How The Federal Reserve Works (And Who Really Owns It)

published on July 17, 2020

The Federal Reserve the cornerstone of the American economy for just over a century the Fed has overseen the financial system of the US but its track record has been far from perfect worse yet it has such a unique and convoluted structure that it's very difficult for

People to really understand it which is why unsurprisingly the Fed has been subject to various conspiracy theories from being owned by the Rothschilds to being operated by lizard people today we're going back to the dawn of American

Finance to see how the Fed was created how it works and who really owns it this video is brought to you by Skillshare where you can find a ton of different classes including my own series of videos on how the stock market works you

Can watch them for free by registering with the link in the description America during the late 19th century was a nation in turmoil and not just in the literal sense the Civil War was no doubt devastating but even during the peace

That followed America was plagued by frequent and deep economic depressions the underlying cause was simple America just lacked a proper financial system and more importantly it didn't have a central bank to save the day when things

Turned bad now keep in mind central banking wasn't a new concept the Dutch were the first to come up with a central bank in 1609 and it was instrumental in transforming the Netherlands from a swampy backwater into a global economic

Empire following the example of the Dutch the English created the Bank of England in 1694 which of course became the backbone of the British Empire but it's exactly this association with the British that made the founding fathers

Reluctant to use the same model in the United States there were two attempts at establishing a central bank even despite public opposition Alexander Hamilton himself led the first movement in 1791 but in both cases the systems lasted

Under 20 years and it little to stabilize the situation and by all accounts the situation was very very bad back then even a single local bank failing could result in nationwide panics people knew that no one could

Save their bank if it went bust so as soon as rumors of insolvency started spreading everyone frantically started withdrawing whatever they had bankrupting otherwise healthy and solvent banks simply out of fear such

Backgrounds happened with frightening regularity and the depressions that followed were long and painful of course American bankers realized very well just how bad their industry was doing Paul Warburg one of the great American

Bankers of his day said in 1907 that the American banking system then was at about the same point as 15th century Italy or Babylon in 2000 BC just a few months after Warburg made that statement the country suffered the panic of 1907

And it was particularly severe to start things off in 1906 a devastating earthquake destroyed 80% of San Francisco with reconstruction efforts underway capital was very tight and because all the money back then was in

Paper form it was much more difficult to reallocate it across the country one banker tried to abuse that by manipulating the stock price of the United copper company back on Wall Street he hoped to see the shares rise

Exponentially in value but instead they crashed dragging down the entire stock market with them that banker was involved in 10 different banks across the East Coast and one after another these banks failed as people assumed

They were insolvent and were through all of their money pretty soon even bags as it had nothing to do with the guy were going under and so the fearful bankers of America turned to the only man with the power to save them JP Morgan back

Then John Morgan was the king of Wall Street and even today the bank he created is the largest one in America he wasn't the wealthiest man at the time that title belongs to John rockefeller but Morgan was certainly the man

Everyone turned to when things got bad in October 1907 Morgan summoned the great bankers of the day to his office it's 23 Wall Street with the collective capital of America's big banks Morgan arranged for the rescue of the healthy

Bags that were nevertheless near bankruptcy due to irrational fears virtually the same thing would happen a century later in 2008 when the government bailed out the banks but this time it was happening entirely thanks to

Private individuals like John Morgan once the panic was contained it became clear to everyone that a central bank was necessary and Congress immediately passed legislation to create one however that was pretty much the only thing

Everyone agreed on the actual details of how it would work sparked long and fierce debates that halted any progress the agricultural sales for example was afraid that a powerful central bank would give Washington and Wall Street's

Too much power over them the bankers meanwhile wanted to make sure that the central bank would not be manipulated by political interests they wanted it to be as independent as possible from Washington the sheer number of competing

Parties made creating a central bank extremely difficult and negotiations would in fact take over five years to finalize what's interesting though is that these negotiations weren't happening on Capitol Hill instead they

Were held 600 miles south of Washington on Jekyll Island in Georgia that resort was home to an exclusive club of over a hundred of the wealthiest men at the time including John Morgan of course only a select few would help draft the

Actual plan for the central bank and it wouldn't be until 1913 that legislation would actually come to pass the newly created Federal Reserve was truly a miracle of compromise to accommodate all the various interests of the diverse

United States the Fed became a central back unlike any other in the world to begin with it wasn't a single bank instead it was a network of 12 regional banks each governed by local bankers and businessmen some of these banks were in

Obvious places like New York and Chicago but many of the other locations came down to politics the senator from Missouri for example was the key votes needed to pass legislation which is why today Missouri

Is the only state to have two Federal Reserve Bank's within its borders to appease Washington these twelve regional banks would have a single governing body comprised of seven people appointed by the President and confirmed by the

Senate to limit the president's power he can only appoint one governor every two years with a 14-year term but the really unique part of the feds and you can thank John Morgan for that is the fact that each regional bank is

Actually structured as a private corporation that has its own stock here's how it works every nationally chartered bank in America is required by law to keep six percent of its capital in its regional

Reserve Bank in exchange that private bank receives an equivalent amount of shares in the regional reserve bank these shares however are quite different from the shares of public companies their price is fixed at a hundred

Dollars per share and they can't be sold or traded they carry voting rights to about two-thirds of the board of directors for that regional Reserve Bank but as we know the real power is in the Board of Governors appointed by the

President what these shares do have however is a fixed six percent dividend per year now it's worth noting that this dividend doesn't entitle the banks to any of the feds profits instead everything the Fed earns above that six

Percent payout goes directly into the Treasury and keep in mind the Fed is very profitable in 2017 it sent eighty billion dollars to the Treasury while only paying out fourteen billion to the regular banks that hold its stock

So who are the shareholders of the Federal Reserve well basically every big bank in America the full list is a hundred and fifty pages long but pretty much every name you know appears on it but here's the

Beautiful thing most of America's big banks are public corporations in other words if you want to benefit and make money off of the unique structure of the Federal Reserve you can do that by purchasing stock and American banks

Since ownership and the feds depends on capital the bigger the bank is the bigger its ownership stake therefore it would be wisest to start from the top of the list and speaking of the stock market in case you somehow missed it

Last month I released a 20-minute animated series of videos on how to stock market works on Skillshare I cover topics like how diffidence get paid out or how ETFs work and if you want to watch the full class you can register

For a two month free trial of Skillshare using the link in the description once you've registered search for investing 101 or follow the link I've left in the comments below if you don't know Skillshare is the best

Online learning platform out there it has thousands of different classes on a wide variety of topics including business and the stock market by the way I want to thank all 2000 of you who already watched my class you've helped

Make it the most popular stock market class on Skillshare and I'm thankful for that in fact I'm already working on a second series of videos that goes deeper into how companies work including valuations

Buybacks multi-class stocks and a whole bunch of other fascinating topics I will let you know when that course goes live but until then make sure you've checked out Skillshare and my one course on it anyway thanks for watching if you're new

To business casual make sure to subscribe and also consider liking this video if you enjoyed it as a waste a big shout-out to my patrons on patreon for supporting me and for being awesome you'll hear from me again in about two

Weeks and until then stay smart

Related Videos

from daily forex this is chris taking a look at the uh bitcoin market here you can see that we have uh found the market to be bullish we have broken above the ...
James fake revenue at deutsche bank has risen by 47 in the third quarter has this good momentum continued in the fourth quarter as well look we're continuin...
from daily forax this is chris taking a look at the um us stock indices this is the s p 500 and you can see that the s p 500 has uh rallied quite a bit did pul...
The capital position now and the confidence you have to deploy that dividend well indeed we have uh we've had a uh a very strong quarter um in which uh you ...
Hi everyone my name is adita and a few years ago i got divorced and became a single mom of two kids and that's when i started to look for ways to invest my ...
Have you ever thought of the true value of gold I mean really the value of something isn't its price it's what you can buy with it that is the true valu...
Hi this is vlad from effects empire euro dollar failed to settle above the resistance at 1.1870 and is trying to get below the support at 1.1830 if this attempt...
from daily forex this is chris taking a look at the uh crude oil marking cwti has gapped a little bit lower and then basically did nothing so uh at this point ...
Rupert what does this all mean for for equities but in general actually asset classes would you buy right now yeah so we are still broadly constructive on risk ...
Today I'm looking back at the Tesla stock on March 17th I did an analysis based on my ambassador diamond analysis the IDB a and I suggested that after its s...
The thing is if it's a legitimate expense and you are legitimately working from home take it you're literally throwing money leaving money on the table ...
from fx empire this is chris taking a look at the euro dollar and you can see that we are reaching above 118 as new york gets on board and perhaps trying to ma...
from daily forex this is chris taking a look at the euro and the pound you can see the euro has fallen a bit during the trading session here on friday as there...
The crude oil price has had a great recovery off those april lows but it does appear to be struggling over recent weeks so given the resurgence of the coronavir...
The recovery in silver continued into july and in the last week uh the price went somewhat parabolic moving from 19 up to 26 and you can see the sort of volatil...
Now one of the things that almost all millionaires have in common is they have exceptional I mean exceptional communication skills because they recognize that c...
Hi this is vlad from effects empire silver is currently trying to settle above the nearest resistance level at 23.30 if this attempt is successful silver will g...
from daily forex this is chris taking a look at the gold and silver markets you can see gold has smashed into this little short-term downtrend line that i have...
So tell us a bit more about the survey what what are your clients telling you about the lessons learned from this pandemic and what does it tell us about the fu...
At first glance ichimoku charts um can seem somewhat intimidating with a lot going on when we're looking at markets but they're also a really powerful w...