All the Presidents' Bankers (31 page)

A Final Plea for Peace

While FDR’s hands were tied by Congress and a cautious public, on April 14, 1939, he was forced to broadcast a personal appeal in a telegram to Hitler and Mussolini to halt further aggression. After pointing out that the United States “is not involved in the immediate controversies which have arisen in Europe,” FDR asked for assurances that the armies of Germany and Italy would not invade thirty-one independent countries in Europe and the Middle East, including Britain, France, the Netherlands, Poland, Greece, and Turkey.
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Two weeks later, on April 28, Hitler ridiculed FDR’s overture to thunderous applause and laughter in a speech at the Reichstag.
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“Long before an American continent had been discovered—not to say settled—by white people, this Reich existed, not merely with its present boundaries, but with the addition of many regions and provinces which have since been lost,” Hitler told an enamored audience.
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He blamed “Jewish parasites” for plundering the nation, and outlined his plan for the Third Reich to take over Europe. That same day, Lamont sent FDR his thoughts about Hitler’s speech. “Of course, Hitler is saucy, as was expected,” said Lamont, “and makes no direct answer to the suggestion [floated by FDR in his telegram] of a [peace] conference. That was also expected. Furthermore, his remarks are calculated to rally his own people behind him.”
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(Actually, Hitler had been specific about FDR’s conference request, saying “no statesmen, including those of the United States and especially her greatest, made the outstanding part of their countries’ history at the conference table, but by reason of the strength of their people.”)

Notwithstanding Lamont’s naïveté, FDR would turn to him often for his opinion on Europe. The president called Lamont when he needed to speak with an internationalist who had experienced the last war as closely as he had, and who supported his views about the negatives of military and financial isolationism.

As war spread through Europe, Lamont continued his private diplomacy with Mussolini to try to keep him from aligning with Germany. He dispatched several letters to his colleague and friend in Rome Giovanni Fummi to pass on to Mussolini. Lamont had hired Fummi to work with the Morgan Bank in 1920, and Fummi had helped the firm gain Italian business, including with the Vatican. The letters warned Mussolini that Americans were angered by Hitler’s aggression and persecution of Jews. American sentiment could turn to join the war against Germany, and Italy should remain on the side of the Allies.

Lamont informed FDR of his communications with Mussolini. A very interested FDR wrote him on May 23, 1939, “I appreciate the effort you have made to prevent misunderstanding in Italy of the point of view of the American government and people, and hope that your letter may have born[e] fruit.”
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But it was too late. A day earlier, Hitler and Mussolini had signed the “Pact of Steel,” establishing their military and political alliance and formally creating the Axis powers, which would later include Japan.

Mussolini’s duplicity was soon revealed to Lamont. On September 20, 1940, Fummi was arrested and imprisoned by the Fascist police.
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Aldrich’s Mistake

For his part, on May 23, 1939, Aldrich told the Bankers Club of New York that the immediate threat of war had been greatly diminished in recent weeks, and that it was “far more important for business and political leaders in this country to concentrate upon domestic problems than to go on worrying about what is taking place in Europe.”

In his opinion, continued high government spending and debt would lead to a situation of “containment” in which “economic nationalism will become inevitable.” He disagreed with FDR’s undistributed profits taxes, claiming that the solvency of the national government and the balancing of the budget
ought “not to be on such a high level of expenditure” that it weighs too “heavily on industrial activities.”

Aldrich’s belief that a European war would be avoided was based on his recent trip through Europe, where he said that he found most of the people he met in Britain and France opposed to war. He also thought that the “vulnerable economic situation” in Germany and Italy diminished the possibility of a long-term war.

Aldrich declared that “it is of the highest importance that, as rapidly as possible, positive moves be taken for conciliation and compromise looking to reduction of armaments, to diplomatic settlements issues which might otherwise be the cause of war, and . . . to international economic cooperation” with the nations short on war materials so they could buy the goods and raw materials they needed.

As did all of the major bankers, Aldrich believed the lowering of trade barriers and elimination of exchange controls (in which the FDR administration was engaged) would be “recognized by the responsible German and Italian financiers, to be to the advantage of both Italy and Germany, along with the rest of the world.”
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But if he was talking up the role that the US bankers could have in open trade to end the war, he was wrong on the war. On September 3, 1939, following Hitler’s invasion of Poland, British prime minister Neville Chamberlain announced that Britain was at war with Germany. Over on Wall Street, the New York Stock Exchange experienced an inexplicable buying spree, recording a 7 percent gain in the Dow
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and the heaviest one-day bond market volume in history.
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The last war had proven an economic boon (after a short-lived recession) for the United States, and this one had that same potential in the eyes of investors. As it turned out, another prolonged and vicious conflict fought on foreign soil would benefit the American economy for the same reasons. The war would hurt the European competition, placing US banks’ funds and financial services firmly at the top of the global financial pile.

More than FDR’s New Deal stimulus or the war requirements of hiring people to produce weaponry, it would be the propelling of the US bankers into the epicenter of global war financing that would catalyze the US markets. The war would enhance economic confidence in business lending and unleash the flow of US capital through its bankers, even during what would be a treacherous and deadly time.

As the reality of another European war dawned on Wall Street, bankers put their own quibbling about financial regulations and government stimulus on
hold. The Morgan Bank supported the British and French again, and stood solidly behind FDR. On September 2, 1939, Leffingwell confirmed the backing: “I do say, with the authority of my partners, on behalf of the J. P. Morgan & Co. and all of us, that if there is any service great or small which we can render to you and to our country we shall be proud and happy to render it. And it is for you to command us.”
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A grateful FDR responded, “That is a mighty nice note of yours and I appreciate it. I talked with Tom [Lamont] the other morning. These are bad days for all of us but we have got to see to it that civilization wins through.”

The country remained reticent about entering another European war. On September 15, 1939, famed aviator Charles Lindbergh gave a national radio broadcast against getting involved. He characterized the war as “an age-old struggle between the nations of Europe,” one in which “we cannot count on victory.” He went on to say, “We could lose a million men, possibly several million of the best of American youth.”

Lamont believed Lindbergh’s broadcast strengthened public support for the isolationists. As far as he was concerned, the war would require bankers’ financing of the Allies. “I and many others are convinced that there is no certainty of our being able to avoid war, but the greatest tangible hope lies in our making it possible immediately for the allies to get . . . material supplies . . . [so that they] will stand a much better chance of holding off the Germans.”
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For his part, Aldrich shifted from criticizing Roosevelt to wholeheartedly backing the war cause. He gave a radio address in support of mobilizing the country’s manpower and industry. He even turned down an invitation to speak at an American Bankers Association meeting to avoid having to publicly admonish the administration’s monetary policy while Roosevelt prepared for war.
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Lamont and Aldrich joined forces, forgetting their differences surrounding the Banking Act. Together, they lobbied the Senate on behalf of FDR to repeal the 1937 Neutrality Act, which had been passed to prevent the big banks from reprising their role of taking a central position in the financing of World War I and to prevent the United States from adopting a position that favored any one country in the supply of funds or supplies. On November 4, 1939, the amended Neutrality Act was passed by Congress and signed into law by FDR. FDR thanked Lamont for his assistance in helping to get the more restrictive act repealed. The bankers could now focus on a renewed war financing effort.

That same month Lamont addressed a thousand bankers at the Academy of Political Science, where he conveyed the same anti-German stance that
had characterized the Morgan Bank during World War I: “There is nothing that businessmen the world over fear and detest quite so much as war. . . . It is against the nature of things that the Fuhrer should be able to continue to overrun one sturdy and independent nation after another; declare it to be German whether it is or not, and expect it to remain a vassal State. . . . [British sea power] and France’s wonderful army . . . [will] bring victory.”
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Just before the New Year, Lamont phoned FDR to say that no matter what would transpire, he would be there for the president. And FDR would need him, as Wilson had. In fact, he would need all the bankers in his corner for the war to come.
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Debate continues over whether the Great Depression ended because of FDR’s New Deal federal stimulus policies or because the war provided economic stimulation with its need for weaponry and supplies and the employees to create them. The argument would filter through discussions of Keynesian vs. free market politicians and economists and writers for years. But such discourse would rarely examine the significant role of the US bankers seeking to retain the power they had won, at great costs to the world, in the global arena after World War I.

Throughout the World War II years, these bankers spurred the US economic and financial boom. The flow of US capital through the US banks, and the subsequent expansion of financial capitalism within the United States and around the world to sustain war operations, would resurrect the US economy relative to the rest of the world. US bankers would become busily involved in the war financing effort, and they would profit more this time, as the funding drive was greater.

There had been a shift in banking leadership during the Great Depression and into World War II. The men who emerged to run the country’s main banks, such as Aldrich and Perkins, were more risk-averse and public-spirited, outwardly anyway. They had their own thoughts on consolidating power, but they would act more in concert with the country’s and the world’s needs than some of their predecessors and successors had and would. They would realize, as Jack Morgan told Wilson during World War I, that this war was a tremendous financial opportunity for them, their business clients, and America.

CHAPTER 8

T
HE
E
ARLY TO
M
ID
-1940
S
: W
ORLD
W
AR
II, B
ANKERS
,
AND
W
AR
B
UCKS

“The sale of bonds is the banks’ great opportunity.”

—W. Randolph Burgess, vice chairman, National City Bank, and chairman, American Bankers Association, February 18, 1943
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D
URING THE WAR YEARS
, W
ALL
S
TREET AND
W
ASHINGTON COLLABORATED
closely. Several of the men running America’s largest banks were appointed by Presidents Roosevelt and Harry S. Truman to prominent positions on various government committees designed to facilitate war financing and foreign trade. These financiers slipped more seamlessly through the doors between public and private service than they had during World War I, as they recalibrated their strategies to fund war-related endeavors and to participate in the global expansion that would follow the war.

American bankers had begun preparing for World War II well before FDR officially declared war. Patriotism and the importance of public service once again became equated. The bankers facilitated the sale of war bonds to support the effort, financed war production alongside the government, and toured European cities to ascertain foreign borrowing needs. They also supported FDR publicly and lobbied Congress to provide him more power to navigate America’s increasingly internationalist position as it entered the war.