104 THE BiG DROP
the next year and beyond. And your success or failure as an
investor will depend on that understanding.
One reader recently emailed me saying, “Who owns the
Federal Reserve? I’ve heard that it is owned by the Rothschilds
and Rockefellers plus a few other banks.”
The Fed is actually a system of 12 regional reserve banks
that are privately owned by the commercial banks in each dis-
trict. The most powerful of these is the Federal Reserve Bank
of New York. It actually carries out the money market opera-
tions needed to implement interest rate policy.
The New York Fed also has custody of the largest gold
vault in the world, holding about 7,000 tons of gold, more
than Fort Knox. But other regional reserve banks in Chicago,
Philadelphia, Boston and San Francisco also have a strong
voice in policy.
The president of each regional reserve bank is selected by
the private board of directors of each bank. In turn, the direc-
tors are elected by the stockholders, who are private banks in
the region.
These 12 regional reserve banks are overseen by a Board of
Governors in Washington, D.C.
There are seven governors selected by the president of the
United States and confirmed by the U.S. Senate. So the Fed is
a strange hybrid of private ownership in the 12 regions with
oversight from a politically appointed board in Washington.
The structure is even stranger when it comes to interest rate
policy.
Rate policy is set not by the board or the regions but by the
Federal Open Market Committee, FOMC. The FOMC has 12
members, composed of the seven governors and five regional
reserve bank presidents. The president of the Federal Reserve
Bank of New York has a permanent seat on the FOMC and the
other four seats are taken on a one-year rotation among the
remaining 11 regions.