Ron Paul Responds to Ben Bernanke’s “Bizarre” Comments

Statement of Congressman Ron Paul
United States House of Representatives
Statement for the Record
February 25, 2010

Madame Speaker, I would like to enter into the record the following letter from Professor Robert D. Auerbach, a professor at the LBJ School of Public Affairs at the University of Texas. This letter provides additional information regarding remarks I made at yesterday’s Financial Services Committee Humphrey-Hawkins hearing, remarks which Federal Reserve Chairman Bernanke categorized as “bizarre.”

I thank Congressman Ron Paul for bringing to the public’s attention the Federal Reserve coverup of the source of the Watergate burglars’ source of funding and the defective audit by the Federal Reserve of the bank that transferred $5.5 billion from the U.S. government to Saddam Hussein in the 1980s. Congressman Paul directed these comments to Federal Reserve Chairman Ben Bernanke at the House Financial Services Hearing February 24, 2010. I question Chairman Bernanke’s dismissive response.

BERNANKE: “Well, Congressman, these specific allegations you’ve made I think are absolutely bizarre, and I have absolutely no knowledge of anything remotely like what you just described.”

The evidence Congressman Ron Paul mentioned is well documented in my recent book, Deception and Abuse at the Fed (University of Texas Press: 2008). The head of the Federal Reserve bureaucracy should become familiar with its dismal practices.

First, consider the Fed’s coverup of the source of the $6300 in hundred dollar bills found on the Watergate burglars when they were arrested at approximately 2:30 A.M. on June 17, 1972 after they had broken into the Watergate offices of the Democratic Party. Five days after the break-in, June 22, 1972, at a board of directors’ meeting of officials at the Philadelphia Fed Bank, it was recorded in the minutes [shown on page 23 of my book] that false or misleading information had been provided to a reporter from the Washington Post about the $6,300. Bob Woodward told me he thought he was the Washington Post reporter who had made the phone inquiry. The reporter “had called to verify a rumor that these bills were stolen from this Bank” according to the Philadelphia Fed minutes. The Philadelphia Fed Bank had informed the Board on June 20 that the notes were “shipped from the Reserve Bank to Girard Trust Company in Philadelphia on April 3, 1972.” The Washington Post was incorrectly informed of “thefts but told they involved old bills that were ready for destruction.”

The Federal Reserve under the chairmanship of Author Burns not only kept the Fed from getting entangled in the Watergate coverup, which the Fed’s actions had assisted, it allowed false statements about bills the Fed knew were issued by the Philadelphia Fed Bank to stand uncorrected. Blocking information from the Senate and House Banking Committees [letters shown in my book, Chapter 2] and issuing false information during a perilous government crisis imposed huge costs on the public that had insufficient information to hold the Fed officials accountable for what they had withheld from the Congress. Had the deception been discovered the Fed chairmen following Burns may have been forced to rapidly implement some real transparency to restore the Fed’s credibility. That would have reduced or eliminated many of the lies, deceptions, and corrupt practices that are described in my book.

The second subject brought up by Congressman Ron Paul is the exposure of faulty examinations of the Federal Reserve of a foreign bank in Atlanta, Georgia through which $5.5 billion was sent to Saddam Hussein that a Federal Judge found to be part of United States active support for Iraq in the 1980s.
On November 9, 1993, several federal marshals brought a prisoner, Christopher Drogoul, into my office at the Rayburn House Office Building of the U.S. House of Representatives. The marshals removed the manacles. Drogoul took off his jump suit and changed into a shirt, tie, and business suit. He immediately looked like the manager of the Atlanta agency with domestic headquarters in New York City of Banca Nazionale. Drogoul had come to testify about a “scheme prosecutors said he masterminded that funneled $5.5 billion in loans to Iraq’s Hussein through BNL’s Atlanta operation. Some of the loans allegedly were used to build up Iraq’s military and nuclear arsenals in the years preceding the first Gulf War.”[1]

Drogoul’s “‘off book’ BNL-Atlanta funding to Iraq began in 1986 as financing for products under Department of Agriculture programs.”[2] The loans allegedly had been authorized by the U.S. Department of Agriculture. Since Drogoul told the committee he was merely a tool in an ambitious scheme by the United States, Italy, Britain and Germany to secretly arm Iraq in their 1980-88 war, the testimony was politically contentious and unproven. He was sentenced in November 1993 to 37 months in prison and he had already served 20 months awaiting his sentencing hearing.

U.S. District Judge Ernest Tidwell found that the United States had actively supported Iraq in the 1980s by providing it with government-guaranteed loans even though it wasn’t creditworthy. The judge said such policies “clearly facilitated criminal conduct.”[3]

Gonzalez was drawn to Drogoul’s answer about the Fed examiner who had visited his Atlanta operation. Gonzalez said that:

“At the November 9, 1993 Banking Committee hearing I asked Christopher Drogoul, the convicted official of the Banca Nazionale Del Lavoro agency branch in Atlanta, Georgia, how the Federal Reserve Bank examiners could miss billions of dollars of illegal loans, most of which ended up in the hands of Hussein.

Mr. Drogoul stated:

“The task of the Fed [bank examiner] was simply to confirm that the State of Georgia audit revealed no major problems. And thus, their audit of BNL usually consisted of a one or two-day review of the state of Georgia’s preliminary results, followed by a cup of espresso in the manager’s office.”

Gonzalez was appalled at the of lack of effective examination of a little storefront bank and also appalled by the gifts exchanged by officers of the New York Federal Reserve and the regulated banks in New York City where the main U.S. office of BNL was located. A description of what followed is in my book.

The Fed voted in 1995 to destroy the source transcripts of its policy making committee that had been sent to National Archives and Records Administration. Chairman Alan Greenspan had the committee vote on this destruction, telling the members: “I am not going to record these votes because we do not have to. There is no legal requirement.” (p. 104 in my book.) Greenspan thus removed any fingerprints on this act of record destruction. Donald Kohn, who is now Vice Chairman of the Board of Governors at the Federal Reserve, answered some questions I had sent to Chairman Greenspan about this destruction. Kohn replied in a letter on November 1, 2001 to me at the University of Texas that they had destroyed the source records for 1994, 1995 and 1996, they did not believe it to be illegal and there was no plan to end this practice. That is one reason why the Federal Reserve audit supported by Congressman Ron Paul is needed. The Fed must stop destroying its records.

[1] Marcy Gordon, “Banker Imprisoned in BNL Case Tells Story to House Committee,” The Associated Press, November 9, 1993.

[2] U.S. Newswire: “Former Executive of Atlanta Agency of Italian-Owned Bank Pleads Guilty to Conspiracy”, from U.S. Department of Justice, Public Affairs, June 2, 1992.

[3] Peter Mantius, “Drogoul given 37 months Judge in BNL case also blasts actions of U.S. prosecutors,” The Atlanta Journal and Constitution, December 10, 1993, Section A, p. 12.

Robert Auerbach is Professor of Public Affairs at the Lyndon Baines Johnson School of Public Affairs, The University of Texas at Austin. He was an economist with the House of Representatives Financial Services Committee during the tenure of four Federal Reserve Chairmen: Arthur Burns, William Miller, Paul Volcker, and Alan Greenspan. Auerbach also served as an economist in the U.S. Treasury’s Office of Domestic Monetary Affairs during the first year of the Ronald Reagan administration and as a financial economist with the U.S. Federal Reserve System. Auerbach has been a professor of economics at the American University in Washington, D.C. (1976-83), and a professor of economics and finance at the University of California-Riverside (1983-93). He has written numerous articles, and two textbooks in banking and financial markets. He received two Masters degrees in economics, one from the University of Chicago and one from Roosevelt University, where he studied under Abba Lerner, and a Ph.D. in economics from the University of Chicago, where he studied under Milton Friedman.

  • longshotlouie

    Judicial Watch Announces List of Washington’s “Ten Most Wanted Corrupt Politicians” for 2009

    • It’s no wonder why they supported the bailout of the banks and they have donated to their campaign! Others for different reasons why they are so corrupt! Thanks Longshot for giving the link for the list of the ten most corrupt politicians of “09”!

  • Forest

    “But the Ron Paul Austrians are much more influenced by the conspiracy-minded Murray Rothbard than the sophisticated Friedrich Hayek. Rothbard’s primary contributions to economics are defenses of the thoughts of his and Hayek’s mentor, Ludwig von Mises, and his argument that loose monetary policy during the 1920s caused the Great Depression. But he’s better known for an insistence on ideological purity, a project that led him to convert many of the modern Austrians to “pure” libertarianism: capitalist anarchy.

    This makes Rothbard an opponent of Friedman and — it must be said — of Hayek, too. To an anarchist, an acceptance of even minimal government is shortsighted at best or statist at worst. This outlook allows for easy and simplistic solutions. What to do about the economy? Simple: eliminate all government programs. Education reform? Eliminate all government. Energy? Eliminate all government. Monetary policy? End the Fed! (Eliminate all government.)”


    • You must like paying higher taxes, like the government telling you everything you need to do, and us giving more foreign aid when we have problems here at home! I bet you like big brother watching everything you do HUH? You’re just contradicting yourself!

  • Silent Majority

    @Forest: How ironic. Please conduct more personal research before posting attacks to the thread, you are hurting the country not helping it. All we have are evidence and theory, and for the most of the time until proven, theories are what is bounced off the standing evidence of the past ‘theories.’ I have the professional and educational background to understand what the Fed really is, and it saddens me to see my fellow Americans so blind and attached to their television and the herd. Please watch less TV and read more, for all of us. I mean not to offend your ego, I just pity you and do not wish your slander to move this productive discussion into a useless battle (don’t we know we have enough of those in present day and all of human history).

    • Susan Harkins

      Silent, Forest is on a mission. He does not identify with views on this site, yet persists like a plague to attack Ron Paul. Your request to come to terms with him will fall on deaf ears, as his mission to undermind Libertarians/conservatives/Ron Paul far exceeds his desire to ‘reason’ with you. He is accomplishing exactly what he is setting out to do, as evidenced by your post to him. Personally, I have given the Forest Monkey enough of my attention and will disregard him, going forward. A ‘Silent Majority’ to his postings, is his worst fear, at this time. 😉

  • Sean

    If the Fed really did cover up transactions in the past which were subjected to audits, than what makes you think that the fed couldn’t cover up any information today subjected to an audit.. You can’t take out a king using a pawn, especially when the opposite side can control both sides of the board.

    • Susan Harkins

      Sean, well said — I completely agree. This is where one must think ‘out of the box’ when it comes to this sort of chess game. If I were faced with such challenges in the game, I would see more than one move; however, only one that would be the RIGHT move. Since foregoing my move is ALSO a move on my part, but one certain to defeat, I would elect another move. Since my opponent had control of both sides of the board, I was pressed to make a move, I would do so, not by placing my fingers on a chess piece, but by reaching under the table, grabbing its legs, and flipping the entire table on its side. That, my friend, is the move we must now make. Such ‘out of the box’ thinking comes quite naturally, I believe, for Libertarians.

      • Sean

        haha nice

  • Garry Fresh

    [couple glasses of wine so please excuse the run on sentences]

    Overall Congressman Paul has been extremely effective in his questioning of Fed practices, but I do agree there was a lapse this time around.

    It seemed that Mr. Bernanke’s affirmative response to Congressman Paul’s request to receive transcripts of FOMC meetings after 5 years, caught Congressman Paul by surprise. As I watched Mr. Bernanke respond, (body language, facial expression, etc…) it felt to me that Mr Bernanke responded in the affirmative only because he knew that responding in that manner, in that hearing, would not actually commit him or the Fed to providing any material information. It seemed to unsettle Congressman Paul only because he was expecting a “No” and received a “Yes” to his request for transcripts after 5 years. The way I read Mr. Bernanke is that he seemed to know that there is no way that Congressman Paul, or the Congress in general for that matter, could actually get the data which he, Mr. Bernanke, had just agreed to provide – Surely there is a formal process in place through which ANY member of Congress (House or Senate) MUST navigate in order to actually obtain any substantive information from the Fed.

    On the other hand, since Mr. Bernanke did agree publicly that the Fed would make available of ALL Fed deliberations decisions and other pertinent data after 5 years – not sure if Mr. Bernanke was under oath – and because Chairman Frank seconded Congressman Paul’s request for Fed data associated with Watergate and Saddam Hussein financing, we should begin gathering that and ALL OTHER information from the Fed as soon as possible (e.g. formal requests for ALL Fed data and internal and external communications going back until its inception in 1913).

    • Forest

      Umm, actually transcripts for the FOMC meetings are already released after 5 years:

      However, you can’t disprove a conspiracy theorist once they have formed a conspiracy – no amount of evidence will disprove it because all evidence will be summarily rejected as being ‘manufactured’ in favor of a minimal amount of evidence that tangentially supports it.

      Perhaps Ron Paul looked totally taken aback because his adoring bubble of supporters never actually does him the favor of calling him on his batshit crazy theories and when it did, it actually happened at a congressional meeting on national TV?

      Clearly though, the other congressman and those people in attendance were not taken aback, as evidenced by the laughter – looks like once again it was just him.

    • longshotlouie

      You’ll have to excuse the resident troll. A recent name change still has him confused and unable to focus.
      He believes that the Fed releases 100% of the facts 100% of the time.

      He’s practicing for a better gig.

      • Forest

        Yeah, I use critical thinking, and because of that I am a ‘troll’. Please continue to spearhead the pro-conspiracy, anti-intellectual movement Louie. You should always discount all other information and evidence that proves something is correct in favor of your hand-picked ‘evidence’ from other ‘experts’ that support the permanent evidence of evildoers. Keep on keeping on!

        By the way, is that you in the background at about the 2 minute mark chasing your tail?

        • longshotlouie

          Were you crying when you wrote that? lmao

          Are you keeping the evidence to yourself?

          • Susan Harkins

            Hey longshot,

            Does this Forest nutjob really believe that we follow his random links? He gave one earlier to the Huffington Post (on a Libertarian website), can you believe that? LOL. That garbage is a cest pool for progressives and libtards, and there is a common thread of cluelessness amongst its readers/posters. Yea, I bet all the Libertarians here RACED to click on the link, first. He is complete baphoon on a libtard mission to keep conservatives on the Ron Paul site from coming together on issues — ignore him — it will really tick him off. Oh, and tell him that you are proud to be a free, white, self-reliant American…that will really send him into cardiac arrest. 😉

          • longshotlouie

            Give ol’ MattForest a break. He’s our only full-time jester.
            I say, let his comedy crusade continue. Laughter is good for the soul.

  • F

    I wish I could be an expert in economy theories to spot the lies, but I know the system is fake and fitted to something unreal just by living. I know it does not reward hard or honest work, but the opposite, and the current selection of the fittest for reward is conveniently based in unwritten rules and regulations that when it comes to profit have an invisible road of transmission for the public at large.

    But the same applies to many aspects of life that makes Bernanke just look as an icon of the same greed effect. A green icon.

    The word ‘framework’ is quite fitting to what the population perceives. And is not democracy for all.

    In the past I have eased the pain of an ill, blind old man by placing fake-play-bills in his hands as reward for his hard honest work, but never really wondered before, as I do now, what do these rich personalities do with all that money. Maybe the choose to do good, and is low value money too.

    • Forest

      “but I know the system is fake and fitted to something unreal just by living.”

      Riiiight. That is also how people ‘knew’ the world was flat and ‘knew’ the sun revolved around the earth.

      Thank god there are people that actually think so as to lead those that are simply following.

      However, if you don’t feel like challenging yourself and instead settling into a circular, venomous dogma, RP is the candidate for you. As well, you may want to check this out too:

  • Bernanke is just another bureaucrat runned by the government and special interests! He must be resigned and sent to jail!

  • Sean

    How is Ben Bernanke going to know what transactions the fed made 20 years before he came into office. I guess he was teaching at stanford at the time. I think its funny how he only owns only one car between him and his wife, a ford focus… The most evil man in the world drives a ford focus.

  • Umi

    I don’t think that Rep. Paul came out on top of the Bernanke questioning. He was NOT effective and Mr. Bernanke answered his questions assuredly and without hesitation. Rep. Paul could NOT nail down any allegation and Mr. Bernanke flatly denied any knowledge of any of the allegations.

    Could it be that Dr, Paul does not have his eye on the game now that a Presidential run is a possibility?

    Ron Paul will NEVER be endorsed by the RNC. No truly HONEST person will ever be “chosen” to run by the party leaders.

    A principled president is their greatest nightmare.

    Dr. Paul must be DRAFTED to run!