his circuit through every street on Manhattan Island south of Central Park with plenty of time to escape before real damage began. Plenty of time, meaning weeks, or months. A few days or weeks after the attack the symptoms were detectable, if anyone knew what to look for. By then, the apparatus had been removed from the truck, the cargo area pressure-washed to remove any spilled traces, and then returned to the dealer. No tell-tale axles here. No, by the time anyone realized an attack had happened, the perps had simply vanished, along with any leads that might have been gathered. A trick of math allowed investigators to track the mud back approximately to the attack date, but even that was off by a couple of days. An alert traffic pattern analysis might have revealed a truck that covered each street on southern Manhattan Island, but that could apply to hundreds, or thousands, of delivery trucks among the uncountable numbers that visit there each day. Besides, this attack could have been carried out by twenty trucks just as easily as one. No, this attack was as silent and as mysterious as a whisper in the wind.

Planes crashing into buildings, or truck bombs pretending to blow up federal buildings look great on TV, but sometimes the best ways to kill lots of people is like an investment gone bad, silent but deadly. What I’m describing here is nothing compared to the mass starvation that will ultimately kill up to a billion people once New York and pals are done raping the world’s economies while recruiting billions more to the ways of Marxism and radical Islam in desperate response. Rush Limbaugh and gang like to talk about unintended consequences of liberal policies, while ignoring those of their paymasters.

Each of these granules of mud, discharging their supply of neutrons over time like a time-release medication, became detectable only after enough atoms of substance A had decayed to allow the gammas of its daughter- and granddaughter-products to uniquely identify the mother substance. A few weeks after the attack one street-level gamma radiation sensor triggered, then hours later a few more, until by the end of the second day of triggering the entire southern half of the island was ablaze with warning signals. As if this wasn’t bad enough, had the designers of the mud weapon bothered, they could have easily salted substance B with substance C. This third material, when exposed to the neutrons streaming out of the dried mud, converts into another isotope which can be used to irradiate food, removing all traces of living organisms. Or for that matter, remove all trace of living organisms such as people when exposed directly.

Oh, there’s lots of options. Kind-of like designer death. Or think of it as a portfolio of highly-leveraged subprime bonds for your organs. Pick one. It doesn’t matter which.

No, the designers left that little detail alone, opting for more juicy targets for their neutrons, like the legs of the millions of people who walk those streets each day, which also happen to contain critical moderating substances needed to slow those neutrons down into the more deadly so-called thermal variety. Neutron by thermal neutron, day after day, trillions of nuclei of all sorts are converted into dangerous irradiators such as substance C. Why bother to reduce the dose that the truck can carry when all of those people carry sufficient quantities of good-enough in the minerals in their bones? Beyond people being converted into their own walking death chambers, the minerals in the streets, walls and windows also became activated by this constant wash of thermal neutrons. By the time the activity had increased enough to trigger all those alarms, the damage was increasing at rates too fast to stop. And who was going to go into those streets to clean all this up? Hardly anyone cared to volunteer. Not that they could get past the mad rush of those millions who, too late, decided to leave, clogging the bridges and tunnels in their escape.

And of course, that would be the whole point of any dirty bomb, which is to cause mass panic and stampede the masses into killing themselves and each other. The actual radiological damage would be very small, although it would be undeniably deadly to many. Plus, unlike a “normal” atomic bomb or dirty bomb, the thermal neutron radiation can convert exposed people into walking dirty bombs themselves. These people, we can call them “fallouts”, will be able to sicken others exposed to them, but without the ability to further convert those others (unlike zombies). Would you take one in? I didn’t think so.

But what about countermeasures? Surely there must be something that can detect these substances. Hardly. One approach would be the backscatter scanners coming soon to an airport or government building (or highway, in its mobile form) near you. Ironically, these purportedly protect you from dirty bombs by irradiating you today (and tomorrow, and the next day, and so on). But then again, these are defeated, or confused, by simply packing the sides, bottom and top of the cargo area with cases of innocuous “low-Z” substances. Like sugar. Or flour. Or drugs, assuming the right payoffs have been made. Again, all the actual bad guys already know these things.

Hmmm. For that matter, someone wishing to sell a nifty scanner technology, or cleanup robot, might do this just in the interest of demand creation. Huh. Instant bad guy, just add potentially lucrative government contracts.

As I said before, this mud weapon, unlike the aptly-named Manhattan Project, doesn’t take the resources of a superpower, but is well within the reach of a reasonably wealthy individual or company. Which makes it super-easy for even a modestly (or newly) poor nation. Such as one that had its currency manipulated by the same people who trapped you in your upside-down mortgaged home. Payback can be a biatch.

Ignorance isn’t the answer either (my regular readers know that I am firmly convinced that nuclear energy is the only way out, or back up, for civilization at this point). The only real defense to this mud weapon, though, is to stop the unholy trinity of the Wall Street banking interests, their revolving-door pals at the Federal Reserve, and their bootlicks in DC from waging economic warfare (and warfare warfare) around the world. Eventually someone who has had their currency destabilized and their economy drained by this evil force (masquerading as capitalism in your name) will have had enough, and won’t have kept their children deliberately ignorant of science and math as we delight in doing to our own.

But how can we stop this evil trinity of economic mayhem? Only by dismantling the levers of central government power guaranteed by the Constitution, a power which protects them (secession, anyone?) from you. Oops, that central power ensures that you won’t. Or can’t. So keep your head in the sand and imagine that the upcoming election (2010 as this was written, but take your pick) will make a difference, when so many before haven’t. Ultimately, your vote, or your rifle, don’t make one bit of difference. Never have, never will, because the rules are designed to keep you weak and them strong. Get ready for the rocket sled ride to the bottom of civilization as more and more economic wheels fall off. From there, we can rebuild without making this mistake again. Arguing over who should have their hands on the levers of centralized power totally ignores the point that those levers shouldn’t exist (to be eventually abused) in the first place.

But few of the people around the world who must live with the day-to-day fallout of the unholy financial trinity care about trifling details such as our elections. They only see the results. No matter who gets their hands on those levers of power, bad things tend to happen. And have for decades.

On the other hand, one of our “friends” might do this to us, maybe so we’ll fight on their behalf. Who knows? We certainly have a history of fighting over less.

I told you at the start of this article that this would be disturbing. I also obscured or changed important details to satisfy demands for self-censorship in this land of the free and Constitutional rights (LOL). Nonetheless, all the important bad guys know about this stuff already, as do thousands of experts in our own government, industry and academia. Many of those, if questioned about this article, will be dismissive and say something to the effect of “sure, it sounds scary, but knowing what I know about the science, I’m not concerned.” Almost like it was from a script. Watch their eyes while they are saying this, you can see the fear inside.

The only reason that you didn’t already know about this is that you are kept intentionally ignorant. Slaves can’t be trusted with any more knowledge than is absolutely necessary to be productive. You did know that from history, didn’t you? I’m guessing you didn’t, unless you were homeschooled.

But, if this mud weapon is common knowledge among the really bad guys worldwide, why hasn’t this happened yet? Perhaps they haven’t gotten sufficiently weary of the financial raping yet. I just hope that, when enough has become enough, the actual bad guys realize that there is a big difference (is there?) between the financial wizards in New York (and their lackeys in DC and the Fed), and the rest of us.

Tom Baugh is the author of Starving the Monkeys, Fight Back Smarter. He is also a former Marine, patented inventor, entrepreneur and professional irritant.

by Robert Murphy, Zero Hedge

San Jose State economics professor Jeffrey Rogers Hummel tells all his students that the easiest way to understand the Federal Reserve is to think of it as a giant, legalized counterfeiter. I had always known that the Fed and other central banks were like counterfeiters, but I still thought that the actual mechanics of open-market operations and so forth actually provided some important distinctions.

In large part because of my frequent email exchanges with Hummel, I now realize that I was being naïve. Once you understand the details of modern central banking, you are able to step back and see that it truly is a way for the government to use the printing press to pay its bills. All of the complicated process of targeting interest rates through buying Treasuries simply hides this essential point — and perhaps deliberately so.

An Old-Fashioned Monarch With a Printing Press

Before we examine Fed operations, let’s start with something simpler. Suppose there is a powerful monarch reigning over a large, industrialized country. The monarch has managed to wean his subjects off commodity money such as gold or silver, and instead they use fiat notes, rectangular slips of paper featuring the king’s portrait. The king has a printing press at his disposal, which gives him unlimited ability to create more slips of paper with which he can buy goods throughout his kingdom.

At first, one might think that our hypothetical king has infinite wealth. But upon reflection, we see that there are actually pragmatic limits on how much new money he will print up each year. It’s true that there are no legal constraints on how many notes he can create, but the more monetary inflation he sows, the greater the price inflation he will reap.

At some point, the monarch would actually make himself poorer in the long run by running the printing press too heavily in the present. For example, if he doubled the stock of money in one year, the resulting price inflation would destabilize his economy and cause much needless capital consumption. His subjects would be less willing to invest in their businesses and retirement portfolios, knowing that he might effectively confiscate their savings again through massive creation of new money. Foreign investors too would be wary of exposing themselves to his country if he made his fiat currency too volatile.

Because of these considerations, the monarch would no doubt run off new money every year from his printing press, but he wouldn’t overdo it. He would aim for a moderate level of constant price inflation, with the purchasing power of his fiat currency slowly falling over time in a predictable manner. Each year, the new influx of money into the economy would represent a transfer of wealth from all other currency holders into the king’s possession.

Now what if our monarch is really profligate? What if he wants to spend more money than the income and tribute he earns in his position as monarch, even including the amount of new money he dares to create each year with his printing press, can support? In this case, the monarch can still resort to old-fashioned borrowing. Therefore in any given year, the monarch can only spend what he collects in tribute (taxes), debt financing, and inflation.

Modern Counterfeiting, Fed Style

At first glance, our present monetary system is nothing like the simple tale of a king with a printing press. For one thing, the US Treasury is a distinct entity from the Federal Reserve. When the US federal government runs a budget deficit, it can’t simply have the Fed print up enough $100 bills to cover the shortfall. No, the Treasury always covers its budget deficits by issuing debt, referred to as Treasuries. These are bonds, IOUs sold by the Treasury to outside investors who lend the Treasury money today in the hopes of being paid back in the future.

But wait, there’s more to the story. One of the main buyers of this Treasury debt is the Federal Reserve itself. This phenomenon is especially pronounced during emergencies such as major wars and the current financial crisis. Indeed, in the second quarter of 2009, the Federal Reserve was the effective buyer of some 48 percent of the new Treasury debt issued that period, as part of its “quantitative easing.” It’s true, the Fed doesn’t show up at the Treasury auctions and directlybuy the new T-bills and so forth, but private dealers pay higher prices for the Treasuries knowing that the Fed is waiting in the wings to pick them up.

At this point let’s review exactly what happens when the Federal Reserve buys Treasuries from private dealers. Let’s say the Fed wants to buy $1 million worth of T-bills from Joe Smith. So it writes Joe a check for $1 million, drawn on the Fed itself. Joe hands the T-bills over to the Fed, where they end up on the asset side of its balance sheet. Joe then deposits the check in his personal checking account, which goes up by $1 million.

So at this point the Fed has increased the money supply by $1 million. In normal times, because of the fractional-reserve banking system, Joe’s bank would lend out $900,000 of the new deposit to another customer, so that the money supply would grow even further. But that’s not what interests us in this article, so we’ll leave that train of thought.

What we want to focus on is the effect of the Fed’s purchase on the US Treasury. By entering the bond market and buying Treasuries (with money created out of thin air), the Fed pushes up the price of the bonds. That of course means that their yield drops. So, for example, if the Treasury issues a T-bill promising to pay the holder $10,000 in 12 months, then the auction price determines how much money the Treasury actually gets to borrow now in exchange for this promise to pay back $10,000 in one year. If the demand is such that people pay $9,901 for each T-bill with a face value of $10,000, then the Treasury gets to borrow money for a year at an interest rate of 1 percent.

Already we see why the folks at the Treasury are big fans of the Fed’s “quantitative easing” program, in which Bernanke decided it was in the national interest to begin adding more than a trillion dollars’ worth of Treasury debt to the Fed’s balance sheet. If nothing else, the Fed’s massive buying of Treasury debt pushes up the auction price of the Treasuries, meaning the federal government can borrow at cheaper interest rates.

Now, if this were the whole story, it would be fishy but not nearly as bad as our hypothetical monarch with the printing press. Sure, the Fed would create new dollars (which would push up dollar prices of goods and services) in order to keep the Treasury’s borrowing costs low. But still, the Treasury would have to pay someinterest on its debt, especially for longer-dated debt with higher yields, like 10-year Treasury notes. So although the mechanism we have described would encourage the Treasury to run higher deficits at the expense of average people, who suffer from rising prices, things don’t seem nearly as crooked as they were in the case of our monarch.

Ah, but we’re not done yet. Not only does the Fed’s accumulation of Treasury debt artificially push down the interest rate, but the Fed gives the interest payments right back to the Treasury! After all, interest is how the Fed “makes money.” It writes checks on itself (created out of thin air) and accumulates assets, and then earns the interest and (in some cases) capital gains on the assets. But after the Fed pays its employees, pays its electric bill, and throws the staff Christmas party, it remits the excess earnings back to the Treasury.

For example, in fiscal year 2008 the Federal Reserve distributed to the US Treasury some $31.7 billion (page 173) of its net earnings. To repeat, much of this money consisted of interest payments that the Treasury paid out to the holders of its debt, who just so happened to be the Fed for much of it. So not only is the official rate of interest kept artificially low by the Fed’s money-creation, but the interest payments themselves are largely refunded to the Treasury, to the extent that the Fed ends up holding the Treasuries rather than outsiders.

All right, so the Fed (a) suppresses the interest rate on Treasury debt and (b) refunds virtually all of the interest payments on Treasury debt held by the Fed. And remember, the way the Fed does this is through creating new dollars out of thin air, in order to buy the Treasury debt from the original investors who lent money to the Treasury. Therefore the Fed is clearly giving aid to the US government’s deficit spending at the expense of everyone holding assets denominated in US dollars.

Still, the one thing holding back the complete recklessness of the feds is that they still have to pay off the principal of their bonds when they mature, right? In other words, all we’ve really shown is that the Fed allows the Treasury to run deficits virtually at zero interest expense, at least for debt held by the Fed. But this is still a far cry from our hypothetical monarch, who had a whole component of his expenses which he met year in and year out by running the printing press.

Sorry, but our own monetary system has the same feature. When the Treasury securities held by the Fed mature — so that the Treasury has to pay back the face value in principal — the Fed rolls over the debt. Over time, the nominal market value of the Fed’s holdings of Treasury debt continually grows. Barring a sudden reversal in this policy, the Treasury knows that it will never have to pay off this debt. For all practical purposes, any Treasury debt ultimately finding its way onto the Fed’s balance sheet is economically equivalent to our monarch running the printing press to pay his bills.[1]

We have just one last consideration. Up till now we’ve seen that the modern US government, with its complicated central bank and fiat money system, operates essentially as a king with a simple printing press, to the extent that the Fed is willing to accumulate larger holdings of Treasury debt. But what determines how much the Fed is willing to take on? At what point would the Fed decide to ease off on its open-market operations and stop creating so many new dollars to (indirectly) hand over to the government?

The ultimate constraint on the Fed’s operations is the same one our hypothetical king faced: investor and citizen backlash in response to rising prices. That is, the Federal Reserve can only absorb so much of the Treasury’s new debt each year because too much dollar-creation would lead to unacceptably high price inflation. Thus our profligate government, like the hypothetical monarch, must finance some of its spending through traditional borrowing from private citizens and other governments.

Conclusion

Stripped of its fancy terminology and confusing mechanics, modern central banking boils down to a legalized counterfeiting operation. If there were suddenly a widespread public outcry to “punt the press,” we can bet our hypothetical monarch would mobilize all his allies in the media to discredit the people threatening his source of revenue. In that light, we can understand the reaction today to people calling to “end the Fed.”

Hat Tip: National Expositor

by David Reilly, Bloomberg

The idea of secret banking cabals that control the country and global economy are a given among conspiracy theorists who stockpile ammo, bottled water and peanut butter. After this week’s congressional hearing into the bailout of American International Group Inc., you have to wonder if those folks are crazy after all.

Wednesday’s hearing described a secretive group deploying billions of dollars to favored banks, operating with little oversight by the public or elected officials.

We’re talking about the Federal Reserve Bank of New York, whose role as the most influential part of the federal-reserve system — apart from the matter of AIG’s bailout — deserves further congressional scrutiny.

The New York Fed is in the hot seat for its decision in November 2008 to buy out, for about $30 billion, insurance contracts AIG sold on toxic debt securities to banks, including Goldman Sachs Group Inc., Merrill Lynch & Co., Societe Generale and Deutsche Bank AG, among others. That decision, critics say, amounted to a back-door bailout for the banks, which received 100 cents on the dollar for contracts that would have been worth far less had AIG been allowed to fail.

That move came a few weeks after the Federal Reserve and Treasury Department propped up AIG in the wake of Lehman Brothers Holdings Inc.’s own mid-September bankruptcy filing.

Saving the System

Treasury Secretary Timothy Geithner was head of the New York Fed at the time of the AIG moves. He maintained during Wednesday’s hearing that the New York bank had to buy the insurance contracts, known as credit default swaps, to keep AIG from failing, which would have threatened the financial system.

The hearing before the House Committee on Oversight and Government Reform also focused on what many in Congress believe was the New York Fed’s subsequent attempt to cover up buyout details and who benefited.

By pursuing this line of inquiry, the hearing revealed some of the inner workings of the New York Fed and the outsized role it plays in banking. This insight is especially valuable given that the New York Fed is a quasi-governmental institution that isn’t subject to citizen intrusions such as freedom of information requests, unlike the Federal Reserve.

This impenetrability comes in handy since the bank is the preferred vehicle for many of the Fed’s bailout programs. It’s as though the New York Fed was a black-ops outfit for the nation’s central bank.

Geithner’s Bosses

The New York Fed is one of 12 Federal Reserve Banks that operate under the supervision of the Federal Reserve’s board of governors, chaired by Ben Bernanke. Member-bank presidents are appointed by nine-member boards, who themselves are appointed largely by other bankers.

As Representative Marcy Kaptur told Geithner at the hearing: “A lot of people think that the president of the New York Fed works for the U.S. government. But in fact you work for the private banks that elected you.”

And yet the New York Fed played an integral role in the government’s bailout of banks, often receiving surprisingly free rein to act as it saw fit.

Consider AIG. Let’s take Geithner at his word that a failure to resolve the insurer’s default swaps would have led to financial Armageddon. Given the stakes, you might think Geithner would have coordinated actions with then-Treasury Secretary Henry Paulson. Yet Paulson testified that he wasn’t in the loop.

“I had no involvement at all, in the payment to the counterparties, no involvement whatsoever,” Paulson said.

Bernanke’s Denials

Fed Chairman Bernanke also wasn’t involved. In a written response to questions from Representative Darrell Issa, Bernanke said he “was not directly involved in the negotiations” with AIG’s counterparty banks.

You have to wonder then who really was in charge of our nation’s financial future if AIG posed as grave a threat as Geithner claimed.

Read the rest here.

This is a great video from a video maker of the same name outlining out the Federal Reserve System works.

Hat Tip: Dprogram

by Aaron Dykes

The NY Times reports that House Financial Chairman Barney Frank has met in private with Ben Bernanke to plan strategies for bracing against the overwhelming popular demand to audit the private Federal Reserve, voiced– piercingly for Bernanke– in Rep. Ron Paul’s bill, now with some 300 co-sponsors.

Frank’s part in meeting was to urge Bernanke to face reality– “Mr. Frank warned that he might have to embrace a version of Mr. Paul’s bill,” wrote the Times– now it was time to consider compromises.

However, responding to Bernanke’s top concerns, Barney Frank “vowed” that:

“he would “wall off” deliberations on basic monetary policy, and delay the release of information about the Fed’s financial operations to prevent traders from capitalizing on its moves.”

Bernanke’s “apocalyptic” fear of H.R. 1207 and the accompanying rise in public interest in the Fed, as the NY Times describes it, underscores the drastic survival mechanism of an institution that has historically relied on the secrecy provided by its bland exterior.

Mr. Bernanke initially reacted to the bill in almost apocalyptic terms. The G.A.O. audits, he told a House hearing in late June, could lead to a Congressional “takeover” of monetary policy that would be “highly destructive to the stability of the financial system, the dollar and our national economic situation.”

Why this fear has lingered overhead for so long may be simply because he knows that his thin-air empire can’t withstand a Constitutional examination. Bernanke worries about a “takeover” by Congress because he knows that it alone has the Constitutional authority to oversee the issuance of currency.

The Federal Reserve should not have “independent” autonomy to direct the financial commitments of a nation, print its money at will and risk its stability.

Of course Congress’ constitutional power over money is enumerated in Article I, Section 8 of the U.S. Constitution:

The Congress shall have power… To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;

If Bernanke is looking over its shoulder, it is because he knows the Fed’s days are numbered, and that any light (via even a soft audit) will only serve to further expose the improper occupation of the nation’s financial instruments by a private, self-interested global banking cartel.

“The Fed faces populist anger from left-wing Democrats and right-wing Republicans about its power and secrecy… It was alarming enough that… “End the Fed,” had just landed on the best-seller lists.”

Bernanke and his masters are obviously very unsettled by such a significant public outcry, and, as the NY Times notes, the fact that Ron Paul’s ‘End the Fed’ has reached the best-seller list.