Guest Post: The Federal Reserve - A Study In Fraud

Tyler Durden's picture

Originally posted at Monty Pelerin's World blog,

In a previous article entitled “Government: ‘A Seedy Circus … Perpetually In Debt’,” government was likened to Larsen E. Whipsnade, the character played by the one-of-a-kind W. C. Fields in the 1939 movie “You Can’t Cheat An Honest Man.” Characterizing Leviathan government as an individual, even one as large as Whipsnade,  was a stretch. Fields’ fans objected because he was reasonably harmless, likeable and entertaining, certainly not adjectives one would apply to our modern-day State.

Ben Bernanke as Larsen E. Whipsnade

If comparing government to Fields’ character is improper, then why not compare individuals in that institution to Whipsnade. Surely there is no shortage of characters (clowns?) that could qualify as circus employees. The commonality between the Fields’ character and most high government officials is that both are out to dupe the people.

Barack Obama doesn’t make the cut, only because he is unlikeable and a genuine fool rather than pretending. Jay Carney is bumbling enough, but only haplessly acting on the orders of others. Eric Holder is too unlikeable and probably too devious to be a carnival barker. His aspirations could not be satisfied in small circus towns. Additionally he is too easy to see through. Timmy Geithner might have qualified, but he’s gone now.That leaves Ben Bernanke.

Mr. Bernanke fits the role quite nicely. He is bumbling, likeable and reasonably harmless, at least as a person. He seems a victim of circumstances, a man out of his comfort zone. But his clinching qualification is his modus operandi which is identical to that of a “carnie.” [For those unfamiliar with the term "carnie," Wikipedia defines it as follows: "Carny or carnie is a slang term used in North America and, with showie, in Australia for a carnival (funfair) employee, and the language they use, who runs a "joint" (booth), "grab joint" (food stand), game, or ride at a carnival, boardwalk or amusement park."]

Like a carnie, everything Mr. Bernanke says and does is aimed at deception. A modern day Federal Reserve Chairman must be like a carnie. The primary difference between a carnie and a Fed Chairman is the veneer of sophistication and false omniscience. Gary Dorsch contrasts what the Fed used to do with what it has become:

It all seems so surreal. After being mesmerized by the Fed’s hallucinogenic “Quantitative Easing,” (QE) drug, and seduced by the Fed’s Zero Interest Rate Policy (ZIRP), and rescued by the Fed’s clandestine intervention in the stock index futures market, for the past 4-½-years, it’s easy to forget that there was once a time when the Fed’s main policy tool was simply adjusting the federal funds rate. It’s even harder to recall that two decades ago, the Fed’s raison d’être was combating inflation, whereas today, the Fed’s main mission is rigging the stock market, and inflating the fortunes of the wealthiest 10% of Americans.

To be Fed Chairman these days, you must be adept at charlatanism.

Like the Wizard of Oz, you must pretend you are in control of things that no one possibly can control. You must, as the Platters sung, be “The Great Pretender.” You must pretend that you know the future and can overcome it if it is not promising.

An entire industry has developed devoted to interpreting Fedspeak. Nothing the Fed says is definitive, despite being said in serious tone. The reason for that is the Fed has no better idea of what is happening in the economy than you or me. All of their messages contain wiggle-words so that they can backtrack without being declared in error. When you don’t know what to say, you say nothing but in a way that it can mean anything.

The pretense of confidence and control are your primary strategic tools, as is the ability to maintain these pretensions despite a series of embarrassing forecasts. Your operating tools — quantitative easing, ZIRP and various market interventions — are all carnie tools, designed to deceive people into doing things they otherwise wouldn’t and shouldn’t.

The Great Coordinating Mechanism

The Fed’s role today is to distort prices, a fraud on the grandest scale. Free markets and free prices are the guidance system that produce the marvelous results that Adam Smith described as an “invisible hand.” Prices encourage cooperation and harmony. They provide guides for tens of millions of economic actors. They signal when to conserve and when to splurge. Prices direct scarce resources to their best uses. They influence career choices. Prices literally provide the signals by which we lead every aspect of our lives. Every decision we make, including the emotional ones such as children, love and marriage, are influenced by prices (see Gary Becker among others).

The modern-day role of the Fed is to distort these prices, effectively to disrupt the economy’s guidance system. The purpose is to fool you into making improper decisions. This deception threatens social harmony and individual well-being. Distorting prices, especially systematically, is the equivalent of drugging a person and then having him make major life or financial decisions. Drugs and price distortions have the same effect on decision-making — the mind is unable to properly receive and process information.

Ben Bernanke is on record hoping to manipulate the following three prices:

  • Interest Rates
  • Housing Prices
  • Financial Assets

Blatant Fraud

Mr. Bernanke deliberately suppresses interest rates in order to raise home prices and stock prices. His stated purpose is to create a “wealth effect.” When people feel wealthier, it is thought they borrow and spend more. Mr. Bernanke’s program is pure deception. It is designed to produce a false and fictitious sense of security (wealth). His policies are the same as those that caused the original bubbles. They will produce another dramatic collapse. Deliberate fraud is being imposed on the American public. The fraud will ultimately end in tragedy and great personal suffering.

The rest of the government supports Bernanke’s scheme by issuing false economic statistics and claims of economic recovery. There is no recovery; nor will there be one until the massive misallocations of resources resulting from the price manipulations are corrected (see more here). That cannot happen without a massive recession/depression. As expressed by Zerohedge:

...the American economy faces a long twilight of no growth, rising taxes, and brutally intensifying fiscal conflict. These are the wages of five decades of Keynesian sin – the price of abandoning financial discipline.

That is the most optimistic case. A depression is both necessary, and probably inevitable, to break the legacy of decline that Keynesian economics has created. All government agencies act in concert to postpone this event, ensuring greater calamity when it eventually occurs.

The use of the term “fraud” is no overstatement. Fraud, in a legal sense, is defined in strict terms:

Fraud must be proved by showing that the defendant’s actions involved five separate elements: (1) a false statement of a material fact, (2) knowledge on the part of the defendant that the statement is untrue, (3) intent on the part of the defendant to deceive the alleged victim, (4) justifiable reliance by the alleged victim on the statement, and (5) injury to the alleged victim as a result.

Which one of these conditions does not fit Fed behavior? My opinion is that they meet every condition.

If a private company or individual engaged in similar actions regarding the price or misrepresentation of a single product, fines and jail sentences would be sought. The Fed, however, engages in fraud with impunity. They are encouraged to do so by the political class. Bernie Madoff appears ethical in comparison with government and its agencies. The Fed gets to call their deliberate fraud “economic policy.”  Government supports the fraud by claiming that an economic recovery is underway.

Markets are arguably the greatest “invention” of mankind. They enable social cooperation and harmony while allowing maximum increases in living standards. Markets are the very foundation of modern civilization, allowing many billions of people to survive on our planet. Distorting markets is no small matter. Doing so literally threatens peace and economic well-being.

The Fed’s behavior of distorting prices is deliberate dishonesty calculated for government advantage. The policy is designed to deceive others to behave in a manner which is ultimately harmful to these individuals. It is outright fraud!

Concluding Remarks

In hindsight, apologies are in order. There was no need to insult “carnies” by comparing them to government. Bernie Madoff’s crimes should not be compared to those of the government. He was a small fry and he could not force people to participate in his Ponzi scheme. Government is in a class by itself. The Mafia, in comparison, looks like Mother Theresa.

A government that can only survive via fraud has reached the desperate stage. It can create great harm in its death throes but its survival is unlikely.

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Professorlocknload's picture

Organized Government, a study in fraud...Power corrupting, and all.

Cosa Nostra, MS 13, Triad, NSA all same, same.


CH1's picture

Right. While I don't disagree with the author, ALL government is fraud.

The entire operation is based upon taking money from people - either by threat or by manipulation ("it is your sacred duty to give us half your production").

MillionDollarBonus_'s picture

This article is an interesting example of modern conspiratorial writing. The further the idea from reality, the more highly it is rated by today's masochistic and nihilistic conspiracy theorists.

MillionDollarBonus_'s picture

And to respond to the poster above: actualy government is NOT fraud. Government is there to provide a service. Too bad for the 'productive' corporation owners with their billions and fancy cars and beautful women. I work harder than them; I'm more productive - so why can't I also be rich? Capitalists can never answer that fundamental question.

Manthong's picture

Cool..  the value proposition of a hooker.

KickIce's picture

Quit insulting hookers, even they stop screwing you when you're dead.  This bunch in DC keeps going after you as there's a penny to your name.

Manthong's picture

As a former drunken sailor, I can say with honesty that I only wasted my own money, not the money of my shipmates.

francis_sawyer's picture

OK ~ Let's check the scoreboard


It's OK to publish an article that states, clearly, that the [non]Federal [non]Reserve is a 'fraud'


But it's NOT OK to wonder why the 'shareholding families' of the same entity are impossibly, mathematically, aligned within the same subset...

That's nice...

francis_sawyer's picture

Yeah ~ I was getting 'the shakes' from not being able to read sychophant 'water carrier' replies...


Thanks to you, it's all been solved... Thank you for taking time out from your busy day of 'blaming' [Indiana] limestone buildings for the mess we're in... You may now resume your customary activities...

Herd Redirection Committee's picture


Sorry for shouting.

WTFx10's picture

Call them the MAFIA just don't say what race. What Organized Criminal group controls this Private banking racket?

francis_sawyer's picture

Don't have the foggiest idea... But they sure have a lotta 'sychoFANS'... ^^^

WTFx10's picture

The Godfather provided a service too. It was a service(offer) you could not refuse, just like GOVERNMENT.

If it was a service or an offer you could refuse to participate. The government passes laws so you have to use their service or in this case the FEDeral Reserves Service, legal tender laws does not a service make.

But you knew that didn't you?

OneTinSoldier66's picture

"so why can't I also be rich? Capitalists can never answer that fundamental question."


So where's my bailout? Statists and Gov't/Fed shills can never answer that question.


Go ahead, tell me what I have to do to get a bailout. Would it be for me and my cronies to first create a fraud so gargantuan and enormous that it is declared TBTF? Then I get a bailout? Did TBTF Banks report any loses on their 1Q trades this year? Any loses on any trade at all?


Of course, if I were and running an honest business why would I even ask for a "Government"(on the backs of taxpayers) bailout anyway. I wish the Government would just get out of the way and leave me and my money alone. Stop monetizing debt into the money. Stop using centralized power and control to buy up everything under the sun and put it onto your balance sheets, you greedster fascist MDB.

TruthDetector's picture


There are different types of labor, some much more productive than others.

The following is well worth the read...doubt MillionDollahBogus willl ever read it OR "get it," but here it is anyway.


OneTinSoldier66's picture

Thank you TruthDetector.


I read it. I liked it. I agree with it.

TruthDetector's picture


There are different types of labor, some much more productive than others.

The following is well worth the read...doubt you'll ever read it OR "get it," but here it is anyway.


All Risk No Reward's picture

What "service" did Lenin supply - and at what cost?



Pol Pot?


King George?

Government is the vehicle by which the Debt Money Tyrants inflict their Debt Money Tyranny upon an ignorant and gullible populace.

If the Debt Money Tyrants lend $20 into society at 5%, $21 is owed in one year due to a bookkeeping adjustment adding a $1 liability to society and a $1 asset to the lender.  How can $20 pay off a $21 debt?  WHO is the sovereign, since a nation is subservient to its private lenders in this instance.  Napoleon sussed out this dynaimic, even if the British soldiers had no clue!

“When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”
? Napoleon Bonaparte

Debt Money Tyranny

Consequences of Fractional Reserve Banking 2) - Poverty - Debt is not a choice

How to be a Crook

Send these links to your address book - they can't stop the signal that you send out...  only you can.

This is good vs evil - and those who don't pick the side of good are, de facto, supporting evil.

nofluer's picture

so why can't I also be rich?

You can. You just have to define "rich" in such a way that it describes your current status, and *poof* - you're "rich." (ie "rich" is a relative term/concept. And by rich were you referring to controlling quantities of money, or some other thing/asset/relationship of value?)

Oh... and these days it seems that the only "service" the government provides is to shear the sheep as often and as well as possible, sell the wool, and spend it on stupid stuff so that the sheep don't waste it on frills for themselves.

And wealth/richness has absolutely nothing to do with hard work. entirely different quanta.



Chipped ham's picture

You are a moron.  Our government doesn't provide services.  It is there primarily to provide order to our society.  Through liberal education and lax citizen oversight it has become a caricature of its original self.  You are too pompous or lazy to know the difference.  Provide services? Like what? Vacuum and dusting? Lawn care? Morons like you are how we have arrived at this juncture and why we can't survive. 


CH1's picture

Government is organized theft. All else is justification after the fact.


Million Dollar Boner - troll fucking the world one post at a time , while your Emperor Bernanko plays the FED fiddle, and the world burns.

Fucking epic, dude.

TruthDetector's picture

Couldn't agree more.

MillionDollahBogus: What a fake.


TruthDetector's picture

MillionDollahBogus: There are different types of labor, some much more productive than others.

The following is well worth the read...doubt you'll ever read it OR "get it," but here it is anyway.


SunRise's picture

The only thing to get is the right answer to a VERY simple question:  "Is it ever right to steal someone elses labor to achieve your values?"

Professorlocknload's picture

Part of the process of transferring all resources to the Ruling 10% Core.

Back in the day, the Auto Workers in Germany saved up stamps with which to purchase new VW's. None ever bought one, as all the VW production went to NAZI Party members.

Repeat. Just on a bit more complex scale. Lotta gumnut support personnel to consider here. Granting special privilege makes for great springboards.

BLOTTO's picture

'Bernie Madoff’s crimes should not be compared to those of the government. He was a small fry and he could not force people to participate in his Ponzi scheme. Government is in a class by itself. The Mafia, in comparison, looks like Mother Theresa.'


Yes, imo, this ponzi scheme started on Day 1 - with every citizen being born thereafter, in on it.


The ultimate scheme the world has ever seen...i think the truth would make us puke, pass out and no particular order...


Im still just tripping out on the little information that i do know...

dontgoforit's picture

For those who do not believe that Satan is alive and well on planet earth, just take a close look.  His work is all over the place and is building towards a watershed moment.  It will come when everyone is forced to grovel just to survive.  That being said, there are options and they have nothing to do with stocks, money or power.  Victor Frankl said it well in Man's Search for Meaning, "from somewhere I heard a victorious 'yes' in answer to my question of an ultimate purpose."  The reason we live cannot be dimmed by the workings of another, or of a government even if Satan is the one pulling the strings.  Satan, The Real Pretender

TruthDetector's picture


There are different types of labor, some much more productive than others.

The following is well worth the read...doubt MillionDollahBogus willl ever read it OR "get it," but here it is anyway.




A strong case for jail then a noose..

Professorlocknload's picture

Jail won't happen 'cause the Jailer is in on it.

DavidPierre's picture

"Some even believe we are part of a secret cabal working against the best interests of the United States, characterizing my family and me as ‘internationalists’ and of conspiring with others around the world to build a more integrated global political and economic structure – one world, if you will.

If that's the charge, I stand guilty, and I am proud of it."

David Rockefeller, Memoirs, pg. 405

kahunabear's picture

I couldn't agree more.

Yardfarmer's picture

fraud? I think we need a more serious consideration of the radical implementation of the Bernanke policies as subversion or outright treason. Yes, that is active collusion with a foreign power,ie. the private banks under the aegis of the Federal Reserve, to subvert and destroy the economy of the United States.

rwe2late's picture

Well, that article clarifies it.

"Fed’s behavior of distorting prices is deliberate dishonesty calculated for government advantage."

The private Fed bank, subordinates the profits of its members to "government advantage".
The Fed is not, we are informed, bending government to member bank advantage.

The private bank members seek to please their masters, government officials.
Government officials are not servants of the banks.

And it is all, one must conclude, a government run by the people, for the people, and of the people. Certainly not a government captured by and serving the interests of a select few corporations and individuals.

I'm less convinced.

ParkAveFlasher's picture

Yes.  When you dope the unit of account, all accounts become thus doped, thus all prices are distorted.  It's like the contamination of water.  You can not extricate the poison (price distortion) from the pure (price discovery, real value).

Since all price tags on all items, all valuations of all assets, and all written-in values on all balance sheets priced in dollars are enumerated in a doped unit of account, all are distorted, and real value is lost. 

Jesus threw the moneychangers from the temple, imho, not being a biblical scholar, I would have hoped it was because their weights and measures were crooked and unbalanced.

Herd Redirection Committee's picture

It was because they charged usury, and the more mathematically inclined (and the spiritual, but for different reasons) knew right away what a vicious scam it was.

SheepDog-One's picture

Well at least I'm not 'deceived' into any actions the Fed is trying to direct me into so go fuck yourself Bernank.

KickIce's picture

What do you expect?  It was organized in secret and even the name on the building is a lie, it's not Federal in any sense and there is no Reserve whatsoever.

sfisher's picture

Is MDB a real person with a brain, or some sort of computergenerated intelegence with a major glitch?

koncaswatch's picture

MDB posts: tongue in cheek / sarcastic / satire... some are genuine genius and some are meh... generally entertaining.

g'kar's picture

Where's Dr. Who when you need him, a quick trip to 1913.

WTFx10's picture

If we give 220 billion a year to the fed, a  private bank. Do they pay income tax on the interest income to the same dumb fucks who give them the 220 billion as interest payments for creating money from nothing or are they like GE and get a Tax refund?

BigJim's picture

The shareholding banks get a 6% dividend. Everything else get channeled back to the Treasury... that is how Ben can claim the US people 'profit'from the Fed's actions.

It's almost too absurd to see him earnestly make these claims on camera. But the rubes lap it up.

ChanceIs's picture

Speaking of fraud........

Corzine civil trial??????

Excerpt from letter to my Congressman this AM immediately after the Corzine story broke:


In particular we have discussed the matter of the lack of resolution of the government’s case against Jon Corzine.  It has been 10 months since the press made any mention of the matter.  I resolved to look into it myself by contacting the various Senate and House committees which conducted hearings on the matter, and if possible (for a layperson) the Department of Justice.  I called Congressman Van Hollen’s office yesterday to seek some general guidance on how best to proceed.  The staff member offered to put me in touch with you, but I prefer to make my contacts with you minimized to have better effect when there is a matter of great weight.

As a matter of coincidence, the New York Times carried a story this morning suggesting that civil charges will be brought against Mr. Corzine:

U.S. Civil Charges Against Corzine Are Seen as Near



Federal regulators are poised to sue Jon S. Corzine over the collapse of MF Global and the brokerage firm’s misuse of customer money during its final days, a blowup that rattled Wall Street and cast a spotlight on Mr. Corzine, the former New Jersey governor who ran the firm until its bankruptcy in 2011.

The Commodity Futures Trading Commission, the federal agency that regulated MF Global, plans to approve the lawsuit as soon as this week, according to law enforcement officials with knowledge of the case. In a rare move against a Wall Street executive, the agency has informed Mr. Corzine’s lawyers that it aims to file the civil case without offering him the opportunity to settle, setting up a legal battle that could drag on for years.


I have no time for cynics, but I can see where this is going.  My position is reinforced by the fact that there have been effectively no criminal prosecutions of any mid or senior level banking manager since these massive frauds began in the 2004 time frame.  There will be no civil trial, Jon Corzine will enter a settlement agreement, admit no wrongdoing, pay a fine (probably in the millions but quite affordable for him), and walk away a free man with his reputation and ability to trade in the markets for clients intact.  Given a civil settlement, there will be no criminal trial.

The matter is clear.  Jon Corzine stole $1.6 billion from his clients from their segregated accounts in order to meet a margin call in the vain hope that the market would turn around in his favor and he could replace the funds as the corporate asset market value grew and he was better able to reborrow on margin.  Investors overextend themselves and get margin calls every day.  The government has never tolerated the presentation of clients’ funds to satisfy these calls and it must never do so.  JON CORZINE MUST GO TO PRISON.

Below is a chart of the criminal prosecution of financial fraud since 1990.  The trend is clear.  What isn’t shown is that the level of fraud has massively increased even as the number of prosecutions has halved.  The government was able to jail the S&L criminals in the ‘80s, and the Enron and WorldCom senior managers.  The only reason that there isn’t criminal prosecution today is the government doesn’t want to bother itself.  It smacks of the greatest possible corruption at the federal level.  I am sorry to put it in those terms.

Banker Fraud Prosecution Chart (I recommend making it your PC wallpaper for quick reference when harrassing members of Congress))

I urge you to contact the Department of Justice to ascertain the status of the criminal investigation against Mr. Corzine.  If you get an unsatisfactory answer or a suggestion that DOJ will simply be satisfied with whatever civil enforcement might be coming from the CFTC, then I strongly suggest (demand) that the civil procedures be stopped and a special independent investigator/prosecutor impaneled.

As a separate mater, you are no doubt aware that Attorney General Holder has become quite controversial.  I will state without argument that he is the worst AG I have ever seen, and a disgrace to his office.  I suggest that his increasingly discredited standing before the people and the press is consistent with the notion that he has deliberately impeded the investigation/prosecution of the Corzine case.

Most sincerely,


JR's picture

Bernie Madoff appears ethical in comparison with government and its agencies. Monty Pelerin

Ironically, the government in the hands of pro-Zionist handlers was able to selectively reimburse many of Madoff’s victims for their losses - because many huge investments in his scheme came from Jewish institutions and Jewish individuals. And never before have the victims of fraud gotten such extensive and sympathetic wall-to-wall media coverage to the effect of recounting their life stories and how their many hopes and dreams were dashed by their Madoff investment. Corzine walks: Madoff’s in prison. Hmmm.

BTW, this article goes beyond describing perpetrators and shows that their actions were deliberate; it’s one of ZH’s best ever.

Crash Overide's picture

It's no doubt the fucking circus has been in town for a while now, this shit needs to end. None of the games have prizes anymore.

hooligan2009's picture

well now...a great analogy about the distortion of the direction of economic activity towards the poor performing actors (broken, malicious and rapacious finance, banking, insurance and real estate sectors, plus companies that have outsourced jobs and shielded profits from US taxes and of course, benefit cheats) and away from the good performing actors (middle class savers, poor people who work all day for nothing, small and medium sized enterprizes and individual entrepreneurs that pay taxes)...

it can be argued that the fed did the right thing in removing risk from the financialsector, job exporters and tax dodging actors economy and it has certainly done that. from one perspective, allowing the "bad economy" to recover by punishing the "good economy" may have been all that the fed is qualified to is after all a bank..not an employer or a producer of wealth (well printing profit notwithstanding).

it could also be argues that the fed and the treasury did exactly the wrong thing and should instead have collapsed all those actors who bled the good actors for decades...i am in that think of what the exact opposite of the fed and treasury action has been and you have the course of action that would have "cured" the country of the parasitic presence of "bad actors" to leave people much, much better off now. no tax hikes, fiscal surpluses to pay down debt, much reduced government spending and unemployment of around 4% with a particpation ration of closer to 70 than 60.

the imponderable however is this: if the feds actions make the government better off then what does it matter who the government rewards (good or bad) within the economy. the government is the people. 

of course the answer lies with the level of debt required to sustain the people. people will always vote for debt if they think it never has to be paid back. more than half the 16 trillion debt is interest accumulated on debt never paid back. if and when bond yields escalate back to 4-5%, the interest on debt will accumulate continue to grow as a % of the government debt outstanding.

it would be better if the interest owed on debt crossed over the amount of debt outstanding during a period of debt reduction (fiscal surpluses) rather than getting closer and closer to it (never 100% of course).

unpleasant truth remains for all the talk that "austerity" will tank economic output...current economic output is structurally unsound since it exists with fiscal deficits. to get to a structurally sound economy you need fiscal surpluses starting today.