All the Presidents' Bankers (36 page)

During the postwar phase of the late 1940s, Aldrich traveled the world in a triple capacity: as chairman of the Chase bank, president of the International Chamber of Commerce, and chairman of the Committee for Financing Foreign Trade. The impact on the bank’s bottom line was substantial. In 1946, Chase reported, “The volume of business handled in all divisions of the foreign department increased enormously.”
⁵
Chase commercial loans in London doubled that year. Aldrich’s dual work as public servant and private banker was reaping rewards for his firm, and for his status as a diplomat. His partnership with Truman assured him of both.

Truman’s Treasury Secretary and Postwar Savings Bonds

Another aspect of the banking-government alliance was the makeup of public debt, which had quintupled during the war and totaled $270 billion
on June 30, 1946. Between war defense and finance programs, government obligations represented 60 percent of all outstanding debts, public and private, compared to less than 25 percent in 1939. Commercial banks held $84.5 billion, or about one-third of the US debt securities, representing 71 percent of their total assets.
⁶
War financing replenished the banking system’s assets and offered it a foundation of securities upon which to expand.

Though he was not of the eastern bankers’ ilk, Truman’s Treasury secretary, John Snyder, was still quite familiar with the world of banking. He had served as vice president at First National Bank of St. Louis, Missouri, for a couple of years before joining the Truman administration.
⁷
Snyder would take a lead role as the communication point between Truman and the bankers through the late 1940s.

As “one of Truman’s closest advisors on not only financial matters, but also general domestic and foreign policy issues,” according to the Treasury Department and Federal Reserve, Snyder was “often the last person to whom Truman spoke before he made final decisions.”
⁸

Snyder was a banker’s perfect Treasury secretary, comfortable on both sides of the political aisle. As he later said, “I like many of the Democratic aims and objectives. I was brought up a Democrat. Of course, my private business associations have been largely with Republicans. The officers in the banks that I’ve associated with have been largely Republicans.”
⁹

Bankers eagerly advised Snyder on issues of postwar debt management, “selecting the right kind of securities to offer to the public,” and various tax matters. But Snyder tended to rely more on bankers hailing from outside the New York area. Among his most trusted confidants in the banking industry were A. P. Giannini and his son, Mario.
¹⁰

When it came time to reconsider the postwar savings bond program, Snyder enlisted the Gianninis’ advice. He needed a new way to entice the population to buy bonds and realized that an appeal based on a patriotic act would no longer do. This was potentially a big problem: the government still had its own debt to pay down, and turning to citizens for financing needs had proven quite useful during the war. Snyder now needed the bankers to collaborate with him to “sell the idea that savings was good for the individual to prepare him to buy the things that he might otherwise miss buying: an education for his children, a new house, maybe an automobile in the future . . . an economic purpose, a standard of living purpose.”
¹¹
The more people saved, went his reasoning, the more they would consider investing in things like bonds.

Thus, Snyder played a key role in fashioning the acceptability of debt to fund the pent-up needs and desires of postwar America. The bankers did
their share to provide the credit to support that way of life, appealing to the public to both save and borrow. The Federal Reserve played its part, too. The Fed had accommodated the war by maintaining the low interest rates that fueled private banks’ ability to lend to manufacturing companies.
¹²
From 1937 to 1947, the Fed kept its “rediscount rate,” enjoyed by commercial banks borrowing cash against Treasuries, at 1 percent.

During the war, there was widespread bipartisan support for rising deficits and taking on additional debt to fund the war. But afterward, the Truman administration continued to favor lower interest rates as a means of economic stimulus, while the Fed wanted to raise them to fight inflation.

Aldrich Supports the Marshall Plan

For Truman, navigating postwar peace less than a decade after the Great Depression without economic fallout would prove challenging.

The World Bank and the IMF had been shaped at Bretton Woods and then refined by Congress with input from the private banking community. Another pillar of global reconstructive and foreign policy efforts, the Marshall Plan, would provide further aide to “friendly” countries in the early years of the Cold War. The plan would also establish the bedrock upon which the nation’s premier bankers would propel their international lending and other foreign businesses.

Truman carefully unveiled the Marshall Plan in the spring of 1947. To foster public support, he played it up as a way to counter the threat of Communism. He warned the nation that Europe was disintegrating economically, and said he feared that Greece and Turkey would come under Communist control. In addition, the Communist Party had become the biggest left-wing party in France and Italy. America’s new perceived enemy was not Germany or the Nazis but the doctrine of Communism, which was manifesting itself more broadly in the postwar era. Recall Aldrich’s speech associating capitalism with democracy, linking bankers’ goals with American foreign policy ones. Communism was opposed to capitalism, and as such it stood in the way of American prosperity.

Truman’s concerns directly led to the Truman Doctrine, a foreign policy initiative by which the United States agreed to support Greece and Turkey economically and militarily to keep them from falling prey to Soviet expansion. The Truman Doctrine became the cornerstone of the more expansive Marshall Plan, which divided the non-Communist and Communist allies for the purposes of apportioning economic aid.

In a speech at Harvard on June 5, 1947, Secretary of State George Marshall, a retired general, announced the US-led economic assistance program that the Europeans would administer on the western side of the Iron Curtain. Congress approved $13 billion to reconstruct Western Europe for two reasons: first, to aid Europe’s fight against Communism; and second, to bolster trading partners for American industry and banks.

Additionally, as more currencies became readily available to be converted to the dollar, it would become easier to solve the problem of dollar scarcity without new restrictions, which would be “disastrous both for the United States and for the people of Europe.” The more dollars in the world, the fewer barriers to foreign trade. The Marshall Plan wasn’t just about helping allies; it was also about ensuring the domination of the dollar, a plan supported by President Truman and the bankers.
¹³
The theme of Communism vs. American democracy would be the selling point to the broader population.

Even before the Marshall Plan was approved, banks had begun negotiating private postwar loans to allied countries. In 1945, Chase became the first big bank to start the process with a loan to the Netherlands. The firm continued lending money to France alongside the Morgan Bank. Giannini flew to the country of his forebears, Italy, to extend credit to Italian banks. These divisions enabled banks to profit in postwar reconstruction efforts along nationalist lines. The White House took note. “The President [Truman] and I are pleased,” John Snyder, then head of the Office of War Mobilization and Reconversion, wrote Giannini. “I regard this type of action as a positive contribution to worldwide recovery.”
¹⁴

Aldrich’s support for the Marshall Plan was solid from the start. Arriving in New York from England on July 1, 1947, he declared that it provided “new hope for the people of Europe.”
¹⁵
To further establish the supremacy of private business in global affairs, Aldrich also sought to establish “a [nonpartisan] Government Corporation . . . as the United States Corporation for European Reconstitution . . . to encourage direct investment by American firms and corporations in the plants and industrial equipment of Western Europe.”

Hence, Aldrich would combine the notions of political stability (lending to developing nations and fighting Communism, which often amounted to the same thing) and private direct investment. Big banks would be engaged in both efforts.

The Marshall Plan wouldn’t just help distribute financial aid; it would give each major US bank its own European country to play in. Chase would beat them. From 1948 to 1952, the bank amassed the biggest commitments to
Europe, at nearly $1 billion, followed closely by National City Bank. The Bank of America, with its focus on Italy, stood in sixth place, with $389 million.
¹⁶

The Marshall Plan delivered a bevy of new opportunities for US banks in Europe. But it also enabled major European banks to spring back to life through incoming funds and associated US political relationships, though at first in the shadows of their American counterparts. Again, it was Aldrich who put the situation into perspective. President Coolidge had said that “the business of America is business,” but to Aldrich the business of the world was business, and it was there for the American banker to take.

The mass-circulation
Life
magazine put its weight behind the Marshall Plan by underscoring the need to fight Communists:

Last week in Paris, the 16 nations that responded to Secretary of State George C. Marshall’s plea for a concrete European recovery plan put their reports in a green manila folder, bounded up with a ribbon of shocking pink and sent it to Washington. The Europeans said they needed $22.4 billion worth of goods and dollars in the next four years. . . . Whether the US Congress and the American people were prepared for the sacrifices such a program would entail was far from clear. . . . [But] Paris, LIFE correspondent Charles Wertenbaker cabled, “if no new credits are allowed, France will be virtually bankrupt in 3 weeks. No American aid would mean big communist gains.”
¹⁷

In late 1947, Chase extended its German and Japanese branches, becoming the first US bank invited to expand in postwar Germany. (National City and Bank of America made it to Japan first, mostly to service US military bases.)

The National Advisory Council and the Rise of John McCloy

As important as his Treasury secretary post was in shaping economic policy, Snyder held an even more critical position in foreign financial policy as the first chairman of the less-known but powerful National Advisory Council, the entity that called the shots for the World Bank and IMF.

Congress had established the council to be the “coordinating agency for United States international financial policy” and as a mechanism to direct that policy through the international financial organizations. In particular, the council dealt with the settlement of lend-lease and other wartime arrangements, including the terms of foreign loans, details of assistance programs,
and the evolving policies of the IMF and World Bank.
¹⁸
Snyder carried a vast amount of influence over those entities, as many major decisions were discussed privately at the council meetings and decided upon there.

There was one ambitious lawyer who understood the significance of Snyder’s role. That was John McCloy, an outspoken Republican whose career would traverse many public service and private roles (including the chairmanship of Chase in the 1950s), and who had just served as assistant secretary of war under FDR’s war secretary, Henry Stimson. McCloy and Snyder would form an alliance that would alter the way the World Bank operated, and the influence that private bankers would have over it.

It was Snyder who made the final decision to appoint McCloy as head of the World Bank. McCloy, a stocky Irishman with steely eyes, had been raised by his mother in Philadelphia. He went on to become the most influential banker of the mid-twentieth century. He had been a partner at Cravath, Henderson, and de Gersdorff, a powerful Wall Street law firm, for a decade before he was tapped to enter FDR’s advisory circle.

After the war, McCloy returned to his old law firm, but his public service didn’t translate into the career trajectory that he had hoped for. Letting his impatience be known, he received many offers elsewhere, including an ambassadorship to Moscow; the presidency of his alma mater, Amherst College; and the presidency of Standard Oil. At that point, none other than Nelson Rockefeller swooped in with an enticing proposition that would allow McCloy to stay in New York and get paid well—as a partner at the family’s law firm, Milbank, Tweed, Hope, and Hadley.
¹⁹

The job brought McCloy the status he sought. He began a new stage of his private career at Milbank, Tweed on January 1, 1946. The firm’s most important client was Chase, the Rockefeller’s family bank. But McCloy would soon return to Washington.

Truman had appointed Eugene Meyer, the seventy-year-old veteran banker and publisher of the
Washington Post,
to be the first head of the World Bank. But after just six months, Meyer abruptly announced his resignation on December 4, 1946.
²⁰
Officially, he explained he had only intended to be there for the kick-off. But privately, he admitted that his disagreements with the other directors’ more liberal views about lending had made things untenable for him. His position remained vacant for three months.

When Snyder first approached McCloy for the role in January 1947, he rejected it. But Snyder was adamant. After inviting McCloy to Washington for several meetings and traveling to New York to discuss how to accommodate his stipulations about the job—conditions that included more control over
the direction of the World Bank and the right to appoint two of his friends—Snyder agreed to his terms.