lunedì 22 agosto 2011



By Dennis L. Cuddy, Ph.D.
August 22, 2011

[NOTE: My latest book, The Power Elite and the Secret Nazi Plan, is now available from [800-955-0116] NewsWithViews. As I related in the book, the head of the Nazi SS, Heinrich Himmler, was probably working with the Allies (Allen Dulles) long before the end of WWII. In 1944, Himmler convinced Hitler to put the V-2 rocket project under SS control, and on August 8 of that year Gen. Hans Kammler replaced Gen. Walter Dornberger as its director (under Operation Paperclip after the war, Dornberger would become vice-president of Bell Aerosystems in Niagrara Falls, NY). Kammler had also been in charge of constructing facilities for various secret weapons projects. In 1938, the Sudetenland in northern Czechoslovakia surrendered to the Nazis, who recognized its importance as the location of perhaps the largest uranium field in Europe. By 1943, the Nazi Luftwaffe had a map of New York City with concentric circles (perhaps designating the radioactive effects of a nuclear explosion), and in 1944 a Luftwaffe plane flew to New York City, took a picture and flew back (perhaps for target identification). On October 10, 1944 Luftwaffe pilot Hans Zinsser reported seeing the following: “A cloud shaped like a mushroom without turbulence, billowing sections (at about 7000 meters) stood, without any seeming connections over the spot where the explosion took place.” Mussolini’s war correspondent Luigi Romersa sent to view the Nazis’ secret weapons also reported seeing the following: “There was a brilliant flash of light that entered our bunker, but everything stayed quiet. Suddenly there was an enormous blast that overwhelmed the ears. After the light faded we were allowed to look out the viewing slots. In the distance was a large glowing orange ball with dust and debris above it.

As the orange died down a large cloud in the shape of a mushroom was seen above it. We were told to wait several hours due to deathly rays, of utmost toxicity.” On October 11, the London Daily Mail published “Berlin Silent 60 Hours, Still No Phones,” and a year later on August 11, 1945, the London Daily Telegraphpublished “Nazis’ Atom Bomb Plans: Britain Ready a Year Ago” (August 1944). In March 1945, Los Alamos in the U.S. only had 15-30 kilograms of plutonium and reported there wouldn’t be enough for an atom bomb until November of that year. However, when Germany surrendered in May 1945, a Nazi submarine entered Norfolk, VA harbor with nine gold-lined cylinders labeled “U-235” and infrared proximity fuses. Suddenly, we were able to test the Manhattan Project in July and bomb Hiroshima on August 6 and Nagasaki on August 9. How did we obtain so quickly enough plutonium for two atomic bombs? Probably Kammler under Himmler’s direction saw to it, and perhaps that information is what the American special unit retrieved from Himmler’s secret vault in his castle. The team and the documents then simply “disappeared from history,” according to the documentary “Himmler’s Castle,” mentioned in my book.]

“Power tends to corrupt and absolute power corrupts absolutely.” – statement by Lord Acton in a letter to Bishop Creighton, April 5, 1887, A.D.

In the early 1760s in England, Benjamin Franklin was asked why the colonists were so prosperous, and he replied, “That is simple. It is only because in the Colonies we issue our own money. It is called colonial scrip, and we issue it in the proper proportion to the demand of trade and industry.” The Bank of England didn’t care for this, and in 1764, the Currency Act prohibited the plantation colonies from issuing legal tender. Many believe that the Stamp Act, Tea Act and other measures sparked the revolutionary movement, but Franklin reportedly stated: “The Colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the Colonists their money, which created unemployment and dissatisfaction.”

In a letter to John Adams in 1813, Thomas Jefferson wrote that “…the issue today is the same as it has been throughout all history, whether man shall be allowed to govern himself or be ruled by a small elite,” and he was right. One way to control not only individuals but also nations is to get them in debt, and there was reportedly talk among some bankers that perhaps a divided United States would be less strong, and therefore more dependent upon them. Today, debt is one of the key ways in which the Power Elite (PE) can control the U.S. and other nations.

In 1861, President Lincoln went to New York to ask for loans to prosecute the war against the Confederacy, but when the bankers offered him loans at 24-36% interest, Lincoln instead decided to have the government print its own “greenbacks” rather than go into debt. The bankers were not pleased. On November 21, 1864, Lincoln wrote to William Elkin: “I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. As a result of the war, corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands, and the Republic is destroyed. I feel at this moment more anxiety for the safety of my country than ever before, even in the midst of war.” Lincoln’s secretary denied that the President wrote this letter, but it could be considered consistent with Lincoln’s attitude toward the bankers who offered him loans at exorbitant rates of interest. A few months later, in mid-April 1865, Lincoln was assassinated.

President Lincoln was right, and over the next 50 years, financiers grew in power. There was even a cartoon by Robert Minor in theSt. Louis Post-Dispatch in 1911 depicting J.P. Morgan, John D. Rockefeller, Andrew Carnegie and other financiers welcoming Karl Marx’s “Socialism.” But how, one might ask, could these men of wealth like Socialism? It’s because monopoly capitalism actually turns out to be a form of corporate Socialism (and even Fascism in extreme cases), where beholden politicians enact laws providing for regulations that adversely effect the corporate leaders’ competitors. As regulations expert Brink Lindsey said in a 1992 Cato Institute report: “Thus, the only purpose served by these regulatory structures is to benefit particular special interests at the expense of their competitors and of the general public…. In effect, businesses can extort higher prices from the public by enlisting the government to act against competitors.”

To demonstrate the Fascist (or Corporate Socialist) aspect of the PE’s control mechanism, today there are so-called “spontaneous” revolutions across the Middle East and an in Northern Africa among Muslim nations as part of the PE’s plan. In June 2011, at “Ideacity” (advertised as Canada’s “Premiere meeting of the minds,” liberal Marxist Muslim Tarek Fatah said, “The religion of Islam is being used as a tool by a Fascist force…. Instead of bringing victory over the Fascist forces of the Muslim Brotherhood, we now recognize that their infiltration is right up to the American White House, but we can’t say that. Today we are fighting another idea of Islamo-fascism that has shut our mouths, and we can’t speak because we’re too scared that someone may turn around and call us a racist. And mind you, everyday as I speak, a few dozen Muslims would have been killed by now by these Jihadis.”

To show how the interests of the PE (financiers, corporate leaders, etc.) and Marx’s Socialist philosophy can run parallel to each other, note that the PE strongly supported NAFTA, the European Economic Community, and other regional economic entities. In January 1913, Joseph Stalin in Vienna said: “National autonomy does not solve the problem…. The only real solution is regional autonomy…. It does not divide people according to nations, it does not strengthen national partitions; on the contrary, it only serves to break down these partitions and unite the population in such a manner as to open the way for divisions of a different kind, division according to class.”

This was similar to Lenin’s “disunion for the purpose of union” theory, and national loyalties would become subservient to regional arrangements, which would facilitate Marx’s “class struggle” with the eventual theme of “workers of the world unite” to establish the “dictatorship of the proletariat.” In Richard Pipes’A Concise History of the Russian Revolution (1995), he wrote: “The same reasoning that had led the Bolsheviks to condemn to death the Romanovs would later be applied in Russia and elsewhere to millions of nameless beings who happened to stand in the way of one or another designs for a new ‘world order’… the legitimacy of the early Communist slogan, ‘We will drive mankind to happiness by force!’” Isn’t this what is occurring today?

While the philosophies of the PE and Marxist Socialism both view nationalism as a chief obstacle and both desire the final triumph of some type of Socialism, the PE obviously don’t want ultimately a dictatorship of the proletariat. Rather, they desire what I would call a techno-feudal society, where the proletariat would be labor serfs or machine serfs and the elite would remain in control. Indirect support for this idea can be found in a March 3, 1998 “Opinion” of The Philadelphia Inquirer, which stated: “If there is going to be a shortage of bright, well-educated people, corporations will pay a premium to get them—even import them from overseas. They will then use these geniuses to design production systems that can be run by idiots, whom they will pay as little as possible to make up the difference.”

To show how Marxism, elite control, and regionalism all come together, the following statement by former Trilateral Commission (elites) director Zbigniew Brzezinski are instructive. In his Between Two Ages (1970), he stated: “Marxism is simultaneously a victory of the external, active man over the inner, passive man and a victory of reason over belief… [and] the fiction of the [national] sovereignty… is clearly no longer compatible with reality… [but] a [world community] cannot be achieved by fusing existing states into one larger entity…. It makes much more sense to attempt to associate existing states through a variety of indirect ties and already developing limitations on national sovereignty…. In the technotronic society the trend seems to be toward… effectively exploiting the latest communication techniques to manipulate emotions and control reason…. Human beings become increasingly manipulable and malleable... accepting as routine managerial processes current innovations such as planning-programming-budgeting systems (PPBS).”

And at the State of the World Forum (Sept. 27-Oct. 1, 1995) chaired by former Soviet leader Mikhail Gorbachev, Brzezinski declared: “We cannot leap into world government through one quick step. A consensual global system requires a process…. The precondition for eventual and genuine globalization is progressive regionalization because by that we move toward larger, more stable, more cooperative units.” Today, the so-called “spontaneous” revolutions in the Middle East are part of the PE’s plan to create a regional entity there that can be linked to the European Union and other regional arrangements.

Further evidence of the use of regionalism as a means of undermining sovereignty can be found in Robin Wright’s August 25, 1992, article in The Los Angeles Times titled, “The Outer Limits?” in which the State Department’s chief geographer, William Wood, was quoted as stating: “What we’re dealing with is the re-creation of countries.” In the same article geographer George Demko (director of Dartmouth’s Rockefeller Center) said: “As we’re challenging the traditional ideas of state sovereignty, globalizing economies and communications, and breaking up the last empires, the geography of the world is unhooking old connections and hooking up new ones. Along with borders, the dynamics and functions of states will change, too…. Many states won’t have armies, only police.”

As the PE uses the “regionalizing” of NAFTA, etc., which undermines national sovereignty, what we are seeing seems to be American history in reverse! At the beginning of our nation, Southern plantation owners had slaves for economic reasons, and primarily people from the North wanted to liberate those slaves. Today, it is primarily multinational corporate executives and international bankers in the North who look over their “global plantations” and support NAFTA, GATT, etc., including products made by slave labor (e.g., in China), thereby undercutting American workers. And these elites are opposed in greatest proportion by conservatives in the South. This is a real role reversal in our nation’s history!

Historically, we were also warned about the coming period of despotism under an elite or “supreme power” in America and the world. In Alexis de Tocqueville’s Democracy in America (1840), he said that the following would be “the novel features under which despotism may appear in the world”: man would exist “only in himself and for himself alone; and if his kindred still remain to him, he may be said at any rate to have lost his country. Above this race of men stands an immense and tutelary power, which it takes upon itself alone to secure their gratifications and to watch over their fate. That power is absolute, minute, regular, provident, and mild…. It provides for their security, foresees and supplies their necessities, facilitates their pleasures, manages their principal concerns, directs their industry…. After having thus successively taken each member of the community in its powerful grasp and fashioned him at will, the supreme power then extends its arm over the whole community. It covers the surface of society with a network of small complicated rules, minute and uniform. The will of man is not shattered, but softened, bent, and guided; men are seldom forced by it to act, but they are constantly restrained from acting. Such a power does not destroy, but it prevents existence; it does not tyrannize, but it compresses, enervates, extinguishes and stupefies a people, till each nation is reduced to nothing better than a flock of timid and industrious animals, of which the government is the shepherd.”

One way in which people are being “bent and guided” is via the role models being presented by the elite. For example, at the Miss America pageant for 1995, winner Shawntel Smith (whose program was “School-to-Work”) sang Woman in the Moon, which included the lyrics: “I was raised in a ‘No you don’t world overrun with rules… Well, not in my song. You and I are changing… [to a[ new rhythm. You can never mold the woman in the moon.” And she followed this by singing Listen to the Colors of the Wind at the Macy’s Thanksgiving Day Parade (Nov. 23, 1995); the song refers to such beliefs as the rocks have spirits, which New Agers believe.

Another means of “bending and guiding” the masses is via TV commercials. Research by Michael Rothschild, a business professor at the University of Wisconsin at Madison, and Yong Hyun showed a correlation between volunteers’ EEGs and their ability to remember information in TV commercials. According to Keay Davidson of the San Francisco Examiner in 1988, Rothschild “says his work indicates one of the best ways to grab a viewer’s attention is via movement—for instance, the car screeching around the corner.” This places viewers in a reactive rather than analytical mode wherein they are primarily absorbing information. Once they are in a reactive mode, psychological associations can be created. That is why there are fewer ads today giving detailed reasons to buy a product. Instead, through sounds, colors, movements, etc. products are associated with something pleasant and attractive psychologically to entice and condition the viewers.

And if the populace does not submit to the “supreme power’s” bending and guiding, choosing instead to resist being treated as human chattel, then there is always “Operation Garden Plot.” Although the U.S. military is never supposed to be used against our civilian population, in 1984 “U.S. Air Force Civil Disturbance Plan 55-2” (nicknamed “Garden Plot” by the Army) was developed as a plan for the employment of military (Air Force, Army, etc.) resources against civil disobedience and disturbances ad designated by the President. In the international arena, those who refused to comply with the PE’s “supreme power” might be turned over to an international criminal court. Some time ago, U.S. Senators Kerry, Reid, Boxer and others sponsored legislation, the opening sentence of which stated: “Calling for the United States to support efforts of the United Nations to conclude an international agreement to establish an international criminal court.” However, the elite would do well to recall that one of the indictments against King George III in our Declaration of Independence of July 4, 1776, A.D. was: “He has combined with others to subject us to a jurisdiction foreign to our Constitution, and unacknowledged by our Laws….”

After President George H.W. Bush announced the beginning of the “New World Order,” about twenty years ago, he stated on February 1, 1992: “It is the sacred principles enshrined in the UN Charter to which we will henceforth pledge our allegiance.” The key word here is “henceforth,” which means one will be doing something which one hasn’t been doing previously. Thus, the “sacred principles enshrined in the UN Charter” could not be the same as the principles in our own Declaration of Independence or Constitution to which we already have been “pledging allegiance.” Americans simply smiled and accepted Bush’s proclamations, thus proceeding down the road to Somalia, Bosnia, Afghanistan and Iraq. In the January 14, 1993 confirmation hearing for Secretary of State Warren Christopher, he and then-Senator Joe Biden looked favorably upon the possibility that NATO would become the peacekeeping enforcer for the UN. Now, Senator Biden is Vice-President, and the U.S. under NATO auspices is intervening in Libya, even though that is helping Libyan members of al-Qaeda, with whom we are supposedly globally at war.

Instead of allowing the continued erosion of our national sovereignty under the PE’s plan to gain global “absolute power” over us, we should pray to the Lord for Repentance, Revival, Reformation and Restoration as “one nation under God.” We must turn from our wicked ways, seek God’s face and obey His Commandments, and pray that He will hear and forgive our sins and heal our land.

© 2011 Dennis Cuddy - All Rights Reserved

Iceland's On-going Revolution

MON AUG 01, 2011 AT 08:47 AM PDT

Iceland's On-going Revolution

byDeena Stryker

Share15.3K 256

An Italian radio program's story about Iceland’s on-going revolution is a stunning example of how little our media tells us about the rest of the world. Americans may remember that at the start of the 2008 financial crisis, Iceland literally went bankrupt. The reasons were mentioned only in passing, and since then, this little-known member of the European Union fell back into oblivion.

As one European country after another fails or risks failing, imperiling the Euro, with repercussions for the entire world, the last thing the powers that be want is for Iceland to become an example. Here's why:

Five years of a pure neo-liberal regime had made Iceland, (population 320 thousand, no army), one of the richest countries in the world. In 2003 all the country’s banks were privatized, and in an effort to attract foreign investors, they offered on-line banking whose minimal costs allowed them to offer relatively high rates of return. The accounts, called IceSave, attracted many English and Dutch small investors. But as investments grew, so did the banks’ foreign debt. In 2003 Iceland’s debt was equal to 200 times its GNP, but in 2007, it was 900 percent. The 2008 world financial crisis was the coup de grace. The three main Icelandic banks, Landbanki, Kapthing and Glitnir, went belly up and were nationalized, while the Kroner lost 85% of its value with respect to the Euro. At the end of the year Iceland declared bankruptcy.

Contrary to what could be expected, the crisis resulted in Icelanders recovering their sovereign rights, through a process of direct participatory democracy that eventually led to a new Constitution. But only after much pain.

Geir Haarde, the Prime Minister of a Social Democratic coalition government, negotiated a two million one hundred thousand dollar loan, to which the Nordic countries added another two and a half million. But the foreign financial community pressured Iceland to impose drastic measures. The FMI and the European Union wanted to take over its debt, claiming this was the only way for the country to pay back Holland and Great Britain, who had promised to reimburse their citizens.

Protests and riots continued, eventually forcing the government to resign. Elections were brought forward to April 2009, resulting in a left-wing coalition which condemned the neoliberal economic system, but immediately gave in to its demands that Iceland pay off a total of three and a half million Euros. This required each Icelandic citizen to pay 100 Euros a month (or about $130) for fifteen years, at 5.5% interest, to pay off a debt incurred by private parties vis a vis other private parties. It was the straw that broke the reindeer’s back.

What happened next was extraordinary. The belief that citizens had to pay for the mistakes of a financial monopoly, that an entire nation must be taxed to pay off private debts was shattered, transforming the relationship between citizens and their political institutions and eventually driving Iceland’s leaders to the side of their constituents. The Head of State, Olafur Ragnar Grimsson, refused to ratify the law that would have made Iceland’s citizens responsible for its bankers’ debts, and accepted calls for a referendum.

Of course the international community only increased the pressure on Iceland. Great Britain and Holland threatened dire reprisals that would isolate the country. As Icelanders went to vote, foreign bankers threatened to block any aid from the IMF. The British government threatened to freeze Icelander savings and checking accounts. As Grimsson said: “We were told that if we refused the international community’s conditions, we would become the Cuba of the North. But if we had accepted, we would have become the Haiti of the North.” (How many times have I written that when Cubans see the dire state of their neighbor, Haiti, they count themselves lucky.)

In the March 2010 referendum, 93% voted against repayment of the debt. The IMF immediately froze its loan. But the revolution (though not televised in the United States), would not be intimidated. With the support of a furious citizenry, the government launched civil and penal investigations into those responsible for the financial crisis. Interpol put out an international arrest warrant for the ex-president of Kaupthing, Sigurdur Einarsson, as the other bankers implicated in the crash fled the country.

But Icelanders didn't stop there: they decided to draft a new constitution that would free the country from the exaggerated power of international finance and virtual money. (The one in use had been written when Iceland gained its independence from Denmark, in 1918, the only difference with the Danish constitution being that the word ‘president’ replaced the word ‘king’.)

To write the new constitution, the people of Iceland elected twenty-five citizens from among 522 adults not belonging to any political party but recommended by at least thirty citizens. This document was not the work of a handful of politicians, but was written on the internet. The constituent’s meetings are streamed on-line, and citizens can send their comments and suggestions, witnessing the document as it takes shape. The constitution that eventually emerges from this participatory democratic process will be submitted to parliament for approval after the next elections.

Some readers will remember that Iceland’s ninth century agrarian collapse was featured in Jared Diamond’s book by the same name. Today, that country is recovering from its financial collapse in ways just the opposite of those generally considered unavoidable, as confirmed yesterday by the new head of the IMF, Christine Lagarde to Fareed Zakaria. The people of Greece have been told that the privatization of their public sector is the only solution. And those of Italy, Spain and Portugal are facing the same threat.

They should look to Iceland. Refusing to bow to foreign interests, that small country stated loud and clear that the people are sovereign.

That’s why it is not in the news anymore.



CRS reports from FAS: Europe and S&P

"The European Union: Foreign and Security Policy," August 15, 2011

"Standard & Poor's Downgrade of U.S. Government Long-Term Debt," August 9, 2011

Wall Street aristocracy got $1.2 trillion in secret loans

Wall Street aristocracy got $1.2 trillion in secret loans from Fed

Submitted by cpowell on Mon, 2011-08-22 16:49. Section: By Bradley Keoun and Phil Kuntz
Bloomberg News
Sunday, August 21, 2011

Citigroup Inc. and Bank of America Corp. were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits.

By 2008, the housing market's collapse forced those companies to take more than six times as much, $669 billion, in emergency loans from the U.S. Federal Reserve. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret.

Fed Chairman Ben S. Bernanke's unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley, got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation, and an act of Congress.

"These are all whopping numbers," said Robert Litan, a former Justice Department official who in the 1990s served on a commission probing the causes of the savings and loan crisis. "You're talking about the aristocracy of American finance going down the tubes without the federal money."

... Foreign Borrowers

It wasn't just American finance. Almost half of the Fed's top 30 borrowers, measured by peak balances, were European firms. They included Edinburgh-based Royal Bank of Scotland Plc, which took $84.5 billion, the most of any non-U.S. lender, and Zurich-based UBS AG, which got $77.2 billion. Germany's Hypo Real Estate Holding AG borrowed $28.7 billion, an average of $21 million for each of its 1,366 employees.

The largest borrowers also included Dexia SA, Belgium's biggest bank by assets, and Societe Generale SA, based in Paris, whose bond-insurance prices have surged in the past month as investors speculated that the spreading sovereign debt crisis in Europe might increase their chances of default.

The $1.2 trillion peak on Dec. 5, 2008 -- the combined outstanding balance under the seven programs tallied by Bloomberg -- was almost three times the size of the U.S. federal budget deficit that year and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010, according to data compiled by Bloomberg.

... Peak Balance

The balance was more than 25 times the Fed's pre-crisis lending peak of $46 billion on Sept. 12, 2001, the day after terrorists attacked the World Trade Center in New York and the Pentagon. Denominated in $1 bills, the $1.2 trillion would fill 539 Olympic-size swimming pools.

The Fed has said it had "no credit losses" on any of the emergency programs, and a report by Federal Reserve Bank of New York staffers in February said the central bank netted $13 billion in interest and fee income from the programs from August 2007 through December 2009.

"We designed our broad-based emergency programs to both effectively stem the crisis and minimize the financial risks to the U.S. taxpayer," said James Clouse, deputy director of the Fed's division of monetary affairs in Washington. "Nearly all of our emergency-lending programs have been closed. We have incurred no losses and expect no losses."

While the 18-month U.S. recession that ended in June 2009 after a 5.1 percent contraction in gross domestic product was nowhere near the four-year, 27 percent decline between August 1929 and March 1933, banks and the economy remain stressed.

... Odds of Recession

The odds of another recession have climbed during the past six months, according to five of nine economists on the Business Cycle Dating Committee of the National Bureau of Economic Research, an academic panel that dates recessions.

Bank of America's bond-insurance prices last week surged to a rate of $342,040 a year for coverage on $10 million of debt, above where Lehman Brothers Holdings Inc.'s bond insurance was priced at the start of the week before the firm collapsed. Citigroup's shares are trading below the split-adjusted price of $28 that they hit on the day the bank’s Fed loans peaked in January 2009. The U.S. unemployment rate was at 9.1 percent in July, compared with 4.7 percent in November 2007, before the recession began.

Homeowners are more than 30 days past due on their mortgage payments on 4.38 million properties in the U.S., and 2.16 million more properties are in foreclosure, representing a combined $1.27 trillion of unpaid principal, estimates Jacksonville, Florida-based Lender Processing Services Inc.

... Liquidity Requirements

"Why in hell does the Federal Reserve seem to be able to find the way to help these entities that are gigantic?" U.S. Rep. Walter B. Jones, a Republican from North Carolina, said at a June 1 congressional hearing in Washington on Fed lending disclosure. "They get help when the average businessperson down in eastern North Carolina, and probably across America, they can't even go to a bank they've been banking with for 15 or 20 years and get a loan."

The sheer size of the Fed loans bolsters the case for minimum liquidity requirements that global regulators last year agreed to impose on banks for the first time, said Litan, now a vice president at the Kansas City, Missouri-based Kauffman Foundation, which supports entrepreneurship research. Liquidity refers to the daily funds a bank needs to operate, including cash to cover depositor withdrawals.

The rules, which mandate that banks keep enough cash and easily liquidated assets on hand to survive a 30-day crisis, don't take effect until 2015. Another proposed requirement for lenders to keep "stable funding" for a one-year horizon was postponed until at least 2018 after banks showed they'd have to raise as much as $6 trillion in new long-term debt to comply.

... 'Stark Illustration'

Regulators are "not going to go far enough to prevent this from happening again," said Kenneth Rogoff, a former chief economist at the International Monetary Fund and now an economics professor at Harvard University.

Reforms undertaken since the crisis might not insulate U.S. markets and financial institutions from the sovereign budget and debt crises facing Greece, Ireland, and Portugal, according to the U.S. Financial Stability Oversight Council, a 10-member body created by the Dodd-Frank Act and led by Treasury Secretary Timothy Geithner.

"The recent financial crisis provides a stark illustration of how quickly confidence can erode and financial contagion can spread," the council said in its July 26 report.

... 21,000 Transactions

Any new rescues by the U.S. central bank would be governed by transparency laws adopted in 2010 that require the Fed to disclose borrowers after two years.

Fed officials argued for more than two years that releasing the identities of borrowers and the terms of their loans would stigmatize banks, damaging stock prices or leading to depositor runs. A group of the biggest commercial banks last year asked the U.S. Supreme Court to keep at least some Fed borrowings secret. In March, the high court declined to hear that appeal, and the central bank made an unprecedented release of records.

Data gleaned from 29,346 pages of documents obtained under the Freedom of Information Act and from other Fed databases of more than 21,000 transactions make clear for the first time how deeply the world's largest banks depended on the U.S. central bank to stave off cash shortfalls. Even as the firms asserted in news releases or earnings calls that they had ample cash, they drew Fed funding in secret, avoiding the stigma of weakness.

... Morgan Stanley Borrowing

Two weeks after Lehman's bankruptcy in September 2008, Morgan Stanley countered concerns that it might be next to go by announcing it had "strong capital and liquidity positions." The statement, in a Sept. 29, 2008, press release about a $9 billion investment from Tokyo-based Mitsubishi UFJ Financial Group Inc., said nothing about Morgan Stanley's Fed loans.

That was the same day as the firm's $107.3 billion peak in borrowing from the central bank, which was the source of almost all of Morgan Stanley's available cash, according to the lending data and documents released more than two years later by the Financial Crisis Inquiry Commission. The amount was almost three times the company's total profits over the past decade, data compiled by Bloomberg show.

Mark Lake, a spokesman for New York-based Morgan Stanley, said the crisis caused the industry to "fundamentally re- evaluate" the way it manages its cash.

"We have taken the lessons we learned from that period and applied them to our liquidity-management program to protect both our franchise and our clients going forward," Lake said. He declined to say what changes the bank had made.

... Acceptable Collateral

In most cases, the Fed demanded collateral for its loans -- Treasuries or corporate bonds and mortgage bonds that could be seized and sold if the money wasn't repaid. That meant the central bank.s main risk was that collateral pledged by banks that collapsed would be worth less than the amount borrowed.

As the crisis deepened, the Fed relaxed its standards for acceptable collateral. Typically, the central bank accepts only bonds with the highest credit grades, such as U.S. Treasuries. By late 2008, it was accepting "junk" bonds, those rated below investment grade. It even took stocks, which are first to get wiped out in a liquidation.

Morgan Stanley borrowed $61.3 billion from one Fed program in September 2008, pledging a total of $66.5 billion of collateral, according to Fed documents. Securities pledged included $21.5 billion of stocks, $6.68 billion of bonds with a junk credit rating and $19.5 billion of assets with an "unknown rating," according to the documents. About 25 percent of the collateral was foreign-denominated.

... 'Willingness to Lend'

"What you're looking at is a willingness to lend against just about anything," said Robert Eisenbeis, a former research director at the Federal Reserve Bank of Atlanta and now chief monetary economist in Atlanta for Sarasota, Florida-based Cumberland Advisors Inc.

The lack of private-market alternatives for lending shows how skeptical trading partners and depositors were about the value of the banks’ capital and collateral, Eisenbeis said.

"The markets were just plain shut," said Tanya Azarchs, former head of bank research at Standard & Poor's and now an independent consultant in Briarcliff Manor, New York. "If you needed liquidity, there was only one place to go."

Even banks that survived the crisis without government capital injections tapped the Fed through programs that promised confidentiality. London-based Barclays Plc borrowed $64.9 billion and Frankfurt-based Deutsche Bank AG got $66 billion. Sarah MacDonald, a spokeswoman for Barclays, and John Gallagher, a spokesman for Deutsche Bank, declined to comment.

... Below-Market Rates

While the Fed's last-resort lending programs generally charge above-market interest rates to deter routine borrowing, that practice sometimes flipped during the crisis. On Oct. 20, 2008, for example, the central bank agreed to make $113.3 billion of 28-day loans through its Term Auction Facility at a rate of 1.1 percent, according to a press release at the time.

The rate was less than a third of the 3.8 percent that banks were charging each other to make one-month loans on that day. Bank of America and Wachovia Corp. each got $15 billion of the 1.1 percent TAF loans, followed by Royal Bank of Scotland's RBS Citizens NA unit with $10 billion, Fed data show.

JPMorgan Chase & Co., the New York-based lender that touted its "fortress balance sheet" at least 16 times in press releases and conference calls from October 2007 through February 2010, took as much as $48 billion in February 2009 from TAF. The facility, set up in December 2007, was a temporary alternative to the discount window, the central bank's 97-year-old primary lending program to help banks in a cash squeeze.

... 'Larger Than TARP'

Goldman Sachs Group Inc., which in 2007 was the most profitable securities firm in Wall Street history, borrowed $69 billion from the Fed on Dec. 31, 2008. Among the programs New York-based Goldman Sachs tapped after the Lehman bankruptcy was the Primary Dealer Credit Facility, or PDCF, designed to lend money to brokerage firms ineligible for the Fed’s bank-lending programs.

Michael Duvally, a spokesman for Goldman Sachs, declined to comment.

The Fed's liquidity lifelines may increase the chances that banks engage in excessive risk-taking with borrowed money, Rogoff said. Such a phenomenon, known as moral hazard, occurs if banks assume the Fed will be there when they need it, he said. The size of bank borrowings “certainly shows the Fed bailout was in many ways much larger than TARP,” Rogoff said.

TARP is the Treasury Department's Troubled Asset Relief Program, a $700 billion bank-bailout fund that provided capital injections of $45 billion each to Citigroup and Bank of America, and $10 billion to Morgan Stanley. Because most of the Treasury's investments were made in the form of preferred stock, they were considered riskier than the Fed’s loans, a type of senior debt.

... Dodd-Frank Requirement

In December, in response to the Dodd-Frank Act, the Fed released 18 databases detailing its temporary emergency-lending programs.

Congress required the disclosure after the Fed rejected requests in 2008 from the late Bloomberg News reporter Mark Pittman and other media companies that sought details of its loans under the Freedom of Information Act. After fighting to keep the data secret, the central bank released unprecedented information about its discount window and other programs under court order in March 2011.

Bloomberg News combined Fed databases made available in December and July with the discount-window records released in March to produce daily totals for banks across all the programs, including the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, Commercial Paper Funding Facility, discount window, PDCF, TAF, Term Securities Lending Facility, and single-tranche open market operations. The programs supplied loans from August 2007 through April 2010.

... Rolling Crisis

The result is a timeline illustrating how the credit crisis rolled from one bank to another as financial contagion spread.

Fed borrowings by Societe Generale, France's second-biggest bank, peaked at $17.4 billion in May 2008, four months after the Paris-based lender announced a record 4.9 billion-euro ($7.2 billion) loss on unauthorized stock-index futures bets by former trader Jerome Kerviel.

Morgan Stanley's top borrowing came four months later, after Lehman's bankruptcy. Citigroup crested in January 2009, as did 43 other banks, the largest number of peak borrowings for any month during the crisis. Bank of America’s heaviest borrowings came two months after that.

Sixteen banks, including Plano, Texas-based Beal Financial Corp. and Jacksonville, Florida-based EverBank Financial Corp., didn't hit their peaks until February or March 2010.

... Using Subsidiaries

"At no point was there a material risk to the Fed or the taxpayer, as the loan required collateralization," said Reshma Fernandes, a spokeswoman for EverBank, which borrowed as much as $250 million.

Banks maximized their borrowings by using subsidiaries to tap Fed programs at the same time. In March 2009, Charlotte, North Carolina-based Bank of America drew $78 billion from one facility through two banking units and $11.8 billion more from two other programs through its broker-dealer, Bank of America Securities LLC.

Banks also shifted balances among Fed programs. Many preferred the TAF because it carried less of the stigma associated with the discount window, often seen as the last resort for lenders in distress, according to a January 2011 paper by researchers at the New York Fed.

After the Lehman bankruptcy, hedge funds began pulling their cash out of Morgan Stanley, fearing it might be the next to collapse, the Financial Crisis Inquiry Commission said in a January report, citing interviews with former Chief Executive Officer John Mack and then-Treasurer David Wong.

... Borrowings Surge

Morgan Stanley's borrowings from the PDCF surged to $61.3 billion on Sept. 29 from zero on Sept. 14. At the same time, its loans from the Term Securities Lending Facility, or TSLF, rose to $36 billion from $3.5 billion. Morgan Stanley treasury reports released by the FCIC show the firm had $99.8 billion of liquidity on Sept. 29, a figure that included Fed borrowings.

"The cash flow was all drying up," said Roger Lister, a former Fed economist who’s now head of financial-institutions coverage at credit-rating firm DBRS Inc. in New York. "Did they have enough resources to cope with it? The answer would be yes, but they needed the Fed."

While Morgan Stanley's Fed demands were the most acute, Citigroup was the most chronic borrower among the largest U.S. banks. The New York-based company borrowed $10 million from the TAF on the program’s first day in December 2007 and had more than $25 billion outstanding under all programs by May 2008, according to Bloomberg data.

... Tapping Six Programs

By Nov. 21, when Citigroup began talks with the government to get a $20 billion capital injection on top of the $25 billion received a month earlier, its Fed borrowings had doubled to about $50 billion.

Over the next two months the amount almost doubled again. On Jan. 20, as the stock sank below $3 for the first time in 16 years amid investor concerns that the lender's capital cushion might be inadequate, Citigroup was tapping six Fed programs at once. Its total borrowings amounted to more than twice the federal Department of Education’s 2011 budget.

Citigroup was in debt to the Fed on seven out of every 10 days from August 2007 through April 2010, the most frequent U.S. borrower among the 100 biggest publicly traded firms by pre- crisis market valuation. On average, the bank had a daily balance at the Fed of almost $20 billion.

... 'Help Motivate Others'

"Citibank basically was sustained by the Fed for a very long time," said Richard Herring, a finance professor at the University of Pennsylvania in Philadelphia who has studied financial crises.

Jon Diat, a Citigroup spokesman, said the bank made use of programs that "achieved the goal of instilling confidence in the markets."

JPMorgan CEO Jamie Dimon said in a letter to shareholders last year that his bank avoided many government programs. It did use TAF, Dimon said in the letter, "but this was done at the request of the Federal Reserve to help motivate others to use the system."

The bank, the second-largest in the U.S. by assets, first tapped the TAF in May 2008, six months after the program debuted, and then zeroed out its borrowings in September 2008. The next month, it started using TAF again.

On Feb. 26, 2009, more than a year after TAF’s creation, JPMorgan's borrowings under the program climbed to $48 billion. On that day, the overall TAF balance for all banks hit its peak, $493.2 billion. Two weeks later, the figure began declining.

"Our prior comment is accurate," said Howard Opinsky, a spokesman for JPMorgan.

... 'The Cheapest Source'

Herring, the University of Pennsylvania professor, said some banks may have used the program to maximize profits by borrowing "from the cheapest source, because this was supposed to be secret and never revealed."

Whether banks needed the Fed's money for survival or used it because it offered advantageous rates, the central bank's lender-of-last-resort role amounts to a free insurance policy for banks guaranteeing the arrival of funds in a disaster, Herring said.

An IMF report last October said regulators should consider charging banks for the right to access central bank funds.

"The extent of official intervention is clear evidence that systemic liquidity risks were under-recognized and mispriced by both the private and public sectors," the IMF said in a separate report in April.

Access to Fed backup support "leads you to subject yourself to greater risks," Herring said. "If it's not there, you're not going to take the risks that would put you in trouble and require you to have access to that kind of funding."

State Banking- A Real California Solution

Money Changes

A Revolution in Banking and Economics

State Banking- A Real

California Solution

to the Debt and Jobs Crises


Wall Street has failed us. After being bailed out at great expense by the government and its taxpayers, the nation’s largest private banks have drastically cut back on the traditional types of loans counted on by local economies. These big banks are not facilitating an economic recovery and have actually become obstacles to it. They are dead-weight being carried by the taxpayers.

Today as in the 1930’s, Wall Street, private investors, and big banks have not stepped up to lead recovery efforts. During the Great Depression, it was instead the federally owned Reconstruction Finance Corporation (RFC) that was instrumental in galvanizing private investment to create real economic growth. Circumstances today demand another RFC type of solution which reformers across the country believe will help restore American prosperity through a resurgence in the industrial and manufacturing sectors of the economy.

To create credit, a bank needs capital and deposits. The money already exists in the states to create sufficient amounts of credit. State and local governments do not have to wait on the federal government to act. They can create their own RFC’s, using the trillions of dollars in deposits and pension funds which belongs to them and is currently sitting idle. California has long been a trendsetter among states in terms of legislation and public policy. Presently, it may be in the best position of any state to take the lead nationally on this issue.

California Can break the Bank

Many bills are pending in the legislature which will give the state greater authority to invest public funds for job creation and economic development. Little known is that California already has a fully functional state owned bank called the Infrastructure and Economic Development Bank, or I-bank.

California is on track to be the first state in the US to follow North Dakota in setting up a robust state banking system. The I-bank seems to be doing a fine job for Californians, but it is not adequately capitalized to carry out its mission nor does it have the authority to take on the enormous task of turning the tide of recession toward recovery.

The California Public Employees’ Retirement System (CalPERS) has over $239.2 billion in assets and California State Teachers Retirement System (CalSTRS) has a $150 billion fund. Increasing the capital of the I-bank and forming a state investment trust with just a portion of these two funds could be sufficient to make the state economically independent. That would enable them to adequately invest in their own economic recovery and support job creation programs that reach down to the city and county levels. An action like this would shift the balance of power and put California in a position of greater strength when doing business with Wall Street and private financial markets.

Building State Banks on a Solid Foundation

There are two uniquely American models of State Banking which California legislators can rely on to form an investment trust and expand its existing I-Bank. The first is the Bank of North Dakota and the second is the federally sponsored Reconstruction Finance Corporation which existed in the 1930′s and 40’s.

During the Great Depression the RFC returned a profit to the US treasury of $500 million dollars on a principal of $10.5 billion through its economic recovery loans. Like any other for profit business, the RFC paid for its own operating expenses. The Bank of North Dakota (BND) similarly operates on a for profit basis and has returned hundreds of millions of dollars in profits to the North Dakota treasury. BND is in large part responsible for the state being insulated from the effects of the present financial crises. Among other amazing facts about North Dakota are that it has budget surpluses, no general obligation debt, the lowest unemployment rate of any state in the US, and no significant bank failures in the state over the last decade.

One common operational feature of both the RFC and the BND is the emphasis on making participation loans and providing banking services to small and medium sized banks. Like the RFC, the BND has independence and flexibility to fulfill its economic mission. Both have operated with a conservative business approach to lending, seeking to augment private bank lending rather than be in competition with it. Loan programs are set up in which the state bank provides part of the financing in partnership with private banks. In practice, all of the application screening and collection of loan payments falls to the private banks, which obligate themselves to repay the state bank its portion of the loan. This process creates a buffer between the state bank and the loan applicant. The private bank buffer also serves as a form of check and balance, and reduces the need for bureaucracy and operational overhead at the state bank.

The North Dakota Public Finance Authority (NDPFA) helps all political subdivisions within the state access financing in private markets at the most favorable rates possible. NDPFA has loan programs for Capital Financing, School Districts, Industrial development, and emergency credit for natural disasters. Although not formally required to do so, the RFC performed a similar role in helping states and cities get the best interest rates for their bonds in the private markets.

The RFC also acted as the primary agent for selling bonds on the open market on behalf of the Public Works Administration. The PWA engaged in national infrastructure and construction projects, and with the help of the RFC made a substantial profit on its bond issues. In total the RFC purchased PWA securities having a par value of $694,739,787.58 and took full responsibility for any losses while returning all profits back to the PWA.

In 1932 Congress gave the RFC the responsibility of distributing $300,000,000 in relief funds to the states. This amount of money was expanded by New Deal policies so that between 1933 and 1937 the RFC distributed another $2 billion dollars in relief to government agencies in order to counter the effects of the depression. The RFC had no discretion to allocate this particular money, and simply disbursed it as specified by Congress. However, there were some unused funds in the program which the RFC decided to invest in ways which provided relief to states and cities.

Disaster Loans

In partnership with the BND, the North Dakota Department of Emergency Services has a Disaster Relief Program which makes prompt loans to affected municipalities, businesses, and individuals. During the 1997 Red River flood, the BND provided disaster loans and applied a moratorium on certain loan repayments to BND from flood victims. According to former BND official Ed Sather, the State of North Dakota suffered no losses from those BND activities.

The RFC likewise had a disaster loan program. As part of its fight against the Great Depression the RFC created and operated the Disaster Loan Corporation which made over 24,900 individual loans to sufferers of natural catastrophes. According to RFC Chairman Jesse H. Jones :

“Floods, droughts, freezes, hurricanes, explosions, and storms came in all sizes and in all manner of places. To one-mule farmers in the deep south, male and female, white and black, who needed just a little money to tide them over a severe dry spell, we made loans as small as $15.”

The RFC policy was to rely on committees of local individuals in affected areas to decide how much to lend each applicant. The committees did so according to what they knew a person’s means of repayment to be, and the RFC generally followed the loan recommendations of these local committees. The majority of these loans were repaid in full. Of the $54,000,000 lent through the Disaster Loan Corporation, only $2,135,000 was charged off, and these cases were generally because the borrowers died or lost their jobs.

The History of the RFC in California

The California Aqueduct and the Oakland Bay Bridge were just two of the many Depression era projects in California that were financed by the RFC. These super projects were made possible by “self-liquidating” loans. Such loans were authorized by Congress to create jobs in cases where the project had a revenue stream capable of paying off the construction loan. Thus stimulus was accomplished without new taxes or government spending. Examples of repayment options include tolls from bridges and fees for water or power generated from a dam, aqueduct, or water treatment plant. The California aqueduct made growth in southern California possible by bringing water over 244 miles from the Colorado River to Los Angeles, San Diego and other southern California communities. The Oakland Bay Bridge constructed in the 1930’s was a great success which made commuting and transportation more efficient in the San Francisco Bay Area.

The impact of the RFC investing in California reached far beyond infrastructure projects through its subsidiary companies such as Defense Supplies Corporation and Defense Plant Corporation. Many of California’s defense plants and other industries came into being with the help of these RFC funds during World War II. Among state recipients of RFC investment, California ranked #8. California companies received $323,206,000 out of a total of almost $8 billion invested nationwide Henry J. Kaiser, the West Coast shipbuilder and industrialist, had many dealings with the RFC and used $111 million of RFC money to build a steel plant in Fontana, California. The RFC also provided the initial money to Howard Hughes and Henry Kaiser to build the largest amphibious plane to have existed in the world, the H-4 Hercules, or “Spruce Goose,” formerly kept in Long Beach, CA.


After the stock market crash of 1929, California based Bank of America underwent a hostile takeover by New York banking interests. B of A’s founder A. P Giannini was eventually able to regain control of the board in the early 1930’s, at which time the RFC made them a loan that solidified Giannini’s position. Jesse Jones described how Mr. Giannini felt about the situation with Bank of America, “he believed that eastern financial interests, and later on some men highly placed in the Roosevelt administration, had designs on his institutions.”

It was through RFC loans that Bank of America was able to expand and become one of the nation’s largest banks. At the time it was perhaps the only large bank in the country which did not have headquarters in New York and wasn’t controlled by East Coast banking interests. In a letter to RFC Chairman Jesse H. Jones written on May 25th 1944, Mr. Giannini stated:

“I heartily agree with you that this is the only country where success comparable to that achieved by the Bank of America is possible, and I want you to know Jesse, that the stockholders, myself, and the management of the institution are very much indebted to you for having arrived where we are today. Had it not been for the faith you had in us in 1938 we would, I am quite confident, have found ourselves out of this picture and a part of some other institution in control of the very fellows who today are cornering most of the important business of the country.

“You have been a most loyal and true friend, Jesse, and I want you to know that Mario and I and the other members of our managing committee will ever bear in mind your having voluntarily undertaken to sponsor us at the time we were unjustly attacked by certain governmental agencies. “

The New Bay Bridge needs a New RFC

Presently, the Oakland Bay Bridge is in the process of being replaced, but by a different scheme than the RFC model used during the 1930’s. Concerns have been raised that today’s Bay Bridge project has been mismanaged by state bureaucracies. There have been large cost overruns and the primary contractor is outsourcing fabrication work to China where safety and quality issues have been eating up state resources. All factors combined appear to have added billions of dollars to the final price tag.

In contrast to today, the RFC provided project management, conducted contract negotiations, supplied engineering oversight, and fully financed the original bay bridge up front based on the security of revenue from future bridge tolls. Presently, institutions such as BATA- Bay Area Transit Authority, the Toll Bridge Program Oversight Committee (TBPOC), Cal Trans, and the California Infrastructure and Economic Development bank are all involved in replacing this same Bay Bridge but they seem to lack synergy, central leadership, efficiency, and sufficient capital to fully accomplish such a big undertaking. After two decades the project now appears to be heading in the right direction. But in the future such losses of time and money on similar projects might be avoided by using the RFC model to accomplish projects of this scale.

Another advantage to taxpayers and end users of bridge projects like this would be a for a RFC-style state bank entity to have firm control over all the construction debt. This would empower a public entity rather than private financial corporations to set rates for bridge tolls. Jesse Jones discussed how the RFC was involved in setting the toll prices for the original Bay Bridge:

“A condition of our loan was that the toll for private automobiles should be 65 cents, and the bridge authority would not reduce it without our permission as long as we held the bonds. It began earning so well that we soon allowed a toll reduction; first I think to 50 cents, then to 35. Today the toll is 25 cents, the bridge is making money, and the traffic is so thick that plans for a second bridge across the Bay are being evolved and its location debated.”

This historical example stands in sharp contrast to the price gouging that commonly takes place today whenever public works, utilities, and related services are privatized. To this day, California has not fully recovered from the damage that Enron and other private energy companies have done to its consumers, businesses, and taxpayers following the privatizing of its state energy sector.

RFC Fueled Economic Growth and Created New Industries

Those studying the creation of a California Investment Trust can learn much from the RFC and its pro-business policies. The RFC was exemplary of numerous successful partnerships with private investors. If not for the RFC, America would not have become the industrial and manufacturing giant it once was. In the words of Jones:

“The accelerated expansion of American Industrial Capacity during the second World War was of a magnitude without precedent in all the world’s economic evolution. Much of this great accomplishment was financed by the RFC through its subsidiary, Defense Plan Corporation at the request of the War and Navy Departments, the Office of Production Management, the War Production Board, the Maritime Commission, and occasionally other government agencies. They told us what they wanted built—and, usually where and by whom. We saw to it that the plants were constructed, equipped, and in most instances, competently operated. . . .

“To stimulate production of machine tools we made advances to manufacturers against purchase orders up to 30 per cent of the delivery price. These agreements, instituted the day after Pearl Harbor, were in effect underwritings. The Machine-tool commitments ultimately aggregated almost $2,000,000,000. They provided tool manufacturers with supplementary working capital.”

With a fully capitalized Infrastructure and Economic Development Bank program modeled on the programs of the BND and RFC, California could choose not to outsource billions of dollars in bridge fabrication projects to foreign countries or to other states. Such a decision would most likely entail the state playing a role in financing a bridge fabrication plant and related industries in the northern California region. A key consideration in such a decision is the fact that there are numerous bridges in the Pacific Northwest which are past due for repair or replacement. The California Bay Bridge Project raises significant questions about whether there is unmet market need for large bridge construction in the United States. This is occurring at a time when California is experiencing the highest unemployment rate since the Great Depression. If it is just a matter of financing new industrial facilities, why shouldn’t the jobs and spending for large bridge projects benefit the businesses and workers of California?

This type of economic development would also positively impact state revenues. The RFC history shows many examples of this kind of public financing initiative creating jobs and profits for the state, which in turn lightens the load on the taxpayer. According to RFC Chairman Jesse H. Jones:

“Defense Supplies sponsored industries new to America such as the making of jewel bearings, for which this country had previously been almost completely dependent upon the craftsmanship of the Swiss.”

Another example is the financing of a tin smelter in the United States. Jones stated:

“In their swift conquest of Holland, the Germans captured, among other valuable properties, the principal tin-smelting plant of the western world. One of the many worries in Washington at that moment was the fact that there were utterly no facilities in the United States for smelting tin. And this country was the world’s largest consumer of tin.

Today the Government of the United States owns the largest tin smelter on earth, thanks in large part to the push provided by two RFC subsidiaries, Metals Reserve Company and Defense Plant Corporation. The plant, known as the Longhorn smelter, is located at Texas City, on Galveston Bay. “

The RFC also sponsored the creation of what came to be the synthetic rubber industry in the United States. The RFC’s leading role in American industry used to be widely understood and respected among other nations of the world. Jones recalls a war time letter from Great Britain’s Minister of Supply Lord Beaverbrook written to Prime Minister Winston Churchill:

“On Sunday Morning I came to an understanding with Jesse Jones about production of Rubber”…He has an understanding to give us 50,000 tons of synthetic rubber per annum”…”Do you want tin? It is a Jesse Jones Business.”

Why are Americans not being told about the practical models of the RFC and BND by their media pundits, political leaders, and academic experts in the areas of finance and economics? It seems we have collective amnesia about how the RFC created the World War II prosperity and the economic recovery from the Great Depression which helped improve the global economy. Equally troubling is why there isn’t more recognition of the present economic success stories in the state of North Dakota and the impact of its state owned bank and related financial institutions. The reality is that there are enormous pressures and incentives being brought to bear by the powerful financial lobby whose interest run contrary to the majority. They are attempting to exclude practical and proven financial reforms because it represents a threat to their interests.

The vast majority of Americans sense there is something amiss with the banks and financial pundits, and the time now seems ripe politically for the growing economic discontent of Americans to translate into effective action by their political leaders. The current national debate about jobs and debt ought to now be focused back onto banks. At present the needed financial and banking reform efforts are being blocked at the federal level. However, state and local government leaders can move forward and make change proactively on their own. California and other states simply need to use their funds to create publicly owned banks, and that is when a real economic recovery will begin.