All the Presidents' Bankers (43 page)

But it was clear that McCloy’s sphere of global influence and power was rising above that of his predecessor; he now led one of the largest US banks, with command over its assets and strategies, and was the man called in to deal with foreign policy crises.

Ike’s Second Term: The 1956 Campaign

The Suez incident strengthened Eisenhower’s reputation as a president who could deal forcefully with the threat of Communism and keep the United States on its path to perpetual superpower status. Entering his second campaign, he also kept his bankers’ support. Sidney Weinberg’s tactical expertise as a money raiser during the 1956 campaign so impressed Ike that he sent him a telegram stating that he’d like Weinberg to explain to him “the origin and intricacies of a blitz as applied to politics.” Weinberg replied that he would be glad to oblige, and that the “techniques of a money-raising blitz, which is not unlike a military blitz, [have] the same characteristics of planning, strategy, fortitude and a noble cause.”
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In general, Ike’s correspondence revealed a warmth that transcended what Weinberg could do for him (which was more than he did for Weinberg). He simply wanted to remain in contact. “Dear Sidney,” he wrote in May 1956, a few weeks after signing the Bank Holding Company Act, “This morning I spent a few minutes with the Citizens group . . . here in Washington. The occasion reminded me that you have neglected me shamefully of late, and that I have missed seeing you. . . . Next time you are in Washington, won’t you give my office a ring? . . . There is nothing special on my mind—just an opportunity to chat with you for a little while.”
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In addition to playing headhunter for the administration, Weinberg was friendly with the staff. Eisenhower’s personal secretary, Ann Whitman, sent Weinberg a rare personal note saying she was sorry his appointment with the president had to be canceled, “and I was cheated out of seeing you, in addition to all my troubles!”
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When he could not be present for any of the various “honoring Weinberg” dinners, Ike sent along remarks. For a November 13, 1957, dinner honoring Weinberg after fifty years at Goldman Sachs, he wrote, “The story of your life is not only the exciting fulfillment of the dreams of many a small boy; it represents the very essence of America. . . . I salute you as one of the great leaders of our business community and I count myself most fortunate that I can call you my friend.”
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The 1957 Economy and Treasury Department Shift

From 1939 to 1953, the dollar lost nearly half of its purchasing power, even as it moved into global dominance as a currency in conjunction with greater
US political power.
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The fear among Eisenhower’s advisers was that this situation couldn’t go on indefinitely; the dollar had to be strengthened to support a strong nation.

To remedy the problem, Gabriel Hauge pressed the importance of tight policy in increasingly public settings. In a 1957 speech before the Economic Club of Detroit, he proclaimed, “If history tells us anything—and history has been said to have more imagination than men—it is that a sound economy, a sound nation, a sound people travel the same road as a sound money.”
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Without a strong currency, Hauge and other bankers thought, it would be more difficult to retain a controlling position over world affairs from a political or financial perspective—something that both the president and the bankers wanted.

Two months later, it appeared that Eisenhower acknowledged the need for a strong currency to prop up his foreign political-financial policy. The
New York Herald Tribune
reported that the “President Upholds Tight Monetary Policy.”
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The Eisenhower Doctrine and the Middle East

When Nasser nationalized the Suez Canal on July 26, 1956, Syria destroyed its oil pipeline running from Iraq to the Mediterranean Sea, causing vast oil shortages that provoked a recession in Europe and, by extension, its trading partner, the United States.

On January 5, 1957, amid growing pan-Arab anti-American sentiment and still wary of containment issues in the Middle East, the president announced the Eisenhower Doctrine. Congress approved it two months later. It was really just another version of the Truman Doctrine and the US sliver of NATO, offering US military and economic support for countries under Communist attack.

In response, Egypt nationalized its banking system and required all foreign banks operating in the country to become Egyptian companies. As a first step, foreign banks were sold to private Egyptian banks; those banks became nationalized in 1961. It wasn’t until 1974, under President Anwar el-Sadat, that Egypt liberalized its banking system and allowed American banks and then other foreign ones back in.

Latin America and the Fight for Regional Power

Thus Latin America became the capstone of the bankers’ expansion efforts. Making the region more attractive was the fact that the accounting systems
of US banks weren’t too careful about where profits were made, especially if they were booked overseas; the more countries in which to exhibit profits, the more they could be embellished if necessary.

Though Europe was still a future focus, it wasn’t as profitable yet. During World War II, National City Bank had closed all its European branches except the one in London. All of them remained closed in the mid-1950s except the ones in London and Paris.

On the other hand, in Latin America—a region relatively untouched by World War II—the bank had at least one branch in nearly every country. The bank was well positioned to handle the growing financial and trade demands of Latin American businessmen and American companies operating in the region. Puerto Rico, Cuba, Brazil, and Argentina accounted for the majority of National City Bank’s overseas deposits.

In the 1920s former chairman Charles Mitchell had first claimed a position in Cuba issuing bonds for sugar companies and others that defaulted and fell subject to the Pecora investigations. Despite that debacle, eleven National City branches were blossoming under Fulgencio Batista’s regime (until he was overthrown during the Cuban Revolution in 1959, which brought Fidel Castro to power). The bank had successfully resurrected its 1920s role in financing sugar interests and was the “principal US depository for American companies operating in Cuba during the heyday of the 50s.”
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As for Argentina, National City had been there financing meatpacking customers since the 1900s. But when Juan Perón rose to power in 1946, he nationalized its deposits. After his overthrow in 1955, deposits were restored. By early 1956, First National and Chase had lent Argentina $15 million to finance imports, with more to come.

The nationalization of the Suez Canal in 1956 and Syria’s destruction of the oil pipeline had triggered an oil boom in Venezuela. Chase had a trick up its sleeve to capture the financial attention of that nation and trump National City Bank in the race for regional supremacy. On April 17, 1957, Chase appointed the son of the president of Peru, Manuel Prado—a Harvard graduate, former Chase trainee, and Banco Popular banker—to run its operations in Venezuela.

Not wishing to be outdone by his rival on international expansion, First National City Bank chairman Howard Sheperd countered with some serious personnel shifts. Leo Shaw, the senior vice president who had run the bank’s overseas division since 1946, had launched its Middle East presence after a visit there in the mid-1950s. The firm’s branch in Jedda, Saudi Arabia, would be a source of vast oil-related profits. But given the instability in the region,
Shaw’s moves were not enough. In the drive to compete with Chase for financial global power, Sheperd called his domestic division chief, Missouri-born George Moore, to his office in late 1956. There, he and National City president James Stillman Rockefeller offered Moore Shaw’s position, which Moore officially assumed in March 1957.
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Working with his number-two man, Walter Wriston (who had been promoted to vice president), Moore launched an aggressive overseas expansion.

On June 16, 1957, First National City Bank announced it would open its seventy-first overseas branch in Havana, Cuba, by the José Martí International Airport. This was the bank’s sixth branch in Havana and its eleventh in Cuba. First National City Bank was on a Cuban roll. On August 23, 1957, the Freeport Sulphur Company announced that its wholly owned subsidiary, the Cuban American Nickel Company, had arranged to borrow just over $100 million from banks and large nickel firms. The funds would be invested in a nickel and cobalt mine at Moa Bay, Cuba, to build a nickel refinery near New Orleans and a special ship for transporting the nickel and cobalt ore concentrates.

The Moa project was scheduled to begin production in mid-1959. It was financed by a six-company banking group led by the First National City Bank and included four other New York banks and four New Orleans banks.
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(Following the Cuban revolution, Fidel Castro’s 1960 nationalization of foreign businesses would throw a wrench into those works.) The deal capped off a mid-1950s rush of speculative investing that followed US bankers into the region. The resultant bubble popped first in Brazil in 1958. The threat of an American recession caused bankers and investors to protect their money by quickly extracting it from Brazil, which was forced to devalue its currency as a result. The “contagion” spread to Argentina, Chile, and Paraguay. It was not the first instance of US bankers piling into the region, opening outposts, doing deals, enticing foreign capital, and then fleeing at the first sign of instability, leaving bond defaults and depression in their wake. Nor would it be the last.

The 1958 Recession

Toward the end of 1957, after thirteen years of relatively unfettered growth, the United States experienced its first major recession, partially because of its efforts to uphold the strength of the dollar for foreign policy purposes. From August 1957 to February 1958, more than five million people lost their jobs as domestic demand for extraneous goods and unnecessary appliances
and gadgets shriveled. The banks that had just aggressively poured capital into developing regions slowed their lending due to the budding economic crises in Latin America, rather than reduce the rates of their prior loans. The economic pain spread east and north, to Europe and Canada, hitting the mining, agriculture, and oil sectors particularly hard. Car sales dropped 30 percent for the whole of 1957 versus the previous year, and car dealers took to having all-night sell-a-thons to spur waning consumer demand.
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Eisenhower’s visions of permanent prosperity and the bankers’ belief in unlimited deposit growth were hit hard, too. Debate in Washington centered on whether or not a tax cut proposal should be sent to Congress. But Gabriel Hauge joined Treasury Secretary Robert Anderson in opposing tax cuts. In the end, Eisenhower agreed with them. The thinking at the time was that tax cuts would increase the nation’s debt burden (a notion lost on Republicans in the wake of the 2008 crisis) and thus were not a good remedy. As it turned out, the recession began dissipating by late spring.

In June 1958, as the markets were springing back to life, H. C. Flanagan, chairman of the Manufacturers Trust Company, asked Gabriel Hauge to become the firm’s finance committee chairman and a board director. Hauge’s resignation was as much a professional as a personal blow to Eisenhower, who had grown fond of Hauge over his six years in Washington.

The large New York City banks fared better than the rest of the population during the recession. National City Bank, J. P. Morgan, and Morgan Guaranty even posted increased annual profits in October 1958 compared to the year before. Wall Street was a perfect place for Hauge to go.

Banking in Beirut

Meanwhile, in July 1958, Lebanon’s president, Camille Chamoun, had requested US assistance to help prevent attacks from his political rivals, some of whom leaned Communist and had ties with Syria and Egypt. In response, without directly invoking the Eisenhower Doctrine, Eisenhower sent thirty thousand US marines and soldiers into Lebanon. Some media commentators thought this was a response to a bloody revolution in Iraq that overthrew the pro-Western government in favor of the socialist Baath Party. But beyond the colder relations with Syria and Egypt and the threat of socialism in Iraq, there was another, more banking-related reason Eisenhower interpreted his own doctrine so loosely. Beirut had become the most active city in the Middle East from a financial services perspective, home to numerous branches of US banks that were using the city as a key outpost from which to do financing
and trade business throughout the Middle East. Beirut was the region’s major financial services center, offering foreign firms and investors a plethora of benefits such as unnumbered bank accounts and loose tax laws.

Chase, National City Bank, and Bank of America had opened branches in Beirut in 1955. Around the same time, American news outfits like
Newsweek, Time,
and the
New York Times
(which stated that Nasser’s nationalism “has set his country back years economically”) had relocated from Cairo to Beirut, as Beirut transformed itself into the western outpost in the area. Though without oil resources, Lebanon had the benefit of being a politically stable, western-oriented country that was attractive to foreign capital.

When Syria cut its pipelines during the Suez crisis, American banks saw their chances for profitability in the region diminished by the sheer possibility of such volatile actions. If the United States was going to maintain access to Middle East oil, not only its political and military but also its banking strategies needed a home base. That home base was Beirut. Those were powerful reasons for Eisenhower to send troops to preserve that status.