All the Presidents' Bankers (14 page)

The next day, McCormick met with Lamont, Davis, American financier Bernard Baruch, and John Foster Dulles (grandson of former secretary of state John W. Dulles, and nephew of Wilson’s secretary of state, Robert Lansing) to consider Lloyd George’s latest ultimatum: the inclusion of British servicemen pensions as a category of claims to be paid by Germany.
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The group reluctantly agreed to Lloyd George’s proposal, but patience was wearing thin. A month later, and three days after Clemenceau presented the “preliminary conditions of peace” to the German delegates at the Grand Trianon Palace at Versailles, the Paris Peace Conference began in earnest. A severe virus and neurological illness temporarily prevented Wilson from serving as “commanding actor on the grand stage,” and allowed Lloyd George to emerge as the key force in the Supreme Council leveraging Wilson’s absence and physical weakness.
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Lamont, meanwhile, had been touring Europe assessing conditions and considering the reparations claims of the various countries he toured.
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Europe was plagued by severe hyperinflation and food shortages, and was facing an acute recession caused by the end of wartime production and an influx of labor from returning troops. As a result of his findings, Lamont requested credits for the newly constituted, “lesser” nations such as Poland, Czechoslovakia, Yugoslavia, Romania, and the Baltic states. He also requested credits to France, Belgium, and Italy for raw materials; credits to France and possibly Belgium for reconstruction; and even working capital for enemy states like Austria.

True to his feelings on global finance, Lamont wanted those credits to come from “the normal channels of private enterprise and commercial banking credits,” not from the government. But he conceded “while the situation is still unsettled . . . further government aid on a limited scale may be necessary.”
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Wilson agreed with Lamont’s credit suggestions but remained reticent about his proposals on addressing the American public, which was increasingly antagonistic toward the idea of a League of Nations.

Wilson’s alliance with Lamont had evolved into more than a reform experiment; it had become a bond of deep mutual trust, respect, and necessity. One evening, Wilson and his physician, Dr. Grayson, were walking along the Avenue du Bois de Boulogne. They sat and watched the pedestrians, equestrians,
and motorcars pass by. Wilson used this time to gather his thoughts on Lamont and bankers in general. He said, “I have given representation to Wall Street which may be misunderstood at home, especially by Democrats and Progressives. I chose, purposely, for instance, Tom Lamont of Morgan & Company, because I wanted him to see at first hand exactly the plans and purposes and manner of the administration’s way of doing business. I wanted him to be a partner of reform for the country. If Wall Street continues to try to turn the finances and economic conditions of the country a revolution is inevitable. And I do not want to see a revolution.”
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Vanderlip’s Negative Intervention

Frank Vanderlip had also been touring Europe on behalf of National City and in an effort to secure his own place in history. Once he returned to the United States, he began stirring the pot. On May 27, 1919, he addressed the Economic Club at the Hotel Astor in New York City.
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Vanderlip claimed that since the war, England’s premier position in the international industrial markets had been maintained “by underpaying labor,” yet now the British government was “undertaking to build a million houses for workingmen.” Vanderlip didn’t believe the United States should be financially responsible for such a sudden socialistic shift in British domestic policy, nor any reconstruction efforts that didn’t directly benefit American banks and business.

“I was in Europe from the first of February to the ninth of May,” Vanderlip told his audience. “I met every finance minister . . . many of the prime ministers [and] the leading financiers and bankers. . . . However black a background I paint . . . I believe Americans must know it, must comprehend it, must get it in to heart and mind, because we must act; and if we do act, we can save Europe from catastrophe, a chapter that will involve us.”
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Unlike his former boss, James Stillman, who had used a softer tongue in discussing the British—not least because of his long-standing business arrangements with the staunch Anglo supporters at the Morgan Bank—Vanderlip blamed the British government for the impaired economic and social conditions in England, France, and Spain. “Let us pause, therefore, and put our own house in order lest the fires that are now burning in Europe shall spread and destroy our own country,” he said.
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It was not so much that Vanderlip was against helping Britain or Europe. It was that he didn’t want to support Britain’s mistakes or provide it undue economic collaboration. He was against the idea of the League of Nations for the same isolationist reasons as that faction in Congress.

As he later said at a speech to the Radcliffe Club, “We must all be guided by intelligent self-interest—that is, interest for our people and an eagerness to progress, and a League of Nations or a similar document would not encourage such progress. We must have an incentive for progress, and competition with other nations is the greatest, and in fact, the only incentive in trade relations.”
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(At the same speech, Vanderlip also claimed that building a railroad in China was more important than trying to save the lives of the ten million people perishing there because of famine.)

Senate critics used Vanderlip’s speech to fuel their growing antagonism toward the League of Nations.
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Their reliance on Vanderlip’s words did not go unnoticed by the Morgan bankers. As Morgan partner Dwight Morrow wrote Lamont, “Senate opposition to the League of Nations will be very formidable. . . . For instance, the speech of Vanderlip . . . incited the feeling among business men that perhaps after all the European situation is in such a mess that cooperation at the present is impractical.”

Meanwhile, in an underhanded effort to further malign Wilson and his team, Lodge’s Senate Foreign Relations Committee subpoenaed Lamont for effective treason, though the charge was not called anything quite so dire. Lodge wanted to determine how copies of the peace treaty had been leaked to the international bankers before being made public. Lamont had furnished a copy of the treaty to his former associate Henry Davison, who had been at the Red Cross since 1917.
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Lamont believed the League of Nations covenant could apply to many facets of Red Cross work. But before long, the newspapers had obtained a copy and printed it for the public to see. Whether Lamont intended to shape public opinion before Washington voted on the treaty was not clear. But even so, the intent was not malicious.

Lamont was unhinged by the senseless antagonism of his fellow Republicans; he was being assailed by the people he had supported for years. The sabotage had apparently emanated from Wall Street and been exacerbated by elements in Washington, though an exact source was never determined. It rattled Wilson, who couldn’t understand why some people didn’t seem to realize what was going on in the world and focused on such petty items.

Jack Morgan and Henry Davison were subpoenaed. Lamont instructed them to be truthful and to share with the Senate every aspect of his communications. He wrote them that when he returned to the United States he would be very glad to come to Washington and “supplement his written statement with any further information that the Senate might desire.” Wilson considered his action commendable and informed Lamont as much.
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On June 11, 1919, Baruch, Lamont, Davis, and McCormick discussed the more pressing issue of Wilson’s final proposed answer to Germany on reparations. Lamont remained touched by Wilson’s faith. He told McCormick he “was considerably worried about the leak issue, but greatly pleased by a letter from the President showing his confidence in him.”

McCormick replied, “The Chief stood by his friends.”
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That same day, the Senate Foreign Relations Committee testimony noted that Davison had secured a copy of the treaty from Lamont before the secrecy injunction had been imposed—just as Lamont had explained in writing. Davison had brought the copy to the United States and given it to Root, who showed it to Lodge. Root finally came to Lamont’s rescue and testified, “he has had it several weeks, that it was no longer secret, and every American citizen was entitled to see copy of the paper after it was made public by German Government.”
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Morgan denied having seen a copy and heard of none in circulation in the financial district. Even Vanderlip testified that he had never seen the treaty.
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The witch hunt was over. But the incident revealed an unease and distrust of the treaty situation and of Lamont, a Republican who was breaking ranks with the party to support the League of Nations. It also appeared politically motivated to weaken Wilson’s hand before the final approvals took place in Europe.

Negotiations hit yet another snag in Paris. The British were now attempting to control the purchase of raw materials and foodstuffs throughout the world. With Lloyd George’s irrational demands lingering in the air, Lamont expressed further worries over Senate passage of the League covenant. He urged Wilson to “play up a speech-making tour” and explain why the covenant and the rest of the treaty could not be separated. “I do not have to assure you of my intense interest in the prompt ratification of the Treaty and of the Covenant,” he wrote. “I consider it a crisis for the world.”
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Eugene Meyer, of the War Finance Corporation, had arrived in Paris to work with Lamont on proposed legislation to enlarge the powers of the American corporation to operate internationally.
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If the League didn’t work, there had to be a structure to facilitate private business and extend private credit to Europe.

As the US government and population grew increasingly reluctant to help Europe financially, even the Treasury Department refused to approve additional credit extensions to cover European purchases, even of American goods. The isolationist stance was one of the main reasons private American banks
were able to step into the arena of credit extension and greatly enhance their global financial position.

Based on Lamont’s earlier disposition toward private assistance, Senator Walter Evans Edge introduced Senate Bill 2472 (which became the Edge Act of 1919), authorizing American corporations to deal in any foreign banking that met the approval of the Federal Reserve Board (which had been given permission to consider foreign banking under the Federal Reserve Act) and the secretary of the Treasury.
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The private banks would officially take up the slack for the government on this account. The Edge Act allowed for a substantial expansion of American corporate and banking power abroad. The legislation would catalyze a dispersion of US banks into Europe, and around the world, for the next century.

The Treaty of Versailles and Sailing Home

On June 28, 1919, the peace treaty with Germany was signed in the Galerie des Glaces in the Palace of Versailles. At promptly three o’clock, Clemenceau opened the great assembly. Within less than an hour, as Secretary of State Robert Lansing wrote in his diary, “the last delegate had affixed his name to this greatest of treaties.”
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Herbert Hoover remained behind to take account of Europe’s “demoralized productivity.”
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Fifteen million families were receiving some form of unemployment allowance. Hoover estimated that “the population of Europe is at least 100 million greater than can be supported without imports and must live by the production and distribution of exports, and their situation is aggravated not only by lack of raw material imports but by low production of European raw materials.”
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Not only was production far below the level it was at when the armistice was signed, he informed Wilson; it was “far below the maintenance of life and health.”
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The treaty was signed with many grumblings, especially from the Germans, who preferred the Fourteen Points as Wilson had initially presented them to the watered-down version they became. Two orders of business remained: the United States had to ratify the treaty, and Europe required massive funds for reconstruction.

On July 10, Wilson addressed the Senate about the Treaty of Versailles and the League of Nations. The Senate was divided, particularly over Article X, which required all members “to respect and preserve as against external aggression the territorial integrity and existing political independence of all Members of the League.” At least six Republican senators, or “irreconcilables,”
remained steadfastly opposed to the treaty and US intervention in any more “European wars.” Nine others, the “mild reservationists,” would consider approving the treaty but only if they could ensure that America would not necessarily have to enter wars on behalf of other nations. That left nearly three dozen undecided Republicans. As for the Democrats, though many sided with Wilson, some supported the mild reservationists and irreconcilables.

At the end of the Paris Peace Conference Lamont had promised Wilson that he would fight for the League of Nations after returning to the United States. On July 11, he sent Wilson resolutions adopted by the League of Free Nations Association, a countrywide organization he had chaired. The association called for the progressive reduction of armaments by all nations. It also resolved to “call upon all forward-looking citizens to urge the United States Senate: to ratify without reservation the Treaty with Germany, including the League of Nations Covenant . . . and for the full participation of both Germany and Russia on equal footing in all economic intercourse as the best insurance against any reversion to the old scheme of balance of power, economic privilege and war.”