Evolution of Banking -
The Bank of Venice [1157]
Venice is considered the cradle of modern banking. By 1361,
many safeguards were in place to ensure the stability of banks. Bankers were banned
from engaging in other businesses so they would not be tempted to use deposits
to finance their own schemes. Their books and stockpile of coins were available
for public inspection. Bank examiners were used and banks had to settle
accounts between themselves in coin rather than by check. Despite these precautions,
Venice's largest bank failed in 1584. However, out of this failure,
a truly sound bank rose from the ashes. The new bank was not allowed to make
loans and sustained itself solely from fees. Because this worked so well, that
bank became the center of Venetian commerce and its receipts were widely accepted
even beyond Italy. By 1619, however, the sins of the past were already
forgotten and new banks were formed across Europe making loans on fractional
reserves. Throughout the 15th and 16th centuries, European banks arose and
failed with the inevitable result that depositors lost their money.
- The Bank of Amsterdam
The next example of sound banking comes to us from Amsterdam in 1609. Its
income came only from fees just like the successful Venetian bank. When the
armies of Louis XIV approached in 1672, some worried depositors rushed to the
bank to withdraw their money. In reaction, others came in fear their money
would not be there. However, once people realized all who wanted their money
would be paid, they were no longer worried and left their money in the bank.
Eventually, the bank began to lend money it didn't have and it failed in 1819.
- The Bank of Hamburg [1690]
For over 200 years, the Bank of Hamburg adhered to the principle of 100%
reserves. It was so careful and honest, that when Napoleon took possession of
the bank in 1813, he found 17,613 more silver marks than were needed to cover
liabilities. The French replaced the money with securities, however, and the
bank began the practice of fractional reserve banking to survive. It lasted another 55 years
before it failed.
The Bank England [1694]
The first paper money
in England was issued in the early 1600s as fiat money, so it was not widely used. When Charles II
was unable to repay a debt of over a million pounds in 1673, 10,000 depositors
lost their savings. The ensuing economic disaster resulted in politicians and
bankers making a deal to save the economy. Their eventual solution was the
first partnership between government and banking to create a central bank which
would be granted a monopoly to issue bank notes as the sole currency of
England. The Bank of England, chartered in 1694, would use debt monetization at
the direction of Parliament to create money out of nothing and the economy
would be "saved," albeit at the expense of the treasure of the
people. In 1696, there was
a run on the bank and it did not have the money to pay depositors. Parliament
intervened exempting the bank from having to honor its contract to pay in gold,
beginning a tradition of bail outs that has continued to this day. In 1833, the bank's notes
became legal tender, meaning people had to use them to settle debts and pay
taxes. While Parliament granted charters to other banks that failed,
they have always bailed out the Bank of England by monetizing debt and
devaluing the currency. This bank was the example our founders had when they
wrote the Constitution, so they could easily point to the dangers of banking in
this way.
- The Rothschild [1744 – 1812]
Mayer Amschel Rothschild (1744 - 1812) once said, "Let me
issue and control a nation's money and I care not who writes the laws." Son
of a goldsmith, he apprenticed as a banker and quickly worked his way from
clerk to junior partner, eventually establishing his own banking business in
the 1760s. He also traded in rare coins, garnering the favor of wealthy patrons
including William of Hess. His banking skill and connections led to the family handling
William's very profitable troop rental business providing Hessian soldiers to
many including Britain for the revolution in America. A bank was established
for his son Nathan in London and as business grew, each of his sons headed his
own branch of the family banking dynasty in Berlin, Vienna, Paris and Naples.
The Rothschilds financed everything from South African diamond fortunes to
governments and the crown heads of Europe. They financed both sides of many
wars, allowing them a monopoly to also smuggle cargo and information across
battle lines.
In 1815, England was selling bonds at an incredible rate to fight the war
with Napoleon. As the battle of Waterloo approached, England's currency and
entire future was at risk pending the outcome. In the early morning hours of
June 20, Nathan Rothschild's agent reported the outcome of the battle to him a
full 24 hours before Wellington's own courier arrived with the news. The
members of the London stock exchange expected Nathan to know the outcome of the
battle before anyone else, so when he began selling British bonds, everyone
began selling and a panic ensued. When the market was a fraction of its
original value, Nathan quickly bought the entire market for pennies on the
dollar and in a single day became owner of a dominant portion of England's
debt. In a similar move three years later, the Rothschilds gained similar
control over the French economy.
The Rothschilds were among the first and remain today some of the most powerful international bankers in the world who use fractional reserve practices and debt monetization through governments to increase their own fortunes and power at the expense of the people. They were instrumental by proxy, in the creation of the Federal Reserve in 1913.
- The 1st Central Bank - The Bank of North America, 1781-1785
The first central bank of the United States was chartered even before the Constitution was adopted. Robert Morris, a wealthy merchant and Congressman and eventual signer of the Declaration of Independence was made Superintendent of Finance to organize the bank. It was modeled after the Bank of England, but did not establish legal tender. It was to be capitalized with $400,000, but only about $70,000 was raised from private sources. The bank was further capitalized with gold loaned by France to America and other capital and opened in 1782. The bank handled the account for Congress and quickly loaned them $1,200,000. Amid charges of fictitious credit, foreign influence and unfair competition, the bank's charter was revoked in 1785.
Continued...
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