All the Presidents' Bankers (37 page)

Not only did Snyder approve of McCloy’s colleagues, but he also approved McCloy’s condition that World Bank bonds would be sold through Wall Street banks. This seemingly minor acquiescence would forever transform the World Bank into a securities vending machine for private banks that would profit from distributing these bonds globally and augment World Bank loans with their private ones. McCloy had effectively privatized the World Bank. The bankers would decide which bonds they could sell, which meant they would have control over which countries the World Bank would support, and for what amounts.

With that deal made, McCloy officially became president of the World Bank on March 17, 1947.
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His Wall Street supporters, who wanted the World Bank to lean away from the liberal views of the New Dealers, were a powerful lot. They included Harold Stanley of Morgan Stanley; Baxter Johnson of Chemical Bank; W. Randolph Burgess, vice chairman of National City Bank; and George Whitney, president of J. P. Morgan.
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McCloy delivered for all of them.

A compelling but overlooked aspect of McCloy’s appointment reflected the postwar elitism of the body itself. The bank’s lending program was based on a supply of funds from the countries enjoying surpluses, particularly those holding dollars. It so happened that “the only countries [with] dollars to spare [were] the United States and Canada.” As a result, all loans made would largely stem from money raised by selling the World Bank’s securities in the United States.
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This gave the United States the ultimate power by providing the most initial capital, and thus obtaining control over the future direction of World Bank financial initiatives—all directives for which would, in turn, be predicated on how bankers could distribute the bonds backing those loans to investors. The World Bank would do more to expand US banking globally than any other treaty, agreement, or entity that came before it.

To solidify private banking control, McCloy continued to emphasize that “a large part of the Bank capital be raised by the sale of securities to the investment public.” McCloy’s like-minded colleagues at the World Bank—vice president Robert Garner, vice president of General Foods and former treasurer of Guaranty Trust; and Chase vice president Eugene Black, who replaced the “liberal” US director Emilio Collado—concurred with the plan that would make the World Bank an extension of Wall Street. McCloy stressed Garner and Black’s wide experience in the “distribution of securities.”
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In other
words, they were skilled in the art of the sale, which meant getting private investors to back the whole enterprise.

The World Bank triumvirate was supported by other powerful men as well. After expressing his delight over their appointments to Snyder on March 1, 1947,
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Nelson Rockefeller offered the three American directors his Georgetown mansion, plus drinks, food, and servants, for a three-month period while they hammered out strategies. No wives were allowed.
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Neither were the other directors.
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This was to be an exclusive rendezvous.

It is important to note here that the original plan as agreed upon at Bretton Woods did not include handing the management and organization of the World Bank over to Wall Street. But the new World Bankers seemed almost contemptuous of the more idealistic aspects of the original intent behind Bretton Woods, that quaint old notion of balancing economic benefits across nations for the betterment of the world. Armed with a flourish of media fanfare from the main newspapers, they set about constructing a bond-manufacturing machine.

With the Cold War hanging heavily in the political atmosphere, the World Bank also became a political mechanism to thwart Communism, with funding provided only to non-Communist countries. Politics drove loan decisions: Western allies got the most money and on the best terms.

McCloy’s Return to Wall Street via Germany

By early 1948, World Bank loans had spread to Asia, Latin America, and various African countries. Within ten months, the media were declaring McCloy’s World Bank initiative and its bonds an utter success. It was McCloy’s particular view that Latin America should be more open to private investment. This view was widely shared by the banking community, the 1929 Crash of the region’s bonds notwithstanding.

In a letter to Snyder on January 7, 1949, McCloy pressed the opening of Latin America in this manner: “I believe that both of our institutions should be more and more devoted to the flow of private capital into that area.” Snyder approved of the progress that McCloy’s Latin American loaning program was making.
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With Snyder and McCloy’s coordinated efforts, the doors of Latin America were pried open to allow a rush of private investment, which reduced the ability of the region to control its own economic destiny. These developments significantly extended America’s political control over the region,
propping up the dictators that toed the US line and punishing the ones who didn’t by means of might and money.

In the background, the man who had penned the initial plan for the IMF, Harry White, was forced to resign from the IMF and dragged before the House Un-American Activities Committee in August 1948. Congressman Richard Nixon and others pelted him with questions about his alleged Communist loyalties. Three days after testifying, he died. He was fifty-five. The extent of his involvement with Soviet spy rings and his motivations have been a subject of debate in the history profession since his death, overshadowing the means by which his plans were augmented by the banker contingent.

The Economic Cooperation Administration

The Marshall Plan easily passed through Congress on April 3, 1948. Also called the Foreign Assistance Act of 1948 and the Economic Cooperation Act of 1948, it was approved by the Senate by a vote of 69 to 17 and passed the House by a vote of 329 to 74.
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Truman set up the Economic Cooperation Administration to oversee the Marshall Plan. In practice, it controlled many foreign economic activities, including trading patterns and international finance initiatives. Aldrich made it a point to throw his backing behind the entity. As a result, the correspondent banks came to Chase to service a large chunk of their international financing needs. He had again successfully steered the fortunes of Chase and public foreign policy concurrently.

As he expanded the Chase empire to support the foreign policy goals of the US government, Aldrich thought it only fair to obtain federal assurances of safety for Chase’s private endeavors in return. So he requested that the Treasury Department back the risk Chase was taking in setting up private offices in war-torn countries.

On July 27, 1948, Snyder obtained support for Aldrich’s request from Secretary of the Army Kenneth Royall, to whom he wrote, “The American Express Company, Inc., and the Chase National Bank have requested that the agreements executed by them be amended to exclude any liability for the loss under certain specified circumstances of . . . foreign funds lost, stolen, captured or destroyed by or because of enemy action. . . . The Treasury Department feels that the requests . . . are not unreasonable and is willing to enter into agreement with these two banks, and other banks similarly.”
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The United States ultimately approved approximately $13 billion in aid during the four years that the Marshall Plan was active. At first, Europe’s
economy slowly improved, though it was unclear if that was related to the US monies. As far as the American people were concerned, though, the Marshall Plan was an anti-Communism device as marketed by Truman, the bankers, and the popular press. It was fear rather than altruism at work.

Truman’s Four Points Plan

Though Truman employed antibanker rhetoric in his 1948 presidential election campaign, as most Democratic presidential candidates tended to do for political reasons, he maintained a balance between appearing prolabor and hard on Communism. With the exception of throwing some political capital at the Wall Street Seventeen—a case involving investment bank price rigging, which went on for years and was dismissed under the Eisenhower administration—Truman didn’t get much in the way of the New York bankers. In fact, he brought those he deemed trustworthy into his cabinet or appointed them to committees.

Truman unveiled his “Four Points” plan during his 1949 inaugural address. The first point was support for the United Nations. The second was reiterating US determination to work for world recovery by giving full measure to the Marshall Plan in promoting trade for all the world’s markets. The third point centered on the North Atlantic Security plan. He said, “We will strengthen freedom-loving nations against the dangers of aggression . . . within the recognized framework of the United Nations charter and in the pattern of the Western Hemisphere arrangement.” In his fourth point, Truman proposed a program for sharing American scientific and industrial progress with the rest of the world.

McCloy, still smarting because he believed Marshall Plan financing might upend financing for the World Bank, expressed his frustration with Point Four to the
New York Times,
where he pouted that the World Bank “would simply have to take a back seat to Point Four aid in the developing world.”
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For Aldrich, however, the Point Four program to begin technical assistance to underdeveloped countries was a gold mine. As a result of increased federal support, 1949 would become the most active year Chase’s foreign department had ever experienced.
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In 1950, Truman appointed Aldrich’s nephew, Nelson Rockefeller, to chair the International Development Advisory Board, the main task of which was the implementation of the Point Four program. In turn, Aldrich advised Truman fairly extensively on the Point Four program in war-torn Europe.
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Russell Leffingwell and Morgan’s Waning Influence

Thomas Lamont, who had run the Morgan Bank through much of the war, passed away quietly in his sleep at age seventy-seven in early February 1948.
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His death marked the end of an era during which the Morgan Bank partners held the tightest alliances with the White House, even when presidents attacked bankers in their speeches. Lamont had negotiated war-related financing with America’s allies and foes for three decades, sailing back and forth across the Atlantic dozens of times. He had stood before many congressional investigations and crossed party lines to support Democratic presidents and the ideals of internationalism, which he believed benefited the country, the presidency, and the bankers. After he died, leadership of the firm passed to longtime partner Russell Leffingwell.

A Washington insider from his days as President Wilson’s assistant secretary of the Treasury during World War I, Leffingwell reigned as chairman of the Morgan Bank from 1948 to 1950 (after which he retired to a directorship position).
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He was also chairman of the Council on Foreign Relations from 1946 to 1953, at a time when it actively promoted the Marshall Plan.

Leffingwell engaged with Truman on an array of issues, including on the tension between postwar domestic security and individual liberties. Both men believed that the Cold War was no excuse for monitoring the nation’s citizens, which was becoming an abrasive issue in Congress. The libertarian in Leffingwell found the notion of undue government oversight of people’s lives off-putting. In general, his method of subtle sway over the Truman administration was effective, particularly regarding matters of interest rate and debt policy—though not as overwhelming as the methods of the Chase and National City Bank influencers.

Leffingwell periodically took to the press to publicize his views. In October 1948, he penned a
Fortune
article in which he argued the Federal Reserve should “drop the peg,” meaning it should discontinue its artificial support of long-term government bonds (through purchasing them, which also kept rates down). The article provided Treasury Secretary Snyder, who agreed with Leffingwell, ammunition against the Fed.
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After the war, a battle brewed between the Treasury Department and the Federal Reserve over how to deal with rates, inflation, and reserves. Snyder’s views were in lockstep with those of the bankers; excess reserve requirements would hamper banks from lending and expanding. In an August 9, 1948,
statement before the House Banking and Currency Committee, Snyder said, “After careful and deliberate consideration of the proposed increase of reserves that commercial banks must carry in the Federal Reserve banks; we are firmly of the opinion that such a move will bring about a credit panic.”
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Leffingwell agreed: “The Federal Reserve and commercial banks’ reserve requirement should not be increased.”
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A true internationalist, he was also of the opinion that trade barriers should be eased as much as possible to enable international business and financial activities to thrive. This was the same view that had been held by his predecessor at Morgan for decades.

When Truman won the 1948 presidential election, the Belgrade press, reading the fusion of the bankers and the presidency correctly, dubbed the election a battle between the candidates of J. P. Morgan & Company and the Chase National Bank, giving the victory to Morgan. (Thomas Dewey, who lost to Truman, was a close friend of Chase chairman Winthrop Aldrich, though of course Aldrich was very supportive of Truman and his postwar foreign financial policies.) Truman considered the distinction a joke, writing Leffingwell on November 22, 1948: “I was very much interested in the attached report from Belgrade to the effect that the recent election was a battle between J.P. Morgan & Company and the Chase National Bank. This is merely to congratulate you on the election of your candidate.”
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