All the Presidents' Bankers (47 page)

The
Life
incident and its aftermath had forced Kennedy to conclude that it would be better to publicly befriend more bankers. He followed up by inviting bankers like Weinberg (who, though a Democrat, had supported Nixon in the 1960 election) and Thomas S. Lamont (vice chairman of the Morgan Guaranty Trust Company and son of former Morgan head Thomas W. Lamont) to an intimate luncheon at the White House.
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(Thomas Lamont, though a Republican, publicly supported Democratic presidents, like his father had—notably JFK and LBJ.)
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Yet JFK’s efforts to push his economic policies through Congress remained encumbered. He had come to the realization that to push them through, he would need more active bankers’ support. But this was a game they played better than he did.

David and
Time
Magazine, September 1962

The
Life
article elevated Rockefeller’s stature more than Kennedy’s. In its September 7, 1962, cover story, “Banker: The Man at the Top,”
Time
magazine paid homage to Rockefeller through an interview that took place while he was navigating New York traffic. The article portrayed him as a multitasking god, driving, exposing his views to the reporter, and “dictating to the secretary at his side a highly technical memorandum on the need for U.S. banks to give long-term loans to foreign importers so that they might buy more U.S. goods.”

The piece considered the mogul one of that “little group of men” located at “the financial hub of the world’s wealthiest nation” who “by their nods give the stop or go sign to enterprises from Bonn to Bangkok.” It aptly noted, “They wield vast powers.” With Chase’s twenty-eight foreign branches and fifty thousand correspondent banking offices circling the globe,
Time
noted, “Rockefeller frequently hops about the world cementing relationships and encouraging correspondents to be more openhanded with loans to good local risks.” In a page from Rostow’s book, Rockefeller advocated the “profit motive” for progress, telling
Time,
“Business leaders must point out forcefully and persuasively those government policies or actions that prevent the private economy from achieving its full potential.”
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US Cold War foreign policy saw a fine (or no) line between “forcefully” pointing out policies that prevented private capital from moving where it wanted to and creating such a situation through the use of military force.

McCloy and the Cuban Missile Crisis

After Fidel Castro rose to power following the 1959 Cuban Revolution, Cuba and the Soviet Union forged closer economic ties. As Nasser had done in Egypt, Castro also nationalized the foreign banks. This didn’t sit well with the major US bankers who had considered Cuba a potential strategic financial services hub in the 1950s. The Soviet Union wasn’t just supplanting American capitalist ideology with Communism by its tighter relationship with Cuba; it was keeping bankers from a major financial outpost. The situation grew worse when Kennedy issued an embargo against Cuba by an executive order announced on February 8, 1962.

Eight months later, on October 14, 1962, an American U-2 spy plane discovered medium-range ballistic Soviet missiles in Cuba.
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Fearing that the Cold War could become a real war, Kennedy convened eighteen advisers, including John McCloy, to discuss his options. Eight days after that, Kennedy
ordered a naval quarantine of Cuba to pressure Khrushchev to remove the missiles. Though McCloy was in Germany on other business, Kennedy urged him to return to the United States to negotiate the Cuba situation at the United Nations.
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Kennedy wasted no time in sending a US military plane to collect McCloy and bring him back. Two days later, Soviet vessels approached the quarantine line anyway. Then, they turned back. Three days after that, the Cubans downed a US reconnaissance plane. Diplomacy appeared to be failing. The whole crisis had begun because the Soviet Union was providing economic assistance and arms to Cuba, which was, as Khrushchev wrote JFK, “constantly under the continuous threat of an invasion.” Now, with various US planes flying over Soviet territory, he declared that his government “could not remain indifferent.” Further, he said that the Soviet government had supplied “defense against aggression” and not “offensive means,” as JFK described it, to protect itself from possible invasions.
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The situation appeared dire. But after thirteen nailbiting days, on October 28, Kennedy accepted Khrushchev’s offer to withdraw his missiles from Cuba in return for an end to the quarantine, a US pledge not to invade Cuba or violate Cuban airspace, and, more covertly, a US pledge to extract its arms from Turkey.
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The unintended consequence of that official end to the Cuban missile crisis was a three-and-a-half-year bull market, and a renewed vigor of bankers to expand elsewhere into Latin America.

McCloy Returns to the Private Sector

On January 1, 1963, the White House received the official announcement that “John J. McCloy has again become a member of the firm.” “The firm” went from being named Milbank, Tweed, Hope, and Hadley to Milbank, Tweed, Hadley, and McCloy.

Though detangled from Washington officially, McCloy continued his disarmament efforts through the Council on Foreign Relations and
Foreign Affairs.
He also remained an adviser to the group he had created within the Kennedy administration. He had come to the realization that the Cold War served no obvious business purpose for him or for US bankers or businessmen. Financial and business growth required an open global market. Whereas at one point war had been good for finance, and postwar US government support for its allies had been as well, now its threat was detrimental, restrictive, and would scare international speculators from forging into new territories.

McCloy’s official time with Kennedy had proved personally profitable. The goodwill that Kennedy had for him enabled McCloy to retain a major piece of legal business: that of the “Seven Sisters,” the seven largest international oil companies, controlling 85 percent of global oil reserves.

McCloy persuaded Kennedy that US oil companies, particularly, had to unite against the Organization of the Petroleum Exporting Countries (OPEC) countries for the sake of price stability. His argument was positioned as a matter of national security.
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Kennedy responded by asking his brother Robert Kennedy, the attorney general, to provide McCloy whatever latitude he required. McCloy also benefited from one of RFK’s earlier promises to help him whenever he needed it.
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As a result, McCloy was allowed to represent all seven firms, despite the antitrust implications of doing so. The move would be extremely lucrative for his clients during the 1970s Middle East oil embargoes.

In early 1963, McCloy traveled to the Middle East as ambassador for his oil clients, not for Chase (though it amounted to the same thing). There, he struck up a relationship with Prince Abdullah bin Abdul-Rahman of Saudi Arabia, which would serve him, Rockefeller, and their respective companies (Milbank, Tweed was Chase’s law firm) well, especially during the price spikes of the 1970s.
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As always, McCloy deftly mixed his private business dealings with US foreign policy goals: while traveling he leveraged his post as chairman of the Council on Foreign Relations to ensure that the appropriate power players in Washington and the private sector were aligned. In Saudi Arabia, he discussed the effect of OPEC’s demands for increased oil revenues on his clients (years before what would be a full-blown oil crisis), and Chase’s desire to handle Saudi Arabian and Aramco pension funds. All this while he was making diplomacy suggestions on Kennedy’s behalf.
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Late Support and Criticism for Kennedy

On January 14, 1963, during what would be his final State of the Union address, Kennedy emphasized the need to keep the recovery going with high growth and full employment.
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Again, he pushed for a balanced budget and tax reductions for individuals—which he had championed during his inaugural address. Six weeks later, at an American Bankers Association symposium at Washington’s Mayflower Hotel cohosted by David Rockefeller, he attempted to rally business support for his proposals.

It was difficult. Neither the business community nor Congress wanted tax cuts without requisite spending cuts. In response to one loaded question,
Kennedy said briskly, “The alternative today is between keeping this economy moving ahead and a recession, and in my judgment the best medicine for that recession is a tax reduction.”
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On April 23, in a speech at the Economic Club of Chicago, Rockefeller proposed creating a private business advisory committee to work with government organizations implementing the Alliance for Progress.
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He endorsed Kennedy’s support for broadening the government’s investment-guarantee program, which encouraged a greater flow of private investment. He also indirectly admonished Communist-leaning governments, stating, “Latin-American governments cannot lure foreign capital by harassing companies already there.” Three days later, Rockefeller had an off-the-record meeting alone with Kennedy to discuss these private business-government synergies.

On the one hand, Kennedy was learning their language. “I want to make it clear that, in solving its international payments problem, this nation will continue to adhere to its historic advocacy of freer trade and capital movements, and that it will continue to honor its obligation to carry a fair share of the defense and development of the free world,” he said. “At the same time, we shall continue policies designed to reduce unemployment and stimulate growth here at home—for the well-being of all free peoples is inextricably entwined with the progress achieved by our own people.” He also made it clear that he would maintain the dollar “as good as gold,” freely interchangeable with gold at $35 an ounce, “the foundation-stone of the free world’s trade and payments system.”

Yet Kennedy stubbornly targeted that balance of payments deficit, to the chagrin of bankers. It was largely because of their opportunistic expansion that the Eurodollar market had roughly tripled during the 1950s, and doubled again in the early 1960s amid the rapid expansion of American multinational corporations and the companion growth of US banking branches abroad.
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Kennedy feared that the outflow of funds into Eurodollar accounts was damaging the US balance of payments that tabulated the amount of physical and financial exports and imports. The declining balance meant that more money was flowing out, and that more American companies and individuals were investing their dollars outside the United States.

To combat this inequity, he announced a program on July 18 that included a temporary 15 percent tax on purchases by Americans of foreign securities and a tax on loans made by American banks to foreign borrowers, a quasi-regulation impinging on banks’ global expansion activities. His action infuriated the bankers, who had positioned themselves above US balance of payments problems by opening foreign branches that could cater to foreign
investors and borrowers, or sell foreign securities to America. The government concerns over where money was spent was less important to US banks.

But privately, Kennedy was worried about the value of the dollar and of gold. Certain US aid to developing countries wasn’t pouring back into the US economy but going into gold purchases. During a July 31 phone conversation, Treasury Secretary C. Douglas Dillon told him Peru, for one, was “using our aid money to buy gold.”

Kennedy commented, “It’s an insane system to have all these dollars floating around [that] people can cash in for a very limited supply of gold.”

Dillon agreed, saying they should tell Congress “we have a policy: if countries have so strong a balance of payments, we can’t give these soft loans.”
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But in terms of the gold standard, the banking sector, as per Rockefeller’s
Life
article, considered it restrictive to their desired open policy of money and investment flow. To them, this transcended any national balance of payment issues. First National City Bank executive vice president Walter Wriston was especially livid. “Who is this upstart President interfering with the free flow of capital?” he demanded. “You can’t damn capital.”
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Born in Middletown, Connecticut, on August 3, 1919, Wriston was “an unbending proponent of laissez-faire capitalism,” much like his father, Henry, who considered FDR’s New Deal a folly and had served in various advisory capacities for the Eisenhower administration and as president of the Council on Foreign Relations from 1951 to 1964.

In 1942, with a master’s degree from Harvard, Walter Wriston began a three-year stint as a junior Foreign Service officer. He intended to remain at the State Department. But his father had a powerful friend at National City Bank, Vice Chairman W. Randolph Burgess, who found a spot for him in the bank’s credit department.
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By June 1960, at the age of forty, Wriston was running First National City Bank’s international division. Under his direction, the firm opened banks in Puerto Rico, Cuba, Brazil, and Argentina. The resource-rich Latin American region soon accounted for the bulk of its overseas bank deposits.
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There, its presence exceeded Chase’s, to Rockefeller’s chagrin.

Instead of fighting Wriston, on October 2, 1963, Kennedy appointed him to serve with other financiers on a task force to study ways to increase foreign investment in the securities of US private companies and survey the availability of foreign financing to US private companies operating abroad (the opposite of his proposals), as another possible way to balance payments.
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