All the Presidents' Bankers (51 page)

Manufacturers Hanover president Gabriel Hauge was fighting his own merger battle against Donald Turner, the assistant attorney general in charge of the Justice Department’s antitrust division, who had filed several suits against bank mergers on the grounds that they violated Section 7 of the Clayton Act and Section 1 of the Sherman Act, which prohibited anticompetitive or monopolistic mergers (though not generally for banks).

On August 24, 1965, Hauge sent an eleven-page letter defending his bank’s 1961 merger to Congressman Richard Bolling. He deemed Turner’s August 6 letter to him “such an extraordinary amalgam that I cannot let it pass without comment.”

Turner had contended in that letter, “there is no room for the argument that the antitrust laws were displaced in whole or in part by the Bank Merger Act [of 1960], and if Mr. Hauge’s materials are intended to assert to the contrary, they are plainly wrong.”
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Hauge argued that his merger occurred “in good faith” and was “legal under then existing law.” Further, he had never received notice from the Justice Department that it intended to sue either of the banks involved in the merger. Turner eventually dropped his charges, and Manufacturers Hanover, the merged entity, remained intact.

A few months later, the bank merger bill finished its route around Washington. When the House, Senate, and Johnson passed the subsequent Bank Merger Act of 1966, it gave the appearance that more mergers would be rejected for “monopoly” reasons under Section 7 of the Clayton Act and Section 1 of the Sherman Act. But in practice, the bill left major bank mergers open to approval by the comptroller of the currency and the Federal Reserve, both of which supported the consolidation of the financial arena.

Eight months later, an antitrust suit was filed to block a proposed merger of First City National and Southern National Bank in Houston on the
grounds it would substantially reduce competition and increase “concentration in commercial banking in the Houston area.”
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The merger had been approved by the comptroller of the currency. With Johnson’s intervention, it remained so.

A month afterward, Special Assistant Joe Califano told President Johnson that “Stuart Saunders has been calling me about the Penn-Central merger. He claims that you told him if he ran into any problems delaying the merger, to get in touch with you and that you would move things along.”
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In response, Johnson signaled his support directly: “You can be certain that I will be watching your merger developments, and wishing you all success.”
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Penn Central would become America’s biggest bankruptcy in the 1970s.

The Latin American Alliance

On the foreign policy front, Johnson and the bankers remained in agreement over where America should wield power: both wanted to infuse more US private enterprise into Latin and Central America. Not much had changed in that regard since Eisenhower, despite a diversion by Kennedy to be more willing to provide aid based on economic need rather than strict ideological assurances.

Johnson had stated, “We are embarked on a great adventure with the Latin Americans. It is nothing less than to transform the life of an entire continent.” In a letter to Rockefeller, Johnson noted, “I share your view that the private sector throughout the hemispheres has played a creative role in the life of the Alliance [for Progress].” Johnson was “especially grateful” for the “leadership” of Rockefeller and his colleagues in this “great undertaking.”
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Johnson aligned solidly with Rockefeller, and changed or reversed certain Kennedy policies. Kennedy had been sympathetic to leaders of Latin America and its people, but under Johnson, the Alliance for Progress once again served neocolonialist goals, encouraging bankers to infiltrate the region for their own private gain.
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As the White House concluded in an internal note to Walt Rostow in June 1966, “Our modest security assistance to Latin America ($80 million annual) is small enough an investment to protect our major investment ($1 billion annual) in the economic, social and political development of the area.”
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Thus, as with many foreign policy ventures, US military and financial goals meshed.

Robert Kennedy made this a bone of contention with LBJ early on in his campaign to wrest the Democratic nomination for president from him. He wanted to carry on his late brother’s wishes for a more peaceful, economically
just Latin America. An October 31, 1966,
Washington Post
article, “RFK Would Cut Latin Aid,” noted that he proposed a reduction of economic aid to Latin American nations engaged in military buildups at the expense of social reform.

RFK’s position was a swipe at Johnson’s policies. “This proliferation of arms,” he warned, referring to sales of fighter planes to Peru and twenty-five Skyhawk jets to Argentina, “threatens to cause conflict and instability between nations and to obstruct the great objectives of the Alliance [for Progress.]”
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RFK was right about the more idealistic aspects of the Alliance for Progress as his brother had conceived it. The region had only seen the beginning of future abuses at the hands of US corporate and banking interests. These would blossom in the 1970s and implode catastrophically in the 1980s.

Arguably, if JFK or RFK had lived and retained the mantra of economic equality or self-sufficiency in Latin America rather than a free-for-all profit grab accompanied by military alignments, the third world debt crisis, which enabled bankers to use the federal government to support private speculation (the harbinger of more such maneuvers to follow), might never have occurred. But because the third world remained a bastion of opportunity for private bankers, and there was no political doctrine to tone down their zeal for such activity, there were no barriers to stop US bankers and their business clients from going off a speculative cliff. Once they did, the US government backed their losses, while the developing countries suffered extreme economic hardship when they were forced to default on their debts.

Bankers and Vietnam

At first, bankers were supportive of the Vietnam War. They recognized that war in general had buoyed the US economy as well as their domestic and international businesses. Indeed, by early 1965, Chase and other banks had experienced skyrocketing demand for credit, particularly from their subsidiaries abroad, as demand for war-related funding had increased.

The balance of payments had even gravitated toward the United States during the buildup to the war. Following Johnson’s efforts to engage the bankers on the issue, the balance of payments showed a whopping surplus of $259 million by the week ending March 3, 1965.

Johnson expressed gratitude to the bankers for standing firmly behind him on Vietnam. On April 12, 1965, his aide Jack Valenti—who would go on to be Hollywood’s supreme lobbyist for several decades—wrote First National City Bank president George Moore to say, “We are deeply grateful for
your articulate analysis of the President’s Vietnam address and your sound, patriotic response to the business luncheon. The knowledge that the President’s policies stand your penetrating examination is both comforting and encouraging.”

But two months later, Moore saw causes for financial concern. He warned that the balance of payments increase might be short-lived, and predicted another $100 billion of gold would be pulled out of the United States that year. He was aware that “certain people overseas” were growing nervous. “Banks in Asia and Europe and individuals are doing the buying.”

As quickly as it had boosted the balance of payment a few months earlier, the war began to take a toll on foreign investment in the United States. On August 25, 1965, following a dinner at the White House, Moore gave Johnson suggestions on how to reverse the process. “For example,” he said, “it is important to promptly enact H.R. 5916 [for] the removal of tax barriers which have served to discourage foreigners from making investments in the United States.” He stressed, “This would also help to restrain inflation influences which may be heightened by the Vietnam War.”
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War had other economic costs too. On January 14, 1966, Treasury Secretary Fowler transmitted to Congress details of the tax program that Johnson announced in his State of the Union address, intended to raise billions of dollars to help pay for the war. The program was signed into law in mid-March 1966.
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By then, half a million troops were fighting in Vietnam and the population was openly protesting it.

The Dow, however, was inspired by war. It hit a record 1,000 on February 6, 1966, and it kept rising through April 1968. Additionally, the US housing market was booming. In five years, George Champion quintupled the size of Chase’s real estate credit portfolio; it reached $1 billion in 1966, outpacing the growth of all other Wall Street commercial banks. First National City ratcheted up its personal credit and auto loans. The Vietnam War was proving great for banks.

Rockefeller used the war to expand into Asia. In 1966, he raised the ire of peace protesters by opening a Chase branch in Saigon. He also engaged two former Chase men, John McCloy and Eugene Black, to drum up financial support from the banking community for the war.

But Rockefeller rarely operated without a quid pro quo, and the war boom was now revealing a troubling side for him. On January 25, 1966, he sent his concerns to Johnson that Vietnam was draining focus from Latin America. “Latin Americans are concerned that the harsh exigencies of the war in Vietnam may again make Latin America a low-priority area in U.S. policy,”
he wrote. “We ourselves are well aware that your Administration gives Latin America a high priority indeed, but we are equally well aware that Latin Americans need constantly to be reassured of that fact.”
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Support Wavers

Rockefeller’s worries were soon shared by many bankers who had originally supported Johnson. Though they saw the war’s early benefits, they now feared it could be detrimental to their global expansion goals, particularly if it escalated into full-scale multiregional battles. From a domestic standpoint, Vietnam wasn’t going to be a war of national unity that would open channels for them; it was becoming a nuisance.

Construction companies that were engaged in war material production were fine with US intervention and military escalation into Southeast Asia because it brought them more contracts and profits.
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But in general, elite support was fading. As University of Houston professor Robert Buzzanco put it,

The bankers and other corporate elite who had global visions for American investment and commerce came to believe that the war in Vietnam was damaging their interest because it focused resources on Indochina and undermined their larger goals by running up huge deficits and providing resistance from traditional European allies. And so, significant elements in the ruling class opposed the war in Vietnam . . . not because they believed the war was wrong, but because it was, in their estimation, breaking doctrinal ligature that defined foreign relations since Wilson: free-trade imperialism and non-intervention.
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Regarding the Great Society, bankers were also becoming lukewarm. In truth, the success of those policies mattered less to bankers than overseas growth did. As long as bankers were making money and increasing their global influence, what happened domestically was of secondary importance; providing support to Johnson was no hardship. But now they were growing wary of backing Johnson’s efforts.

In 1966 Johnson signed the Participation Sales Act, which encouraged substitution of public credit with private credit. The initiative, started by Eisenhower and extended by President Kennedy’s 1962 Committee on Federal Credit programs, was meant to be a favor to the bankers.
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By replacing $3.3 billion in outstanding public debt (through government-issued bonds) with
private debt (or bank-issued bonds), the government effectively converted public loans into private loans for the banks, giving them $3.3 billion of business guaranteed by the US government.

Soon after the bill was signed, Johnson’s aide Robert Kintner suggested that Johnson form a confidential program to determine how “important business, financial, and industrial leaders feel toward the job being done by the President and particularly how they feel in relation to the Vietnam operation, the President’s European and Latin American policies, the character and duration of prosperity, and the President’s economic, financial and social policies.”

The survey would be based on off-the-record interviews with prominent figures including David Rockefeller, Sidney Weinberg, Roger Blough, and Bobby Lehman.
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But Johnson preferred the route of his private soirées at the White House, which increased in frequency as public opinion turned against the war. As long as the finance and business community could be swayed to support the war, he figured, funding would continue unabated.

War and Taxes

By mid-1967, war and inflation and antiwar demonstrations were escalating, and Johnson was getting increasingly nervous. In August, he held one of his regular off-the-record, no publicity luncheons with the usual crew to gain validation for his domestic and war-related strategies. The “old warrior” Sidney Weinberg came through. He submitted a statement to the House Ways and Means Committee on September 13 in which he urged Congress to give “prompt and favorable consideration” to Johnson’s request for the 10 percent surtax to protect the credit and capital market and “to help finance the war in Vietnam and to prevent an inflationary boom.” Weinberg closed his statement by stressing the importance to the health of the economy that “nothing be done in this legislation to impair the incentives offered to business in the foreign tax credit and the investment tax credit.”
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