I know this website does not take kindly to certain conspiracy theories. And I plan to conclude this diary with a poll to see whether you believe I am straying into dangerous territory here. But I am driven to write this by the deep sense of disgust I felt at watching Alan Greenspan’s bland feckless testimony today before Congress. Greenspan kept mumbling about the meltdown, that nobody could see it coming, regulators couldn’t have controlled it, blah blah blah. Here’s my testimony and my theory, and you tell me if you think it’s a conspiracy theory or not.
I recently learned that the New York Federal Reserve Bank was a private institution. As the Wikipedia puts it: “The New York Federal Reserve is a private bank, the largest, in terms of assets, and the most important of the twelve regional banks.” If you doubt the Wikipedia you can consult the 1982 District Court ruling, Lewis v. United States (680 F. 2d 1239) later affirmed by the Court of Appeals:
Federal reserve banks are not federal instrumentalities but are independent, privately owned and locally controlled corporations in light of the fact that direct supervision and control of each bank is exercised by its board of directors.
If the New York Federal Reserve Bank is PRIVATE, then who owns it? This is a very difficult question to answer. Indeed, I have found the answer in only one publication, strangely enough, in a 2006 article in Bloomberg. I know Chairman Greenspan didn’t mention it today, but here’s some relevant information about what just happened to the American banking system. Here are the names of the 10 banks that actually own the New York Fed according to Bloomberg:
--Citigroup
--JPMorgan
--Deutsche Bank AG
--Bank of New York Co.
--Charles Schwab Corp.’s U.S. Trust Co.
--M&T Bank Corp.
--Banco Popular Espano SA
--HSBC Plc
--Mizuho Financial Group Inc.
--Royal Bank of Scotland Group Plc
That’s kinda weird, isn’t it? The New York Fed actually a PRIVATELY OWNED BANK? That The New York Fed is actually owned by 10 specific banks? So who actually controls the day-to-day operations of the New York Fed, who sits on the board, who elects the president. Well, allow me to remind us of who the players were during the actual meltdown – in the year of Bear Stearns, Lehman Brothers, AIG and the rest.
--CHAIRMAN OF THE BOARD of the New York Fed was STEPHEN FRIEDMAN who (incidentally) at the same time served on the board of directors of Golodman Sachs
--One of the three CLASS A DIRECTORS of the New York Fed (the board members in charge of the high level operations of the bank) was JAMIE DIMON who at the same time served as CEO of JPMorgan.
--PRESIDENT of the New York Fed was Timothy Geithner. Geithner repeatedly presents himself as a dedicated public servant, but in fact, he served as the president of a private bank with a private board of directors during his tenure at the New York Fed. Who picked Geithner to be president of the New York Fed? Let’s let a real expert on the subject, ex-New York Governor Eliot Spitzer, tell us:
So who selected Geithner back in 2003? Well, the Fed board created a select committee to pick the CEO. This committee included none other than Hank Greenberg, then the chairman of AIG; John Whitehead, a former chairman of Goldman Sachs; Walter Shipley, a former chairman of Chase Manhattan Bank, now JPMorgan Chase; and Pete Peterson, a former chairman of Lehman Bros.
Having identified some of the key circumstances involved in the economic situation in the United States in 2008 – namely, that the New York Fed is a private bank owned by 10 other banks, that it is controlled by the CEOs and directors of these private banks – and having identified a few of the dramatis personae, I would now like to share my “conspiracy theory.” In this theory there are three types of actors which I call eunuchs, viziers and sultans. The eunuchs are really smart guys, often real hardasses, but who actually have no idependent authority but as servants to the viziers. The eunuchs in this theory are Greenspan, Summers, Rubin and Bernanke. The viziers were Jamie Dimon and Steven Goldman, et al. And the sultans are the principal owners of the 10 banks that own the New York Federal Reserve.
It is my outlandish idea that the eunuchs and the viziers together launched a kind of elaborate Ponzi scheme on the world by pretending they could make risk disappear. Greenspan started the prairie fire by driving interest rates to near zero. Then the mathematicians and physicists at JPMorgan, at one infamous offsite retreat, came up with what came to be known as credit default swaps. To one who honestly studies these instruments, credit default swaps have the odor of a betting formula. You know those formulas for beating roulette or craps? 17th Century mathematicians kept coming up with new ones. They always worked--until they failed. And they failed because suddenly they exceeded one or another real world parameter – for example, in craps, you might exceed the house limit for example. Such betting schemes we know now are all fundamentally unsound because the are based on BULLSHIT MATH. And that’s what credit default swaps were: bullshit math. Credit default swaps were phony insurance – phony, because they dispensed with underwriting and with appropriate reserves for losses. The trillions in CDS were phony insurance.
People as smart as Larry Summers knew that subprime mortgages were going to go pop when the teaser rates reset. You didn’t really need an Ivy League degree to know that. One of the character’s in Michael Lewis’ absorbing new book on the meltdown, The Big Short, was trained as a neurosurgeon. He was was trying to understand subprime investing. He couldn’t believe that companies were actually giving mortgages to people who they absolutely knew were not going to be able to meet the payments. Then he suddenly got it, the basic principle behind the whole vast subprime mania: it was, he said, “F#!k the poor.”
And that’s what I think this whole thing was now, it was a spectacular heist done with the ethics of Bernie Madoff. We know the names of the criminals and their mastermind eunuchs. We know the names of the companies. My theory is that the owners of the New York Federal Reserve Bank, in conjunction with their chief eunuchs, perpetrated a kind of high level Ponzi scheme on the world, and when they were caught, they used taxpayer money (through the New York Fed) to bail themselves out.
So what do you think, too much punch? Or maybe just raw greed on a colossal level?
Every time I think of Alan Greenspan with his crumpled professor demeanor and his zero percent interest rates that set the prairie fire off in the first place, as I watch him now blandly arguing that the end was unknowable, I think his idol, Ayn Rand, would be very very proud of him. He has shown up even Howard Roark, the protagonist in The Fountainhead. Greenspan guided the economy of the United States into Pirates Bay where the biggest banks in the world robbed the American taxpayer of one trillion dollars so, among other things, AIG could pay off its credit default swaps at 100 cents on the dollar.