All the Presidents' Bankers (44 page)

Henry Alexander and the Morgan Merger

Henry Alexander succeeded George Whitney as chairman of J. P. Morgan in 1959. Like Whitney, Alexander was a longtime “Morganer.”

On Christmas Eve 1938, Jack Morgan, who had been impressed by Alexander’s legal mind, personally invited him into the Morgan partnership. The son of a Tennessee grain merchant, Alexander worked his way up to Yale Law School and into the Eastern Establishment banker sect. Born to a Democratic family, Alexander registered himself as a Republican. At Eisenhower’s request in 1952, he headed a $10 million drive for the Korean War relief effort. Six years later, Eisenhower appointed him to a committee to examine US foreign economic policy.
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On November 1, 1955, Alexander received the Republic of Korea medal for his work in the American-Korean Foundation in 1953 and 1954.

By the late 1950s, his banking work was heralded by the press. In 1959,
Time
called Alexander “the nation’s most prestigious banker.” Eisenhower’s archives didn’t substantiate the pervasive press view that he was also Ike’s most important banker, but Alexander certainly courted the press successfully.
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More important to the overall banking landscape, Alexander deployed McCloy’s “Jonah swallowing a whale” strategy with his own mega-merger. Under Alexander, J. P. Morgan & Company, which had fallen to tenth place among New York commercial banks and twenty-eighth in the United States,
merged with the much bigger Guaranty Trust Company to become the fifth largest bank in the country.

With his Tennessee drawl, outdoorsy demeanor, salt-and-pepper hair, and bushy dark eyebrows, Alexander ushered in a breed of salesmanship banking, reminiscent of the Mitchellian 1920s but with a wider scope. As would be more indicative of 1960s banker style, Alexander hired seventy young men, dubbed his “bird dogs,” to hustle and spoil customers. As “chief bird dog,” Alexander focused on the same groups that J. P. Morgan focused on at the turn of the century: the business, finance, and government elite.

At a time when middle-class wealth was growing and companies were decentralizing—more suburban relocations were spawning as cars and highways made them more accessible—many old-school New York banks began offering more retail services to their customers to keep hold of them and their deposits. But under Alexander, Morgan didn’t follow suit, preferring to merge with the Guaranty Trust Company to get a larger capital base. That strategic difference allowed the firm to retain its elitist stature while other banks mucked about with the broader population.

For his part, Eisenhower, contrary to any concerns about antitrust violations, expressed a keen interest in the Morgan merger. On January 23, 1959, he complimented Alexander on the report that he and his associates on the Committee on World Economic Practices had put together on the mounting Sino-Soviet bloc economic offensive. Ike then added, “May I further add a personal note? I was much interested in the recently announced proposal to merge J. P. Morgan and Company with the Guaranty Trust Company; I trust that it will work out well for all of you.”
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The two banks merged on April 24, 1959. Alexander reigned as chairman of the Morgan Guaranty Trust from 1959 to 1966.

London Rising

Under the Marshall Plan, the US government had posted $13 billion to facilitate Europe’s recovery. Given that extra backing for their client countries, American bankers were assured that this time, unlike after World War I, their loans would be repaid. That was one of the main reasons they were so keen on the Marshall Plan. Additionally, the Truman and Eisenhower Doctrines extended US economic support to nations that adopted US ideology and were military allies. This meant more potential customers who would require private bank loans in their own drives to grow.

By the late 1950s, the inevitable clash between rich and poor nations was intensifying, and international inequality was growing. Developing nations
didn’t want their prosperity dependent on western aid but on fair trade and prices and open markets for their raw materials (the pure definition of a “free market”). That was not what the Marshall Plan, the IMF, or the World Bank had accomplished for them. So many of these nations made the grave decision to secure private loans from the international banking community, from which they believed less policy strings would be attached. This action would generate its own problems—uncontrollable lending terms—that would prove devastating in other ways. Meanwhile, the number of National City Bank offices overseas tripled to 208, as the bank expanded from twenty-seven to sixty-one countries to accommodate the private loan demand. Other major banks followed suit.

Burgess had left his post in the Treasury Department when he was appointed US ambassador to NATO in 1956; he served in that role until 1963, noting that “the shine of postwar NATO was getting a little dull.”
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By the turn of the decade, the stronger European countries felt less threatened by Soviet aggression. This made them less pliable to US policies. As a result, their banks began spreading their wings globally again.

Burgess moved to take a position at the Organization for European Economic Cooperation (which he later renamed the Organization for Economic Cooperation and Development), with the aim of “maximizing its service to the Atlantic community.”
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From that vantage point, he was instrumental in developing the “common market” to bring in the British, under a common financial umbrella to augment NATO. This focus on a new world order common market platform was a boon to US banks and helped bring British and other European banks back into the global financial fold.

London hadn’t yet become a major international financial center again, but Eurodollars (dollars outside America) were on their way to becoming a dominant global trading and lending currency. As a result, London was resuming its position as the epicenter of global finance, the trading hub of Eurodollar-backed loans.

In the late 1950s, the entrenchment of NATO and beginnings of the European Community encouraged Burgess’s alma mater, National City Bank, to lead the big banks back to Europe alongside a host of enthusiastic American multinationals.

In 1958, most western countries (except Britain) had agreed to allow their currencies to be convertible into dollars for the first time since the war, which provided freer flow across borders. But because dollars were converted into gold at the fixed rate of $35 an ounce, foreigners began dumping dollars and extracting gold, causing a massive outflow of US gold reserves and raising US interest rates.
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As interest rates rose, they exceeded the rates banks could pay on demand deposits. Under the Depression-era Federal Reserve Regulation Q, interest rates on those savings accounts were capped. As a result New York banks lost more than $1 billion in deposits as depositors rushed to the Eurodollar market, where rates could be as high as the market dictated. The United States lurched into a deficit. Dollars flowed quickly into Europe, as Eurodollars could earn higher interest. That’s what brought London back as a financial banking center.

Bankers who took up their business in the Square Mile of London’s banking heart could smell the Eurodollars in the air. As Anthony Sampson wrote, “Young British bankers and their foreign counterparts began to earn higher salaries than other bankers. Skyscrapers shot up by the old classic architecture near St. Paul’s Cathedral. Far Eastern and Arabic banks appeared, as did Mercedes and Cadillacs to cart bankers around the thin London streets.”
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The US bankers still called the shots, not least because the US government did too. As Eisenhower approached his final year in office, the core power emanating from New York City remained backed by US foreign and military policy.

But the bankers would have to find new ways to compete with a strengthening European banking network by opening more offices there and by eliminating New Deal regulatory restrictions on their operations, so they could grow domestically and use their larger size as a global competitive weapon. Those campaigns would come.

By the end of the 1950s, the arc of the postwar 1920s, the 1929 Crash, the Great Depression, World War II, and the Cold War had been drawn. Legacy leaders of the Big Six banks that had gathered to save the markets in the late 1920s still dominated Wall Street and White House relationships. The current elite were largely based on that old set: First National City Bank of New York, Chase Manhattan Bank, and Morgan Guaranty Trust (encompassing J. P. Morgan Bank) were the old guard, while Chemical Bank New York Trust and Manufacturers Hanover Trust were the new guard, hovering just outside the Big Three. They would later be subsumed into the Chase Manhattan Bank and then into JPMorgan Chase. Added to the mix was the West Coast cousin, reluctantly accepted as a political “player” by the eastern bankers: Bank of America.

Many of the financiers who had been influential during Eisenhower’s administration would retain power after he left office. With the next president, they would delve even further into the international realm.

CHAPTER 11

T
HE
E
ARLY
1960
S
: “G
O
-G
O
” Y
OUTH
, M
URDERS
,
AND
G
LOBAL
F
INANCE

“The reduction of global tension must not be an excuse for the narrow pursuit of self-interest.”

—John F. Kennedy, address before the Eighteenth General Assembly of the United Nations, September 20, 1963

T
HROUGHOUT THE 1960S A SINGULAR FORCE DROVE THE SEEMINGLY DISPARATE
realms of politics, pop culture, and banking: youth. Youth helped propel handsome, impeccably groomed, and pedigreed John F. Kennedy into the White House. Major papers oozed praise on rising young moguls like First National City’s Walter Wriston and Chase’s David Rockefeller. By the end of 1963, even Morgan Guaranty Trust was equating “the current round of business expansion” with “an impressive display of youthful pep.”
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By the mid-1960s, 65 percent of Wall Street bankers were under the age of thirty-five. They had no Great Depression memories and few World War II ones.

As younger men who lacked shared crisis experience put themselves into play for important positions, they catalyzed a widespread attitudinal shift toward privileging private gain over public spirit. There was no “national trial” to foster population-oriented feelings from the financier sect. Political themes of unity were increasingly absent from public discourse. The bankers’ push to become international financial gods would increasingly sever them from an explicit alignment with the country’s greater needs and blind them to the suffering of developing countries, many of which were losing their economic sovereignty to private US (and later European) bankers and their clients. Bankers were rapidly discarding the implicit mantra of “America first” in favor of, simply “Go where the money is.”

The presidential and banker policy alliance was tighter at the start of the Cold War, when the feeling of US invincibility was more pronounced. Eisenhower’s mutual security agreements, which provided non-Communist countries with US military and economic aid, had enabled bankers to set up shop in those countries. Now that feeling of strength was giving way to an emerging sense of global instability. The fresh crop of powerful financiers began to question whether the shield of the president and government was solid enough to protect their international interests. By the end of the 1960s, they would no longer rely on the White House for support but would begin to forge ahead with their own plans to secure global power.

Following a slow start to the decade, an air of financial immortality born of booming corporate profits, rising wages, and easy credit buoyed the stock market again. It was the dawn of spin:
Mad Men
–style advertisements about “trading up” abounded, beckoning Americans to “have more”—to upgrade from black-and-white to color TVs and from cars the size of a small living room to muscle cars that tested the limits of power. Consumerism became the new pastime, debt the designer drug. Total household debt hit more than $300 billion by 1964, more than double the figure from a decade earlier.
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On Wall Street, the term “go-go” underscored a surge of market participation last seen in the 1920s. Trading volumes ballooned as all-American companies like Howard Johnson
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and Tyson Foods went public.
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America’s obsession with gas-guzzling cars and greasy fast food ignited shares in drive-thru restaurant chains like Kentucky Fried Chicken and McDonald’s.
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Budding mutual funds enticed individuals to invest their savings rather than keep it in banks, just as trusts had done in the 1920s. This forced banks to seek overseas profits more strategically to hedge their potential lack of deposit inflow. Nearly 120 million Americans directly or indirectly had a stake in the markets.
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