September 11 Commission Report - Gnostic Liberation Front

Appendix D: The Federal Reserve and the Three Card Monte
On of the most common scams on the streets of America is a set up of three card Monte.
The intricacies of the scam are legion, but essentially, the dealer’s sleight of hand which
fools the ‘mark’ is covered by a rapid rotation of the three cards. It was the rapid rotation
of the securities settlement fails in the aftermath of September 11 th that appears to have
allowed the Bank of New York and the Federal Reserve to engage in a securities
refinancing that scammed the American taxpayer by $240 billion.
A review of the explanations for actions of the Federal Reserve after September 11
exposes an amazingly complex web of analysis and speculation. These reports published
by the Federal Reserve argue that the Federal Reserve’s actions increasing the monetary
supply by over $300 billion were justified to overcome operational difficulties in the
financial sector. While impressive as the reports are, what is noted by the casual reader is
that all of the Federal Reserve analysis is speculative and suggestive, using phraseology
such as “may have,” “likely,” “presumably,” or “should have.” There are few - if any -
definitive statements about root cause and the appropriateness of the response.
The general perspective of the industry is captured in such comments as:
“The destructive force of the attacks themselves caused severe disruptions to the U.S. banking system,
particularly in banks’ abilities to send payments. The physical disruptions caused by the attacks
included outages of telephone switching equipment in Lower Manhattan’s financial district, impaired
records processing and communications systems at individual banks, the evacuation of buildings that
were the sites for the payments operations of large banks, and the suspended delivery of checks by air
couriers.” [Liquidity Effects of the Events of September 11, 2001, James J. McAndrews and Simon M.
Potter, FRBNY Economic Policy Review / November 2002, p. 59]
“Following September 11, open market operations were aimed at satisfying the financing needs of the
severely disrupted government securities dealer community, leaving to the discount window the task of
elastically providing balances to satisfy demand at the target rate. The huge additions of funds
following September 11 were therefore a by-product of operating procedures designed to target the
overnight funds rate.[3]” [Payment System Disruptions and the Federal Reserve Following September
11, 2001, Jeffrey M. Lacker, Federal Reserve Bank of Richmond, Richmond, Virginia, 23219, USA,
November 17, 2003 printed in Journal of Monetary Economics, Volume 51, Issue 5, July 2004, Pages
935-965]
“Fails rose initially because of the destruction of trade records and communication facilities. They
remained high because the method typically used to avert or remedy a fail—borrowing a security
through a special collateral repurchase agreement—proved as costly as failing to deliver
the security.” [When the Back Office Moved to the Front Burner: Settlement Fails in the Treasury
Market after 9/11, Michael J. Fleming and Kenneth D. Garbade, FRBNY Economic Policy Review /
November 2002, p 35.]
Reading statements like this are suggestive that there were massive, wide spread
disruptions in the system. These were the conditions that “led policymakers to depart so
significantly from previous debt management practices.” [When the Back Office Moved
to the Front Burner: Settlement Fails in the Treasury Market after 9/11, Michael J.
THE SEPTEMBER 11 COMMISSION REPORT Page 370