Daily Archives: February 20, 2012

The Secret Meeting That Launched the Federal Reserve


President Woodrow Wilson signing the Federal Reserve Act in 1913. Source: Woodrow Wilson Birthplace Foundation, painting by Wilbur G. Kurtz Sr.

“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world — no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.”

– President Woodrow Wilson reflecting in 1916 on his approval of the Federal Reserve Act in 1913. Quoted in “National Economy and the Banking System,” Senate Documents Co. 3, No. 23, Seventy-sixth Congress, First session, 1939

“Since I entered politics, I have chiefly had men’s views confided to me privately. Some of the biggest men in the United States, in the Field of commerce and manufacture, are afraid of something. They know that there is a power somewhere so organized, so subtle, so watchful, so interlocked, so complete, so pervasive, that they better not speak above their breath when they speak in condemnation of it.”

– President Woodrow Wilson, The New Freedom, 1913

bloomberg.com | Feb 15, 2012

By Gregory DL Morris

Although it may seem shocking to watch the 112th Congress, there was a time when national leaders were swift and decisive in getting things done. In November 1910, in the space of less than two weeks, a group of government and business leaders fashioned a powerful new financial system that has survived a century, two world wars, a Great Depression and many recessions.

Of course, the Jekyll Island conference, which met that month, was dodgy even by the standards of the Gilded Age: a self-selected handful of plutocrats secretly meeting at a private resort island to draw up a new framework for the nation’s banking system. Add in the gnarly live oaks and dripping Spanish moss of coastal Georgia, and the baronial becomes baroque.

The group’s original plan wasn’t ratified by Congress, but one very much like it was adopted and became the basis of the Federal Reserve system that remains in place today.

At the time, the Panic of 1907 was still fresh in everyone’s mind. J.P. Morgan had resolved that panic by locking the heads of major banks in his library overnight, and strong-arming them into a deal to provide sufficient liquidity to end the runs on banks and brokerages.

No one was happy with that expediency, and in 1908 Congress passed the Aldrich-Vreeland Act, which formed the National Monetary Commission. Senator Nelson Aldrich, a Rhode Island Republican and sponsor of the act, embarked on a fact-finding mission to Europe, where he met with government ministers and bankers.

The panic had shown that the existing financial system, founded on government bonds, was brittle and ponderous. But, although voters were eager for a more robust and responsive system, there was no support at the time for a central bank either from the public or from industrialists. Both were suspicious of such government interference.

The Jekyll Island collaborators knew that public reports of their meeting would scupper their plans. The idea of senior officials from the Treasury, Congress, major banks and brokerages (along with one foreign national) slipping off to design a new world order has struck generations of Americans as distasteful at best and undemocratic at worst — and would have been similarly received at the time. So the meeting of the minds was planned under the ruse of a gentlemen’s duck-hunting expedition.

Aldrich, an archetype of his age, was a personal friend of Morgan, and Aldrich’s daughter was married to John D. Rockefeller Jr. He found in the European central banks a useful model. Although the financial system in the U.S. was functional enough to stoke the engines of a growing industrial economy, it was a classic example of the persistence of interim solutions. The models Aldrich found in Europe were more efficient and effective.

What he lacked was a way to graft those characteristics onto the American economy without retarding it. Hence the duck hunt.

Aldrich invited men he knew and trusted, or at least men of influence who he felt could work together. They included Abram Piatt Andrew, assistant secretary of the Treasury; Henry P. Davison, a business partner of Morgan’s; Charles D. Norton, president of the First National Bank of New York; Benjamin Strong, another Morgan friend and the head of Bankers Trust; Frank A. Vanderlip, president of the National City Bank; and Paul M. Warburg, a partner in Kuhn, Loeb & Co. and a German citizen.

The men made their way to the island by private railway car and ferry.

In Vanderlip, Aldrich had found the tactician to design a functional American central bank. Vanderlip was born a farm boy in Aurora, Illinois, put himself through college, and worked his way up the Chicago financial ladder. He became personal assistant to Treasury Secretary Lyman Gage, and in 1898 made his mark managing loans to the government to finance the Spanish-American War.

As Bertie Charles Forbes related in his 1916 book, “Men Who Are Making America”:

Vanderlip knew more about government bonds than any other man living. He knew other banks would like to be relieved of all the red tape incidental to buying and putting up bonds to cover circulation, depositing reserves to cover note issues &c. He began to dictate a circular letter to be sent broadcast to the country’s 4,000 national banks.

That was exactly the kind of perspicacity Aldrich was seeking. The collaborators spent 10 days on Jekyll Island. What emerged was an idea for something called the National Reserve Association, which would act as a central bank, issuing currency and holding member banks’ reserves. While it would handle government debt, it would be a private institution. The U.S. Treasury would have a seat on the board, but would exercise no further oversight.

The reserve association was brought to Congress as the “Aldrich plan,” and it got nowhere. There was opposition in both parties, from populist William Jennings Bryan, a Nebraska Democrat, to progressive Robert La Follette, a Wisconsin Republican.

Woodrow Wilson ran for president opposed to the bankers’ club but committed to financial reform. There followed a blizzard of proposals from every part of the political spectrum. Eventually, Carter Glass, a Virginia Democrat and the chairman of the House banking committee, drafted what would become the Federal Reserve Act with the help of Robert Latham Owen, an Oklahoma Democrat. The act became law at the end of 1913.

Although the Glass-Owen bill was a compromise, the core of the Aldrich plan remained. There were many minor detail changes from the Jekyll Island accords, but the major one was a more prominent role given to the Treasury. (To this day the debate continues as to whether the Fed is truly independent, or should be.) Benjamin Strong, one of the Jekyll Island cohorts, became the first president of the New York Federal Reserve in 1914.

Today, a central bank is the global standard. All 187 members of the International Monetary Fund have them. In November 2010, Fed Chairman Ben S. Bernanke held a press conference on Jekyll Island to celebrate the centennial of the meeting. Aldrich and his colleagues would have been proud of their accomplishment — but mortified by the publicity.

(Gregory DL Morris is a member of the editorial board of the Museum of American Finance, a Smithsonian affiliate, and a contributor to the Echoes blog. The opinions expressed are his own.)

Google offering to pay web users to track their every move


The Screenwise project is designed to send usage data using browser plugin or special hardware

Today in Tech | Feb 13, 2012

By Tecca

Less than a month after announcing a controversial new privacy policy that shares user data across all its sites with no opt-out option, Google is introducing a system to monitor all online activity of those who participate in a program called Screenwise. In exchange for unrestricted access to information on your every online move, the search and software giant is offering financial compensation.

By signing up for Screenwise and installing a browser plugin (only Google Chrome is supported at present), you’ll be given $5 in store credit on Amazon. For every three months you continue to provide Google with browsing data, you’ll earn an addition $5 gift card, up to a total of $25. Only those over 13 can participate and, perhaps not surprisingly, signups are currently on hold due to overwhelming interest.

For those willing to make their online lives a completely open book, Google plans to offer a more elaborate tracking system that utilizes special hardware. The device, which connects to your broadband router, will monitor the online activity of all computers in your home. This program, which isn’t available yet, will compensate participants $100 for signing up and $20 a month for up to a year.

While the idea of getting paid to browse the web might sound win-win, it’s important to note that Screenwise will track private browsing data in its Chrome extension (though supposedly won’t link it to you directly) and will share data with third-parties should you opt for the hardware-based option.

Government spy programme will monitor every phone call, text and email

Director of Big Brother Watch, Nick Pickles, told The Sunday Times: ‘How many parents knew that a simple mobile phone game would give someone the ability to access their child’s location, see what their camera lens is looking at or see the phone number of who is calling their child?’

Government spy programme will monitor every phone call, text and email… and details will be kept for up to a year

Daily Mail | Feb 19, 2012

By Pamela Owen

Details about text messages, phone calls, emails and every website visited by members of the public will be kept on record in a bid to combat terrorism.

The Government will order broadband providers, landline and mobile phone companies to save the information for up to a year under a new security scheme.

What is said in the texts, emails or phone calls will not be kept but information on the senders, recipients and their geographical whereabouts will be saved.

Direct messages to users of social networking sites like Facebook and Twitter will also be saved and so will information exchanged between players in online video games.

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The information will be stored by individual companies rather than the government.

The news has sparked huge concerns about the risk of hacking and fears that the sensitive information could be used to send spam emails and texts.

Nick Pickles, director of privacy and civil liberties campaign group Big Brother Watch, said: ‘Britain is already one of the most spied on countries off-line and this is a shameful attempt to watch everything we do online in the same way.

‘The vast quantities of data that would be collected would arguably make it harder for the security services to find threats before a crime is committed, and involve a wholesale invasion of all our privacy online that is hugely disproportionate and wholly unnecessary.

‘The data would be a honey pot for hackers and foreign governments, not to mention at huge risk of abuse by those responsible for maintaining the databases.It would be the end of privacy online.

‘The Home Secretary may have changed but it seems the Home Office’s desire to spy on every citizen’s web use and phone calls remains the same as it was under Labour.

‘At a time when the internet is empowering people across the world to embrace democracy, it is shameful for one of the world’s oldest democracies to be pursuing the kind same kind of monitoring that has a stranglehold on civil society in China and Iran.’

It is believed the Home Office started talks with communication companies a few months ago and could officially be announced in May.

The plans have been drawn up by home security service MI5, MI6 which operates abroad, and the GCHQ, the governments communication headquarters which looks after the country’s Signal Intelligence.

Security services would then be able to request information on people they have under surveillance and could piece together their movements with information provided.

Mobile phone records are able to show within yards where a call was made from and emails will be tracked using a computer’s IP address.

Security services are said to be concerned about the ability of terrorists to avoid tracking through modern technology and are believed to have lobbied Home Secretary Theresa May to introduce the scheme.

According to The Sunday Times ministers are planning to include the spy initiative called the Communications Capabilities Development Programme in the Queen’s speech in May.

Jim Killock, executive director of the Open Rights Group, said: ‘This would be a systematic effort to spy on all of our digital communications.

‘No state in history has been able to gather the level of information proposed,’ he said to The Sunday Times.

THE SMARTPHONE APPS THAT SPY ON YOUR CHILDREN

Smartphone apps are being used by the companies that sell them to store information about your children.

The apps can gather information of their whereabouts, who they are talking to and even store photographs.

Small print in the information provided before it is downloaded gives permission for the information to be accessed.

The Sunday Times examined 200 apps available and out of those 170 provided the right to access some information stored on the phone.

Developers have said they need the information in order to ensure the products work properly but some of the data accessed has little relevance.

Last week it was discovered the app for Twitter had been secretly accessing mobile phone address books.

Director of Big Brother Watch, Nick Pickles, told The Sunday Times: ‘How many parents knew that a simple mobile phone game would give someone the ability to access their child’s location, see what their camera lens is looking at or see the phone number of who is calling their child?’

Mr Pickles added it was proof of how weak regulation was.

Data collection arms race feeds privacy fears

Reuters | Feb 19, 2012

By Joseph Menn

Video: Is Google tracking you?

SAN FRANCISCO (Reuters) – This week’s revelations that Google Inc, Twitter and other popular Internet companies have been taking liberties with customer data have prompted criticism from privacy advocates and lawmakers, along with apologies from the companies.

They are the latest in a long line of missteps by large Internet companies that have faced little punishment for pushing privacy boundaries, which are already more expansive than most consumers understand.

Despite all the chatter about online privacy and the regular introductions of proposed data protection laws in Congress, Silicon Valley is in the midst of a veritable arms race of personal data collection that is intensifying.

Many innovative companies, most prominently Facebook, base virtually all of their services on the ability to personalize, which requires them to know their users well. Their business models likewise depend to an increasing degree on the ability to target a banner advertisement or other marketing pitch to an individual. Millions of times each day, the right to advertise to a specific user is auctioned off in a fraction of a second by computers talking to one another.

For both the buyers and the sellers of the advertising, the business advantage goes to the participant with the most knowledge, and that race is driving companies like Google to learn as much about its users as Facebook does.

Few U.S. laws prevent those companies and others from collecting all manner of information – ranging from credit cards numbers and real names and addresses to buying patterns and Web surfing habits – then selling the data to advertisers and other third parties.

“Companies are feeling along in the dark, trying to figure out how to serve consumers with cool new toys and while protecting consumer interests,” said Jim Harper, a privacy policy specialist at the libertarian Cato Institute. “More often than not, they fall in love with their cool new toys and forget the privacy interests.”

Aside from special protections for credit report information, medical records and a few other narrow categories, virtually anything is fair game.

Companies generally face legal threats or a user backlash only after violating their own published privacy policies or being discovered subverting consumer wishes.

Last week Twitter, Path and other firms were found to be vacuuming users’ iPhone contact lists even though Apple Inc’s policies forbade it. On Friday, a Wall Street Journal report showed that Google was tweaking ads on Apple’s Safari Web browser to install tracking cookies which, while commonplace on other browsers, are blocked on Safari unless the user specifically allows them.

Reps. Edward J. Markey (D-Mass.) and Joe Barton (R-Texas), co-chairmen of the Congressional Privacy Caucus asked for a Google probe by the Federal Trade Commission, which declined to comment. Google said Friday that its intentions were innocuous but it nontheless dropped the practice. Twitter and Path said they would seek explicit permission before grabbing address-book contents, and Apple said it would update its software to prevent further leaks.

PROMISES, PROMISES

The developments fit what is by now a well-established pattern that has thus far kept major new laws off the books, longtime policy specialists said.

A company over-reaches, gets caught, and promises to do better. If a greater than usual display of outrage prompts introduction of plausible legislation, the industry counters with a new plan for self-regulation, such as the publication of privacy policies that users seldom read.

Sooner or later, the plan is rendered obsolete by new technologies in the data arms race, and the cycle repeats.

Google and Facebook last year both agreed to 20 years of privacy audits by the Federal Trade Commission after they made public customer information that users had considered private. But with few restrictions on data collection, the audits are not likely to have a major impact on business practices.

Internet companies and their investors argue that data-collection is essential to their businesses, and enables them to provide services that would otherwise be impossible. Consumers get more accurate search results, more relevant advertising, and more intimate connections with friends and others when Internet companies know something about them.

“For that value tradeoff, they’re willing to provide information,” said Ron Conway, a well-known Internet investor.

“I don’t like people tracking my location, but I want to know, ‘what are some nearby Italian restaurants that my friends have liked,'” said Auren Hoffman, CEO of Rapleaf, which compiles profiles of Internet users.

The equation is different in Europe, which has long-standing data protection laws that limit some practices that are standard in the United States. The European Union is now weighing updated rules that would allow any resident to ask companies to delete the information on file about them; the United States only has equivalent rights for those under age 13.

Privacy advocates in the United States say they do not expect big changes anytime soon.

“Trying to pass a bill through Congress that’s actually going to safeguard user records, especially when you’ve got huge advertiser lobbies trying to defang that law, is an incredible challenge,” said Rainey Reitman, activism director with the Electronic Frontier Foundation.

At best, they say, a law might allow consumers to opt out of some tracking.

“That is more likely today than it was 24 hours ago,” said Justin Brookman, director of consumer privacy at the Center for Democracy & Technology, which gets funding from foundations and major technology companies.

“But the ‘right-to-be forgotten,’ erase-button thing, you would see more of a fight.”

Top U.S. commander: Too soon to attack Iran right now


Chairman of the Joint Chiefs of Staff Gen. Martin Dempsey speaks during an event to announce a new report regarding military spouse employment at the Pentagon. Photograph by: Chip Somodevilla , Getty Images

Top U.S. commander says attacking Iran would be ‘premature’

Agence France-Presse | Feb 19, 2012

WASHINGTON – The top U.S. military commander said he believed it would be “premature” to take military action against Iran in response to its nuclear program in an interview to be aired Sunday.

General Martin Dempsey, chairman of the Joint Chiefs of Staff, also told CNN’s “Fareed Zakaria GPS” program that economic sanctions have to be given a chance to work, and the United States and its allies should be better prepared for a military option.

“I think it would be premature to exclusively decide that the time for a military option was upon us,” Dempsey said, according to excerpts of the interview released by CNN.

“I think that the economic sanctions and the international cooperation that we’ve been able to gather around sanctions is beginning to have an effect,” he added.

In recent weeks, there has been feverish speculation that Israel was getting closer to mounting a preemptive strike on Iran’s nuclear facilities, but Israel has denied reaching such a decision.

Tensions between Iran and Israel have also been simmering with Iranian warships entering the Mediterranean through the Suez Canal in a show of “might”, a move Israel said it would closely monitor.

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The United States, other Western powers and Israel believe that Iran is seeking to build a nuclear bomb, but Tehran denies the charge, insisting its atomic program is for purely peaceful purposes.

Iran said last week it was ready to resume stalled talks on its nuclear drive, prompting a cautious welcome from the United States and the European Union.

Dempsey said he believed that “diplomacy is having an effect” and suggested that even if the West opted for a military solution, it had to be better prepared for such a step.

“I mean, fundamentally, we have to be prepared,” he said. “And that includes, for the most part, at this point, being prepared defensively.”

Asked if Iranian leader were acting rationally, the U.S. military commander said: “We are of the opinion that the Iranian regime is a rational actor. And it’s for that reason, I think, that we think the current path we’re on is the most prudent path at this point.”

Attack on Iran ‘inevitable’ this year


Foreign Secretary William Hague greets U.S. Secretary of State Hillary Clinton with an embrace and a kiss at a NATO conference

U.S. warns a strike on Tehran is inevitable later this year

Feb 18, 2012 | Daily Mail

Iran’s nuclear ambitions could plunge the world into ‘a new Cold War’ with the Middle East, Foreign Secretary William Hague warned today.

He predicted a nuclear arms race among rival Middle Eastern states that would carry the dangers without the safety mechanisms of the old rivalry between the West and the former USSR.

In an interview with The Telegraph, he insisted Britain did not back military action against the Islamic republic – as Israel is thought to be planning.

He told the newspaper: “If [the Iranians] obtain nuclear weapons capability, then I think other nations across the Middle East will want to develop nuclear weapons.”

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‘And so the most serious round of nuclear proliferation since nuclear weapons were invented would have begun, with all the destabilising effects in the Middle East – and the threat of a new Cold War in the Middle East without necessarily all the safety mechansims.

‘That would be a disaster in world affairs.’

He said that Britain could be in range of Iranian nuclear weapons and that nuclear materials could fall into the hands of terrorists.

However he said all options must remain on the table when dealing with President Mahmoud Ahmadinejad’s regime.

There is growing speculation among Western officials that Israel may be planning to launch military attacks against Iranian missile facilities this summer, ahead of the US presidential elections this autumn.

Several Israeli diplomats have been unsuccessfully targeted by Iranian hit squads around the world in the last few days.

The US has told Israel it does not want Israel to attack Iran. However, earlier this month US defence secretary Leon Panetta told the Washington Post that he thought the window for an attack on Iran by Israel is between April and June.

President Barack Obama has stressed that he wants to allow time for new sanctions to damage Iran’s ailing economy before turning to a military approach.

But other US officials believe sanctions will not work. An official knowledgeable in Middle East policy told The Guardian: ‘The guys in Tehran are behaving like sanctions don’t matter, like they’re economy isn’t collapsing, like Israel isn’t going to do anything. Sanctions are all we’ve got to throw at the problem. If they fail then it’s hard to see how we don’t move to the ‘in extremis’ position.’

In his comments to The Telegraph Mr Hague said that the British Government is ‘not favouring the idea of anybody attacking Iran at the moment.’ He added that they support a ‘twin-track’ strategy of sanctions and pressure, and negotiations on the other hand.’

But he added: ‘We are taking nothing off the table.’