The Chairman

by Kai Bird

  His position, therefore, was a complicated one, a blend of realism and idealism. He did not envision war with the Russians. But he believed that, by forcefully exercising American power, by imposing a “Pax Americana,” Washington would help the postwar world become more receptive to American values of democracy and free-market economic principles.123 At the same time, he was willing to accept the geomilitary consequences of the war and of Yalta. The Soviets had, after all, sustained the major burdens of winning the war against German fascism, and were entitled to the fruits of victory. This specifically included the right to secure borders and the influence of a major power over its immediate neighbors. Unlike Harriman or others who approached the Soviet problem as a matter of ideology or grand strategy, McCloy thought of it as a legal task, a matter of negotiating concrete arrangements with the Soviets.

  His legalistic approach to these matters was illustrated at the end of his journey, when he flew into Tokyo with instructions from Truman and Marshall to confront General Douglas MacArthur on occupation policy. The Japanese capital, he wrote in his diary, was a “fantastic place. . . . The town is burnt out—miles and miles of it with nothing but rusty and burnt tin carpeting the area.. . . You have to convince yourself that there was recently a city here.” But even Tokyo’s devastation was thrown in the background by the “spectacle of MacArthur.”

  MacArthur was not used to hearing himself disputed, and was astonished that McCloy was talking back to him. The assistant secretary, in fact, had been sent to Tokyo with instructions to force MacArthur to comply with Washington’s policies. Specifically, McCloy told MacArthur that at the very least he must make a show of consulting with the Soviets over occupation policy, as specified at Yalta. Accordingly, Washington wanted MacArthur’s consent to the establishment of an Allied Advisory Council—with token Russian membership—which would advise him on occupation policy. Washington was at that very moment trying to win Soviet acceptance of a similar Allied Council to supervise the occupation in Eastern Europe. Obviously, if MacArthur refused to accept such a Council in Allied-occupied Japan, the Soviets would have an excuse to refuse to admit a Council in Eastern Europe.

  McCloy and the strong-willed MacArthur spent hours over the next few days arguing over whether American interests lay predominantly in Europe or, as MacArthur insisted, in the Pacific. The argument, according to McCloy, turned to a shouting match. “I fought to get my words in,” he wrote in his diary, “and by sheer might and main succeeded.”

  Angrily pacing the floor, MacArthur protested that he wanted nothing to do with the Russian “Bear” and would not sit with any occupation council. He talked of the “God-given authority we now had here,” and accused McCloy of “sacrificing our tremendous interests in the Pacific” in order to obtain “inconsequential advantage” in Eastern Europe.

  McCloy disagreed, saying that the “Atlantic was not to be written off just yet,” that America had “great interests in middle Europe,” where two world wars had begun. He pointed out that we were now “face to face with the Russians right in Germany,” and it would be a mistake “if we did not solve all our problems on a world wide basis from here on, rather than on a 19th century localized approach.” Echoing what he had told Stimson the previous spring at the founding of the United Nations, he explained that the United States could not “take a unilateral position in the Pacific,” ignoring the doctrine of Allied consultation on all occupation questions, without allowing the Russians to do the same in Eastern Europe.

  MacArthur was threatening to resign until McCloy calmly reminded him that he was a soldier who had been given high responsibilities and could not “indulge” himself in the luxury of quitting. “He quickly sobered up,” McCloy wrote in his diary, “and said no more along that line.” The two men then got down to the business of working out a practical arrangement that would allow MacArthur to exercise supreme power while satisfying Washington’s diplomatic needs with the Soviets. As McCloy put it, “We harangued and argued, finally getting the real points of issue determined, and I finally got him to state what he would do and what he did not want to do.”124 McCloy quickly “yellow-padded” out language establishing an Allied Council, but one that had only “advisory” powers. All in all, it was a most remarkable performance, one that MacArthur would never forget. No one else throughout the long war had stood up to MacArthur and walked out of the confrontation with the general’s good will in hand. In good Cravath tradition, McCloy had broken the problem down into all its pieces and put it back together in a fashion that satisfied everyone.

  Just before leaving Tokyo, he cabled Washington his overview of the situation in occupied Japan. Basically, he had no disagreement with MacArthur’s intentions, which were to use his absolute powers to remake Japanese society. “We have now in our hands an extraordinary opportunity to make steady progress in the Far East. . . . From my observation of other theatres of occupation throughout the world, our objectives are hampered in some cases by quadripartite rule and the sharp conflict of ideologies. . . . Here, by reason of the almost exclusively American character of the victory in the Pacific, we have been able to achieve the supreme command.”125

  MacArthur continued to rule Japan and the Philippines with absolute powers. An Allied Council was formed with Soviet representation, but, true to McCloy’s assurances, it exercised virtually no power over the American shogun, who proceeded to impose democratic institutions on the Japanese from the top down. The experiment in tyranny succeeded in producing a functioning democracy. Not only had McCloy helped MacArthur preserve his supreme authority, but in a few years he would attempt to do in Germany what the general was doing in Japan.

  McCloy recognized that America had emerged from the war with global economic and military powers unmatched by any ancient or modern empire, and where those powers were “supreme,” McCloy was unwilling to bargain them away. Upon his return to Washington, after flying twenty-seven thousand miles in thirty-six days, he stayed up late one night collecting his thoughts for the last speech of his term in the War Department. NBC Radio broadcast it nationwide. He pounded away on two themes. First, only strong American leadership could “bring this world into some semblance of balance again,” and therefore U.S. troops had to remain abroad in order to convince the rest of the world that “we have what it takes to carry through in peace.” Second, finding a way to deal with the Soviet Union was “the A-1 priority job. . . .”126

  Afterward, on November 24, 1945, he spent his last day in office as assistant secretary of war. “What a tangle of emotions and thoughts it all produces,” he wrote in his diary. “I go at the close of a great adventure, but there is so much work ahead that you cannot fail to have misgivings at leaving.”

  * * *

  I. The Interim Committee consisted of Henry Stimson, George L. Harrison, James F. Byrnes, Undersecretary of the Navy Ralph A. Bard, Assistant Secretary of State William L. Clayton, Dr. Vannevar Bush (director of the Office of Scientific Research and Development), Dr. Karl T. Compton (president of M.I.T.), and Dr. James B. Conant (chairman of the National Defense Research Committee and president of Harvard University). Also attending the May 31, 1945, meeting were Generals Leslie R. Groves and George C. Marshall, Harvey Bundy, Arthur W. Page (an assistant to Stimson), and the four members of the Scientific Advisory Panel: Ernest O. Lawrence, Enrico Fermi, Arthur Compton, and Robert Oppenheimer.

  II. By the end of 1945, the death toll in Hiroshima from injuries and lethal radiation would run to more than 140,000.

  III. In just a few weeks, McCloy would have the opportunity to see from an airplane the devastation wrought by the Hiroshima bomb. One of his colleagues traveling with him described the scene: “We looked out and then gasped. . . . [Hiroshima was] so flattened that nothing was left except red dust which lay feet deep. The color recalled Pompeii; the completeness of the ruin brought to mind the ancient prophecy that not one stone should be left standing on another. We were appalled and physically were sickened. . . .” A few
days later, McCloy declined an invitation for an on-the-ground inspection of the city, saying, “We have seen enough bombed cities”

  BOOK III

  Wall Street, the World Bank, and Germany

  CHAPTER 13

  A Brief Return to Wall Street

  “. . . it can readily be demonstrated that Mr. McCloy and his partners have been, to say the least, unusually friendly to the Soviet Union and sympathetic to the Communist cause.”

  ANTHONY PANUCH DEPUTY ASSISTANT SECRETARY OF STATE

  Five years had passed since McCloy had left Wall Street, and though he had always assumed that when the war was over he would return to Cravath, now that it was about to happen he felt a little bit ambivalent. He feared having to “get back to humdrum things,” and was still tempted by government service. “We are at a windy corner of history,” he wrote in his diary. But, “As interesting as it is, I must make my living again.”1 He still considered himself a lawyer, and Cravath was his home. His friends at Cravath, men like Don Swatland and “Tex” Moore, naturally assumed he would be returning to the firm. A partner might leave temporarily for government service, but once he returned to the law, it was unheard of for a senior partner to join any but his original law firm. So, one morning in November 1945, McCloy walked into the Cravath offices at 15 Broad Street and greeted his old friends. Always a popular presence in the firm, McCloy was expected to bring back a wealth of expertise and contacts after five years at an elevated level in Washington. And he certainly expected to be given all the prerogatives and financial rewards of a senior partner.

  One man did not see it that way. As the negotiations commenced on the partnership share he would receive, McCloy could see that Robert Swaine was less than enthusiastic. “They were telling me,” he recalled, “not that I shouldn’t come back, but that I shouldn’t have any grand ideas.” Swaine had never gotten along with McCloy, but he also sincerely believed that those who had left the firm in World War I had never amounted to much when they returned. To Swaine’s mind, leaving the firm, even for a temporary stint of public service, was a sacrilege, an abandonment of the cloth.2

  Swatland and Moore tried to intervene and persuade Swaine that McCloy’s wartime experience would be an enormous asset to the firm. “We couldn’t budge Swaine,” recalled Moore. Nor would McCloy accept less. It was partly a matter of money: tens of thousands of dollars separated the partnership cut of a name member of the firm like Swaine from McCloy’s partnership ranking when he had left the firm in 1940. But to McCloy, it was also a matter of prestige and power. He wanted to have a hand in directing the firm. Ellen was telling him that, after all that he had done in running the War Department for five years, he deserved a lot more than Swaine was offering.

  By the time negotiations came to a head, Swaine was not even talking to McCloy. When he decided to reject McCloy’s final offer, he told Swatland to convey the news. But Swatland went to Moore and said, “Oh God, he’s a great friend of mine; it’s really not for me to do.” So Moore made a date to meet McCloy at the Racquet Club: “I told him,” he recalled, “that I was terribly, terribly sorry, that I was grieved, that Swaine was adamant on this particular thing, and he was managing partner.”3

  By then, McCloy had several other offers. Despite their disagreement over atomic policy, Secretary of State Jimmy Byrnes offered him the ambassadorship to Moscow. “It was most flattering and disturbing,” McCloy confided in his journal, “for no one can deny the challenge that lies ahead.” He was also approached about taking on the presidency of his alma mater, Amherst College. A particularly stunning offer came from the Rockefellers, who offered him the lucrative presidency of Standard Oil of California. In his fashion, he pondered at great length the merits of all these jobs, and consulted with a wide range of friends. Harold Ickes discouraged him from taking the ambassadorship. As for Amherst, he thought McCloy lacked the intellectual temperament for a college president. And if he was going to go into the oil business, Ickes wanted McCloy to join him in a small consulting partnership. But McCloy did not think of himself as a businessman, least of all an oil-company executive. And yet he felt the need to make some money, so in the end he turned down both the college presidency and the Moscow job. He couldn’t imagine dragging his family off to the spartan existence of the U.S. Embassy in Moscow. He also wanted to spend more time with his family. “Now that the war is over,” seven-year-old Johnny had asked one night at dinner, “can I have my daddy back too?”4

  The more McCloy thought about it, the more he figured it was time to return to the law. If Cravath wouldn’t have him back on his terms, he would go to another firm. Sometime that autumn, after rumors began circulating on Wall Street of his falling out with Swaine, Nelson Rockefeller approached him with an attractive idea. Why not, he said, join the Rockefeller family’s law firm, Milbank, Tweed, Hope & Hadley?5 A mid-sized firm, specializing in estate and corporate law, Milbank, Tweed was not top-heavy with senior partners at the moment, and would welcome the fifty-year-old McCloy into its fold. The firm was even willing to make him a name partner.

  Ever since that day long ago when he had knocked on the door of the Rockefeller summer home in Bar Harbor, McCloy had been attracted by the aura of the Rockefellers. As a senior partner with Milbank, Tweed, he’d have the status he had sought at Cravath. He wanted a base from which he could, like Stimson, engage in disinterested public service while ensconced within the protective womb of an elite private law practice.

  Don Swatland negotiated the deal for him. The firm’s partners had no problem with his financial demands, and in order to make room for him on their already crowded shingle, the deceased “Hope” was dropped to make way for “McCloy.” One partner joked that they had “given up Hope to rely on McCloy.”6 On January 1, 1946, the partners mailed out formal, embossed cards announcing the new name of the firm: Milbank, Tweed, Hadley & McCloy.

  Milbank, Tweed—or Milkweed, as it was irreverently known among its employees—tolerated quite a different class of lawyers from the meritocracy of the Cravath factory. There were the usual number of hardworking, conservative lawyers like the seventy-three-year-old Albert G. Milbank. But the dominant personality in the firm was the sixty-one-year-old Harrison Tweed. And Tweed was an eccentric, free-spirited man who flouted many Wall Street conventions. For him, the practice of law had to be “fun.”7 He favored rumpled tweeds and polka-dot bow ties over the profession’s pinstripe uniform. He worked standing, at a large desk in the center of the room, built high enough so that he could write without taking a seat. Instead of the usual English office decor, he had his own oil paintings, mostly landscapes, hung on walls painted dark blue.8 He was an earthy sort of man, who didn’t hesitate to drive off the public from his private stretch of beach on Long Island by parading naked up and down the shoreline.

  Unlike Cravath’s austere managing partner, Tweed had an irreverent attitude toward the legal profession. He once wrote, “I have a high opinion of lawyers. . . . They are better to work with or play with or drink with than most other varieties of mankind.” He had served the Rockefeller-family interests for most of his professional career, but he had also spent ten years as president of the Legal Aid Society, a charitable organization devoted to providing free legal services to the indigent. In short, he would not object, like Swaine, to any of McCloy’s extracurricular activities.9

  Milbank, Tweed’s most important client was always the Rockefeller family’s bank, Chase National. The bank and the law firm were all part of the family. As Tweed himself put it, the law firm operated under “the Rockefeller surveillance.”10 The president of Chase in 1946 was Winthrop Aldrich, the younger brother of John D. Rockefeller, Jr.’s wife, Abby. Aldrich had started out in the family law firm, later became president of the family bank, Equitable Trust Company, which in turn merged with Chase National Bank. Out of this banking merger was created Milbank, Tweed in 1931. Ever since, the firm had not only provided legal counsel to Chase and other family corporate investments, but also
handled all of the large Rockefeller family’s highly centralized personal finances. As a result, Milbank, Tweed maintained one of the largest trust-and-estate departments of any major law firm in the country.

  McCloy quickly felt at home. He was his own man in a firm where his partners allowed him the discretion to choose his own clients and cases. There was, however, one unspoken reason why he had been recruited into Milbank, Tweed, and this became evident later that spring, when he became embroiled in a delicate case that threatened the very basis of the Rockefeller estate. As Rockefeller, Jr., explained it to his personal lawyer, Thomas M. Debevoise, “McCloy knows so many people in government circles . . . [that] he might be in the way to get information in various quarters about the matter without seeking it, or revealing his hand.”11

  At the time, Rockefeller, Jr., was worried that the government might reopen its 1911 antitrust decree against Rockefeller oil interests. The original Standard Oil trust had been broken up under antitrust laws in 1911, and Rockefeller-family interests were prohibited from using their influence over the oil companies in a manner that would resurrect the old monopoly. Suddenly, in the spring of 1946, McCloy’s wartime luncheon companion, former Secretary of the Interior Harold Ickes, who had gone into the oil-consulting business, publicly charged that John D. Rockefeller, Jr., was violating the terms of the 1911 dissolution decree. Together with two other high-powered antitrust lawyers, Thurman Arnold and Abe Fortas, Ickes petitioned the Justice Department to investigate the matter. Part of Ickes’s motivation was a personal vendetta: he was angered that one of his assistants during the war, Ralph K. Davies, a deputy petroleum administrator, had not been given the presidency of Standard Oil of California. (Once an executive vice-president of Standard, Davies supported government controls during the war, earning him the distrust of his former colleagues in the business. They now called him “socialistminded.”12) Ickes’s charges were nevertheless serious enough so that the SEC agreed to investigate.