by John Brooks
Nothing of the kind had ever been asked of the Continent before, through the swap network or any other way. In September, 1964, the Continent had come through with its biggest collective emergency credit so far—half a billion dollars to the Bank of England for use in defending the pound, already embattled then. Now, with this half-billion loan still outstanding and the pound in far worse straits, the Continent was about to be called upon for more than twice that sum—perhaps five times that sum. Obviously, the spirit of coöperation, if not the quality of mercy, was about to be strained. So Hayes’ musings that evening may well have run.
With such portentous matters churning around in his head, Hayes found it hard to keep his mind on Corfu. Besides, the prospect of the bank car’s arrival at four o’clock made him feel that he should go to bed early. As he prepared to do so, Mrs. Hayes commented that since he would have to get up in the middle of the night, she supposed she ought to feel sorry for him but since he was obviously looking forward with keen anticipation to whatever it was that would get him up at that hour, she envied him instead.
DOWN on Liberty Street, Coombs slept fitfully until he was awakened by the clock radio in his room at about three-thirty New York time—that is to say, eight-thirty London time and nine-thirty farther east on the European Continent. A series of foreign-exchange crises involving Europe had so accustomed him to the time differential that he was inclined to think in terms of the European day, referring casually to 8 A.M. in New York as “lunchtime,” and 9 A.M. as “midafternoon.” So when he got up it was, in his terms, “morning,” despite the stars that were shining over Liberty Street. Coombs got dressed, went to his office, on the tenth floor, where he had some breakfast provided by the bank’s regular night kitchen staff, and began placing telephone calls to the various leading central banks of the non-Communist world. All the calls were put through by one telephone operator, who handles the Federal Reserve Bank’s switchboard during off hours, and all of them were eligible for a special government-emergency priority that the bank’s officers are entitled to claim, but on this occasion it did not have to be used, because at four-fifteen, when Coombs began his telephoning, the transatlantic circuits were almost entirely clear.
The calls were made essentially to lay the groundwork for what was to come. The morning news from the Bank of England, obtained in one of the first calls from Liberty Street, was that conditions were unchanged from the previous day: the speculative attack on the pound was continuing unabated, and the Bank of England was sustaining the pound’s price at $2.7860 by throwing still more of its reserves on the market. Coombs had reason to believe that when the New York foreign-exchange market opened, some five hours later, vast additional quantities of pounds would be thrown on the market on this side of the Atlantic, and more British dollars and gold would have to be spent. He conveyed this alarming intelligence to his counterparts at such institutions as the Deutsche Bundesbank, in Frankfurt; the Banque de France, in Paris; the Banca d’Italia, in Rome; and the Bank of Japan, in Tokyo. (In the last case, the officers had to be reached at their homes, for the fourteen-hour time difference made it already past 6 P.M. in the Orient.) Then, coming to the crux of the matter, Coombs informed the representatives of the various banks that they were soon to be asked, in behalf of the Bank of England, for a loan far bigger than any they had ever been asked for before. “Without going into specific figures, I tried to make the point that it was a crisis of the first magnitude, which many of them still didn’t realize,” Coombs has said. An officer of the Bundesbank, who knew as much about the extent of the crisis as anyone outside London, Washington, and New York, has said that in Frankfurt they were “mentally prepared”—or “braced” might be a better word—for the huge touch that was about to be put on them, but that right up to the time of Coombs’ call they had been hoping the speculative attack on the pound would subside of its own accord, and even after the call they had no idea how much they might be asked for. In any event, as soon as Coombs was off the wire the Bundesbank’s governor called a board of managers’ meeting, and, as things turned out, the meeting was to remain in session all day long.
Still, all this was preparatory. Actual requests, in specific amounts, had to be made by the head of one central bank of the head of another. At the time Coombs was making his softening-up calls, the head of the Federal Reserve Bank was in the bank’s limousine, somewhere between New Canaan and Liberty Street, and the bank’s limousine, in flagrant nonconformity with the James Bond style of high-level international dealings, was not equipped with a telephone.
HAYES, the man being awaited, had been president of the Federal Reserve Bank of New York for a little over eight years, having been chosen for the job, to his own and almost everyone else’s bewilderment, not from some position of comparable eminence or from the Federal Reserve’s own ranks but from among the swarming legions of New York commercial-bank vice-presidents. Unorthodox as the appointment seemed at the time, in retrospect it seems providential. A study of Hayes’ early life and youthful career gives the impression that everything was somehow intended to prepare him for dealing with this sort of international monetary crisis, just as the life of a writer or a painter sometimes seems to have consisted primarily of preparation for the execution of a single work of art. If Divine Providence, or perhaps its financial department, when the huge sterling crisis was imminent, had needed an assessment of Hayes’ qualifications for coping with this task and had hired the celestial equivalent of an executive recruiter to report on him, the dossier might have read something like this:
“Born in Ithaca, New York, on July 4, 1910; grew up mostly in New York City. Father a professor of Constitutional law at Cornell, later a Manhattan investment counsellor; mother a former schoolteacher, enthusiastic suffragette, settlement-house worker, and political liberal. Both parents birdwatchers. Family atmosphere intellectual, freethinking, and public-spirited. Attended private schools in New York City and Massachusetts and was usually his school’s top-ranking student. Then went to Harvard (freshman year only) and Yale (three years: mathematics major, Phi Beta Kappa in junior year, ineffectual oar on class crew, graduated 1930 as top B.A. of class). Studied at New College, Oxford, as Rhodes Scholar 1931–33; there became firm Anglophile, and wrote thesis on ‘Federal Reserve Policy and the Working of the Gold Standard in the Years 1923–30,’ although he had no thought of ever joining the Federal Reserve. Wishes now he had the thesis, in case it contains blinding youthful illuminations, but neither he nor New College can find it. Entered New York commercial banking in 1933, and rose slowly but steadily (1938 annual salary twenty-seven hundred dollars). Attained title (albeit feeble title) of assistant secretary at New York Trust Company in 1942; after a Navy stint, in 1947 became an assistant vice-president and two years later head of New York Trust’s foreign department despite total lack of previous experience in foreign banking. Apparently learned fast; astounded his colleagues and superiors, and gained reputation among them as foreign-exchange wizard by predicting precise amount of 1949 pound devaluation ($4.03 to $2.80) a few weeks before it occurred.
“Was appointed president of Federal Reserve Bank of New York in 1956, to his utter astonishment and that of New York banking community, most of which had never heard of this rather shy man. Reacted calmly by taking his family on a two-month vacation in Europe. The consensus now is that Federal Reserve Bank’s directors had almost implausible prescience, or luck, in picking a foreign-exchange expert just when the dollar was weakening and international monetary coöperation becoming crucially important. Is liked by European central bankers, who call him Al (which often comes out sounding more like All). Earns seventy-five thousand dollars a year, making him the second-highest-paid federal official after the President of the United States, Federal Reserve Bank salaries being intended to be more or less competitive in banking terms rather than in government-employee terms. Is very tall and very thin. Tries to observe regular commuting hours and keep his private life sacrosanct, as a matter
of principle; considers regular evening work at an office ‘outrageous.’ Complains that his son has a low opinion of business; attributes this to ‘reverse snobbery’—but even then remains calm.
“Conclusion: this is the very man for the job of representing the United States’ central bank in a sterling crisis.”
And, indeed, Hayes readily fits the picture of a perfectly planned and perfectly tooled piece of machinery to perform a certain complex task, but there are other sides to him, and his character contains as many paradoxes as the next man’s. Although hardly anyone in banking ever tries to describe Hayes without using the words “scholarly” and “intellectual,” Hayes tends to think of himself as an indifferent scholar and intellectual but an effective man of action, and on the latter score the events of November 25, 1964, seem to bear him out. Although in some ways he is the complete banker—in conformity with H. G. Wells’ notion of such a banker, he seems to “take money for granted as a terrier takes rats,” and to be devoid of philosophical curiosity about it—he has a distinctly unbankerlike philosophical curiosity about almost everything else. And although casual acquaintances sometimes pronounce him dull, his close friends speak of a rare capacity for enjoyment and an inner serenity that seem to make him immune to the tensions and distractions that fragment the lives of so many of his contemporaries. Doubtless the inner serenity was put to a severe test as Hayes rode in the bank car toward Liberty Street. When he arrived at his desk at about five-thirty, Hayes’ first act was to punch Coombs’ button on his interoffice phone and get the foreign-department chief’s latest appraisal of the situation. He learned that, as he had expected, the Bank of England’s sickening dollar drain was continuing unabated. Worse than that, though; Coombs said his contacts with local bankers who were also on emergency early-morning vigil (men in the foreign departments of the huge commercial banks like the Chase Manhattan and the First National City) indicated that overnight there had accumulated a fantastic pile of orders to unload pounds on the New York market as soon as it opened. The Bank of England, already almost inundated, could expect a new tidal wave from New York to hit in four hours. The need for haste thus became even more urgent. Hayes and Coombs agreed that the project of putting together an international package of credits to Britain should be announced as soon as possible after the New York opening—perhaps as early as ten o’clock. So that the bank would have a single center for all its foreign communications, Hayes decided to forsake his own office—a spacious one with panelled walls and comfortable chairs grouped around a fireplace—and let Coombs’ quarters, down the hall, which were much smaller and more austere but more efficiently arranged, serve as the command post. Once there, he picked up one of three telephones and asked the operator to get him Lord Cromer, at the Bank of England. When the connection was made, the two men—the key figures in the proposed rescue operation—reviewed their plans a final time, checking the sums they had tentatively decided to ask of each central bank and agreeing on who would call whom first.
In the eyes of some people, Hayes and Lord Cromer make an oddly assorted pair. Besides being a deep-dyed aristocrat, George Rowland Stanley Baring, third Earl of Cromer, is a deep-dyed banker. A scion of the famous London merchant bank of Baring Brothers, the third Earl and godson of a monarch went to Eton and Trinity College, Cambridge, and spent twelve years as a managing director of his family’s bank and then two years—from 1959 to 1961—as Britain’s economic minister and chief representative of his country’s Treasury in Washington. If Hayes had acquired his mastery of the arcana of international banking by patient study, Lord Cromer, who is no scholar, acquired his by heredity, instinct, or osmosis. If Hayes, despite his unusual physical stature, could easily be overlooked in a crowd, Lord Cromer, who is of average height but debonair and dashing, would cut a figure anywhere. If Hayes is inclined to be a bit hesitant about casual intimacies, Lord Cromer is known for his hearty manner, and has—doubtless unintentionally—both flattered and obscurely disappointed many American bankers who have been awed by his title by quickly encouraging them to call him Rowley. “Rowley is very self-confident and decisive,” an American banker has said. “He’s never afraid to barge in, because he’s convinced of the reasonableness of his own position. But then he’s a reasonable man. He’s the kind of man who in a crisis would be able to grab the telephone and do something about it.” This banker confesses that until November 25, 1964, he had not thought Hayes was that kind of man.
Beginning at about six o’clock that morning, Hayes did grab the phone, right along with Lord Cromer. One after another, the leading central bankers of the world—among them President Karl Blessing, of the Deutsche Bundesbank; Dr. Guido Carli, of the Bank of Italy; Governor Jacques Brunet, of the Bank of France; Dr. Walter Schwegler, of the Swiss National Bank; and Governor Per Åsbrink, of the Swedish Riksbank—picked up their phones and discovered, some of them with considerable surprise, the degree of gravity that the sterling crisis had reached in the past day, the fact that the United States had committed itself to a short-term loan of one billion dollars, and that they were being asked to dig deep into their own nations’ reserves to help tide sterling over. Some first heard all this from Hayes, some from Lord Cromer; in either case, they heard it not from a casual or official acquaintance but from a fellow-member of that esoteric fraternity the Basel club. Hayes, whose position as representative of the one country that had already pledged a huge sum cast him almost automatically as the leader of the operation, was careful to make it clear in each of his calls that his part in the proceedings was to put the weight of the Federal Reserve behind a request that formally came from the Bank of England. “The pound’s situation is critical, and I understand the Bank of England is requesting a credit line of two hundred and fifty million dollars from you,” he would say, in his calm way, to one Continental central-bank governor or another. “I’m sure you understand that this is a situation where we all have to stand together.” (He and Coombs always spoke English, of course. Despite the fact that he had recently been taking French refresher lessons, and that at Yale he made one of the most impressive academic records in memory, Hayes doggedly remained a dub at languages and still did not trust himself to carry on an important business conversation in anything but English.) In those cases in which he was on particularly close terms with his Continental counterpart, he spoke more informally, using a central-bankers’ jargon in which the conventional numerical unit is a million dollars. Hayes would say smoothly in such cases, “Do you think you can come in for, say, a hundred and fifty?” Regardless of the degree of formality of the approach Hayes made, the first response, he says, was generally cageyness, not unmixed with shock. “Is it really as bad as all that, Al? We were still hoping that the pound would recover on its own” is the kind of thing he recalls having heard several times. When Hayes assured them that it was indeed as bad as all that, and that the pound would certainly not recover on its own, the usual response was something like “We’ll have to see what we can do and then call you back.” Some of the Continental central bankers have said that what impressed them most about Hayes’ first call was not so much what he said as when he said it. Realizing that it was still well before dawn in New York, and knowing Hayes’ addiction to what are commonly thought of as bankers’ hours, these Europeans perceived that things must be grave the moment they heard his voice. As soon as Hayes had broken the ice at each Continental bank, Coombs would take over and get down to details with his counterparts.
The first round of calls left Hayes, Lord Cromer, and their associates on Liberty and Threadneedle Streets relatively hopeful. Not one bank had given them a flat no—not even, to their delight, the Bank of France, although French policy had already begun moving sharply away from coöperation with Britain and the United States in monetary matters, among others. Furthermore, several governors had surprised them by suggesting that their countries’ subscriptions to the loan might actually be bigger than those suggested. With this encouragement, Hayes and Lord C
romer decided to raise their sights. They had originally been aiming for credits of two and a half billion dollars; now, on reconsideration, they saw that there was a chance for three billion. “We decided to up the ante a little here and there,” Hayes says. “There was no way of knowing precisely what sum would be the least that would do the job of turning the tide. We knew we would be relying to a large extent on the psychological effect of our announcement—assuming we would be able to make the announcement. Three seemed to us a good, round figure.”
But difficulties lay ahead, and the biggest difficulty, it became clear as the return calls from the various banks began to come in, was to get the thing done quickly. The hardest point to convey, Hayes and Coombs found, was that each passing minute meant a further loss of a million dollars or more to the British reserves, and that if normal channels were followed the loans would unquestionably come too late to avert devaluation of the pound. Some of the central banks were required by law to consult their governments before making a commitment and some were not, but even those that were not insisted on doing so, as a courtesy; this took time, especially since more than one Finance Minister, unaware that he was being sought to approve an enormous loan on an instant’s notice, with little evidence of the necessity for it beyond the assurance of Lord Cromer and Hayes, was temporarily unavailable. (One happened to be engaged in debate in his country’s parliament.) And even in cases where the Finance Minister was at hand, he was sometimes reluctant to act in such a shotgun way. Governments move more deliberately in money matters than central bankers do. Some of the Finance Ministers said, in effect, that upon proper submission of a balance sheet of the Bank of England, along with a formal written application for the emergency credit, they would gladly consider the matter. Furthermore, some of the central banks themselves showed a maddening inclination to stand on ceremony. The foreign-exchange chief of one bank is said to have replied to the request by saying, “Well, isn’t this convenient! We happen to have a board meeting scheduled for tomorrow. We’ll take the matter up then, and afterward we’ll get in touch with you.” The reply of Coombs, who happened to be the man on the wire in New York, is not recorded in substance, but its manner is reported to have been uncharacteristically vehement. Even Hayes’ celebrated imperturbability was shaken a time or two, or so those who were present have said; his tone remained as calm and even as ever, but its volume rose far above the usual level.
