by Prins, Nomi
John Snyder: Longtime friend to Truman. Treasury secretary, 1946–1953. First president of the National Advisory Council to International Monetary Fund (IMF) and World Bank, 1946–1953.
George Shultz: Treasury secretary, 1982–1989. Executive vice president, then president, at Bechtel, 1974–1982. Rejoined as adviser in 1989.
Larry Summers: Treasury secretary, 1999–2001. Present at signing of Gramm-Leach-Bliley Act, which killed Glass-Steagall.
Paul Volcker: Chairman of the Federal Reserve, 1979–1987. Vice president at Chase, 1957–1962, 1965–1969. Undersecretary of monetary affairs in Treasury Department, 1963–1965, 1969–1974.
PREFACE
THE IDEA FOR ALL THE PRESIDENTS’ BANKERS CAME TO ME WHILE I WAS WRITING A historical novel called Black Tuesday, which follows the events leading up to the Crash of 1929 through the eyes of an immigrant girl who crosses paths with the bankers of the House of Morgan.
The book contains a scene based on a real meeting of the period’s most powerful bankers that took place on Black Thursday. With the markets in chaos, Thomas Lamont, acting head of the Morgan Bank while Jack Morgan was in Britain, summoned the leaders of the five other major banks, most of which were intricately linked to Morgan through social and business connections. Collectively the “Big Six,” as they were dubbed, took less than half an hour to decide to pool their banks’ money to save the markets—and themselves—from their own recklessness and fraudulent behavior.
Fast-forward to the financial crisis of 2008. The prelude to the global debacle was similar, as the chapters on the 1920s and 1930s reveal. The men and their instruments of financial destruction were different only in certain specifics paralleling the complexity and technology of the times. More recently, though, it was the federal government and Federal Reserve that bailed out these top bankers in epic ways. Again, six main bankers steered the process. Most of them represented the corporate lineage of the bankers from that earlier meeting in October 1929. I became fascinated with their evolution.
But the impact of those Big Six on America stretched back even further.
These men also had ties to bankers from the late 1880s, especially J. P. Morgan, who expanded his fortune then. They participated in the Panic of 1907; they or their representatives met at Jekyll Island to create the Federal Reserve, which would back them in future panics; and they financed, and profited from, World War I.
Between the Crash of 1929 and 2008, these bankers reigned over America as monarchical rather than democratically elected leaders. Through the Great Depression, World War II, the establishment of the World Bank and IMF, the Cold War, and the financial and military expansion of the United States, Wall Street and the White House collaborated to shape national policy. To this day these elite bankers drive our financial systems, even if the men who rise to the top of their firms and dominate politics in any given period are largely interchangeable.
The political and financial alliances between bankers and presidents and their cabinets defined, and continue to define, the policies and laws that drive the economy. My research shows that the revolving doors between public and private service weren’t created in the 1980s, as many more recent works claim. They were always present.
I approached this project from two angles. For each president and Treasury secretary, I noted the six biggest bankers of the time (for the most part the number of significant political ties trailed off after that point) and cross-referenced them with the six banks whose legacies snaked through that Morgan Bank meeting in October 1929. In most cases, the top six bankers of the time were related to the men in that room and possessed broad alliances with the presidents and their teams. I examined archival connections and correspondence to determine the nature of their alliances. In some periods, only one or two bankers dominated the alliances and had the most influence, just as some firms seemed to corner the market at certain times.
All the Presidents’ Bankers is a story of relationships between powerful men; it is the financial political history of America, and it reveals not only how these alliances shaped America’s domestic and foreign policy but also, by extension, how America’s bankers shaped the world, and America’s position as a superpower.
Between the 1930s and 1960s, the bankers who most influenced presidents were on close personal terms with them. They influenced policy to suit themselves, to be sure; but in the postwar world, that worked well for the population.
In the 1970s, the nature of these alliances changed. Bankers now had a fresh source of power: the ability to “recycle” Middle East petrodollars and expand into Latin America. The memories of the war and the Depression, and the sense of public spirit, had receded. By the 1970s, bankers like David Rockefeller and Walter Wriston were pushing presidents Nixon and Carter to do their bidding absent the kind of authentic personal ties that bound former bankers to former presidents.
This more selfish stance solidified through the 1980s and 1990s, when the notion of US banks being “competitive” with strengthening European and Japanese banks paved the way for a spate of banking deregulation and enhanced banker power that extends through today. Personal connections became merely opportunistic ones. Democratic president Bill Clinton and Republican president George W. Bush selected Goldman CEOs (in the form of Robert Rubin and Hank Paulson, respectively) to run the Treasury Department and network with the private bankers. Lobbyists and lawyers interacted more frequently with administration staff. Campaign donations took the place of discourse about issues (though results of policy decisions might have been the same anyway).
As for the archival records, all of the National Archives and Records Administration libraries for FDR through Carter have exceedingly accessible and well-organized information with consistent classifications. They were a pleasure to peruse, and I lost myself for days in all of them. After Reagan took office, records became less available. At the Clinton library in Little Rock, Arkansas, I learned that some records may never be uncovered without the benefit of Freedom of Information Act (FOIA) requests, not merely for “national security reasons” (as years go on, the number of redactions in documents rise anyway) but because the commitment to organize such a vast amount of material is not what it was before the 1980s. As such, the bulk of information that might be revealed by the FOIA requests that I filed at the Reagan, George H. W. Bush, and Clinton libraries is not available yet.
What remains to be examined by some curious person years from now is the nature of George W. Bush’s and Barack Obama’s relationships with the leading bankers of their day. We may never know the specifics of the discussions that were conducted; bankers don’t put much in writing anymore, and there have been no tapes of White House conversations since Nixon. But we can be sure of one thing: those bankers and their firms are the financial descendants of the men at that Morgan meeting in 1929, and decades from now they still will be. On this, history is clear.
INTRODUCTION: WHEN THE PRESIDENT NEEDED THE BANKERS
“This country has nothing to fear from the crooked man who fails. We put him in jail.
It is the crooked man who succeeds who is a threat to this country.”
—President Theodore Roosevelt, 1905
BY THE END OF THE NINETEENTH CENTURY, THE TITANS OF BANKING WERE replacing the barons of industry as the beacons of economic supremacy in the United States. Some of the men who epitomized this transformation straddled both industry and banking. Others relied exclusively on their position within the financial arena. The shift would have a profound and irrevocable impact on America’s future. New lines of power would be drawn, both within the country and beyond its borders. The modern age of financial capitalism had begun.
In this new paradigm, the White House would find itself operating in a more integrated manner with the most powerful bankers. On the way to that eventuality, President Theodore Roosevelt and the nation’s top financier, John Pierpont (J. P.) Morgan, would engage in a battle of wills and egos to stake their respective claims.
Though the twentieth century would be dubbed “The American Century”—reflecting the nation’s political and economic dominance, marked by the two-decade-long Progressive Era of social reforms and constitutional amendments—its early years also unleashed an epoch of enhanced political-financial alliances between Washington and Wall Street. Codependencies and tensions between the two spheres of authority would define not only the nation’s domestic agenda but also its identity as an emerging financial and global superpower.
The domestic power game emanated from the railways, an industry cultivated by the country’s richest barons. Though railroad companies constituted the majority of issues on stock and bond markets, industrial companies like US Steel, International Harvester, and General Electric were gaining ground. Meanwhile, the banking sector was evolving from a business predicated on lending for production and expansion purposes to one predicated on the consolidation, distribution, and packaging of capital for its own sake. As making money became more important than making products, control of America’s direction shifted to a smaller group of elite financiers.
These early twentieth-century bankers were not simply focused on creating wealth, either; they were also interested in manufacturing “influence capital.” The manner in which they dictated the behavior of money rivaled the way the government directed the country. Late 1890s economic crises had revealed that the Morgan Bank (J. P. Morgan & Company) held more money and gold than the Treasury Department. As the need for money became more critical, the men who controlled that money became that much more powerful. (Today, the Morgan Bank is a component of JPMorgan Chase, the nation’s largest bank.)
Morgan controlled nearly 70 percent of the steel industry—following the creation of US Steel in 1901—and at least one-fifth of all corporations trading on the New York Stock Exchange.1 His power intensified when the railroad industry began to crumble under the weight of too much speculation at the turn of the twentieth century. Like a hawk to a kill, he swept in to break up and then reconstruct the industry. In the process, he extended loans to any participants left standing. Desperate businessmen eagerly accepted his harsh terms.
Another major financial player convert was billionaire John D. Rockefeller. From 1886 to 1899, annual profits in Rockefeller’s Standard Oil Company, one of the world’s preeminent industrial companies, tripled from $15 million to $45 million. Such a gush of cash now required a place from which to spawn greater wealth, and the very seeking of such capital catapulted its accumulators to greater levels of influence. As Matthew Josephson wrote in his classic book The Robber Barons, “It became inevitable that the Standard Oil men make reinvestments regularly and extensively in new enterprises, which were to be carried on under their absentee ownership . . . [as] John D. Rockefeller announced his ‘retirement’ from active business.”2
In conjunction with James Stillman, the formidable president of the National City Bank of New York (the largest US bank in terms of assets, which referred to itself as “The American Bank” and which has since morphed into Citigroup),3 Rockefeller began investing in banks, insurance companies, copper, steel, railroads, and public utilities.4 His brother, William, had met Stillman while William was a director of the Chicago, Milwaukee & St. Paul Rail Company, and the two had become close.5 The Rockefeller brothers saw the business of capital production as a means to enhance their status. Stillman’s bank proved a more natural fit for their aspirations than the rival Morgan bank, though the Rockefellers would also dominate the evolution of another major bank, the Chase National Bank (which, in turn, would also morph into JPMorgan Chase).
The Stillman-Rockefeller alliance ensured that “the City Bank” became known as the “Standard Oil bank.”6 Solidifying the business union, William’s son, William Goodsell Rockefeller, married Stillman’s daughter, Elsie Stillman, in 1902. The couple produced future National City Bank chair James Stillman Rockefeller.7 The social and matrimonial elements of family partnerships in the early part of the twentieth century thus served to fortify the industrial families’ evolution into the financial realm.
The Panic of 1893 had triggered the collapse of lesser railroads, enabling Stillman, William Rockefeller, Edward Henry (E. H.) Harriman, and financier Jacob Schiff to take control of one of the largest railroad companies, Union Pacific. Whereas the notion of a railroad trust, or combination of companies, had already emerged, these men constituted one of the two burgeoning Wall Street “money trusts.” Their elite group consisted of the Rockefeller family, Union Pacific, Standard Oil, and the Wall Street firm of Kuhn, Loeb & Company under Schiff.
The other group—or “inner group,” as it would be known—was the dominant Wall Street alliance. It pivoted around Morgan and included empire builders like Great Northern Railway CEO James Hill and George Baker Sr., a prominent society man who served as head of the First National Bank (which later became part of Citigroup). Stillman wisely chose to belong to both groups.
In his pathbreaking study of financial oligarchy in America, Other People’s Money, preeminent Boston lawyer and future Supreme Court Justice Louis Brandeis8 stated that “the power of the investment banker over other people’s money is often more direct and effective than that exerted through controlled banks and trust companies. . . . This is accomplished by the simple device of becoming the bank of deposits of the controlled corporations.”9 In other words, the more money a bank controls, the more power it can wield.
Within the financial sector, Morgan acted as a welder, craftily merging the greatest banks, trusts, and insurance companies into a single construct, “a solid pyramid at whose apex he sat.”10 Through stock ownership and interlocking directorates, Morgan spread his control across the First National Bank, National City Bank, the Hanover Bank, the Liberty Bank and Trust, Chase National Bank, and the nation’s major insurance companies.
The three main insurance companies in Morgan’s orbit were the New York Life, the Equitable, and the Mutual. Connections ran both ways. George Perkins, head of New York Life, was concurrently a vice president and partner at the Morgan Bank.11 Together, these firms owned approximately $1 billion of assets by 1900. Controlling the domains of investment banking and insurance, Morgan, Perkins, and Baker could easily increase their wealth. Their insurance companies bought the securities (such as stocks and bonds) that they created as investment bankers. This circle of fabricated demand enticed outside investors to purchase their securities at higher prices. The trio then reinvested the profits as deposits, providing their banks with additional capital for similar activity.12
To monopolize the capital markets, National City Bank, First National Bank, and the Morgan Bank had an agreement that “on any issue of securities originated by any one of the three, the originating house was to have 50 [percent] and each of the other two was to have 25 [percent].”13 In addition, these three major banks underwrote and accepted the deposits for many other nonfinancial businesses.
Another aspect of the cozy union among various titans of the financial sector was their propensity for meeting beyond the geographical confines of New York City. Equitable Life Assurance Society of the United States head Henry Hyde and Morgan shared an apartment complex on Jekyll Island, Georgia, the retreat of the nation’s ultra-elite, where the two men could carve up the financial world away from the fray, while basking in the luxury of ocean views.14
Additionally, in keeping with his distinction as the world’s main global banker, Morgan’s reputation in Europe helped elevate his position in America. (It would later help elevate America’s position over Europe after World War I.) European investors were major buyers of American stocks and bonds and coveted anything with Morgan’s name on it. That support dated back to 1890, when the venerable Barings banking house nearly folded after a disastrous gamble on Argentinian bonds. While most London firms ignored its calls of distress, the Bank of England turned to Morgan to rescue Barings.15 The bailout fostered a lasting international relationship.
Four years later, Morgan was called upon to
save the United States from bankruptcy. And in 1899, Treasury Secretary Lyman Gage was forced to borrow $50 million from Morgan Bank to purchase foreign gold to sustain the nation’s financial well-being. Congress later attacked Morgan’s egregious terms as being “extortionate and unpatriotic.”16 But at the time he was considered a hero for providing them. It was one of many examples of Morgan’s skills at soliciting other people’s money to bolster his stature. Even in that instance, according to James Stillman, Morgan had approached him for the money to loan, on the verge of tears, “greatly upset and over-charged.” Stillman cabled Europe for $10 million worth of Standard Oil gold and $10 million more from other sources, which he delivered to Morgan. It was Morgan who took all the credit, and in doing so he consolidated his position of influence.17
Trustbusting, White House Power–Defining Teddy Roosevelt
When Roosevelt made the unprecedented decision to use executive authority to “bust” the powerful trusts, he positioned the action as one that would help the country at large. He was not against big business per se, but he possessed a certain defiance on behalf of the underdog and sought to cultivate what he called a “square deal” for all Americans. He believed in the power of competition, but he believed the playing field had to be fair. He knew that as the trusts grew more powerful and consolidated, the relative power of the government would decline.
This awareness formed an integral part of Roosevelt’s legacy. His trustbusting initiative began in 1902, just months after he took office following the assassination of President William McKinley. Roosevelt proved himself to be a formidable politician, attracting support from the business and working classes by positioning himself as a fighter against the “tyranny of wealth” (and not wealth itself), as wielded by the grossly advantaged trust titans, many of whom were his former companions.