Tower of Basel: The Shadowy History of the Secret Bank That Runs the World (22 page)

           
— Averell Harriman, US Special Envoy for the Marshall Plan for the postwar reconstruction of Europe

T
homas McKittrick opened his hotel door to find fifteen slips of paper on the floor. It was the spring of 1947, and McKittrick, vice president at Chase National Bank, was passing through London. The messages from the switchboard indicated that someone in Washington, DC, was urgently trying to get in touch. McKittrick asked the operator to phone the number, and the call went through soon afterward. A voice said, “Is that you, Tom? This is Averell Harriman. You’re coming to work for me for six months. I talked to Winthrop this morning, and he said you could.”
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“Winthrop” was Winthrop Aldrich, the chairman of the board of Chase National Bank. Aldrich, who had run the bank since 1934, was one of the best-connected financiers in the United States. His father, Nelson Aldrich, had given his name to the plan, which had eventually resulted in the creation of the Federal Reserve system. Winthrop Aldrich was now an outspoken advocate of economic aid to Western Europe. Aldrich and McKittrick were old friends. In December 1945, at the height of the political attacks against McKittrick and the BIS over their acceptance of Nazi gold, McKittrick had written to Aldrich, complaining about “the people in Washington who seem to dislike us so heartily.” McKittrick explained, “The situation will need to be handled skillfully.” And indeed, it was, at least from the point of view of the BIS, which survived, and its former president,
who was now working for Aldrich.
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Harriman, the man at the other end of the line, was also a prominent banker and a diplomat who had served as US ambassador to London and Moscow. Harriman was now one of the most powerful men in the world, in charge of the Marshall Plan, the $12 billion American aid program to reconstruct postwar Europe. Harriman asked McKittrick if he could be in Paris to start work on June 2. Yes, gladly, replied McKittrick.

TWO MILLENNIA AGO,
the Roman philosopher Cicero observed, “The sinews of war are infinite money.” An updated version of his epithet would note that “the sinews of war are the transnational flow of infinite money,” which will find its way around any obstacle. When the Allied leaders met at Potsdam in August 1945, they agreed that the German economy would be decentralized and the power of the cartels broken up. But the Nazi industrialists had no fear of such threats—Thomas McKittrick, as the OSS Harvard Plan documents show, had already reassured them that even if decartelization took place, the Allies would still guarantee their profits.

By the time Harriman summoned McKittrick to Paris, it had long been decided in Washington that the German business elites would not be punished. The Morgenthau Plan, which called for Germany to be stripped of its industrial might and turned into a pastoral state, had been so watered down by General Lucius Clay, the American commander of occupation forces, that it was meaningless. (Clay had set up shop in Frankfurt at the former headquarters of IG Farben, whose buildings had mysteriously escaped Allied bombing.) Washington’s JSC Directive 1779, passed in the summer of 1947, institutionalized this change in policy. German industry would be rebuilt; its steel mills and forges would once again be the powerhouse of Europe.

What would be the role of the BIS in the German renaissance? After 1945, the bank had no reason to exist. The BIS had been founded to manage German reparations payments, and none had been paid since the early 1930s. The BIS claimed it was needed as a meeting place where central bankers could gather to coordinate monetary policy. But as commercial airlines expanded their networks
across the world, the BIS’s lush hospitality could easily be replicated in a hotel or conference room in London, Paris, Wall Street, or anywhere else the bankers wished to gather. The BIS said it was needed to help coordinate the postwar global economy. The new institutions of the IMF and the World Bank had been founded for precisely this reason. Unlike the BIS, the IMF and World Bank were not Nazi collaborators.

The Basel bankers had also lost their golden touch. For the first time, in 1946, the BIS registered a loss. The founders could not help. Montagu Norman, now in his midseventies, had retired from the Bank of England. Raised to the peerage as Baron Norman of St. Clere, his legacy endured, and he remained influential, but he could no longer move markets with a sentence or two. Nor could Hjalmar Schacht provide assistance to the bank he had once proudly called his own. Schacht had been arrested after the July 1944 plot against Hitler and sent to Dachau concentration camp. He survived and was liberated by the US Army. He was then arrested and put on trial at Nuremberg and charged with organizing Germany for war, which is precisely what he had done. Unbowed by the weight of the proceedings, Shacht and his lawyers were putting up a spirited defense, aided by his sporadic instances of public opposition to the Nazis during the 1930s.

Yet, ultimately, no matter how tainted its reputation, Norman and Schacht’s creation would prove as durable as they had hoped. Throughout the war, the repeated arguments of BIS officials that the bank must keep working so that it could play a central role in the reconstruction of postwar Europe had found a ready audience among both the Allied and Axis leadership. Bureaucratic inertia also helped the BIS. The general sentiment in both Washington, DC, and London was that the bank could be useful and was too complicated to dismantle. The BIS was “built to last,” argued British Treasury officials. It was both a Swiss corporation and an international organization protected by its own treaty. Britain had just won a war, and there were other priorities for scarce resources. Lord Catto, the new governor of the Bank of England, also came to the BIS’s defense: The IMF was completely new, and who knew how effective it would be? The BIS, in contrast had
existed for fifteen years and was staffed by experts. Postwar Europe, like prewar Europe, still needed a place for pan-European meetings of central bankers. Basel remained the ideal venue.

BUT BEFORE A
cent of Marshall aid could be sent to Europe, the plan had to be approved by the US Congress. Harriman set up a bipartisan committee of political, labor, and business leaders to steer the plan through the US government and persuade American public opinion that it was in their best interest to send tax dollars to the war-ravaged continent. The committee’s members included Owen Young, the architect of the last German reparations program, whose own eponymous plan had set up the BIS, and, of course, Allen Dulles, who saw the Marshall Plan as a means of dealing the death blow to the spread of Communism in western Europe. Barely a few months after the war ended, Allen Dulles was already demanding imports of food and raw material to rebuild German industry. He condemned the arrest and detention of one hundred thousand Nazis. “We find ourselves in the concentration camp business on a large scale,” he told the Foreign Policy Association in January 1946, as though the German detainees who were fed, clothed, and received medical treatment from the Allies were about to dispatched to the gas chambers.
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In July 1947, soon after General Marshall announced his plan, the Conference for European Economic Cooperation (CEEC) met in Paris to work out how it would be implemented. The State Department made it clear to its European allies that American aid would come at a price: financial and economic cooperation between the recipient countries with a view toward eventual European union. The first step was to replace bilateral trade deals and exchange controls with multilateral policies. The following year, the CEEC was institutionalized as the Organization for European Economic Cooperation (OEEC), which still exists today as the Organization for Economic Cooperation and Development (OECD).

The OEEC’s mandate was, essentially, to ensure that the State Department’s plan for Europe, and, especially Germany, was implemented. It was charged with promoting economic and political cooperation between its members; developing
intra-European trade by removing barriers and tariffs and studying the feasibility of customs unions, free trade, and multilateral payments.
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The Marshall Plan was administered by another new agency, the European Cooperation Administration (ECA), which is where Thomas McKittrick worked. McKittrick arrived in Paris for the first ECA meeting on June 2, 1947. Conditions did not meet the standards of the BIS, he recalled. “The American embassy let us have a room and secretary. But the room didn’t have any carpet on the floor and [only] the barest of bare furniture and we sat there.”
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There were twelve people present, and Harriman instructed each as to his responsibilities. McKittrick’s was “Trade and payments.” The dozen officials had no office, no organization, and no support staff. But they did have $5 billion in the bank, which they had to distribute quickly—and McKittrick no longer had to worry about Henry Morgenthau and Harry Dexter White.

Morgenthau had stepped down as Treasury secretary in 1945 and was now largely retired from public life. He devoted himself to Jewish causes and helping the new state of Israel. White left government and joined the IMF as its first US executive director. He was an idealist as well as a realist. He saw the IMF as a means to promote economic growth through trade and financial stability. White, like the BIS, believed in global financial cooperation as the path to prosperity—but crucially, a cooperation coordinated among governments rather than unelected central bankers and technocrats.

After 1945 White was subjected to sustained attacks on his patriotism, attacks that James M. Boughton, the IMF’s official historian, has described as ranging from “the questionable to the bizarre.”
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White’s failed attempt to bring the Soviet Union into the IMF in 1944 (when the country was an ally of the United States) and his meetings with Soviet officials were recast as support for Communism. So was his support for the Morgenthau Plan to de-industrialize Germany. White’s request to the nationalist government in China to account for how it had spent hundreds of millions of dollars in American aid was respun as sympathy for Mao Tse-Tung’s Communist forces. In August 1948, White was called to testify before the House of Representatives Committee on Un-American Activities to be questioned about his relations with the Soviets. Historians continue to investigate these.
There is evidence that White passed sensitive information to Moscow. Decrypted Soviet diplomatic cables from the 1940s detail White’s discussions of American foreign policy with a Soviet official. But an authoritative biography of White by Bruce Craig argues that White was regarded by Moscow as a “trusted individual” rather than an active agent.
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Certainly White’s influence on policy making and access to high-level governmental decision making made him a person of great interest to the Soviets. Whether White was an agent or an asset, he was passing sensitive information to a hostile foreign power. Craig argues that White was a Rooseveltian internationalist, who believed in the need for cooperation with the Soviets, rather than a Communist.
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Either way, such views were no longer acceptable in Washington in the late 1940s.

White suffered from heart trouble. His appearance before the committee was highly stressful. Three days later, he died.

MEANWHILE, THE BIS
was swiftly building itself into the new global financial architecture. That September 1947 bank officials in charge of protocol and hospitality were in overdrive. The BIS was preparing for the two most important VIPs it had received since the end of the war: John McCloy, the president of the new World Bank, and Eugene Black, its executive director. There was little danger of discord: McCloy was one of the most influential advocates of normalization with Germany. Black was a former vice president of Chase National—the new employers of Thomas McKittrick. McCloy had deliberately sabotaged the Morgenthau Plan and steered President Roosevelt away from punishing Germany in favor of rebuilding German industry. As the website of the United States embassy in Germany notes, “He was instrumental in undermining the proposed ‘Morgenthau Plan’ for Germany which would have reduced the country to a land of forests and farms.”
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The Marshall Plan was certainly a triumph for the prewar Wall Street–Berlin financiers. McCloy, Black, and Harriman all had extensive prewar financial interests in Nazi Germany, as McKittrick had. McCloy had been a partner in Cravath, a powerful New York law firm, which represented General Aniline and Film,
IG Farben’s American subsidiary.
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Like his friend Allen Dulles, McCloy had been based in Paris in the prewar years where he ran the law firm’s office. McCloy left Cravath in 1940 to serve as assistant secretary for war. This prevented a potentially ugly conflict of interest, for Cravath’s clients also included the United States Alkali Export Association (Alkasso), which had intentionally deprived the United States of vital chemicals during the war.
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Alkasso was composed of the eleven most important alkali producers in the United States and handled their foreign trade. In 1936 Alkasso entered into a cartel agreement with Solvay & Cie, the Belgian chemicals company represented by John Foster Dulles, and Imperial Chemical Industries, a British combine. The cartel continued during the war, and in 1942 the Department of Justice launched an investigation into Alkasso, just as it had with Standard Oil. Standard Oil had restricted the United States’ ability to produce artificial rubber. Alkasso prevented free trade in soda ash, a basic ingredient in vital war materials such as glass, textiles, and numerous chemicals.

In 1944 the Justice Department launched a civil lawsuit against Alkasso and ICI for breaching the Sherman Anti-Trust Act. Also named as co-conspirators were Solvay & Cie and IG Farben. Alkasso was charged with restricting exports and prohibiting imports, eliminating competition, and price-fixing. Cravath and Alkasso lost the case. The sixty-page decision, delivered by federal judge Samuel Kaufman, was blistering. It found that Alkasso had near total control of alkali imports and exports. Alkasso even ran its own network of inspectors at docks to examine materials leaving the United States. It compiled a blacklist of all competitive exporters and instructed its members not to sell to those on it. It forced its customers to give written assurances that they would not sell their products outside the United States. The cartel had continued during the war years, the decision, delivered in 1949, noted.
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