If you read this blog on a regular basis, you know I frequently write about the debt elimination scam. I’m usually coming at it from the angle that companies offering these services are fraudulent. The owners know they are ripping people off by selling a system that simply doesn’t work. But every once in a while I hear from someone who’s not trying to sell debt elimination as a service. They write as individuals, true believers in what I call the “conspiracy theory of global finance.”
The tendency to believe in conspiracies is rampant in our society. The Kennedy assassination, fluoridated water, UFO phenomena, the 9/11 attacks, vaccines — these subjects have all been the focus of conspiracy-minded individuals, some of whom are obvious candidates for the “tin-foil hat” award. I guess aluminum foil is supposedly pretty effective at blocking alien mind-control signals… ?
One of the most popular areas for conspiracy-mongering has been the global financial system. Some of the theories are overtly anti-Semitic, blaming Jews for all the financial evils in the world, while other are more subtle in their rhetoric. The bizarre legal and financial theories behind the debt elimination movement are in the latter category.
It’s all about the secret wheeling and dealing that happened in the early decades of the 20th century and resulted in the establishment of the Federal Reserve system and fractional reserve banking in general. Once you believe that the core financial system of world commerce is an insidious scam – you know, the system that has helped lift the living standard of billions of human beings around the world — then all remaining logic and critical thinking goes right out the window.
What follows is a classic example, starting with an opening email salvo from my new cyber pen-pal (name changed for privacy):
“Hello,
I came across your website and found it interesting, however it is grossly misinformed. I have personally discharged over $40,000 worth of unsecured debt using the exact methods you claim to be fraudulent.
I did this using the FDCPA regulations, a couple of simple letters, and information found in the book “Modern Money Mechanics.” Banks actually commit fraud when “loaning” money in several ways. One way is that a bank leads people to believe there is an actual loan made in acquiring a credit card or student “loan”, when in fact the money is created out of thin air by making an entry into a computer. Furthermore, the money that is created is entered as a CREDIT in the person’s name.. which is in capital letters. This is known in Black’s Law Dictionary as the Strawman.
The fact of the matter is that the entire credit industry IS operating fraudulently. When you research it as I have over the past three years, just HOW fraudulent is absolutely mind boggling. I realize as I write this that you have a vested interest in NOT telling people the truth, or perhaps even wanting to know it yourself because it would effectively put you out of business. However the fact remains that you are telling people blatant lies out of ignorance.
Were you to do some research and discover the truth for yourself, you might then work for real justice in the world, and perhaps change your product and service to something which is based in Truth rather than that which is perpetuating a myth and which is harming everyone.
In the meantime, you might find a couple of movies intersting (sic) :
“The Money Masters” – available on YouTube or DVD.
“Money As Debt” – Available on YouTube also.
If you would like copies of the actual letters I used please let me know and I will be happy to forward them to you.Sincerely,
Allen”
OK, so in his very first email message to me this tactful fellow accuses me of being grossly misinformed, having a vested interest in deceiving the public, and telling blatant lies out of ignorance. Nice way to start off a dialogue with a total stranger, right?
Now, I have a confession to make. I actually enjoy sparring with these folks. It’s pretty sick, I admit it, but it’s a form of amusement and entertainment for me, what can I say. My first reaction was to launch into attack mode, but I figured I would give this guy the benefit of the doubt first. Here’s my reply:
“Allen,
You are “grossly misinformed” about my supposed lack of knowledge of the system you are such a fan of, but I don’t have time to debate with you. I’m too busy helping people who have been ripped off by “crusaders for justice” like yourself, who told them they could legally walk away from their debt obligations with no consequences, only to find they got laughed out of court, lost their cases, and started seeing wage garnishments.
Extraordinary claims require extraordinary proof. Please tell me the name/county of the court where your cases were heard, along with the civil case docket numbers. Don’t send me any documents directly, please. Only documents that I can retrieve directly from the court will meet the standard of evidence required here. Let’s have the case citation(s) where a judge ruled in your favor on the basis of the “no money lent” argument.
Sincerely,
Charles J. Phelan
President/Founder
Manchester Publishing Company, Inc.”
This is my standard technique for dealing with “experts” who write to me, tell me how full of baloney I am on this particular subject, and then claim they were successful using the techniques I warn consumers against. My first response is always the same. “Prove it.” Give me the documents, *court* documents where a real-life judge pounded the gavel and agreed with your cockamamie legal theory that “no money was lent” by the creditors. I’ve been asking for proof for nearly a decade. I’m still waiting.
So how did he reply? By backing up his mental dumpster and unloading it in my email inbox:
“Actually I’m not a fan of a fraudulent system that takes advantage of others, which is why I work to bring it down rather than to support it by buying into the lies.
I didn’t go to court on any of the cards that I got charged off.. which was every one of them. Contrary to what most people believe, it’s actually quite easy to do because the banks don’t WANT to go to court, or their little scam would be revealed and a finding against them would set a legal precedent that bring the whole house of cards down around the world.
All I did to accomplish that was exactly as I said in the earlier email. I challenged the banks for fraud on the contract and fraudulent conveyence (sic) and the debts were charged off for the following reasons:
1. There is NO legal and binding contract.. only a promisory (sic) note which creates the funds to discharge.
2. There is NO disclosure of the actual accounting procedures. If there were the banks would be forced to tell people that the monies created were created as a CREDIT to the account of the Strawman, and NOT a debit. This means that the individual has legal right to the monies from the start and is under no obligation to pay them back.
They entire system is a scam that originally began in 1913 and was subsequently pushed through Congress a few years later. When done correctly the FDCPA, and the FCRA can easily be used to get an unsecured line of “credit” charged off. It is also possible to obtain the remainder of the monies in a given account in cash. As I said, the money was assigned as a credit and not a debit to the individual and is therefore legally ours to begin with.
As I said earlier, if you want to know more, watch “The Money Masters”, “Money as Debt”, and read “The Creature From Jeckyl (sic) Island”. That will bring you up to speed on what the World Bank and the Federal Reserve is REALLY up to.
In closing, I’m sure there are idiots out there who scam people. In fact I recently read about one in Florida who took thousands and never did the work promised. But that there are idiots in every walk of life, and a few bad seeds don’t change the fact that what I am saying is true. If you want, I’ve given you enough information that you can find out for yourself. And as I said, once you do, I can provide you with the necessary tools if you decide you want to alter your course a little.. and I won’t charge you a penny.”
OK, so where do I start? This is so wrong on so many levels that it’s difficult to know where to begin. But let’s begin with the obvious. No legal paperwork. All this person accomplished was to get their debts charged off. Um, hello? That happens automatically! Don’t pay a credit card bill for six months, and voila, charge-off time. A charge-off just means the creditor records the loss on their books. It doesn’t mean they will stop trying to collect afterwards.
Anyway, I was getting a bit annoyed with this chap’s self-satisfied smug tone, so I decided to let him have it with both barrels.
“Allen,
Listen carefully, please. Both your emails were very insulting in tone and approach. You’re writing to a professional, not some clueless newbie. I do this for a living. I’ve seen it all, every trick in the book. I have been aware of everything you are describing for a decade or more and know a hell of a lot more about it than you apparently do. You’re just another in a long line of people who thinks he has discovered some big conspiracy, and can’t resist emailing me to tell me how wrong I am. What a laugh. I read Jekyll Island years ago. It’s complete crap from start to finish. Griffin is a John Birch whack-job, and his book was thoroughly debunked by legitimate scholars long ago. That’s as deep as your “research” went? Griffin? LOL.
If you don’t have court cases ruling in your favor, then all you did was temporarily chase away some collection agencies via the various documents utilized by the monetary protest crowd. Creditors drop cases all the time, or choose not to sue, for a variety of reasons that have absolutely nothing to do with what you think it does. You, like everyone else tilting at windmills out there, are completely clueless about what a pile of bulls**t you have chosen to put your faith in. You apparently don’t even understand what a charge-off is! You didn’t “get” your creditors to record charge-offs. That happens automatically. You’ll get sued sooner or later by a debt purchaser, or two, or three. If you enjoy the legal fight, bully for you. But 99% of consumers don’t want to go that route.
Did you, or did you not, purchase goods and services to the tune of $40,000 via the credit cards? Are you saying you received NO value whatsoever from the purchases made with the credit you claim was illegal? If you had not had those credit cards, how would you have obtained those $40k worth of goods or services? Don’t you understand what “consideration” means in the context of a business transaction? From my perspective, all you did was stiff your creditors to the tune of $40k. But that apparently does not conflict in any way with your values or ethics. Sorry. Call me old-fashioned, but I’ll side with the OCC, FTC, and every single state AG out there, and continue to advise consumers to steer clear of conspiracy-theory-based techniques that simply do not work for the vast majority of people who attempt to implement them. I’ll continue to do what I know DOES work — good faith negotiation and settlement. If you want to preach otherwise, get your own website.
Sincerely,
Charles J. Phelan
President/Founder
Manchester Publishing Company, Inc.”
A little harsh, perhaps, but hey, he started it, right? (You have to give as good as you get sometimes with people who are a bit thick in the skull.) His response?
“My apologies if I was coming off like I was being condescending.. I wasn’t. As with you, I am a professional and hold two degrees.. one in Electrical Engineering and a Doctorate in Philosophy.. so obviously I didn’t just fall off the potato truck.
My only intent from the start was to inform you of the truth, not to try and make you believe it. I’ve researched this for over three years, and the information I have portrayed /is/ accurate. However, you are certainly entitled to believe that Jeckyl (sic) Island isn’t true, or that the system we are living with is ethical and in integrity. The choice is entirely yours.
Please don’t bother responding, no further dialog on the subject is necessary or desired.
The best,
Allen”
Translation: “Gosh, you hurt my feelings. I don’t want to play anymore.” So there ends the exchange, which is too bad, because I was having so much fun. You’ll notice, however, that he failed to answer a single relevant question that I raised. “I know I’m right, and you can’t confuse me with facts to the contrary.” That was the essence of his defense. Our monetary system is a scam, therefore I never spent any real money, blah, blah, blah.
The core point I was trying to get across to this person was the concept of business “consideration.” I focused on that because someone who has two college degrees really should know better (not to mention they should also be able to spell better). How can you study Philosophy, obtain a PhD, and not understand basic logic? The debt elimination promoters often rely on the assertion that no consideration was received by the debtor because the creditor was not out any of their own actual money. Baloney! You can read the linked Wikipedia entry on consideration for further detail, but the core idea is that in a business contractual situation, consideration must be involved for it to be a valid contract, where consideration is defined as value paid in exchange for a promise. Simple enough.
By arguing that no value is received by the debtor because the bank is extending credit and not loaning money directly, the true believer in debt elimination is overlooking basic reality. When you use a credit card to purchase goods or services at a retailer or other business, the mere fact that you had the convenience of using credit constitutes consideration. Look at it this way. If you did NOT have a credit card, you’d have to write a physical check or pay in full with cash, right? Because the creditor extended you a credit facility in the form of that little piece of plastic, you didn’t need to pony up money out of your bank account to pay for the item. That fact alone means you were extended consideration in the transaction, because otherwise you would not have been able to conclude the transaction under such convenient terms and would have had to directly negotiate credit terms with the merchant. So this blows away any and all objections by the debt eliminator that no consideration is involved. Crash. Down comes the whole kooky house of cards.
Anyway, all this person accomplished was to rip off his creditors for $40,000, *temporarily*. Since he never resolved anything, and thinks that the process stops with charge-offs (which is actually when the collection process just starts kicking into a high gear that can last for *years* to come), he will be exposed to multiple lawsuits in the coming months and years. This is my beef with all such mumbo-jumbo “magic bullet” techniques. They never result in any of the debts actually getting resolved in a final manner. A debt settlement letter accomplishes that resolution. You pay X dollars by such-and-such a date, and you’re done, period. And you have it IN WRITING FROM THE CREDITOR. Game over. On to the next debt, etc.
I doubt the above will convince a true believer. But I figured I would go ahead and post this exchange for its educational value. If I can spare one consumer from falling into the insidious trap set by the scam artists who sell these bogus “programs” for thousands of dollars, then I’m happy to keep sparring with true believers in the conspiracy theory of global finance. Anybody else out there want to take a shot at convincing me I’m wrong on this subject? 🙂
Leo returns with a book-length comment. As time permits, I will draft a separate
detailed reply in rebuttal.
Meanwhile, Leo, I notice that you did not answer any of my questions. So let’s
clear up two key points here before we go any further.
1. Have you ever attempted to profit financially from your research on this subject
by offering advice or assistance to consumers in return for a fee? If the answer
is no, then how could you have been involved in the “hundreds” of successful
cases you claim to have seen? Did you work free of charge?
2. Referring to the personal example above about the washing machine: Should I
pay for the washing machine or not? As near as I can tell from your voluminous
commentary, your position is that I don’t need to pay the credit card bank, because
they did not properly disclose the terms of the transaction. Do I understand
your position correctly?
Charles,
Answer to question #1:
No,I did not participate on peoples behalf, merely provided the paper work to use if they so chose. This was done free of charge.
Answer to question #2:
The position clearly stated is that there is no basis for a valid contract to exist between the credit card bank and the card holder. The bank of course takes the position it is a valid contract, that does not make it so.
First, the agreement, or “application” is invalid for failure to disclose and fraud in the factum. Second, the principle of the one lending the money should be repaid.
As the so called “money” of account did not exist prior to the monitizing of the promisorry note, the source of the bookeeping funds used in these accounts comes from the customer, not the bank. So, in effect the card holder is authorizing the deduction from his cash deposit,via the card transactions, not truly the banks funds even though the deductions occur in the transaction account which technically are bank assets. The deposit belongs to the card holder, not the bank. The depositor is the creditor, and the bank is the debtor
When one gets a credit card one agrees to “borrow” money from the “credit card” company via the medium of a “credit card” and pay it back with the agreed upon interest.
As lawyers know; there is a legal maxim (a self-evident truth) that says: “A THING SIMILAR IS NOT EXACTLY THE SAME.””
The form, the papers i.e. the agreement, the statements etc. are different from the substance of the agreement. The form is the appearance while the substance is what really occurred. People who enter into an agreement with the bank /Credit Card Company do not receive a loan from the bank or credit card company regardless of what they think.
All federally insured banks (FDIC) must follow what are called the Generally Accepted Accounting Principles (GAAP) which are in the federal statutes at 12 USC. Sec. 1831n(a) Accounting objectives, standards, and requirements.
One learns from this section:
(I) That there are certain accounting principles that must be followed by (FDIC) banks and financial institutions.
(2) That certain reports or statements must be filed with federal banking agencies by insured depository institutions.
(3) That these reports and or financial statements must accurately reflect the capital of these institutions.
(4) That the institution’s accounting principles shall be uniform and consistent with the generally Accepted Accounting Principles.
Generally Accepted Accounting Principles 2003 edition published by Wiley page 41 under the section “Cash and Cash equivalents” one learns, “Anything accepted by a bank for deposit would be considered as cash. ”
Further, as pointed out in my previous post, the Federal Reserve has also been very clear in their circulars that banks do not really lend money. To understand this revelation in their official circulars one example that could be cited is a reference in statutory law. For instance the Uniform Commercial Code (UCC), which governs all oommercia1 law, (and virtually every state bas adopted and codified it in their state statues) reads in the section on commercial paper (includes promissory notes) “Regulations of the Board of Governors of the Federal Reserve System and operating circulars of the Federal Reserve Banks supersede any inconsistent provision of this Article to the extent of the Inconsistency.” UCC IO2(c)
Further the Federal Reserve has also been very clear in their circulars that banks do not really lend money. To understand this revelation in their official circulars one example that could be cited is a reference in statutory law. For instance the Uniform Commercial Code (UCC), which governs all oommercia1 law, (and virtually every state bas adopted and codified it in their state statues) reads in the section on commercial paper (includes promissory notes) “Regulations of the Board of Governors of the Federal Reserve System and operating circulars of the Federal Reserve Banks supersede any inconsistent provision of this Article to the extent of the Inconsistency.” UCC IO2(c)
So one can see that the circulars of the FED banks and the regulations of the board of governors of the FED has the power to override statutory law in commercial relations when there is a conflict between that law and the circular or regulation of the FED in a particular section.
What has the FED said, about banks lending money? I think two examples will prove the point, although many more could be offered. Federal Reserve Publication, “Modern Money Mechanics” states on pg 6 “Of course they [Banks} do not really pay out loans from the money they receive as deposits. If they did this no additional money would be created.”
So if Banks do not “really” pay out loans from the money that they receive as deposits, where do they get the money to “payout loans?” The FED tells one in no uncertain terms in the next sentence. “What they do when they make loans is to accept promissory notes in exchange for credit to the borrower’s transaction accounts.”
So an exchange occurred! Why does the “credit card” agreement and statement present it as a loan, and charge interest? The agreement never mentions that an “exchange” is happening? The FED adds fuel to the argument in their publication: “Two faces of Debt.” In this publication on pg 19 the Fed states: “depositor’s balance rises when the depository institution extends credit either by granting a loan to or by buying securities from the depositor in exchange for the note or security, the lending or investing institution credits the depositors or gives a check that can be deposited at yet another depository institution. In this case no one else loses a deposit the money supply is increased. New money has been brought into existence.”
So again the word “exchange” is being associated with the so called loan. Notice that the quote says clearly that a “depositors” balance “rises” (evidence the promise to pay is deposited) when a depository institution extends credit by granting a loan or by buying securities from a depositor. How does that happen? According to the circular “In exchange for the note” the lending institution credits your account etc.
Then we are told something that proves the bank or financial institution really did not lend their money as they implied or agreed. We are told that as a result of this transaction “no one loses a deposit” (Thus no other person who had money deposited at the institution lost any deposit) That “the money supply is increased.” And that “new money has been brought into existence.””
How was the “new money” brought into existence? By the deposit of the promissory note agreement. Now a crucial point any attorney knows, for an agreement or a contract to be valid both parties to the agreement must provide what’s called “valuable consideration.” In other words each party must provide something of value in return for the thing of value that they receive.
Now I ask what was lent that should be repaid? If according to the FED, whose regulations the bank must follow, (1) The bank did not use other depositor’s money, (2) banks do not really payout loans from this money, (3) they accept the promissory note/agreement in “exchange” for credits in a transaction (checking) account (4) and they issue a check or wire transfer from this account. What did the bank lend? The wire transfer, credit, or check is issued based upon the deposit of the promissory note. GAAP says. Anything accepted by a bank as a deposit is considered as cash. The promissory note is an asset. An asset is something that has value. It can be bought and sold.
This explains why the FED says “new money” is brought into existence with the deposit of the promissory note. It is “money” that was not in the bank or financial institution prior to the deposit of the promissory note.
Thus it is stated in the Federal Reserve publication, “Two Faces of Debt.” Pg 19 “such newly created funds are in addition to funds that all financial institutions provide in their operations as intermediaries between savers and users of savings.”,
These funds are in “addition” to the other funds. Addition means to add. The promissory note/agreement is an increase of the financial institution’s funds! Thus from an economic standpoint one is far from getting a loan, one is making a deposit. And what does the FED say about that? Again in “Two Faces of Debt.” Pg 19 “A deposit created through lending Is a debt that has to be paid on demand of the depositor, just the same as the debt rising from a customer’s deposit of checks in a bank.””
And let’s not forget, the bank paid the required reserve amount because of this cash deposit.
Clearly, under the above stated circumstances, no one is being cheated, except for the depositor never being advised he has a demand deposit owed him from the bank, as their books will prove. However he is NEVER advised of the true nature of these transactions, therefore the validity of the so called “contract” creating the entire transaction is invalid and unenforceable. There never was full disclosure, so the card holder was never given the fair chance to decide to contract.
There is no other position that can be taken according to law. The merchants were all paid, so the “washing machine” example is not valid. It is a matter of who actually paid for the machine? Clearly the bookeeping accounts reveal the compensation came from drawing down the deposit account belonging to the card holder. If the bank takes the position they deducted the amount paid to the merchant from their asset account, fine, then pay the depositor back his deposit of account. One way or the other, the true source of the accounting for these transactions comes from the deposit account, which the bank agrees is a liability owed to the depositor. There is another factor at play in this scheme, that is that every sales slip signed by the card holder at point of purchase is a promissory note, deposited as cash in the same manner as the original promissory note. If it is taken as cash, and this newly created “cash” is then credited to the merchants bank account, it becomes in addition to the already existing transaction account in the card holders name, and in effect when he is then presented with a card statement, it implies the card holder must pay again, for that which the bank already took in as cash via the signed sales receipt. The contract between the merchant and the card bank is never revealed to the card holder. Card holders purchasing an item for $100 see that amount on their statement, but not told the merchant did not receive that amount, rather something less was paid the merchant according to his agreement with the card bank, or Visa or Mastercharge. All of this is quite legal, except for the part of not telling the card holder what has really taken place in these transactions. If told, he may have decided not to enter into such a contract, but he was never given that choice, was he? I could go on, but I believe I have stated the situation as clear as can be expected. Like it or not, that is how the system works, as per the Fed publications.
In reply to Leo’s additional comments above:
1. Credit River Decision
In 1968, a Minnesota Justice of the Peace (not an actual judge, mind you) ruled that Federal Reserve Notes (aka dollar bills) are not valid currency under the U.S. Constitution. Debt elimination conspiracy-buffs love to cite this case as proof of their claims, and predictably, Leo trumpets that Credit River “HAS NEVER BEEN OVERTURNED.” However, a case need not be formally overturned on appeal in order to be discarded by the legal community as bad case law. Credit River is a “null” decision, meaning it has no impact as a case precedent. That’s because numerous other (more recent) court rulings totally contradict its conclusions. The Minnesota State Law Library has further information on this long-discredited case here:
https://www.lawlibrary.state.mn.us/askfaq.html#credit:
Here’s the money quote:
“Furthermore, the Minnesota cases cited by Plaintiff are not only unreported, but they have been vacated by the Minnesota Supreme Court in reported decisions. See In re Daly, 284 Minn. 567, 171 N.W.2d 818; Zurn v. Northwestern Nat. Bank of Minneapolis, 170 N.W.2d 600, 284 Minn. 573 (Minn. 1969); Daly v. Savage State Bank, 171 N.W.2d 218, 218, 285 Minn. 503, 503 (Minn. 1969). Plaintiff is hereby admonished she must not cite any decision under which Justice Martin Mahoney purported to question the validity of federal currency or the Constitutionality of the Federal Reserve Act, nor may she cite any opinion or decision as authoritative which no longer has authoritative status.”
The attorney involved (Daly) was later disbarred. Today, the ONLY people who pay attention to the Credit River case are those who think that paper money is unconstitutional. They are mistaken. Federal Reserve Notes are indeed lawful currency. Here’s a link to several more case citations in support of this assertion:
https://www.publiceye.org/conspire/flaherty/flaherty3.html#30
As usual, the conspiracy theorist chooses to ignore massive evidence to the contrary and clings to the one obsolete case that seems to support his preposterous claims.
2. Fractional Reserve Banking
Leo is all in a tizzy because of something called “fractional reserve banking,” a process by which banks create what economists call “checkbook money.” He presents this in a way that makes it sound like some deep dark secret, that a Federal Reserve attorney had to testify to this under oath, and so on. What a joke! Pick up any Economics 101 textbook. It’s all there in black and white. Economists refer to the money supply as M1, which includes currency in circulation plus demand deposits, inclusive of deposits created through fractional reserve banking. You can find the historical figures for the various measures of the money supply here:
https://www.federalreserve.gov/releases/h6/hist/h6hist1.txt
Examine the figures, and you will see that the size of the money supply (M1) changes over time. From one month to the next, it might grow by, say, $50 billion. So where does that increase of $50 billion come from? Most of it comes from bank loans, which cause the money supply to expand.
Now, any first year economics student already knows all this, and there is absolutely NOTHING controversial about it whatsoever. Simply put, the creation of money through fractional reserve banking is the WAY OUR FINANCIAL SYSTEM WORKS, period. There is nothing complicated about it. If you deposit $100 cash into a bank account, the bank will keep (say) $20 on reserve and loan out the remaining $80, which would otherwise be out of circulation and sitting idle and unproductive. The person who receives the $80 loan buys stuff with it, and the person or company he/she bought from then deposits the $80 in *their* bank account. On the “new” $80 deposit, the second bank holds $16 (20%) in reserve, and puts the remaining $64 back into circulation in the form of a loan. And so on. This is how M1 expands. One way to look at it is that “new” money is created by this process. However, the expansion is temporary and conditional, and money can also be “destroyed” through the reverse of this process. (This is what happens when there is a “run” on a bank and all the loans have to be called in to meet the withdrawal demands.) Our central banking system, via the Federal Reserve, regulates this process and provides various mechanisms in support of it.
For those readers curious to learn more about the way our money supply expands and contracts through this process, I recommend this Wikipedia article on the subject:
https://en.wikipedia.org/wiki/Fractional_reserve_banking
If we did not have this system of banking, we’d be living in a financial Stone Age. Is it a perfect system? No. Can corrupt individuals or corporations screw it up? Yes. (See the mortgage crisis, for example, where excessive leverage proved to be one of the key factors causing the collapse of major companies like Lehman Brothers and Bear Stearns.) Is it the best system we have? Yes. Although it certainly has room for improvement in the form of tighter regulation and oversight, no one has proposed anything better in terms of fundamental economic structure. Does Leo offer an alternative that makes any sense? Nope.
3. The Federal Reserve Straw Man
Who’s right, Charles Phelan, or the Federal Reserve? Leo has set up a false choice, a classic Straw Man argument. There is no choice to be made here. I agree completely that banks have the power to expand the money supply through fractional reserve lending. What I dispute, however, is that this gives consumers the right to stiff their credit card banks based on Leo’s theory of “vapor money.” In fact, the Fed says the exact same thing that I do about this con game. Here’s a link to a copy of a Fed warning on this very subject:
https://www.zipdebt.com/blog/occ-warning
Seems like the Fed and I have the exact same position on “debt elimination”, doesn’t it?
4. Do Credit Card Banks Operate Fraudulently?
The entire “debt elimination” house of cards rests on the premise that the credit card banks are up to something shady, and that their contracts are unenforceable because they are fraudulent. Leo is 100% wrong on this point. There have been literally millions of court cases that prove the precise opposite, namely that credit card agreements ARE enforceable. Every single creditor judgment in a debt collection lawsuit is evidence to the exact opposite of what Leo claims.
Further, the National Bank Act specifically grants banks the power to extend loans against personal security (meaning the commitment of the individual to repay the loan), including the power to extend credit via credit cards by ruling of the OCC. Basically, credit cards are nothing more than an extension of the time-honored concept of the “letter of credit.” Here is the relevant code and case law: 12 USC §24 (Seventh); see Colorado Springs National Bank v. United States, 505 F.2d 1185, 1189-90 (10th Cir. 1974).
Money quotes from the above cited case:
“The business of the taxpayer is banking. As a national bank it is bound by, and must comply with, applicable federal statutes. Section 24, 12 U.S.C., provides in Subparagraph Seventh that a national bank may exercise ‘all such incidental powers as shall be necessary to carry on the business of banking,’ including ‘discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt,’ ‘receiving deposits,’ and ‘loaning money on personal security.’ Under the rulings of the Comptroller of the Currency, a bank may issue credit cards. See Comptroller’s Manual for National Banks, Pars, 7.7376(b) and 7.7378. The Federal Reserve Board recognizes that bank credit cards are ‘bank services.’ See 12 C.F.R. 219.104(d). In United States v. Philadelphia National Bank, 374 U.S. 321, 326, 83 S.Ct. 1715, 1721, 10 L.Ed.2d 915, the Court refers to the key role which commercial banks play in the national economy and says that commercial banking ‘describes a congeries of services and credit devices.’ Listed among the principal banking products are ‘bank credit cards.’ Ibid. at n. 5.”
“Before entering the credit card field, taxpayer made loans on accounts receivable and personal loans covering consumer transactions. For years banks, including taxpayer, have issued letters of credit. The credit card program furnishes a facility to handle these operations in a simple manner adaptable to operation through modern computers. A letter of credit is ‘a letter whereby one person requests some other person to advance money or give credit to a third person, and promises to repay the same to the person making the advancement.’ Second Nat. Bank of Toledo v. M. Samuel & Sons, Inc., 2 Cir., 12 F.2d 963, 966, cert. denied, 273 U.S. 720, 47 S.Ct. 110, 71 L.Ed. 857. The same function is performed by the handy, plastic card issued by the bank. The participating merchant honors the card in payment for merchandise, the issuing bank pays the merchant, and the card user is liable to the bank.”
5. The “Vapor Money” Theory
Leo says that I don’t have to pay for my new washing machine because the credit card bank failed to disclose the true nature of the transaction, and therefore we don’t have a valid enforceable contract. He says it was already “paid for” anyway, with “my money” that the bank “created” when they opened an account in my name. What utter nonsense!
Look, Leo, it really doesn’t matter how many words you write to support your interpretation of the law. You’re just spinning a fairy tale. The simple reality is that THE COURTS HAVE RULED AGAINST YOUR INTERPRETATION, time and time again. Nobody that matters agrees with you. You’re welcome to think that the financial system is a scam, that credit card banks conduct business fraudulently, and that the government is all a part of a big conspiracy. Knock yourself out. Go back to living on a barter system and eating roots and berries if that’s what you believe in. But you should stop saying “this is what the law says or means,” when the law says nothing of the kind and the people who interpret the law disagree with you 100% of the time!
Example: Recently, two con artists in California tried to run a vapor money scheme based on the exact principles Leo puts forth, except they tried to apply this nonsense to mortgage debts! These two thieves are now sitting in prison for running this scam on distressed homeowners, more than 600 of whom lost their houses as a result of this wonderful “legal theory.” Here’s a link to the case, The Frances Kenny Family Trust v. World Savings Bank FSB, 2005 WL 106792 (N.D. Cal. 01-19-2005):
https://www.quatloos.com/Kenny_Family_Trust.htm
Quoting from the 2005 conclusion:
“Moreover, plaintiffs’ ‘vapor money’ theory has no basis in law. It has been squarely addressed and rejected by various courts throughout the country for over twenty years. See, e.g., Nixon v. Individual Head of St. Joseph Mortg. Co., 615 F.Supp. 898 (C.D.Ind.1985); Theil v. First Federal Sav. & Loan Ass’n of Marion, 646 F.Supp. 592 (N.D.Ind.1986); In re Stickland, 179 B.R. 979 (Bankr.N.D.Ga.1995); Rene v. Citibank NA, 32 F.Supp.2d 539 (E.D.N.Y.1999); Hinz v. Washington Mut. Home Loans, 2004 WL 729239 (D.Minn.2004). Plaintiffs’ counsel completely neglected to bring these authorities to the attention of the Court. It is this kind of abuse of the judicial process (again, which the Court has seen first hand) that justifies an award of attorney’s fees against plaintiffs and their counsel.”
Not a single person using this vapor money argument has won a court case on the basis of the rubbish Leo is trying to pass of as valid legal argument. Prove me wrong, Leo. Again, I repeat my request. Give me ONE valid court case pertaining to credit card debt where the debtor won ON THE BASIS OF YOUR ARGUMENT. Put up, or shut up, already.