June 29, 2015
All the Presidents’ Bankers: The Hidden Alliances That Drive American Power
Posted on May 6, 2014
The following excerpt is from Truthdig contributor Nomi Prins’ best-selling new book “All the Presidents’ Bankers: The Hidden Alliances That Drive American Power.” In this section, Prins writes about the period during the administration of Lyndon Johnson when bankers began to move away from the president as they saw their global ambitions hemmed in by the Vietnam War.
Johnson and the Bankers’ Economy
In his spirited inaugural speech on January 20, 1965, Johnson declared, “In a land of great wealth, families must not live in hopeless poverty. In a land rich in harvest, children just must not go hungry.”
He made good on his word. When Johnson began his second term, 20 percent of people in America were living in poverty. Between 1965 and 1968 he raised federal expenditures addressing the War on Poverty from $6 billion to $12 billion (Nixon would double the figure again to $24.5 billion by 1974). That spending, in conjunction with a booming economy, made a big impact. When Johnson left office in 1969, the poverty rate in America had dropped to 14 percent.
On February 18, 1965, Johnson increased his focus on his friends in finance. He invited Rockefeller, Weinberg, and other prominent bankers to an intimate White House dinner to discuss his voluntary program for an early reduction in the balance of payments deficit. His plan would require each of their firms to curtail their international transactions so as to limit dollar outflow, a request that brought the ire of Wriston when it came from Kennedy but solicited no such reprimand under Johnson.
Johnson also established a nine-member advisory committee on balance of payments, which included Weinberg, George Moore, and railroad mogul Stuart T. Saunders to keep the business community engaged, and on his side, on the issue.
That same day, Rockefeller, in turn, invited Johnson to a Business Group for Latin America gathering the following month. Johnson informed Rockefeller that he would be pleased to meet with the group in Washington. Johnson knew how to swap favors.
After the event, Johnson wrote Rockefeller a warm note: “I appreciate more than I can express every line of your fine and thoughtful letter. To put it in a Johnson City way, I got more than I gave from being with you and your associates on the Council.”
Even when the two were at odds, Johnson maintained a deferential tone with the financier. “Thank you for sending me your views, which I am always glad to have, even when we disagree,” the president wrote on November 30, 1965, after Rockefeller described some of Johnson’s Great Society policies as “handouts.”
The bankers acted against their own profit motives and for the economic strength of the United States, possibly for the last time in American history, when they responded to Johnson’s request to streamline some of their international capital outflows. On March 3, 1965, Johnson thanked Morgan Guaranty Trust Company president Thomas Gates for “the response of Morgan Guaranty and other banks to my request to voluntarily limit their foreign lending.” He assured Gates, “You can count on our willingness to work with you closely.”
Everything was up for bargaining between Johnson and the bankers, and everyone would get something out of it, including the Main Street economy. Like other key bankers, Gates, who was appointed to the Committee on Voluntary Overseas Activities in February 1967, earned Johnson’s gratitude and supported his efforts over the years. His backing included a crucial press release in August 1967, in which he regarded “a war tax essential to the support of our effort in Vietnam and the conduct of vital domestic programs,” hoping it would “be enacted without delay.”
Johnson and Mergers
Toward the middle of 1965, Johnson spoke widely of national economic growth, progress, and the Great Society. He presided over the enactment of the Medicare program, and when he signed the Medicare bill into law on July 30, 1965, at the Harry S. Truman Library in Independence, Missouri, he paid homage to a plan that “all started” with Truman.
A year later, Johnson presented Truman and his wife, Bess, with Medicare cards number one and two. With respect to financial regulations, however, Johnson was nearly as laissez-faire as his banker friends. Both Johnson and the bankers felt the country had moved past the more prudent restrictions of the Great Depression (the bankers more publicly so). Neither Johnson nor the bankers saw any reason to entertain legislative restrictions on the bankers’ desires to grow freely. Like Eisenhower, Johnson equated strong American banks with a strong America. He also equated the size of US companies with national strength. The pace of US corporate mergers had already accelerated under Kennedy. In 1963, the number reached 1,311, the highest figure since the Federal Trade Commission began tracking mergers in 1951. The number of antitrust cases filed by the Justice Department had also risen—to twenty by the end of 1963. This became a key concern for Johnson. As U.S. News & World Report noted, “For the first time . . . businessmen have sounded protest against this action in [Johnson’s] administration.”
The FTC was launching more complaints against big companies like US Steel, GM, and AT&T, as well. Fortunately for him, the major bank regulator, the comptroller of the currency, sided on behalf of bank mergers. This helped Johnson’s and the bankers’ cause. Johnson was not above using his muscle to support mergers that would increase political power. The Houston Chronicle, for instance, had been critical of him and endorsed Richard Nixon in 1960.
But John Jones Jr., the Chronicle’s president, was also the president of Houston’s National Bank of Commerce and was attempting to merge with Texas National. The merger had been agreed upon by both boards of directors but was stalling at the Federal Reserve, which tended to approve eastern mergers more quickly than other ones. But Johnson intervened; he made Jones guarantee him the Chronicle’s support as long as he held the presidency. Following an off-radar meeting at Johnson’s ranch, the president got his guarantee and Jones got his merger.
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.”
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.”
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.”
In response, Johnson signaled his support directly: “You can be certain that I will be watching your merger developments, and wishing you all success.”
Penn Central would become America’s biggest bankruptcy in the 1970s.
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