Professor Auerbach Provides More Evidence of Fed's Coverup Regarding Watergate and Iraq

George Washington's picture

Professor Robert Auerbach was kind enough to send me an email to let me know that Ron Paul read the following letter written by Auerbach into the Congressional record today

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 ... hearing, remarks which Federal Reserve Chairman Bernanke categorized as “bizarre.”



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, 2003, 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.


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.


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

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Anonymous's picture

What's the point of the article?

The US is widely known to support foreign governments as long as this support serves the US best interests.

Better to be a friendly to the US dictature than a democracy standing against the US when divergence of best interests appears.

Nothing new here.

This reminded, why should the provided piece of news be of any interest?

The US supported the Mad Man from the desert Saddam Hussein when it served the US.
Why it should be so surprising to see that the FED was used as a funnel to materialize this help?

Anonymous's picture

The current level of cooperation between the Fed and Treasury has far exceeded what anyone could have imagined.
And of course this all evolved secretly without the knowledge of Congress or the American people. And who knows how much money is sitting in Republican war chests, in offshore banks, money extorted by Congressmen like Duke Cunningham and recycled through Tom Delay, with agents like Jack Abramoff running the operation. That entire process was done through venture capital groups, and internet casinos, and under the cover of black contracts. Bush spent the country into oblivion, so where did the money go? The first thing Obama should have done is fill a boat with US Marines and sail around the Caribbean auditing these banks, and seizing their assets instead of that sissy game they played with Swiss bank accounts, we're coming to get you, yes we are, here I come, better hide that money pretty soon, okay.
Forget Nixon's chickenfeed, and forget that pallet of cash that was thrown out of the back of a pickup truck in Baghdad, get inside the Bush II administration, because this was theft on the grandest of scales. Bush I ran most of the earlier secret operations, including Iran Contra, missiles for hostages, etc. Bush II vetted Bernanke for a week before appointing him, and he made the Fed Chief effectively Under Secretary of Treasury.
Now Bernanke is telling Congress he WON'T PRINT MONEY to pay for deficits. Excuse me, Helicopter Ben WON'T PRINT MONEY FOR A DEMOCRATIC CONGRESS, BUT HE HAD NO PROBLEM SUPPORTING THE ECONOMIC POLICIES OF BUSH, WHO APPOINTED HIM. Bernanke is not a political hack, he just got sucked up into the vortex, when someone offers him IMMUNITY FROM PROSECUTION, then you know we are moving in the right direction.

docj's picture

Meanwhile, the USA Patriot act was - oddly very quietly and with little debate - re-authorized by the US House last night with a very lopsided vote of 315-97.

Make of that what you will.

Apocalypse Now's picture

The Christmas underwear and the Austin plane events were clearly planned to ensure re-authorization.

In a most un-patriotic act, it was re-authorized.

Interesting that a CNN poll recently stated that the majority of Americans believe the government is a threat to their rights.

Anonymous's picture

I still say that under the Patriot Act the cops can break into the Fed and abscond with whatever they want. Who needs a Congressional vote for audit just use the Patriot Act to browse around the Fed for awhile. Isn't Constitutional law a marvel?

Psquared's picture

It is no secret we were actively supporting SH during the 1980s when he was waging war with Iran. Likewise, we supported the Shah of Iran during the 1970s and in both cases probably supplied them with loans/cash. Why is this suddenly a conspiracy?

Anonymous's picture

Because the Fed'd defense against being audited is that they claim to be "independent"--NOT political. Heh, heh. What a crock

Anonymous's picture


If you substitute the FED with any loaning institution, do you not achieve the same conclusion?

Loaning to Saddam Hussein was a political decision, the FED was simply the vector. Does not influence on its independence.

jc125d's picture

Let's have a look at the organization chart showing the blocks ABOVE the Fed, and see who is calling the shots for Mr. Bernanke.

Cognitive Dissonance's picture

I hope people don't ignore this article. I don't care how much paint and wallpaper you slap on the walls, if the walls are falling apart, all you're doing is making yourself feel better about the eventual implosion.

This financial crisis, this unprecendented corruption, is the result of decades of theft, manipulation, mortgage and bond fraud and so on. There is no quick fix and those who ignore articles like this because you don't want to believe it's relevant will be the most surprised when the roof comes down on their head.

Anonymous's picture

End the Fed !

End the Fed !

End the Fed !

End the Fed !

End the Fed !

End the Fed !