[Congressional Record (Bound Edition), Volume 156 (2010), Part 2]
[Extensions of Remarks]
[Pages 2037-2038]
[From the U.S. Government Publishing Office, www.gpo.gov]




LETTER FROM PROFESSOR ROBERT D. AUERBACH, LBJ SCHOOL OF PUBLIC AFFAIRS 
                       AT THE UNIVERSITY OF TEXAS

                                 ______
                                 

                             HON. RON PAUL

                                of texas

                    in the house of representatives

                      Thursday, February 25, 2010

  Mr. PAUL. Madam Speaker, I would like to enter into the Record the 
following letter from Professor Robert D. Auerbach, a professor at the 
LBJ School of Public Affairs at the University of Texas. This letter 
provides additional information regarding remarks I made at yesterday's 
Financial Services Committee Humphrey-Hawkins hearing, remarks which 
Federal Reserve Chairman Bernanke categorized as ``bizarre.''

[[Page 2038]]



 Thank You Congressman Ron Paul for Bringing These Important Facts to 
                         the Public's Attention

       I thank Congressman Ron Paul for bringing to the public's 
     attention the Federal Reserve coverup of the source of the 
     Watergate burglars' source of funding and the defective audit 
     by the Federal Reserve of the bank that transferred $5.5 
     billion from the U.S. government to Saddam Hussein in the 
     1980s. Congressman Paul directed these comments to Federal 
     Reserve Chairman Ben Bernanke at the House Financial Services 
     Hearing February 24, 2010. I question Chairman Bernanke's 
     dismissive response.
       BERNANKE: ``Well, Congressman, these specific allegations 
     you've made I think are absolutely bizarre, and I have 
     absolutely no knowledge of anything remotely like what you 
     just described.''
       The evidence Congressman Ron Paul mentioned is well 
     documented in my recent book, Deception and Abuse at the Fed 
     (University of Texas Press: 2008). The head of the Federal 
     Reserve bureaucracy should become familiar with its dismal 
     practices.
       First, consider the Fed's coverup of the source of the 
     $6,300 in hundred dollar bills found on the Watergate 
     burglars when they were arrested at approximately 2:30 A.M. 
     on June 17, 1972 after they had broken into the Watergate 
     offices of the Democratic Party. Five days after the break-
     in, June 22, 1972, at a board of directors' meeting of 
     officials at the Philadelphia Fed Bank, it was recorded in 
     the minutes [shown on page 23 of my book] that false or 
     misleading information had been provided to a reporter from 
     the Washington Post about the $6,300. Bob Woodward told me he 
     thought he was the Washington Post reporter who had made the 
     phone inquiry. The reporter ``had called to verify a rumor 
     that these bills were stolen from this Bank'' according to 
     the Philadelphia Fed minutes. The Philadelphia Fed Bank had 
     informed the Board on June 20 that the notes were ``shipped 
     from the Reserve Bank to Girard Trust Company in Philadelphia 
     on April 3, 1972.'' The Washington Post was incorrectly 
     informed of ``thefts but told they involved old bills that 
     were ready for destruction.''
       The Federal Reserve under the chairmanship of Author Burns 
     not only kept the Fed from getting entangled in the Watergate 
     coverup, which the Fed's actions had assisted, it allowed 
     false statements about bills the Fed knew were issued by the 
     Philadelphia Fed Bank to stand uncorrected. Blocking 
     information from the Senate and House Banking Committees 
     [letters shown in my book, Chapter 2] and issuing false 
     information during a perilous government crisis imposed huge 
     costs on the public that had insufficient information to hold 
     the Fed officials accountable for what they had withheld from 
     the Congress. Had the deception been discovered the Fed 
     chairmen following Burns may have been forced to rapidly 
     implement some real transparency to restore the Fed's 
     credibility. That would have reduced or eliminated many of 
     the deceptions, and corrupt practices that are described in 
     my book.
       The second subject brought up by Congressman Ron Paul is 
     the exposure of faulty examinations of the Federal Reserve of 
     a foreign bank in Atlanta, Georgia through which $5.5 billion 
     was sent to Saddam Hussein that a Federal Judge found to be 
     part of United States active support for Iraq in the 1980s.
       On November 9, 1993, several federal marshals brought a 
     prisoner, Christopher Drogoul, into my office at the Rayburn 
     House Office Building of the U.S. House of Representatives. 
     The marshals removed the manacles. Drogoul took off his jump 
     suit and changed into a shirt, tie, and business suit. He 
     immediately looked like the manager of the Atlanta agency 
     with domestic headquarters in New York City of Banca 
     Nazionale. Drogoul had come to testify about a ``scheme 
     prosecutors said he masterminded that funneled $5.5 billion 
     in loans to Iraq's Hussein through BNL's Atlanta operation. 
     Some of the loans allegedly were used to build up Iraq's 
     military and nuclear arsenals in the years preceding the 
     first Gulf War.'''
       Drogoul's ```off book' BNL-Atlanta funding to Iraq began in 
     1986 as financing for products under Department of 
     Agriculture programs.''' The loans allegedly had been 
     authorized by the U.S. Department of Agriculture. Since 
     Drogoul told the committee he was merely a tool in an 
     ambitious scheme by the United States, Italy, Britain and 
     Germany to secretly arm Iraq in their 1980-88 war, the 
     testimony was politically contentious and unproven. He was 
     sentenced in November 1993 to 37 months in prison and he had 
     already served 20 months awaiting his sentencing hearing.
       U.S. District Judge Ernest Tidwell found that the United 
     States had actively supported Iraq in the 1980s by providing 
     it with government-guaranteed loans even though it wasn't 
     creditworthy. The judge said such policies ``clearly 
     facilitated criminal conduct.''
       Gonzalez was drawn to Drogoul's answer about the Fed 
     examiner who had visited his Atlanta operation. Gonzalez said 
     that:
       ``At the November 9, 1993 Banking Committee hearing I asked 
     Christopher Drogoul, the convicted official of the Banca 
     Nazionale Del Lavoro agency branch in Atlanta, Georgia, how 
     the Federal Reserve Bank examiners could miss billions of 
     dollars of illegal loans, most of which ended up in the hands 
     of Hussein.
       Mr. Drogoul stated:
       The task of the Fed [bank examiner] was simply to confirm 
     that the State of Georgia audit revealed no major problems. 
     And thus, their audit of BNL usually consisted of a one or 
     two-day review of the state of Georgia's preliminary results, 
     followed by a cup of espresso in the manager's office.''
       Gonzalez was appalled at the of lack of effective 
     examination of a little storefront bank and also appalled by 
     the gifts exchanged by officers of the New York Federal 
     Reserve and the regulated banks in New York City where the 
     main U.S. office of BNL was located. A description of what 
     followed is in my book.
       The Fed voted in 1995 to destroy the source transcripts of 
     its policy making committee that had been sent to National 
     Archives and Records Administration. Chairman Alan Greenspan 
     had the committee vote on this destruction, telling the 
     members: ``I am not going to record these votes because we do 
     not have to. There is no legal requirement.'' (p. 104 in my 
     book.) Greenspan thus removed any fingerprints on this act of 
     record destruction. Donald Kohn, who is now Vice Chairman of 
     the Board of Governors at the Federal Reserve, answered some 
     questions I had sent to Chairman Greenspan about this 
     destruction. Kohn replied in a letter on November 1, 2001 to 
     me at the University of Texas that they had destroyed the 
     source records for 1994, 1995 and 1996, they did not believe 
     it to be illegal and there was no plan to end this practice. 
     That is one reason why the Federal Reserve audit supported by 
     Congressman Ron Paul is needed. The Fed must stop destroying 
     its records.

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