There’s been a pessimistic trend going around pertaining to the economy. High rents. High mortgages. High gas. High food. High interest rates. You get the idea. The everyday person typically points their finger at their political adversaries. This idea, however, is simplistic and goofy. They live in a fantasy world where once their political rivals take control, they’ll snap their fingers and wreck the economy in a second. This idea couldn’t be more childish and yet, this is the absurd mindset of most Americans. The economy can’t be wrecked or saved with the wave a political wand like in some fairytale. It takes time for the economy to deteriorate (or recover); years, and that’s exactly what’s happened. If you want to find the source of our current economic woes the best place to start looking is fifteen years in the past during the time of the Great Recession of 2007-08. And although there were multiple factors that led to that debacle (theirs always more than one) the main cause can be summed up in one word: scam. The big banks and insurance companies like AIG, along with their guardians in government pulled a fast one on the everyday American. But I’m getting ahead of myself. Before we can get into that we must first look to the past in order to understand the present and what’s still to come.
The Great Depression
The Great Depression was one of the most devastating events in American history. Just prior to that the United States was expanding in many sectors, one being the housing boom of the 1920’s. But not all growth is necessarily good. The construction industry had been weaking starting in 1928, the big building booms that began to transform rural America into suburbia; especially in Florida, had caused more houses to be built than could be paid for. This paralleled with the skyscraper boom which couldn’t maintain its pace of operations. The automobile and steel industries also began to slow by the late twenties. Furthermore, the increase of machine use like that of the reaper on farms, replaced many workers causing them to work in lesser paid jobs (janitorial, etc.). The economy had no choice but to expand to create jobs for displaced workers while simultaneously advancing the new tech sector. All this laid the foundation for what was to come but the leading factor was the scam. In October 1929, after fluctuating for several months the stock market collapsed causing many blue-collar workers to lose their jobs and many among the rich to commit suicide after losing their fortunes. But it was the lower-level rich like the stockbrokers and promoters. Their kind can never hold on to their fortunes for more than a generation or two anyway. The ones with the real wealth; that is, the super-rich, mostly old money families, actually prospered. According to 20th century economist Ferdinand Lundberg the scam started in 1923 when President Warren Harding made D.R. Crissinger, who didn’t know anything about large-scale finance, Governor of the Federal Reserve System. Crissinger would become manipulated by Benjiman Strong who was head of the Federal Reserve Bank of New York, the most influential of all the Feds. Strong was one of the founders of the Federal Reserve System and part of the J.P. Morgan banking cartel the biggest powerhouse in the world of finance at that time so it’s easy to see why he could be so persuasive. Strong counseled that the Federal Reserve System should buy government securities in huge volume “thus flooding the banks with liquid funds that demanded profitable release in credit channels.” The Federal Reserve Act did not permit this except only in an emergency which none existed during 1923.
Between the years 1924 and 1929, the big banks profited immensely from the $10 billion increase in loans. The increase was devoted to stock-market paper. The large banks such as, J.P. Morgan & Co., Chase National Bank, Guaranty Trust Co., and National City Bank all the way down the line to local city banks made a killing off of this speculation boom which they created. By dumping inflated securities onto an unwitting public, the major shareholders and board members of the largest corporations and their friends in government and high society, increased their wealth by a significant margin while many everyday Americans lost their entire savings. These banks and corporations convinced the public to speculate via media and the top people in Washington, D.C. Once these loans became damaged goods the speculator had already sold out and collected their profit and the loans to the broker were liquidated.
This can all seem convoluted, so let’s observe one incident pertaining to foreign bonds which turned out to be faulty. Chase National Bank wanted to float a $100,000,000 loan to Cuba, to supposedly finance the building of roads and infrastructure, which independent contractors estimated should only cost $30,000,000, and then collect the commission. This in spite of its Cuban advisor stating that conditions on the island were horrible. It’s also worth noting that, at the time, the Platt Amendment, which had been in effect since 1901 at the end of the Spanish-American War, prohibited Cuban loans.
Here’s a breakdown of what followed:
-The Cuban government blew up the price for building roads and public improvements doubling the costs to $60,000,000
-The Cuban taxpayers naturally would end up footing the bill for this scheme
-Chase got around the Platt Amendment by having the contractors take the notes given by the corrupt Cuban government and discount them at Chase
-Chase sold $40,000,000 of Cuban bonds paying off $30,000,000 of construction notes held by itself and giving itself a commission of $1,404,867.35
-The bond prospectus did not mention that 1929 Cuban revenues were less than expenditures by $7,440,000 or 10%
-or that $20,000,000 of public works certificates remained outstanding
-The prospectus was falsified to indicate that the government had a surplus
-Chase Bank had a cozy relationship with Cuban President Gerardo Machado, giving Cuba $80,000,000 and paid his son-in-law Jose Emilio Obregon y Blanco, a “commission” of $500,000
-Chase Bank and National City Bank were Machado’s main political supporters
-In 1925, Henry Catlin, a J.P. Morgan agent, put up $500,000 for his expenses while Chase Bank and the Guggenheim family (mining and smelting dynasty with associations to National City Bank) put up an equal amount for the Machado presidency
-Chase Bank lent Machado $130,000 on his personal account
-Brother-in-law of Machado was made notarial attorney for Chase in Havana at a huge salary
-The Senate Banking and Currency Committee discovered in corporate letters that Chase Bank, through its Cuban agents, was aware that Machado was assassinating all political opponents including members of parliament but still supported his family
-During part of Machado’s term Harry Guggenheim was American Ambassador at Havana
-All American Ambassadors to Cuba since 1900 up to that point had represented the Chase or National City interests
-Machado was deposed by the populace and fled with a price on his head
-The Cuban bonds would end up defaulted
And that’s pretty much how the scam worked. The big banks aren’t some obscure entities that have nothing to do with government. Many of the sketchy individuals that control the big corporations also work in government or have family in government. Therefore, they have friends in foreign governments who they financially contribute to. Everyone’s in on the joke except the honest taxpayer.
To further illustrate this let’s look at another case this time on the national level.
Here’s an example of how things went down:
J.P. Morgan & Co., controlled largely by the Morgan family, controlled Guaranty Trust Co., who had controlling interest in the various utility companies namely that of the two Cleveland real estate tycoons, Orris P. & Mantis J. Van Sweringen. The Van Sweringen brothers formed the Allegheny Corporation which through Guaranty Trust and its affiliates unleashed $160,000,000 of stocks and bonds. The Allegheny Corp. came to control over 23,000 miles of railroad trackage throughout the United States through multiple companies such as the Chesapeake, the Ohio, the Nickel Plate and the Missouri Pacific railroads.
The Senate Interstate Commerce Committee, which investigated the cause of the economic crisis, discovered that:
-Guaranty Trust underwrote $30,000,000 of Van Sweringen Corporation notes, which partly went to buy Cleveland real estate, which at the time was losing money. Moreover, its subsidiary, Cleveland Terminals Building Co. wrote up its assets as $16,000,000 net prior to the issuance of notes making the Van Sweringen Corp appear to be worth more than it was. The public would end up losing over $15,000,000 on that deal.
-The Chesapeake and Ohio Railroad, in violation of an order of the Interstate Commerce Commission in 1926 which prohibited a merger, formed the Virginia Transportation Corporation to consolidate the Van Sweringen railroads in the East
-They created a dummy option and a dummy intermediary in order to acquire the Chicago and Eastern Illinois Railroad
-The Van Sweringen falsified their books to show they had cash which they did not possess and then issued $38,000,000 of stocks for improvements but instead bought stock in other companies in violation of act of Congress
-The Chesapeake and Ohio caused the Chicago and Eastern Illinois Railroad to obtain a loan from the Reconstruction Finance Corporation (RFC) to reimburse the Chesapeake and Ohio Railroads
-Chesapeake and Ohio “entered into a fake option arrangement with Allegheny for the purpose of acquiring control of Nickel Plate and Erie without complying with the act of Congress and in the defiance of the jurisdiction of the I.C.C.”
-The Chesapeake and Ohio Railroads then used false bookkeeping entries to conceal this transaction, hiding $50,000,000 to put stocks in other companies
It is now worth pointing out the individuals who benefitted from the fraud committed by Allegheny Corporation. J.P. Morgan underwrote 3,500,000 of Allegheny common shares. At the same time market prices were held at $31-$35 per share 1,250,000 shares were secretly allotted to “insiders” at $20 each, creating a hidden pool creating a market profit of $12,750,000. Most of these shares were received by Morgan clients. Others that received it were of the upper echelons of politics. Those in government that received shares from the hidden pool were as follows:
-Charles Francis Adams, Secretary of the Navy and descendant of founding father John Adams, 1,000 shares
-William Gibbs McAdoo, former Secretary of the Treasury and California Senator, 500 shares
-President Calvin Coolidge, 3,000 shares
-John J. Raskob, chairman of the Democratic National Committee, 2,000 shares
Insiders of Wealthy families:
-Richard E. Mellon, relative of Secretary of Treasury Andrew Mellon part of Mellon family of Gulf Oil and American Aluminum empire, one of the richest in the country, 6,000 shares
-Walter C. Teagle, president of Standard Oil Company of New Jersey, 1,500 shares
-Myron C. Taylor, U.S. Steel, 10,000 shares
-Alfred P. Sloan, Jr., General Motors, 10,000 shares
This is not a complete list by any means but naming and analyzing every person in government and Wall Street that were involved in the hidden pools would be redundant. All that is needed to understand is that this was the sort of scheming conducted by all the major financial and industrial corporations. Chase, National City, etc. And many individuals in high places of the federal government were in on the action too. Much of the media was owned by the wealthy families that orchestrated the speculation boom. For example, the Du Pont family of the Du Pont de Nemours Corp. owns all the media outlets of Delaware and Southeastern Pennsylvania, and the Mellon family had the Pittsburgh newspaper industry in a vice grip. That’s how Wall Street was able to promote the reckless speculation boom of the twenties. Because entities of the media and government had a stake in the bonanza.
*Part 2 will cover the S&L scandal of the 1980’s and the Great Recession of 2007-08 and how it laid the foundation for where we are now.
Allen, Frederick Lewis, The Lords of Creation. Open Road Integrated Media, Inc, 2017.
Lundberg, Ferdinand, America’s 60 Families.
*To get a better understanding of the fraud that triggered the Great Depression of 1929 and the individuals behind the scheme read America’s 60 Families the chapter titled “Intrigue and Scandal.” For media control by the wealthy elites read the chapter “The Press of the Plutocracy.”