Wright Patman’s Prescription for Healing the Cancerous U.S. Banking System

I am scared. We all are scared. Our Wall Street obedient leaders who claim they are struggling valiantly to “solve” the banking crisis seem to meander uncertainly and ideologically, while they spend unimaginable Trillions of Dollars of our public money. All of this is using public money that we have borrowed, and we worry how we and our children will ever repay it. We worry that the Bail Out will do nothing for us.

Forty five years ago in 1964, Wright Patman had answers and solutions for our banking problems which he left for us in his Congressional Reports, in transcripts of Congressional Hearings, and in his speeches in the Congressional Record.

Wright Patman was an extremely well qualified expert on our side. He was a lawyer, a former District Attorney, a former Representative in the Texas Legislature, and a long time Congressman. Wright Patman served as a Congressman from the North East corner of Texas for 47 years beginning in 1929 and ending in 1976. He was Chairman of the United States House Committee on Banking and Currency until 1975. He was an avid New Dealer. He served in Congress on the banking committee at the time of the 1929 Stock Market Crash, the Great Depression, the New Deal recovery efforts, financing World War II, and the post war boom period. Unlike current Representatives and Senators, he was not taken in by private Wall Street Banks for one second and he fought to expose Wall Street Banking evils and power.

Patman from his long experience with our banks provides evidence that Thomas Jefferson’s 1802 view of private banks was accurate:

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.

Luckily for us, Patman summarized his long experience with Wall Street Banking in his 50 page report, A Primer on Banking published by the U.S. Government Printing Office in 1964. It was his gift for us, his warnings, and his suggested reforms that are very relevant today even though our banking problem has gotten many times worse.


Patman approvingly quoted Lincoln who said:

Money is the creature of law, and the creation of the original issue of money should be maintained as the exclusive monopoly of the National Government. The privilege of creating and issuing money is not only the supreme prerogative of Government, it is the Government’s greatest opportunity.

Our Constitution provides that Congress shall have the power “To coin money and regulate the value thereof.”

Unfortunately, under heavy lobbying by private bankers, Congress delegated the power to create money to a private group of bankers with the 1913 Federal Reserve Act and its 1934-35 Amendments. About this, Patman said:

In the US today, we have in effect two governments. We have the duly constituted government, then we have an independent, uncontrolled and uncoordinated government in the Federal Reserve, operating the money powers which are reserved to congress by the Constitution.

We still have two such governments today in 2009. We have

   1. Our “We the People” Constitutional government of by and for the people. Our governmental powers are exercised for us by our elected representatives.

   2. A government by a private oligarchy of 12 bankers which creates our money, regulates the amount in circulation, regulates the interest rate at which money shall be loaned to us, to businesses and to our government, whose sole legal obligation is to make as much profit for bankers as possible.

What is wrong with this?

It gives this tiny private bankers’ oligarchy dominant control over our government, our economy, our level of well being. The oligarchy can refuse to finance reforms and programs enacted by our constitutional government. The oligarchy can and does lobby congress extensively; it finances the re-election of those who favor it, and finances opponents of those who vote against its wishes.

Patman quotes a once famous British Chancellor of the Exchequer who said of private banks:

“They control the credit of the nation, direct the policy of the governments, and hold in their hands the destiny of the people.”

This mirrors the statement attributed to the legendary European banker Amschel Mayer Rothschild who allegedly said in 1838: “Permit me to issue and control the money of a nation, and I care not who makes its laws.”

This oligarchy in effect plans our economy, not to benefit us or our general welfare, but to earn the maximum private profit for them. Thus, for example, we can get health coverage for everyone only if it we pay 31 cents of every health care dollar for interest on loans, HMO profits and CEO salaries and bonuses. We cannot have Single Payer health coverage financed by the government by progressive income taxes.

It is undemocratic. These 12 bankers are responsible to no one. They are appointed every 12 years by the then sitting President on staggered terms. The law compels that the appointees be selected from a pool of bankers, and thus no appointees representing labor, the consumer, the voter or academic experts can be selected. The Accounting and Auditing Act of 1950 section, 31 USC 714(b), dictated that congressional audits of the Federal Reserve may not include “deliberations, decisions and actions on monetary policy matters.”1 According to the law, in other words, the Fed simply cannot be audited by Congress. We apparently can not find out the actual profits of the Fed.

The oligarchy by increasing the amount of money in circulation can cause inflation. By decreasing the amount it can cause a recession and leave millions jobless. It can cause “bubbles,” and it can also cause depressions, whichever will earn the maximum profit for them.

Patman summarizes it this way:

What may appear, then, to be a simple decision to rein in the money supply and raise interest rates is, in fact, a simultaneous decision about the whole range of economic life—the prices people pay, the incomes they earn, the level of prosperity and the dynamic thrust of the economy is permitted to develop. The fallout extends even further. As interest rates rise, a transfer of income also takes place—to the large holders of liquid assets and the large financial institutions. It is no accident that rising interest rates are accompanied by a boom in the market for the stocks of banks and life insurance companies. The major owners of these institutions—certainly concentrated among a tiny minority of families in the United States—receive gratuitous additions to their personal wealth as the value of their stock increases. This only reflects the fact that there has been a shift of income away from interest payers—all of us in our role as consumers—toward the substantial interest receivers—only a relative handful.


Patman has a very clear and accurate concept of money. Money is not real wealth; it is only a claim to wealth. While barter can be useful, it is far more convenient to have a medium of exchange that people agree has value. This need not be gold and it need not be any substance of real value. It can be shells, beads, notched sticks or printed paper greenbacks. The selected medium of exchange must be backed by the law and the courts in that it must be legally acceptable in full payment of debts and taxes. It adds to its stature to have it backed by a government guarantee and to have a tax system in place so that the government can make good on its guarantee if necessary. There are many advantages if the government is the sole creator of money. Letting private bankers create money creates a lot of problems, particularly if banks are not regulated.


A government, whether a royal monarchy or a democracy, can simply print and issue greenbacks, or give recipients a government check. The government would incur no debt to anybody if this method were used, and if interest was to be charged, the government would get the interest. Our Constitution authorizes this method for us.

Under the exclusive franchise to manufacture money that we have delegated to the 12 bankers, these private bankers can simply “write a check” with absolutely nothing to back it up. They can create money out of thin air, loan it to us, to businesses, and to our government, and make a private profit from the interest charged. This private money manufacturing process is backed by our law that makes this money legal tender, and it is guaranteed by our government and hence by us taxpayers. It is magic money making scheme that makes private bankers wealthy beyond imagination. It is far better than all the casinos on the planet for making money. Patman did not use this description, but it is in fact a massive fraud on the public in that banks are loaning money that they do not have.

Bankers and their controlled mainstream media do not like to reveal their lucrative secret. As Patman says:

…some of those who do understand the workings of our monetary system seem to feel they are in possession of secrets which cannot be safely revealed to the public…..For this reason, it has been traditional for bankers and other private managers of money to cloak the working of the money system with a mantle of secrecy…..These officials seem very partial to the turns of phrase that imply that the supply of money—and interest rates—are subject to powerful economic laws over which men have no control.

Patman lays out the workings of this private money making franchise in a way that we all can understand.

It all began with the gold smiths of the late middle ages who held gold for wealthy persons who did not wish burden or the risk of carrying it around. The gold smiths issued receipts for the gold. People found it convenient to use these receipts as a medium of exchange rather than withdrawing gold, paying it to the creditor, with the creditor then depositing the gold with the gold smith. The gold smiths made loans based on their deposits. Then, since depositors rarely came at one time to withdraw the gold, they began to make loans of up to 10 times the amount of the actual gold on deposit. Nobody was any the wiser and the gold smiths got very rich. The gold smiths were creating money, ten times the amount of money they had on deposit. Banks now do the same thing. It is called “fractionalized reserve banking.” They loan a lot more than they have on deposit. What they have on “deposit” and call an “asset” for the purposes of the ratio will surprise you.

In 1964, there were at least 2 components of our money supply in circulation:

20 % was Coins and dollar bills minted and created by the U.S. Mint

80% was “Check book money” being money created by private commercial banks and by the private Fed simply by writing a check

“In 2005, the check book money, now generated by computer entries and not actual checks, was calculated to be 97.6% of our money supply. (Money as Debt, Helen Hodgson Brown, 2008, Third Millenium Press, Baton Rouge, page 26)”

Supposing a local bank had loan applications, but had no money. Where would it get it to loan? The local bank would borrow money from the Fed. Patman used $1,000 as a ridiculously low example simply for purposes of explanation. So the local bank borrows $1000 from the Fed. Where does the Fed get the money? It simply writes a check for it, although the Fed has no reserve deposit. “It creates money purely and simply by writing a check.”

In addition to the magic power to write a check out of thin air, there is a magic multiplier:

Each loan that a bank makes is considered a new addition to its “reserve” for the purpose of calculating the fractional reserve ratio. Thus it can loan 90% of the first $1000 loan or $900 to a second borrower, and 90% of that or $810 to a third borrower and continuing until it has loans outstanding of 10 times the $1000 created out of thin air or $10,000 drawing interest to profit the bank and its shareholders.

When we consider the Trillions of Dollars of debt now owed to private bankers, it becomes clear that Wall Street and its banks are collecting huge sums in interest. This magic process creates unimaginable hidden wealth for banks and their shareholders.

There is always a danger that frightened cash depositors will gang up on a bank and demand the withdrawal of their cash deposits. The Fed stands ready as the “banker’s bank” to make loans to the besieged bank to meet the threat. So long as the threat is local and confined, the whole magic system continues to function and to earn profit for the bankers.


Since Patman wrote his Primer in 1964, the powers and activities of banks have compounded the wealth generated for the bankers and their shareholders. This is due to de-regulation, relaxed regulation, and the repeal of the Glass Steagall Act so as to permit banks to venture outside mere money lending. Banks could now invest in new ventures, invest in the stock and futures markets, in hedge funds, in various collateralized debt obligations, all with the sole legal imperative that they make profit for their shareholders. They still had no legal obligation to serve the public interest. While it lasted, this bubble made bank shareholders very wealthy. This tiny group of wealthy individuals uses its wealth to enhance its political power over elected officials. As we see from recent Bail Out events, this power over our government has become dominant. The powers of our government have been captured and used solely to benefit this tiny group, the top 1% of the wealthiest people in our nation.

Despite this vast mushrooming, Patman’s analysis of the underlying banking dynamics remains accurate and his remedies even more effective. Patman would recommend:

   1. That the Federal Reserve Act be repealed and the legitimate functions of the Fed be made a division of the Treasury Department.
   2. That the U.S. Government be the sole “coiner” of money and that it simply issue Greenbacks as needed to make the economy flourish, and to pay for public projects.
   3. That fractionalized reserve banking be abolished. Local banks would be permitted to loan only on a 1 to 1 ratio of what they had on deposit and then only for a low rate of interest.
   4. That local Banks be regulated again.

These reforms would halt the cancerous existing practice where all money rests on somebody’s debt. This would stop the endless U.S. policy of borrowing ever more money from the private banks and from foreign nations. We and our grandchildren would not have to pay off a crushing national debt. Our dollar would not be inflated.

We could finance our recovery from this depression. We could avoid going into an even deeper depression. Our local banks and businesses would function as they now do, but in a stable sustainable way. If the money supply of the U.S. was stabilized, it could lead to the U.S. dollar again becoming the world’s currency standard, the planet’s stable reserve currency. Lincoln’s “greatest opportunity” for our government would be realized.

President Reagan’s Assistant Secretary of the Treasury, Republican Paul Craig Roberts seems to agree with Democrat Wright Patman. In Counterpunch on 3-26-09 in an article entitled, “Is the Bail Out Breeding a Bigger Crisis,” Roberts wrote:

Could this huge debt issue be avoided if the government took over the banks and netted out the losses between the constituent parts? A staid socialized financial sector run by civil servants is preferable to the gambling casino of greed-driven, innovative, unregulated capitalism operated by banksters who have caused crisis throughout the world.

Perhaps the Federal Reserve should be socialized as well. The notion of an independent, privately-owned Federal Reserve system was never more than a ruse to get a national bank into place. Once the central bank is part of the state-owned banking system, the government can create money without having to accumulate a public debt that saddles taxpayers and future budgets with hundreds of billions of dollars in annual interest payments.

There is one startling difference between what Wall Street banks wanted in Patman’s day and what they want now. Wall Street banks used to be overly concerned about inflation of their dollars. Our market economy was then fairly stable and the wealthy wanted the purchasing power of their dollars preserved. They restricted the creation of money and raised interest rates, a “tight money” policy. Now, strangely enough, Wall Street is going all out to inflate dollars beyond measure. This must mean that Wall Street has secretly given up on our market economy, and now seeks to siphon off as many dollars as it can as quickly as it can. The wealthy can then invest their dollars in land, gold, silver, platinum, oil reserves, and in gated castles for themselves. They can thus reduce those of us who survive to the level of feudal serfdom where we eke out an existence by working their land.

Wall Street’s plan to rescue itself is a covert class war by the top 1% against the rest of us. Wall Street seeks to solve the problem of the huge public debt to China by inflating the dollar so that each of our dollars buys less and less. This will put us into poverty. China is well aware of this Wall Street strategy which involves cheating China also. China would be repaid with inflated dollars that will buy less and less. Strangely enough, we have a common interest with China in stopping this sly anti-social Wall Street scheme.

Doug Page is a retired lawyer for unions, a former Democratic politician, and a life long observer of government, unions and business. He can be reached at: dougpage2@earthlink.net. Read other articles by Doug, or visit Doug's website.

10 comments on this article so far ...

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  1. Brian said on March 28th, 2009 at 10:23am #

    Thanks for bringing some badly needed wisdom from the past to my attention.

  2. Ned Lud said on March 28th, 2009 at 10:53am #

    Excellent article. What we are enduring is a tyrannical farce, a sleight-of-hand nightmare produced by a certain group of conscience-less individuals, that I hope spend as close to eternity in Hell, as forgiveness allows….

  3. Creston said on March 28th, 2009 at 12:28pm #

    I bet you are surprised Doug to see me commenting here. Congrats on a great very informative article. I hope Obama reads it and believes it.

  4. Jeff said on March 28th, 2009 at 5:48pm #

    This is news!

    Conspiracy theorist have been “financially” hanged for this.

    Doug, do not feel like a hero.

    Your concerns are TOO late.

    All look to the “East” for the ‘bright light’.

    That depends on where you exist.

    Your article does bring light of the darkness you have been under as an “American”.

    Educate your own. This may help some survive.

  5. Beverly said on March 29th, 2009 at 3:13am #

    Paul Craig Roberts has many good, on point commentaries/articles on Counterpunch. However, I await the commentary where he admits that the policies of his old boss Reagan contributed to much of the mayhem in and destruction of the economy today.

  6. HR said on March 29th, 2009 at 3:35pm #

    Apparently, a lot of people have been living in Chomsky’s self-imposed ignorance for decades now. What you folks are referring to as “news” is what we were taught in public elementary and high school classes not that many years ago, 40 or 50 years ago to be more exact. What in the hell are they teaching you now? Or, do you even bother learning anything these days?

  7. Kaelieh said on March 29th, 2009 at 5:29pm #

    Here’s a link to a video: The Money Masters http://video.google.com/videoplay?docid=-515319560256183936

    It’s like a 3.5 version of this article plus the entire history of banking in America. It’s an amazing documentary. It explains what the problems are with various types of monetary policies and even gives a sort of how-to to fix our problems. When you get the chance, since it is a bit long, I highly recommend watching it.

  8. Tennessee-Chavizta said on March 31st, 2009 at 8:49am #


    Hillary quiere que Chávez se vuelva “neo-liberal”, que le entregue las empresas básicas, que no “maltrate” a su pueblo y que se porte chévere

    30/03/09 – http://www.aporrea.org/tiburon/a75244.html


    La secretaria de Estado de EEUU, Hillary Clinton, manifestó que el interés de Venezuela debería ser el de promover una “economía de libre mercado y no caer en las políticas fracasadas del pasado”. ¿Será que esta señora ignora los desastres de la crisis del sistema capitalista y la fórmula ‘mágica’ neoliberal del libre mercado? Para empezar le diremos que no creemos en esa receta y que nuestro camino ya está trazado y aprobado electoralmente por la gran mayoría del pueblo venezolano: el Socialismo del Siglo XXI.

    Igualmente manifestó que su gobierno no responderá a los “insultos” que ha hecho supuestamente el presidente de la República, Hugo Chávez, cuando en realidad son una respuesta ante las acusaciones emitidas por la Casa Blanca. A su juicio, EEUU tiene “muchos problemas” con el mandatario venezolano, debido al “maltrato” al pueblo venezolano y “la manera como trata a sus vecinos”. ¿Cuáles serán? ¡No me diga que es Colombia!

    Según Hillary, “Chávez debe cambiar su comportamiento para el beneficio del pueblo de Venezuela, de sus vecinos y de todo el hemisferio”. Igualmente, la secretaria de Estado cuestionó la política aplicada por el gobierno de Hugo Chávez por “estatizar” las empresas básicas. Es decir que las deberíamos entregar a la oligarquía sumisa o a las transnacionales. Pero Hillary se olvida de los auxilios multimillonarios que ha hecho el gobierno de Obama a los bancos privados.

    Las primeras declaraciones de Obama sobre Venezuela fue que el presidente Hugo Chávez “ha impedido” el progreso de América Latina y que “Venezuela está exportando actividades terroristas y respalda a entidades maliciosas como las FARC. Eso crea problemas que no se pueden aceptar. Ese no es un buen comportamiento internacional que debemos esperar de cualquiera en el hemisferio”.

    Un informe del departamento de Estado, manifestó que “la politización del sistema judicial y el acoso oficial de la oposición política y los medios de comunicación caracterizaron la situación de los derechos humanos durante el año” en Venezuela. Ante tales declaraciones, Chávez respondió que el gobierno de Estados Unidos es cínico al acusar a Venezuela de violar los derechos humanos y no reconocer la violación que hay en su propio país. Manifestó que Obama ignora la realidad de Latinoamérica. Nosotros no tenemos una cárcel donde se torturen a los prisioneros en ningún país del mundo.

    Correo: moc.liamgnull@allitnom1ramo
    Internet: http://lapaginademontilla.blogspot.com/

  9. Deadbeat said on March 31st, 2009 at 5:58pm #

    Beverly writes…

    Paul Craig Roberts has many good, on point commentaries/articles on Counterpunch. However, I await the commentary where he admits that the policies of his old boss Reagan contributed to much of the mayhem in and destruction of the economy today.

    I wholeheartedly agree. PCR used to write for BusinessWeek as well and he supported the tax cuts and Reagan huge military expenditures. It was during the Reagan years that banking regulation and all regulation were relaxed and tax burdens shifted onto the working class.

  10. Marilyn Jones said on April 6th, 2009 at 2:17pm #

    Sometimes when people are uncertain about their economic security, they tend to save, or at least moderate their spending. When the consumers refuse to spend money demand falls below the supply putting a downward pressure on the prices. As an example one can think of housing prices. Today the demand for housing has suddenly dried-up, putting sever pressure on supply side (sellers) resulting in a marked reduction in prices (US, UK, Australia, New Zealand etc).

    Companies today are now forced to write off impaired assets, stock-in-hand and goodwill while balance sheets are coming under greater scrutiny by lenders.

    Unfortunately the flow of money in and out of your business is not necessarily linked to the availability of assets within the community. Barter exchange offers a way to mobilise the wealth of the community while contributing to the social infrastructure and welfare of the region.

    By allowing a business to spread its overhead, purchase at a lower cost, and reduce the cost of borrowing bartering helps businesses compete even in difficult times.

    Surplus time, empty seats, unsold tickets, idle inventory, stock overruns, liquidation items, time-sensitive products, seasonal stock, idle production capacity, vacant rooms, extra airtime and slow-moving stock are all valuable commodities.

    Using a barter exchange you can reduce your existing cash outlay by selling your excess capacity in return for credits which can be used to purchase market-value goods or services from other participants.

    We recommend Ormita (www.ormita.com) for a bunch of reasons – primarily because of the above.


    Save Cash
    – Realise full market value for non-recoverable, non-recyclable, limited commodities or otherwise unsold stock or time.
    – Access interest free credit and repay borrowings with new sales.

    Increase Your Asset Base
    – Buy at a discount of up to 90%.
    – Invest in other businesses without the need for cash.

    Increase Your Financial Liquidity
    – Convert existing bad debts to assets.
    – Pay existing creditors from new sales.
    – Convert equity from slow moving inventory or unsold appointment time.

    Attract New Cash Paying Customers
    – Access innovative ways to new cash contract tenders.

    Build Your Brand
    – Build a community network around your brand.
    – Expand distribution channels and market reach.
    – Align your business with charities and community enterprises.
    – Gain repeat business and take customers away from the competition.
    – Improve your social standing, customer and staff loyalty.
    – Create local business opportunities within your community.

    Retain Staff and Customers
    – Create customer loyalty programmes.
    – Provide staff incentives.
    – Implement a staff donation/giving programme.
    – Pay for client entertainment.

    Become More Efficient
    – Substitute imports with higher quality, locally provided goods or services at wholesale price.
    – Decrease wastage and develop new consumer habits.
    – Get more out of your employees with employee rewards and buying programmes
    – Take overstocked, last season or end-of-line items off-market while earning full retail value.

    The Ormita Commerce Network has a good page on their website about the history of “money”, the types of money and how money and barter are created. It also talks about offset trade and community currencies in great detail.

    I think its at http://www.ormita.com then ABOUT US then HISTORY! Check it out! It’s an interesting read.

    I also recommend books by E.F. Schumacher (EF Schumacher Society) and Reigel on the topic of local money and sustainability.