All the Presidents' Bankers (55 page)

Wriston remained obsessed with the idea of a “free-market float” in all of its forms. He disdained price and wage controls as fiercely as he did fixed currencies. While in Manila, Philippines, on October 28, 1971, Wriston initiated a public attack against Nixon’s wage and price controls that lasted until the controls were lifted in 1974.
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To more privately press his ideas, in late November 1971, Wriston met with Nixon and Treasury Secretary Connally. Over ham and cheese sandwiches, he told Connally, “At the end of the day, the dollar is going to be floating” before suggesting devaluing it further. Wriston’s support for devaluation “meant a great deal to Connally.”
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On November 13, at an informal news conference following his seventeen-day trip to Asia, Connally told reporters that world monetary uncertainty could continue for “an almost indefinite period” given that most major currencies were “floating,” but he noted that the United States was well positioned regardless.
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Shortly thereafter, Connally announced another 10 percent devaluation of the dollar. Wriston had influenced the direction of the US currency to the benefit of its banks, for whom “cheaper” money meant a greater supply of it for their purposes.

Four months after Nixon’s suspension of dollar convertibility into gold, the Group of Ten major countries agreed to appreciate their currencies relative to the US dollar. To facilitate the action, the Smithsonian Agreements (named for the Smithsonian Institution, where the group met) were passed on December 18, 1971. They allowed the IMF to adjust the relationships of currency rates.
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As a result of the agreements, the price of gold rose from $35 per ounce to $38.

Nixon called it “the most significant monetary agreement in world history.”
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A year later, it became clear that it had failed. The banker-led movement toward an international, floating-rate multicurrency system proved too powerful a force against government or central bank desires to peg currencies. Within fifteen months, all the major currencies were floating against one another.

By May 1972, free-marketer George Shultz had replaced Connally as Treasury secretary. A product of the Chicago School of Economics and a “close friend” of Chicago School icon Milton Friedman, he and Wriston were kindred spirits.
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Both believed the world financial system should be “free.” Through their relationship Wriston could exercise even greater influence on Washington. As Wriston’s biographer Phillip Zweig wrote, “When Wriston spoke, Shultz did more than listen; he acted.”
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Wriston led bankers to embrace floating prime rates in the fall of 1972. First National City earned the distinction of being labeled a “floating bank” by the White House, a designation shared with Bankers Trust and Irving Trust. As such, Wriston also chose to raise rates without caring about the Fed’s posture on the matter. His main rivals were the “nonfloating banks” Chase, Morgan Guaranty, Bank of America, and Manufacturers Hanover. These were considered more politically aligned with the administration because they operated within the confines of federally dictated monetary policy and hadn’t yet pressed the floating rate boundary.

In an internal memo to Treasury Secretary Shultz, Peter Flanigan, who would later be a managing director at Dillon, Read, proposed contacting these nonfloaters and asking them not to raise their rates no matter what the floaters were doing.
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This would maintain the illusion of Washington control over rates. But in reality, it was Wall Street that was king of domestic financial policy, and Wriston who wielded the control.

Wriston elevated his attacks on Nixon’s policies at an April 1973 speech at the New York Bar Association titled “Freedom and Controls.” He said, “The freedom to win or lose, to succeed or fail, is basic to our way of life. When the marketplace is hobbled by regulation, the distortions created are eventually reflected across the country.”
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Wriston’s way would prevail.

By the time of Wriston’s diatribe, First National City Bank had surpassed Bank of America as the nation’s most profitable bank. “Walt’s Bank,” also known as “Fat Citi,” was considered one of the best managed companies in America by the business press. The
International Herald Tribune
called Wriston the world’s “most influential banker.”
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He was a major force propelling multinational companies to further expand beyond the United States. As he
said in a September 1973 speech titled “The World Corporation: New Weight in an Old Balance,” “The pressure to develop the economy of the world into a real community must come, in part, from an increasing number of multinational firms which see the world as a whole.” If theoretically the White House had a say in US economic policy, practically, it was Wriston who controlled its financial trajectory.

Rockefeller, the Soviet Union, and the People’s Republic of China

In March 1973, David Rockefeller infiltrated the Eastern Bloc with the skill of a
Mission Impossible
agent. Under his tutelage, Chase had become the first US bank since 1929 to open a fully operational office in the Soviet Union. Four months earlier, Chase had opened a representative branch at One Karl Marx Square, near the Kremlin.

Rockefeller pushed Chase to provide the first loan by a US bank in the Soviet Union by the summer of 1973: $86 million to finance a truck foundry on the Kama River.
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Unlike Wriston, he was still partial to aligning himself more closely with Nixon. Linking his expansion desires to foreign military policy, he told the Joint Economic Committee that “the desire of the Soviets to use Western trade, credits, and technology to bolster their own economy hopefully could be accompanied by their giving lower priority to military programs.”
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Like his former boss, John McCloy, he believed international finance could replace competitive armament stockpiling. Later, instead of a Cold War lined with weapons, there would be bank wars based on economic competition.

Wriston was less enthusiastic about the area. He refused to grant loans to the Soviet Union except on a floating-rate basis. Though First National City Bank had opened a Moscow office in the spring of 1974 (after which eleven of its New York City branches had their windows smashed), it wound up closing after six years and made no money in the interim.

Rockefeller led Chase on another global expansion spree, adding forty foreign branches, representative offices, affiliates, subsidiaries, and joint ventures. In July 1973, after he returned from a business trip to Hong Kong, Rockefeller steered Chase to become the first US correspondent to the Bank of China since the 1949 Chinese Revolution.
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His actions preempted Washington to some extent, or were at least nearly parallel in timing. In early 1973 the Nixon administration had established the National Council on US-China Trade, a “public-private group” whose goal was to increase trading opportunities with China. (The council would later
become known as the United States Business Council.) Rockefeller was appointed its vice chairman, and he attended its first conference in Washington in May of that year.
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With that political credential in the bag, he made his first visit to China, becoming the first American bank executive to enter since the 1949 revolution. Chase was subsequently invited to become the first US bank in China. Its branch office was established at the Peking Hotel, where many US corporations would be introduced to officials and business opportunities.

On one hot, muggy night in late June 1973, Rockefeller, his wife, Peggy, and his entourage waited at the Great Hall of the People in Beijing. “Zhou Enlai . . . stood at the top of the steps to greet us,” he later wrote. This was an unusual gesture; “he did not extend such a welcome to Nixon or Kissinger.”
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When they met, Rockefeller told Zhou that the weak US dollar had been caused by faulty US policies (that had emanated from Johnson through Nixon) rather than “fundamental economic ills.”

Rockefeller considered this meeting critical for all future US-China relations. “I felt our new connection was supporting of broader American interests as well,” he wrote. “The diplomatic opening achieved by Nixon and Kissinger had enormous significance . . . [but] contact with the PRC at the private as well as at the government level would be necessary.”
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Soon after his visit, Chase made its first loan to China. Subsequently, the Chase World Information Corporation, a Chase subsidiary focused on Eastern Europe, the Soviet Union, the Middle East, and China, began introducing American businesses to investment opportunities in China. Rockefeller visited China five more times over the next fifteen years.
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Rockefeller, McCloy, and the Middle East

Even more significant to Chase, and to Wall Street as a whole, was the oil-rich Middle East. At the start of 1970, Chase had little representation there, except for an office branch in Beirut, a joint venture in Dubai, and a role as a major depository for the Saudi central bank, SAMA—which kept funds at its head office and in London. By 1971, Chase had established a branch in Bahrain. In the wake of this growing trend of US interest in the region, the US government and the newly formed government of Bahrain agreed to establish a permanent naval base on its shores.
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In concert with Rockefeller’s expansion, the entire Fifth Fleet of the US Navy found a new home.

Rockefeller had been involved in Middle Eastern affairs for the better part of two decades. He was one of a handful of Americans with access to all the Arab leaders in the region.
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McCloy was equally keen about the area.

By the spring of 1973, the Watergate cover-up was unraveling, and Nixon became obsessed with saving his presidency. McCloy, who had operated for decades in elite policy circles, his power and influence growing in tandem with that of American presidents, was appalled by Nixon’s shenanigans. Now he felt disillusioned.
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McCloy believed that Watergate distracted Nixon from Middle East initiatives, just as Vietnam had distracted him from his European ones. He was increasingly focused on his oil company clients, the “Seven Sisters,” and their position in the mix of oil and money politics. It was on their behalf that McCloy would flex his muscle.

With respect to other Middle East political-economic ventures, on September 22, 1973, Rockefeller and his assistant, Chase Bank vice president Joseph Reed, arrived in Cairo to meet with President Anwar Sadat. The two men were flown by an Egyptian air force plane to Alexandria, then driven west along the Mediterranean coast to Sadat’s summer retreat.

Rockefeller recalled Sadat as warm. During the meeting, Sadat asked, “Mr. Rockefeller, would you be interested in establishing an office of your bank in Egypt?”
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He responded by reminding Sadat of Chase’s long-standing relationship with Israeli banks (though at the time there was no Chase branch in Israel). “Mr. President,” he said, “how would you feel if we opened a branch in Tel Aviv at the same time we open one in Cairo?”

Sadat replied, “It is all a matter of timing.”
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A week earlier, Citibank executive vice president G. A. “Al” Costanzo had flown to Beirut and announced that Citibank would lend $1 billion in the Middle East. He then flew on to Nairobi for an IMF annual conference.
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Bankers were circling the region like sharks. They smelled money, and they assumed that political problems would be resolved if and when they arose.

But first, there would be blood.

Blood, Then Money

On October 6, 1973, Egypt and Syria launched a war against Israel. The conflict would come to be called the Yom Kippur War because it coincided with the Jewish holiday.
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In the wake of the attack, Arab nations halted oil shipments to the United States. As a result of that embargo, oil prices would quadruple by early 1974.
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Two days after the Yom Kippur War began, a delegation of oil company officers, operating under the authority of McCloy’s London administrative group, began negotiations with OPEC about prices. McCloy cleared the oil
companies’ collective bargaining strategy with the Justice Department, specifically working with Attorney General John Mitchell to circumvent antitrust issues. A lawyer from McCloy’s firm, Milbank, Tweed, monitored the London group meetings.
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McCloy, working with officials of the Arab American Oil Company, wrote a letter to Nixon urging him not to side with Israel. “The real stakes are both our economy and our security,” he said. Three days after he sent the letter, Nixon and Kissinger sent military supplies to Israel.
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Lines were clearly drawn between what the banker and the president considered beneficial.

As the battle raged in the Sinai, McCloy continued to represent the big oil interests.
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He defended his clients before a Senate subcommittee on multinational corporations. His monthly retainer from each of the five major oil companies jumped from $1,500 to $2,250 per month.
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On October 16, 1973, when OPEC members met in Kuwait City and decided to increase oil prices by 70 percent, to $5.11 a barrel, McCloy’s clients found themselves to be partners-in-profit with the Arab nations.
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It was a win for them. The “chairman of the establishment” had struck black gold. And so it would continue.