Welcome to our Friday mailbag edition!
Every week, we receive great questions from readers. And every Friday, I answer as many as I can.
This week, the conversation turns back to a popular Inside Wall Street topic – the Federal Reserve…
I think all the Goldman Sachs executives in the federal government are crooks. Nothing has changed. If the U.S. had an atomic attack, only cockroaches and Goldman Sachs would survive.
– David R.
Hi, David, the term “crooks” is probably too strong a word. But my former employer, Goldman Sachs, certainly serves as a feeder pool for some of the plum jobs in Washington.
It has produced more treasury secretaries than any other Wall Street bank.
It has also produced key presidential advisors, starting back in the 1930s with Franklin Delano Roosevelt (FDR).
Publicly, FDR was considered a “traitor” to the Wall Street class. But in fact, it was largely because of Wall Street money that he got elected, first as the governor of New York and then as president.
Goldman Sachs’ head, Sidney Weinberg, helped gather political donations for FDR’s campaign.
He was the first man to lead the business council that Roosevelt established. This was a liaison between Washington and the business community. Throughout the years, Weinberg advised several presidents.
There are also more recent examples.
Like former Goldman Sachs Vice Chairman Robert Rubin, who was President Bill Clinton’s treasury secretary.
And former Goldman Chairman Hank Paulson, who was President George W. Bush’s treasury secretary. (Paulson was also my boss when I worked at Goldman in the early 2000s.)
Also, former Goldman partner Steven Mnuchin, who served as President Trump’s treasury secretary.
And the Goldman senior gang wasn’t too discerning about political parties, either. It doesn’t matter whether the Goldman gang, or the presidents it served, were Democrats or Republicans.
The influence of Wall Street on Washington transcends these political party distinctions. And it has for years.
The alliances between those in power and the financial world is a topic I am fascinated by. I researched and wrote about it extensively in my 2014 book, All the Presidents’ Bankers.
I shared some excerpts from that book, specifically about the rise of the Goldman gang to political power. They show the historical power connections between Goldman and the White House, which go back almost a century.
You can read those excerpts here.
From what I have read, the Federal Reserve is actually a private bank, with the stock held by the families of the six financiers who helped create it.
The statute creating the Fed forbids the release of this information, as I understand it. Could you please confirm these items?
– James A.
Hi, James, thanks for writing in. There’s so much mystery surrounding the Fed. And there’s a lot of confusing information out there.
As you may know, since I left my career on Wall Street, I’ve written several books exposing the cozy relationships between the Fed, Washington, and Wall Street. So here’s the scoop…
According to the Federal Reserve Act of 1913, each of the 12 regional reserve banks of the Federal Reserve system is owned by its member banks.
What that means is that the banks in each region are shareholders of their own part of the Federal Reserve system.
When the Fed first started, these banks put up the capital to get and keep their respective regional reserve bank operating. In return, they received stock in their Fed.
In that way, they are shareholders of the Fed. And the Fed is organized like a private corporation.
But the Federal Reserve Board of Governors is appointed by the president and approved by Congress. So in that way, there’s a political tie to the government.
There’s nothing in the Federal Reserve Act that prohibits the Fed from disclosing the names of their shareholder banks, how many shares each owns, or how much their shares are worth.
But there’s also nothing requiring that disclosure.
When I was researching my book, All the Presidents’ Bankers, the last report I found on that was issued in 1941. It was created by the St. Louis Federal Reserve. But it isn’t available online anywhere.
I shared an excerpt from All the Presidents’ Bankers about the creation of the Federal Reserve.
It shows how wealthy Wall Street bankers pushed the White House to create America’s central bank, the Fed.
If you missed it, and for readers who have just joined us recently, here it is again.
And that’s all for this week’s mailbag… thanks to everyone who wrote in!
If I didn’t get to your question this week, look out for my response in a future Friday mailbag edition.
I do my best to respond to as many of your questions and comments as I can. Just remember, I can’t give personal investment advice.
And if there are any other topics you’d like me to write about, I’d love to hear from you. You can write me at [email protected].
In the meantime, happy investing… and have a fantastic weekend!
Regards,
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Nomi Prins
Editor, Inside Wall Street with Nomi Prins