by Ron Paul: Are
US Taxpayers Bailing OutGreece?
US House of Representatives, February 25, 2010
I would like to enter into the record the following letter from
Professor Robert D. Auerbach, a professor at the LBJ School of Public
Affairs at the University of Texas. This letter provides additional
information regarding remarks I made at yesterday’s Financial Services
Committee Humphrey-Hawkins hearing, remarks which Federal Reserve
Chairman Bernanke categorized as "bizarre."
Congressman Ron Paul for bringing these important facts to the
Congressman Ron Paul for bringing to the public’s attention the
Federal Reserve coverup of the source of the Watergate burglars’
source of funding and the defective audit by the Federal Reserve
of the bank that transferred $5.5 billion from the U.S. government
to Saddam Hussein in the 1980s. Congressman Paul directed these
comments to Federal Reserve Chairman Ben Bernanke at the House
Financial Services Hearing February 24, 2010. I question Chairman
Bernanke’s dismissive response.
"Well, Congressman, these specific allegations you’ve made
I think are absolutely bizarre, and I have absolutely no knowledge
of anything remotely like what you just described."
evidence Congressman Ron Paul mentioned is well documented in
my recent book, Deception
and Abuse at the Fed (University of Texas Press: 2008).
The head of the Federal Reserve bureaucracy should become familiar
with its dismal practices.
the Fed’s coverup of the source of the $6300 in hundred dollar
bills found on the Watergate burglars when they were arrested
at approximately 2:30 A.M. on June 17, 1972 after they had broken
into the Watergate offices of the Democratic Party. Five days
after the break-in, June 22, 2003, at a board of directors’ meeting
of officials at the Philadelphia Fed Bank, it was recorded in
the minutes [shown on page 23 of my book] that false or misleading
information had been provided to a reporter from the Washington
Post about the $6,300. Bob Woodward told me he thought he was
the Washington Post reporter who had made the phone inquiry. The
reporter “had called to verify a rumor that these bills were stolen
from this Bank” according to the Philadelphia Fed minutes. The
Philadelphia Fed Bank had informed the Board on June 20 that the
notes were “shipped from the Reserve Bank to Girard Trust Company
in Philadelphia on April 3, 1972.” The Washington Post
was incorrectly informed of “thefts but told they involved old
bills that were ready for destruction.”
Reserve under the chairmanship of Author Burns not only kept the
Fed from getting entangled in the Watergate coverup, which the
Fed’s actions had assisted, it allowed false statements about
bills the Fed knew were issued by the Philadelphia Fed Bank to
stand uncorrected. Blocking information from the Senate and House
Banking Committees [letters shown in my book, Chapter 2] and issuing
false information during a perilous government crisis imposed
huge costs on the public that had insufficient information to
hold the Fed officials accountable for what they had withheld
from the Congress. Had the deception been discovered the Fed chairmen
following Burns may have been forced to rapidly implement some
real transparency to restore the Fed’s credibility. That would
have reduced or eliminated many of the lies, deceptions, and corrupt
practices that are described in my book.
second subject brought up by Congressman Ron Paul is the exposure
of faulty examinations of the Federal Reserve of a foreign bank
in Atlanta, Georgia through which $5.5 billion was sent to Saddam
Hussein that a Federal Judge found to be part of United States
active support for Iraq in the 1980s.
9, 1993, several federal marshals brought a prisoner, Christopher
Drogoul, into my office at the Rayburn House Office Building of
the U.S. House of Representatives. The marshals removed the manacles.
Drogoul took off his jump suit and changed into a shirt, tie,
and business suit. He immediately looked like the manager of the
Atlanta agency with domestic headquarters in New York City of
Banca Nazionale. Drogoul had come to testify about "scheme
prosecutors said he masterminded that funneled $5.5 billion in
loans to Iraq’s Hussein though BNL’s Atlanta operation. Some of
the loans allegedly were used to build up Iraq’s military and
nuclear arsenals in the years preceding the first Gulf War."1
"u2018off book’ BNL-Atlanta funding to Iraq began in 1986 as
financing for products under" Department of Agriculture programs.2
The loans allegedly had been authorized by the U.S. Department
of Agriculture. Since Drogoul told the committee he was merely
a tool in an ambitious scheme by the United States, Italy, Britain
and Germany to secretly arm Iraq in their 1980—88 war, the
testimony was politically contentious and unproven. He was sentenced
in November 1993 to 37 months in prison and he had already served
20 months awaiting his sentencing hearing.
District Judge Ernest Tidwell found that the United States had
actively supported Iraq in the 1980s by providing it with government-guaranteed
loans even though it wasn’t creditworthy. The judge said such
policies "clearly facilitated criminal conduct."3
was drawn to Drogoul’s answer about the Fed examiner who had visited
his Atlanta operation. Gonzalez said that:
the November 9, 1993 Banking Committee hearing I asked Christopher
Drogoul, the convicted official of the Banca Nazionale Del
Lavoro agency branch in Atlanta, Georgia, how the Federal
Reserve Bank examiners could miss billions of dollars of illegal
loans, most of which ended up in the hands of Hussein.
of the Fed [bank examiner] was simply to confirm that the State
of Georgia audit revealed no major problems. And thus, their
audit of BNL usually consisted of a one or two-day review
of the state of Georgia’s preliminary results, followed by a cup
of espresso in the manager’s office."
was appalled at the of lack of effective examination of a little
storefront bank and also appalled by the gifts exchanged by officers
of the New York Federal Reserve and the regulated banks in New
York City where the main U.S. office of BNL was located. A description
of what followed is in my book.
The Fed voted
in 1995 to destroy the source transcripts of its policy making
committee that had been sent to National Archives and Records
Administration. Chairman Alan Greenspan had the committee vote
on this destruction, telling the members: "I am not going
to record these votes because we do not have to. There is no legal
requirement." (p. 104 in my book.) Greenspan thus removed
any fingerprints on this act of record destruction. Donald Kohn,
who is now Vice Chairman of the Board of Governors at the Federal
Reserve, answered some questions I had sent to Chairman Greenspan
about this destruction. Kohn replied in a letter on November 1,
2001 to me at the University of Texas that they had destroyed
the source records for 1994, 1995 and 1996, they did not believe
it to be illegal and there was no plan to end this practice. That
is one reason why the Federal Reserve audit supported by Congressman
Ron Paul is needed. The Fed must stop destroying its records.
is Professor of Public Affairs at the Lyndon Baines Johnson School
of Public Affairs, The University of Texas at Austin. He was an
economist with the House of Representatives Financial Services Committee
during the tenure of four Federal Reserve Chairmen: Arthur Burns,
William Miller, Paul Volcker, and Alan Greenspan. Auerbach also
served as an economist in the U.S. Treasury’s Office of Domestic
Monetary Affairs during the first year of the Ronald Reagan administration
and as a financial economist with the U.S. Federal Reserve System.
Auerbach has been a professor of economics at the American University
in Washington, D.C. (1976—83), and a professor of economics
and finance at the University of California-Riverside (1983—93).
He has written numerous articles, and two textbooks in banking and
financial markets. He received two Masters degrees in economics,
one from the University of Chicago and one from Roosevelt University,
where he studied under Abba Lerner, and a Ph.D. in economics from
the University of Chicago, where he studied under Milton Friedman.
- Marcy Gordon,
"Banker Imprisoned in BNL Case Tells Story to House Committee,"
The Associated Press, November 9, 1993.
"Former Executive of Atlanta Agency of Italian-Owned Bank
Pleads Guilty to Conspiracy," from U.S. Department of Justice,
Public Affairs, June 2, 1992.
Mantius, "Drogoul given 37 months Judge in BNL case also
blasts actions of U.S. prosecutors," The Atlanta Journal
and Constitution, December 10, 1993, Section A, p. 12.
Paul is a Republican member of Congress from Texas.