Ecconomics/Politics

REP. HENRY GONZALEZ ON THE FEDERAL RESERVE

I realized, sitting on the Committee on Banking, Finance, and Urban Affairs since I came here 32 years ago, that an historical thing had happened on June 19, 1966-a 1 percent increase overnight in the prime interest rate as it was defined then.

Even now as I speak, you have in one instant, one fraction, a millionth of a fraction of a second, an instantaneous conveyance of billions of dollars from London, New York, Frankfurt, Paris, and Tokyo. . . the transfer of huge amounts of money, amounting to about a trillion dollars. . . . Now what is that based on? Is it based on commerce? Is it based on money or values in exchange for commodities and production? No, it is paper, gambling on paper. . . . On the one side you have this huge mountain of paper transaction, fictitious values. Then on the other side you have the traditional, the national product of manufacturing, production, services, and the like. . . . But in the meanwhile, what is the true picture that you and

I, my colleagues and the citizens, constituents that we represent, face?

Well, let me tell you what they face. If you are a retiree and you depend on your pension or your savings (or even one of the families that came from a very affluent history), most of [you] thought, "Well, we will place the estate in trust with the trust dept. of a bank." They would be earning interest rates that were fairly nominal and had a fair, nominal return. What do you think they are getting today? What is the saver that has a CD in an average bank getting by way of interest yield? It is less than three percent.

But if he goes to that same bank and says, "I want to borrow $3,000 in order to have an inventory for my business and its needs," he will have to pay as much as twelve to seventeen percent. . . .

But now let us look at what else the banks do. They borrow from the Fed at 3% or a little under. Then they go and get that money and put it in what? In treasuries that will give them a yield . . . somewhere around an average of 5%, for which the Fed does not require reserves. But the Treasury is paying that amount of interest, which is a subsidy. So the bankers are subsidized more than any other segment in our country by the taxpayer more than ever before. . . . In addition, let me say one other thing. We have had a great ado about the possibility that there will be a tax or a reduction on so-called COLAs, costs of living. Some of the greatest critics of the Social Security's COLA, for instance, are the banks. But they are the biggest COLAs of all time.

Why? Because on every loan a bank makes, they have what is called a 1% premium. For what? For inflation. That is what they call the inflationary premium. Whether anybody records inflation or not, 1% or less, that is what they sock you with when you borrow, their 1% premium for inflation. That is, cost of living. Now what did that amount to last year? $800 billion. What did the Social Security COLA amount to? $12 billion. So if the bankers would just return 50%, that would be $400 billion. It would take care of the deficit and everything else-the debt.

How much freedom can the American citizen have today if he does not have some economic liberty or freedom? And not just the freedom to seek a job that he cannot get or the freedom to starve, but I am talking about some kind of economic freedom which is basic today. How many young men have I seen tragically in the past year and a half . . . college graduates, and they can't find a job for over a year because of these giant mega-mergers, which is what I am talking about, speculative adventures tying up bank assets. Like Nelson Baker Hunt and his brothers did back in the early '70s when they tried to corner the silver market. You are going to get two or three almost functional

illiterates like those Hunt brothers who were lucky enough to have their father find oil in Texas, and they are going to go and try to corner silver market in London with these 500-year experienced silversmiths and speculators and gold handlers. Why, it was ridiculous, but they tied up over $25 billion worth of bank credit.

That bank credit should have gone to industry, to businesses, to areas in our community that even lack meager credit allocation. But no, it was tied up there. That is one reason I introduced an impeachment resolution on Chairman Volker . . . . Of course, nobody paid much attention, but . . . I have said that the Federal Reserve is really not a federal agency, which it really is not. How then could I impeach Volcker? But I wanted to expose the fact that the Chairman of the Federal Reserve Board had met in what was supposed to be a secret meeting in Florida in a hotel with Nelson Baker Hunt and the head of Citicorp, because they were trying to protect that money that they had put into the Hunt brothers. It all ended up in the courts, and the Hunt brothers declaring bankruptcy. The bankruptcy laws being what they are today, mean that they are still very rich. They have been able to twist the laws, use the laws, forge the laws, and Congress has been the instrumentality. . . . that makes it possible for these scapegoats and these malefactors of great wealth to escape even the barest of accountability. . . . I . . . introduced legislation a few years ago, a few Congresses ago, in an attempt to control usury. I did. I called it the Usury Control Act, and it was just trying to restore what the country had lived with since the beginning, and that was an interest rate control, usury control, anti-usury law, and that was a struggle from the very beginning of our country.

It is all through the history of our country, even in its first nationhood attempts, the First and Second Continental Congresses. You know, you have to have bankers or some kind of financials, so the First Continental Congress wanted to borrow money. And where did they have to go? To the Philadelphia bankers. The bankers being what they were then, and are now, they said, "Yes, we will loan you money, but we have to charge you this huge amount of interest." Thanks to Thomas Jefferson, they did not get away with it. Like Franklin Roosevelt-how could Franklin Roosevelt have financed the war? Never having to pay more than 2 percent, in fact, on average during the war, less than 2 percent! And now to finance our debt, you, the taxpayers, you and I, because we all pay taxes, are paying more for the interest on the debt than we are for our defense appropriations. What is interest? Interest is the mechanism in a society by virtue of which wealth is transferred from one sector to the other, and it is also, by definition, the most inflationary factor of all.

Interest is what? Something for nothing that accrues to the benefit of those who happen to lend and have the credit to lend at an unconscionable and, through the centuries, outlawed usurious rate.

Flagellated as we are, there can be no end to this except some untoward event which I hate to think of. Because . . . when a society does not have the peaceful and the right ways to change and give rise to change . . . in order to give life to huge segments of our citizenry, it is inevitable that something will happen that will bring about change in an institutional way.

(Excerpted from Congressional Record, 6/ 14/93)