by Prins, Nomi
The situation appeared dire. But after thirteen nailbiting days, on October 28, Kennedy accepted Khrushchev’s offer to withdraw his missiles from Cuba in return for an end to the quarantine, a US pledge not to invade Cuba or violate Cuban airspace, and, more covertly, a US pledge to extract its arms from Turkey.54 The unintended consequence of that official end to the Cuban missile crisis was a three-and-a-half-year bull market, and a renewed vigor of bankers to expand elsewhere into Latin America.
McCloy Returns to the Private Sector
On January 1, 1963, the White House received the official announcement that “John J. McCloy has again become a member of the firm.” “The firm” went from being named Milbank, Tweed, Hope, and Hadley to Milbank, Tweed, Hadley, and McCloy.
Though detangled from Washington officially, McCloy continued his disarmament efforts through the Council on Foreign Relations and Foreign Affairs. He also remained an adviser to the group he had created within the Kennedy administration. He had come to the realization that the Cold War served no obvious business purpose for him or for US bankers or businessmen. Financial and business growth required an open global market. Whereas at one point war had been good for finance, and postwar US government support for its allies had been as well, now its threat was detrimental, restrictive, and would scare international speculators from forging into new territories.
McCloy’s official time with Kennedy had proved personally profitable. The goodwill that Kennedy had for him enabled McCloy to retain a major piece of legal business: that of the “Seven Sisters,” the seven largest international oil companies, controlling 85 percent of global oil reserves.
McCloy persuaded Kennedy that US oil companies, particularly, had to unite against the Organization of the Petroleum Exporting Countries (OPEC) countries for the sake of price stability. His argument was positioned as a matter of national security.55 Kennedy responded by asking his brother Robert Kennedy, the attorney general, to provide McCloy whatever latitude he required. McCloy also benefited from one of RFK’s earlier promises to help him whenever he needed it.56 As a result, McCloy was allowed to represent all seven firms, despite the antitrust implications of doing so. The move would be extremely lucrative for his clients during the 1970s Middle East oil embargoes.
In early 1963, McCloy traveled to the Middle East as ambassador for his oil clients, not for Chase (though it amounted to the same thing). There, he struck up a relationship with Prince Abdullah bin Abdul-Rahman of Saudi Arabia, which would serve him, Rockefeller, and their respective companies (Milbank, Tweed was Chase’s law firm) well, especially during the price spikes of the 1970s.57
As always, McCloy deftly mixed his private business dealings with US foreign policy goals: while traveling he leveraged his post as chairman of the Council on Foreign Relations to ensure that the appropriate power players in Washington and the private sector were aligned. In Saudi Arabia, he discussed the effect of OPEC’s demands for increased oil revenues on his clients (years before what would be a full-blown oil crisis), and Chase’s desire to handle Saudi Arabian and Aramco pension funds. All this while he was making diplomacy suggestions on Kennedy’s behalf.58
Late Support and Criticism for Kennedy
On January 14, 1963, during what would be his final State of the Union address, Kennedy emphasized the need to keep the recovery going with high growth and full employment.59 Again, he pushed for a balanced budget and tax reductions for individuals—which he had championed during his inaugural address. Six weeks later, at an American Bankers Association symposium at Washington’s Mayflower Hotel cohosted by David Rockefeller, he attempted to rally business support for his proposals.
It was difficult. Neither the business community nor Congress wanted tax cuts without requisite spending cuts. In response to one loaded question, Kennedy said briskly, “The alternative today is between keeping this economy moving ahead and a recession, and in my judgment the best medicine for that recession is a tax reduction.”60
On April 23, in a speech at the Economic Club of Chicago, Rockefeller proposed creating a private business advisory committee to work with government organizations implementing the Alliance for Progress.61 He endorsed Kennedy’s support for broadening the government’s investment-guarantee program, which encouraged a greater flow of private investment. He also indirectly admonished Communist-leaning governments, stating, “Latin-American governments cannot lure foreign capital by harassing companies already there.” Three days later, Rockefeller had an off-the-record meeting alone with Kennedy to discuss these private business-government synergies.
On the one hand, Kennedy was learning their language. “I want to make it clear that, in solving its international payments problem, this nation will continue to adhere to its historic advocacy of freer trade and capital movements, and that it will continue to honor its obligation to carry a fair share of the defense and development of the free world,” he said. “At the same time, we shall continue policies designed to reduce unemployment and stimulate growth here at home—for the well-being of all free peoples is inextricably entwined with the progress achieved by our own people.” He also made it clear that he would maintain the dollar “as good as gold,” freely interchangeable with gold at $35 an ounce, “the foundation-stone of the free world’s trade and payments system.”
Yet Kennedy stubbornly targeted that balance of payments deficit, to the chagrin of bankers. It was largely because of their opportunistic expansion that the Eurodollar market had roughly tripled during the 1950s, and doubled again in the early 1960s amid the rapid expansion of American multinational corporations and the companion growth of US banking branches abroad.62
Kennedy feared that the outflow of funds into Eurodollar accounts was damaging the US balance of payments that tabulated the amount of physical and financial exports and imports. The declining balance meant that more money was flowing out, and that more American companies and individuals were investing their dollars outside the United States.
To combat this inequity, he announced a program on July 18 that included a temporary 15 percent tax on purchases by Americans of foreign securities and a tax on loans made by American banks to foreign borrowers, a quasi-regulation impinging on banks’ global expansion activities. His action infuriated the bankers, who had positioned themselves above US balance of payments problems by opening foreign branches that could cater to foreign investors and borrowers, or sell foreign securities to America. The government concerns over where money was spent was less important to US banks.
But privately, Kennedy was worried about the value of the dollar and of gold. Certain US aid to developing countries wasn’t pouring back into the US economy but going into gold purchases. During a July 31 phone conversation, Treasury Secretary C. Douglas Dillon told him Peru, for one, was “using our aid money to buy gold.”
Kennedy commented, “It’s an insane system to have all these dollars floating around [that] people can cash in for a very limited supply of gold.”
Dillon agreed, saying they should tell Congress “we have a policy: if countries have so strong a balance of payments, we can’t give these soft loans.”63
But in terms of the gold standard, the banking sector, as per Rockefeller’s Life article, considered it restrictive to their desired open policy of money and investment flow. To them, this transcended any national balance of payment issues. First National City Bank executive vice president Walter Wriston was especially livid. “Who is this upstart President interfering with the free flow of capital?” he demanded. “You can’t damn capital.”64
Born in Middletown, Connecticut, on August 3, 1919, Wriston was “an unbending proponent of laissez-faire capitalism,” much like his father, Henry, who considered FDR’s New Deal a folly and had served in various advisory capacities for the Eisenhower administration and as president of the Council on Foreign Relations from 1951 to 1964.
In 1942, with a master’s degree from Harvard, Walter Wriston began a three-year stint as a junior For
eign Service officer. He intended to remain at the State Department. But his father had a powerful friend at National City Bank, Vice Chairman W. Randolph Burgess, who found a spot for him in the bank’s credit department.65
By June 1960, at the age of forty, Wriston was running First National City Bank’s international division. Under his direction, the firm opened banks in Puerto Rico, Cuba, Brazil, and Argentina. The resource-rich Latin American region soon accounted for the bulk of its overseas bank deposits.66 There, its presence exceeded Chase’s, to Rockefeller’s chagrin.
Instead of fighting Wriston, on October 2, 1963, Kennedy appointed him to serve with other financiers on a task force to study ways to increase foreign investment in the securities of US private companies and survey the availability of foreign financing to US private companies operating abroad (the opposite of his proposals), as another possible way to balance payments.67
It was a clumsy, desperate notion on Kennedy’s part; to ask Wriston to find ways for foreign banks to fund US companies abroad would be to ask him to detract business away from his overseas branches. He had no incentive to put the country’s economic issues ahead of his own.68 Nor did he try to. There was too much money to be made.
The bankers did support Kennedy’s foreign aid budget—or at least the part that aligned with their goals. On October 11, Rockefeller and nine other prominent business leaders protested a cut in Latin aid from $600 million to $450 million that the House had just passed and urged the Senate Foreign Relations Committee to restore the $150 million to the Alliance for Progress. In a cover letter to Senator J. William Fulbright, Rockefeller wrote that the actions of the House were “deeply disturbing to many in the business community.”69
Rockefeller, First National City president George Moore, and Kennedy got their wish. The Senate restored the $600 million in their November 7 budget vote, even as it voted to reduce Kennedy’s foreign aid budget in general.
As one of his last personal requests to Kennedy, McCloy asked him to give a speech at his alma mater, Amherst College, for the groundbreaking of the Robert Frost Memorial Library. Kennedy flew to Massachusetts to address a crowd of ten thousand people and pay homage to the recently deceased poet. He also received an honorary law degree. At a time when 50 percent of the students at private universities came from the top 10 percent of the wealthiest Americans, Kennedy said, “Privilege is here, and with privilege goes responsibility.”70 He also said, “When power leads men towards arrogance, poetry reminds him of his limitations.” But rather than taking Kennedy’s words to heart, bankers were working hard to increase their power around the globe.
Bankers Forge Ahead
As the mid-1960s approached, private investments by Americans and companies abroad totaled $60 billion, exceeding foreign holdings in America by $25 billion.71 The US banks that operated through their British arms were free of the constraints of the Glass-Steagall Act. In London, they could underwrite securities and perform other related deposit and lending activities, a combination off-limits to them in the United States.
This international loophole stoked First National City Bank’s global profits. For instance, Shell Oil called First National City Bank requesting an immediate $100 million term loan to buy an international company. In a matter of days, Wriston put together the world’s first Eurodollar syndicated loan.72
From that point onward, the amount of syndicated Eurodollar loans escalated. With their rise, the days of true relationship banking and individual banker culpability became numbered. A new era of anonymous banking was being born. Rather than one bank being predominantly responsible for a major loan, a whole syndicate would share the risk, which meant they could afford to care less about the risk and the client. That spelled the end of the illusion of personalized service, even for major corporate clients.
The “syndicate” was evangelized by “tombstone” advertisements that listed the participating banks on the pages of glossy financial publications, in order of their importance in the deal. Banks jockeyed for the top spot to attain bragging and selling rights. First National City and Chase topped many tombstones. Flashy young salesmen with little knowledge of finance itself infiltrated the banking business, pitching loan deals at lavish dinners, exclusive sports events, and upscale stripper joints.
With more capital finding its way over national borders, cracks began showing in the Bretton Woods system of fixed exchange rates. Wriston (like Rockefeller) considered attempts to control monetary flows detrimental to the US role as a preeminent financial center, but more so to free-market banking philosophy generally. Kennedy, on the other hand, didn’t support that view. In October 1963, Congress considered doubling the price of gold, or freeing up $12 billion in gold, to counteract foreign governments and central banks that were calling in the gold that backed their US dollars.
Wriston later wrote, “In 1963, the United States began a futile bout with capital controls, triggering a further exodus of American capital. In this period, New York banks began to finance projects in America with dollars deposited in European banks.”73 This deregulatory argument would be used widely from that point onward.
First National City president George Moore also wanted the government to back off. He explained, “Any prolonged debate in Congress over the enactment of such legislation would further damage confidence in the dollar.”74
As it turned out, further decisions as to what would have happened to the dollar and to gold under a Kennedy administration were cut tragically short. Shortly after noon on November 22, 1963, Kennedy was assassinated.
Country in Mourning, Bankers in Flux
Treasury Secretary Dillon immediately telegrammed his condolences to Vice President Lyndon B. Johnson upon hearing the news.75 Similar wires, telegrams, and letters began streaming in from around the world. Every Wall Street titan quickly offered his sympathies to the Texan who would assume the Oval Office.76
Within an hour of the announcement, all major exchanges had ceased trading. The Federal Reserve moved to prevent a possible panic. Alfred Hayes, president of the New York Fed, signaled to investors that the Federal Reserve and European central banks would cooperate to thwart speculation against the dollar in the foreign exchange markets.77 Bankers were summoned to the New York Fed headquarters for a damage-control meeting, where they were asked to buy dollars around the world.
New York governor Nelson Rockefeller declared November 25, 1963, a state holiday. Banks, securities exchanges, and commodity markets would be closed to mourn Kennedy and avoid the possibility of related losses.78
Along with the rest of the nation, Joseph P. Kennedy watched his son’s funeral procession and his grandson’s salute to the motorcade carrying the flag-draped coffin on television. He sat virtually speechless and crippled from a stroke two years earlier.79 There had been much talk about frosty relations between father and president, not least because, as columnist Drew Pearson recalled, it was only once “Joe, Jr., was shot down by a Nazi pursuit plane off the coast of Portugal during the war” that “Joe, Sr., concentrated on his next son, Jack.”80 Joe had also lost his daughter Kathleen at the tender age of twenty-eight. Regardless of the status of their relationship at the time, in the days that followed the death of his son, Joe Sr. brimmed with personal, historical loss.
Young Bankers Rising
In the shadow of Kennedy’s murder, his young adversary stood poised to grab a larger role influencing international financial policy. Wriston’s international division opened its 100th and 101st foreign branches, in Durban, South Africa, and New Delhi, India, respectively.81 First National City Bank now had more overseas branches than any other American bank, spanning thirty-four countries on five continents.
In a piece it decided to run just two days after Kennedy’s death, the New York Times glowed, “Tall, lanky, youthful Walt Wriston looks, talks, and acts like anything but the ‘typical banker’ . . . whose fingers rest on the levers that make the big money flow.”
The paper was oblivious to
tension between Wriston and Kennedy before his death. According to the article, Wriston “knows the bankers who count from London to Tokyo, from Cape Town to Cairo,” yet he never “served a pitch on foreign soil.” Technological advances in banking and communications, the offering of more flight routes, and an eager set of bankers willing to jet anywhere to push a deal enabled Wriston to do much from his New York office.
Of the recent rush of American banks opening offices in Europe to take advantage of the Eurodollar market, Wriston quipped, “Europe is a pretty girl everyone has just discovered at the dance.”82 In truth, as Wriston knew well, the Eurodollar market was more than a fad. It was a means to circumvent US banking regulations and establish an international command station from which to dominate an increasingly globalized financial arena.
David Rockefeller’s Unfolding Agenda
Under Johnson, the globe remained David Rockefeller’s theater, and his connection to Washington would solidify. He became the banker with whom Johnson had the most frequent communication on policies. (Johnson had the closest personal contact with his banker friend Sidney Weinberg.)83 Rockefeller was also the first banker to follow his condolences to Johnson with his agenda.
He saw Kennedy’s Alliance for Progress program as a support mechanism for his expansionist economic policy, and he had no intention of letting Kennedy’s death change the momentum. Less than a week after Kennedy was laid to rest, Rockefeller informed Johnson that Kennedy had sent him a letter two days before his death in which he said he “would welcome having the appropriate agencies of government” meet with Rockefeller’s Business Group for Latin America.84
Rockefeller needed Johnson’s approval for the plan to come to fruition. Johnson responded with unequivocal support for the Alliance for Progress, particularly the private enterprise component that Rockefeller so earnestly advocated. The initiative served both men. For Rockefeller it provided broader entry into a region rich with financial promise, and for Johnson it meant business-sector support for an area rich with political promise. Backing non-Communist countries in Latin America with a combination of private and public capital would provide another signal of Johnson’s strength against the Soviets.
