The Sugar King of Havana (17 page)

Havana has always been an imperial city. While the Marquesa, the Emperador, and the King of This World roamed the streets of Old Havana, in an office one floor above them worked Julio Lobo, the world’s King of Sugar, presiding over a vast domain described to him daily by his electronic heralds of telex and telephone.

 

 

BY 1934, while Cuba was still in the throes of a terrible recession, Lobo had been married for two years. María Esperanza Montalvo, his wife, was a great beauty, with a petite figure, bow-shaped lips, dark curly hair, and fair skin. She came from a distinguished family that had its roots in Cuba’s colonial aristocracy; the Condesa de Merlin was a great-aunt. They had met in the summer of 1931, during the annual festivities of the Havana rowing regatta, and had had a whirlwind romance. Lobo proposed in November, and they had married the following January.

They made a glamorous couple at the wedding: she had a good name and good looks, and Lobo had good prospects. Yet Heriberto had congratulated his son in a strangely formal letter that alternately praised María Esperanza for her evident beauty while gently warning his son about the responsibility he was taking on. María Esperanza had been raised at home by a governess and had led a sheltered life. Lobo, meanwhile, moved in a bustling commercial world. It may be that he saw in his bride some of her astonishing ancestor’s glittering charm. As well as writing a popular memoir and marrying one of Napoleon’s generals, the Condesa had presided over a celebrated Paris salon, where she gathered artists and statesmen like Lord Palmerston, Victor Hugo, and Rossini. Yet where the Condesa was outspoken—“lively and passionate, even to excess, I never saw any need to repress my emotions, much less hide them,” she once admitted—María Esperanza was shy and reserved. Temperamentally, even in their early days of marriage, Lobo and María Esperanza were worlds apart.

The newlyweds moved into the middle house on Eleventh and Fourth streets that Heriberto had built next to his and Virginia’s home. Their first daughter, Leonor, was born the following year, named after Lobo’s deceased elder sister. María Luisa, their second child, was born in April 1934, the year after. María Esperanza remained at home, filling the largely decorative role of a woman of good breeding, while Lobo poured his more worldly ambitions into
la casa
. Home life increasingly took the backseat.

Only a year had passed since Lobo had almost been put against a wall and shot after the fall of Machado. The humility that Lobo had felt a few years before that, when he had offered his resignation to Heriberto, had also passed. Lobo now felt impatient. He sought to go beyond the huge sale of sugar he had made to Tate & Lyle in 1927, which had garlanded him with early success and prestige. Even in the midst of a global Depression, he wanted to take on the world. His opportunity came in 1934 with a remarkable feat of market manipulation. Lobo never commented on how he cornered the New York sugar market that December. It was, he would merely say later, the only “perfect squeeze that was ever pulled.”

Corners, a trading tactic as old as markets themselves, are tense games that usually fail. Their aim is to acquire enough of a stock or a commodity to force—or “squeeze”—up its price and so catch out anyone who had sold it short in anticipation of buying it back later at a cheaper price. When a commodity is effectively cornered, the operator can demand any price he wishes from the short-sellers, who are legally required to cover their positions. As the saying goes:

The main “longs” in this operation—the investors who owned physical sugar, hoping its price would rise—were two Cubans, Lobo and Marcelino García, a broker and former planter who had survived a brush with bankruptcy in the 1920s and since rebuilt his fortune, becoming head of Cuba’s Sugar Institute, the government agency responsible for managing the crop. The two main “shorts”—the investors who had forward sold sugar, betting that its price would eventually fall—were Charlie Hayden, founder of the Boston-based investment bank Hayden, Stone, and William Douglas, long-standing president of the Punta Alegre sugar mill. Both were pillars of the U.S. business establishment. Hayden was a bow-tied businessman who worked with clipped efficiency and lived by the motto “time is money.” Meanwhile, Punta Alegre was the prize asset in a John D. Rockefeller Jr.–led consortium that owned 318,000 acres of Cuban sugarcane. Hayden, and the company that Douglas headed, were as Yankee as they came.

Lobo’s squeeze hinged on an unusual combination of circumstances. In May, as part of Roosevelt’s “good neighbor policy,” the United States had cut its tariff on sugar imports and introduced quotas instead. This had two benefits for Depression-ravaged Cuba. As a protected market, Cuba enjoyed U.S. sugar prices that were generally higher than in the rest of the world. The quota also assured Cuba a home for much of its sugar. The problem was that Washington rather than Havana determined the size of the Cuban quota and, as the United States was its main market, in effect also the size of Cuba’s sugar crop, the remainder being sold on volatile world markets. That is partly why in 1960, Cuba’s revolutionary government would denounce the quota as “economic servitude.” Indeed, by then, as Lobo noted, the quota was used more often to subsidize and protect domestic U.S. sugar producers than to reward reliable foreign suppliers like Cuba. Still, in 1934, only a few months after it had been established, a group of Cubans saw a way to bend the new agreement to their advantage. Strategy was planned in Havana and then executed in New York from rooms on the twenty-third floor of 99 Wall Street, Lobo’s office.

It was a brilliantly subtle plan. Under the quota’s rules, Cuba had to sell to the United States its required amount of sugar or forfeit market share. To fulfill that obligation, in October Cuba sold the year’s remaining quota to U.S. buyers for 2.18 cents per pound. It seemed like an innocent move, but the result was trading mayhem. Anyone who had sold Cuban sugar short on the futures market now had a serious problem. They could not cover their short position, as there was literally no physical Cuban sugar for them to buy back. It had already been sold.

The squeeze convulsed the New York market. The sugar price threatened to go through the roof. The president of the New York exchange resigned. The shorts, missing 35,000 tons of sugar, complained that they had been trapped. The longs, mostly Cubans, said the trap was of their own making. Trading was suspended. Investigations were opened and a Senate hearing convened. Senator Arthur Vandenberg, representing the beet interests of Michigan, asked whether Cuba had used the terms of the quota to manipulate the market—and in a way it had. The Cubans in turn suggested that the North American short-sellers were trying to force down the price of their sugar, which was also broadly true. It was all part of the usual to and fro of U.S.-Cuban relations.

In theory the Cubans could have asked whatever price they wished from the shorts, who had to pay up and buy the sugar from them or face default and go to jail. “The [short] seller either delivers or fails to deliver. There is no mid-ground,” argued an attorney for the Cuban longs. “There is no reason for any excuse.” In the end the American business establishment closed ranks, and the Cuban longs were forced to sell to the Yankee shorts for 2.38 cents a pound. Nobody went to jail. The Cubans complained vociferously about this show of favoritism. Even so, they netted an estimated profit of some $150,000 for themselves, and the island, at the expense of U.S. investors.

Much Cuban writing is a lament about how the island is forever at the mercy of speculative foreigners. But speculation is a double-edged sword, and when Lobo, the man who later boasted “I am the market,” wielded that sword, often it cut in Cuba’s favor. His ploy also showed that Cubans could play the speculative game just as sharply as their U.S. peers.

It was from this moment that
la casa
began to pull away from the commercial opposition with Lobo leading the way; Heriberto, now sixty-four years old, occupied a lofty supervisory role and offered only broad guidance. For the next two decades, much like his father before him, Lobo strove to keep himself disengaged from Cuba’s disorderly political life, often violent but also pluralistic and often democratic, while he pursued a dream of wealth for himself and, sometimes, the island as well.

 

 

I REACHED LOBO’S OFFICE after a ten-minute walk. From the outside, it looked the same as it had fifty years ago. There was the same impassive gray stone, the same covered balcony with its belle époque balustrade protruding over the same narrow sidewalk that skirted the building and which I’d seen in an old photograph. Inside, everything was in turmoil; fourteen state-owned firms were moving out, as the building was due to be renovated as part of the restoration drive of Old Havana that is led by Eusebio Leal, the town historian. Lobo’s old office would soon serve as a teachers’ annex for the gleaming marble-and-glass library and lecture theater that had been built opposite, on the site of Havana’s oldest university.

A stocky man with tremendous energy, Leal is responsible for almost single-handedly saving the old city. At the time of the revolution, it was estimated that only a sixth of the three thousand or so buildings in Old Havana were in good condition. Plans had even been submitted in the late 1950s by the U.S.-based Catalan architect and town planner José Luis Sert to raze much of the old town, turn its graceful squares into parking lots, replace colonial buildings with Le Corbusier–style skyscrapers, and link the whole lot to an artificial island off the Malecón that would have casinos, hotels, and malls. Instead the revolution happened, saving Old Havana from this fate, and it was left to slip into further disrepair. The city stood in the sunshine, slowly crumbling, until 1982, when UNESCO designated Old Havana a World Heritage site. Then, in 1994, after the Cuban economy went into freefall with the end of Soviet subsidies, Leal’s office was given the power to restore buildings and turn them into tourist-related hotels, restaurants, and shops, with the profits reinvested in social projects. Such work has made Leal a controversial figure. He enjoys ministerial rank in Cuba, a great deal of autonomy and international prestige, and is sometimes mentioned as a possible post-Castro president. Yet he is also respected in Miami for his deep historical knowledge and obvious love of Havana—even if critics say that Leal has turned its restored parts into a Potemkin village for foreign visitors.

I talked with Leal on the street corner by Lobo’s former office, and he recognized Lobo as a lover of the old city and spoke warmly of him. Oddly, Leal seemed to admire Lobo’s speculative ability too. “Lobo liked to have thousands of tons of sugar in his hand,” he commented, clenching his fist tight. “Then he would let it loose on the market to move it and get the result he wanted.” Leal then opened his hand and pushed his palm into the air in front of his chest, almost like a tai chi gesture, the force of all that sugar being released onto an invisible world market long ago.

This was praise of sorts from a historian and high-ranking Communist official, especially as the speculator is a figure so often depicted as a cause of the country’s woes—and not just latterly by the revolutionary government. In 1828, the Reverend Abiel Abbot compared the speculative merchant to a parasitical vine that strangles Cuba’s noble ceiba tree. The Condesa de Merlin also commented on the high rates of interest which merchants charged Cuban planters to finance the sugar crop during the colonial years. At 2.5 percent a month, she wrote, “the exorbitant interest doubles the debt, payments at first difficult quickly become impossible, and soon the merchant owns an amount equal to the value of the whole property.” Fidel Castro’s government, of course, has routinely criticized all forms of financial speculation. In 1966, Castro spoke of “those persons [who] have a peso sign in the head and want the people also to have a peso sign in the head and in the heart. And if we want a people that gets rid of the peso sign in the mind and the heart, then we must also have men who free their thoughts of the peso sign.”

The irony is that speculation has always been central to Cuban history and the Cuban character. Cuba’s European discoverer, Columbus, was a speculator bent on discovering a new route to the Indies in a quest financed by venture capital supplied by the king and queen of Spain. During the colonial years, the city was a bazaar that sprang to life each time the Spanish fleet sailed into port: one of the first streets to be laid from the Plaza de Armas was called
Mercaderes
, or Merchants. Economically, Cuba came of age after the British capture of Havana, a time of Adam Smith and David Ricardo. And during the Republic, strategically located near the Panama Canal, Cuba stood at the crossroads of all the shipping of the Western Hemisphere, importing most of what it consumed and exporting millions of tons of sugar in return. Indeed, it is because of this long history that Cubans, both inside and outside the island, still sometimes refer to themselves as the “Jews of the Caribbean.” By this cheeky adage, Cubans mean that they consider themselves commercially sharper than everyone else. It is unsurprising, therefore, that Leal would tacitly recognize speculation as part of the fabric of the old city that he loved, and that Lobo felt so comfortable in the Cuban milieu.