Changing the Paradigm of Money

As I type, the Fed has just concluded a major conference at Jekyll Island … yup, THAT Jekyll Island, the one where the secret meeting was held 100 years ago that resulted in the creation of the Fed. Isn’t that cute. See the webcast from the conference if you’re curious. In case you’re not familiar with the story, here’s what Forbes magazine founder Bertie Charles Forbes had to say six years after the original Jekyll Island confab:

Picture a party of the nation’s greatest bankers stealing out of New York on a private railroad car under cover of darkness, stealthily riding hundred of miles South, embarking on a mysterious launch, sneaking onto an island deserted by all but a few servants, living there a full week under such rigid secrecy that the names of not one of them was once mentioned, lest the servants learn the identity and disclose to the world this strangest, most secret expedition in the history of American finance. I am not romancing; I am giving to the world, for the first time, the real story of how the famous Aldrich currency report, the foundation of our new currency system, was written…

The utmost secrecy was enjoined upon all. The public must not glean a hint of what was to be done. Senator Aldrich notified each one to go quietly into a private car of which the railroad had received orders to draw up on an unfrequented platform. Off the party set. New York’s ubiquitous reporters had been foiled… Nelson (Aldrich) had confided to Henry, Frank, Paul and Piatt that he was to keep them locked up at Jekyll Island, out of the rest of the world, until they had evolved and compiled a scientific currency system for the United States, the real birth of the present Federal Reserve System, the plan done on Jekyll Island in the conference with Paul, Frank and Henry… Warburg is the link that binds the Aldrich system and the present system together. He more than any one man has made the system possible as a working reality.

While the Fed congratulates itself on what it’s pulled off over these 100 years, “Scandal is spreading across Wall St like a very bad case of poison ivy. A rash of fraudulent home foreclosures has exposed some of the nation’s biggest banks to an even worse condition … bankruptcy,” as Peter White at truthout points out. Robo-signers and other widespread shirking of real-estate laws have come into full light.

“Why don’t we have Mickey Mouse sign the thing, instead of having a human being sign it? I mean it becomes meaningless,” New York Supreme Court Judge Arthur Schack told PBS “Newshour.”

Bloomberg’s Jonathan Weil postulates BofA may be reaching a tipping point:

[BofA's] stock has fallen 41 percent since April 15. Mortgage-bond investors are demanding untold billions of dollars in refunds. The foreclosure fiasco is metastasizing. A member of the Troubled Asset Relief Program’s oversight panel, AFL-CIO attorney Damon Silvers, openly worried at a hearing last week about the risk that Bank of America might need another bailout.

A new book is also out by Michael W. Hudson – The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America–and Spawned a Global Crisis — giving us yet more insight into the corruption. There sure are some stellar characters running our banks:

“I became a thief. And unfortunately, I found I was a very good thief.”
“We are all here to make as much fucking money as possible. Bottom line. Nothing else matters.”
“Anything that benefited production — that benefited me and benefited my wallet — I’d do it.”
“It’s hard to have a guilty conscience if you don’t have a conscience.”

So since it’s been 100 years since the Fed devised our current scandal-ridden money system, it seems as good a time as any to reconsider the paradigm we are holding of money and debt.

Ellen Brown weighs in that it’s time for a new theory of money. She argues, the current scheme has many “systemic flaws”:

The banks suck up cheap money and return it as more expensive money, if they return it at all. The banks control the money spigots and can deny credit to small players, who wind up defaulting on their loans, allowing the big players with access to cheap credit to buy up the underlying assets very cheaply. …

The bankers have engaged in what amounts to a massive fraud, not necessarily because they started out with criminal intent (although that cannot be ruled out), but because they have been required to in order to come up with the commodities (in this case real estate) to back their loans. It is the way our system is set up: The banks are not really creating credit and advancing it to us, counting on our future productivity to pay it off, the way they once did under the deceptive but functional façade of fractional reserve lending. Instead, they are vacuuming up our money and lending it back to us at higher rates. In the shadow banking system, they are sucking up our real estate and lending it back to our pension funds and mutual funds at compound interest. The result is a mathematically impossible pyramid scheme, which is inherently prone to systemic failure.

The flaws in the current scheme are now being exposed in the major media, and it may well be coming down. The question then is what to replace it with. What is the next logical phase in our economic evolution?

One theory suggests dropping the concept of money as a “commodity” or “thing” and instead accepting that it really functions as a “relation,” a legal agreement, a credit/debit arrangement. “Virtually all money today originates as credit, or debt, which is simply a legal agreement to pay in the future.” The solution Ellen proposes: public credit.

Credit needs to come first. We as a community can create our own credit, without having to engage in the sort of impossible pyramid scheme in which we’re always borrowing from Peter to pay Paul at compound interest. We can avoid the pitfalls of privately-issued credit with a public credit system, a system banking on the future productivity of its members, guaranteed not by “things” shuffled around furtively in a shell game vulnerable to exposure, but by the community itself. …

By turning banking into a public utility operated for the benefit of the community, the virtues of the expandable credit system of the medieval bankers can be retained, while avoiding the parasitic exploitation to which private banking schemes are prone. Profits generated by the community can be returned to the community.

We have been at the mercy of a system of money that is not serving us. It is time to see that plainly and reevaluate how it is functioning. This time the discussions need to take place out in the plain light of day, not on some remote island participants were whisked to in the middle of the night.