All the Presidents' Bankers (46 page)

David Rockefeller’s Dream and Kennedy’s Alliance for Progress

Kennedy officially announced the Alliance for Progress with Latin America during a reception for Latin American leaders at the White House in early 1961.
²⁵
It was formally born through documents signed by twenty countries at Punta del Este, Uruguay, on August 17 of that year. But the idea for the initiative came from two earlier sources. The first was Kennedy’s take on Eisenhower’s Mutual Security Program, whereby the United States would provide economic and military aid to nations that were politically aligned. The second was the ideologies of Walt “W. W.” Rostow, Kennedy’s deputy assistant for national security affairs from 1961 to 1962 (who later served as special assistant for national security affairs to President Johnson, where he was actively involved in shaping US foreign policy). Rostow was staunchly anti-Communist and pro-free-market capitalism. (He was also a strong advocate for US involvement in the Vietnam War, and he won the Presidential Medal of Freedom in 1969.)

In 1960 Rostow wrote
The Stages of Economic Growth: A Non-Communist Manifesto.
The book was widely read, especially in the power circles of Washington and Wall Street. Besides being a rebuttal to Karl Marx and Communism, his explanation of historical economic development was almost biblical
doctrine for bankers wishing to expand into developing nations, where they could buy up local banks and companies (in whole or in parts) and export the profits.

Rockefeller was a devout practitioner of Rostow’s theories. He had been running Chase’s Latin American business since the 1950s. Under his tutelage, Chase opened branches in Cuba, Panama, and Puerto Rico.
²⁶
For the most part, his banking expansion strategy was in line with Kennedy’s Alliance for Progress philosophy, which stressed that “each Latin nation must . . . establish the machinery for vital social change [and] stimulate private activity and initiative.”
²⁷
Rockefeller acted on the notion that this meant private
banking
activities and
financial
initiatives.

Yet there was a catch. No US bank could operate in countries that adhered to rigid protectionist notions that impeded the flow of free-market capitalism. Rockefeller was thus critical of “overly ambitious concepts of revolutionary change” in the region. He wanted the alliance to focus on private business interests, which would enable more US bank loans and privatization deals.
²⁸
He was less interested in what the masses of the region might want, or whatever their political ideologies might be.

Practically, he set about prying open the region through meetings with leaders and local elites willing to part with their share of the countries’ resources or profits. He also used Chase as a means to purchase pieces of local and national banks. The goal was to enable the flow of international private capital under the auspices of a program that ostensibly benefited Latin American populations from a cultural and intellectual perspective. In the spirit of providing these nonfinancial benefits, he helped organize the Council of the Americas and the Center for Inter-American Relations, which worked to “maximize private enterprise contributions and cultural and intellectual exchanges.”
²⁹
Chase loans to the region grew substantially in conjunction with these entities. The maximization of private enterprise would far surpass any cultural aid Rockefeller or any other US elite believed they could impart upon Latin America.

Rockefeller remained committed to “putting down roots” in all the major countries of the world.
³⁰
A main focus was Brazil, the fastest-growing country in South America. In 1961, an associate of his brother Nelson informed him that Antonio Larragoiti, the chairman of Sul America, South America’s largest insurance company, was prepared to sell Chase 51 percent of his stock in its banking subsidiary for $3 million and give Chase full management control. The deal was concluded in April 1962 and wound up being quite lucrative for Chase. Renamed Banco Chase Manhattan in 1987, that small
subsidiary became one of the leading foreign banks in Brazil, with more than $1.1 billion of assets.

Rockefeller’s style was akin to venture (or vulture) capitalism: he could swoop in and convert a local bank into an international vessel of financial services through which to lend and speculate in the host country, and make millions in the process. Thus, while his former boss, John McCloy, concentrated on worldwide peace and disarmament agreements, Rockefeller focused his attention on Kennedy’s Alliance for Progress initiative and developed a strategy to use it to his advantage.

In his thirty-five years at Chase, Rockefeller visited 103 countries and took forty-one trips to France, thirty-seven to England, twenty-four to West Germany, fifteen to Japan, fifteen to Egypt and Brazil, three to Africa, as well as to forty-two of America’s fifty states.
³¹
He logged five million air miles. He considered his presence essential to securing relationships, offices, and, of course, his own reputation among the global elite.

As Rockefeller blossomed into a full-scale international power broker who communicated regularly with Kennedy on the foreign impact of US economic policy, his dual identities—banker and self-anointed global “diplomat”—meshed so intricately that it proved impossible to tell them apart. Rostow’s doctrine paralleled his own conviction that economic growth could occur only if national walls restricting the might of global finance were torn down. If it was “manifest destiny” that had propelled America westward, it was a kind of financial manifest destiny that propelled its bankers around the world.

US Steel, Taxes, and Bankers

In early 1962, Kennedy battled a foe close to home: the steel industry—and, by extension, its financial supporters, including the Morgan Guaranty Trust Company, the Ford Foundation, and First National City Bank. He accused these players of anticonsumer price-fixing.

On April 10, US Steel head Roger Blough appeared at the White House to tell Kennedy he would raise steel prices to $6 a ton despite the price-fixing charges.
³²
Kennedy eventually persuaded Blough to deescalate steel prices, but at the cost of expending great political capital.
³³

Afterward, Kennedy explained his feelings about the incident in a handwritten scribble: “I shall be Pres.—come what may for the next 3 years. We can have disagreement between business and the government . . . there should however not be war or hostility between business & the govt. I can
stand it . . . but the country cannot—we have too many common interests involving the welfare of our country.”
³⁴

Kennedy’s tax proposals were less well received by the business and banking community, especially those that tampered with overseas expansion. During the early 1960s, firms rapidly increased foreign investments. New terms snaked into the annals of corporate lingo to describe these corporations, including heady labels such as “multinational,” “global,” and “transnational.” US banks facilitated and profited from the lending blitz corresponding to these foreign animals. Neither banks nor their client companies wanted the party stopped.

Yet Kennedy was considering putting restrictions on all of it. He proposed eliminating tax breaks for companies set up by US interests as foreign investment companies, and for wealthy individuals transferring wealth abroad. Most of his proposals, considered unattractive by the wealthy, died in congressional compromises.
³⁵
They also may have been encumbered by the nature of Kennedy’s relationships with the elite banking and business crowd. Earlier in his term, he didn’t appear to
need
bankers to support his policies. He didn’t stroke their egos or exchange bubbly pleasantries; he didn’t go out of his way to embark upon lengthy meetings or calls with most of them; he didn’t solicit their advice. This mutual feeling of uneasiness manifested even in Kennedy’s physical stance; he often stood with his hands in his pockets in their presence. His attitude lay in stark contrast to Eisenhower’s warm embraces to the banking crowd and those of his vice president, Lyndon Johnson.

To be sure, there were certain financial players who were more frequent guests of Kennedy than others, including Henry Alexander of Morgan Guaranty and David Rockefeller and George Champion of Chase. Plus, Goldman Sachs head Sidney Weinberg was a member of Kennedy’s Business Council.
³⁶

But it wasn’t until his second year in office that Kennedy opened more lines of official communication with bankers and businessmen.
³⁷
It wound up hurting him, in more ways than one, that he hadn’t done so right off the bat.

Blue Monday

Adding to Kennedy’s troubles with the steel industry, the Dow took a dive on May 28, 1962, losing $20.8 billion in one day, the largest amount ever.
³⁸
Time
magazine plastered Kennedy’s economic adviser, Walter Heller, on its cover, sporting slicked-back hair and brown-rimmed glasses over earnest
eyes.
³⁹
(In a memo to Kennedy on the economic situation before the story was published, Heller described himself as
Time’s
“cover victim.”
⁴⁰
)

According to
Time,
“The night of Blue Monday, 1962, was the grimmest evening on the New Frontier since the failure of the Bay of Pigs invasion. Measured by the Dow-Jones industrial average, the stock market was down 35 points in the deepest one-day plunge since the black year of 1929. . . . President Kennedy told staffers to prepare an agenda for a meeting next morning with his chief economic advisers.”

In early May the outlook had appeared better. In a handwritten note to Kennedy, Heller explained, “Here’s the best dope so far available on corporate profits in the first quarter—not bad, not as good as we had hoped, but still headed for
well
over $50 billion for the year (vs. a previous peak of $47 billion).”
⁴¹

Yet the market kept trending downward. The Standard & Poor’s Composite Index lost 22 percent of its value between March and May. The German stock market was down 26 percent from 1960, the Swiss was down 18 percent from 1962, the Japanese was down 29 percent from 1961, and the British index was down 21 percent from 1961.
⁴²

The economic situation had worsened psychologically because of the steel crisis (portrayed as evidence that the Kennedy administration was hostile toward business), an SEC investigation into brokerage firms, and a steady outflow of gold.

The president’s economic brain trust decided to do nothing. Though the lack of response was publicly criticized, it proved wise. By May 30, the European markets and the Dow had rebounded.
⁴³
Underlying what ended up being a market blip was the contentious relationship Kennedy had with the nation’s top financiers. But by midsummer 1962 Kennedy had gone from resisting bankers’ advances to finally extending the olive branch at the White House.

During a dinner with French minister of cultural affairs André Malraux at the White House on May 11, 1962, Kennedy took Rockefeller aside to discuss financial matters. He persuaded Rockefeller, who needed little arm-twisting, to write down his thoughts in a letter that made its way to the editor-in-chief of
Life
magazine.

While Rockefeller gathered his thoughts, Kennedy made it known to a recalcitrant Congress that he might consider loosening fiscal policy with regard to the US balance of payments deficit, a turnaround from his prior stance. In addition to weakness in domestic businesses and the stock markets, nations using their surplus dollars had drained America’s gold reserves to a twenty-two-year low.
⁴⁴
It was on this and related international
elements upon which Rockefeller chose to focus. On July 6, 1962,
Life
featured the letters between Rockefeller and Kennedy in a piece titled “A Businessman’s Letter to J.F.K. and His Reply.” “I am confident,” wrote Rockefeller, “that the thoughts I express are shared widely within the financial and business community, both here and abroad.”
⁴⁵
He went on to criticize Kennedy’s proposed exchange controls over capital movements, which he said “would destroy the effective functioning of the dollar.” He had definite opinions about the White House idea of requiring a “25 [percent] gold reserve against Federal Reserve notes and deposits.” He believed that suspending the requirement briefly might be the best way to “handle the problem.” But he was not averse “to seeing the law repealed altogether.” Kennedy ignored the negatives, instead responding to Rockefeller with his appreciation: “I am gratified that we agree so widely on basic problems and goals.”
⁴⁶

The exchange was dubbed a “landmark” by the media. It also helped elevate Kennedy in the eyes of the business community. On July 13, 1962, Rockefeller met for a financial policy meeting with Kennedy for nearly ninety minutes, one of the longest one-on-one meetings with a lead banker during Kennedy’s presidency.
⁴⁷
Yet Kennedy still wanted to contain the outflow of capital whereas the financiers wanted to set it free. Kennedy lost that battle. He wasn’t able to push through any of his capital-restraining initiatives. But he did push through an important trade initiative that was right up the bankers’ alley. The Trade Expansion Act of 1962 reduced tariffs and promoted free trade, particularly with the Atlantic community. At the signing speech, he said, “A vital expanding economy in the free world is a strong counter to the threat of the world Communist movement.” These words served as a true bridge to the globalist financiers.