Stubborn Political Science Professor "The Fed is Public Because it's Public"

[Salvial]

At a previous lecture I asked him if many of the debates we were having were being distorted by the fact that both the United States and Canada have private banks printing their money at their own discretion.

He responded "What private banks?"

I first said the Fed and then explained how the Bank of Canada had outsourced it's potential to print money to private banks.

He then told me "The Fed is a private bank."

I stayed firm saying "No, it's private..."

He cut me off "Well, I'm not going to argue with that - and since I didn't give you a break, you're all dismissed!"

So after todays class I was walking behind him in the hall with another group of students, he turned and said "Whoah, do you all have questions?"

No-one was saying anything so I said "Sure. Why do you believe that the Federal Reserve is publically owned when you can trade stocks in ...

He cut me off again "It's public because it's public, just like Wednesday is Wednesday."

I didn't take kindly to this. "I need some logic, I mean I have reasons for my beliefs."

"There are no reasons - it is because it is."

I walked away at this point muttering how that's just not going to convince me against my beliefs.

----------

What do you all think? How can I reason with someone this stubborn?

The sad thing, is this works. The girl I was walking with, a good friend of mine started to defend him saying well it must be public if he believes it so surely. Appeal to authority sucks.

[specsaregood]

http://www.save-a-patriot.org/files/view/frcourt.html


Court Rules Federal Reserve is Privately Owned
Case Reveals Fed's Status as a Private Institution

Lewis v. United States, 680 F.2d 1239 (1982)
John L. Lewis, Plaintiff/Appellant,
v.
United States of America, Defendant/Appellee.
No. 80-5905
United States Court of Appeals, Ninth Circuit.
Submitted March 2, 1982.
Decided April 19, 1982.
As Amended June 24, 1982.

Plaintiff, who was injured by vehicle owned and operated by a federal reserve bank, brought action alleging jurisdiction under the Federal Tort Claims Act. The United States District Court for the Central District of California, David W. Williams, J., dismissed holding that federal reserve bank was not a federal agency within meaning of Act and that the court therefore lacked subject-matter jurisdiction. Appeal was taken. The Court of Appeals, Poole, Circuit Judge, held that federal reserve banks are not federal instrumentalities for purposes of the Act, but are independent, privately owned and locally controlled corporations.

Affirmed.

1. United States

There are no sharp criteria for determining whether an entity is a federal agency within meaning of the Federal Tort Claims Act, but critical factor is existence of federal government control over "detailed physical performance" and "day to day operation" of an entity. . . .

2. United States

Federal reserve banks are not federal instrumentalities for purposes of a Federal Tort Claims Act, but are independent, privately owned and locally controlled corporations in light of fact that direct supervision and control of each bank is exercised by board of directors, federal reserve banks, though heavily regulated, are locally controlled by their member banks, banks are listed neither as "wholly owned" government corporations nor as "mixed ownership" corporations; federal reserve banks receive no appropriated funds from Congress and the banks are empowered to sue and be sued in their own names. . . .

3. United States

Under the Federal Tort Claims Act, federal liability is narrowly based on traditional agency principles and does not necessarily lie when a tortfeasor simply works for an entity, like the Reserve Bank, which performs important activities for the government. . . .

4. Taxation

The Reserve Banks are deemed to be federal instrumentalities for purposes of immunity from state taxation.

5. States Taxation

Tests for determining whether an entity is federal instrumentality for purposes of protection from state or local action or taxation, is very broad: whether entity performs important governmental function.


--------------
Lafayette L. Blair, Compton, Cal., for plaintiff/appellant.

James R. Sullivan, Asst. U.S. Atty., Los Angeles, Cal., argued, for defendant/appellee; Andrea Sheridan Ordin, U.S. Atty., Los Angeles, Cal., on brief.

Appeal from the United States District Court for the Central District of California.

Before Poole and Boochever, Circuit Judges, and Soloman, District Judge. (The Honorable Gus J. Solomon, Senior District Judge for the District of Oregon, sitting by designation)

Poole, Circuit Judge:

On July 27, 1979, appellant John Lewis was injured by a vehicle owned and operated by the Los Angeles branch of the Federal Reserve Bank of San Francisco. Lewis brought this action in district court alleging jurisdiction under the Federal Tort Clains Act (the Act), 28 U.S.C. Sect. 1346(b). The United States moved to dismiss for lack of subject matter jurisdiction. The district court dismissed, holding that the Federal Reserve Bank is not a federal agency within the meaning of the Act and that the court therefore lacked subject matter jurisdiction. We affirm.

In enacting the Federal Tort Claims Act, Congress provided a limited waiver of the sovereign immunity of the United States for certain torts of federal employees. . . . Specifically, the Act creates liability for injuries "caused by the negligent or wrongful act or omission" of an employee of any federal agency acting within the scope of his office or employment. . . . "Federal agency" is defined as:


the executive departments, the military departments, independent
establishments of the United States, and corporations acting
primarily as instrumentalities of the United States, but does not
include any contractors with the United States.

28 U.S.C. Sect. 2671. The liability of the United States for the negligence of a Federal Reserve Bank employee depends, therefore, on whether the Bank is a federal agency under Sect. 2671.

[1,2] There are no sharp criteria for determining whether an entity is a federal agency within the meaning of the Act, but the critical factor is the existence of federal government control over the "detailed physical performance" and "day to day operation" of that entity. . . . Other factors courts have considered include whether the entity is an independent corporation . . ., whether the government is involved in the entity's finances. . . ., and whether the mission of the entity furthers the policy of the United States, . . . Examining the organization and function of the Federal Reserve Banks, and applying the relevant factors, we conclude that the Reserve Banks are not federal instrumentalities for purpose of the FTCA, but are independent, privately owned and locally controlled corporations.

Each Federal Reserve Bank is a separate corporation owned by commercial banks in its region. The stockholding commercial banks elect two thirds of each Bank's nine member board of directors. The remaining three directors are appointed by the Federal Reserve Board. The Federal Reserve Board regulates the Reserve Banks, but direct supervision and control of each Bank is exercised by its board of directors. 12 U.S.C. Sect. 301. The directors enact by-laws regulating the manner of conducting general Bank business, 12 U.S.C. Sect. 341, and appoint officers to implement and supervise daily Bank activities. These activites include collecting and clearing checks, making advances to private and commercial entities, holding reserves for member banks, discounting the notes of member banks, and buying and selling securities on the open market. See 12 U.S.C. Sub-Sect. 341-361.

Each Bank is statutorily empowered to conduct these activites without day to day direction from the federal government. Thus, for example, the interest rates on advances to member banks, individuals, partnerships, and corporations are set by each Reserve Bank and their decisions regarding the purchase and sale of securities are likewise independently made.

It is evident from the legislative history of the Federal Reserve Act that Congress did not intend to give the federal government direction over the daily operation of the Reserve Banks:


It is proposed that the Government shall retain sufficient power over
the reserve banks to enable it to exercise a direct authority when
necessary to do so, but that it shall in no way attempt to carry on
through its own mechanism the routine operations and banking which
require detailed knowledge of local and individual credit and which
determine the funds of the community in any given instance. In other
words, the reserve-bank plan retains to the Government power over the
exercise of the broader banking functions, while it leaves to
individuals and privately owned institutions the actual direction of
routine.

H.R. Report No. 69 Cong. 1st Sess. 18-19 (1913).

The fact that the Federal Reserve Board regulates the Reserve Banks does not make them federal agencies under the Act. In United States v. Orleans, 425 U.S. 807, 96 S.Ct. 1971, 48 L.Ed.2d 390 (1976), the Supreme Court held that a community action agency was not a federal agency or instrumentality for purposes of the Act, even though the agency was organized under federal regulations and heavily funded by the federal government. Because the agency's day to day operation was not supervised by the federal government, but by local officials, the Court refused to extend federal tort liability for the negligence of the agency's employees. Similarly, the Federal Reserve Banks, though heavily regulated, are locally controlled by their member banks. Unlike typical federal agencies, each bank is empowered to hire and fire employees at will. Bank employees do not participate in the Civil Service Retirement System. They are covered by worker's compensation insurance, purchased by the Bank, rather than the Federal Employees Compensation Act. Employees travelling on Bank business are not subject to federal travel regulations and do not receive government employee discounts on lodging and services.

The Banks are listed neither as "wholly owned" government corporations under 31 U.S.C. Sect. 846 nor as "mixed ownership" corporations under 31 U.S.C. Sect. 856, a factor considered is Pearl v. United States, 230 F.2d 243 (10th Cir. 1956), which held that the Civil Air Patrol is not a federal agency under the Act. Closely resembling the status of the Federal Reserve Bank, the Civil Air Patrol is a non-profit, federally chartered corporation organized to serve the public welfare. But because Congress' control over the Civil Air Patrol is limited and the corporation is not designated as a wholly owned or mixed ownership government corporation under 31 U.S.C. Sub-Sect. 846 and 856, the court concluded that the corporation is a non-governmental, independent entity, not covered under the Act.

Additionally, Reserve Banks, as privately owned entities, receive no appropriated funds from Congress. . . .

Finally, the Banks are empowered to sue and be sued in their own name. 12 U.S.C. Sect. 341. They carry their own liability insurance and typically process and handle their own claims. In the past, the Banks have defended against tort claims directly, through private counsel, not government attorneys . . ., and they have never been required to settle tort claims under the administrative procedure of 28 U.S.C. Sect. 2672. The waiver of sovereign immunity contained in the Act would therefore appear to be inapposite to the Banks who have not historically claimed or received general immunity from judicial process.

[3] The Reserve Banks have properly been held to be federal instrumentalities for some purposes. In United States v. Hollingshead, 672 F.2d 751 (9th Cir. 1982), this court held that a Federal Reserve Bank employee who was responsible for recommending expenditure of federal funds was a "public official" under the Federal Bribery Statute. That statute broadly defines public official to include any person acting "for or on behalf of the Government." . . . The test for determining status as a public official turns on whether there is "substantial federal involvement" in the defendant's activities. United States v. Hollingshead, 672 F.2d at 754. In contrast, under the FTCA, federal liability is narrowly based on traditional agency principles and does not necessarily lie when the tortfeasor simply works for an entity, like the Reserve Banks, which perform important activities for the government.

[4, 5] The Reserve Banks are deemed to be federal instrumentalities for purposes of immunity from state taxation. . . . The test for determining whether an entity is a federal instrumentality for purposes of protection from state or local action or taxation, however, is very broad: whether the entity performs an important governmental function. . . . The Reserve Banks, which further the nation's fiscal policy, clearly perform an important governmental function.

Performance of an important governmental function, however, is but a single factor and not determinative in tort claims actions. . . . State taxation has traditionally been viewed as a greater obstacle to an entity's ability to perform federal functions than exposure to judicial process; therefore tax immunity is liberally applied. . . . Federal tort liability, however, is based on traditional agency principles and thus depends upon the principal's ability to control the actions of his agent, and not simply upon whether the entity performs an important governmental function. . . .

Brinks Inc. v. Board of Governors of the Federal Reserve System, 466 F.Supp. 116 (D.D.C.1979), held that a Federal Reserve Bank is a federal instrumentality for purposes of the Service Contract Act, 41 U.S.C. Sect. 351. Citing Federal Reserve Bank of Boston and Federal Reserve Bank of Minneapolis, the court applied the "important governmental function" test and concluded that the term "Federal Government" in the Service Contract Act must be "liberally construed to effectuate the Act's humanitarian purpose of providing minimum wage and fringe benefit protection to individuals performing contracts with the federal government." Id. 288 Mich. at 120, 284 N.W.2d 667.

Such a liberal construction of the term "federal agency" for purposes of the Act is unwarranted. Unlike in Brinks, plaintiffs are not without a forum in which to seek a remedy, for they may bring an appropriate state tort claim directly against the Bank; and if successful, their prospects of recovery are bright since the institutions are both highly solvent and amply insured.

For these reasons we hold that the Reserve Banks are not federal agencies for purposes of the Federal Tort Claims Act and we affirm the judgement of the district court.

AFFIRMED.


The courts agree with you.

[Jeremy]

Not sure if you made a mistake, but he says it's public then he says it's private?

[CasualApathy]

Not sure if you made a mistake, but he says it's public then he says it's private?

Pretty sure that's a mistake ;)

[eduardo89]

Not sure if you made a mistake, but he says it's public then he says it's private?I'm kind of lost too. Did your professor say it's private or public?

[dannno]

His professor keeps saying it's public, OP needs to fix the OP in at least a couple different places.

[CasualApathy]

Just use common sense, but yeah - there are a couple of typos.

[Graeme]

Is there any continuation of that case? It looks like that was an appelate case to the ninth circuit, and the 9th issued that ruling. Did it go higher/get appealed/overturned? I can't find anything of that nature.

As for the FED, on my understanding , it's a private entity when it wants to be one, and a public entity when it wants to be one, neither when it finds those both annoying, and both when it comes to advantages of each.

A court ruling covering the ninth circuit only means that in the 9th circuit , the FED is considered that. I don't live in the ninth.

[Acala]

Actually, it's a hybrid. It was created by legislation, must answer to Congress and follow rules created by Congress, and could be dissolved by Congress at any time. And its Board is appointed by the Federal government. But it is composed of private banks. So it is a hybrid of public and private elements.

[emazur]

It's a public/private hybrid, with the worst of both worlds. If it's so damn private, perhaps your professor can explain why a public official, George W. Bush, was able to appoint all 7 members of the Federal Reserve Board by Spring 2006? If it's so damn private, perhaps your professor can explain why a public official, Richard Nixon, colluded with Fed Chairman Arthur Burns to keep interest rates low for the purpose of getting reelected? (sources linked in the RP2012 article in my signature).

"My relations with the Fed will be different than they were with [previous Federal Reserve chairman] Bill Martin] there. He was always six months too late doing anything. I'm counting on you, Arthur, to keep us out of a recession."

"Yes Mr. President, Burns said, lighting his pipe. "I don't like to be late."

Nixon continued. "The Fed and the money supply are more important than anything the Bureau of the Budget does. Arthur, I want you to come over and see me privately anytime... I know there's the myth of the autonomous Fed..." Nixon barked a quick laugh. "... and when you go up for confirmation some Senator may ask you about your friendship with the President. Appearances are going to be important, so you can call Ehrlichman to get messages to me, and he'll call you[4]."

On the other hand, if you want to read why private interests dominate the Fed, read Eliot Spitzer's awesome article "Fed Dread":
http://www.slate.com/id/2217811/

The composition of the New York Fed's board, which supervises the organization and current Chairman Friedman, is equally troubling. The board consists of nine individuals, three chosen by the N.Y. Fed member banks as their own representatives, three chosen by the member banks to represent the public, and three chosen by the national Fed Board of Governors to represent the public. In theory this sounds great: Six board members are "public" representatives.

So whom have the banks chosen to be the public representatives on the board during the past decade, as the crisis developed and unfolded? Dick Fuld, the former chairman of Lehman; Jeff Immelt, the chairman of GE; Gene McGrath, the chairman of Con Edison; Ronay Menschel, the chairwoman of Phipps Houses and also, not insignificantly, the wife of Richard Menschel, a former senior partner at Goldman. Whom did the Board of Governors choose as its public representatives? Steve Friedman, the former chairman of Goldman; Pete Peterson; Jerry Speyer, CEO of real estate giant Tishman Speyer; and Jerry Levin, the former chairman of Time Warner. These were the people who were supposedly representing our interests!

[Cutlerzzz]

The last two posters have it right, it is both. Emazur posted exactly what I was going to post and gets a rep.

[Brown Sapper]

I had the same problem when I took Economics last year. Every time I would pin my professor down on a subject, he would just tell me "I know the answer to this, but its too technical for you to understand."

[linusPAULing]

In this video the PR guy for the Chicago Fed claims that EACH of the 12 banks is a "separate, closely-held, private corporation." He claims that each bank is owned by the banks in their district.


http://blip.tv/lone-lantern/meet-the-federal-reserve-964712

He also lets us in a little secret that the ink used on Federal Reserve Notes is quite toxic, containing mercury, cadmium, and other assorted poisonous materials.

[CasualApathy]

I had the same problem when I took Economics last year. Every time I would pin my professor down on a subject, he would just tell me "I know the answer to this, but its too technical for you to understand."

What a cop out... Did anyone ever call him out on it?

[Proph]

I had the same problem when I took Economics last year. Every time I would pin my professor down on a subject, he would just tell me "I know the answer to this, but its too technical for you to understand."

"...but isn't it your job to teach me? I'm helping pay for your salary, after all. How am I wrong?"

[Brown Sapper]

Ya I did I told I him had the highest grade in the class and I've never even cracked the book. We eventually had a big argument (this particular argument started because I called him out on Keynesian economics) and the whole class gave me that "just shut up look" so from then on I would just go to class and take a nap.

[Chester Copperpot]

the only thing one could consider public is the board of governors... all the federal reserve banks are private

[cucucachu0000]

sounds like elsworth toohey to me.

[Seraphim]

This.

The Fed and it's system were purposely designed to be a squid with tentacles in all facets of American life.


Actually, it's a hybrid. It was created by legislation, must answer to Congress and follow rules created by Congress, and could be dissolved by Congress at any time. And its Board is appointed by the Federal government. But it is composed of private banks. So it is a hybrid of public and private elements.

[Acala]

This.

The Fed and it's system were purposely designed to be a squid with tentacles in all facets of American life.

Yup. And of course the reality is that the Congress that supposedly has oversight of the Fed is largely owned by banks.

[ravedown]

recently i was asked where the interest the fed receives from lending money goes, and i totally couldn't recall. anyone know the answer?

[MaxPower]

Actually, it's a hybrid. It was created by legislation, must answer to Congress and follow rules created by Congress, and could be dissolved by Congress at any time. And its Board is appointed by the Federal government. But it is composed of private banks. So it is a hybrid of public and private elements.
I like the term "quasi-private."

[Seraphim]

I like the term "Fascistic-communist-authoritarian-shit-soup-medley".



I like the term "quasi-private."

[Salvial]

Fixed the op.

He consistently said it was public "until it's privatized"

[DamianTV]

I like the term "Fascistic-communist-authoritarian-shit-soup-medley".

Exactly right!

[emazur]

recently i was asked where the interest the fed receives from lending money goes, and i totally couldn't recall. anyone know the answer?

They pay it back to the Treasury minus the Fed's operating costs (and for reasons I don't entirely understand, sometimes the Fed returns more to the Treasury than was originally borrowed even after operating costs, and the Fed says the government actually made a "profit")