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given greatly increased powers, including the power to appoint the
presidents of the 12 Federal Reserve Banks. The Open Market
Committee was created, with one representative from each Federal
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Reserve Bank. It was empowered to inject new money into the
economy by using newly-created money to purchase government
bonds, and to remove money from the economy by selling government
bonds.12 (More on this in Chapter 19.)
Although the money supply was better protected by these measures,
the Fed remained a hierarchical citadel, run from the top down. Today
even the commercial banks that own the Federal Reserve Banks do
not have ordinary voting rights. The system is subject to the control of
a small clique of appointed banking representatives, who operate
behind a curtain of secrecy. The Head of the Fed has usually been
chosen from the private banking sector and has remained aligned with
its interests. The country that holds democracy out as an ideal is in
the anomalous position of having an economic system controlled by
an autocratic head who is beyond the reach not only of the public but
of the Fed™s own shareholders. 13 The current Fed Chairman, Ben
Bernanke, came from academia rather than the banking establishment,
but he has been criticized for being out of touch with the real economy.
His chief problem, however, seems to be that his banking-establishment
predecessors have left him with a hot air balloon that is about to go
the way of the Hindenberg. But more on that later . . . .

Going for the Gold

In 1933, Roosevelt took a particularly controversial step when he
took the dollar off the gold standard. England™s pound sterling had
been removed from the gold standard in 1931, prompting foreigners
to turn to the United States for gold at a time when Federal Reserve
Notes were 40 percent backed by that precious metal. This meant
that for every $2 cashed in for gold, another $3 in loans had to be
called in by the banks. The run on the nation™s gold stores danger-
ously shrank the money supply by shrinking the dollar™s gold back-
ing.14 If everyone holding dollars had been allowed to trade them in
for gold, no reserves would have been left to back the dollar, and the
money supply could have collapsed completely. To halt that alarm-
ing trend, in 1933 Roosevelt pronounced the country officially bank-
rupt and declared a national emergency. Then, with a wave of the
Presidential fiat, he changed the Federal Reserve Note from a promise
to pay in gold into legal tender itself, backed only by “the full faith
and credit of the United States.” The price of gold was subsequently
raised, reducing the value of the dollar so that more goods could be

Chapter 16 - Oiling the Rusted Joints of the Economy

sold abroad. But first, all gold coins, gold bullion, and gold certificates
held by the public were ordered turned over to the U.S. Treasury,
under threat of fines and imprisonment. The point of this exercise
was evidently to prevent a windfall to gold owners when the price of
gold went up. Private gold owners were paid $20.67 per ounce in
paper Federal Reserve money for their confiscated gold. Then the
price of gold was raised to $35 per ounce. The result was an immedi-
ate 40 percent devaluation of the paper money the public had just
received for their gold. The Federal Reserve also had to turn in its
gold, but the Fed was paid in gold certificates (paper money redeem-
able in gold).
Congressman McFadden was outraged. He argued that private
gold stores were not needed to rebuild the national money supply,
since the gold backing had just been removed from the dollar. The
Fed was still obligated to redeem foreign holdings of Federal Reserve
Notes in gold, and raising the price of gold reduced those obligations;
but that was the Fed™s problem, not the public™s.15 He accused the
Federal Reserve Board and its foreign manipulators of deliberately
draining the gold from the U.S. Treasury. “Roosevelt did what the
International Bankers ordered him to do!”, McFadden charged in a
1934 address to Congress. “He is preparing to cancel the war debts
by fraud!”
McFadden maintained that the Fed was legally obligated to re-
deem its Federal Reserve Notes in gold to the American people, and
that it had defaulted on this obligation by irresponsibly letting its gold
reserves be siphoned off by foreigners. The Fed was bankrupt because
of its own mis-dealings. He told Congress:
There was no national emergency here when Franklin D.
Roosevelt took office excepting the bankruptcy of the Fed “ a
bankruptcy which has been going on under cover for several
years and which has been concealed from the people so that the
people would continue to permit their bank deposits and their
bank reserves and their gold and the funds of the United States
Treasury to be impounded in these bankrupt institutions.
Under cover, the predatory International Bankers have been
stealthily transferring the burden of the Fed debts to the people™s
Treasury and to the people themselves. They [took] the farms
and the homes of the United States to pay for their thievery!
That is the only national emergency that there has been here
since the depression began. . . . Roosevelt divorced the currency

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of the United States from gold, and the United States currency
is no longer protected by gold. It is therefore sheer dishonesty to
say that the people™s gold is needed to protect the currency. . . . Mr.
Chairman, I am in favor of compelling the Fed to pay their own
debts. I see no reason why the general public should be forced to pay
the gambling debts of the International Bankers.16

Reining in Wall Street

Although McFadden accused Roosevelt of bowing to the interna-
tional bankers, FDR was not actually marching to the drummer of his
own moneyed class, much to their chagrin. From his first months in
office, he implemented tough legislation against the Wall Street loot-
ing and corruption that had brought down the stock market and the
economy. He took aim at the trusts and monopolies that had returned
in force with the laissez-faire government of the Roaring Twenties. By
1929, about 1,200 mergers had swallowed up more than 6,000 previ-
ously independent companies, leaving only 200 corporations in con-
trol of over half of all American industry. FDR reversed this trend
with new legislation, reviving the policies initiated by his cousin Teddy.
He also imposed strict regulations on Wall Street. The Glass-Steagall
Act was passed, limiting speculation and preventing banks from gam-
bling with money entrusted to them. Regular commercial banks were
separated from investment banks dealing with stocks and bonds, in
order to prevent bankers from creating stock offerings and then un-
derwriting or selling the offerings by hyping the stock. Banks had to
choose to be either commercial banks or investment banks. Commer-
cial banks were prohibited from underwriting most securities, with
the exception of government-issued bonds. Speculative abuses were
regulated through the Securities Act of 1933 and the Securities Ex-
change Act of 1934. The Securities and Exchange Commission (SEC)
was formed; information requirements to potential investors were es-
tablished; regulations were promulgated for buying securities on mar-
gin (or on credit), and for bank lending for the purchase of stocks and
bonds; and restrictions were placed on the suspect practice known as
the short sale. (More on this in Chapter 19.)
Needless to say, the Wall Street financiers were not pleased. “They
are unanimous in their hatred of me,” Roosevelt said defiantly, “and I
welcome their hatred!”17 A clique of big financiers and industrialists
was rumored to be so unhappy with the President that they plotted to

Chapter 16 - Oiling the Rusted Joints of the Economy

assassinate him. Major General Smedley Butler testified before
Congress that he had been solicited by Morgan banking interests to
lead the plot. He said he was told by a Morgan agent that Wall Street
was about to cut off credit to the New Deal, and that Roosevelt “has
either got to get more money out of us or he has got to change the method
of financing the government, and we are going to see that he does not change
that method.”18
Change the method of financing the government to what?
Hemphill had urged the government to issue its own Greenback-style
currency, and Patman had proposed nationalizing the banks.
Greenback-style funding was actually authorized by the Thomas
Amendment, which provided that the President could issue $3 billion
in new Greenbacks if the Federal Reserve Banks failed to fund $3 billion
in government bonds.19 That authority was never exercised, but the
threat was there. The plot to assassinate Roosevelt failed, but according
to Smedley, it was only because he had refused to lead it.
As for Congressman McFadden™s impeachment action against the
Fed, he never got a chance to prove his case. His Congressional inves-
tigation was terminated by his sudden death in 1936, under suspi-
cious circumstances. The month he died, the journal Pelley™s Weekly
Now that this sterling American patriot has made the Passing,
it can be revealed that not long after his public utterance against
the encroaching powers of [the international bankers], it became
known among his intimates that he had suffered two attacks
against his life. The first attack came in the form of two revolver
shots fired at him from ambush as he was alighting from a cab
in front of one of the Capital hotels. Fortunately both shots missed
him, the bullets burying themselves in the structure of the cab.
He became violently ill after partaking of food at a political
banquet at Washington. His life was only saved from what was
subsequently announced as poisoning by the presence of a
physician friend at the banquet, who at once procured a stomach
pump and subjected the Congressman to emergency treatment.20
McFadden then died mysteriously of “heart-failure sudden-death,”
following a bout of “intestinal flue.” His petition for Articles of Im-
peachment against the Federal Reserve Board for fraud, conspiracy,
unlawful conversion and treason was never acted upon. But Wright
Patman took up the torch where McFadden had left off . . . .

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Chapter 17

Toto jumped . . . and tipped over the screen that stood in a corner.
As it fell with a crash they looked that way, and the next moment all
of them were filled with wonder. For they saw, standing in just the spot
the screen had hidden, a little old man, with a bald head and a wrinkled
face, who seemed to be as much surprised as they were. . . .
“I am Oz, the Great and Terrible,” said the little man, in a
trembling voice.
“ The Wonderful Wizard of Oz,
“The Discovery of Oz the Terrible”

I f Wright Patman had been a character in The Wizard of Oz,
he would probably have been Dorothy™s feisty dog Toto, who
nipped fearlessly at the Wicked Witch™s heels, saved his mistress by
leaping boldly across a closing drawbridge, and exposed the man be-
hind the curtain pretending to be a Great and Powerful Wizard.
Patman spent nearly fifty years barking at the wicked institutions he
thought were out to get the farmers and small businessmen of his
Texas constituency. They included big business, chain stores, tax-ex-
empt foundations and “ most wicked of all “ the Federal Reserve Board,
whose restrictive monetary policies he felt placed the interests of Wall
Street above those of Main Street.1
Patman was first elected to Congress in 1928 and was re-elected
24 times. He served as Chairman of the House Banking and Currency
Committee from 1963 to 1975 and in Congress until his death in 1976.
He was called an “economic Populist.” He inspired a major protest
march on Washington in 1932, the march of unemployed World War
I veterans petitioning for the “Bonus Bill” he wrote. Patman was the
first to call for the investigation not only of Penn Central (1970) but of
Watergate (1972). One reviewer described him as:

Chapter 17 - Wright Patman Exposes the Money Machine

a cranky eccentric, out of place in the increasingly slick and
polished world of Washington politics. But therein lay his
significance . . . . He used his outsider status to force onto the
national agenda issues that few politicians cared or dared to
In his role as Chairman of the House Banking and Currency Com-
mittee, Patman penetrated the official Fedspeak to expose what was
really going on. After a probing investigation of the Federal Reserve,
he charged:
The Open Market Committee of the Federal Reserve System . . .
has the power to obtain, and does obtain, the printed money of
the United States -- Federal Reserve Notes -- from the Bureau of
Engraving and Printing, and exchanges these printed notes,
which of course are not interest bearing, for United States
government obligations that are interest bearing. After making
the exchange, the interest bearing obligations are retained by
the 12 Federal Reserve banks and the interest collected annually
on these government obligations goes into the funds of the 12
Federal Reserve banks. . . . These funds are expended by the
system without an adequate accounting to the Congress.3
The Open Market Committee was the group formed in 1934 to
take charge of “open market operations,” the Fed™s buying and selling
of government securities (the bills, bonds and notes by which the
government borrows money). Then as now, the Open Market
Committee acquired Federal Reserve Notes from the Federal Bureau
of Engraving and Printing, essentially for the cost of printing them.
The average cost today is about 4 cents per bill.4 In deft card-shark
fashion, these dollar bills are then swapped for an equivalent stack of
notes labeled Treasury securities. Turning Treasury securities (or debt)
into “money” (Federal Reserve Notes) is called “monetizing” the debt.
The government owes this money back to the Fed, although the Fed
has advanced nothing but printed paper to earn it. In a revealing
treatise called A Primer on Money, Patman concluded:
The Federal Reserve is a total moneymaking machine. It can issue
money or checks. And it never has a problem of making its
checks good because it can obtain the $5 and $10 bills necessary
to cover its check simply by asking the Treasury Department™s
Bureau of Engraving to print them.5

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