News Release

The Fed, Watergate and Arming Saddam Hussein


Professor of public affairs at the University of Texas at Austin, Auerbach is author of the book “Deception and Abuse at the Fed.”

His book was the basis of Rep. Ron Paul’s recent questioning of Federal Reserve Chairman Ben Bernanke. Paul, who introduced the Federal Reserve Transparency Act, which has passed the House with over 300 co-sponsors, noted allegations that the Fed was involved with covering up some of the funding of the Watergate burglars as well as failing to effectively examine a small Italian bank through which the U.S. government sent Saddam Hussein funds in the 1980s. Paul also raised questions about the Fed’s disclosure policy. The Fed chairman immediately dismissed the allegations: “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. As far as the ten years [disclosure issue]: after five years, we produce transcript of every word said at the FOMC [Federal Open Market Committee] meetings.” See video.

Auerbach said today: “The head of the Federal Reserve bureaucracy should become familiar with its dismal practices.

“First, consider the Fed’s cover-up of the source of the $6,300 in $100 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, on 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. …

“The second subject brought up by Congressman Ron Paul is the exposure of faulty examinations by the Federal Reserve of a foreign bank in Atlanta, Georgia through which $5.5 billion was sent to Saddam Hussein that U.S. District Judge Ernest Tidwell found to have ‘clearly facilitated criminal conduct.'” Auerbach details allegations by Christopher Drogoul, a prosecuted official at the Italian bank in question, regarding the Fed’s flawed examination of his bank.

In terms of making information public, Auerbach notes: “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.” Auerbach’s recent articles on the Fed include “Stop the Federal Reserve From Shredding Its Records.”

Auerbach said today: “The bottom line is that the Fed is a very secretive organization that is largely run by the big banks it is supposed to be regulating. It should be opened up, not given more powers such as the new consumer protection agency.”

Background is available in a recent letter from Auerbach to Rep. Paul.

Excerpts from Auerbach’s book, which features a section on Watergate, including letters from the late Sen. William Proxmire and others attempting get the Fed to cooperate with determining the funding of the Watergate burglary.

Auerbach notes in his introduction that Milton Friedman, who had been his academic adviser, had told Auerbach that he had been approached by an individual trying to get him to stop Auerbach from investigating the Fed when Auerbach worked in Congress. (Auerbach recounts that “Milton Friedman wanted me to know that he strongly objected to this call and I should continue my efforts.”)

For more information, contact at the Institute for Public Accuracy:
Sam Husseini, (202) 347-0020; or David Zupan, (541) 484-9167