[Music] okay guys John the more girl here checking in for another installment of the creature from Jekyll Island this would be chapter 23 the great duck dinner how federal reserve policies led to the crash of 1929 the expansion of the money supply as a means of helping the economy of England the resulting wave of speculation in stocks and real estate evidence that the Federal Reserve Board had foreknowledge of the crash and even executed the events that were designed to trigger it the story is told of a New England farmer with a small pond in his pasture each summer a group of wild ducks would frequent that pond but try as he would the farmer could never catch one no matter how early in the morning he approached or how carefully he constructed a blind or what kind of duck call he tried somehow those crafty Birds sensed the danger and managed to be out of range of course when fall arrived the Ducks headed south and the farmers craving for a duck dinner only intensified and then he got an idea early in the spring he started scattering corn along the edge of the pond the Ducks liked the corn and since it was always there they soon gave up dipping and foraging for food of their own after a while they became used to the farmer and began to trust him they could see he was their benefactor and they now walked close to him with no sense of fear life was so easy they forgot how to fly but that was unimportant because they were now so fat they couldn't even have gotten off the ground or off the water if they had tried fall came and the duck stayed winter came in the pond froze the farmer built a shelter to keep them warm the Ducks were happy because they didn't have to fly and the farmer was especially happy because each week all winter long he had a delicious duck dinner that is the story of America's great rushon of the 1930s consolidation of power when the Federal Reserve Act was submitted to Congress many of its most important features were written in vague language some details were omitted entirely that was a tactical move to avoid debate over fine points and to allow flexibility for future interpretation the goal was to get the bill passed and perfect it later since then the Act has been amended 195 times expanding the power and the scope of the system to the point where today it would be almost unrecognizable to the congressmen and Senators who voted for it originally in 1913 public distaste for concentration of financial power in the hands of a few Wall Street banks helped to fuel the fire for passage of the Federal Reserve Act to make it appear that the new system would put an end to the New York quote quote money trust as it was called the public was told that the Federal Reserve was not to represent any one group or one region instead it would have its power diffused over twelve regional Federal Reserve Bank's and none would be able to dominate as Galbraith pointed out however the regional design was quote admirable for serving local pride and architectural ambition and for lolling the suspicions of the Agra agrarians end quote but that was not what the planners had in mind for the long haul in the beginning the regional branches took their autonomy Syria seriously and that led to conflict with members of the National Board the Board of Governors was composed of political appointees representing diverse segments of the economy they were outclassed by the heads of the regional branches of the system who were bankers with bankers experienced return of the New York money trust the greatest power struggle arose from the New York reserve bank which was headed by Benjamin strong strong had the contacts and the experience it'll be recalled that he was one of the seven who drafted the cartels structure at Jekyll Island he had been head of JP Morgan's Bankers Trust Company and was closely associated with Edie mendel house he had become a personal friend of Montague Norman head of the Bank of England and of Charles wrist head of the Bank of France not least of all he was a head of the New York branch of the system which represented the nation's largest banks the money trust itself from the outset the National Board and the regional branches were dominated by the New York branch a strong ruled as an autocrat determining Fed policy often without even consulting with the Federal Reserve Board in Washington the United States entry into World War one provided the impetus for increasing the power of the Fed the system became the sole fiscal agent of the Treasury Federal Reserve notes were issued virtually all of the gold reserves the Nash the nation's commercial banks were gathered together into the vaults of the Federal Reserve System and many of the legislative restraints placed into the original Act were abandoned voters asked fewer questions when their nation is at war the concentration of power into the hands of the very money trust the Fed was supposed to defeat is described by Ferdinand Lundberg author of America's 60 families in practice quote in practice the Federal Reserve Bank of New York became the Fountainhead of the system of twelve regional banks for New York was the money market of the nation the other eleven banks were so the other eleven banks were so many expensive mausoleums erected to solve the local pride and quell the Jacksonian fears of the hinterland Benjamin strong president of the Bankers Trust Company JP Morgan was selected as the first governor of the New York reserve bank and adapts in high finance strong for many years manipulated the country's monetary system at the discretion of the directors representing the lengthy leading New York banks under strong the reserve system unsuspected by the nation was brought into interlocking relations with the Bank of England and the Bank of France end quote bailing out Europe it will be recalled from chapters 12 and 20 that it was this interlocked during World or one that was responsible for the confiscation from American taxpayers of billions of dollars which were given to the central banks of England and two afros much of that money found its way to the Associates of JP Morgan as interest payments on war bonds and as fees for supplying munitions and other war materials 70% of the cost of World War one was paid by inflation rather than taxes a process that was orchestrated by the Federal Reserve System this was considered by the feds its supporters as its first real test and it passed with flying colors American inflation during that period was only slightly less than in England which had been more deeply committed to war and for a longer period of time that is not surprising in as much as a large portion of Europe's war costs had been transferred to the American taxpayers after the war was over and the transfusion of American dollars continued as part of a plan to pull England out of depression the methods chosen for that transfer were artificially low interest rates and a deliberate inflation of the American money supply that was calculated to weaken the value of the dollar relative to the English pound and caused gold reserves to move from America to England both operations were directed by Benjamin strong and executed by the Federal Reserve it was not hyperbole when President Herbert Hoover described strong as quote a mental annex to Europe before Alan Greenspan was appointed as chairman of the Federal Reserve by President Reagan in 1987 he had served on the board of the JP Morgan Company before that however he had been an outspoken champion of the gold standard and a critic of the system's subservience to the banking cartel in 1966 Greenspan wrote quote when business in the United States underwent a mild contraction in 1927 the Federal Reserve created more paper reserves in the hope of for stalling any possible Bank reserve shortage more disastrous however was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us the Fed succeeded it stopped the gold loss but it nearly destroyed the economies of the world in the process the excess credit which AFET pumped into the economy spilled over into the stock market triggering a fantastic speculative boom as a result the American economy collapsed end quote and after his appointment to the Fed Greenspan became silent on these issues and did nothing to anger the creature he now served agents of a higher power when reviewing this aspect of the feds history questions arise about the patriotic loyalty of men like Benjamin strong how is it possible for a man who enjoys the best that his nation can offer security wealth prestige to conspire to plunder his fellow citizens in order to assist politicians of other governments to continue plundering there's the first part of the answer was illustrated in earlier sections of this book international money managers may be citizens of a particular country but too many of them that is a meaningless accident of birth they consider themselves to be citizens of the world first they speak of affection for all mankind but their highest loyalty is to themselves of course and their profession that is only half of the answer though it must be remembered that the men who pulled financial levers on this doomsday machine the governors of the Bank of England and the Federal Reserve were themselves tied to strings which were pulled by others above them their minds were not obsessed with concepts of nationalism or even internationalism their lawyer to their loyalties were two men professor Quigley reminds us quote it must not be felt that these heads of the world's chief central banks were themselves as substantive powers in the world finance they were not rather they were technicians and agents of the dominant investment bankers of their own countries who had raised them up and were perfectly capable of throwing them down the substantive financial powers of the world were in the hands of these investment bankers also called international or merchant bankers who remained largely behind the scenes in their own unincorporated private banks these formed a system of international cooperation and national dominance which was more private more powerful and more secret than that of their agents in the central banks end quote so we're not dealing with the actions of men who perceived themselves as betraying their nation but technicians who are loyal to the monetary scientists in the political scientists who raised them up of the two groups the finance EA's and our dominant poll politicians come and go but those who wield the power of money remain to pick their successors farmers become duck dinner during the war prices for agricultural products rose to an all-time high and so did profits farmers had put part of that money into war bonds but much of it had been placed into savings accounts at banks within the farming communities which is to say mostly in the Midwest and South that was unacceptable to the New York banks which saw their share of the nation's deposits begin to decline away had to be devised to reclaim that money the Federal Reserve System which by then was the captive of the New York bankers was pressed into service to accomplish the deed few of these country banks had chosen to become members of the Federal Reserve System that added insult to injury and it also provided an excuse for the Fed to wage economic war against them the plan was neither complex nor original it had been used many times before by central bankers it was one extend easy credit to the farmers to lure them into heavy debt and then to create a recession which would decrease their income to the point where they couldn't make any payments the country banks would find themselves holding non-performing loans and foreclosed property which they could not sell without tremendous losses in the end both the farmers and these banks would be wiped out the banks were the target too bad for the farmers congressman Charles Lindbergh senior father of the man who made the world's first solo transatlantic flight explained it in this way quote under the Federal Reserve Act panics are scientifically created the present panic is the first scientifically created one worked out as we figured a mathematical problem end quote the details of how this panic was created were explained in 1939 by Senator Robert Owen chairman of the Senate banking and currency committee oh and a banker himself had been a co-author of the Federal Reserve Act a role he later regretted Owens said quote in May 1920 the farmers were exceedingly prosperous they were paying off their mortgages they had bought a lot of new land at the instance the government had borrowed money to do it and then they were bankrupted by a sudden contraction of credit and currency which took place in 1920 the Federal Reserve Board met in a meeting which was not disclosed to the public of course they met on the 18th of May in 1920 it was a secret meeting and they spent all day long the minutes made 60 printed pages and it appears in the Senate document 310 of February 10th 1923 under action taken by the Federal Reserve Board on May 18 1920 there resulted a violent contraction of credit this contraction of credit and currency had the effect the next year of diminishing the national production by fifteen billion dollars it had the effect of throwing millions of people out of employment it had the effect of reducing the value of lands and ranches by 20 billion dollars in quote the contraction of credit had a disastrous effect on the nation as a whole not just the farmers but the farmers were more deeply involved because the recently created federal farm loan board had lured them in with easy credit like ducks at the pond into extreme debt ratios furthermore the large city banks which were members of the system were given support by the Fed during the summer of 1920 to enable them to extend credit to manufacturers and Merchants that allowed many of them to ride out the slum there was no such support for the farmers or the country banks which by 1921 were falling like dominoes history books referred to this event as the agricultural depression of 1920 to 1921 a better name would have been the country duck dinner in New York building the Mandrake mechanism in chapter 10 we had examined the three methods by which the Federal Reserve is able to create or extinguish money of the three the purchase and sale of debt related securities in the open market is the one that provides the greatest effect on the money supply the purchase of securities by the Fed with checks that have no money to back them creates money the sale of those securities extinguishes money although the Fed is authorized to buy and sell almost any kind of security that exists in the world it is obligated to show preference for bonds and notes of the federal government that is the way the monetary scientists discharged the commitment to create money for their partners the political scientists without that service the partnership would dissolve and Congress would abolish the Fed when the system was created in 1913 it was anticipated that the primary way to manipulate the money supply would be to control the quote reserve ratios and the discount window that is banker language for setting the level of mandatory bank reserves as a percentage of deposits and also setting the interest rate on loans made by the Fed to the banks themselves the reserve ratio under the old National Bank Act had been 25 percent under the Federal Reserve Act of 1913 it was reduced to 18 percent for the large New York banks a drop of 28 percent in 1917 just four years later the reserve requirements for a central reserve City banks were further dropped from 18% to 13 percent with slightly lesser reductions for smaller banks that was an additional 28 percent cut it quickly became apparent that setting reserve ratios was an inefficient tool the latitude of control was too small and the amount of public attention to great the second method influencing the interest rate on commercial loans was more useful here's how that works under a fractional reserve banking system a bank can create new money merely by issuing alone the amount of new money it creates is limited by the reserve ratio or the fraction as it is required to maintain to cover its cash flow needs if the reserve ratio is 10 percent then each $10 it lends includes nine dollars that never existed before a commercial bank therefore can create a sizable amount of money merely by making loans but once the bank is loaned up that is to say once the bank has already loaned nine dollars for every buck that it holds in reserve it must stop and wait for some of the old loans to be paid back before it can issue new loans the only way to expand that process is to make the reserves larger that can be accomplished in one of three ways one use some of the bank's profits to sell additional stocks to investors or three borrow money from the Fed when banks borrow from the Fed the third option is the most popular and it's called going to the discount window when banks go to the feds discount window to obtain a loan they are expected to put up collateral this can be almost any debt contract held by the bank including government bonds but it commonly consists of commercial loans the Fed then grants credit to the bank in an attempt to equal the two equal to these contracts in essence this allow allows the bank to convert its old loans into new quote reserves every dollar of those new reserves can then be used as the basis for lending nine more dollars in checkbook money the process doesn't stop there once the new loans are made they too can be used as collateral at the Fed for still more reserves the music goes round and round with each new level of debt becoming reserves for yet a higher level of loans until it finally plays itself out at about 28 times that process is commonly called quote discounting commercial paper it is one of the means by which the Fed was able to flood the nation with new money prior to the great dam rupture of 1929 but there is a problem with that method at least as far as the Fed is concerned even though interest rates at the discount window can be made so low that most bankers will line up like ducks going for free corn some of them particularly those Hicks in the country banks have been known to resist the temptation there is no way to force the banks to participate furthermore the banks themselves are dependent upon the whims of their customers who for reasons known only to themselves may not want to borrow as much as the Pink's want to lend if the customers stop borrowing then the banks have no new loans to convert into further reserves that left the third mechanism as the preferred option the purchase and sale of bonds and other debt obligations in the open market with the discount window banks have to be enticed to borrow money which later must be repaid and sometimes they're reluctant to do that but with the open market all the Fed has to do is write a fat check to pay for the securities when that check is cashed the new money it created moves directly into the economy without any concurrence required from the recalcitrant banks but there was a problem with this method also before World War one there were few government bonds available on the open market even after the war the supply was limited which means the vast inflation that preceded the crash of 1929 was not caused by deficit spending in each year from 1920 to 1930 there was a surplus of government revenue over expenses surprising as it may be on the eve of the Depression America was getting out of debt as a consequence there were few government bonds for the Fed to buy without government bonds the open market engine was constantly running out of gas the solution to all these problems problems was to create a new market tailor-made to the feds needs a kind of halfway house between the discount window and the open market it was called the acceptance window and it was through that a meta imagery that the system purchased a unique type of debt related security called bankers acceptances bankers acceptances bankers acceptances are contracts promising payment for commercial goods scheduled for later delivery they usually involve international trade where delays of 3 to 6 months are common they are a means by which a seller in one country can ship goods to an unknown buyer in another country with confidence that he will be paid upon delivery that is accomplished through guarantees made by the banks of both the buyer and the seller first the buyers bank issues a letter of credit guaranteeing payment for the goods even if the buyer should default when the sellers bank receives this one of its officers writes up the word quote accepted on the contract and pays the seller the amount of the sale the accepting bank therefore advances the money to the seller in expectation of leaving future payment from the buyers bank for this service both banks charge a fee expressed as a percentage of the contract thus the buyer pays a little more than the amount of the sales contract and the seller receives a little less historically these contracts have been safe because the banks are careful to guarantee payment only for financially sound firms but in times of economic panic even sound firms may be unable to honor their contracts it was underwriting of that kind of business that nearly bankrupted George Peabody and JP Morgan in London during the panic of 1857 and would have done so had they not been bailed out by the Bank of England acceptances like commercial loan contracts are negotiable instruments that can be traded in the securities market the accepting banks have a choice of holding them until maturity or selling them if they hold them their profit will be realized when the underlying contract is eventually paid off and it would be equal to the amount of its quote discount which is banker language for its fee acceptances are said to be re discounted when they are sold by the original discounters or the underwriter the advantage of doing that is that they do not have to wait three to six months for their profit they can acquire immediate capital which can be invested to earn interest the sale price of an acceptance is always less than the value of the underlying contracts otherwise no one would buy them the difference represents the potential profit to the buyer it is expressed as a percentage and is called the rate of discount or in this case rediscount but the rate given by the seller must be lower than what he expects to earn with the money he receives otherwise he will be better off not selling at all although bankers acceptances were commonly traded in Europe they were not popular in the u.s. before the Federal Reserve Act was pact passed national banks had been prohibited from purchasing them a market therefore had to be created the Fed accomplished this by setting the discount rate on acceptances so low that underwriters would have been foolish not to take advantage of it at a very low discount they could acquire short firm funds which then could be invested at a higher rate of return thus acceptances quickly became plentiful on the open market in the United States but who would want to buy them at a low return no one of course so to create that market not only did the Federal Reserve set the discount rate artificially low it also pledged to buy all of the acceptances that were offered the Fed therefore became the principal buyer of these securities banks also came into the market as buyers but only because they knew that at anytime they wanted to sell the Fed was pledged to buy since the money was being created out of nothing the cost didn't really matter nor did the low profit potential the feds goal was not to make a profit on investment it was to increase the nation's money supply Warburg & Friends make a little profit the man who benefited most from this artificially created market was none other than Paul Warburg a partner with Kuhn Loeb & Co Warburg was in attendance at the Jekyll Island meeting at which the Federal Reserve System was conceived he was considered by all to have been the master a theoretician who led the others in their deliberations he was one of the most influential voices in the public debates that followed he had been appointed as one of the first members of the Federal Reserve Board and later became its vice governor until outbreak of war at which time he resigned because of publicity regarding his connections with German banking he was a director of American JG Chemical Corp and Agfa & Co Inc firms that were controlled by IG Farben the infamous German cartel that only a few years later would sponsor the rise to power of none other than Adolf Hitler he was also a director of the CFR the council Council on Foreign Relations it should not be surprising therefore to learn that he was able to position himself at the center of the huge cash flow resulting from the feds purchase of quote/unquote acceptances Warburg was the founder and chairman of the International acceptance bank of New York City New York the world's largest acceptance bank he was also a director of several smaller quote-unquote competitors including the prestigious Westinghouse acceptance bank he was a founder and chairman of the American acceptance Council Warburg was the acceptance market in America but but he was not without friends who also swam in the river of money men who controlled America's largest financial institutions became directors or officers of the various acceptance banks the list of companies that became a part of the interlocking Directorate included Kuhn Logan Co New York trust Co Bank of Manhattan Trust Co American Trust Co New York titled in mortgage Co chase National Bank Metropolitan Life American Express the Carnegie group guaranteed Trust Co Mutual Life Insurance Co the equitable Life Assurance Society of New York and the first national banks of Boston st. Louis and Los Angeles to name just a few the world of acceptance banking was the private domain of the financial elite of Wall Street behind the American image however was a full partnership with investors from Europe total capital of the ia B's American shareholders was 276 million bucks compared with 271 million from foreign investors a significant portion of that was divided between the Warburg's in Germany and the Rothschilds of England just how large and free-flowing was that river of acceptance money in 1929 it was 1.7 trillion dollars wide let me read that sentence again in 1929 it was 1.7 trillion dollars wide throughout the 1920s it was over half of all the new money created by the Federal Reserve greater than all the other purchases on the open market plus all the loans to all the banks standing in line at the discount window monetary scientists who created the Federal Reserve and their close business associates were well rewarded for their efforts profit taking by insiders however is not the issue a far more important is the fact that the consequence of this self-serving mechanism was the massive expansion of the money supply that made the Great Depression inevitable and that is the topic which impelled us to look at acceptances in the first place Congress suspicious but afraid to tinker by 1920 suspicions and resentment were growing in the halls of Congress politicians were not getting their share it is possible that many of them failed to realize that as partners in the scheme they were entitled to a share nevertheless they were dazzled by banker language and accounting tricks that were afraid to tinker with the system lest they accidentally pushed the wrong button watching with the amusement from London was fabian socialist john maynard keynes speaking of the Federal Reserve's manipulation of the value of the dollar he wrote Havana's the way by which a rich country is able to combine new wisdom with old prejudice it can enjoy the latest scientific improvements devised in the economic Laboratory of Harvard Will's leaving Congress to believe that no rash departure will be permitted but there is in all such fictions a certain instability the suspicions of congressmen may be aroused one cannot be quite certain that some senator might not read and understand this book there was not much danger of that by then American politicians had acquired a taste for the heady wine of war funding and stopped asking questions altogether World War one had created enormous demands for money and the Fed provided it by the end of the war congressional hostility to the Federal Reserve became history a bang for World War 1 much of the war debt was absorbed by the public which was which responded to patriotic instincts and purchased the war bonds the Treasury launched a massive publicity campaign for quote-unquote Liberty loans to reinforce that sentiment these small denomination bonds did not expand the money supply and did not cause inflation because the money came from their savings it already existed however many people who thought it was their patriotic due to support the war effort went to their banks and borrowed money so that they could buy the bonds the bank created most of that money out of nothing drawing upon credits and book bookkeeping entries from the Federal Reserve so these purchases did inflate the money supply indeed the same result could have been obtained more simply and less expensively by getting the money directly from the Fed but the government encouraged the trend anyway because of its psychological value in generating popular support for the very war when people make sacrifices for an endeavor it reinforces their belief that it must be worthy although the war was financed partly by taxes and partly by liberty bonds purchased by the public a significant portion was covered by the sale of Treasury bonds to the Federal Reserve in the open market Benjamin Strong's biographer Lester Chandler explains quote the Federal Reserve System became an integral part of the war financing machinery the system's overriding objective both as creator of money and as fiscal agent was to ensure the Treasury would be supplied with all the money it needed and on terms fixed by Congress in the Treasury a grateful nation now hailed it as a major contributor to the winning of the war an efficient fiscal agent for the Treasury a great source of currency and reserve funds and a permanent and indispensable part of the banking system end quote the emergence of government debt the war years were largely a period of testing new strategies and consolidating power ironically it was not until after the war when there was no longer a justification for deficit spending that government debt became plentiful up until World War one annual federal expenses had been running about 750 million bucks per year by the end of the war it was running at eighteen and a half billion with a be an increase of two thousand four hundred and sixty six percent approximately 70% of the cost of the war had been financed by debt Murray Rothbard reminds us that on the eve of depress 9:28 ten years after the end of the war the banking system held more government bonds than during the war itself that means the government didn't pay off those bonds when they came due instead it rolled them over by offering new bonds to replace the old and why was it because Congress needed more money no the bonds had become the basis for money in circulation and if they had been redeemed the money supply would have decreased a decrease in the money supply is viewed by politicians and central bankers as a threat to economic stability thus the government found itself unable to get out of debt even when it had the money to do so a dilemma that continues to this very day there is an apparent contradiction here in this book the great boom in panic Robert Patterson says that on the eve of Depression America was getting out of debt yet Rothbart tells us there were more government bonds held by the banking system than during the war the only way both statements can be true is if they were in fact more bonds outstanding during the war but they were held by the public not by the banking system that would make it possible for there to be fewer total bonds in 1928 and yet the system could still hold more of them than previously that would be the expected result of the feds growing role in the open market as the publicity held I'm sorry as the publicly held bonds matured the Treasury rolled them over and the Fed picked him up bonds purchased by the public do not increase the money supply whereas those purchased by banks indeed do therefore conditions in 1928 would have been far more inflationary than during the war even though the government was getting out of debt before 1922 the Federal Reserve bought Treasury bonds primarily for three purposes one for income to operate the system two to pay for the newly issued Federal Reserve notes which were replacing silver certificates and three to push down the interest rates the motive for manipulating the interest rates was to encourage borrowing from abroad in the United States where roads where rates were low it also encouraged investment from the United States into Europe where rates were higher by making it possible to borrow American dollars at one rate and invest them elsewhere at a higher rate the Fed was deliberately moving money out of the United States with gold reserves following closely behind as President Kennedy had said in his 1963 address at the IMF or the International Monetary Fund the outflow of American gold quote did not come about by chance end quote the so-called discovery of the open market it is commonly asserted by writers on this topic that the power of the open market mechanism to manipulate the money supply was quote discovered by the Fed in the early 1920s and that it came as a total surprise Martin Maher for example in his book the bankers writes now through an accident as startling as those which produced the discovery of x-rays or penicillin the central bank learned that open market operations could have significant effect on the behavior of things end quote this makes the story interesting but it is difficult to believe the that Benjamin strong Paul Warburg Montagu Norman and other monetary scientists were who were pulling the levers at that time were taken by surprise these men could not possibly have been ignorant of the effect of creating money out of nothing and pouring it into the economy the open market was merely a different funnel if there was any element of surprise it likely was only the ease with which the mechanism could be activated it really isn't important whether that part of the story is fact or fiction accepted that it perpetuates the quote accidental view of history the myth that no one is responsible for political or economic chaos the thing is just happened there was no master plan no one's to blame everything is under control relax pay your taxes and go back to sleep right in any event by the end of the war Congress had awakened to the fact that it could use the Federal Reserve System to obtain revenue without taxes from that point forward deficit spending became institutionalized a gradually increasing issuance of shuri bonds was encouraging to the Fed because it provided still one more source of debt to convert into money a source that eventually would become far more reliable than either bank loans or bankers acceptances a best of all now that Congress became dependent on the free corn so to speak there was a little chance that it would find its wings and fly away the more dependent it became the more secure the system itself became in 1921 the 12 regional Reserve banks were separately buying and selling in the open market but their motives varied some merely needed income to cover their operating overhead while others notably the New York branch under Benjamin strong were more interested in sending American gold over to England strong became immediately I'm sorry strong began immediately to gather control of all open market operations into the hands of his own bank in June of 1922 the quote Open Market Committee was formed to coordinate activities among the regional governments in April of the next year however the National Board in Washington replaced the governor's group with one of its own creation the open market investments committee Benjamin strong was its chairman the powers of that group were enhanced ten years later by legislation which made it mandatory for the regional branches to follow the Open Market committee's directives but that was a mere formality for the die had been cast much much earlier from 1923 onward the feds open market operations have been carried out by the New York Federal Reserve Bank the money Trust has always been in control drowning and credit actions have consequences and one of the consequences of purchasing Treasury bonds and other debt related securities in the open market is that the money created to purchase them eventually ends up in the commercial banks where it is used for the expansion of bank credit quote-unquote credit is another of these wisely or weaselly words that have different meanings to different people in banker language the expansion of credit means the banks have excess reserves or bookkeeper bookkeeping entries which can be multiplied by nine and earn interest for them if someone would be kind enough to borrow it it is money waiting to be created the message is quote come on to the bank folks don't be bashful we got plenty of money to lend you have credit you don't even know that you had in the 1920s the greater share of bank credit was bestowed upon business firms wealthy investors and high rollers but the little man was not really ignored either in 1910 consumer credit accounted for only ten percent of the nation's retail sales by 1929 credit transactions were responsible for half of the sixty billion dollar retail market in this book money and man algún Groseclose says quote by 1929 the United States was overwhelmed by a flood of credit it had covered the land it was pouring into every nook and cranny of the central economy end quote the impact of expanding credit was compounded by artificially low interest rates the other side of the same coin which were intended to help the governments of Europe but they also stimulated borrowing here at home since borrowing is what causes money to be created under fractional reserve banking the money supply in America began to expand from 1921 through June of 1929 the quantity of dollars increased by 61.8% substantially more than the increase of national product during that same time the amount of currency in circulation remained virtually unchanged that means the expansion was comprised entirely of money substitutes such as bonds and loan contracts booms and busts made worse the forces of the free market are amazingly flexible like the black market they managed to exert themselves in unexpected ways in spite of political decree that had been the case throughout most of American history prior to the creation of the Federal Reserve banking had been coddled and hobbled by government banks were chartered by government protected by government and regulated by government they had been forced to serve the political agendas of those in power consequently the landscape was strewn with the tombstones of dead banks which had taken to their graves the life savings of their hapless depositors but these were mostly regional tragedies that were offset by growth and prosperity in other areas even within the communities most severely affected recovery was Swift now that the cartel had firm control over the nation's money supply the pattern began to change the corrective forces of the free market were more firmly straitjacketed than ever all banks in the entire country were in lockstep with one another what happened in one region is what happened in all regions banks were not allowed to die so there could be no adjustments after their demise their illness was sustained and carried like a deadly virus to the others the expansion of the money supply in the 1920s clearly shows that effect it was not a steady advance but a series of convulsions each cycle was at a higher level in the previous one that's because the bust that followed the booms were not allowed to play themselves out the monetary scientists now had so many mechanisms at their command they were able to initiate new expansions to cancel out the downward adjustments it was like prescribing increasing doses of narcotics to postpone the awareness of an advancing disease it increased the prestige of the doctor but it did not bode well for the patient the roller coaster between 1920 and 1929 there were three distinct business cycles with several minor ones within them for the average American it was confusing and destructive for the investor it was a roller coaster ride to oblivion up the Fed had inflated the money supply to pay for World World War one the resulting doom caused prices to rise down in 1920 the Fed raised interest rates to cool off the inflation that caused a recession and prices tumbled farmers were hit the hardest and hundreds of country banks were closed back up in 1921 the Fed lowered interest rates to stop the recession and to help the governments of Europe inflation and expanding debt resulted down in 1923 the Fed tightened credit to put the brakes on inflation up but that was offset by its simultaneous policy of lowering the rate at a discounted window thus encouraging banks to borrow new reserves to expand the money supply up again in 1924 the Fed suddenly created 500 million bucks in new money within one year the commercial banks parlayed that into more than four billion dollars an expansion of eighty to one the boom that followed took on the character of speculation rather than investment prices in the stock market rose drastically and down in 1926 the Florida land boob collapsed and the economy began to contract once again up in 1927 Montague Norman of the Bank of England visited the United States to consult with Benjamin strong shortly after his visit the Fed pumped new money into the system and the boom returned down in the spring of 1928 the Fed contracted credit to halt the boom and up but the banks shifted their reserves into time deposits where customers agree to wait before withdrawing their money since time deposits require a smaller reserve ratio than demand deposits the banks were able to issue more loans than before that offset the feds contraction of credit and up again by that time the British government had consumed its previous subsidy which was to maintain its welfare state in the spring of 1928 the pound sterling was again sagging on the international market and gold began to flow back into the United States once again the fledgling creature came to the aid of the Bank of England its ailing parent the Fed bought a huge volume of bankers acceptances to depress interest rates and halt the flow of gold the money supply suddenly increased by almost two billion dollars that's billion with a beat and down again in August the Fed reversed its expansionist policy by selling Treasury bonds in the open market and raising interest rates the money supply began to contract it was the final bubble sixth reason to abolish the Fed one of the myth is about the Federal Reserve is that it is needed to stabilize the economy yet it has achieved it has achieved exactly the opposite destabilization is dramatically clear in the years prior to the crash but the same cause and effect continues to this day as long as men are given the power to tinker with the money supply they will strive to circumvent the natural laws of supply and demand no matter how high their intentions or pure their motives they will cause disruptions in the natural flow when these disruptions are perceived they will try to compensate by causing opposite disruptions but long before they act there will already be new forces at work they cannot in all their wisdom perceive until they are already manifest it is the height of egotistical folly for so-called experts to think that they can outsmart or do better than the combined interactive decisions of hundreds of millions of people all acting in response to their own best judgment thus the Fed is doomed to failure by its nature and it's very mission that is the sixth reason it should be abolished it destabilizes the economy people mania easy credit was not the only problem in this period equally important was the effect that it had on the behavior patterns of the populace responding to herd instinct and a belief in the possibility of something for nothing men were driven to the most bizarre form of investment speculation this was not the first time such hysteria had seized a population one of the most graphic examples occurred in Holland between the years 1634 and 1636 it came to pass that a new rare flower called the tulip I'm sorry flower and Hoover flower called the tulip was discovered in the gardens of some of the more wealthy inhabitants of Constantinople now Istanbul when the root bulbs of these exotic blossoms were brought into Holland they rapidly became a status symbol among the wealthy much as racehorses or rare breeds of dogs are today in our own society and those with surplus funds found that an investment in tulips brought them significant social recognition the price of a tulip bulbs I'm sorry the price of tulip bulbs climbed steadily until they became not merely symbols of status but speculative investments as well at one point prices doubled every few days and speculators were seen everywhere amassing great fortunes with no input of either labor or service many otherwise prudent people found themselves infected by the hysteria they borrowed against their homes and invested their life savings to get in on the anticipated windfall this pushed up prices even further intended to create the fulfillment of its own prophecy contracts for future delivery of tulip bulbs a form of today's commodity market became a dominant feature of Holland stock market tulip bulbs eventually became more precious than gemstones as new varieties were developed the market became more complex requiring experts to certify their origin in their grade prices soared in the herd went insane one bulb of the species called Admiral life c'n was valued at four thousand four hundred florins a assembler Augustus worth fifty five hundred florins was purchased for a new carriage two gray horses and a complete set of harnesses it was recorded that at one cell a single Viceroy tulip brought two lasts of wheat for lasts of rye for fat oxen eight fat swine twelve fat sheep two hogsheads of wine four casks of butter one thousand pounds of cheese a bed and a mattress a suit of clothes and a silver drinking cup then one day without warning reality turned from her two-year vacation by that time everyone knew deep in their hearts that the spiraling prices board on his relationship to the actual value of tulips and that sooner or later someone was going to get hurt but they continued to speculate for fear of being too quick in their timing and losing out on potential profits everyone was confident they would sell out precisely at the top of the market it any heard however there are always a few who will take the lead and by 1636 all it took was one or two prominent merchants to sell out their stock overnight there were no buyers whatsoever at any price the tulip market vanished and speculators vanished by the thousands I'm sorry and speculators by the thousands saw their dreams of easy wealth and in many cases their life savings also disappear with it tulip Oh mania as it was called at the time had come to an end or did it as we've seen the Federal Reserve can create large amounts of money simply by going into the open market and buying debt contracts but once it is in the mechanism of the economy commercial banks can multiply that money by up to a factor of nine and that is where the real inflationary action is to protect that privilege is one of the reasons the banks formed this cartel in the very first place nevertheless the public still has the final say if no one wants to borrow their money the game is over that possibility is more theoretical than real of course although men may be hesitant to go into debt for legitimate business ventures in times of economic uncertainty they can be lured by easy credit to take a long shot dreams of instant wealth are powerful motivators gaming casinos poker parlors racetracks lottery windows and other forms of tulip mania are convincing evidence that the lust for gambling is embedded in genetic code genetic code the public has always been interested in free corn of course tulips in the stock market during the final phase of America's credit expansion of the 1920s the rise in prices on the stock market was entirely speculative buyers didn't really care if their stocks were overpriced compared to the dividends that they paid commonly traded issues were selling for 20 to 50 times their earnings some traded at a hundred speculators acquired stock merely to hold for a while and then sell for a profit it was the quote greater fool strategy no matter how the I'm sorry no matter how high the price is today there will be a greater fool tomorrow who will buy at an even higher price for a while that strategy seemed to work to make the game even more exciting it was common for investors to purchase their stocks on margin that means the buyer puts up a small amount of money as a deposit or at the margin and then borrows the rest from his stockbroker who gets it from the bank which gets it from the Fed in 1920s the margin for small investors was as low as 10% although the average stock yielded a modest 3% annual dividend speculators were willing to pay over 12% interest on their loans meaning their stock had to appreciate about 9% per year just to break even these margin accounts are sometimes referred to as call loans because the broker has the right to call them in on very short notice often as short as 24 hours if the broker calls the loan the investor must produce the money immediately if he cannot the broker will obtain the money by selling the stock in theory the sale of the stock will be sufficient to cover the loan but in practice about the only time brokers call their loans is when the market is tumbling under those conditions the stock cannot be sold except as at a loss a total loss of the investors margin and a variable loss to the broker depending on the severity of the price fall to obtain even more leverage investors sometimes use the stocks they already own as collateral for a margin loan on new stocks therefore if they cannot cover a margin call on their new stocks they will lose their old stocks as well in any event such silly concerns were not in vogue in the 1920s from August of 1921 to September of nineteen 29 in the period of eight years the Dow Jones Industrial stock price average went from sixty three point nine to three hundred and eighty one point one seven a rise of five hundred and ninety seven percent credit was abundant loans were cheap and profits were big banks become speculators the commercial banks were the middlemen to this giddy game by the end of the decade they were functioning more like speculators than banks instead of serving as a dependable clearing houses for money they also became players in the market loans to commercial enterprises for the production of goods and services which normally are the backbone of sound banking practice we're losing ground to loans for speculating in the stock market and in urban real estate between 1921 and 1929 while commercial loans remained constant total bank loans increased from 24 point 1 million to 35 point seven million dollars loans on securities and real estate rose nearly eight a billion with a B thus about 70% of the increase during this period was in speculative investments and that money was created by the banks New York banks and trust companies had over seven billion dollars loaned to brokers at the New York Stock Exchange for use in margin accounts before the war there were 250 Securities Dealers and by 1929 the number had grown to 6500 the bank's not only generated the money for speculation they became speculators themselves by purchasing large blocks of high-yield bonds many of which were dubious quality those were the kinds of securities that are difficult to liquidate in a declining market borrowing money on short term investing on long term the banks were maneuvering themselves into a precarious position did the Federal Reserve cause the speculation in the stock market of course not speculators did that the Fed undoubtedly had other objects in mind but that did not cancel its responsibilities it acutely aware of the psychological effect of easy credit and had consciously used that knowledge to manipulate public behavior on numerous occasions behavioral psychology is a necessary tool of the trade of course so it could claim neither ignorance nor innocence in in the unfolding of this tragedy it was about as innocent as a spider whose web accidentally caught the fly the final bubble in the spring of 1928 the Federal Reserve expressed concern over speculation in the stock market and raised interest rates to curb the expansion of credit the growth in the money supply began to slow down and so did the rise in stock prices it is conceivable that the soaring economy could have been brought in for a soft landing except that there were other agendas to be considered professor Quigley had said that the central bankers were not substantive powers unto themselves but were as marionettes whose strings were pulled by others just as the speculation spree appeared to be coming under control those strings were yanked and the Federal Reserve flip-flopped once again the strings originated in London even after seven years of subsidy by the Federal Reserve the British economy was sagging from the weight of its socialist system and gold was moving back into the United States the Fed in spite of its own public condemnation of excessive speculation reversed itself at the brink of success and purchased over 300 million bucks of bankers acceptances in the last half of 1928 which caused an increase in the money supply of almost two billion dollars professor rothbard says europe as we have noted had found the benefits from the 1927 inflation dissipated and european opinion now clamored against any tighter money in the united states the easing in late 1928 prevented gold inflows into the u.s. from getting very large Great Britain was again losing gold and sterling was weak once more the United States bowed once again to its overriding to see Europe avoid the inevitable consequences of its own inflationary policies and quote prior to the feds reversal of policies stock stock prices had actually declined by five percent now they went through the roof rising 20 percent from July to December the boom had returned in spades then in February of 1929 a curious event occurred Montagu Norman travelled to the United States once again to confer privately with the officers of the Federal Reserve he also met with Andrew Mellon secretary of the Treasury there is no detailed public record of what transpired at these closed meetings but we can be certain of three things it was important it concerned the economies of America and Great Britain and it was thought best not to tell the public what exactly was going on it isn't unreasonable to surmise that the central bankers had come to the conclusion that the bubble not only in America but also in Europe was probably going to rupture very soon rather than fight it as they had in the past it was time to stand back and let it happen clear out the speculators and return the markets to reality as Galbraith put it quote how much better has seen from the Federal Reserve to let nature take its course and thus allow nature to take the blame end quote Mellon was even more emphatic Herbert Hoover described Mellon's views as follows quote mr. Mellon all had only one formula liquidate labor liquidate stocks liquidate the farmers liquidate real estate he insisted that when the people get an inflation brainstorm the only way to get it out of their blood is to let it collapse he held that even a panic was not altogether a bad thing he said it'll purge the rottenness out of the system high cost of living and high living will come down people will work harder live a normal life values will be adjusted and enterprising people will pick up the racks from less competent people and if this had been the mindset between Mellon and Norman and the Federal Reserve Board the purpose of their meetings would have been to make sure that when the implosion happened the central banks could coordinate their policies rather than be overwhelmed by it they should direct it as best as they can and turn it ultimately to their own advantage perhaps we shall never know if that scenario is accurate but the events that followed strongly support such a view advance warning for members only immediately after these meetings the monetary scientists began to issue warnings to their colleagues in the financial fraternity to get out of the market On February 6 the Federal Reserve issued an advisory to its member banks to liquidate their holdings in the stock market the following month Paul Warburg gave the same advice in the annual report to the stockholders of his international acceptance bank he explained the reason for that advice if the orgies of unrestrained speculation are permitted to spread the ultimate collapse is certain not to only affect the speculators themselves but to bring about a general depression involving the entire country a Paul Warburg was a partner with Kuhn Logan Co which maintained a list of preferred customers these were fellow bankers wealthy industrialists prominent politicians and high officials and foreign governments a similar list was maintained at JP Morgan it was customary to give these men advance notice on important stock issues and an opportunity to purchase them at two to fifteen points below the price to the public that was one of the means by which investment bankers maintained an influence over the affairs of the world the men on those lists were notified of the coming crash john d rockefeller JP Morgan Joseph P Kennedy Bernard Baruch Henry Morgenthau Douglas Dillon the biographies of all the Wall Street Giants at that time boast that these men were quote wise enough to get out of the stock market GS before the crash and it is true virtually all of the inter Club was rescued there is no record of any member of the interlocking Directorate between the Federal Reserve the major New York banks and their prime customers having been caught by a surprise at all wisdom apparently was greatly affected by whose list one was on a message of comfort to the public while the crew was abandoning ship the passengers were told it was a lovely cruise President Coolidge and Treasury secretary Mellon had been vociferous and their public utterances that the economy was in better shape than ever from his socialist perch in London John Maynard Keynes exclaimed that the management of the dollar by the Federal Reserve Board was a quote triumph of man over money and from the plush Offices of his New York Federal Reserve Bank Benjamin strong boasted the very existence of the Federal Reserve System is a safeguard against anything like a calamity growing out of money rates in former days the psychology was different because the facts of the banking situation were different mob panic and consequently mob disaster is less likely to arise the public was comforted and the balloon continued to expand it was now time to sharpen the pin on April 19th the Fed held an emergency meeting under cloak of great secrecy the following day the New York Times reported as follows Reserve Council confers and Haste's atmosphere of the mystery is thrown about its meaning in Washington I'm sorry atmosphere of mystery is thrown about its meeting in Washington an atmosphere of deep mystery was thrown about the proceedings both by the board and the council no advice announcement had been made in that extraordinary session of the council was contemplated and the fact that the members were in the city became known only when newspaper correspondents happened to see some of them entering the Treasury Department building even after that evasive replies were given while the joint meeting was in progress at the Treasury Department every effort was made to the god proceedings and and a group of newspaper correspondents were asked to leave the corridor let us return briefly to Montague Norman his biographer tells us that after he became head of the Bank of England his custom was to journey to the United dates several times each year although his arrival was seldom noted by the press he travelled in disguise wearing a long black cloak and a large broad brimmed hat and he used the pseudonym of Professor Skinner it was on one of these unpublicized trips that he ran into a young australian by the name of WC wentworth 60 years later wentworth wrote a letter to the australian a newspaper in sydney and told of his encounter in 1929 i was a member of the oxford and cambridge athletic team visiting america to run against their american universities late in july we split up to return you know i gathered with some other members boarded a smallish passenger vessel in New York there were of course no aeroplanes in those days a fellow passenger known as mr. Skinner and a member of our team recognized him he was Montague Norman returning to London after a secret visit to the US central bank traveling incognito my Australian accents crashing and burning here and when we told him we knew who he was he asked us not to blow his cover because of the details of this movement were made public it could have serious financial consequences naturally we agreed and on the days following as we crossed the Atlantic he talked to us he talked to us very frankly he said in the next few months there's going to be a shake out but don't worry it won't last long on August 9th just a few weeks after that shipboard encounter the Federal Reserve Board reversed its easy credit policy and raised the discount rate to 6% a few days later the Bank of England raised its rate also bank reserves in both countries began to shrink and along with them so did the money supply simultaneously the system began to sell securities in the open market and a maneuver that also a maneuver that also contracts the money supply call rates on margin loans had jumped to 15 and then 20% the pin had been inserted the duck dinner the securities market reached its high point on September 19th then it began to slide the public was not yet aware that that the end had arrived the roller-coaster had dipped before surely it would shoot upward again for five more weeks the public bought heavily on the way down more than a million shares were traded during that period then on Thursday October 24th like a giant school of fish suddenly turning direction in response to an unseen signal thousands of investors stampeded to sell the ticker-tape was hopelessly overloaded prices tumbled 13 million shares exchanged hands everyone said the bottom had dropped out of the market they were wrong five days later it did on Tuesday October 29th the exchanges were crushed by an avalanche of selling at times there were no buyers at all by the end of the trading session over 16 million shares had been dumped in most cases at any price that was offered within a single day millions of investors were wiped out altogether within a few weeks of further decline three billion dollars of wealth had disappeared within 12 months 40 billion had vanished people who had counted their paper profits and thought they were rich suddenly found themselves to be very poor the other side of the coin is that for every seller there was indeed a buyer the insiders who had moved their investments into cash and gold were the buyers it must be remembered that falling stock prices didn't necessarily mean that there was anything wrong with the stocks those representing solid companies were still paying dividends and were good investments at a realistic price and the panic prices had tumbled far below their natural levels those who had the cash picked them up for small fractions of their true worth giant holding companies were formed for that task such as marine Midland Corporation the Lehman Corporation the equity Corporation and and the equity Corporation JP Morgan set up the food trust called standard brands like the shark following the mackerel the big speculators devoured the small ones there is no evidence that the crash was planned for the purpose of taking profit in fact there is much to show that the monetary scientists tried mightily to avert it and might have done so had not their higher priority agendas gotten in the way yet once they realized the inevitability of a collapse in the market they were not bashful about using their privileged position to take full advantage of it in that sense FDR's son-in-law Curtis dal was right when he wrote quote it was the calculated sharing of the public by the world money powers end quote natural law number five here's another one here's another one of those natural laws of economics that's needs to be added to our list lesson it is human nature for man to place personal priorities ahead of all others even the best of men cannot long resist the temptation to benefit at the expense of their neighbors if the occasion is placed squarely before them this is especially true when the means by which they benefit is obscure and not likely to perceived it not likely to be perceived as such there may be exceptional men from time to time who can resist that temptation but their numbers are very small the general rule will prevail in the long term a managed economy presents men with precisely that kind of opportunity the power to create and extinguish the nation's money supply provides unlimited potential for personal gain throughout history the granting of that power has been justified as being necessary to protect the public but the results have always been just the opposite it has been used against the public and for the personal gain of those who control therefore law when men are entrusted with power to control the money supply they will eventually use that power to confiscate the wealth of their neighbors there is no a better illustration of that law than the crash of 1929 and the lingering depression that followed from crash the depression the lingering depression is an important part of the story the speculators had been ruined but what they lost was money acquired without effort there were some unfortunate souls who also lost their life savings but only because they gambled those savings on call loans those who bought stock with money they actually possessed did not have to sell and they did quite well in the long run for the most part something-for-nothing had merely been converted back into nothing the price of stocks had plummeted but the companies behind them were still producing products and still employing people and still paying dividends no one lost his job because the market fell that the tulips were gone but the wheat crop remained so where was the problem in truth there was none at least not yet the crash as devastating as it was to the speculators had little effect on the average American unemployment didn't become rampant until the Depression years which came later and were caused by continued government restraint of the free market the drop of prices in the stock market was really a long overdue and healthy adjustment to the economy the stage was now set for recovery and sound economic growth as always had happened in the past it did not happen this time the monetary and political scientists who had created the problem now were in full charge of the rescue they saw the crash as a golden opportunity to justify even more controls than before Herbert Hoover launched a multitude of government programs to bolster wage rates prevent prices from dropping prop up failing firms stimulate construction guarantee home loans protected the depositors rescue the banks subsidized the farmers and provide Public Works FDR was swept into office by promising even more of the same under the slogan of a New Deal and the Federal Reserve launched a series of banking reforms so-called all of which were measures to further extend its own power over the money supply in 1931 fresh money was pumped into the economy to restart the cycle but this time the rocket would not lift off the dead weight of new bureaucracies and government regulations and subsidies and taxes and welfare benefits and deficit spending and tinkering with prices had kept it on the launching pad eventually the productive foundation of the country also began to crumble under the weight taxes and regulatory agencies forced companies out of business those that remain had to curtail production unemployment began to spread by every economic measure the economy was no better or no worse than in night in 1939 than it was in 1930 when the rescue began it wasn't until the outbreak of World War two and the tooling up for war production that followed that the Depression was finally brought to an end it was a dubious save in almost every way it was a repeat of the drama played out by World War one even to the names of two of its most important players FDR and Churchill worked together behind the scenes to bring America into the conflict Churchill wanting American assistance in a war England was losing and could not afford FDR wanting a jolt to the economy for political reasons and the Finance EA's gathered behind JPMorgan wanting the profits of war but that's another chapter and this book is quite long enough what happened after World War two was the focus of the first six chapters that brings us to the end of historical record it's time now to reset the coordinates on our time machine and return to the present summary Congress had been assured that the Federal Reserve Act would decentralize banking power away from Wall Street however within a few years of its inception the system was controlled by the New York Reserve Bank under the leadership of Benjamin strong whose name was synonymous with the Wall Street money trust during the nine years before the crash of 1929 the Federal Reserve was responsible for a massive expansion of the money supply a primary motive for that policy was to assist the government of Great Britain to pay for its socialist programs which by then had drained its Treasury by devaluing the dollar and depressing interest rates in America investors would move their money to England where rates and values were higher that strategy succeeded in helping Great Britain for a while but it set in motion the forces that made the stock market crash inevitable the money supply expanded throughout this period but the trend was interspersed with short spasms of contraction which were the result of attempts to halt expansions each resolved to use restraint was broken by the higher political agenda of helping the governments of Europe in the long view the result of plentiful money and easy credit was a wave of speculation in the stock market and urban real estate that intensified with each passing month there is circumstantial evidence that the Bank of England and the Federal Reserve had concluded at a secret meeting in February of 1929 that a collapse in the market was inevitable and that the best action was not was to let nature take its course immediately after that meeting the finances sent advisory warnings to lists of a preferred customers wealthy industrialists prominent politicians and high officials in foreign governments to get out of the stock market meanwhile the American people were being assured that the economy was in sound condition on August 9th the Federal Reserve applied the pin to the bubble it increased the bank loan rate and began to sell securities in the open market both actions have the effect of reducing the money supply rates on brokers loans jumped to 20% on October 29th the stock market collapsed thousands of investors were wiped out in a single day the insiders who were forewarned had converted their stocks into cash while prices were still high they now became the buyers some of the greatest fortunes in America were made in that very fashion end of chapter 23 creature from Jekyll Island by G Edward Griffin thanks for watching guys if you'd like to support the channel please do so your contributions are greatly needed and welcomed links in the description demo god bless you guys love y'all you in the next one woof