The Federal Reserve System - Part II

Now that I've taken the time to wake you up to some of the shocking facts about the Federal Reserve System, let's take a look at how it all started. This condensed story is all based on facts (which I will cite through my writing) and how it was created, alone, demonstrates how corrupt it was from its' inception. This blog will be in many parts so that you aren't overwhelmed with the reading...

Prior to 1913, banks were privately owned and competed against each other for business. Banks could not loan money to anyone unless they either had an equal amount in their reserves (the actual bank vault) or they were positive they could cover it. If a bank overextended itself, it would go out of business. A perfect example of this is the movie "It's a Wonderful Life". Remember how George Bailey's bank was consantly competing with Mr. Potter's bank? Well in one scene of the movie, you may recall George's uncle losing some cash and George freaking out over it, all the while Mr. Potter was trying to coax George's customers over to his bank for pennies on the dollar. Well, this was a reality. Banks could determine their own interest rates and if someone didn't like it, they could go somewhere else for a better interest rate (now, I realize that is SOMEWHAT the case today, but I'll show later how it's not really the same).

Leading up to 1913, there were a very small handful of major, or superbanks. They were owned by J.P. Morgan, The Rockefellers, the Warburg family, the Rothschield family, and the European stronghold of Kuhn, Loeb, & Company. They literally had a monopoly on the banking industry. They eventually were referred to as "The Money Trust". It wasn't until the turn of the century when smaller banks were achieving greater success at breaking into this industry. This frightened The Money Trust and John D. Rockefeller is quoted as saying, "Competition is a sin".

Therefore, in 1907, J.P. Morgan had all he could stand. He wasn't going to allow these smaller banks to break into the business. So, he publish in several newspapers and even put word of mouth on the street that one of his competitors (The Bank of New York) was running out of cash. Now keep in mind, this was a completely fabricated and false rumor he started. This caused almost exactly what you saw in "It's a Wonderful Life". The people who banked at The Bank of New York panicked and rushed to the bank to make massive withdrawls of their money. Afterall, who wants to hear that their money is gone??? This caused a domino effect and trickled over to other banks and sparked what is known today as The Great Panic of 1907. J.P. Morgan "came to the rescue" (even though he started all of this) and offered to cover the losses of the customers. Thus began, what we will discuss later, the beginning of the idea that formed the Federal Reserve System.