by Prins, Nomi
In addition to playing headhunter for the administration, Weinberg was friendly with the staff. Eisenhower’s personal secretary, Ann Whitman, sent Weinberg a rare personal note saying she was sorry his appointment with the president had to be canceled, “and I was cheated out of seeing you, in addition to all my troubles!”59
When he could not be present for any of the various “honoring Weinberg” dinners, Ike sent along remarks. For a November 13, 1957, dinner honoring Weinberg after fifty years at Goldman Sachs, he wrote, “The story of your life is not only the exciting fulfillment of the dreams of many a small boy; it represents the very essence of America. . . . I salute you as one of the great leaders of our business community and I count myself most fortunate that I can call you my friend.”60
The 1957 Economy and Treasury Department Shift
From 1939 to 1953, the dollar lost nearly half of its purchasing power, even as it moved into global dominance as a currency in conjunction with greater US political power.61 The fear among Eisenhower’s advisers was that this situation couldn’t go on indefinitely; the dollar had to be strengthened to support a strong nation.
To remedy the problem, Gabriel Hauge pressed the importance of tight policy in increasingly public settings. In a 1957 speech before the Economic Club of Detroit, he proclaimed, “If history tells us anything—and history has been said to have more imagination than men—it is that a sound economy, a sound nation, a sound people travel the same road as a sound money.”62
Without a strong currency, Hauge and other bankers thought, it would be more difficult to retain a controlling position over world affairs from a political or financial perspective—something that both the president and the bankers wanted.
Two months later, it appeared that Eisenhower acknowledged the need for a strong currency to prop up his foreign political-financial policy. The New York Herald Tribune reported that the “President Upholds Tight Monetary Policy.”63
The Eisenhower Doctrine and the Middle East
When Nasser nationalized the Suez Canal on July 26, 1956, Syria destroyed its oil pipeline running from Iraq to the Mediterranean Sea, causing vast oil shortages that provoked a recession in Europe and, by extension, its trading partner, the United States.
On January 5, 1957, amid growing pan-Arab anti-American sentiment and still wary of containment issues in the Middle East, the president announced the Eisenhower Doctrine. Congress approved it two months later. It was really just another version of the Truman Doctrine and the US sliver of NATO, offering US military and economic support for countries under Communist attack.
In response, Egypt nationalized its banking system and required all foreign banks operating in the country to become Egyptian companies. As a first step, foreign banks were sold to private Egyptian banks; those banks became nationalized in 1961. It wasn’t until 1974, under President Anwar el-Sadat, that Egypt liberalized its banking system and allowed American banks and then other foreign ones back in.
Latin America and the Fight for Regional Power
Thus Latin America became the capstone of the bankers’ expansion efforts. Making the region more attractive was the fact that the accounting systems of US banks weren’t too careful about where profits were made, especially if they were booked overseas; the more countries in which to exhibit profits, the more they could be embellished if necessary.
Though Europe was still a future focus, it wasn’t as profitable yet. During World War II, National City Bank had closed all its European branches except the one in London. All of them remained closed in the mid-1950s except the ones in London and Paris.
On the other hand, in Latin America—a region relatively untouched by World War II—the bank had at least one branch in nearly every country. The bank was well positioned to handle the growing financial and trade demands of Latin American businessmen and American companies operating in the region. Puerto Rico, Cuba, Brazil, and Argentina accounted for the majority of National City Bank’s overseas deposits.
In the 1920s former chairman Charles Mitchell had first claimed a position in Cuba issuing bonds for sugar companies and others that defaulted and fell subject to the Pecora investigations. Despite that debacle, eleven National City branches were blossoming under Fulgencio Batista’s regime (until he was overthrown during the Cuban Revolution in 1959, which brought Fidel Castro to power). The bank had successfully resurrected its 1920s role in financing sugar interests and was the “principal US depository for American companies operating in Cuba during the heyday of the 50s.”64
As for Argentina, National City had been there financing meatpacking customers since the 1900s. But when Juan Perón rose to power in 1946, he nationalized its deposits. After his overthrow in 1955, deposits were restored. By early 1956, First National and Chase had lent Argentina $15 million to finance imports, with more to come.
The nationalization of the Suez Canal in 1956 and Syria’s destruction of the oil pipeline had triggered an oil boom in Venezuela. Chase had a trick up its sleeve to capture the financial attention of that nation and trump National City Bank in the race for regional supremacy. On April 17, 1957, Chase appointed the son of the president of Peru, Manuel Prado—a Harvard graduate, former Chase trainee, and Banco Popular banker—to run its operations in Venezuela.
Not wishing to be outdone by his rival on international expansion, First National City Bank chairman Howard Sheperd countered with some serious personnel shifts. Leo Shaw, the senior vice president who had run the bank’s overseas division since 1946, had launched its Middle East presence after a visit there in the mid-1950s. The firm’s branch in Jedda, Saudi Arabia, would be a source of vast oil-related profits. But given the instability in the region, Shaw’s moves were not enough. In the drive to compete with Chase for financial global power, Sheperd called his domestic division chief, Missouri-born George Moore, to his office in late 1956. There, he and National City president James Stillman Rockefeller offered Moore Shaw’s position, which Moore officially assumed in March 1957.65 Working with his number-two man, Walter Wriston (who had been promoted to vice president), Moore launched an aggressive overseas expansion.
On June 16, 1957, First National City Bank announced it would open its seventy-first overseas branch in Havana, Cuba, by the José Martí International Airport. This was the bank’s sixth branch in Havana and its eleventh in Cuba. First National City Bank was on a Cuban roll. On August 23, 1957, the Freeport Sulphur Company announced that its wholly owned subsidiary, the Cuban American Nickel Company, had arranged to borrow just over $100 million from banks and large nickel firms. The funds would be invested in a nickel and cobalt mine at Moa Bay, Cuba, to build a nickel refinery near New Orleans and a special ship for transporting the nickel and cobalt ore concentrates.
The Moa project was scheduled to begin production in mid-1959. It was financed by a six-company banking group led by the First National City Bank and included four other New York banks and four New Orleans banks.66 (Following the Cuban revolution, Fidel Castro’s 1960 nationalization of foreign businesses would throw a wrench into those works.) The deal capped off a mid-1950s rush of speculative investing that followed US bankers into the region. The resultant bubble popped first in Brazil in 1958. The threat of an American recession caused bankers and investors to protect their money by quickly extracting it from Brazil, which was forced to devalue its currency as a result. The “contagion” spread to Argentina, Chile, and Paraguay. It was not the first instance of US bankers piling into the region, opening outposts, doing deals, enticing foreign capital, and then fleeing at the first sign of instability, leaving bond defaults and depression in their wake. Nor would it be the last.
The 1958 Recession
Toward the end of 1957, after thirteen years of relatively unfettered growth, the United States experienced its first major recession, partially because of its efforts to uphold the strength of the dollar for foreign policy purposes. From August 1957 to February 1958, more than five million people lost their jobs as d
omestic demand for extraneous goods and unnecessary appliances and gadgets shriveled. The banks that had just aggressively poured capital into developing regions slowed their lending due to the budding economic crises in Latin America, rather than reduce the rates of their prior loans. The economic pain spread east and north, to Europe and Canada, hitting the mining, agriculture, and oil sectors particularly hard. Car sales dropped 30 percent for the whole of 1957 versus the previous year, and car dealers took to having all-night sell-a-thons to spur waning consumer demand.67
Eisenhower’s visions of permanent prosperity and the bankers’ belief in unlimited deposit growth were hit hard, too. Debate in Washington centered on whether or not a tax cut proposal should be sent to Congress. But Gabriel Hauge joined Treasury Secretary Robert Anderson in opposing tax cuts. In the end, Eisenhower agreed with them. The thinking at the time was that tax cuts would increase the nation’s debt burden (a notion lost on Republicans in the wake of the 2008 crisis) and thus were not a good remedy. As it turned out, the recession began dissipating by late spring.
In June 1958, as the markets were springing back to life, H. C. Flanagan, chairman of the Manufacturers Trust Company, asked Gabriel Hauge to become the firm’s finance committee chairman and a board director. Hauge’s resignation was as much a professional as a personal blow to Eisenhower, who had grown fond of Hauge over his six years in Washington.
The large New York City banks fared better than the rest of the population during the recession. National City Bank, J. P. Morgan, and Morgan Guaranty even posted increased annual profits in October 1958 compared to the year before. Wall Street was a perfect place for Hauge to go.
Banking in Beirut
Meanwhile, in July 1958, Lebanon’s president, Camille Chamoun, had requested US assistance to help prevent attacks from his political rivals, some of whom leaned Communist and had ties with Syria and Egypt. In response, without directly invoking the Eisenhower Doctrine, Eisenhower sent thirty thousand US marines and soldiers into Lebanon. Some media commentators thought this was a response to a bloody revolution in Iraq that overthrew the pro-Western government in favor of the socialist Baath Party. But beyond the colder relations with Syria and Egypt and the threat of socialism in Iraq, there was another, more banking-related reason Eisenhower interpreted his own doctrine so loosely. Beirut had become the most active city in the Middle East from a financial services perspective, home to numerous branches of US banks that were using the city as a key outpost from which to do financing and trade business throughout the Middle East. Beirut was the region’s major financial services center, offering foreign firms and investors a plethora of benefits such as unnumbered bank accounts and loose tax laws.
Chase, National City Bank, and Bank of America had opened branches in Beirut in 1955. Around the same time, American news outfits like Newsweek, Time, and the New York Times (which stated that Nasser’s nationalism “has set his country back years economically”) had relocated from Cairo to Beirut, as Beirut transformed itself into the western outpost in the area. Though without oil resources, Lebanon had the benefit of being a politically stable, western-oriented country that was attractive to foreign capital.
When Syria cut its pipelines during the Suez crisis, American banks saw their chances for profitability in the region diminished by the sheer possibility of such volatile actions. If the United States was going to maintain access to Middle East oil, not only its political and military but also its banking strategies needed a home base. That home base was Beirut. Those were powerful reasons for Eisenhower to send troops to preserve that status.
Henry Alexander and the Morgan Merger
Henry Alexander succeeded George Whitney as chairman of J. P. Morgan in 1959. Like Whitney, Alexander was a longtime “Morganer.”
On Christmas Eve 1938, Jack Morgan, who had been impressed by Alexander’s legal mind, personally invited him into the Morgan partnership. The son of a Tennessee grain merchant, Alexander worked his way up to Yale Law School and into the Eastern Establishment banker sect. Born to a Democratic family, Alexander registered himself as a Republican. At Eisenhower’s request in 1952, he headed a $10 million drive for the Korean War relief effort. Six years later, Eisenhower appointed him to a committee to examine US foreign economic policy.68 On November 1, 1955, Alexander received the Republic of Korea medal for his work in the American-Korean Foundation in 1953 and 1954.
By the late 1950s, his banking work was heralded by the press. In 1959, Time called Alexander “the nation’s most prestigious banker.” Eisenhower’s archives didn’t substantiate the pervasive press view that he was also Ike’s most important banker, but Alexander certainly courted the press successfully.69
More important to the overall banking landscape, Alexander deployed McCloy’s “Jonah swallowing a whale” strategy with his own mega-merger. Under Alexander, J. P. Morgan & Company, which had fallen to tenth place among New York commercial banks and twenty-eighth in the United States, merged with the much bigger Guaranty Trust Company to become the fifth largest bank in the country.
With his Tennessee drawl, outdoorsy demeanor, salt-and-pepper hair, and bushy dark eyebrows, Alexander ushered in a breed of salesmanship banking, reminiscent of the Mitchellian 1920s but with a wider scope. As would be more indicative of 1960s banker style, Alexander hired seventy young men, dubbed his “bird dogs,” to hustle and spoil customers. As “chief bird dog,” Alexander focused on the same groups that J. P. Morgan focused on at the turn of the century: the business, finance, and government elite.
At a time when middle-class wealth was growing and companies were decentralizing—more suburban relocations were spawning as cars and highways made them more accessible—many old-school New York banks began offering more retail services to their customers to keep hold of them and their deposits. But under Alexander, Morgan didn’t follow suit, preferring to merge with the Guaranty Trust Company to get a larger capital base. That strategic difference allowed the firm to retain its elitist stature while other banks mucked about with the broader population.
For his part, Eisenhower, contrary to any concerns about antitrust violations, expressed a keen interest in the Morgan merger. On January 23, 1959, he complimented Alexander on the report that he and his associates on the Committee on World Economic Practices had put together on the mounting Sino-Soviet bloc economic offensive. Ike then added, “May I further add a personal note? I was much interested in the recently announced proposal to merge J. P. Morgan and Company with the Guaranty Trust Company; I trust that it will work out well for all of you.”70 The two banks merged on April 24, 1959. Alexander reigned as chairman of the Morgan Guaranty Trust from 1959 to 1966.
London Rising
Under the Marshall Plan, the US government had posted $13 billion to facilitate Europe’s recovery. Given that extra backing for their client countries, American bankers were assured that this time, unlike after World War I, their loans would be repaid. That was one of the main reasons they were so keen on the Marshall Plan. Additionally, the Truman and Eisenhower Doctrines extended US economic support to nations that adopted US ideology and were military allies. This meant more potential customers who would require private bank loans in their own drives to grow.
By the late 1950s, the inevitable clash between rich and poor nations was intensifying, and international inequality was growing. Developing nations didn’t want their prosperity dependent on western aid but on fair trade and prices and open markets for their raw materials (the pure definition of a “free market”). That was not what the Marshall Plan, the IMF, or the World Bank had accomplished for them. So many of these nations made the grave decision to secure private loans from the international banking community, from which they believed less policy strings would be attached. This action would generate its own problems—uncontrollable lending terms—that would prove devastating in other ways. Meanwhile, the number of National City Bank offices overseas tripled to 208, as the bank expanded from twenty-seven to sixty-one c
ountries to accommodate the private loan demand. Other major banks followed suit.
Burgess had left his post in the Treasury Department when he was appointed US ambassador to NATO in 1956; he served in that role until 1963, noting that “the shine of postwar NATO was getting a little dull.”71 By the turn of the decade, the stronger European countries felt less threatened by Soviet aggression. This made them less pliable to US policies. As a result, their banks began spreading their wings globally again.
Burgess moved to take a position at the Organization for European Economic Cooperation (which he later renamed the Organization for Economic Cooperation and Development), with the aim of “maximizing its service to the Atlantic community.”72 From that vantage point, he was instrumental in developing the “common market” to bring in the British, under a common financial umbrella to augment NATO. This focus on a new world order common market platform was a boon to US banks and helped bring British and other European banks back into the global financial fold.
London hadn’t yet become a major international financial center again, but Eurodollars (dollars outside America) were on their way to becoming a dominant global trading and lending currency. As a result, London was resuming its position as the epicenter of global finance, the trading hub of Eurodollar-backed loans.
In the late 1950s, the entrenchment of NATO and beginnings of the European Community encouraged Burgess’s alma mater, National City Bank, to lead the big banks back to Europe alongside a host of enthusiastic American multinationals.
In 1958, most western countries (except Britain) had agreed to allow their currencies to be convertible into dollars for the first time since the war, which provided freer flow across borders. But because dollars were converted into gold at the fixed rate of $35 an ounce, foreigners began dumping dollars and extracting gold, causing a massive outflow of US gold reserves and raising US interest rates.73
As interest rates rose, they exceeded the rates banks could pay on demand deposits. Under the Depression-era Federal Reserve Regulation Q, interest rates on those savings accounts were capped. As a result New York banks lost more than $1 billion in deposits as depositors rushed to the Eurodollar market, where rates could be as high as the market dictated. The United States lurched into a deficit. Dollars flowed quickly into Europe, as Eurodollars could earn higher interest. That’s what brought London back as a financial banking center.