Poor Richards Report
Chapter 6
Revise the Federal Reserve Act of 1913
When J P Morgan was testifying before Congress he kept warning them that should pass national banking law. They kept saying “but we have you JP”.
Well in June J P Morgan died and Congress in its infinite wisdom appointed 6 house members and 6 senators to come up with a bill. The members were considered to be of the highest ethical standards of the day. The party lines were split 50 /50 in each branch and they were told not to submit a bill unless the vote was unanimous. 12-0! They had all sorts of advice from all directions including President Wilson. Finally on Dec 23, 1913 they presented the bill to Congress in the morning. They approved by voice note and the Senate had two NO votes. That afternoon President Woodrow Wilson signed it in to law and appointed JP’s right hand man at President of the Federal Reserve Bank of NY. That was the main power base because that bank cleared all international transactions. The Chairman of the Federal Reserve was just a figure head until The Eisenhower Administration.
The main composition of the law was for it to be nonpolitical. Politically free from political bickering. To insure that; it would take a 2/3 vote in the house to remove the chairman.
That is why under pressure Jimmy Carter had to appoint Paul Volcker as the Fed Chairman to his man who had sent the dollar reeling because of the oil crisis. OPEC wanted a basket of currencies because they were losing money with the dollar.
Paul Volcker killed inflation and when his term was up Donald Regan, then Secretary of the Treasury under President Ronald Reagan, advised dumping Volcker because he was a democrat. Probably one the greatest chairmen was being discarded because of political reasons. Then he had the gall to ask who would be a good replacement. That was a hit below the belt. So a mighty chairman recommended an impotent small fry –Alan Greenspan. The new Fed Chairman learned how to speak around corners and confuse most politicians in Congress and the press. They called it “Greenspeak”.
Two lessons we learn from this episode. The head of powerful Brokerage firms (now called banks) are poor candidates to advice presidents or run major agencies or hold cabinet posts. They think money and not people.
All nations should have something similar to the Federal reserve Act and make sure appointment does not occur during major election years.
Poor Richards Report
