Sovereignty—A Primer on How to Lose Your Country

“Banking was conceived in iniquity and was born in sin. Bankers own the earth; take it away from them but leave them with the power to create credit; and, with a flick of a pen, they will create enough money to buy it back again…. If you want to be slaves of bankers and pay the cost of your own slavery, then let the bankers control money and control credit.”

~ Sir Josiah Stamp (Director, Bank of England, 1928-1941)

“The often-repeated quote attributed to Stamp may well be apocryphal, but its inherent violence is all too real—and we are rapidly approaching its logical conclusion.”

~ John Titus

By John Titus

I. Introduction

The story of sovereignty in the U.S. today is that of the American Revolution in reverse.

The American Revolution represented the ouster of a tyrannical sovereign unbound by any legal constraint whatsoever, an ouster that was followed a few years later by the installation of a government where law was supreme over all—over even the top government officials themselves. The literal revolution that occurred in the colonies was that of the Rule of Law prevailing over the rule of man, which had proved itself far too abusive for far too long for there to be any other way of going about things.

That great, revolutionary order of things is today being reversed, as a self-anointed “elite”—some of whom are government officials, many of whom are not—disregards the law altogether and attempts to impose an endless array of arbitrary and capricious “rules” that seem to change with the wind. “Whatever we say, goes,” seems to be the mantra of these faceless technocrats, followed quickly by, “do as we say, not as we do.”

That reversal reached an inflection point—possibly irreversible, it is up to us—with the Troubled Assets Relief Program (TARP) bailout of 2008, when the will of 99% of people was ignored so that banks could be bailed out (and could pay bonuses, putatively in order to remain “competitive”). As ugly and dishonest as that episode was, the real trouble did not begin until President Obama’s first term began in January 2009. As the crisis subsided and the time for reckoning came, it became increasingly clear that there would be no reckoning to speak of, that neither Wall Street banks nor any of their executives would ever be prosecuted. As I will set forth below, that outcome could only have been, and indeed was in fact, the result of a coup d’état: the rule of law was jettisoned, officially, to make way for the new sovereign power in the U.S., namely, too-big-to-fail banks. And with that, the American Revolution was pretty much reversed.

But just as with the decade-long period in between the American Revolution (when a new sovereign was installed in the form of the Rule of Law) and the signing of the U.S. constitution (spelling out how the new order of things was to go under the new sovereign), so, too, has there been a stretch of time now when the new order of things is being sorted out; we are still in that period, though it is getting late.

Because we are watching the usurpation of sovereign power, more or less in real time, this essay examines the historical record in order to ascertain exactly which sovereign powers have been filched so as to enable the great reversal, or “reset,” that is taking place. It is hoped that this study in raw sovereign power might be useful in preventing the untrammeled exercise of power by people who are, at their very best, up to no good—before it is too late.

II. Sovereignty: Extrinsic, Intrinsic, and Personal

A. Introduction

The word “sovereignty” is likely to invoke one of three different concepts, even if we do not consciously appreciate the distinctions among them. 

First, there is extrinsic sovereignty. Extrinsic sovereignty concerns the relationship between two or more nation-states and the proper boundaries between nation-states, both territorial and legal.

Russia—or at least the mainstream media’s coverage of Russia—illustrates both the territorial and legal boundaries of extrinsic sovereignty. Russia’s invasion of the Ukraine presents an example of territorial sovereignty, in particular the right of the Ukraine to exclusive possession and security within her border. Contrast that with media accounts of Russia’s alleged (or imagined) interference in the 2016 U.S. election, which presents an example of a breach of legal boundaries, in particular the sovereign right of the U.S. to conduct elections. In both cases, extrinsic sovereignty concerns a country’s relationship or conflict with one or more other countries.

On this score, the transformation of the American colonies into a full-fledged nation was massively influenced by universally recognized notions of extrinsic sovereignty. As British colonies, “America” was off-limits to potential allies such as France and Spain due to notions of extrinsic sovereignty that remain very much in place even today.

The second sense of what sovereignty means is intrinsic sovereignty. Intrinsic sovereignty concerns not only the relationship between the sovereign power of a country and her inhabitants, but also how sovereign powers themselves are delegated and used within a government in which sovereign power is less than absolute.

In medieval times, sovereigns wielded more or less unlimited power over inhabitants within their fiefdoms, with little input—certainly without elections—from those inhabitants. Those two features of the medieval age—no elections and absolute power of sovereigns over “their” subjects—are obviously closely related.

During the Enlightenment, political philosophers like Thomas Hobbes and John Locke began chipping away at the notion of absolute power by advancing models of sovereignty that imposed limits on the sovereign himself. Notions like the consent of the governed and the Rule of Law became widespread and took on huge significance among educated people, who didn’t take kindly to what they saw as outright abuses of sovereign power.

Indeed, during this period the very notion of who should wield sovereign power was altered forever. Again, the American colonies supply an example: the colonists “threw off” King George III (a man) with the Declaration of Independence in 1776, and eleven years later the U.S. Constitution formally installed “We the People” as the official sovereign of the nation, which was bound under a system of laws to which the people freely consented.

Finally the word “sovereignty” may invoke the notion of personal sovereignty. History again acts as guide. The most salient example of the lack of personal sovereignty is slavery. Slaves had no rights of self-determination. Legally they were chattels, and indeed for purposes of taxation, slaves were treated by the U.S. as three-fifths of a citizen. 

Importantly, the institution of slavery didn’t end with the ratification of the U.S. Constitution but rather extended for almost another century. Crucial in bringing slavery to its end was the Rule of Law—the notion that if no one was beneath the law’s protection, then slavery had no place. The Rule of Law was inextricably bound up in both the Constitution and the Declaration of Independence, where the principle of the Rule of Law is much closer to the surface. “Who are you,” the document asks rhetorically of the king, “to abuse us by feigning superiority to the law itself in your abuse of us?”

Thus, the issue of personal sovereignty, to the extent it has begun to percolate to the surface with the relentless drive for mandatory vaccinations, hints at fundamental abuses of power that overlap to a great degree with the intrinsic sovereignty of a nation. As such, individual sovereignty will not be treated separately below; the issue is raised here as a red flag concerning the times in which we live. 

B. Extrinsic Sovereignty

The notion of extrinsic sovereignty involves the relationship between two or more nation-states. It tends to make the news when those relations go awry. Recent events involving territorial sovereignty in the Ukraine supply ready examples.

From the point of view of NATO, Russia’s invasion of the Ukraine is a straightforward breach of the latter’s physical borders. As such, it violates internationally recognized norms of “sovereignty,” in particular about the sanctity of a nation’s borders. From the point of view of Russia, NATO’s activities in the Ukraine, including the installation of some two dozen biological “research” (read: warfare) labs, posed an existential threat to Russia that required the removal of NATO-installed forces within that country’s borders.

Extrinsic sovereignty is not limited to territory, however.

The aftermath of the U.S. election in 2016—at least the story of that election as imagined by members of the media once the surprise outcome became official and defied nearly all their predictions—provides an example of extrinsic sovereignty involving the breach not of territorial but of legal boundaries. The media endlessly repeated allegations that Russia had interfered in the election in a way that helped Donald Trump and hurt Hillary Clinton; indeed, the claim was made that but for Russia’s alleged interference, Hillary Clinton would have won the election and become the first-ever female president.

These latter allegations about Russian election interference concern breaches of law, not of physical territory. Russia was (and is to this day) said to have improperly funneled money into the political coffers of Donald Trump, as well as to have improperly interfered with U.S. affairs by posting pro-Trump and anti-Hillary messages on (heaven forfend) FaceBook and other social media sites. Neither the alleged supply of money nor the alleged social media interference involved any territorial invasion; rather, these claims go to legally improper meddling with the sovereign right of the U.S. to conduct elections.

In both cases of extrinsic sovereignty, had any of the allegations ever been backed up with any forensic or physical evidence, it would indeed be true that Russia had violated U.S. sovereignty as alleged. Our point here is merely that the affair is an example of sovereignty. But where do our notions of extrinsic sovereignty come from?

Definition and Scope of Extrinsic Sovereignty

Modern notions of extrinsic sovereignty date back to and arise from the Peace Treaty of Westphalia. The two principal notions of Westphalian sovereignty are now so widely accepted that they are completely non-controversial: (1) each country is absolutely sovereign (that is, supreme) within her territorial boundaries, irrespective of the form the sovereign of the country takes; and (2) other countries should not meddle in or interfere with a country’s internal or domestic affairs.

The part of the definition of sovereignty from Black’s Law Dictionary emphasized below captures the essence of Westphalian sovereignty:

The possession of sovereign power; supreme political authority; paramount control of the constitution and frame of government and its administration; the self-sufficient source of political power, from which all specific political powers are derived; the international independence of a state, combined with the right and power of regulating its internal affairs without foreign dictation; also a political society, or state, which is sovereign and independent [emphasis added].1

Notice what is absent from the scope of Westphalian sovereignty: freedom from interference in its internal affairs by non-state entities like global corporations or organizations.

The omission can be dealt with, at least in part, by notions of intrinsic sovereignty. In particular the intrinsic sovereign power of a country to punish lawbreakers and criminals could presumably act as a check on non-state global intermeddlers—but only if those actors are within the borders of the nation so victimized (or otherwise legally reachable by, say, treaty).

The materiality of this lack of coverage by Westphalian sovereignty will become apparent in the next section.

Role of Extrinsic Sovereignty in American Revolution

Antagonism between the American colonies and the Crown festered for decades before really ramping up throughout the 1760s and coming to a boil during the 1770s. Yet as much as a growing percentage of colonists wanted to rebel against the Crown or even break free, their status as mere Colonies of Great Britain hobbled any such efforts due to the international acceptance of Westphalian sovereignty principles. Other nations, in particular France and Spain, simply were not willing to meddle with what boiled down to a purely domestic affair of the Crown: regardless of whether the colonial dispute was labeled a rebellion or a civil war, either way it was purely internal to Great Britain.

There was simply no way for the colonists to get the reforms they wanted from the Crown—at least not as colonists. They had tried to get what they wanted by getting the Crown to grant their many petitions. This much is clear from the long recitation of grievances in the Declaration of Independence; the grievances appear in the Declaration precisely because every single one of the corresponding petitions had been denied.

And there was no way for the colonists to get what they wanted by force since any rebellion would be crushed. As a group, the colonists were a collection of farmers up against the most powerful empire in the world. At best, the colonists were a weak militia, with no navy and precious little gunpowder not already dedicated to feeding themselves.

What the colonists needed was allies like Spain and France. But as a collection of British colonies America lacked the standing needed to enter into treaties that could shore up the colonies’ critical shortcomings as a power that could take on the Crown militarily. And again, Spain and France were precluded by the principles of Westphalian sovereignty from meddling in Great Britain’s affairs.

However, what the colonists lacked in arms, supplies, and money, they made up for in political (and legal) innovation. As one account of the Revolution has it:

In January 1776, political theorist Thomas Paine made explicit the connection between a written declaration of independence and a potential military alliance in his smash bestseller, Common Sense. “Every thing that is right or natural pleads for separation,” he implored. “‘TIS TIME TO PART”. Neither France nor Spain would be willing to help out British subjects, he warned. “The custom of all courts is against us, and will be so, until, by an independence, we take rank with other nations.”

* * *

The very idea of a document to formally declare independence was unprecedented; no previous nation which had rebelled against its mother country, as the Dutch Republic did against Spain over a century earlier, needed to announce its intentions in written form.2

Thus, while the Declaration of Independence was, first and foremost, documentary evidence of America’s new sovereignty, it was also a plea for help made by one country, however fledgling, to two potential allies of equal legal stature. Indeed, no sooner had the ink dried on the Declaration than did Congress “place[] copies aboard a fast ship bound for France, with instructions for Silas Deane, the American envoy in Paris, to ‘immediately communicate the piece to the Court of France, and send copies of it to the [Court of Spain]’.”3

C. Intrinsic Sovereignty

Intrinsic sovereignty refers to the state of governance within a country and is the form of sovereignty likely to come to mind first when sovereignty is brought up. Dictionary definitions of sovereignty generally concern intrinsic sovereignty, and a literal reading of them hints at issues that arise with intrinsic sovereignty.

Again, here is the definition of sovereignty from Black’s Law Dictionary, but this time with emphasis on that part of the definition relating to intrinsic sovereignty:

The possession of sovereign power; supreme political authority; paramount control of the constitution and frame of government and its administration; the self-sufficient source of political power, from which all specific political powers are derived; the international independence of a state, combined with the right and power of regulating its internal affairs without foreign dictation; also a political society, or state, which is sovereign and independent [emphasis added].1

“Supreme political authority” and “paramount control” are the language of would-be tyrants, which thus hang like a Sword of Damocles even over constitutional governments, which must perforce be implemented by human hands.

Historically, of course, that very issue was particularly acute since the sovereign power of nearly all countries took human form, such as a king. It is not surprising, then, to observe the progressive whittling back of powers that were viewed as within the proper ambit of sovereign power.

Definition and Scope of Intrinsic Sovereignty

For early English thinkers like Thomas Hobbes (1588–1689), living as they did in a monarchy, it is not surprising that the concept of sovereignty within a country or region began with a single person whose supreme power over everyone else was basically unlimited; the law was for all intents and purposes whatever the sovereign said it was.

For the society under a single human sovereign free from restraint or limitation, this created obvious dangers that begged for any number of remedies.

Limited Powers of a Sovereign—American and British Versions

Roughly fifty years after Hobbes, John Locke (1632–1704) began to seriously whittle away at the model of a sovereign with absolute power. While both Hobbes and Locke were highly influential on the colonists, it was Locke whose writing undisputedly resonated most strongly. In Locke’s writings we find any number of notions that gained a permanent foothold in the U.S. Constitution:

  • First, that a government and not a person should be the sovereign.
  • Second, that the government’s legitimacy hinged on the consent of the governed.
  • Third, that strict limits should be placed on the sovereign government.
  • Fourth, that sovereign powers should be dispersed among different areas controlled by a constitution.
  • Last, and most radically, that the sovereign government itself should be held accountable for acting in a manner that violated the consent of the governed generally, and in particular, for violating an individual’s rights.

This latter theory of Locke’s—that of denying (or sharply limiting) the legal protections of sovereign immunity to the rulers themselves—is one that would resonate literally for centuries in the United States, rearing its head in the Constitution (impeachment provisions), throughout the Watergate episode, and even in the wake of the global financial crisis, as we shall see.

Both Britain and the U.S. Constitution (1787) reflect Locke’s teaching to varying degrees, but with crucial differences.

On the one hand, Britain, following the English Civil War (1642–1651) and the glorious revolution, had, in 1689 with the Bill of Rights, dispersed sovereign powers in accordance with Locke’s fourth provision. At that point, Parliament was vested with several important sovereign powers, including taxation, oversight authority for elections, and most importantly, statute-making (with no veto power available to the Crown). 

On the other hand, though, members of Parliament (MPs) and Lords alike were legally protected by parliamentary privilege. On that score, executive power in Britain remained with the monarch even after the Bill of Rights. And the monarch’s immunity from the law was essentially absolute.

The best expression of Britain’s legal version of sovereign immunity is found in William Blackstone’s four-volume Commentaries on the Laws of England (1765), which summarized the totality of English law at the time and was the first legal treatise ever written. In volume 2, chapter 17, Blackstone states:

That the king can do no wrong, is a necessary and fundamental principle of the English constitution; meaning only, as has formerly been observed, that, in the first place, whatever may be amiss in the conduct of public affairs is not chargeable personally to the king; nor is he, but his ministers, accountable for it to the people: and secondly, that the prerogative of the crown extends not to do any injury; for, being created for the benefit of the people, it cannot be exerted  to their prejudice.

In other words, the Crown was created for “you people,” so if anyone has a beef with the kingdom, he can take it up with the king’s ministers, because the king himself can do no wrong as a matter of law. Blackstone goes on to offer up a host of alternative villains available to step into the king’s shoes whenever the need for royal legal deflection might arise, the ersatz bogeymen having names like “misinformation” and “inadvertence”—all notable for the lack of any human party to whom liability could be attached.

Nevertheless, with the advent of free elections, Britain had adopted largely the same model of popular sovereignty that was to find expression in the U.S. Constitution. There were major differences, of course; for instance, the American power of the judiciary to not only interpret the laws but order both the legislature and the executive to enforce those laws has no equivalent in English law.

But for our purposes, the biggest difference pertains to sovereign immunity concerning the executive. While the Constitution left open the question of whether a sitting president could be sued or indicted, it essentially declared open season in other respects. Not only could a president be impeached while in office, but the Federalist papers had made it clear that once a president’s term ended, he could be indicted for crimes committed while he was seated in the White House. Moreover, as the Supreme Court made clear during Watergate, the president could be investigated for crimes while he held office.4

The Rule of Law

While the phrase “the rule of law” wouldn’t really take hold until the 19th century (with the 1885 publication of Introduction to the Study of the Law of the Constitution by British jurist A.V. Dicey, who also had much to say about sovereignty), and while the principle itself dates back to, and is reflected in, the Magna Carta (1215), it was really the American colonists who cemented the principle of the Rule of Law, over and above the teachings of John Locke, as they grappled with creating the U.S. Constitution.

The tightest summary of what the Rule of Law is appears in the constitution of Massachusetts, written in 1779 by John Adams:

In the government of the Commonwealth of Massachusetts, the legislative, executive, and judicial power shall be placed in separate departments, to the end that it might be a government of laws, and not of men [emphasis added].

There is tremendous economy in Adams’ formulation of the Rule of Law in two distinct and crucial respects.

First, when it comes to a country’s governance, there are only two items on the menu: either you can be ruled by men, or you can be ruled by law; there is no third option.

Second, if you choose to be a government of laws, that means no one is above the law; someone occupying a position above the law (say, for example, a king who “can do no wrong” as a matter of  law) in a nation of laws represents an internal inconsistency and is really just the rule of man in disguise.

That Adams would formulate the phrase in 1779—just three years after the Declaration of Independence—is no accident. The Declaration is replete with petitions to both Parliament (many made by the colonies’ able ambassador, Ben Franklin) and King George III alike that had been denied; the colonists’ frustration crackles just beneath the surface of the entire document. Adams’ “government of laws, not of men” signals that in the U.S., appeals and petitions would be made not to any supreme ruler, but to principles of law, which reigns over all men.

For the Rule of Law to be truly effective, however, there are a handful of logical provisions that must obtain:

  • The law must be supreme over not only all men, but over the government as well.
  • The law must be clear and embodied in documentary form so there is no question as to its provisions or their scope.
  • The law must be publicized and applied equally so that the playing field is even.
  • The equal application of law extends not just across people, but time; legal precedent is crucial; the same fact pattern should produce the same result regardless of who is involved, or when.
  • Citizens must consent to the law, which in turn must guarantee their fundamental rights.
  • Laws not made in accordance with these provisions are void.

These principles of the Rule of Law run throughout the U.S. Constitution, which also provides for the administration of government and is the ultimate source document for all U.S. law.

The Role of Intrinsic Sovereignty in the Run-up to the American Revolution

In reality, intrinsic sovereignty (or self-governance) was the entire grist of the American Revolution. The Crown of Great Britain was sovereign within the American colonies, not the colonies themselves, despite their needs and demonstrated abilities for self-governance. While the state assemblies routinely passed and enforced their own laws, they did so at the indulgence of Great Britain. Whenever there was any conflict between colonial laws and practices, on the one hand, and the laws of the mother country, on the other, the Crown did not hesitate to dispatch enforcers to impose her will and suppress that of the colonies. This was a source of great conflict between the colonies and the Crown.

Though it took many decades, this conflict escalated to a flash point long after a great number of colonists had come to deeply resent the stream of abuses that had its provenance in overseas authority. It’s difficult to find a more succinct summary of the overarching conflict than that in the Declaration of Independence itself: “whenever any Form of Government becomes destructive of these Ends [Life, Liberty and the pursuit of Happiness], it is the Right of the People to alter or to abolish it, and to institute new Government.”

A significant majority of the 27 complaints recited in the Declaration fall into one of two categories: legislative and executive.

Complaints of Legislative Abuses

Fully the first six grievances in the Declaration are directed at the king’s interference with the colonies’ efforts at law-making (thereby anticipating the Constitution’s provisions for law-making in Article 1 eleven years later). The following bullet points are direct quotes:

He has refused his Assent to Laws, the most wholesome and necessary for the public Good.

He has forbidden his Governors to pass Laws of immediate and pressing Importance, unless suspended in their Operation till his Assent should be obtained; and when so suspended, he has utterly neglected to attend to them.

He has refused to pass other Laws for the Accommodation of large Districts of People, unless those People would relinquish the Right of Representation in the Legislature, a Right inestimable to them, and formidable to Tyrants only.

He has called together Legislative Bodies at Places unusual, uncomfortable, and distant from the Depository of their public Records, for the sole Purpose of fatiguing them into Compliance with his Measures.

He has dissolved Representative Houses repeatedly, for opposing with manly Firmness his Invasions on the Rights of the People.

He has refused for a long Time, after such Dissolutions, to cause others to be elected; whereby the Legislative Powers, incapable of Annihilation, have returned to the People at large for their exercise; the State remaining in the mean time exposed to all the Dangers of Invasion from without, and Convulsions within.

The Declaration then lists a series of complaints about judicial matters and law enforcement before circling back and adding two more legislative abuses:

For taking away our Charters, abolishing our most valuable Laws, and altering  fundamentally the Forms of our Governments

For suspending our own Legislatures, and declaring themselves invested with Power to legislate for us in all Cases whatsoever

It is notable that the first three grievances all complain of the king’s refusal to assent or otherwise agree to laws passed by the colonies. The Declaration is silent with respect to particulars about the would-be laws involved; it was a generalized complaint, after all.

The Role of Healthy Fear

One of the best presentations on the Rule of Law, in this author’s opinion, was given by Glenn Greenwald at Yale Law School in 2013. The first 30 minutes, in particular, are outstanding. At the 28:15 mark of the video, Greenwald makes a crucial observation as to what breathes life into the Rule of Law as a practical reality, namely, fear. His words are worth considering in view of the current crop of leaders, both in and out of government, and our own interactions with them.

In a free and healthily functioning political culture, people who wield power do so with great fear of the consequences of what will happen if they abuse that power. They fear the people over whom they’re exercising that power. The fear they have of abusing their power might be legal—they fear that they’re gonna be investigated or prosecuted. It might be reputational—that they’ll perceive or fear that they will live in disgrace and shame if they abuse their power. It may be physical—that they fear that they will be attacked or even killed. But some necessary, healthy fear has to reside in the heart of those who wield power about the consequences of what will happen if they abuse power in order for our society to be free.

And in a tyrannical society, the exact opposite framework happens, which is that those over whom power is wielded fear their government, fear the people who are the most powerful factions in the society because they know that that power can be exercised without constraint. And I think that latter dynamic is the one that now prevails when the American citizenry thinks about how they relate to their government and to those who are most powerful in the society. It’s a climate of fear that has been cultivated and sustained by virtue of powerful factions being able to operate without constraints [emphasis added].

Monetary Authority as Part of Sovereign Power

Alexander Del Mar, the prolific 19th-century monetary historian and the first head of the Bureau of Statistics, explains at great length and over many papers and in many books that the root of the colonies’ troubles with the Crown boiled down to money. Del Mar contends that most American colonists were actually not in favor of breaking off from Great Britain, arguing that they merely wanted to keep their own monetary system separate from that of the Crown. No matter how heartfelt such leanings may have been, however, they are legally inconsistent, as monetary authority is an inherent part of sovereign power (and a jealously guarded part, at that).

To understand the grist of the controversy between Great Britain and the colonies, though, requires a bit of background.

The official monetary system of Great Britain (ignoring for the time being the paper currencies issued by various colonies) had a major tendency to create depressions within the colonies, according to Del Mar: “the Mercantile system of Great Britain… encouraged the import and discouraged the export of the precious metals from England. Therefore, unless the North American colonies could produce these metals from their own soil, which happily for posterity they could not, they had to be contented with such money as the Crown chose to provide them with.”5

To comprehend why precious metals had a tendency to be hoovered up from the colonies into London, it helps to understand that Great Britain had unleashed a debt-based monetary system on steroids in 1704, which basically allowed British banks to write IOUs (bills of exchange) that circulated as money. That year, Parliament passed the Promissory Notes Act of 1704, which allowed for the negotiability of debt; bank IOUs, which had previously been enforceable only as between the issuer and the recipient, became freely tradable.6

For example, if Grimsley were in possession of a £10 note issued by Bank A, which had issued the note to Lloyd, Grimsley could go to Bank A, at least once the 1704 Act was passed, and demand gold in the amount of £10. Before the Promissory Notes Act of 1704, courts would not necessarily enforce an IOU issued to one party as against another party; such courts considered a debt as a private matter between two parties and only enforceable as such. Enforcement of third-party debts like that was not uniform. Thus, in our example, Lloyd’s IOU from Bank A would not be worth anything to Grimsley under that view of the law. 

The Promissory Notes Act of 1704 ended all that by providing for the third-party enforcement of IOUs issued by banks. Additionally, and as a matter of practice, banks began honoring not only their own IOUs (no matter which of their customers held them) but also honored IOUs issued by other banks. This was because, first, by honoring one another’s IOUs, the banking fraternity as a whole stood to become very wealthy by way of an ever-increasing money supply in which the fraternity itself would become the main supplier. Second, any imbalance of IOUs as between two banks could be settled at some predetermined time later, in gold.  

Not surprisingly, the supply of bank-money IOUs exploded in the early 1700s, which would have pulled up the demand for precious metals to settle debt-money IOU transactions right along as well.

The story across the Atlantic, however, was fundamentally different.

For their part, the colonies had no private banks at all, and thus no institutions to issue IOU money in the first place. Indeed, the first private bank in America wouldn’t appear until 1781, and even then only in the form of a central bank, namely, the Bank of North America.7

By 1750, Del Mar relates, the colonies experienced a huge “Contraction” [of Crown-sanctioned money, i.e., a depression]. Consequently, the colonies—unable to mine gold themselves—tried improvising their way around the lack of gold with an impressive array of alternatives ranging from silver to pine cone money. But far and away the most popular alternative currencies (which were issued individually by the colonies) were paper notes and bills of credit. Massachusetts had been the first to issue a paper currency in 1690.

In short, the decades leading up to the American Revolution featured two very different forms of money in the colonies: private debt-money issued by banks (having been implicitly licensed by the Crown to exercise its sovereign monetary privilege) and public money issued by individual colonies (which legally represented a usurpation of British sovereign authority).

In the ongoing monetary tug of war, the Crown had again and again suppressed colonial moneys, and to be clear it was doing so on behalf of London bankers:

But the narrow-minded and selfish London merchants and bankers, who influenced the government at this period, would not permit the colonies to have their own monetary system; they must accept such “national” coins as the London merchants chose to lend them; as though there was anything “national” about coins which were manufactured at their own (the merchants’) private behest and could be withdrawn, melted or exported at their own pleasure. Accordingly orders were sent to America to put down the Colonial money and enforce the falsely-named “national,” but really private money.8

According to Del Mar, the final straw for the colonists in the ongoing battle of currencies was the Stamp Act of 1774, “which required a stamp to be placed upon every instrument of commerce, and thus threatened to suppress or defeat the restoration of the paper money system which was at that time being sought, [and] the bitterness of the Colonists grew to phrenzy….”9

The opening move in what was to become the Revolutionary War was the response by the colonies to the Stamp Act:

Almost the first act of the Massachusetts and the Continental revolutionary assemblies was the emission of paper money in the teeth of the Royal prerogative, and this was done while yet the Colonies had no fixed determination of separating from the mother country. Indeed, barring Lexington and Concord, which were mere skirmishes to protect some trumpery stores, the emission of paper money was the first act of open resistance and defiance which the American Colonies offered to the Crown.10

At that point, Del Mar tells us, there was no turning back:

But, although the Colonies were as yet uncertain of their course with respect to separation, there was no uncertainty with regard to their monetary system. This they had determined should be independent of the Crown and this determination they had expressed in overt acts that had long marked them as disaffected rebels and were now to mark them as outlaws. 

Lexington and Concord were trivial acts of resistance which chiefly concerned those who took part in them and which might have been forgiven; but the creation and circulation of bills of credit by revolutionary assemblies in Massachusetts and Philadelphia, were the acts of a whole people and coming as they did upon the heels of the strenuous efforts made by the Crown to suppress paper money in America, they constituted acts of defiance so contemptuous and insulting to the Crown that forgiveness was thereafter impossible. 

After these acts there was but one course for the Crown to pursue and that was, if possible, to suppress and punish these acts of rebellion. There was but one course for the Colonies; to stand by their monetary system. Thus the bills of credit of this era, which ignorance and prejudice have attempted to belittle into the mere instruments of a reckless financial policy, were really the standards of the revolution. They were more than this: they were the Revolution itself!11

Complaints of Executive Abuses

The Declaration complains of three separate abuses involving the military, for example, “quartering large Bodies of Armed Troops among us.” That’s not too surprising given popular accounts of the American Revolution, in which ostentatious redcoats parade around in town squares like they own the place, to great tut-tutting followed up with teachings about the constitution’s limitations on the military.

The far more common colonial complaint about executive power in the Declaration, though, is of outright crime by the Crown. On this score, it isn’t so much abuses by an otherwise lawfully authorized power like the military that feeds the drive for separation, it is the outright criminality of the sovereign power itself. The king obviously saw himself as occupying a legal space above the law itself.

In the following list, only the last five items appear consecutively in the Declaration. The king’s crimes listed here may be thought of as the colonists’ answer to Blackstone’s legal pronouncement that “the king can do no wrong.” They likewise reinforce the Lockean notion that the sovereign himself should be held to account:

  • For protecting them [armed troops], by a mock Trial, from Punishment for any Murders which they should commit on the Inhabitants of these States:
  • For transporting us beyond Seas to be tried for pretended Offences:
  • He has abdicated Government here, by declaring us out of his Protection and waging War against us.
  • He has plundered our Seas, ravaged our Coasts, burnt our Towns, and destroyed the Lives of our People.
  • He is, at this Time, transporting large Armies of foreign Mercenaries to compleat the Works of Death, Desolation, and Tyranny, already begun with circumstances of Cruelty and Perfidy, scarcely paralleled in the most barbarous Ages, and totally unworthy the Head of a civilized Nation.
  • He has constrained our fellow Citizens taken Captive on the high Seas to bear Arms against their Country, to become the Executioners of their Friends and Brethren, or to fall themselves by their Hands.
  • He has excited domestic Insurrections amongst us, and has endeavoured to bring on the Inhabitants of our Frontiers, the merciless Indian Savages, whose known Rule of Warfare, is an undistinguished Destruction, of all Ages, Sexes and Conditions.

III. Sovereign Powers of a Nation

A. Introduction

There are any number of powers that a sovereign may wield. The U.S. Constitution recites a whole host of such powers, for example, taxation.

The history of the United States, however, has revealed that two sovereign powers in particular, unlike the others, are absolutely essential to the country’s sovereignty, namely, the power to coin and the power to enforce laws. These two sovereign powers are briefly described here (in Section III) before their critical importance to national sovereignty is set forth and shown in subsequent sections.

B. General List of Sovereign Powers

The U.S. Constitution reflects any number of sovereign powers, which are distributed among three branches of government. The Constitution, however, places limits on governmental power. That fact alone signals the unequivocal rejection by the founding fathers of any Hobbesian notion of a sovereign having absolute power over his subjects.

But the founders take matters a step further. Rather than merely recite various constitutional limits that cut back on the power of a sovereign government, they instead start from the supposition that, since all men are free and equal, the sovereign government possesses only those powers that are specifically called out and allocated to the sovereign. If a power isn’t thus at least generally allocated by the Constitution, then the sovereign government simply does not possess that power.

This conflicts with the erroneous notion—sadly prevalent to this day—that the Constitution is a source of positive rights of the people. Under this model of the Constitution, we the people have the right to free speech and free assembly because the First Amendment granted us that right.

That concept of the Constitution has things exactly backwards. The truth is that “we the people” (the first three words in the Constitution) are the sovereign, and our government has only those powers that are consented to and granted to it by us. The First Amendment, to elaborate on the previous example, doesn’t give us any rights at all; instead, it stakes out a bit of territory where the sovereign government may not trespass now and may never trespass, absent an express amendment to the Constitution (which, of course, the Constitution makes exceedingly difficult).

By way of that background, the Constitution makes reference to at least the following sovereign powers:

  • Passing laws
  • Conducting elections
  • Punishing and expelling members of Congress
  • Providing for the common defense
  • Entering into treaties with other nations
  • Raising revenue
  • Collecting taxes, duties, imposts, and excises (so long as uniform)
  • Paying debts
  • Borrowing money on the credit of the U.S.
  • Regulating commerce with other nations, with Indian tribes, and between states
  • Establishing uniform laws throughout the U.S. regarding bankruptcies and naturalization 
  • Resolving disputes between citizens and states alike
  • Coining and regulating money
  • Punishing counterfeiters
  • Establishing a post office
  • Establishing standards for weights and measures
  • Issuing credit
  • Declaring and waging wars
  • Raising armies
  • Calling forth the militia
  • Commanding the Army and Navy as well as militia
  • Granting reprieves and pardons for offense against the U.S. (excepting impeachments)
  • Executing the laws
  • Resolving cases and controversies
  • Conducting jury trials of all crimes except impeachment

C. The Two Most Crucial Powers of Sovereignty

There are two powers above all others that a sovereign must retain for itself by law if it wishes to remain sovereign in fact: money issuance and law enforcement. Indeed, and along these lines, there has been an historical debate, loosely speaking, over the most important power that a sovereign can have. Generally speaking it comes down to two powers: money and force.

For Machiavelli, the most important sovereign power was simply raw force (“steel”). In Art of War (1520), he writes:

Men, steel, money, and bread, are the sinews of war; but of these four, the first two are more necessary, for men and steel find money and bread, but money and bread do not find men and steel.

Three centuries later, however, Thomas Jefferson took essentially the opposite position:

Banking establishments are more dangerous than standing armies.12

Notably, the period between Machiavelli and Jefferson was one of tremendous changes, including the establishment of private banks of issue—both retail banks and central banks. The first central bank in the world was the Bank of Amsterdam, established in 1609, though it was not technically a bank of issue (meaning it trucked in precious metals and did not issue its own credit).13 The first central bank of issue in the world was the Bank of England, established in 1694.14

The Bank of England was allowed by law to issue bank notes utterly without restraint:

The Bank was allowed to create bank notes in an amount equal to the money it lent the Government. This is another way of saying it could use government debt as its reserves or collateral. For example: the Crown wants a loan from the Bank; the Bank has no money of its own, but creates money for the loan out of thin air, based on the reserve asset of the Crown’s resulting debt to it.15

Given the unfettered ability to issue money, it is perhaps not surprising that the Bank of England had to suspend note issuance in 1696, just two years after its founding.16

In any event, there is little question that the dual powers of money-creation and force are of paramount importance to any sovereign government. As one author has it: “Whoever controls the issuance and first use of money, as well as the main pathways of its allocation, is in possession of the most powerful instrument of societal control other than command power based on the legal authority to issue directives backed by force.”17

But there is more to money creation and force than simply as a pair of contestants clocking in as winner and runner-up in a sovereign beauty contest, and it is a mistake to view the pair as separate or freely divisible. Instead the relationship should be thought of as one of mutualism, with money creation enabling the establishment of force, which in turn protects the institution of money creation.

The experience of the colonies throughout the Revolutionary War bears out this observation. 

The recent and rapid descent of the U.S. into lawlessness likewise speaks to the essential nature of money issuance and law enforcement, as we shall see later. We next turn to money creation and law enforcement separately.

Money Issuance (Creation)

The rapid depreciation of the colonial Continental—the paper currency issued during the Revolutionary War—is often cited, almost reflexively, as an example of the perils of fiat money. And indeed, at first blush that line of thinking seems to be borne out by the historical record—at least the depreciation part:

In March 1778, after three years of war, it was $2.01 Continental for $1 of coinage. At the end of 1778 the Continentals retained from 1/5 to 1/7 of their value against coinage. At the end of 1779, they retained only 1/25 of their value against coinage (4%). By May 1780, the currency stood at 1/75 and coinage in Massachusetts and 1/120 in Pennsylvania. Still it continued. This massive British counterfeiting of the Continentals is ignored by the advocates of private money or commodity money. The British, and just plain crooks, also counterfeited great amounts of the state currencies.18

The depreciation of the Continental, however, was not due to the fact that it was a “fiat currency.” Indeed that version of events has matters pretty much exactly backwards: what killed the Continental was the fact that it was not a fiat currency, meaning: it was issued without any legal backing whatsoever. Thus, to whatever extent the colonies possessed the force to back up their collective currency, such force was mere futility in that there was no law to enforce in the first place. The Crown took full advantage of its enemy’s legal predicament in this regard, and pounded the Continental into oblivion—by counterfeiting it with wild abandon.

While Del Mar is correct that “[a]lmost the first act of… the Continental revolutionary assemblies was the emission of paper money in the teeth of the Royal prerogative,” elsewhere he informs us that there was no legal authority behind such money: “The Colonies did not clothe the Continental Congress with power over money, but retained it themselves.”19

Del Mar spells out the specifics of the problem as follows:

The Continental Congress had no legal power to create money and no physical power to maintain or enforce its circulation after it had been created. It could not redeem the notes in taxes. Congress was a revolutionary body liable to be suppressed at any moment. It was without any legal authority, either from Great Britain or from its constituent States, to create money. This power was first granted by the Articles of Confederation, which although they were provisionally agreed upon in 1777 were not ratified by all the states until 1781, by which time the Continental bill system was superseded by coins.20

By 1781, of course, Cornwallis had surrendered, all but ending the war then and there.21 In the interim, though, the value of the Continental had plummeted by as much as 99%. This was due to British counterfeiting, however, not to the untrammeled emission of money by the Continental Congress.

Law Enforcement

The British penchant to use massive counterfeiting as a means of prosecuting wars was so common that historians took note of it. “The English government which seems to have a mania for counterfeiting the paper money of its enemies entered into competition with private criminals.”22 So confident were the British in this monetary line of attack that they ran an advertisement in a New York newspaper in April 1777 offering for purchase—using a public venue—counterfeit Continental bills for no more than the cost of the paper they were printed on:

Persons going into other colonies may be supplied with any number of counterfeit Congress notes for the price of the paper per ream. They are so neatly and exactly executed that there is no risque in getting them off it being almost impossible to discover, that they are not genuine. This has been proved by bills to a very large amount, which have already been successfully circulated. Enquire for Q.E.D. at the Coffee House, from 11 P.M. to 4 A.M. during the present month.23

An endless rash of predicable results ensued, with some notable examples: “In April 1780, two British ships—the Blacksnake and the Morning Star—were captured off Sandy Hook with a large amount of counterfeit on board.”24

By 1780, the situation seemed almost hopeless. As described by Tom Paine, “the treasury was money-less and the Government credit-less.” Over the next year, private donations were sought, and the Bank of North America—the nation’s first central bank—was set up. Quite notably, however, it was the French government, not America’s central bank, that saved the day: “by October 1781, only $70,000 had actually been paid in [to the Bank of North America], when a French frigate arrived with $470,000 in coinage.”

In sharp contrast with the American failure to punish any of the massive counterfeiting of the Continental, a failure that stems at least in part from the Continental’s lack of legal status, England did not hesitate to punish counterfeiters—and even people found guilty for so much as clipping (shaving down) the coin of the realm—with death.25 Notes Zarlenga: “There was [in 1690] a £40 reward for denouncing a clipper, and the clipper could go free if he denounced two more clippers. Hangings were held regularly. On just one day, seven men were hanged and one woman burned at the stake for coin clipping!”26

IV. The Disaster of Private Money (Debt-Money) Issuance

A. Introduction

In Article 1 of the U.S. Constitution, Congress is granted the power “[T]o coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures” (U.S. Const., art. 1, § 8, ¶ 5). Separately, the Constitution forbids states to “coin money” and to “emit Bills of Credit” (U.S. Const., art. 1, § 10, ¶ 1).

Thus lacking the power to issue credit and possessing only the power to coin money, Congress should be—but is not to any material degree—in the business of coining money. But that is not the case, with the immaterial exception of coins, which the U.S. Treasury mints under congressional authorization.

Consequently, there is an enormous constitutional void in the U.S., where one should find government-issued money (“coin”) but where instead one finds privately issued credit. And therein lies what is the most fundamental affliction in the United States, which is almost never discussed due to the enormous value of the private credit-issuing franchise that has filled the empty money shoes left by congressional inaction.

To understand the massive extent of this fundamental problem, however, one must first understand the difference between real money, on the one hand, and its havoc-wreaking substitute—credit, or debt-money—on the other hand. To this end, we include three sections.

First, we distinguish between real money and debt-money. Second, we point out several intractable problems that are inherent to debt-money. And finally, we discuss some real-world problems to debt-money, briefly including the massive Missing Money problem brought to light by Solari’s extensive work on that topic.

B. Real Money vs. Debt-Money

In the U.S., the difference between real money and debt money can most easily be explained by referring to the money that’s used in ordinary retail transactions billions of times every day.

Coins are real money. Coins are minted by the U.S. Treasury and sold at face value to the Federal Reserve, which distributes coins into the U.S. monetary system by selling them to banks, again at face value. The profit on coins, formally known as “seignorage” (i.e., the difference between the face value and the cost of the coins), accrues to the U.S. Treasury.

Cash (or Federal Reserve notes) is real money as well, but with a twist: the creation of cash requires debt (historically and typically, a U.S. bond) in an amount that corresponds to the face value of the cash. Cash is issued by the twelve regional Federal Reserve Banks, which book cash as a liability and are required to pledge adequate collateral in a matching amount. The Fed books that matching amount of collateral as an asset. Before the 2008 crisis, the liability side of the Fed’s balance sheet was almost entirely made up of cash, while the asset side of the balance sheet consisted almost entirely of U.S. Treasury securities (or bonds, i.e., debt).27

Coins and cash are real money because they can extinguish any debt without the creditor’s consent: once tendered to the creditor in payment of a debt, that debt is no longer enforceable in court. In other words, coins and cash are legal tender (see definition in next section, “Real Money Is Legal Tender, Debt-Money Is Not”).

Electronic money in bank accounts is debt-money, not real money. Electronic bank money gets created by banks when they make loans, and destroyed when the principal of those loans is paid back. The sum total of electronic bank money on a given day is thus the total amount of electronic bank money the previous day PLUS the amount of new loans made by banks on that given day MINUS the amount of principal paid back on loans that same day.

By way of that background, let’s consider three differences between real money and debt-money.

Real Money Is Legal Tender, Debt-Money Is Not

Blacks Law Dictionary offers the following definition of legal tender: 

Lawfully established national currency denominations. Legally required commercial exchange medium for money-debt payment. Differs widely from country to country. Creditors, lenders, and sellers retain the option to accept financial vehicles, such as checks and postal orders that are not legal tender, for payment of debt. Also known as lawful money.28

Under U.S. law, only coins and cash are legal tender:

United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts.29

Legal tender, as already noted, is money that extinguishes debt as a matter of law—even if the creditor rejects the tender offer. One purpose of legal tender is, in fact, to deny creditors the ability to keep debtors indebted to them in perpetuity: once the debtor tenders legal money, the debt gets extinguished, full stop.30

As the legal dictionary definition states, “creditors retain the option to accept financial vehicles, such as checks and postal orders that are not legal tender, for payment of debt.” But the reverse is true, too, and it can be a trap for the unwary: creditors can (absent some agreement to the contrary, of course) reject offers to pay off debts that are not made in legal tender.

It is the law pretty much throughout the world that bank account “money” is debt-money and as such does not fulfill the legal requirements of money, as a leading legal treatise on the international laws on money makes clear.

As a rule… the economist’s view that everything is money that functions as money is unacceptable to lawyers. Bank accounts, for instance, are debts, not money, and deposit accounts are not even debts payable on demand.31

If it isn’t really money at all, why is electronic money, then, treated as such seemingly everywhere? The same legal treatise supplies the one-word answer: consent. People consent to the use of electronic money, which has enormous traction as the result of ages-old commercial practice:

In the absence of the creditor’s consent, express or implied, debts cannot be discharged otherwise than by the payment of what the law considers as money, namely, legal tender. Nor can the important consequences of tender be achieved except by the offer of lawful money. Money is not the same as credit.32

Real Money Is Permanent and Safe, Debt-Money Is Temporary and Unsafe

Cash and coins are physical money that can be maintained and preserved for a very long time—if not forever, then certainly for the life of the holder.

All debt-money, in contrast, exists as a liability on a bank’s balance sheet.33 Thus, when money is deposited in a bank, the depositor no longer owns that money but instead becomes an unsecured creditor of the bank in the amount of the deposit. Consequently, if the bank goes under, that “money” is gone; at best, it is converted to a claim with the Federal Deposit Insurance Corporation (FDIC) for reimbursement. Real money doesn’t need insurance.

Some monetary schools hold that all money is debt,35 with the leading example being Modern Monetary Theory (MMT). Perhaps it was so named because its “theory” is wrong on both the facts and the law. As a factual matter, the theory that all money is debt is simply false. A leading monetary scholar, Michael Kumhof, refutes the theory with numerous examples as follows:

There are in fact many instances of debt-free tokens performing this [monetary] function, ranging from cowrie shells in ancient China, to essentially worthless base metal money in early Rome, to the “truck” systems which existed in mill towns in Northern England in the early stages of the industrial revolution, to cigarettes in WWII prisoner-of-war camps.34

Indeed, Alexander Del Mar had refuted the theory himself numerous times several decades before Mitchell Innes even originated it.35 One of Del Mar’s most interesting examples of money that is not debt-based, and one to keep in mind as central banks rush headlong to implement central bank digital currencies (CBDCs), is as follows:

Slaves were used as money in Britain previous to the Norman invasion, in America during the early portion of the Spanish Conquest and the Repartimiento system, in Central Africa very recently, and in most primitive as well as in most decaying communities. Cattle have been used as money in all early pastoral communities.36

The theory that all money is debt is also wrong on the law, as we saw above in connection with legal tender (“[b]ank accounts, for instance, are debts, not money”). Additionally, it is precisely the different (superior) legal status of actual money (cash and coins) from debt-based bank-money that gives rise to a material risk carried by bank-money that does not apply to real money—the risk of bank default:


Alfred Owen Crozier in U.S. Money vs. Corporation Currency (1911) provides an anecdote that illustrates exactly how legal tender can operate as a trap for the unwary:

Some western men had discovered and developed a valuable mine to a point where there was enough ore in sight to show to a certainty that the property was sound and of great value. They needed money to build a large plant and operate the property. They went to Wall Street. After careful investigation the New York “bankers” agreed to furnish the money. Instead of joining in the deal they put their money in as a “loan” secured by mortgage on the mine. It was made a short-term mortgage. It came due before the plant could be finished and operated to make the mine yield enough to pay the debt. Payment was demanded and the mortgage for about $150,000 foreclosed. 

The western men finally raised the money elsewhere and on the last day of redemption tendered it to the sheriff in settlement. The eastern lawyer representing Wall Street people found that considerable of the $150,000 was gold certificates and some bank-note currency. These not being “lawful money” he refused the tender and demanded payment in “lawful money.” There was then no time to go from the distant county to a bank in a large city to get the necessary gold or greenbacks, the law for money. The western men thus were robbed of their property and the rich Wall Street sharpers got it, as was their aim from the beginning, for a mere fraction of its value. The legal-tender “joker” in the law enabled them to do it legally. Few people know that bank currency is not legal tender…

Alfred Owen Crozier, U.S. Money vs. Corporation Currency: “Aldrich Plan,” The Magnet Company, 1912, pp. 326-327.

The money of customers in a bank will never be safe as long as the money is a balance sheet position of bank debt, rather than being a customer asset in its own right off the banks’ balance sheet, like having coins in the pocket, notes in the wallet, or financial assets in a separate securities account that may be managed by a bank, but is not itself a bank asset or bank liability.… How can a monetary system be stable and reliable if even the existence of the money is unreliable?37

Real Money Has a Single Tier, Debt-Money Needs Two Tiers

The difference between real money and debt-money is also clear from the fact that debt-money, unlike real money, means there are two tiers of money: the first tier is real money, the second is debt-money. The second-tier nature of debt-money is inherent from the way it originated historically.

Debt-money first arose when goldsmiths created tablets for customers who bailed their physical gold with the goldsmith and needed evidence of as much so that they could reclaim their metal later. Eventually, the tablets themselves began to circulate as money rather than the gold itself; the tablets were easier to carry around, and with less risk of robbery. This in a nutshell was a two-tiered money system: real money (gold) and debt-money (tablets). As one monetary history has it:

When the tablet begins to circulate, there are two kinds of money in circulation: hard cash made of valuable metal, and bank-credit represented by clay tablets (equivalent to today’s bank notes).38

As this bit of history suggests, the two-tiered money system does not involve a relationship of equals. One tier is legally superior to the other. This has important implications for sovereignty.39

C. Inherent Problems of Debt-Money

Now that some differences between real money and debt-money have been explained, several shortcomings of debt-money that relate directly to issues of sovereignty are set forth here.

Debt-Money Is Confusing

The confusion over debt-money arises in large part from the notion and even the language of a “deposit” at a bank. Deposits are confusing because they can be created by a genuine deposit of cash or they can be created when a loan is made by a bank merely writing numbers into an account and loaning out these valuable numbers, which are treated the same way as cash.40 As Ivo Mosley put it in a 2020 book titled Bank Robbery:

Our money system is difficult to understand. It is counter-intuitive, so much so that a leading banking historian (Lloyd Mints) described it as a work of the devil.41

This confusion has important implications for sovereignty. The vast majority of people have no idea how the monetary system works, which inures to the benefit of the private banks that do the actual money-issuing in that system, namely, the Federal Reserve (actually, the twelve regional Federal Reserve banks issue the money; more confusion on display) and commercial banks.

As we saw in connection with the Declaration of Independence, consent is the linchpin of legitimate government in the U.S. But, by design, that consent is not informed consent. Would the Federal Reserve Act have passed if people really understood how the monetary system works? The same question must be posed about future monetary legislation as well, for example, the authorizing legislation that is highly likely to be needed for the Federal Reserve to issue CBDC.

Debt-Money Is Fraudulent and Usurious

The ability of banks to create debt-money out of thin air to purchase real assets was an issue that concerned some of the country’s founders. For instance, in a letter to Thomas Jefferson in 1814, John Taylor observed the following about debt-based money:

[It] possesses an unlimited power of enslaving nations, if slavery consists in binding a great number to labor for a few. Employed, not for the useful purpose of exchanging, but for the fraudulent one of transferring property, currency is converted into a thief and a traitor, and begets, like an abuse of many other good things, misery instead of happiness.42

What Taylor is getting at is the very real problem of usury, which is the extraction of money (or something of value) without supplying anything of real value in return. Usury is loosely thought of as “high interest rates,” but that’s not right, simply because high interest rates are fully justified where there is high risk. It’s thus the extraction of money without any proportionality of risk to the lender that leads to the “fraudulent transfers” that Taylor is talking about.

In this light, the purest form of usury may be found on the balance sheet of the Federal Reserve, where as of February 10, 2022, $5.73 trillion in U.S. Treasury securities (which pay interest) is counterbalanced on the liability side by $2.18 trillion in Federal Reserve notes and other monetary instruments that the Fed creates out of thin air that pay zero or near-zero interest. 

Unlike commercial banks that create debt-money out of thin air, the Federal Reserve faces zero risk when it creates money this way. A commercial bank that lends a business $1 million faces the risk that the business might fail. If that happens, the $1 million liability on the bank’s balance sheet is now backed by a promissory note with a face value of $1 million but with a real value that is zero. To the bank, that $1 million mismatch between assets and liabilities must come out of the bank’s equity. That’s simply how balance sheets work: equity equals assets minus liabilities. If the bank’s equity goes negative, it is broke and must undergo resolution.

The Federal Reserve has no such risk. The “borrower” is the U.S. government, from which the entire legal authority to issue money derives in the first instance; it can’t fail. Looked at another way, if the U.S. (the borrower) does fail, it’s going to take down the creditor-Fed—the existence of which hinges in its entirety on the existence of the U.S.—with it. 

Against that legal backdrop, it is clear that the privately owned Federal Reserve is receiving interest-bearing financial instruments (U.S. bonds) in exchange for creating “liabilities” that pay zero interest in the case of cash or near-zero interest in the case of reserves.  The Federal Reserve system has the sovereignty relationship exactly backwards, profiting from the constitutional money-creating power that belongs to We the People by charging them interest.43

Debt-Money Is Contrary to the Rule of Law

Under the U.S. Constitution, money creation is an act of sovereignty: “Congress shall have Power… To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.”44 For this reason, the power to coin money should not be delegated to some citizens and denied to others. As Crozier stated:

Because creating money is an act of sovereignty, a function of government exercised only by means of the will of the people as expressed in the law, the issuance of money should not be farmed out or delegated by the Government to any private individual or corporation for profit or advantage. And for the same reasons this is true of any currency based on or issued under authority of law to be used in place of or as a substitute for money. Law and all benefits thereunder must be impartial and general for the good of all people without special favor or discrimination.45

What drives the need for impartiality of the law “and all benefits thereunder” is the Rule of Law. As presently configured, however, a tiny minority of people possess a sovereign power that is denied to everyone else. This flouts the principle under the Rule of Law that the same laws apply equally to everyone. Under the banking laws, the same behavior (money issuance) that profits one person will land another in prison for counterfeiting (or, more likely, one or more cyber crimes, since bank money is electronic).

Moreover, the same banking laws that inure to the benefit of bankers at the same time take money (property) away from everyone else in the form of interest payments on what ought to be, but is not, a public good, namely, money coined out of thin air. Again, we see the false notion that banks lend out pre-existing money operating to the benefit of bankers while the people paying for that benefit remain ignorant of it due to their erroneous perception of how banking works. As Mosley explains:

Because the debt from the bank is money, and money is valuable, it seems quite fair that we pay to borrow it. This hides the real injustice in the system, which is not the payment of interest. The real injustice spreads far and wide but begins with two simple facts: money is created out of nothing for profiteers, and the entire money system is rented out at interest.46

Debt-Money Inherently Causes Boom and Bust Cycles

As already noted, Alexander Del Mar observed in his History of Monetary Systems that “the commercial community has been subjected to alternate epochs of monetary contraction and expansion” ever since the sovereign prerogative of coining money was turned over to private banks.47

Of course, history has taught that turning money over to private banks results in a debt-based monetary system, since banks can then rent out the money supply at interest to generate profits from what is a public good under the Constitution.

To understand more fully how debt-based money is inherently unstable, it helps to track what happens when a debt is paid back. Generally speaking, when a debt is paid back, the bank to whom the debt is owed cancels the note (the borrower’s IOU), and money is destroyed. More specifically, though, when a debt is paid back to a commercial bank, the portion of the payment that goes to the principal of the debt is canceled, and money is thereby destroyed. In contrast, the portion of the payment that goes to interest on the debt simply changes hands (from the debtor to the bank, which can pay salaries, etc.), and no money is destroyed. 

And of course, when a debt from a non-bank is paid back, the entire payment of principal and interest simply changes hands, and no money is destroyed, just as no money is created when a non-bank lends.

There are three drivers of instability; two are inherent in debt-based money while the third owes to human nature and is confirmed by history. 

First, the payment of interest on money created as debt transfers wealth from the productive class to the rentier class of financiers. This leaves less money available to the productive class for the repayment of debts, on the one hand, while at the same time those debts are ballooning at the rate of interest (or even faster, due to fees and penalties—another wealth transfer), on the other hand. Over time, there is a pincer effect on the productive classes according to which farming was historically affected first, followed by manufacturing, followed by non-financial services—hollowing out the U.S. economy over the course of decades—until what’s left is a class of highly paid financier-gamblers and low-paid infrastructure workers. This is where we’ve been for some time, and it is getting worse. That inevitable deterioration of economic conditions is driven by, and indeed is a feature of, the debt-based monetary system.

Second, in a debt-based monetary system, there is an invisible ratchet wrench that increases debts at a materially faster rate than money can possibly be created—even if the interest rate is zero (which it never is, due to risk). The ratchet mechanism is this: while the creation of new money inherently creates new debt, new money is not necessarily created when new debt is created. The latter is due to the fact that non-banks lend according to the standard model, that is, simply transferring pre-existing money from lender to borrower. If Linda lends Kevin $100, the money supply doesn’t change (because Linda took the money from her pocket and handed it to Kevin rather than creating it), but the level of debt in the system increases by $100 (because Kevin added $100 to his debt load, but Linda did not reduce her own). The net effect is an economy operating as a pyramid scheme with debt outrunning money to pay down debt at hyperparabolic rates.48

The third driver of instability is plain old greed, coupled with the fact that bankers can profit directly from their control of the money supply. Crozier offers explanations and historical examples of this in his book opposing the creation of the Fed (then proposed as the “National Reserve Association”) and states:

Mortgages and bonds bearing a fixed interest rate are increased in value by contracting the supply of money because the fixed income then will buy more property and labor at the lower prices. The bulk of the vast bond or fixed income wealth of the world is owned by the banks and by other incorporated and individual holders here abroad. The banks of this country own bonds exceeding in value the total of all the money in circulation in the United States. This vast bond wealth would be greatly enhanced in value if contraction of the currency should make money scarce [emphasis added].49

Of course, such a contraction can be caused by banks simply not making new loans, on the one hand, and by banks calling in or otherwise canceling existing loans, on the other. The colossal conflict of interest Crozier describes is one of the main reasons he battled so ferociously against the proposed Federal Reserve Act (then called the “Aldrich plan,” after the prominent and very bank-friendly senator from Rhode Island):

The Aldrich plan would put the ownership, control and management of the National Reserve Association, with power to inflate and contract the quantity of money without limit, in the hands of the very private interests that would most profit  by an abuse of that dangerous power. And every dollar gained by those interests through excessive inflation and contraction of the volume of currency would come out of the pockets of the people of the United States.50

Crozier discusses the financial panics of 1873, 1893, and 1907, contending not only that all of them were artificially created by Wall Street bankers but that they did so to further consolidate the power of the banks through means of congressional legislation. In the case of the 1893 panic, Crozier says it was to get Congress to repeal the Sherman Act in order to stop the U.S. government from issuing real money instead of debt-money—a panic that was effected by reducing loans:

An article in Pearson’s Magazine for March, 1912 by Allan L. Benson, makes public alleged important additional data designed to further prove that the banks deliberately caused the panic of 1893 for legislative purposes. It gives the following as a mandatory circular letter to all the banks alleged to have been sent by the National Bankers’ Association on March 12, 1893, eight days after Cleveland was inaugurated:

“Dear Sir:—The interests of national bankers requires immediate financial legislation by Congress. Silver, silver certificates and Treasury notes must be retired and the national bank notes, upon a gold basis, made the only money. This requires the authorization of $500,000,000 to $1,000,000,000 of new bonds as a basis of circulation. You will at once retire one-third of your circulation and call in one-half of your loans….”51

Based on his historical survey of panics (and, in the case of the 1893 panic, relying in part on personal knowledge), Crozier concludes, in language that should find resonance with the events that officially started in 2020 (but actually began in August 2019):

It is American history, the fact that every great panic has immediately preceded a very great joint effort by Wall Street and the big banks to put through Congress legislation vastly increasing the profits and power of the banks and Wall Street.52

Del Mar is characteristically blunt about how to eliminate financial panics. After tracing the usurpation by banks of money-issuing power by merchants and goldsmiths to the passage of a law in England in 1666, he writes: “The specific effect of this law was to destroy the Royal prerogative of coinage… and institute a future series of commercial panics and disasters which down to that time were totally unknown [emphasis added].”53

Debt-Money Alienates the People from Their Government

By allowing private banks to issue-debt money instead of issuing real money itself, governments end up alienating the very people from whom their power derives (at least in the U.S. and other countries with popular sovereignty).54 This occurs when private banks throttle real and popular money like the greenbacks—and indeed resist even the slightest legal restraints—in an all-out effort to increase their power over and above the sovereign government from whom their authority to issue money derives in the first place.

As we saw in connection with the limited sovereign powers of popular governments, the Constitution provides an example of how radically the drafters cut back on old forms of sovereign power, even reversing the presumption of sovereign power: instead of a sovereign with absolute power, the Constitution begins with the presumption that people are free (and sovereign), and that the government formed by “we the people” possesses only such powers as are expressly delegated to it. Where such powers are provided for, the founders were quite exacting, at places even parsimonious, in their grants of authority.

As a threshold matter, therefore, the problem with debt-money—which functions as money without meeting the legal requirements of money—is that it represents a power exceeding even that of the king against whom the Constitution’s drafters had revolted. Zarlenga observes of bankers and the power of debt-money: 

Once their clients got into the habit of conducting business with bills of exchange (checks) rather than actual coins, it became possible for the bankers to greatly multiply the apparent amount of money in circulation, in the form of these credits. In many ways this was a monetary power greater than the King’s control over the mint [emphasis added]. This bank money was a more true fiat money form and further removed from crude barter than the “precious metals” coins. But the bankers were usurping a power that derives from and belongs to society, and using it for personal benefit.55

It did not take long for the bank-money system that had taken root with Parliament’s passage of the Promissory Notes Act of 1704, driven purely by self-interest, to create severe problems in the colonies. As noted previously, a debt-based monetary system must have two tiers, and indeed this was the case in Great Britain: debt-money in the form of paper IOUs issued by private banks and merchants freely circulated in commerce, while real money in the form of gold coins (reserve money) was used to settle those transactions.

Gold coins circulated in the colonies, too, but, as we have already seen, the monetary system there was far from uniform, with no private banks of issue at all until the 1781 creation of the first central bank (the Bank of North America). To the extent money was issued in the colonies, it was done by colonial governments, often in the form of paper money. As noted earlier, Massachusetts led the way on that score in 1690. For another thing, early colonial money was denominated in British pounds and shillings (but that would not last for very long). 

By 1775, most colonies were issuing dollar-denominated paper money. Zarlenga provides the following table of dollar issuances between 1775 and 1783.56 Note that Massachusetts, Pennsylvania, and New Jersey—the three colonies shown above as issuers of shilling-denominated money—are all present in the table: 

In any case, there was far more demand for gold metal in London than there was in the colonies, and that is where the gold went, as previously noted. This fueled the tendency of the colonies to issue paper money to make up for the lack of gold coins.

The issuance of money by the colonies did not sit well with the London merchants and goldsmiths. There, writes Zarlenga, “the ‘Lords of Trade and Plantations,’ charged with overseeing the colonies, harassed the colonists’ paper money systems on a case by case basis.” Not only the result, but the timing of this harassment—predating the Declaration of Independence by fully four decades—should give some sense of the yoke under which private London bankers kept the colonists, as well as of the intensity of the boil once it erupted. Massachusetts again led the way but was by no means the only victim of London’s Lords of Trade:

In 1727 the Lords of Trade began a series of monetary repressions.… In 1730, [Massachusetts] Governor Belcher was ordered to continue the contraction of the notes, down from £140,000 to about £30,000. The notes were to be paid off in coinage at ten and then seven paper for one coin, raised by taxes. By 1735, coinage was so scarce the colonists couldn’t pay taxes except in commodities. The contraction resulted in a continuous economic crisis. Prices kept falling; debtors who had contracted debts in less valuable money were ruined. Property had to be sold for one-tenth of its fair value just to pay taxes. Trade was stagnant and cries of distress arose on all sides….57

The tendency for private bankers with the power of money issuance to act in a manner detrimental to the general public is so strong and so prevalent throughout history—at least since bankers seized sovereign monetary powers in the late 17th century—that it might as well be called a law of nature.

Shortly before the creation in 1913 of that mother of all private bank monsters, the Federal Reserve, Crozier asked rhetorically:

What possible excuse is there for inflicting upon the people vast issues of bank note and gold certificate currency that under the law is not lawful money but mere optional currency, utterly worthless for paying ordinary debts if the creditor cares to refuse to accept it? The whole wretched system has been fastened upon the country by banks in their insane greed to discredit and keep down the volume and use of government money and increase the demand for bank credit loans and bank currency from which the banks derive a steady special profit.58

Recent abuses are even worse, as the Federal Reserve’s actions during the pandemic have repeatedly demonstrated. As we noted in the Going Direct Reset, the Fed’s “response” to the pandemic was actually hatched in August 2019, nearly half a year before the media-crazed panic began. The creator of that plan was another huge private financial institution, BlackRock, which was later hired by the Fed during the pandemic to help implement its own plan, which involved the creation of over $6 trillion in new money, much of it going to billionaires. The Fed’s modus operandi in helping its crony financiers and using Main Street only as cover was so ham-fisted, it was laughable. As we pointed out:

By April 10, 2020, then, the Federal Reserve had bestowed exactly zero money on Main Street despite a host of programs supposedly set up to do exactly that. By that very same date, by contrast, the Fed had purchased more than $1.2 trillion of U.S. Treasuries in accordance with BlackRock’s plan and had extended more than $130 billion to Wall Street programs, as the comparison (top of page) of the Fed’s balance sheet on February 5 and April 12, 2020 reveals.

As always, the Fed’s only real interest in Main Street consisted of PR efforts, which during the pandemic wildly exaggerated the reality of the Fed’s efforts on Main Street’s behalf. And thus it was one day before April 10: Despite having failed to lend the first actual penny to anyone under the Fed’s so-called Main Street programs, the Fed in its April 9 press release crowed about a massive (and imaginary) $2.3 trillion funding of its Main Street programs to “assist households and employers of all sizes and bolster the ability of state and local governments to deliver critical services during the coronavirus pandemic.”59

D. Real-World Problems of Debt-Money

All of the foregoing problems with debt-money facilitate, both separately and in combination, evasion of the U.S. constitutional requirements for accountability and transparency in spending money that is ultimately sourced in the sovereignty of the nation’s people. The constitutional requirements for accountability and transparency (U.S. Constitution, Art. 1, § 9) fold together succinctly as follows:

No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.60

The apparent clarity of the requirements for accountability and transparency with the nation’s “Money” are illusory, however, in large measure due to the problems of debt-money. As we have seen, the only real “Money” issued by the Treasury is coins; the remainder is really debt-money in the form of bonds, which is how the U.S. government really finances itself—and therein lies a vast thicket of confusing problems.

For one thing, the U.S. Treasury transacts its business in reserve-money held on account with the Fed, though it also (confusingly) maintains accounts with commercial banks. Thus, when the Treasury cuts a $1000 check to Bob’s Windows Company, Bank A (Bob’s Windows Company’s commercial bank) sees its reserves rise by $1000 as Treasury’s account at the New York Fed is debited by $1000.

For another thing, the U.S. Treasury sells most of its bonds through a group of 20 to 30 “primary dealers,” almost all of which are subsidiaries of large bank holding companies that also have major commercial banking arms. What’s more, these same primary dealers are the only entities that can transact with the Federal Reserve in conducting the latter’s “open market” bond purchases and sales.

A third problem arises from the nature of U.S. bonds and bills. They are assets on the Fed’s balance sheet, but they don’t legally qualify as money; the money side of the Fed’s balance sheet is reserves—a liability of the Fed. Nevertheless, U.S. bonds are considered near-money by major institutional players,61 in part due to the limits of bank-money, which carries with it an account limit of $250,000 for purposes of FDIC insurance. When large financial players want liquidity, they can’t simply keep, say, $10 billion on account at Bank of America without serious risk exposure; instead, they seek liquidity in the bond market.

Thus, the double-entry accounting treatment that is necessitated by operating a debt-based monetary system creates enormous confusion that can be taken advantage of by financial predators and thieves.

A fourth problem—and we’ll leave it at that for purposes of brevity, though the exponentiating nightmare of debt-money should make it clear that this is just the tip of an iceberg—relates to settlement. While the Fed might purchase, for example, a government-guaranteed Fannie Mae mortgage-backed security for $10 billion, and book that transaction the same day, it might take weeks for that transaction to settle, creating an enormous accounting crevice that can be filled with all manner of nefariousness.

The leviathan of fraud and corruption that occurs as a matter of practice inside this colossal house of mirrors known as debt-based money is evident at once just from the surreal-sounding headline numbers that are routinely exposed by Solari’s “Missing Money” series.

In 2016, Catherine began writing and speaking about the latest and largest addition to annual undocumentable adjustments at the Department of Defense (DOD) in fiscal 2015: $6.5 trillion. Dr. Mark Skidmore, Morris Chair of State and Local Government and Policy at Michigan State University, heard her and assumed that she was mistaken—no doubt, she meant $6.5 billion, he thought. Dr. Skidmore accessed the DOD financial reports and discovered that Catherine was correct. The undocumentable adjustments at DOD for FY 2015 were, in fact, $6.5 trillion.

Working with his graduate students, Dr. Skidmore offered to do a survey of financial reports at DOD and the Department of Housing and Urban Development (HUD) for the fiscal years 1998–2015 to identify all reports of undocumentable adjustments. At the time, Catherine had identified $12.5 trillion of such adjustments. After a thorough review, Dr. Skidmore and his students identified a total amount of undocumentable adjustments of $21 trillion.62

For some sense of the scale of this problem, consider that at the same time that there were $21 trillion in undocumentable adjustments reflected in the books of the U.S. government, the entire amount of official outstanding U.S. Treasury debt was almost exactly the same: $21.21 trillion.63 Basically, in other words, the U.S. is in debt as the result of theft, a possibility that’s the direct result of our debt-based monetary system coming home to roost.

V. The Disaster of Private (or no) Law Enforcement

A. Introduction

Law enforcement and money creation are two sovereign powers that are separate and legally distinct. In the U.S. Constitution, authority over money issuance is allocated to Congress under Article 1, while Article 2 charges the executive branch with the duty of enforcing the law. 

In theory, the transfer or delegation of the power to issue money—either partially or in toto—to private banks should not also occasion the transfer of any law enforcement powers to those private banks. Granted, those banks need to protect themselves from robbery and theft, but that is true of non-banks as well. Likewise, and again in theory, the delegation of money creation powers to private banks should not exempt banks from law enforcement, because that would tend to put those private banks above the law and thereby do violence to the Rule of Law, which is the foundation of a constitutional republic. And yet the exemption of private banks from law enforcement is exactly what has been occurring ever since Great Britain started handing over her money-issuing powers to private parties in the late 1600s. 

In the U.S., banks have steadily and relentlessly used their money-issuing authority to increase their power—to increase their wealth, to achieve political and legislative ends, and finally to exempt themselves from the law altogether. As a consequence, the banks were able to effect a coup d’etat with the 2008 TARP bailout, when they put a gun to the head of the American people and robbed them—not so much of money but of their sovereignty. The $700 billion bailout tab doesn’t even qualify as a pittance next to what the banks really stole. 

The real reason no one went to jail in the wake of the global financial crisis, as we shall see, isn’t that no crimes were committed, or that those crimes were hard to prove, or even that prosecutors declined to prosecute admitted criminals for fear of roiling markets. Those “reasons” do not hold up to scrutiny. The real reason no Wall Street bank executives were prosecuted is that the banks had taken over as the uncontested sovereign power in the U.S. before the crisis was even over.

The original sin, though, is not the wholesale suspension of law enforcement with respect to banks after 2008; that was merely the long-delayed effect of the underlying and more fundamental mistake, which was handing over the money-issuing power to a privately owned central bank in 1781. Alexander Del Mar said it would take another revolution to fix the problem. He was probably right about that.

A full survey of unprosecuted bank crimes and the improper accumulation of political power by banks in U.S. history would fill a book and possibly several volumes. Nevertheless we will focus on two critical junctures here: first, the period just prior to the passage of the Federal Reserve Act in 1913; and second, the Global Financial Crisis (GFC), examining the kind of fraud that wiped out investors and drove the crisis, and then the wholesale lack of any real law enforcement effort to punish the major bank-perpetrators.

B. Unchecked Bank Power and Criminality Just Before the Federal Reserve Act of 1913

By the turn of the 20th century, banks already possessed enormous political power, assisted greatly by the establishment of a national banking system operating under a single currency four decades earlier in 1863. Up until that point, there had been some 9,000 banks each issuing its own paper “money,” resulting in monetary chaos. After 1863, banks could issue debt-money and have it honored by other banks, with transactions involving paper issued by any two banks to be netted out periodically in a clearing process.

Over the next 25 years, various industries saw corporate behemoths grow up, in large part due to mergers (with railroads and oil being notable examples), with banks following right along. The corporate abuses grew so huge that Congress intervened by passing the Sherman Antitrust Act in 1890, which actually criminalized the worst monopolization practices then prevalent. The Antitrust Act also included civil and equitable remedies, which allowed the U.S. government, acting through the power of Article 3 courts to issue injunctions and thereby reign in some of the worst abuses by robber barons like John D. Rockefeller, Henry Ford, Cornelius Vanderbilt, and Andrew Carnegie.

Antitrust laws have proved fully capable of reining in huge banking interests—even if that capacity is not exercised in practice. In 1904, for example, the U.S. Supreme Court put a stop to the merger that would have basically doubled J.P. Morgan’s already massive stake in America’s railroads; the banker and a railroad tycoon, James J. Hill, were attempting to unite several major railroads (including the Northern Pacific, Chicago, Burlington, Great Northern, and Quincy Railroads) into a unitary behemoth operating as a single corporate entity (Northern Securities) that would have owned some 9,000 miles of railroad track across the northern U.S.

Although the Supreme Court nominally blocked that effort,64 in reality, J.P. Morgan prevailed, which was later revealed by Senator Robert LaFollette:

The government’s attorneys in preparing the decree omitted to provide for the dissolution of the combination and conspiracy between the competing and parallel lines; and likewise omitted from the decree the provision that these competing lines be required thereafter to operate independently each through its own board of directors. The effect of the abortive decree was to leave the combination in full force and operation through a holding company or trust agreement. This defeated the very purpose for which the action was brought and left the Government nothing.65 

We cite that example of behavior by banks simply to illustrate not only their massive power but their willingness to risk engaging in criminal behavior. After all, J.P. Morgan’s merger efforts in the Northern Securities case began in 1901, over a decade after a significant line of antitrust legal precedent had been established; it is difficult to imagine that he was simply unaware that his behavior was courting criminal sanction.

But whatever the case was at the turn of the century, there can be no doubt that by the time the Federal Reserve was created in 1913, crime had become a business practice throughout the banking industry.

In 1911, the Office of the Comptroller of the Currency (OCC) issued an annual report that memorializes what can only be described as an epidemic of illegality and crime by America’s banks. The report, based on OCC surveys of the banks themselves, compares the behaviors the banks admitted to against the law in four different arenas: “real estate loans, reserve, excessive loans and borrowed money.”66

The 1911 OCC report shows that fully 60% of banks were routinely violating one or more different provisions of the U.S. Code. According to the OCC: “many criminal offenders against the national banking laws have escaped just punishment by reason of the statute of limitations.”67 The report likewise notes that “[s]ixty percent of the failures of national banks have been caused by violations of the national banking laws.”

“Why has not prosecution against even one of the thousands of rich and powerful bankers conclusively shown by the government records to be law-breakers been started by the Department of Justice?” Crozier asked incredulously of the OCC report.68

In this light, the statutory creation of the privately owned Federal Reserve in 1913 in reality represented the anointment of the Fed’s owners as the don of a massively powerful criminal enterprise, headquartered in New York:

In practice the Federal Reserve Bank of New York became the fountainhead of the system of twelve regional banks, for New York was the money market of the nation. The other eleven banks were so many expensive mausoleums erected to salve the local pride and quell the Jacksonian fears of the hinterland.69

C. Criminal Fraud Leading to the Global Financial Crisis

Fraud throughout mortgage-backed securities was a huge catalyst of the global financial crisis (GFC). To understand why, all you really need to know is first, that one party’s debt is another party’s collateral;70 second, that collateral must be pledged for new loans of money and near-money; and third, that the same collateral is often pledged many times over as the basis for loans.

Also, recall that money is a legal instrument, and that legality is a crucial pillar of the financial community. When things go sideways, it is the law that is going to sort out the winners and losers.

All of this is to say: while fraud-infected mortgage-backed securities (MBS) were a huge source of collateral on Wall Street and the basis for trillions of dollars in transactions, the fraud in MBS began at the root, that is, in the loan origination process on an individual level. Since a typical MBS represented a package of some 5000 individual mortgages, pervasive fraud at the individual level spelled total disaster in markets where MBS were sold as investment and/or used as collateral.

A quick sequence of interview clips from the author’s 2012 documentary, Bailout, illustrates the top-to-bottom nature of the fraudulent rot in MBS:

Christopher Whalen: You had trillions of dollars of assets that one day were liquid—almost like Treasuries, AAA, right?—but really wasn’t AAA. People started seeing the defaults. And once you broke the belief that this paper was in fact high-grade, that was the end.

Beth Hedges: A lot of times, the notes weren’t even originated yet. So there was tremendous pressure at the origination level to get those re-fi’s, get those new loans.

Karl Denninger: There’s a big question as to exactly what notes got conveyed where and what didn’t. For those trusts that are empty, the fraud is much more severe because essentially the money was stolen. All of it.

Yves Smith: None of the deals done by Countrywide had been done correctly. So it was 100% fail on Countrywide deals. And of the other deals, there was a two-thirds failure—2/3 of them haven’t been handled correctly.

Karl Denninger: See the trust paid good money to somebody up the line for that note. If it never got the note, well then they got ripped off.

Yves Smith: I suspect that the promissory notes are still, like Countrywide, in many cases with the originators, and that nobody wants to admit they’re with the originators because it basically meant the originators took the money fraudulently.

The fraud, of course, didn’t end with the simple discovery of worthless MBS assets. On the contrary, fraud often compounded itself when bankers, upon discovering just how bad their MBS holdings were, turned around and duped investors into buying the rotten MBS assets. In some cases, a bank might profit twice from the sale of such MBS assets, first from the sale itself (by dumping a worthless asset onto someone else for the price of the asset), and again by having taken out a credit default swap (CDS) on the rotten asset (the CDS being in essence an insurance policy on an asset held by a third party, in this case, held by the banker on the MBS even after it was sold).

Two examples of fraud involving MBS, one from Citigroup and the other from Goldman Sachs, will suffice to illustrate the pervasiveness of the fraud and how high it reached into the executive ranks of major Wall Street banks.

Fraud at Citigroup Ran Up to and Included Robert Rubin

In November 2007, former U.S. Treasury Secretary Robert Rubin, who was then Chairman of the Executive Committee at Citigroup, received an email from Business Chief Underwriter for the Real Estate Lending Correspondent channel, Richard Bowen.

Bowen wrote to Rubin and other executives to convey his concerns over “breakdowns of internal controls and resulting significant but possibly unrecognized financial losses existing within our organization.”71 Bowen’s concerns stemmed from two basic sources of mortgages that were going into products held by Citigroup for later sale: individual mortgages purchased from mortgage companies, and pooled mortgages purchased from large mortgage companies. The problem with both sources, wrote Bowen, was that the quality of the mortgages contradicted the representations about quality that Citigroup was making to investors in MBS.

Specifically, he said, “40-60% of these files are either outside of policy criteria or have documentation missing from the files. QA for recent months indicate 80% of the files fall into this category.” Bowen stated that Citigroup was “sell[ing] to third party investors approximately $50 billion annually.”

With respect to pooled mortgage purchases by Citigroup, which accounted for $10 billion in annual revenue, Bowen said that “significant numbers of these files [were internally] identified as ‘exceptions’ (higher risk and substantially outside of our credit policy criteria),” but that such files were nevertheless “approved by the Wall Street Channel Risk Chief Officer, many times over underwriting objections and with the files having been turned down by underwriting.”

In both cases, Bowen stated, “I do not believe that our company has recognized the material financial losses inevitably associated with the above liability” (individual mortgages) and “I do not know if the expected material financial losses from these pools has [sic] been recognized.”72

Bowen’s concerns over “inevitable” and “expected” material financial losses proved true the next year, when Citigroup posted a massive $27.7 billion loss and required a $45 billion TARP bailout as well as a host of other agency and Fed bailouts that ran to nearly $3 trillion.73

There is no dispute that Citigroup sold defective MBS products after Bowen’s email, nor is there any dispute that Robert Rubin received, read, and recalled Bowen’s email and is thus chargeable with knowledge of its contents. Rubin testified before the Senate’s Financial Crisis Inquiry Commission (FCIC) as follows specifically with respect to Bowen’s emails: “I do recollect this and that either I or somebody else, and I truly do not remember who, but either I or somebody else sent it to the appropriate people, and I do know factually that that was acted on promptly and actions were taken in response to it.”74

In March 2016, five years after Rubin’s FCIC testimony, “the National Archives released a trove of previously unreleased documents from the Financial Crisis Inquiry Commission,” which documents included a startling revelation:

In late 2010, in the waning months of the Financial Crisis Inquiry Commission, the panel responsible for determining who and what caused the financial meltdown that lead to the worst recession in decades voted to refer Robert Rubin to the Department of Justice for investigation. The panel stated it believed Rubin, a former U.S. Treasury Secretary who has held top roles at Goldman Sachs (GS) and later Citigroup (C), “may have violated the laws of the United States in relation to the financial crisis.” Rubin, the commission alleged, along with some other members of Citi’s top management, may have been “culpable” for misleading Citi’s investors and the market by hiding the extent of the bank’s subprime exposure, stating at one point that it was 76% lower than what it actually was.75

The Department of Justice (DOJ) sat on the FCIC’s criminal referral of Rubin and Citigroup and did nothing.

The DOJ’s refusal to do anything about Rubin’s fraud is all the more egregious due to his history. Rubin had become Chair of the Executive Committee at Citigroup in 1999 and stepped down in 2009 as the bank was imploding. But the conduct that led to the late 2007 email from Bowen was hardly the first time the bank’s fraud in concealing material information from investors became an issue for Rubin.

In 2002, the prestigious 2nd Circuit Court of Appeals heard another case involving securities fraud by the bank. It, too, involved the concealment of material information from investors and was described in Solari’s 2019 report on The Real Game of Missing Money, as follows:

In Caiola v. Citibank, Citibank misstated the risk of Caiola’s portfolio when it agreed to perform synthetic trades for the investor, with delta hedging on Citibank’s side, but stopped performing delta hedging on Caiola’s behalf, without informing Caiola. Caiola’s complaint alleged “Citibank thereby exposed Mr. Caiola to precisely the risks that Citibank advised he could and should avoid through the use of synthetic trading” [Caiola v. Citibank N.A., New York, 295 F.3d 312, 329 (2d Cir. 2002)]. The court determined “These misrepresentations are clearly sufficient under Rule 10b-5 because they are the sort that ‘a reasonable person would consider important in deciding whether to buy or sell shares'” (id., citing Azrielli v. Cohen Law Offices, 21 F.3d 512, 518 (2d Cir. 1994)).76

In other words, Citigroup’s massive sales of knowingly defective mortgages to investors as detailed by Bowen’s email was not Bob Rubin’s first rodeo involving fraudulent concealment. The bank was simply up to its old trick of ripping off investors.

Fraud at Goldman Sachs: Shorting “Investments” Sold to Clients

Goldman ripped off investors the same way Citigroup did: it sold them investments (Hudson investment) that it knew were bad and that contradicted its own representations about the investments sold. But there was also a difference between Citigroup’s fraud and Goldman’s, at least with respect to the evidence of knowledge needed to prove fraud in each case.

In any fraud case, a key requirement is proving that the defendant knew that it was making a false representation at the time of the act complained of; where an investment is involved, this means at the time of sale.

Citigroup’s and Rubin’s knowledge is shown by Bowen’s email, in which Bowen informs them that the mortgage-backed investments they were selling to investors did not come close to the company’s representations about the quality of the so-called investments. Bowen’s email is what makes those representations actual mis-representations, falling cleanly outside the permissible bounds of puffery; his email also tends to support the legal requirement in fraud cases that the misrepresentations be made knowingly. And before the U.S. Senate, Robert Rubin confirmed under oath that he specifically recalled Bowen’s email.77

Goldman’s sale of its Hudson investment featured different evidence of the bank’s knowledge that it was selling bad investments. Instead of an internal email that contradicted what the company was telling investors, as was the case with Citigroup, Goldman had, on the one hand, secretly shorted Hudson, while, on the other hand, representing to investors that Hudson was a great investment.

Goldman began marketing its Hudson investment vehicle in October 2006 with a marketing booklet. The Financial Crisis Report of the Senate’s Permanent Subcommittee on Investigations was damning: 

The marketing booklet statement that “Goldman Sachs had aligned incentives with the Hudson program by investing in a portion of equity,” was misleading. Goldman did, in fact, purchase approximately $6 million in Hudson equity. However, that $6 million equity investment was outweighed many times over by Goldman’s $2 billion short position, which made Goldman’s interest adverse to, rather than aligned with, the Hudson investors. Neither the marketing booklet nor other offering materials disclosed to investors the size or nature of Goldman’s short position in Hudson 1.78

In other words, Goldman “invested” $6 million of its own money for the specific purpose of touting that fact to investors while it simultaneously concealed its $2 billion short on those securities. Goldman’s profit on Hudson thus depended on the failure of Hudson, not its success. Goldman was making an absolutely enormous bet that Hudson investors would fail right along with the underlying investment—a bet that Goldman won when Hudson investors who’d been defrauded by Goldman got wiped out: “Over the next year, Goldman pocketed nearly $1.7 billion in gross revenues from Hudson 1, all of which was at the expense of the Hudson investors.”79

No case, civil or criminal, was ever brought against Goldman for its huge Hudson swindle. Instead Goldman paid a fine of $550 million for  perpetrating similar schemes under the names of Abacus and Timberwolf.80

Alan Greenspan and Sen. Ted Kaufman: “Rampant Fraud” on Wall Street

To many if not most people who investigated the GFC and its causes, as well as to many Wall Street insiders, fraud was one of the main drivers, if not the primary catalyst of the crisis.

In January 2009, when Joe Biden became the Vice President of the United States, he left his seat in the U.S. Senate, where he had been on the Judiciary Committee. Ted Kaufman was tapped to fill Biden’s Senate seat for the balance of Biden’s term, two years.

Sen. Kaufman was determined to get to the bottom of what had happened to cause the crisis, and used his seat on the Senate Judiciary Committee to that end. Kaufman was an engineer by training who had gotten his MBA and worked for Biden for decades in various administrative positions, including Chief of Staff.

Early on Kaufman realized that Wall Street fraud had played a massive role in the crisis.

This is justI mean, I am absolutely convinced after the hearings we had in the Permanent Investigations Subcommittee and the studies I’ve been doing for this bill, that there was rampant fraud in these cases. I do not see how you can explain behavior other than there was a concerted effort to be engaged in fraud [emphasis added].81

Given how widespread fraud was leading up to the crisis, from lenders who originated mortgages up to the big Wall Street institutions that packaged and sold the mortgages, it did not take long for Kaufman to turn his gaze from Wall Street to the Department of Justice, which boasted of prosecuting thousands of cases of mortgage fraud without ever laying a glove on a single Wall Street executive.

Kaufman’s frustrated quest for the truth about what was going on was memorialized by producer Martin Smith, whose PBS Frontline episode “The Untouchables” was so damning of the Justice Department that Assistant Attorney General Lanny Breuer—who was featured throughout the episode twitching and writhing his way through wholly unbelievable explanations for DOJ’s selective futility, repeatedly unable to maintain Smith’s cold, incredulous stare—resigned the morning after the show aired.

Senator Kaufman was not alone in his asseveration that fraud was endemic throughout the mortgage financialization process. One year later, the Atlanta Federal Reserve held a symposium celebrating the impending centennial anniversary of the Federal Reserve’s founding. The symposium was entitled, “Return to Jekyll Island,” a reference to the secret meeting held on the island by that name off the coast of Georgia in 1910 by seven major financiers of the day.

The symposium was co-chaired by then-current Federal Reserve Chairman Ben Bernanke and his immediate predecessor, Alan Greenspan, who was 85 years old at the time. When the subject of “adequate” capital came up in connection with the crisis, triggered as it was by the failure of Lehman Brothers on September 15, 2008, Greenspan cut loose with this disclosure, throughout which Ben Bernanke, who was seated next to Greenspan on stage, is clearly uncomfortable:

All capital that I see is the problem, and I’m not saying there were lotsI think there was rampant fraud in a lot of what was going on in these markets. But my general judgment is that there are two fundamental reforms that we need: to get adequate capital, and two, to get far higher levels of enforcement of fraud statutes—existing ones, I’m not even talking about new ones. Things were being done which were certainly illegal and clearly criminal in certain cases whichI mean, fraudfraud is a factorfraud creates very considerable instability in competitive markets. If you cannot trust your counterparties, it won’t work, and indeed we saw that it didn’t [emphasis added].82

Insiders and informed outsiders understood that “rampant” criminal fraud drove the global financial crisis. The only question, as President Obama began his first term, was whether the lawsexisting laws, not new laws, as Greenspan pointed outwould be enforced against major Wall Street banks and executives who had profited from that fraud and been bailed out.

D. Post-Crisis Failure to Prosecute Wall Street Crime

When Barack Obama was inaugurated in January 2009, it was really during the last stages of the GFC. The stock market was still in seeming free fall and would not bottom out until early March 2009, though some observers put the bottom as early as October 2008.83

A lot had gone wrong in the years leading up to the GFC flashpoint, namely, the failure of Lehman Brothers on September 15, 2008. In particular, the widespread realization that mortgage-backed securities were systematically infected with fraud, and thus that the collateral backing a vast array of investment vehicles was in fact worthless, drove the seizing up of markets seemingly all at once. This is what Alan Greenspan was referring to in his symposium remarks about “rampant fraud” driving the crisis. It was, therefore, an open question as to what the official response would be to the widespread crime generally and financial crimes in particular that had been perpetrated during the previous administration.

Obama tipped his hand on that score before he was even inaugurated. He gave the barest of lip service to the Rule of Law while indicating that the law simply wouldn’t be applied to crimes perpetrated prior to his presidency:

And I don’t believe that anybody is above the law. On the other hand, I also have a belief that we need to look forward as opposed to looking backwards.84

President Obama stayed true to his word in the sense that no Wall Street executives of major banks were prosecuted while he was in office. Even late during his first term, when two major banks (UBS and HSBC) admitted their guilt in crimes, no one at either bank went to jail. This was a very telling development in view of the explanation President Obama had offered prior to the UBS and HSBC guilty pleas for the failure of the Department of Justice to prosecute. Those guilty pleas seemed to directly contradict what he said on 60 Minutes almost exactly a year earlier, on December 11, 2011:

I can tell you, just from 40,000 feet, that some of the most damaging behavior on Wall Street, in some cases, some of the least ethical behavior on Wall Street, wasn’t illegal.85

“The most damaging and least ethical behavior” is exactly what we, as a society, define as crime. Thus, all of the most damaging and least ethical behavior on Wall Street must, by definition, be criminal unless no crimes were committed at all. President Obama’s position in late 2011, therefore, was simply that no crime had occurred on Wall Street. That was obviously false, as Alan Greenspan had said and as reflected in the UBS and HSBC guilty pleas.

At least it was false on the facts. But there was another sense in which what President Obama was saying in that 60 Minutes interview—that Wall Street was essentially immaculate—was true, as we are about to see.

The Justice Department Did Not Investigate Wall Street Banks at All

As President Obama’s first term progressed, the Justice Department offered a series of excuses for its failure to prosecute any major Wall Street bank or any executives from any major Wall Street bank. Oftentimes the excuses were so flimsy they were risible. In one Senate Judiciary Committee hearing in 2010, Lanny Breuer, DOJ’s Criminal Division head, had been boasting about the successful prosecution of a hedge fund manager. The Chairman of the Committee, Arlen Specter, buttonholes Breuer by asking whether the defendant was from Wall Street. Breuer’s attempt to redefine “Wall Street” (pp. 36-37) in an effort to prop up the appearance that the DOJ was enforcing the law equally and everywhere, is simply laughable:

Specter: The case you mentioned does not appear to be a matter of Wall Street fraud. Or was it?

Breuer: Well, Senator, it was not a matter of Wall Street fraud in the sense of it was not literally on Wall Street and it was not, for instance, a financial institution. But to the degree we are talking about a fellow who purported to be an investor—an investment person who was seeking investment to the degree that he was seeking and getting investments for many both retail and perhaps some institutional investors, I think if we take a more expansive view of what we mean by Wall Street, which is those who we bring into our confidence, those who we provide money to, and those who have in one way or another acted criminally, then in the broader sense I think it was.

To be clear, the problem was not that the DOJ was not investigating and prosecuting criminal fraud cases involving mortgages. It was. In the same hearing where he tries to re-define the boundaries of Wall Street by extending them to Wayzata, Minnesota (where the aforementioned hedge funder perpetrated his crimes), Lanny Breuer boasts: “We have right now probably over 1,000 people charged around the country for mortgage-related frauds, from the most basic to the most advanced and complicated….”87 The problem was that the DOJ was not investigating and prosecuting criminal fraud cases involving mortgages where the perpetrators were from major Wall Street banks.

The discrepancy in enforcement led many to the obvious conclusion that Wall Street was above the law, and that the U.S. justice system now featured (like its monetary system) two separate tiers. An article in Forbes magazine from May 2012 traced the likely source of the problem to the professional background common to both Attorney General Eric Holder and Criminal Division head Lanny Breuer, and in particular to their law firm Covington & Burling:

Covington and Burling, the firm from which both Attorney General Eric Holder and Associate Attorney General and head of the criminal division Lanny Breuer hail, has as its current clients Goldman Sachs, Bank of America, JP Morgan, Wells Fargo, Citigroup, Deutsche Bank, ING, Morgan Stanley,  UBS,  and MF Global among others.88

But whatever the source of the problem was, by the end of Obama’s first term, when the UBS and HSBC cases were publicized, it was clear to everyone that Wall Street was above the law. UBS had pleaded guilty to wire fraud in connection with its admitted rigging of the LIBOR rate. Likewise, HSBC had admitted its guilt in facilitating money laundering by drug dealers and terrorists. Like the case of Bernie Madoff, in other words, the defendants had admitted their guilt, and yet no one from either bank went to jail or was even prosecuted.

Officially, the excuse given by the DOJ was that the “collateral consequences” of an indictment had led prosecutors not to indict the banks but instead to enter into non-prosecution agreements with the banks, under which the banks paid large (read: headline-grabbing) fines. When the DOJ announced its decision not to prosecute UBS (a Covington & Burling client), Eric Holder freely admitted (p. 20):

The impact on the stability of the financial markets around the world is something we take into consideration. We reach out to experts outside the Justice Department to talk about what are the consequences of actions that we might take. What would be the impact of those actions if we would want to make particular prosecutive decisions or determinations with regard to a particular institution.89

Holder was referring to a section of the U.S. Attorneys Manual expressly called “Collateral Consequences.”90 Collateral consequences is but one of 11 separate “Factors to be Considered” by prosecutors when they are in the process of “determining whether to charge a corporation.”91 In both the UBS and HSBC cases, the DOJ took the position that due to the potential collateral consequences of indicting the banks, no prosecution was warranted when a non- or deferred-prosecution agreement would suffice. The New York Times in its coverage of the HSBC case announced the significance of this development in its lede: “It is a dark day for the rule of law.”92

Despite all the hoopla, collateral consequences was just another false cover story for why DOJ was not prosecuting Wall Street entities, personal or corporate, of any significance. There are two separate, independent, and clear-cut grounds in support of this conclusion.

First, on its own terms, collateral consequences only applies to corporate entities, not to individual defendants. Thus, the decision to forego the indictment of a corporate entity despite its criminal guilt wholly fails to explain why no individual defendants from major Wall Street banks were ever indicted. Indeed, the U.S. Attorneys Manual itself implicitly acknowledges that the prosecution of a corporate entity hinges on the doctrine of respondeat superior, under which the corporation may be charged for the crimes of one or more employees; and thus that at least one crime by an individual is required for any corporate prosecution at all.93 By the time a prosecutor gets around to asking whether indicting the corporation might cause collateral consequences, in other words, the criminal guilt of the corporation and thus the existence of at least one crime by at least one employee is a foregone conclusion.

It should have been open season for the DOJ with respect to managers and executives at UBS and HSBC, whose crimes were evidently pervasive enough under the U.S. Attorneys Manual94 to warrant the indictment of the entire bank in both cases. And yet the DOJ did nothing—a dead giveaway that collateral consequences was simply a ruse for the DOJ to give at least one Covington & Burling client (UBS) and its employees a pass.

But the real tell that collateral consequences was a wholly bogus excuse for the DOJ’s prosecutorial failure on Wall Street came from the mouth of Lanny Breuer, who had the misfortune of granting an interview to Martin Smith, a producer for PBS’s Frontline show “The Untouchables.” Smith’s extensive legwork before the interview enabled him to rip the mask off the DOJ with just two questions.

Martin Smith: We spoke to a couple of sources from within the Criminal Division, and they reported that when it came to Wall Street, there were no investigations going on. There were no subpoenas, no document reviews, no wiretaps.

Lanny Breuer: Well, I don’t know who you spoke with because we have looked hard at the very types of matters that you’re talking about.

Martin Smith: These sources said that at the weekly indictment approval meetings that there was no case ever mentioned that was even close to indicting Wall Street for financial crimes.

Lanny Breuer: Well, Martin, if you look at what we and the U.S. attorney community did, I think you have to take a step back….

Smith wasn’t done with Breuer by a long stretch. He also got the DOJ Criminal Division head to confirm that the DOJ hadn’t found any whistleblowers or indeed any witnesses at all. And lest ye believe that finding whistleblowers would require man-hours exceeding the bandwidth of the 10,000-attorneys-strong DOJ, Smith produced an independent filmmaker, Nick Verbitzky. who explained how he found whistleblowers by himself:

I think, you know, the ease with which I found these people and the things that they were telling me, you know, it wouldn’t have taken a lot of effort on the part of a regulatory entity in Washington to have done this.

I’m an independent filmmaker. You know, I’m not a financial regulator. I’m not somebody who’s running the SEC. It’s, like, you know, “What have you guys been doing? What have you been looking at?” I mean, I went out and found these people myself and—you know, in my spare time, basically, you know, and—and it—it was work, but it wasn’t that hard.

The day after “The Untouchables” aired, Lanny Breuer resigned in disgrace from the DOJ.97 Martin Smith had manhandled the nation’s second-highest ranking law enforcer, pushing Breuer into several damning admissions with seeming ease. Even worse than the express admissions, all of which underscored his obedience to Wall Street and his betrayal of its victims, was Breuer’s body language, which gave him away at every turn. Breuer twitched and fidgeted throughout the interview under Martin Smith’s unwavering stare, which Breuer could never meet for more than a couple of seconds. It was a literal portrait of shame.98

As fast as Breuer was to resign from the Justice Department, he wasn’t fast enough to evade the history books. There Lanny Breuer will sit as an indelible punctuation mark on a sustained and breathtakingly shameful chapter of American history in which the DOJ openly sided with criminal Wall Street banks that had defrauded Americans out of untold trillions of wealth. But at least Breuer’s thorough betrayal of the Constitution he swore to uphold and of the people he swore to defend from foreign and domestic enemies came with a financial reward, namely, $4 million per year. That’s how much he was expected to be paid when he returned to Covington & Burling.99

Wall Street Banks Have Criminal Immunity and Thus Unchecked Power

The danger that lies in the power of criminal immunity demonstrated by Wall Street throughout both of Obama’s terms, and indeed ever since the financial crisis, including throughout Donald Trump’s term of office, cannot be overstated. The U.S. Constitution takes great pains to allocate a long list of sovereign powers throughout the three branches of government. All of that is for naught, however, if there exists one or more private parties who are beyond the reach of law enforcement, because with such immunity they could simply replicate the sovereign powers of “we the people” without restraint and with total impunity. In other words, the power of criminal immunity is total power, which as such should not exist in a constitutional republic or any other system under the Rule of Law. The power of criminal immunity is ultimately tantamount to sovereign immunity.

As a practical matter, and as we saw, criminal immunity is achieved through the Department of Justice, which is the only federal agency with the power to jail parties by conducting criminal trials. Thus if a would-be dictator wanted to seize control of the U.S. government, the Justice Department would be the place to start. Seventy years ago, this very point was made on Chronoscope, one of the first TV news analysis shows in the U.S.:

William Bradford Huie: Now, sir, in general, about the Department of Justice, isn’t it true that nations that have fallen into totalitarianism—that one of the agencies of government that’s become totalitarian or a tool of totalitarianism, has been the Department of Justice, isn’t that one of the key agencies that shows deterioration?

Rep. Kenneth Keating: Absolutely, a dictator must get hold of the Justice Department and the police, the interior.

William Bradford Huie: So if our own country, as many people fear, if our own country should ever fall into totalitarianism, the Department of Justice would be one of the first failures, wouldn’t it?

Rep. Kenneth Keating: It would be an absolutely essential cog in such a machine.

Wall Street banks and their executives have enjoyed criminal immunity since at least as early as the financial crisis. Even the handful of cases that the DOJ brought against mid-level managers have all been overturned on appeal now. That is hardly surprising. As we have seen, the criminal immunity goes beyond prosecutorial immunity and includes immunity even from investigations—No subpoenas, No documents, No wiretaps should be chiseled into the frieze of the Justice Department.

The implications of this immunity are staggering.

Wall Street Banks Are More Powerful Than the President

The history of Watergate, involving as it did a sitting U.S. President accused of crimes, offers a rich source of evidence from which we can assess the power now possessed by Wall Street banks. It is an unnerving comparison, to say the least.

Richard M. Nixon was never prosecuted for any crimes, neither when he sat in the White House nor after he resigned, despite allegations and evidence of crime, namely, using his office to mastermind a theft of politically compromising materials from his political enemies.

Nixon wasn’t prosecuted after he resigned because he enjoyed criminal immunity as the result of a pardon by President Gerald Ford.

The non-prosecution of Nixon while he was still president was another story altogether. As a threshold matter, the legal question of whether it’s even constitutionally permissible to prosecute a sitting U.S. president for crimes had to be answered first. On this score, the Office of Legal Counsel (OLC)101 issued a lengthy memo on the issue in September 1973. The memo, written by the head of the OLC, Robert Dixon, suggests but does not definitively conclude “that an impeachment proceeding is the only appropriate way to deal with a President while in office.”102 The OLC found persuasive, among other things, three separate Federalist Papers (nos. 65, 69, and 77) all stating that the president could be prosecuted after he left office.103

To be clear, however, the issue of whether the president can be prosecuted while in office never reached an Article 3 court, meaning there is no judicial authority directly on point, only opinions such as those issued by the OLC. But the weight of those opinions is that a sitting president cannot be prosecuted while in office.104

What has been addressed by an Article 3 court—by the Supreme Court, no less—is whether a sitting president can be subpoenaed as part of a criminal investigation. In United States vs. Nixon,105 the Supreme Court rejected Nixon’s claim of executive privilege, which Nixon had asserted in an effort to quash the subpoena of his White House tape recordings issued by the federal district court in the criminal case brought against seven individuals, not including Nixon, connected with the Watergate break-in.

The impediment that an absolute, unqualified privilege would place in the way of the primary constitutional duty of the Judicial Branch to do justice in criminal prosecutions would plainly conflict with the function of the courts under Article III.106

Thus, according to the U.S. Supreme Court, a sitting U.S. President, whatever his immunity might be with respect to being criminally prosecuted himself, is not immune from investigation. In this light, Martin Smith’s revelation in “The Untouchables” that “when it came to Wall Street, there were no investigations going on—no subpoenas, no document reviews, no wiretaps”—underscores the shocking and frankly disturbing power possessed by Wall Street under the generalized heading of “collateral consequences.”

Collateral consequences, as set forth in the U.S. Attorneys Manual, doesn’t just immunize Wall Street banks from prosecution, which may or may not have put those banks on comparable legal footing with the U.S. president. On the contrary, collateral consequences is the Trojan horse inside the Justice Department that gives Wall Street banks a legal power—immunity from investigation—that is not available to anyone in the U.S. government, nor indeed to anyone else in the entire country.

Somewhat telling is the fact that collateral consequences puts the DOJ in the position of asserting criminal immunity on behalf of Wall Street banks.107 The banks themselves never even had to plead immunity.108 By contrast, in U.S. vs. Nixon, the president asserted immunity himself (through White House Special Counsel John D. St. Clair), while the DOJ, in that case acting through Special Prosecutor Leon Jaworski, opposed the assertion of immunity.

The superior “legal” power of Wall Street banks and banking executives over and above the sitting U.S. president is apparent from the following chart.

The about-face of the Justice Department on the issue of immunity since Watergate is revealing. During Watergate, the DOJ opposed President Nixon’s claim of legal immunity against investigation. And yet 40 years later the DOJ was actively asserting that Wall Street banks in fact possessed criminal immunity via the DOJ’s own U.S. Attorneys Manual.

But the DOJ is part of the executive branch. The head of the DOJ is the U.S. Attorney General, a cabinet member who answers directly to the U.S. president. All of this begs a fundamental question about Wall Street banks: since the U.S. president lacked the legal power of immunity from investigations, and thus could not as a matter of law have delegated a power that he did not have, where, pray tell, did Wall Street banks and executives acquire such power?

E. The TARP Bailout of 2008 Was in Fact a Coup d’Etat

The widely detested $700 billion Troubled Asset Relief Program (TARP) bailout passed the House of Representatives on Friday, October 3, 2008, but only after a massive battle—the tumult of which was chronicled in mainstream headlines—that appears in retrospect to have been won by the pro-bailout side of the debate only as the result of a coup d’état.

As is clear from Solari’s 2019 Missing Money report, the stage had been all but set for perfecting such a coup for some time, with many key players having been operating largely as a crime family for the better part of the previous decade:

There are many words that could be used to describe such a governance model. The phrase I find most appropriate was used in 2001 by the chief of staff to the Chairman of the Senate Appropriations Subcommittee that oversees HUD and Treasury to describe the U.S. government mortgage insurance and housing subsidy operations. The mortgage bubble engineered by the U.S. government and central bank was in full bloom at the time. The term they chose to describe an operation run by a matrix of agencies and banks—FHA, HUD, the U.S. Treasury, the Department of Justice, the Office of Management and Budget, and the New York Fed and its member banks—was a “criminal enterprise.”109

The bailout of 2008, then, did not come out of thin air. Crime and fraud had been running throughout both the U.S. government and Wall Street for quite some time, with great assistance from the freely revolving door between them.

For example, we have already noted Robert Rubin’s direct involvement in large-scale mortgage fraud while at Citigroup, where his tenure on the executive committee had begun in 1999. Immediately before that, though, Rubin had been the U.S. Treasury Secretary, from 1995 until mid-1999. As detailed in Solari’s Missing Money reports, that is exactly when undocumentable adjustments in the government’s books first began, initially at $17 billion in FY 1998 but then more than tripling to $59 billion the very next year, FY 1999.110 The degree to which massive accounting frauds followed Robert Rubin around no matter where he went, as if attached to the man like barnacles, is quite remarkable.

In any case, rising home prices had allowed the rot of systematic fraud throughout Wall Street, which destroyed any real value behind countless mortgage products sold to investors, to remain hidden for a long time. Once home prices peaked and began to decline in 2006, however, the mask hiding the ugly truth started to come off.

Unfortunately, the mortgage bubble had been built largely on a foundation of over-leveraged homeowners, who were hurt by the downturn in prices. Not merely underwater, many of them were facing the very real prospect of foreclosure. This was the basic scene when the crisis began to manifest itself in the late summer of 2008.

When Treasury Secretary and Goldman Sachs alumnus Henry Paulson first pitched the TARP bailout on September 20,111 it was immediately met with once-in-a-generation fury from the American public. Even mainstream commentators conceded that opposition to TARP ran at 10-to-1,112 though the author recalls the opposition running an order of magnitude higher; it is extremely difficult to find honest reporting on the bailout now.

But the real threat of TARP to the elite was that opposition was both furious and bipartisan—the perfecta ticket that instills fear within the establishment faster than any other.

Polls overwhelmingly show a public that sees voting for this bill as an act of economic treason whereby the bipartisan Washington elite robs taxpayer cash to give their campaign contributors a trillion-dollar gift. As just two of many examples, Bloomberg News’ poll shows “decisive” opposition to the bailout proposal, and Rasmussen reports that their surveys show “the more voters learn about the proposed $700 billion federal bailout plan for the U.S. economy, the more they don’t like it.” Put another way, this bailout proposal has unified both the Right and Left sides of the populist uprising that I described in my new book and that is now even more angry than ever.113

When the TARP bailout first came to a vote on Monday, September 29, 2008, the House rejected the legislation by a margin of 228-205.114 And yet just four days later, after the bill passed in the Senate,115 the House of Representatives reversed itself and passed the bailout bill by a margin of 171-263.116

What happened?

Good old-fashioned graft played a big role in the reversal:

On the initial vote, on September 29, 2008, the TARP bill was defeated by twenty-three votes in the House of Representatives. After the defeat, the Bush administration held an auction. It asked, in effect, each of the opposing congressmen how much they needed in gifts to their districts and constituents to change their vote. Thirty-two Democrats and twenty-six Republicans who voted no on the original bill switched sides to support TARP in the revised bill, passed on October 3, 2008. The congressmen’s change of vote was prompted in part by fears of a global economic meltdown and by provisions ensuring better oversight, but, for at least many of the congressmen who had changed their votes, there was a clear quid pro quo: the revised bill contained $150 billion in special tax provisions for their constituents. No one said that members of Congress could be bought cheaply.117

Common sense says there had to be more to it than mere financial bribery, however, since someone who is willing to bribe a congressman is very likely willing to engage in a whole host of other unethical and criminal behavior to get their way. And indeed, there was more to it.

Marcy Kaptur (D-OH) Spills the Beans

One day ahead of the one-year anniversary of TARP’s passage (and its signing by President Bush into law), popular documentary filmmaker Michael Moore released Capitalism: A Love Story (2009).118 Though the film is an extended screed against one of the left’s favorite chew toys (capitalism), it nevertheless features some first-rate journalism by Moore that is unmatched in the quality of its revelations about what happened in the U.S. House of Representatives during the week that TARP passed.

Moore interviewed two members of the House about the reversal that took place. The more revealing and credible interview was that by Marcy Kaptur (D-OH), who voted against the legislation both times. The interview of Elijah Cummings (D-MD), though it provides some interesting color, is short on specifics—but its real defect is that it came from someone who changed his no-vote to a yes-vote that week. For an event enveloped within a cloud of bribery (or worse), the credibility of Cummings’ version of things must be discounted accordingly. It is credible, though, at least to the extent that it corroborates Kaptur’s testimony.

There are many things that make Kaptur’s many appearances in the film astonishing, not least of which is her no-holds-barred condemnation of her own political party:

The Democrats became the delivery man for a bill for the Republican president. Presidents and presidents-to-be made phone calls and members—I know at least two members who have an interest in the U.S. Senate, and promises were made.

The “promises were made” bit is particularly interesting in that it broadens the scope of bribery from merely financial (as suggested by Stiglitz above) to political as well.119

Interestingly as well is that Kaptur goes on in a way that is again in line with the historical connection between money and physical power:

Kaptur: It was very carefully planned to happen when it did, to involve the players that it did. The message was carefully handled. They had Congress right where they wanted them.

Moore: You don’t think it was just happenstance?

Kaptur: No. This was almost like an intelligence operation that had to be coordinated at the highest levels.

It is here that Rep. Cummings chimes in with the observation, somewhat obvious in retrospect that “there are some forces. . . [that are not democratic, per interjection by Moore]. . . that are in control.”

Kaptur concludes:

Kaptur: They did a masterful job. Very well executed.

Moore: Do you think it’s too harsh to call what has happened here a coup d’état? A financial coup d’état?

Kaptur: No, because I think that’s what’s happened.

Moore: A financial coup d’état?

Kaptur: I could agree with that. I could agree with that because the people here [pointing to the U.S. Capitol Building] really aren’t in charge. Wall Street is in charge.

Subsequent events would corroborate Kaptur’s conclusion about a coup d’état to an alarming extent.

The Citigroup-Froman Memo

In 2016, Wikileaks released over 10,000 pages of email from John Podesta, then the Chairman of Hillary Clinton’s campaign for president.120 Due to the imminence of the presidential election at the time of the email release, the public’s attention was naturally drawn to those email messages that concerned the Democratic presidential candidate.

However, as David Dayen wrote for The New Republic, “the most important Wikileaks revelation [wasn’t] about Hillary Clinton.”121 The most important email message was from a Citigroup executive named Michael Froman addressed to John Podesta, which correctly identified the majority of Obama’s cabinet three months before Barack Obama was inaugurated and indeed, one month before he was even elected.

Dayen wrote:

The cabinet list ended up being almost entirely on the money. It correctly identified Eric Holder for the Justice Department, Janet Napolitano for Homeland Security, Robert Gates for Defense, Rahm Emanuel for chief of staff, Peter Orszag for the Office of Management and Budget, Arne Duncan for Education, Eric Shinseki for Veterans Affairs, Kathleen Sibelius for Health and Human Services, Melody Barnes for the Domestic Policy Council, and more. For the Treasury, three possibilities were on the list: Robert Rubin, Larry Summers, and Timothy Geithner [emphasis added].122

Dayen correctly observed that the email reflected “the Bob Rubin school of Democratic policy makers.”123 What he did not point out, however, is just how quickly the cabinet email was sent following the passage of the TARP bailout. The email is dated Monday, October 6, 2008 at 9:34 AM. The TARP bailout passed the House at 1:22 PM the previous Friday124 and was signed into law by President Bush that afternoon.

Citigroup needed the TARP bailout more than any other Wall Street bank, for two related reasons. First, out of all the insolvent banks on Wall Street in 2008, Citigroup was by far the worst of the lot. It would go on to post losses of $27.7 billion that year, tying with Merrill Lynch, an investment bank before it got rolled up into Bank of America. Citi and Bank of America received the most money from the TARP bailout, $45 billion, over 70% of which Citi paid out in compensation.125 Without the $45 billion TARP bailout, Citigroup would have been irretrievably insolvent and would have faced resolution (the bank-equivalent of bankruptcy).

Second, and by extension, the resolution of Citigroup would almost certainly have landed Bob Rubin and others in prison. Even after the bailout passed and saved Citigroup’s hide, Bob Rubin’s criminal behavior at the top rung of the bank in the years leading up to the crisis later earned him criminal referral by the Financial Crisis Inquiry Commission, as we already saw. That was in large part the consequence of the internal Citigroup email to Rubin from Richard Bowen.

Rubin’s likely fate had Citi been wound down instead of bailed out can be assessed based on what happened with Lehman Brothers.

When Lehman Brothers went bankrupt, all of its dirty laundry came out in the 2200-page, 8000-footnote bankruptcy report authored by Antonin Valukas. The same massive forensic autopsy would have occasioned Citigroup’s demise. Bowen’s email is likely just one piece of evidence out of hundreds or thousands that would have documented Rubin’s knowledge of Citigroup’s systematic mortgage-related frauds.

Even more importantly, though, the bankruptcy of Citigroup would have severely jeopardized the bank’s apparent organization of Obama’s transition team and, with it, the odds of installing partners Eric Holder and Lanny Breuer from the bank’s own law firm at the top two slots in the Justice Department. The Covington-run DOJ sat on the criminal referral of Bob Rubin, as we know. Another Attorney General might not have been so passive toward an executive in one of his law firm’s top clients, particularly if the criminal referral included a huge trove of other information implicating Rubin in crimes.

In short, a Citigroup bankruptcy would have unraveled the bank’s plans for an All-Star cabinet under Obama as set forth in the Froman email to Podesta. This strongly corroborates Marcy Kaptur’s conclusion that a coup d’état had taken place in order to effect the reversal of votes needed in the House to pass the TARP bailout.

Obama and Citigroup: Who’s in Charge?

The passage of the TARP bailout bill on October 3, 2008 didn’t even manage to tap the brakes on the plummeting disaster known as Citigroup. Since the earliest stages of the financial crisis, the bank’s stock had been indistinguishable from radioactive waste: in the 21 months between June 1, 2007 and March 1, 2009, Citigroup’s share price decayed from $54.10 to $1.03, meaning every dollar invested into Citi had a literal half-life of about three months.

No matter how much money was injected into the moribund bank, nothing could revive it. The TARP bailout money that Citigroup received—$45 billion—didn’t help. Neither did the FDIC’s ring-fencing of over $300 billion in toxic Citigroup assets. Nor did emergency loans from the Federal Reserve totaling $2.5 trillion—a cool half a trillion dollars more than the next-sickest Wall Street firm on death’s doorstep, Morgan Stanley.

Citigroup’s hubris was seemingly immune even to its own unchecked implosion, however. In January 2009, the bank was set to take delivery of a $50 million corporate jet. Unlike Citigroup, President Obama was not so tone deaf and to his credit publicly reprimanded the bank, calling the use of public money on jets “outrageous.” True to arrogant form, Citigroup initially said it was too late to cancel the order, but eventually bowed to the pressure—at least it did after Treasury Secretary Tim Geithner followed up a White House call to the bank.126

By February 2009, rumors had begun to percolate—likely trial balloons floated by the government—that Citigroup would be nationalized.127 The rumors had at least the sheen of credibility in that the government had taken over IndyMac the previous summer and had later taken an 80% equity stake in AIG.128

But unlike IndyMac (a mortgage lender) and AIG (an insurance company), Citigroup was (and is) a commercial bank and as such has direct influence on the money supply: by itself, the bank held $836 billion in deposits in 2009,129 more than 10% of the nationwide total deposit pool of $7,697 trillion.130 Thus, bank regulators couldn’t just walk into Citi’s corporate headquarters, deem the company a criminal enterprise, and shut down operations without courting very serious risks.

Additionally, it is worth pointing out that Citigroup, like all of the big four U.S. commercial banks,131 had grown to its massive size largely as the result of merger mania starting under President Clinton,132 including at least one merger (Citigroup and Travelers Group) that went forward despite representing a direct violation of both the Glass-Steagall Act (preventing a commercial bank from engaging in investment banking) and the Bank Holding Company Act of 1956.133

Again we see the tendency of commercial banks to use their money-issuing authority to increase their power, even when doing so violates the law.

This problem had gotten so big by 2008 that Citigroup was producing memos that determined the Cabinet composition of a man who had not yet been elected (but who would be). And by 2009, as we are about to see, Citigroup was more powerful than the president himself. True, the bank had bowed to pressure from President Obama to scrap its plans to take possession of a corporate jet, but the bank had done so only at the urging of both President Obama and Treasury Secretary Tim Geithner. As Dave Dayen points out, Geithner had been a protégé of Bob Rubin, a top Citigroup executive.

The question was, thus, how would things have shaken out if Tim Geithner had opposed President Obama with respect to Citigroup? In other words, who was really the boss? If Marcy Kaptur was correct, that a coup d’état had taken place to effect the passage of TARP, under which the biggest benefactor was Citigroup—a massive bank that then promptly turned around and named its own cabinet—well, then the boss was probably Citigroup.

In 2011, we got our answer when Ron Suskind published a book about the Obama White House, Confidence Men. Suskind summarized the 500-page book as follows on The Dylan Ratigan Show:134

The fact of the matter is, Dylan, who’s the boss? Barack Obama had a chance to be the boss in March of 2009, and he blinked. That’s the core of the book.135

Suskind then described the two opposing sides of a major riff in the Obama White House, a riff over how to handle big Wall Street banks like Citigroup. The majority of participants favored President Obama’s plan, which involved restructuring the banks rather than continuing with bailouts.

Suskind: They [the banks] will be resolved and restructured and they will come out of it clean, with a business model that—

Ratigan: And you’re saying that Obama asserted that in March of ‘09. To who?

Suskind: He asserted it in a meeting with everybody of consequence: Larry Summers—

Ratigan: Summers et cetera, down the line.

Suskind: Larry Summers and Christy Roemer were on the president’s side. Tim Geithner was the lone man standing on behalf of “just be cautious and push money towards Wall Street as best you can.” And Geithner wins [emphasis added].136

Marcy Kaptur was correct—there had been a coup d’état, as the result of which big Wall Street banks were running the White House through their representative, Tim Geithner, who’d been tapped as the Treasury Secretary by none other than Citigroup itself. Three months after Suskind’s interview, President Obama appeared on 60 Minutes to discuss, among other things, Wall Street crime leading up to the financial crisis and what to do about it. As we have already mentioned, Obama stated:

I can tell you, just from 40,000 feet, that some of the most damaging behavior on Wall Street, in some cases, some of the least ethical behavior on Wall Street, wasn’t illegal.

As we saw, that statement was wrong on the facts. In view of the foregoing revelations about the radical shift in political power, Obama’s statement looks a lot like Blackstone’s statement about the king doing no wrong: it’s not a factual matter, it’s merely a statement about who possesses that ultimate power—criminal immunity.

For England in 1765, it was the king. For the U.S. since 2009, it’s been Wall Street banks.

In that light, it is really not all that surprising that Wall Street banks (or really, whoever owns them; see below) have institutionalized their criminal system by applying various glazes atop the whole fraudulent mess to give off the sheen of legality. That’s really what “collateral consequences” was all about in late 2012: it gave prosecutors an official-looking excuse for not investigating Wall Street banks at all.

Likewise was the adoption of Federal Accounting Standards Advisory Board (FASAB) Statement 56 in 2018, an accounting measure that lent an official imprimatur to loopholes that enable wholesale accounting fraud and theft within the government.137

In short, despite their massive crimes against U.S. citizens, the institutions behind these crimes are not held accountable because now they can literally do no wrong, exactly as King George III freely committed crimes against untold numbers of American colonists.

American history has indeed been reversed.

VI. Post-Pandemic U.S. Is Poised to Lose Her Sovereignty

A. Introduction

In one sense, it would seem that the U.S. lost her sovereignty in the coup d’état that Marcy Kaptur spoke of. Certainly, the major Wall Street banks are above the law: there is in effect no Rule of Law in the U.S., a fact that’s remained emblazoned in the U.S. Attorneys Manual’s “collateral consequences” doctrine through three different presidential administrations (four if you count both Obama Administrations), which in turn enables Wall Street to hand its orders to the U.S. President, whose real job boils down to peddling the plans and schemes of his superiors to the unwitting public.

Technically, though, that is not really a loss of sovereignty—not quite. What has changed in the U.S. is not so much the loss of her sovereignty as it is a change in sovereigns, that is, a changing of the guard. Whereas previously the sovereign of the U.S. was found in her Constitution’s first three words (“we the people”), since 2009 the real sovereign has been the major Wall Street banks, thanks in no small part to the assistance of their law firm, the Department of Justice. Still, though, the locus of sovereignty has remained on U.S. soil even if it has slipped out of the hands of “we the people.” At least it has if we equate “Wall Street banks” with the physical address of Wall Street in lower Manhattan.

In reality, though, “Wall Street banks” means the owners of those banks, which are most assuredly not all located in the U.S. Wall Street banks are pretty much like all other huge, publicly traded companies: they are owned, according to the proxy statements they file with the Securities and Exchange Commission (SEC), by BlackRock, Vanguard, Fidelity, etc. And who knows who owns those concerns?

The answer is not particularly relevant, as it turns out, because Wall Street banks lack the capacity for monetary sovereignty, as we shall see. Monetary sovereignty belongs to the Federal Reserve, to whom Wall Street banks are legally subordinate.

It is thus the Federal Reserve that is in position to deliver the crowning blow to U.S. sovereignty. That contingency, should it occur, is likely to arise from the Fed’s acts with respect to a CBDC generally and to global efforts to harmonize CBDCs across nations in particular.

B. The Real Sovereign Power in the U.S. Is the Federal Reserve

While “Wall Street banks” might control the top echelon of U.S. law enforcement (the DOJ), they are in no legal position to issue lawful money. This is a major vulnerability, which means that Wall Street banks lack the standing or capacity for true sovereignty.

The reason for this is rooted in the fact that Wall Street banks, like all commercial banks, can only issue debt-money, a liability on their balance sheets. If a sufficiently wealthy group of depositors, however small, demands cash (or likewise reserves, by demanding the transfer of deposits to another bank), and the bank can’t meet the demand, those depositors “can take steps to liquidate the bank.”138

Wall Street banks, in other words, are legally subordinate to the issuer of cash and reserves, that is, the U.S. Federal Reserve. And while cash and reserves themselves likewise appear as liabilities on the Fed’s balance sheet—just as bank-money appears as a liability on the balance sheet of a commercial bank—there is a crucial difference that marks the Fed rather than commercial banks as top dog: the Fed’s so-called “liabilities” do not leave it vulnerable in the same way as Wall Street banks are because Fed money (cash and reserves) has not been, legally speaking, a liability at all ever since the U.S. went off the gold standard in 1971:

The Bretton Woods Agreement collapsed in the early 1970s with the United States’ unilateral renunciation of the obligation to redeem US Dollars in gold; thereafter, most global currencies were unbacked by any kind of asset at all and CBM [central bank money] became complete “fiat” money. With that final collapse of the gold-peg (a.k.a., the gold-dollar standard), banknotes [cash] and deposit balances [reserves] in central bank accounts no longer carried hard legal obligations to maintain any particular ratio of assets to monetary units and the current status quo was fixed [emphasis added].139

The Fed, in other words, is issuing real money,140 while Wall Street banks issue nothing but debt-money. As we have seen, the issuance of debt-money is tantamount to issuing legal rope that can be easily turned and used to strangle the issuer.

The analysis thus far has left open two major issues with respect to the hierarchy as between the Fed and Wall Street. First, who owns the Federal Reserve? If the Fed is truly an agency of the U.S. government, then it would follow that “we the people” are in fact sovereign and, thus, that there is nothing to worry about. Second, even if the Fed (and not Wall Street banks) possesses the sovereign power of money issuance, Wall Street banks would still appear to bear that ultimate earmark of a sovereign—that is, criminal immunity. We address these issues in turn.

The Federal Reserve Is Privately Owned

As of February 2022, the Fed has sitting on its balance sheet $2.18 trillion in cash (Federal Reserve notes), $3.80 trillion in reserves (deposits held by depository institutions, i.e., banks), and $8.87 trillion in total liabilities.141 Who issued these liabilities? The title of the table where this information appears, Table 5 of the Fed’s weekly H.4.1 report, provides the answer: “Consolidated Statement of Condition of All Federal Reserve Banks [emphasis added].”142

The meaning of “all Federal Reserve Banks” is evident from the title of the next table in the H.4.1 report, Table 6: “Statement of Condition of Each Federal Reserve Bank, February 16, 2022.” Table 6 identifies the 12 regional Federal Reserve banks that issue liabilities. From left to right on Table 6, these are the regional Federal Reserve banks of Boston (1), New York (2), Philadelphia (3), Cleveland (4), Richmond (5), Atlanta (6), Chicago (7), St. Louis (8), Minneapolis (9), Kansas City (10), Dallas (11), and San Francisco (12).

Each of the 12 regional banks has a unique numerical identifier corresponding to its left-to-right position on the Fed’s balance as set forth in the previous paragraph and as shown on the Fed’s own map of regional districts:

Older Federal Reserve notes used to identify the issuing regional district bank expressly by placing the name of the bank within a circle next to a number corresponding to the bank’s district (e.g., 5 for the Federal Reserve Bank of Richmond); and inside the circle there was printed a letter corresponding to the number (e.g., E, for the 5th letter of the alphabet).

This $100 bill was issued in 1993 by the Federal Reserve Bank of Boston in the 1st region (A) of the Fed:

Modern Federal Reserve notes have dispatched with the express identification of the regional district bank of issuance. However, the regional district bank that issues any given notes remains identifiable by the note’s alphanumeric identifier.

This $100 bill, for instance, was issued in 2009 by the Federal Reserve Bank of Chicago (G7):

Returning to the Fed’s balance sheet, Table 6 shows the contribution of each regional district Federal Reserve bank to the total of the Fed’s balance sheet, which indeed amounts to no more than the sum total of the 12 regional banks’ balance sheet. Thus, with respect to the Fed’s total issuance of $2.18 trillion in cash, for example, the Federal Reserve Bank of Chicago issued $125.2 billion of that amount.

Now that it is clear that the 12 regional Federal Reserve banks are the nation’s money-issuing entities,143 the next question is, who owns the regional Federal Reserve banks? That question was answered definitively by the Federal Reserve Bank of New York in 1977 in a publication144 entitled, “I Bet You Thought. . .”:

The 12 regional Reserve Banks aren’t Government institutions but corporations nominally “owned” by member commercial banks, who must buy special, nonmarketable stock in their district Federal Reserve Bank.145

From this, two relevant points are at once apparent. First, the owners of the regional district Federal Reserve banks are the commercial banks in the district. Thus, the Federal Reserve Bank of New York, far and away the most important regional district Federal Reserve bank,146 is pretty much owned by Wall Street banks themselves. Thus, for many purposes, to discuss Wall Street banks as separate from the New York Fed or even the Fed itself is largely a distinction without a difference.

In many ways, then, the question of whether or not the Fed’s power of money issuance trumps Wall Street’s power of criminal immunity folds into itself.

This bring us to the second and more important point. Regardless of how much overlap there is between major Wall Street banks, on the one hand, and the Federal Reserve, on the other, the sovereign power of money issuance rests not in the hands of “we the people” but instead (as stated by the New York Fed in 1977) in the hands of “corporations nominally ‘owned’ by member commercial banks.”

As a legal matter, though, it is the Federal Reserve that possesses the power of sovereign money issuance, and it is the Federal Reserve that exercises legal dominion over Wall Street banks, in particular, and indeed over all commercial banks generally. That’s because, as shown, commercial banks issue bank money that legally speaking is a true liability, which leaves them subject to the Fed’s sovereign power of money issuance.

To date, this legal reality has not manifested itself in any noticeable way, but that could very well change depending on what the Federal Reserve chooses to do with central bank digital currencies (CBDCs).

Money Issuance as the Ultimate Sovereign Power

There is some legal reason to believe that money issuance is not just an important sovereign power, but the defining sovereign power. One would expect, were it otherwise, that in a civil war where rebel forces were ultimately defeated, that any “money” issued by the temporary rebel makeshift “government” would not legally qualify as such under the sovereign law of the country that prevailed in the war. After all, the only lawful money would seem to be that money issued by the prevailing country.

Surprisingly, however, that is not the case, even in the United States. As a leading international legal treatise on monetary law has it:

[I]f in the course of a civil war rebels assume power within a certain district and, by irresistible force, impose a currency upon the inhabitants, this is lawful money: although the insurgents do not form a recognized government, they exercise de facto supremacy in all matters of government which makes obedience to their authority in civil and local matters not only a necessity but a duty. This is the effect of a long line of decisions of the Supreme Court of the United States.147

Without belaboring the point, notice what appears to be the principle at work here insofar as the discussion of sovereignty is concerned: the power of money issuance is supreme because, to be effective, it carries with it “irresistible force,” meaning that the sovereign powers of money issuance can never really be cleaved from the power of law enforcement, backed, as the latter is, by force. In this light, the common ownership of the Fed, with its power of money issuance, and Wall Street banks, with their powers over law enforcement, makes total sense.

For this reason, it is especially important to keep an eye on what the Federal Reserve is up to with respect to CBDC because so much is riding, whether visibly or not, on the power of money issuance.

C. CBDC and the Reversion to Colonialism

The Federal Reserve has repeatedly signaled its intention to issue a CBDC.148 A CBDC would represent the third type of liability on the Fed’s balance sheet:

“Central bank money” refers to money that is a liability of the central bank. In the United States, there are currently two types of central bank money: physical currency issued by the Federal Reserve and digital balances held by commercial banks at the Federal Reserve.149

As discussed earlier, while physical currency and digital balances both appear as liabilities on the Fed’s balance sheet, legally they are not really liabilities due to the lack of redeemability since 1971. Thus, those types of money are superior to bank money, which is issued as debt (an IOU from the commercial bank to its depositors). As also discussed, the Fed enjoys dominion over commercial banks because the latter must settle debt-money transactions among themselves with either reserves or Federal Reserve notes—which even if considered liabilities, are liabilities issued by the Federal Reserve.

It is possible that this same dynamic could play out analogously on a global stage, with the Federal Reserve stepping into the inferior legal role of commercial banks, and a global monetary authority, for example, the International Monetary Fund (IMF), stepping into the superior role that the Federal Reserve plays in the U.S. monetary system now.

If that happens, the Federal Reserve will have given away the monetary sovereignty that it enjoys now (allegedly as an agent of the U.S.). The critical feature to understand in this process is settlement.

The Global CBDC System May Need a Settlement Currency (Other Than the U.S. Dollar)

As noted elsewhere in this essay, commercial banks create deposits as a form of debt (an IOU) that appears on the liability side of their balance sheets. This creates the need for a second tier of money to “settle” transactions between banks.

Let’s say customers of PNC Bank transfer $10 million to customers of Farmers State Bank on some given day, and that customers of Farmers State Bank transfer $9 million to PNC Bank customers on that same day. On that day, then, PNC Bank owes Farmers State Bank $1 million, because Farmers State Bank absorbed $10 million of liabilities from PNC Bank, whereas PNC Bank only absorbed $9 million in liabilities from Farmers State Bank. Thus, the two banks need to “settle” that imbalance by having PNC Bank pay Farmers State Bank $1 million.

PNC Bank cannot settle its $1 million debt with its own IOU bank money; its own IOU bank money is what created its $1 million debt in the first place. PNC Bank needs a settlement currency. In the U.S., the settlement currency for commercial banks comes in two forms: Federal Reserve notes (physical cash) or reserves (digital cash available only to institutions that bank with the Fed).

Now let’s go up one level in the monetary food chain and consider CBDCs issued by both the U.S. central bank (the Fed) and the UK central bank (the Bank of England or BOE). For both the Fed and BOE, their respective CBDCs are liabilities on their balance sheet, just like bank money was a liability on the balance sheets in our commercial bank settlement example.

The difference is that all the commercial bank transactions were denominated in U.S. dollars. With the CBDCs in our example, however, the Fed’s CBDC is denominated in U.S. dollars ($ or USD), whereas BOE’s CBDC is denominated in the pound sterling (£ or GBP).

At first blush, this might seem to present an apples-versus-oranges scenario to which the all-USD commercial bank settlement example does not apply. Empirically, however, that is not so, as illustrated in a single real-world example involving XRP, a digital asset with some some very interesting players who have been involved with its use in settling cross-border (i.e., multi-currency) transactions.

According to the website of Ripple, a fintech company that builds global payment systems:

XRP is a digital asset built for payments. It is the native digital asset on the XRP Ledger—an open-source, permissionless and decentralized blockchain technology that can settle transactions in 3-5 seconds. XRP can be sent directly without needing a central intermediary, making it a convenient instrument in bridging two different currencies quickly and efficiently [emphasis added].150

Notably, two global too-big-to-fail banks151 in two different countries—Bank of America in the U.S. and Banco Santander in Spain152—are both users of RippleNet, Ripple’s private network that connects financial institutions around the world.153 That should suffice to demonstrate the serious interest in Ripple’s XRP digital asset shown by major global commercial banks.

Moreover, there is evidence that cross-border payment settlements in two different currencies are already being effected in real time using XRP as the settlement asset:

SBI Remit will connect with and digital asset exchange platform SBI VC Trade on RippleNet, Ripple global payments network, to facilitate cross-border payments from Japan to the Philippines. Ripple’s ODL [on-demand liquidity] service will allow RippleNet customers to tap the digital asset XRP to avoid pre-funding and minimise operational costs, the company said [emphasis added].154

From the bolded portion of that quote, the strongest inference—if not the only reasonable inference—is that XRP is being used to settle transactions in bank-money denominated in two different currencies. If so, that could well be the canary in the coal mine for the central bank reserves’ utility for real-time cross-border payment transactions.

Unlike reserves issued by central banks and bank-money issued by commercial banks, where there is at least a modicum of transparency, digital currencies come from entities with the haziest origins imaginable. To this day, no one knows who is actually behind the pseudonymous Satoshi Nakamoto, the supposed founder of the largest cryptocurrency in the world.

The problem of anonymity is already significant with respect to both the owners of Wall Street banks and the regional district Federal Reserve banks—a problem which would get that much worse were a digital asset like XRP to be used as a global settlement currency.

The Federal Reserve Would Be Subordinate to a Global Digital Settlement Currency Issuer Just as Commercial Banks Are Subordinate to the Fed

The point here is simple. Commercial banks can be bankrupted—and thus controlled—because they cannot freely issue the settlement currency (Federal Reserve notes or reserves).

Crozier explains at length how this vulnerability is exploited at the local level by faraway Wall Street interests, by sending an agent with the ulterior motive of control into a local commercial bank to do business, typically by making a huge deposit.155

The identical vulnerability would dog the Fed were a global reserve digital currency, not issuable by the Fed itself, to be adopted.

The sovereignty of the U.S. is already in bad shape as the result of outsourcing to private parties the authority to issue money—but at least those parties are located, if only nominally, inside the U.S. A global digital reserve asset would remove even that peg of support.

At that point, the only real monetary power still existing in the hands of “we the people” would be coins, which are issued by the U.S. Treasury.

That might not be much of a revolutionary weapon against the forces of globalism, but if people keep on waking up, it just might be a start. . . .



2 Larrie D. Ferreiro. “At its core, the Declaration of Independence was a plea for help from Britain’s enemies.” Smithsonian Magazine, June 28, 2017.

3 Id.

4 United States v. Nixon, 418 U.S. 683 (1974).

5 See Alexander Del Mar, The History of Money in America from the Earliest Times to the Establishment of the Constitution, Cambridge Encyclopedia Co., 1899, p. 96.

See generally: Ivo Mosley, Bank Robbery: The Way We Create Money, and How It Damages the World, Triarchy Press, 2020, p. 39 and pp. 66-67.

7  See Mosley, p. 86.

8  Del Mar, History of Money in America, p. 69.

9  Id. at 94.

10  Id.

11  Id. at 96.

12  Thomas Jefferson, letter to John Taylor, 1816.

13  Stephen Zarlenga,The Lost Science of Money: The Mythology of Money, the Story of Power, American Monetary Institute, 2002, pp. 228-229.

14  Id. at 279-282.

15  Id. at 282.

16  Alexander Del Mar, A History of Monetary Systems, Cambridge Encyclopedia Co., 1901, App. B (“1696. Bank of England stopped payment of its notes two years after it started. Resumed 1698.”) (internal citation omitted).

17  Joseph Huber, Sovereign Money: Beyond Reserve Banking, Palgrave Macmillan, 2017, p. 30.

18   Zarlenga, Lost Science of Money, p. 381.

19  Del Mar, History of Money in America, p. 96.

20 Id. at 97.

21  The Revolutionary War did not officially end until the Treaty of Paris was signed in 1783, under which Great Britain recognized America as a country rather than as a collection of her own colonies.

22  J.W. Schuckers, Finances and Paper Money of the Revolutionary War, John Campbell & Son, 1874, p. 20 (quoted by Zarlenga at p. 380).

23  Zarlenga, Lost Science of Money, p. 380 (citing Frank Moore, Diary of the American Revolution: From Newspapers and Original Documents, vol. 1, 1860, p. 440).

24 Id. at 381 (citing Kenneth Scott, Counterfeiting in Colonial America, University of Pennsylvania Press, 1954).

25  There were at least six instances during the colonial period where counterfeiters were publicly executed. See Arthur Nussbaum, The History of the Dollar, Columbia University Press, 1957, p. 25.

26  Zarlenga, Lost Science of Money, pp. 278-289.

27  The seignorage on cash—that is, the difference between the face value of the cash and its cost (about 20 cents per bill)—accrues to the Federal Reserve.

28  See

29  31 U.S.C. § 5103 (1983).

30  As a practical matter, this result might occur only after litigation, for example, when a creditor tries to enforce a debt after the debtor has offered legal tender—but most assuredly, extinguishment of the debt would be the outcome.

31  F.A. Mann, The Legal Aspect of Money (4th ed.), Clarendon Press; Oxford University Press, 1982, p. 5.

32  Id. at 6 (citations omitted).

33  This is so because bank-money is created out of thin air when banks make loans. Commercial banks differ from all other entities (human beings and non-bank companies alike) in that the former do not lend pre-existing money. Instead, a bank loan is in fact simply a new ledger entry on the liability side of its balance sheet in the amount of the loan, counter-balanced on the asset side by a note (IOU) from the borrower. The reason deposits count as liabilities is that depositors can turn around and demand to receive the entire amount of the deposit in cash (which commercial banks cannot create out of thin air) or demand that the entire amount of the deposit be transferred to a party with a bank account elsewhere, which also necessitates the transfer of reserves (which the bank likewise cannot create out of thin air) to the other party’s bank; without the transfer of reserves, the other party’s bank would be taking on someone else’s liability without any corresponding asset.

34  Michael Kumhof, Jason G. Allen, Will Bateman, et al. “Central Bank Money: Liability, Asset, or Equity of the Nation?,” Cornell Legal Studies Research Paper 20-46, Nov. 14, 2020, p. 20.

35  This theory originated in two papers published in the Banking Journal by one Alfred Mitchell-Innes in 1913, the same year the Federal Reserve was created, and 1914, the first year the central bank issued Federal Reserve Notes. Mitchell-Innes was a diplomat who had never authored anything related to finance or economics prior to these papers. His background is hazy; Wikipedia says of his education, for instance, that he was “educated privately” ( Despite his apparent lack of pedigree, the two papers were both hyped by the Banking Journal prior to their publication. Following their publication, Mitchell-Innes simply vanished, never publishing anything again. See Zarlenga, Lost Science of Money, p. 530.

36  Del Mar, The Science of Money, Bell & Sons, 1885, pp. 18-19.

37  Huber, Sovereign Money, p. 130.

38  Mosley, Bank Robbery, p. 20.

39  One major clue in this direction is evident from the two legal issuers of money in the U.S. monetary system, namely, the Federal Reserve (which issues superior cash and reserves) and commercial banks (which issue inferior bank money). Nowhere in this two-tier scheme of money issuers do we find the allegedly sovereign U.S. government. Though it holds accounts at commercial banks as well, the U.S. government transacts business in reserves. As a consequence, the U.S. cannot pay down its debts with U.S. debt (unless the creditor consents to as much); instead the U.S. can pay down its debts only with monetary instruments issued by the Federal Reserve—a privately owned institution. The U.S. government actually occupies a third tier of money issuer, specifically as the issuer of coins. This may account for the Fed’s seeming interest in eliminating coins. See author’s video, “What’s Behind the Fed’s Manufactured Coin Shortage?,” Aug. 19, 2020.

40  Mosley, Bank Robbery, p. 91.

41  Id. at 43.

42  Id. at 93.

43  Federal Reserve defenders invariably respond by contending that the Fed turns over all of its profits to the U.S. Treasury. This ignores the facts that (1) to the extent the Fed observes this practice, it does so after it backs out expenses, and (2) the Fed’s “liabilities” do not come close to meeting the legal definition of liabilities. Consequently, there is about $8 trillion on the Fed’s balance sheet that should be reclassified as Fed equity even though that money belongs to U.S. taxpayers. See author’s video, “Has the Federal Reserve Kept Two Sets of Book for the Last 50 Years?”, Apr. 12, 2021.

44  U.S. Const., Art. 1, Sec. 8, para. 5.

45  Alfred Owen Crozier, U.S. Money vs. Corporation Currency: “Aldrich Plan,” The Magnet Company, 1912, p. 314.

46  Mosley, Bank Robbery, p. 18.

47  Del Mar, History of Monetary Systems, p. 466.

48  The only discussion of this second phenomenon that the author is aware of comes from Mari Werner, whose blog post brought it to the author’s attention in the first place. See “The debt-based economy” at .

49  Crozier, U.S. Money vs. Corporation Currency, p. 101.

50  Id. at 101. Crozier’s opposition to the Fed was so intense that he self-financed U.S. Money vs. Corporation Currency, which is curious given that his previous book, The Magnet, was published by Funk & Wagnalls Co. in 1908 and had met with at least critical success judging by its newspaper reviews, excerpts from some 60 of which Crozier sets forth at pages 391-401 of U.S. Money.

51  Id. at 258. See also id. at 263 (bankers urging repeal of Sherman Act).

52  Id. at 262. Another author, Eustace Mullins who wrote 40 years after Crozier, likewise argues that the Depressions of 1920 and 1929 were the deliberate outcome of actions taken by Wall Street banks, though unlike Crozier, Mullins does not link events to legislative actions. See Eustace Mullins, The Federal Reserve Conspiracy, Common Sense, 1954, pp. 64-68 and 97-102.

53  Del Mar, History of Money in America, p. ix.

54 Del Mar made essentially the same observation in A History of Monetary Systems, p. 466: “the surrender of the prerogative of coinage has tended to estrange the Crown from the People, whose disappointment has manifested itself in many painful symptoms.”

55  Zarlenga, Lost Science of Money, p. 162.

56  Id. at 382.

57  Id. at 374-375

58  Crozier, U.S. Money vs. Corporation Currency, p. 317.

59  John Titus, “The Going Direct Reset,” 2020 Annual Wrap Up: The Going Direct Reset, The Solari Report, 2021;2021(1):26.

60 U.S. Constitution, Art. 1, § 9.

61 See Joseph J. Wang, Central Banking 101, Joseph, 2021, p. 24. (“Treasury securities are essentially money for large investors” [emphasis added].)

62 Catherine Austin Fitts, 2018 Annual Wrap Up: The Real Game of Missing Money, Part 1, The Solari Report, 2019;2019(1):16. See also Catherine Austin Fitts and Carolyn A. Betts, “Caveat emptor: Why investors need to do due diligence on U.S. Treasury and related securities,” The Solari Report, February 18, 2019 (

63 Fitts, The Real Game of Missing Money, Part 1, p. 10.

64  Northern Securities Co. v. United States, 193 U.S. 197 (1904). See

65  Ferdinand Lundberg, America’s 60 Families, Vanguard Press, 1937, pp. 70-71 (quoting LaFollette).

66  Letter from Deputy Comptroller T.P. Kane to Alfred O. Crozier, Dec. 12, 1911, quoted in Crozier, U.S. Money vs. Corporation Currency, p. 283.

67  Id. at 284.

68  Id. at 287.

69  Lundberg, America’s 60 Families, p. 122.

70  For example, a U.S Treasury is an IOU from the United States Treasury to the bond’s holder, who pays good money for this asset.

71  Dick Bowen, 12/3/2007 5:47 PM email to Robert Rubin et al.

72 Id.

73  See John Titus, “Why is the S.E.C. concealing massive Citigroup fraud?,” The Daily Bail, Feb. 6, 2013.

74  See “Key e-mails from the FCIC financial crisis investigation.”

75 Stephen Gandel, “Robert Rubin was targeted for DOJ investigation by Financial Crisis Commission,” Fortune, Mar. 13, 2016.

76 Fitts, The Real Game of Missing Money, Part 1, p. 154. See also Fitts and Betts, “Caveat emptor.”

77  Financial Crisis Inquiry Commission hearing, Apr. 8, 2010, official transcript, at pp. 30-31 ( See also “Key e-mails from the FCIC financial crisis investigation” (

78  “Wall Street and the Financial Crisis: Anatomy of a Financial Collapse,” U.S. Senate  Permanent Subcommittee on Investigations, Apr. 13, 2011, at 525 (footnotes internal to Senate report omitted).

79  Id. at 530.

80  See “Goldman Sachs to pay record $550 million to settle SEC charges related to subprime mortgage CDO,” Abacus and Timberwolf achieved household name status, as did Goldman Sachs, when Sen. Carl Levin (D. Mich.) grilled bank executives about internal email in which those “investments” were described as “shitty deals.” See also, Brian Montopoli, “Levin repeatedly references ‘sh**ty deal’ at Goldman hearing,” CBS, Apr. 27, 2010.

81 “Wall Street Fraud and Fiduciary Duties: Can Jail Time Serve as an Adequate Deterrent to Willful Violations,” Senate Judiciary Committee hearing, May 4,  2010, at 47. See

82  “Return to Jekyll Island: Asset Prices and Asset Bubbles – Part 2 (Segment 7),” May 6, 2011, at 7:05. See

83 While the S&P 500 hit bottom in March 2009, a broader measure of equities would mark the bottom as having occurred in October 2008. See, for example, “The U.S. stock market bottomed in 2008, not March 2009,” All Star Charts, Mar. 9, 2016.

84 Alex Koppelman, “Obama: ‘We need to look forward,’” Salon, Jan. 12, 2009.

85 “Interview with President Obama: The full transcript,” Dec. 11, 2011, CBS News.

86 “Wall Street Fraud and Fiduciary Duties: Can Jail Time Serve as an Adequate Deterrent for Willful Violations?,” at 36-37. See

87 Id. at 43.

88 Peter Schweizer, “Obama’s DOJ and Wall Street: Too big for jail?,” Forbes, May 7, 2012.

89 “Who is too big to fail: Are large financial institutions immune from federal prosecution?,” House Committee on Financial Services hearing, May 22, 2013, at 20. See

90 U.S. Attorneys Manual § 9-28.1100. See

91 Id., § 9-28.300. See

92 “Too Big to Indict” [editorial], New York Times, Dec. 11, 2012.

93 U.S. Attorneys Manual § 9-28.500. See

94 Id.

95 “The Untouchables,” PBS Frontline, aired Jan. 22, 2013. For transcript, see

96 Id.

97 See Ryan Chittum, “Frontline hits hard on the lack of crisis prosecutions,” Columbia Journalism Review, Jan. 31, 2013.

98 The one-hour episode is available in its entirety here:

99 Ben Protess, “Once more through the revolving door for Justice’s Breuer,” New York Times, Mar. 28, 2013.

100 Longines Chronoscope with Rep. Kenneth B. Keating, June 20, 1952. (200LW112) See

101 The OLC “provides legal advice to the President and all executive branch agencies.” Essentially, the OLC serves as legal counsel to the president and agencies of the executive branch.

102 Department of Justice, Memorandum of Robert J. Dixon, Assistant Attorney General (Office of Legal Counsel), “Amendability of the President, Vice President and Other Civil Officers to Federal Criminal Prosecution while in Office,” at 32.

103 Id. at 19 n. 13.

104 See also, for example, Department of Justice, Memorandum of Randolph D. Moss, Assistant Attorney General (Office of Legal Counsel), “A Sitting President’s Amenability to Indictment and Criminal Prosecution,” Oct. 16, 2000 (concluding that “[t]he indictment or criminal prosecution of a sitting President would unconstitutionally undermine the capacity of the executive branch to perform its constitutionally assigned functions”). See

105 See U.S. v. Nixon, 418 U.S. 683 (1974).

106 Id. at 707.

107 For Eric Holder and Lanny Breuer, this was hardly a stretch since their law firm Covington & Burling represents pretty much every major Wall Street bank to begin with.

108 At most, they might have dispatched counsel or economists or their CEO to the DOJ to make their case for collateral consequences. That is what Lanny Breuer said in a speech to the New York City Bar Association in September 2012, anyway. A FOIA request later revealed zero documentary evidence for Breuer’s version of events, however.

109 Fitts, The Real Game of Missing Money, Part 1, at 4.

110 Id. at 16.

111 “Text of draft proposal for bailout plan,” New York Times, Sept. 20, 2008.

112 See, for example, Barry Ritholtz, Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy, Wiley, 2009, at 24 (“Calls to members of Congress ran 10 to 1 against the enormous spending package.”).

113 David Sirota, “The fiscally insane bailout bill might not pass — Here’s 5 reasons it shouldn’t,” Sept. 29, 2008. Notably, the links to both polls cited in this passage are now dead.


115 The TARP bill passed in the Senate (on Wednesday, October 1, 2008) despite the fact that appropriations bills are constitutionally required to originate in the House.

116 As reflected in the roll call vote header, the official name of the bill by this time was the “Emergency Economic Stabilization Act of 2008.”

117 Joseph E. Stiglitz, Freefall: America, Free Markets, and the Sinking of the World, W.W. Norton & Co., 2010, at 41 (footnotes omitted). One contemporaneous account of the reversal puts the division of vote-changers at 33 Democrats and 25 Republicans. See


119 The two leading suspects for House members who changed their TARP votes from NO to YES and who may have been promised political bribes as suggested by Marcy Kaptur are, in this author’s opinion, Mazie Hirono, who actually did go on to become the U.S. senator from Hawaii, and Mary Fallin, who went on to become the governor of Oklahoma.

120 See Jeff Stein, “What 20,000 pages of hacked WikiLeaks emails teach us about Hillary Clinton,” Vox, Oct. 20, 2016.

121 See David Dayen, “The most important WikiLeaks revelation isn’t about Hillary Clinton,” The New Republic, Oct. 14, 2016.

122 Id.

123 Id. (internal quotation omitted). Indeed, the author of the email, Michael Froman, was a Bob Rubin protégé, as were both alternatives proposed for Treasury Secretary aside from Rubin himself, Tim Geithner and Larry Summers.


125 Titus, “Why is the S.E.C. concealing massive Citigroup fraud?,” 2013.

126 Stephen Foley, “Obama forces Citigroup to cancel $50m executive jet order, Jan. 28, 2009, UK Independent.

127 See, for example, David Ellis, “Citigroup’s road to nationalization,” Feb. 24, 2009,

128 Id.


130 See

131 The other three are JPMorgan Chase, Bank of America, and Wells Fargo.

132 Particularly instructive on this point is the merger infographic found in “How banks got too big to fail,” Mother Jones, Feb. 2010, see

133 Timothy O’Brien and Joseph Treaster, “Shaping a colossus: the overview; in largest deal ever, Citicorp plans merger with Travelers Group,” New York Times, Apr. 7, 1998. Charles Ferguson treats the illegal merger at length in his Oscar-winning documentary, Inside Job (2010).

134 “Suskind defends White House book,” The Dylan Ratigan Show, Sept. 21, 2011. See

135 Id. at 3:05.

136 Id. at 4:10.

137 Fitts, The Real Game of Missing Money, Part 1, at 138-147.

138 Kumhof et al., “Central Bank Money,” at 7.

139 Id. at 5 (internal footnotes omitted).

140 See 31 U.S.C. § 5103 (“United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts” [emphasis added].)

141 Federal Reserve Statistical Release H.4.1, “Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks,” Feb. 17, 2022, Table 5. See

142 Id.

143 The one exception is the U.S. Treasury, which issues coins, also legal tender.

144 David H. Friedman, “I Bet You Thought…,” Federal Reserve Bank of New York, Dec. 1977. See

145 Id. at 27.

146 See Lundberg, America’s 60 Families, p. 122 (“In practice the Federal Reserve Bank of New York became the fountainhead of the system of twelve regional banks, for New York was the money market of the nation. The other eleven banks were so many expensive mausoleums erected to salve the local pride and quell the Jacksonian fears of the hinterland.”).

147 F.A. Mann, The Legal Aspect of Money (4th ed.), at 18 (citing Thorington v. Smith, 75 U.S. 1 (1869), Hanauer v. Woodruff, 82 U.S. 439 (1872), Effinger v. Kenney, 115 U.S. 566 (1885), New Orleans Waterworks v. Louisiana Sugar Co., 125 U.S. 18 (1888), and Baldy v. Hunter, 171 U.S. 388 (1898).

148 See, for example, “Preparing for the financial system of the future,” speech by Lael Brainard, Board of Governors of the Federal Reserve, Feb. 18, 2022, see; “Money and payments: the U.S. dollar in the age of digital transformation,” Federal Reserve Board of Governors, Jan. 2022, see; and “Federal Reserve Chair Jerome H. Powell outlines the Federal Reserve’s response to technological advances driving rapid change in the global payments landscape,” Board of Governors press release, May 2021.

149 “Central Bank Digital Currency (CBDC), Frequently Asked Questions,” Question no. 1, Board of Governors of the Federal Reserve System, see


151 In globalist parlance, G-SIBs: Global Systemically Important Banks.

152 See “2021 List of Global Systemically Important Banks (G-SIBs)” at, p. 3.


154 Johney Amala, “Ripple unveils ODL service in Japan to drive real-time payments,” Electronic Payments International, July 29, 2021.

155 See Crozier, U.S. Money vs. Corporation Currency at pp. 215-218 (detailing the ease with which a large cash depositor can take over an unsuspecting bank).