by Prins, Nomi
But two months later, Moore saw causes for financial concern. He warned that the balance of payments increase might be short-lived, and predicted another $100 billion of gold would be pulled out of the United States that year. He was aware that “certain people overseas” were growing nervous. “Banks in Asia and Europe and individuals are doing the buying.”
As quickly as it had boosted the balance of payment a few months earlier, the war began to take a toll on foreign investment in the United States. On August 25, 1965, following a dinner at the White House, Moore gave Johnson suggestions on how to reverse the process. “For example,” he said, “it is important to promptly enact H.R. 5916 [for] the removal of tax barriers which have served to discourage foreigners from making investments in the United States.” He stressed, “This would also help to restrain inflation influences which may be heightened by the Vietnam War.”63
War had other economic costs too. On January 14, 1966, Treasury Secretary Fowler transmitted to Congress details of the tax program that Johnson announced in his State of the Union address, intended to raise billions of dollars to help pay for the war. The program was signed into law in mid-March 1966.64 By then, half a million troops were fighting in Vietnam and the population was openly protesting it.
The Dow, however, was inspired by war. It hit a record 1,000 on February 6, 1966, and it kept rising through April 1968. Additionally, the US housing market was booming. In five years, George Champion quintupled the size of Chase’s real estate credit portfolio; it reached $1 billion in 1966, outpacing the growth of all other Wall Street commercial banks. First National City ratcheted up its personal credit and auto loans. The Vietnam War was proving great for banks.
Rockefeller used the war to expand into Asia. In 1966, he raised the ire of peace protesters by opening a Chase branch in Saigon. He also engaged two former Chase men, John McCloy and Eugene Black, to drum up financial support from the banking community for the war.
But Rockefeller rarely operated without a quid pro quo, and the war boom was now revealing a troubling side for him. On January 25, 1966, he sent his concerns to Johnson that Vietnam was draining focus from Latin America. “Latin Americans are concerned that the harsh exigencies of the war in Vietnam may again make Latin America a low-priority area in U.S. policy,” he wrote. “We ourselves are well aware that your Administration gives Latin America a high priority indeed, but we are equally well aware that Latin Americans need constantly to be reassured of that fact.”65
Support Wavers
Rockefeller’s worries were soon shared by many bankers who had originally supported Johnson. Though they saw the war’s early benefits, they now feared it could be detrimental to their global expansion goals, particularly if it escalated into full-scale multiregional battles. From a domestic standpoint, Vietnam wasn’t going to be a war of national unity that would open channels for them; it was becoming a nuisance.
Construction companies that were engaged in war material production were fine with US intervention and military escalation into Southeast Asia because it brought them more contracts and profits.66 But in general, elite support was fading. As University of Houston professor Robert Buzzanco put it,
The bankers and other corporate elite who had global visions for American investment and commerce came to believe that the war in Vietnam was damaging their interest because it focused resources on Indochina and undermined their larger goals by running up huge deficits and providing resistance from traditional European allies. And so, significant elements in the ruling class opposed the war in Vietnam . . . not because they believed the war was wrong, but because it was, in their estimation, breaking doctrinal ligature that defined foreign relations since Wilson: free-trade imperialism and non-intervention.67
Regarding the Great Society, bankers were also becoming lukewarm. In truth, the success of those policies mattered less to bankers than overseas growth did. As long as bankers were making money and increasing their global influence, what happened domestically was of secondary importance; providing support to Johnson was no hardship. But now they were growing wary of backing Johnson’s efforts.
In 1966 Johnson signed the Participation Sales Act, which encouraged substitution of public credit with private credit. The initiative, started by Eisenhower and extended by President Kennedy’s 1962 Committee on Federal Credit programs, was meant to be a favor to the bankers.68 By replacing $3.3 billion in outstanding public debt (through government-issued bonds) with private debt (or bank-issued bonds), the government effectively converted public loans into private loans for the banks, giving them $3.3 billion of business guaranteed by the US government.
Soon after the bill was signed, Johnson’s aide Robert Kintner suggested that Johnson form a confidential program to determine how “important business, financial, and industrial leaders feel toward the job being done by the President and particularly how they feel in relation to the Vietnam operation, the President’s European and Latin American policies, the character and duration of prosperity, and the President’s economic, financial and social policies.”
The survey would be based on off-the-record interviews with prominent figures including David Rockefeller, Sidney Weinberg, Roger Blough, and Bobby Lehman.69 But Johnson preferred the route of his private soirées at the White House, which increased in frequency as public opinion turned against the war. As long as the finance and business community could be swayed to support the war, he figured, funding would continue unabated.
War and Taxes
By mid-1967, war and inflation and antiwar demonstrations were escalating, and Johnson was getting increasingly nervous. In August, he held one of his regular off-the-record, no publicity luncheons with the usual crew to gain validation for his domestic and war-related strategies. The “old warrior” Sidney Weinberg came through. He submitted a statement to the House Ways and Means Committee on September 13 in which he urged Congress to give “prompt and favorable consideration” to Johnson’s request for the 10 percent surtax to protect the credit and capital market and “to help finance the war in Vietnam and to prevent an inflationary boom.” Weinberg closed his statement by stressing the importance to the health of the economy that “nothing be done in this legislation to impair the incentives offered to business in the foreign tax credit and the investment tax credit.”70
New First National City Bank president Walter Wriston also supported the war surtax bill, not because of any opinions about the war but primarily because he wanted lower rates to fund expansion. He said that the rising interest rates caused by the union of greater private and government borrowing would worsen in the absence of the surtax.
Wall Street had just undergone an inevitable power shift that placed Wriston in a more influential position in such political-financial matters. In June 1967, Time ran a story titled “Banking: The Plum at First National City,” in which it observed, “Command changes at major banks are usually about as suspenseful as tomorrow’s office hours. But not at Manhattan’s aggressive First National City Bank,” where “President George S. Moore, 62, was a cinch to succeed Chairman James Stillman Rockefeller” (David Rockefeller’s second cousin), who would be retiring in July. But the “plum” president’s slot went to Wriston, the forty-seven-year-old executive vice president for overseas operations. With Moore three years from retirement, Wriston “would lose no time getting into ‘the maximum possible responsibilities.’”
Surging Borrowing and War Expenditures
By the late 1960s, the US balance of payments was falling again as expenditures for Vietnam abroad grew. Johnson reluctantly asked banks to reduce foreign credits once more to compensate for the imbalance. This time, they were less supportive.
In London, borrowings by the overseas branches of US banks were surging in the Eurodollar market. First National City Bank had developed the first multicurrency loan agreement, which gave corporate treasurers flexibility to borrow in different currencies (and introduced a greater element of currency risk into th
e global financial system).
By the time Wriston was appointed president and CEO of First National City Bank, his name had already been circulating in the Washington influence sphere for two years. He was nominated to the Business Council on July 5, 1967, and was seen as a possibility for assistant secretary of the Treasury for international affairs and various other foreign affairs positions.71
When Johnson announced he would escalate his war against the mounting balance of payments deficit by attempting to control international capital flows (as Kennedy had attempted), the increasingly confident Wriston now publicly attacked the policy. “Foreign-exchange controls in peacetime never have operated effectively, and man being what he is, they never will,” he said.72
His words did the trick. Johnson eventually capitulated to the bankers, announcing that dollar loans in US overseas branches would be excluded from the interest equalization tax. Wriston had won. As a result, even more Eurodollar transactions occurred abroad, away from US regulators.
Domestically, consumer demand for credit cards escalated. To feed the demand and build up fee income from credit card operations, Wriston created First National City Bank’s own credit card, the Everything Card, in August 1967.73 To promote it, he initiated mass credit card mailings, sending more than twenty million cards across America.
But First National City Bank realized $1 billion in losses before turning a profit in its credit card division.74 Between 1967 and 1970, twenty-six million people held the bank’s credit cards. An astounding five million of them defaulted. The Everything Card eventually became too costly to maintain as an independent brand, and Wriston subsequently partnered with MasterCard. Under Wriston’s successor, John Reed, Citibank (as the bank would later be called) became the largest issuer of credit cards in the world. In 1968, though, Bank of America led the credit card industry, with eight million cardholders across thirty-three states.
Vietnam Escalates, Johnson Exits
On January 30, 1968, the Tet offensive began. Vietnamese Revolutionary Forces attacked South Vietnamese cities and towns. Suicide squads from the National Liberation Front (Vietcong) hit the US embassy on January 31, while the former capital of Hue was captured by Communist forces and retaken by US forces. As Johnson increased the war effort, protests in the United States grew.
Later, Fowler recalled the economic fallout of that decision. “We all had to exercise constraint in our normal activities in order to carry the additional burdens of the war without unduly damaging or wrecking the economy.”75
Now the economy and dollar were increasingly at risk, as vast amounts of gold were flowing from the United States. America’s share of world trade, which had approached 50 percent after World War II, dropped to 25 percent in 1964 and hit 10 percent in 1968.76
In tandem, bankers became more vocal with their concerns about the war as the economic crisis grew. Wriston told a group of European financial leaders in January that it would be possible to overcome the monetary crisis without changing the gold standard. But “the chances would be greater if the Vietnamese war ended.”77
Public opinion soured rapidly on Johnson, while Robert Kennedy’s standing in the Democratic Party rose. In the maelstrom of a pending economic crisis and a highly unpopular war, Johnson announced his withdrawal from the presidential race on March 31, 1968, leaving a wide-open space for Kennedy to fill. Aside from the war, the tax cut, and the civil rights acts he had pushed through after JFK’s death, not to mention the sixty or so acts that defined the Great Society and his reduction of poverty, Johnson left a legacy of political acumen that incorporated a strong alliance of bankers and businessmen with the needs of the public good. By choosing not to focus on regulating industry and finance, he was able to push through progressive programs and keep the capitalists happy at the same time. His approach was sometimes brutish but often congenial. No other president since Johnson has been able to harness bipartisanship as effectively from a political power perspective.
Meanwhile, the bankers turned their attention to Congress to push domestic policy to their liking. On May 2, 1968, leading bankers from the United States and Europe gathered at the fifteenth annual monetary conference of the American Bankers Association in Dorado Beach, Puerto Rico. At the conference Wriston said that “now is the time for action”: if serious problems were to be avoided, the tax package pending in Congress must become law within thirty days.
Alfred Schaefer, chairman of the Union Bank of Switzerland, echoed this sentiment. “Time is running out,” he said. “Worried people” were looking to the United States to impose adequate restraint on its economy. Imports into the United States had risen 20 percent, a major factor, Wriston concluded, in undermining the nation’s payments position.78 Now bankers feared a new international finance crisis unless Congress increased taxes and cut government spending.
But it was a political and emotional crisis that shattered the nation, not a financial one. Two months after the assassination of Martin Luther King Jr. and four and a half years after the assassination of his brother, RFK was assassinated. He was shot shortly after midnight on June 5, 1968, in Los Angeles, after winning the California and South Dakota Democratic nomination primaries. Richard Nixon would benefit the most this time as he went on to finally capture the presidency he had sought against JFK.
Nixon’s War
As soon as Nixon entered the White House, Vietnam became his war. He also assumed power at a moment when the market and broader economy were degrading quickly. From January to July 1969, the Dow dropped nearly 25 percent, from 985 to 800. This was only the beginning. Debt was transforming from a national crutch to a huge problem. Household credit—in the form of mortgages and consumer loans—had increased 78 percent during the 1960s, from $17.6 billion at the start of the decade to $31.4 billion by its close. Total household credit card debt had risen from $216 billion to $458.4 billion, a 112 percent rise.79 Americans were suddenly worried about how they would pay their debt.
By the end of the 1960s, new home construction was sputtering, as were industrial expansion and jobs creation. The dollar was being crushed by international investors who held many more dollars than could be redeemed in available gold and wanted to dump them as fast as they could.80
There was a silver lining—for the big commercial bankers. On March 24, 1969, the New York Times reported that 1968 had been a “good year for banking,” as profits “soared to record levels.” The top execs did well, too. The fact that this was so prominently pointed out revealed a newfound media interest in showcasing the wealth of the powerful financiers, and ignoring the trials of the broader population.
Walter Wriston received what was dubbed a “whopping $53,000 increase” in 1968. When he was promoted to president, his salary was $128,139. David Rockefeller received $540,000 annually from Chase as its largest individual shareholder, plus a $23,000 raise to a salary of $253,000 when he became chairman—an increase equal to that given to George Champion, his predecessor as Chase chairman. Bank of America’s Rudolph Peterson received the lowest salary among the major bankers: a base of $137,500 plus $37,500 in deferred compensation and some more from profit sharing, bringing him to $178,384. The Morgan Guaranty Trust Company paid the most: chairman Thomas Gates got $276,250 base and other “additional compensation” in 1968. Champion, who retired as Chase chairman on February 28, 1969, was due to get $119,000 in annual pension payments.81 The Depression and postwar decades of humble behavior and pay were over, even as the economy was careening downward.
Rockefeller and the Middle East
As stakes in the world marketplace rose, competition between First National City Bank and Chase intensified. Newly elected Chase chairman Rockefeller was more interested in high-level diplomacy than in the details of CDs or bank capital controls that concerned his rival, Wriston (who cared equally about spreading his global power).
To enhance Chase’s “global visibility worldwide,” Rockefeller decided to create the International Advisory Committee, a gro
up of prominent businessmen and politicians, many of whom were personal friends. Over the years, the IAC recruited C. Douglas Dillon, Henry Ford III, Cyrus Vance, and Henry Kissinger. And whether it helped business or merely the political openings for business, by 1969, deposits in Chase’s overseas branches comprised nearly one-third of the firm’s total deposits, and overseas foreign loans, one-fourth of its total loan portfolio. As Rockefeller wrote, “Earnings from the international side were expanding and would soon surpass domestic income.”
Some banks chose to open new branches internationally for local access, while others chose to buy interest in local banks for similar expansion purposes. First National City and British banks tended to favor opening branches. Chase continued to prefer acquiring shares of banks in developing countries. But there were some hiccups on that accord.
But in 1969, bankers were nervous that the new Andean Pact, which sought to protect trade relationships in Latin America and limited the percentage acquisition by foreign banks of local banks to 20 percent, would curtail their expansion in that area. As a result, during the first few years that followed, US bankers refocused on building their presence in Europe.
Rockefeller increased his focus on the Middle East. In the fall of 1969, Egypt’s UN ambassador visited Rockefeller at Chase’s offices on President Nasser’s request. It was a pivotal visit for Chase’s Middle East relations, which would prove far more beneficial to Chase than to the American population.
Nasser told Rockefeller that US policy was “hostile to Arabs” and that the United States should modify support for Israel. A month later, Rockefeller was invited to discuss Middle East issues at the White House. There in the Oval Office sat his former boss, John McCloy, and the chairmen of Standard Oil, Mobil, and Amoco. They had not gathered to discuss diplomacy but a more critical matter—oil.
