All the Presidents' Bankers

by Prins, Nomi

  Economic Entanglements of War

  In the wake of the Austro-Hungarian and German attack in Northern Italy on October 24, 1917, President Wilson sent Colonel House for another round of negotiations with the British and French allies.42 There, he would discuss matters of critical economic and financial importance. Wilson also sent Morgan partner Thomas Lamont, who was intimately involved in organizing Liberty and foreign loans, to serve unofficially as a private adviser. Lamont had been working closely with McAdoo and Leffingwell, and he would broker meetings between US Lieutenant Colonel William Boyce-Thomson, stationed in Petrograd, and British officials on the situation in Russia.43 The war would continue for more than a year, and a treaty would take nearly two years to gain acceptance by most of the countries involved, but Wilson’s negotiating team already had a key representative from America’s most powerful bank on it.

  Serving in a dual capacity (helping the president while protecting the Morgan Bank’s postwar position), Lamont spent the next ten days working with his colleagues at Morgan, Grenfell & Company in London and meeting with members of the House mission. Not to leave money on the table, he also negotiated Morgan’s 0.125 percent compensation from the British treasury for acting as its paying agent for all the British government’s US purchases now being handled by the US government. The sum offset all the expenses Morgan had agreed to forgo as the British government’s purchasing agent.44

  By December 7, 1917, the United States was also at war with Austria-Hungary. A week later, just as Morgan had predicted, the financial markets quickly sank into disarray. The upheaval and the anxiety surrounding the drop threatened the very survival of the war effort, and thus America’s ability to navigate the war from a solid economic stance. But the main problem the markets had wasn’t a military one; it was a regulatory concern.

  Responding to the bankers’ pressure to do something about railroad industry regulation, a nervous McAdoo informed Wilson that New York security markets were “demoralized.” He said there were rumors swirling around Wall Street that “if the Government took over the railroads, the rights of bondholders and stockholders would not be protected.” The exaggeration linked the government’s domestic policy to its foreign war policy. Fears that undue regulations would strain credit and subdue the markets, which Morgan had warned about since the war’s start, were being realized at the worst time for the nation.

  At the bankers’ insistence, McAdoo warned Wilson that declines “might reach a point where a panic would set in, grave injury would result and the financial operations of the Government would be seriously imperiled.”45 He encouraged Wilson to issue a soothing statement to the public. Instead, Wilson exercised his presidential authority to effectively nationalize the railroads for war purposes. Rather than dampen the markets, this news sent them rallying into the year’s end. Investors saw the government’s financial support as a positive, even if bankers considered it overly intrusive.

  Wilson was more concerned about solidifying public support for the war and congressional support for his strategy to end it. The peace he sought would increase US power in a world in which European power was diminishing, a strategy the bankers were happy to support. On January 8, 1918, Wilson delivered his “Fourteen Points” address to Congress. Among other things, he proposed freedom of the seas, a reduction of armaments to establish a route to a more equitable peace, and an end to secret diplomacy and economic trade barriers among nations. The latter comforted Germany, which feared financial repercussions, and delighted international bankers.

  The final point paved the way for the League of Nations, a world parliament containing members from all nations, with a central council controlled by the greater powers, including the United States. From a diplomatic perspective, the idea seemed to have everything one could want. From a banker’s standpoint, a united set of trading partners, with a central US influence, was full of opportunity.

  National City Bank Transitions

  By early spring 1918, a prominent change occurred at the nation’s largest commercial bank that would have important ramifications for its postwar position as an international superbank. On March 15, after battling illness for a month, National City Bank chairman James Stillman died in his home. Stillman had handled all the bank’s business ever since president Frank Vanderlip took a leave of absence in September 1917 to chair the national War Savings Committee. A few weeks before he died, Stillman called Vanderlip back to New York because the bank’s Russian positions, engineered by Vanderlip, were a disaster. They had already cost $10 million, but the losses stood poised to rise to $33 million, or 40 percent of the bank’s capital. The meeting never came to pass because of Stillman’s death, but internal rumors had Vanderlip on his way out the door.

  While the Morgan Bank focused on war efforts mostly on behalf of Allied European countries, Stillman (following an agreement with Vanderlip) had concentrated on extending National City Bank’s international influence—particularly in South America, where it was challenging British banks for market share. Shortly after the war began, Stillman established branches in Buenos Aires and Rio de Janeiro, and later expanded to all the major cities in South America and Cuba, as well as in Europe.

  Following Stillman’s death, Vanderlip met with National City’s attorney John Sterling before returning to Washington.46 Vanderlip had become obsessed with a grand plan to expand National City’s international presence by infusing the European recovery (not just that of the Allies) with US capital. This tested the patience of the Morgan Bank, which was supporting only the Allies. Stillman had been caught between Vanderlip’s urging and the alliances he had forged at the turn of the century with the Morgan Bank and J. P. Morgan.

  National City directors appointed Stillman’s son, James A. Stillman, as chairman. The younger Stillman was at odds with Vanderlip personally and regarding the Allies.47 That slight propelled Vanderlip, still eager to make his mark on the bank, to undertake a three-month, seven-country tour of Europe while his banker rival Tom Lamont and former friend President Wilson were there involved in treaty negotiations. Perhaps eager to retain his corner of influence after being passed over for the chairman position, Vanderlip made a speech following his trip that fueled the fire regarding a congressional rejection of Wilson’s treaty and League of Nations proposal. This was his last major move before he faded into obscurity.

  By June 1919, Vanderlip had been kicked out of National City.48 Charles Mitchell, the brash outsider, rose within the bank embracing the notion of short-term profit ahead of long-term relationships or strategies. His doctrine would drive the bank to attain the broadest international presence of any US bank at the time. Mitchell cared less about the moral implications of which country he sided with after the war and more about the opportunities to make money. In that opinion, he concurred with Vanderlip, but his style was far more aggressive.

  Approaching Armistice

  By the time the Allied armies pushed their formidable counteroffensive on the Western front in the summer of 1918, Wilson had amassed much world support as a voice of morality.49 He wanted to use his global popularity as a backdrop upon which to deliver his party the majority in Congress in the fall elections. He also knew that the more support he could garner in Washington, the stronger his position would be in postwar negotiations with other superpowers.

  Aligned with Wilson’s global intentions and methods, Lamont offered the services of his recently acquired newspaper, the Evening Post, to help the president clarify his position on postwar peace. Late in the afternoon on October 4, 1918, Lamont stopped by the White House to discuss how the two men could help each other.50

  The Evening Post was a personal venture for Lamont, a former reporter. Morgan had consented to the purchase as long as Lamont agreed to keep its editorial stance separate from the private affairs of the Morgan Bank. In order to maintain the paper’s independence, Lamont selected Atlantic Monthly editor Ellery Sedgwick as trustee.51 Lamont had no daily managerial responsibilities. Still
, he wanted to eliminate a “certain fault-finding, or carping, attitude” that had led the paper, as he told Wilson, “at times to make criticisms without due consideration or compel study of the fact.” Wilson agreed: “I always used to call the Evening Post the ‘whipping post.’”

  Lamont believed his paper could show the American people the war from Wilson’s perspective. He too believed that a “fair” peace would hold great promise for the country and its financiers. But first he had to discuss his reservations with some of Wilson’s globalist views, as he sensed they were not in sync with the nation’s predisposition. He played devil’s advocate. “The country is in a mood just now for war,” he told Wilson, “and that mood is what is making the work of our soldiers in France so effective. We are necessarily intolerant and not ready as a whole to listen to such sentiments as you express.”

  “Yes, not only intolerant,” said Wilson, “but we are growing revengeful . . . a very dangerous attitude and not one calculated to have us conclude the wisest sort of a peace.”

  “Exactly!” said Lamont. “Now, the Evening Post has considerable influence throughout the country. . . . I want to know how the Post can help you in educating the country properly.”

  Wilson astutely replied that the Evening Post should point out that “if we conclude a peace that is not wholly just to every one of the large nations, then each one of those powerful nations will not rest contented until it has righted what it deems to be its wrongs. That of course means more wars.”

  Lamont asked, “About your League of Nations, just how is it to be made effective? I am one of those who believe that economic force is about the only instrument which can serve to make a League of Nations effective.”

  “You mean,” said Wilson, “to use economic force in the way of penalties?”

  Lamont replied, “Not only that [but] it seems to me that the League of Nations will not work if it is to be made dependent purely upon written rules.”

  At the time, Wilson wasn’t considering a rigid written constitution; he envisioned producing a written plan at peacetime that could evolve naturally. To some extent, Lamont’s prodding made him begin to think about formalizing such a plan even sooner—not to appease Lamont, or necessarily the public, but to take control of the process.

  Near the end of their conversation, Lamont offered his endorsement and that of his newspaper. This was no small matter, as he was spurring his political party affiliations to side with Wilson. He said, “I am a Republican . . . and I do not wish to give you the impression that my support will be given to you thick and thin, for all time to come, but I want to have you know that you have that support to the very limit throughout the war.”52

  Thus the two began a transformative relationship that would solidify through postwar collaboration. Lamont, a Republican Morgan banker who personified all the attributes Wilson denigrated in his political speeches, threw his support behind Wilson. He would become the president’s most loyal banker supporter.

  On November 2, 1918, US food administrator Herbert Hoover reported dire circumstances in Belgium, which portended an epic European economic crisis. Domestic economic conditions across the continent were deteriorating rapidly, a factor contributing more than combat developments to the war’s end. The Germans in Belgium had given notice to the coal mines that all workers would have to be furloughed for lack of funds, which meant a lack of fuel through the winter. As Hoover wrote, “It will result in enormous loss of human life” and impose “a greater burden upon the German people at the hands of the allies.”53 It was one of many desperate actions that would complicate future reparations negotiations.

  Against that horrific backdrop, on the eve of November 11, 1918, a few hours before the armistice agreement was signed at Compiègne, Wilson read the military and naval terms to Congress and announced, “The war thus comes to an end.”54

  CHAPTER 3

  THE LATE 1910S: PEACE TREATIES AND DOMESTIC POLITICS

  “The masters of the government of the United States are the combined capitalists and manufacturers of the United States.”

  —Woodrow Wilson, 19131

  THE 1918 MIDTERM ELECTIONS TRANSFERRED CONTROL OF THE SENATE FROM THE Democrats to the Republicans. In the process, Henry Cabot Lodge, a twenty-five-year veteran power politician, became the Senate majority leader and chair of the Foreign Relations Committee. In both roles, Wilson would need the support of this longtime nemesis but was unable to garner it. Following his party’s defeat, a disgruntled Wilson thought he could do more outside the confines of Washington to establish a new world paradigm than by dealing with party maneuvering at home.

  A week after the elections, contrary to the advice of his inner circle to remain in Washington, Wilson declared he would head the American peace delegation in Paris. He was the first sitting American president to travel to Europe. His other chief peace commissioners were Secretary of State Robert Lansing; Republican diplomat Henry White, one of the few Republicans who supported Wilson’s goals; Colonel House; and General Tasker H. Bliss. Wilson did not take Lodge, but he drafted Thomas Lamont, with whom he had discussed his ambitions for the League of Nations so candidly, as a representative of the Treasury Department, now headed by Carter Glass, alongside the other Treasury Department representative, Albert Strauss. As American delegation chair, Wilson appointed Vance Criswell McCormick.

  Wilson and his group set sail for Europe aboard the George Washington on December 4. He returned to the United States on February 24, 1919, but traveled back to Europe on March 5, where he remained until July 8.2 It was and would remain the longest period of time a sitting president was off American soil.

  In all, thirty-two nations were involved in the Paris Peace Conference, which began in January 1919 (Germany was not included). But the Big Four—President Wilson, British prime minister David Lloyd George, French prime minister Georges Clemenceau, and Italian prime minister Vittorio Orlando—began meeting privately to negotiate the treaty. The European leaders were concerned about geographical victories and, more critically, the amount of war reparations they would receive from Germany.

  The Big Four were reluctant supporters of Wilson’s League covenant, and they weren’t particularly interested in Wilson’s “just peace.” They wanted optimal financial retribution. That meant gutting Wilson’s Fourteen Points as much as possible. In the end, the treaty contained no provisions to end secret diplomacy or preserve freedom of the seas. Still, after many concessions, Wilson gained approval for the League of Nations and sailed to the United States to present the Treaty of Versailles to the Senate.

  While Wilson returned to the United States to address the Senate Foreign Relations Committee about the importance of a League of Nations in conjunction with a peace treaty, Lamont remained in Paris to address reparations matters. The desires of Wilson and Lamont were aligned, for both believed the League would give the United States greater power in the new international order politically and from a financial standpoint. The Anglo-French obsession with German reparations was a thorn in their side. The other thorn came from an increasingly isolationist Republican Senate.

  Thus Wilson returned to Paris on March 14 without the support he sought from Congress. Republican reticence weakened his negotiating position in Europe, ultimately by forcing him to request changes to the peace covenant that would appease his congressional opponents and to succumb to more of the Allies’ demands in return. At the heart of the covenant was Article X, by which each member guaranteed the “territorial integrity” and political independence of the other members “against external aggression.”3

  Leading the mostly Republican opposition to that was a confirmed isolationist, Senator William Borah, who didn’t believe that the path to America’s strength lay in working with other countries. While Wilson was in Paris, Borah embarked on a nationwide tour, drumming up opposition to the League in speeches before packed audiences. (On November 19, 1919, Borah delivered an epic two-hour speech against the Treaty of Versailles and t
he League of Nations on the floor of the Senate, which helped secure its defeat.)

  Most bankers, however, preferred to do business with European countries that were confident in their own futures—ones that could seek and repay loans during the reconstruction period and beyond. American banks’ opportunity to grow globally relied on a field of counterparts that was as open and healthy as possible. Isolationism would thwart their opportunities. In that regard, most bankers were, and would always be, more internationalist than many factions of the government.

  Lamont had asked his partners Jack Morgan and Dwight Morrow to solicit the views of Senator Elihu Root, a former secretary of state under Teddy Roosevelt who had won the Nobel Peace Prize in 1912. If anyone could see the logic of international peace, it would be him. But Root’s response was disappointing. He told the men that he felt it was proper for the United States to have an interest in world affairs, but that American force should enter European disputes “only when required to protect world order.”4 The sticking point of obligating the military to protect friendly nations in the League was beginning to look like an insurmountable problem. But Wilson remained optimistic. He believed that with some clarification and amendment, Congress would come around. This would turn out to be a major, and eventually tragic, political mistake.

  The British and French, noting the tension in the United States, were cooling on the notion of a League of Nations—or at least they believed they could squeeze Wilson for more demands. Reparations were more important to them than the League covenant. In meetings Lloyd George was throwing up numbers with wide and illogical variations. He thought that the most Germany could pay was $25 billion, but his financial advisers wanted to request $55 billion. House advised Davis, Lamont, and Strauss not to go above $35 billion unless the amount could be reduced easily if necessary.5