All the Presidents' Bankers (45 page)

Kennedy, the Economy, and the Bankers

On January 3, 1960, Senator John F. Kennedy of Massachusetts gave his first TV interview after announcing his intention to seek the Democratic nomination for president. He eerily alluded to the possibility of dying in office: “People presume that the presidential candidate will have a normal life expectancy.”
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But Kennedy didn’t mince words about the economy. Even though it had recently rebounded from a mild recession, he was not convinced the worst was over, and he warned the viewing public, “All the pigeons are coming home on the next president. . . . He’ll have the most difficult time next to Mr. Hoover, because I think we’re due to have a recession . . . more serious than the 1958 recession.”
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As it turned out, JFK would preside over thirty-three months of economic growth.
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But he would fail to execute many of his economic goals; perhaps because he didn’t have enough time, but also because his more distant personal connections with certain influential bankers and businessmen hampered his ability to harness their support for his policies while helping them with theirs, as FDR had cleverly done for years.

Kennedy tried to limit foreign tax benefits on US subsidiaries abroad and impose other “equalization” taxes. This riled the American bankers, who advocated the free flow of everything finance-related. In his book
Battling Wall Street: The Kennedy Presidency,
historian Donald Gibson described the relationships between Kennedy and the bankers as tension-lined. “Not only did they not embrace each other,” he wrote, but “the Establishment’s rejection of Kennedy became increasingly intense during his time in office.”
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The relationships were complex. Whereas Wriston and Rockefeller, the two bankers most primed to dominate Cold War–era financial power politics in the 1960s, disagreed with some of Kennedy’s policies (notably ones that restrained their expansionary goals), others, like the elder John McCloy, were far more reverent toward the president. Yet despite philosophical disagreements on US economic supremacy in the global sphere, Kennedy’s relationship with Rockefeller was solid enough that his choice for secretary of state was Dean Rusk, who was president of the Rockefeller Foundation from 1952 to 1961 after having served in various State Department roles during the Truman administration.

Kennedy had first met David Rockefeller in 1938 at the coming-out party for his sister Kathleen. The gala was thrown in London by their father, Joe Kennedy, the ambassador to Britain, after which Rockefeller briefly dated (or, as he put it, “enjoyed the company of”) Kathleen. The two young men
studied at the London School of Economics (both had attended Harvard). They hadn’t kept in contact for more than two decades, possibly because both were busy pursuing their own agendas and hadn’t quite figured out how to use each other in the process. Indeed, the frequency of their communication increased as both settled into their roles: Kennedy running the world’s most powerful country and Rockefeller close to running the world’s most politically powerful bank (and serving as a self-appointed ambassador at-large for US foreign policy).

One Chase Plaza

John McCloy was set to retire on March 31, 1960, his sixty-fifth birthday. But internal battles at Chase delayed his plans to return to his private legal practice. He remained at his post six months longer, while his potential successors—the internationalist Rockefeller and the older, more domestically focused George Champion—sparred over who would get his job.

Rockefeller thought McCloy’s lack of support for him stemmed from a long-standing resentment of his family’s wealth and stature. He believed McCloy began nursing a grudge in 1912, when he tried and failed to secure a tutoring job at the Rockefeller mansion in Mount Desert Island, Maine.
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Eleven years Rockefeller’s senior, Champion had been an all-star football player at Dartmouth, from which he graduated in 1926. Afterward, he secured a job at the Equitable Trust Company. Like his then-boss Winthrop Aldrich, he joined Chase when the two firms merged in 1930. Champion rose as a lending officer through the 1930s and 1940s, courting high-profile corporate customers. An “ardent golfer,” he was appointed head of the bank’s marquee unit, the commercial banking department, in 1949.

Absent a sign either way from McCloy, the board ultimately decided to make both men co-CEOs. Rockefeller was named president and chairman of the executive committee. Champion, to Rockefeller’s disdain, was elected chairman of the board. To Rockefeller, Champion was like the archaic office furniture he kept around, “wedded to the past” and to Chase’s domestic preeminence. Rockefeller wanted to dominate the international arena. “Our joint tenure at the bank,” he later wrote, “would be an extended open unpleasant struggle for primacy.”
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During that tenure, Rockefeller triumphed in the field of molding Washington and the world to his way of seeing things. Less than a decade later, he would do so from atop the Chase bank.

The Chase Manhattan Building at One Chase Plaza—a block from the Federal Reserve Bank of New York—was McCloy’s lasting physical contribution
to the firm. In May 1961, the sixty-story skyscraper opened to global fanfare.
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Architecturally and symbolically, it was the tallest bank building in the world. The firm Skidmore, Owings, and Merrill, specialists in the international “glass-box” style, designed the monolith. SOM later built several “tallest buildings in the world,” including the Sears Tower in Chicago and Burj Khalifa in Dubai. The austere style inspired its share of disapproval over the years; critics called it ugly and elitist. Mostly, the Chase Manhattan Building conveyed a cold and reserved power befitting the time, with its elite executive headquarters situated at the top, far away from the antlike humans scurrying about on the streets below.

From these headquarters, Champion set about expanding Chase’s funding avenues. There were two main sources he could tap: the growing certificate of deposit market and the Eurodollar market. He did both. Chase’s asset base tripled through the 1960s, as did its domestic loans and deposits.

Domestically, CDs provided huge pools of domestic money for banks. Introduced by First National City Bank of New York (now Citigroup) in 1961, CDs enabled banks to raise money from investors, thereby circumventing Regulation Q, the Federal Reserve’s restriction on interest rate payments. Since the late 1950s, corporate and individual depositors had been transferring money from banks into higher-yielding investments, such as commercial paper (for business borrowing) and bankers’ acceptances (used in international trade). Since banks were prohibited under Regulation Q from paying interest on checking and savings accounts held for less than thirty days and limited in their ability to pay interest on accounts held for more than thirty days, CDs provided a way to get money in the door at market interest rates and lend it to keep foreign expansion buzzing.

Companies didn’t mind tying up their capital for the longer periods these forms of deposits required, provided they enjoyed higher interest rates. But there was a roadblock: new unrestricted money market funds could pay higher rates and drain deposits from commercial banks. This troubled Champion and all his banker compatriots.

There was a solution though. Across the Atlantic, the Eurodollar market was a more dependable source of funds. The Cold War provided an extra kick to US banks in London. The Soviet Union and other Eastern Bloc countries needed dollars for trade but wanted to avoid adverse US policy by not keeping or borrowing money in the United States. So they stuck funds in the London offices of British and American banks, causing the City of London to grow as a banking center and recoup some prewar financial glory.

Other offshore markets developed as well, as did “shadow banking,” a secretive element of the global financial system that moved debt and profits around the world outside the purview of standard banking regulations.

Chase remained a leading participant in the dominant Eurodollar market. The firm also expanded its European loan services, including to big petroleum companies, a group that encompassed one-third of Chase’s business loans and a large proportion of former chairman McCloy’s law clients. US banker global positioning began to grow independently from domestic political posturing, largely through the Eurodollar market.

McCloy: Kennedy’s Disarmament Adviser

For the most part, McCloy sat out the 1960 presidential election. He was ambivalent about Richard Nixon. Like other Republican bankers, he had a mild personal aversion to Nixon but didn’t fully support Kennedy either. He was unimpressed by Kennedy’s lack of engagement with establishment institutions like the Council on Foreign Relations, which McCloy chaired from 1953 to 1970.
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Conversely, Kennedy wanted McCloy in his corner. He admired his fellow Irishman. While vacationing in Palm Beach in November 1960, JFK remarked, “When one mentions the names of [David] Rockefeller and [Wall Street financier Douglas] Dillon and McCloy, one has exhausted the supply of good Republicans.”
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Just after he won the election, with the tightest electoral victory margin since 1916, Kennedy summoned McCloy to his presidential suite at the Carlyle Hotel, where he often conducted meetings when he was in New York City. When McCloy arrived in the pouring rain, he was so scruffy in his dirty old raincoat that the gaggle of reporters camped out at the hotel didn’t even notice him.
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Once the two men sat down, Kennedy offered McCloy the secretary of defense role, but McCloy demurred. He harbored a slight aspiration to be Treasury secretary, but Kennedy decided there might be a conflict, given McCloy’s “contractual relationships” at his law firm.

After a second meeting, McCloy accepted a disarmament position, with one characteristic stipulation: he wanted autonomy. This meant reporting directly to Kennedy rather than to anyone else on the bureaucratic chain. Once Kennedy agreed, McCloy became chairman of the General Advisory Committee on Arms Control and Disarmament.
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Through the spring of 1961, and surrounding the March 1961 Geneva Conference at which disarmament positions were discussed, McCloy, JFK, and his national security advisers met biweekly to discuss disarmament plans and the process of unwinding weapons stockpiles. The Soviets wanted a more definitive solution, proposing complete disarmament of both sides within four years. McCloy was skeptical of their fervor and timeline. Without broad agreements for peace in tandem, these Russian promises seemed like mere public relations ploys to him.
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After one of his meetings with Kennedy at the Oval Office, he complained that “this Geneva Conference constitutes the most discouraging exercise in disarmament negotiations since the close of the war.”
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Still he soldiered on. Tasked with reinvigorating East-West disarmament talks, McCloy and Valerian Zorin, the Soviet delegate to the United Nations, met for two weeks in June 1961 to hash out principles for disarmament discussions set to begin August 1.
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They submitted their agreement to the UN that September, but subsequent discussions got stymied in international politics.

McCloy’s frustration with the process intensified. He and other disarmament advisers met with JFK on September 24, 1961, at Kennedy’s Carlyle Hotel suite. In a photo of McCloy, Kennedy, Secretary of State Rusk, and Arthur Dean, chairman of the US delegation to the Geneva Conference on Disarmament, Kennedy is standing uncomfortably, his hands stuffed in his pockets.
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The tension was palpable.

McCloy had drafted a bill to establish the US Arms Control and Disarmament Agency, which Kennedy signed on September 26, 1961.
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But he was unnerved by the reaction of the Soviets to his earlier proposals for disarmament, since they had resumed nuclear testing on September 2, 1961. In April 1962, McCloy penned an eleven-page missive on the Soviet disarmament situation in
Foreign Affairs.
“Prior to the reconvening of negotiations at Geneva in March of 1961,” he wrote, “I believed that the Soviet Union, in spite of its almost pathological abhorrence of any system of thorough inspection—or, perhaps better stated, its traditional attachment to secrecy and its distrust of our motives—did sincerely wish to reach an agreement.” That belief was “practically destroyed on September 2, 1961, [with] the resumption of Soviet testing.”
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Despite McCloy’s frustration with the March 1961 Geneva episode, he continued working on a disarmament agreement that summer with Zorin. Kennedy met with Soviet premier Nikita Khrushchev in Vienna in June 1961, five weeks after the Bay of Pigs debacle in which CIA-aided Cuban exiles
launched a botched invasion of Cuba. But absent a solid conclusion on the matter of disarmament between Kennedy and Khrushchev, tensions rose further: the Berlin Wall was erected in August 1961, and the Soviet Union announced it had resumed atmospheric testing.

Yet McCloy and Zorin had still reached an agreement on the
principles
of disarmament on September 20, 1961. Kennedy presented “The United States Program for General and Complete Disarmament in a Peaceful World” to the UN five days later. In that address, he challenged the Soviet Union “not to an arms race, but to a peace race,” leaving the issue of arms basically unresolved despite the applause he received.

The superpower rivalry devolved into the October 1961 testing of the “Tsar Bomba,” the largest nuclear bomb in history. The resumption of American testing began on April 25, 1962, the month McCloy published his
Foreign Affairs
article on the matter. These problems, according to McCloy, were the Soviets’ fault. And, he believed, they were economically illogical to boot. As he wrote, “It would be advantageous to the Soviet Union, one would think, to be free of the economic burden of the arms race.”
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