All the Presidents' Bankers

by Prins, Nomi

  For Aldrich, however, the Point Four program to begin technical assistance to underdeveloped countries was a gold mine. As a result of increased federal support, 1949 would become the most active year Chase’s foreign department had ever experienced.32

  In 1950, Truman appointed Aldrich’s nephew, Nelson Rockefeller, to chair the International Development Advisory Board, the main task of which was the implementation of the Point Four program. In turn, Aldrich advised Truman fairly extensively on the Point Four program in war-torn Europe.33

  Russell Leffingwell and Morgan’s Waning Influence

  Thomas Lamont, who had run the Morgan Bank through much of the war, passed away quietly in his sleep at age seventy-seven in early February 1948.34 His death marked the end of an era during which the Morgan Bank partners held the tightest alliances with the White House, even when presidents attacked bankers in their speeches. Lamont had negotiated war-related financing with America’s allies and foes for three decades, sailing back and forth across the Atlantic dozens of times. He had stood before many congressional investigations and crossed party lines to support Democratic presidents and the ideals of internationalism, which he believed benefited the country, the presidency, and the bankers. After he died, leadership of the firm passed to longtime partner Russell Leffingwell.

  A Washington insider from his days as President Wilson’s assistant secretary of the Treasury during World War I, Leffingwell reigned as chairman of the Morgan Bank from 1948 to 1950 (after which he retired to a directorship position).35 He was also chairman of the Council on Foreign Relations from 1946 to 1953, at a time when it actively promoted the Marshall Plan.

  Leffingwell engaged with Truman on an array of issues, including on the tension between postwar domestic security and individual liberties. Both men believed that the Cold War was no excuse for monitoring the nation’s citizens, which was becoming an abrasive issue in Congress. The libertarian in Leffingwell found the notion of undue government oversight of people’s lives off-putting. In general, his method of subtle sway over the Truman administration was effective, particularly regarding matters of interest rate and debt policy—though not as overwhelming as the methods of the Chase and National City Bank influencers.

  Leffingwell periodically took to the press to publicize his views. In October 1948, he penned a Fortune article in which he argued the Federal Reserve should “drop the peg,” meaning it should discontinue its artificial support of long-term government bonds (through purchasing them, which also kept rates down). The article provided Treasury Secretary Snyder, who agreed with Leffingwell, ammunition against the Fed.36

  After the war, a battle brewed between the Treasury Department and the Federal Reserve over how to deal with rates, inflation, and reserves. Snyder’s views were in lockstep with those of the bankers; excess reserve requirements would hamper banks from lending and expanding. In an August 9, 1948, statement before the House Banking and Currency Committee, Snyder said, “After careful and deliberate consideration of the proposed increase of reserves that commercial banks must carry in the Federal Reserve banks; we are firmly of the opinion that such a move will bring about a credit panic.”37

  Leffingwell agreed: “The Federal Reserve and commercial banks’ reserve requirement should not be increased.”38 A true internationalist, he was also of the opinion that trade barriers should be eased as much as possible to enable international business and financial activities to thrive. This was the same view that had been held by his predecessor at Morgan for decades.

  When Truman won the 1948 presidential election, the Belgrade press, reading the fusion of the bankers and the presidency correctly, dubbed the election a battle between the candidates of J. P. Morgan & Company and the Chase National Bank, giving the victory to Morgan. (Thomas Dewey, who lost to Truman, was a close friend of Chase chairman Winthrop Aldrich, though of course Aldrich was very supportive of Truman and his postwar foreign financial policies.) Truman considered the distinction a joke, writing Leffingwell on November 22, 1948: “I was very much interested in the attached report from Belgrade to the effect that the recent election was a battle between J.P. Morgan & Company and the Chase National Bank. This is merely to congratulate you on the election of your candidate.”39

  Leffingwell responded in his typical deferential manner: “Your letter of the 22nd reached me this morning. I read it promptly to our officers’ meeting and we all enjoyed a good laugh. A President with so human a touch makes everybody feel good. Though you were not my candidate, you are my President, and I pledge you my support and help, and that of my colleagues, in your great task.”40 In turn, Leffingwell had made a contribution to the Democratic Campaign Fund.41

  This would be the beginning of a friendly relationship between the two men.

  McCloy Leaves the World Bank

  By 1949, the postwar economic recovery was waning. World exchange rates reflected this. Britain devalued the pound from $4.03 (the 1946 rate) to $2.80. Other countries followed suit. The US economy experienced its first, albeit minor, postwar recession. Loan volume declined for the first time in three years, with business loans dropping by 19 percent.42

  Around that time, McCloy’s stint as president of the World Bank was coming to an end after two short years. Truman offered him the position of US high commissioner of Occupied Germany. (As assistant secretary of war, McCloy had been situated in Germany in the spring of 1945, when Eisenhower’s troops occupied 43 percent of the country.43) As he had done before accepting his World Bank post, McCloy gave Truman a list of requirements. Again, he asked for “a free hand in picking people” to assist him and an assurance that “no substantial decisions on Germany” would be made “without consultation with me.”44

  In addition, he demanded full authority over Economic Cooperation Administration monies dispensed in Germany and for Truman to name Eugene Black as his successor. The president agreed to his demands. Only then did McCloy send Truman a brief note accepting the job.45

  When McCloy officially resigned from the World Bank on June 30, 1949, Snyder didn’t miss a beat. He wrote Black, “I know that under your leadership the successful administration of the Bank will continue” and that “regarding matters relating to international financial programs you may be assured that at all times the Treasury will be glad to assist you in any way it can.”46

  In his new capacity, McCloy worked on the creation of the West German state from 1949 to 1952. In 1951, he controversially reduced the sentences on convicted Nazi war criminals (about which many in Europe and the United States were extremely upset).47 McCloy retained a characteristically independent style in Germany, sending Truman reports rather than engaging in regular dialogue. Overseeing the development of Germany was one of McCloy’s favorite roles, perhaps more interesting to him than running the Chase Bank, which he did afterward (though budding Middle East relationships would eventually fulfill his capacities for juxtaposing his public and private roles).

  After four years in Germany, McCloy returned to New York City. In 1953, when Aldrich was nominated by Eisenhower to become ambassador to Britain, Aldrich chose McCloy to assume his slot as Chase chairman.

  Old to New Guard

  Three influential men stood in the wings of the 1940s. They wouldn’t emerge into the national consciousness until the 1960s, but nonetheless they were beginning their political and financial ascent. The first was John F. Kennedy, who ran for Congress for the first time in 1946 and won.

  The second was David Rockefeller, whom Aldrich recruited to join Chase in 1946. Rockefeller had spent the summer of 1937 with the Chase economics department, and as a student at the London School of Economics he had devoted half a day each week as a trainee at the London branch of Chase. While traveling through Europe in 1945, Aldrich met Rockefeller in Paris and suggested that he join the bank. Rockefeller started his Chase career as an assistant manager in the foreign department.48

  The third man was Walter Wriston, son of Henry Wriston, a conservative former presi
dent of Brown University and a friend of W. Randolph Burgess. Burgess enticed Walter to work at National City Bank in 1946.

  American power unfolds more like a monarchy than a meritocracy. There are no accidents in global influence, no surprise emergences. All three young men harnessed family connections on their way to leading the country and its two biggest banks, respectively. The views of these men at the time were more alike than they would be perceived to be in later years. Before he turned more liberal on the national stage, Kennedy was critical of Truman’s “soft” policy on Communism. Wriston and Rockefeller were both free-market advocates who harbored international ambitions, positions passed on by family patriarchs.

  All three believed in America’s right to global expansion and the necessity of an offensive stance as a way to fight the Cold War. Likewise, the Cold War would prove a convenient excuse for making money, as well as for political posturing. The sort of patriotism that had been associated with World War II would become associated with the war against Communism and its threats, real or fabricated. This fight would allow them to consolidate their roles in the epicenter of global finance.

  NSC 68

  The Cold War also dictated foreign policy and budget appropriations in the White House. On April 14, 1950, a top-secret report on US objectives and programs for national security—compiled by Truman’s executive secretary, James Lay Jr., and the secretaries of state and defense—was distributed to the National Security Council, the Treasury secretary, the Economic Cooperation Administration, the director of the Bureau of the Budget, and the chairman of the Council of Economic Advisers.49

  The report, dubbed NSC 68, opened the door for future wars against Communism, and also for the funding and financing that would come from the private bankers along those foreign policy lines. It concluded that “the gravest threat to the security of the United States within the foreseeable future stems from [the] formidable power of the U.S.S.R,” and that “the risk of war with the U.S.S.R. is sufficient to warrant, in common prudence, timely and adequate preparation by the United States.”50

  The threat, it said, “is of the same character as that described in NSC 20/4 [approved by Truman on November 24, 1948] but is more immediate than had previously been estimated. In particular, the United States now faces the contingency that within the next four or five years the Soviet Union will possess the military capability of delivering a surprise atomic attack of [considerable] weight.”51

  To mitigate that threat, the report suggested developing “a level of military readiness . . . as a deterrent to Soviet aggression . . . should war prove unavoidable.”52 As it said further, “Our position as the center of power in the free world places a heavy responsibility upon the United States for leadership.”53 Also, “We must, by means of a rapid and sustained build-up of the political, economic, and military strength of the free world, and by means of an affirmative program intended to wrest the initiative from the Soviet Union, confront it with convincing evidence of the determination and ability of the free world to frustrate the Kremlin design of a world dominated by its will.”54

  Bankers had a propensity to capitalize on wars, but they were equally adept at profiting from peace, especially if it could be backed by US military power and foreign policy initiatives that would augment and protect their financial expansion policies by fortifying “democratic” countries that could be their clients.

  During the previous three and a half decades, the world had witnessed two major global wars, revolutions in Russia and China, and “the collapse of five empires—the Ottoman, Austro-Hungarian, German, Italian and Japanese,” according to the NSC 68.55 The report concluded that “the defeat of Germany and Japan and the decline of the British and French Empires have interacted with the development of the United States and the Soviet Union in such a way that power has gravitated to these two centers. . . . The Soviet Union . . . is animated by a new fanatic faith, antithetical to our own, and seeks to impose its absolute authority over the rest of the world.”

  Six months after the report was distributed, the United States entered the Korean War. In late 1950, Truman signed a letter to Secretary of State Dean Acheson saying that recent developments required review and adjustment of certain policies and programs with respect to “international communist imperialist aggression.” Truman wanted to enlist the cooperation and support of other nations in carrying this out. To the extent that US legislation, organization, and funds permitted, Truman wanted all “appropriate programs now to be adjusted and administrated in light of [those] determinations.”56

  The Korean War would find the US population less financially supportive than it had been during World War II. Thus, bankers would turn toward mergers and credit extension to grow their domestic power base, while keeping their eyes on international financial developments and their feet in the corridors of Washington.

  CHAPTER 10

  THE 1950S: EISENHOWER’S BUDS, COLD WAR, HOT MONEY

  “Recognizing economic health as an indispensable basis of military strength, and the free world’s peace, we shall strive to foster everywhere, and to practice ourselves, policies that encourage productivity and profitable trade.”

  —Dwight D. Eisenhower, inaugural address, January 20, 1953

  ON THE SURFACE, THE 1950S EMBODIED THE FAIRY-TALE ASPECT OF THE American Dream. As society emerged financially stable from the clouds of the Great Depression and World War II, the model suburban family with perfectly coiffed hair beamed smiles from the pages of Life magazine. Oodles of must-have gadgets offered jolts to the economy while Elvis Presley’s hips mesmerized a generation of teenage girls.

  President Eisenhower, the moderate Republican war hero, hugged the country’s traumas away like a political grandfather. President Truman’s mantra of “unity” and collective responsibility for the world gave way to Eisenhower’s use of the popular 1920s Coolidge and Hoover mantra “prosperity.” To attain more widespread wealth, the US population would pursue a brand of isolationism similar to that which followed World War I, but the White House would be more primed to international intervention, and Wall Street to open trade. Indeed, the doctrine of interventionism against the threat of spreading Communism, which could hamper America’s emergence as a world superpower and US bankers’ standing as the world’s superfinanciers, suited both the White House and Wall Street. The Cold War became the glue binding presidents’ desires to accumulate non-Communist allies like pins on a map and the bankers’ desire to open up shop in the same countries backed by American military and foreign policy.

  The United States was no longer involved in one world war. However, the drive to battle the Soviet Union militarily and economically paved the way for a fresh set of regional wars for ideological and global control. The battle of capitalism vs. Communism manifested in the Korean War in the early 1950s and in other forms of aggression later in the decade, like Lebanon in 1958. Moreover, “containment” (as the Council on Foreign Relations dubbed it) of the “domino effect” (as Eisenhower dubbed it) of Communism provided the impetus to carve up the parts of the world that hadn’t been involved in World War II, like the Middle East and Latin America, into American democratic capitalism and Soviet Communism camps.

  From a domestic economic policy standpoint, Eisenhower supported many of the elements of FDR’s New Deal, though his advisers held more conservative views on that score. When mild recessions surfaced in the United States intermittently in the 1950s, he thwarted them by utilizing government funding for initiatives like the construction of the nation’s superhighways—the largest public works program in US history, which also helped the auto industry, stoked pent-up consumer demand, reaped bank loans to finance new car purchases, and provided profits to oil companies supplying gasoline.

  During the 1950s, Americans enjoyed a decade of domestic tranquility and growing middle-class security, to an extent that has not been experienced since then. In tandem, the bankers’ concentrations were split between branching out internationally to
regions and nations supported by the Eisenhower administration and its anti-Communist doctrine and merging domestically to consolidate more customer deposits and lend credit to more of the population. The atmosphere for doing this was perfect. More financially stable citizens gave the bigger banks more deposits and required more loans from them, fueling their domestic operations with capital to expand internationally in tandem with the president’s policy to enhance American power abroad.

  Truman, and to a far greater extent Eisenhower, used the Cold War as a reason to supply non-Communist allies with US economic and military aid, which also meant prying these countries open to US banks for financial activities. Attaching the double carrot of aid and loans (from the US government, the IMF and World Bank, and the private banks) to countries that embraced US political ideologies enabled the United States to maintain the global power position it had cultivated through two world wars, and enabled its bankers to expand into countries that were on the “right” side of the Communist divide—mostly in Latin America, where the United States could exert additional power as a neighbor and trade partner, and the Middle East, which became a Cold War battlefield saturated with oil and blood.

  While Eisenhower spoke eloquently of helping allies, bankers saw dollar signs emanating from South America and the Middle East. Again, US policy and the expansion goals of the main bankers were aligned. Whereas Europe was emerging slowly from the war, and the Far East was rife with conflict, those two other regions became increasingly attractive to US bankers. The Middle East had oil. Latin America had a bevy of natural resources that could be extracted cheaply and transformed into great profits for US companies through financings that doubled as foreign trade policy initiatives.