Tower of Basel: The Shadowy History of the Secret Bank That Runs the World (23 page)

McCloy was a ruthless, self-made man who was not known for his humanitarianism. On the contrary—the president of the World Bank had been instrumental in the internment of some 120,000 American citizens and residents of Japanese ancestry, causing an enormous amount of human suffering—a bitter legacy that
still lingers today. Arguably, he had blood on his hands. McCloy used his office and influence over Henry Stimson, the secretary for war, to repeatedly block attempts by Jewish organizations to have the US Air Force bomb Auschwitz. By 1944 numerous testimonies of escapees and witnesses had reached Western capitals.
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It was widely known among both governments and Jewish organizations that the camp was an industrial death factory. Allied bombers regularly overflew the complex and occasionally bombed the outlying IG Farben Buna factory at Auschwitz III and other buildings. It would have been comparatively simple to destroy the key railway junctions and gas chambers. In August 1944, soon after 430,000 Hungarian Jews had been deported to Auschwitz, where most were gassed on arrival, A. Leon Kubowitzki of the World Jewish Congress wrote to McCloy asking that Auschwitz be bombed. McCloy refused. He replied that such an operation would demand diversion of resources being used elsewhere and would be of “doubtful efficacy,” an argument also echoed by British officials. McCloy also made the macabre claim that bombing Auschwitz might “provoke even more vindictive action by the Germans,” although it is hard to imagine what could be more vindictive than the industrialized extermination of thousands of people per day.
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Eugene Black, McCloy’s colleague at the World Bank, had joined Chase National in 1933 as vice president. He was promoted to senior vice president in charge of the bank’s investment portfolio. This was substantial: at that time, Chase National was the world’s largest bank in terms of assets, which is why it was so appreciated by Nazi Germany.

Averell Harriman’s financial links with Germany also stretched back decades. Soon after the end of the First World War he had set up his own bank, W. A. Harriman, which carried out extensive business in Germany. Together with Lee, Higginson—the former employers of McKittrick—W. A. Harriman bank lent $20 million to the Berlin City Electric Company, with legal work provided by John Foster Dulles. Harriman was a board member of the International Chamber of Commerce (ICC), as was Thomas
McKittrick. The chamber’s president, after 1937, was Thomas Watson, the boss of IBM who had traveled to Berlin to be awarded the Merit Cross of the German Eagle by Hjalmar Schacht and whose Hollerith machine was used by the Nazis to speed up the organization of the Holocaust.

Harriman was an early enthusiast for transnational finance. During the mid-1920s he attended an ICC meeting in Paris, the only American of any prominence present. He later recalled,

           
One evening I remember that I met with the leading bankers and industrialists of the principal countries. I remember the British and German, the French—I can’t remember who else was there. It was quite a small dinner—it was a private dinner. Yet, they took the International Chamber of Commerce more seriously than we did and there were some important men present. I asked them why they thought that the United States was moving ahead as we were in the mid-twenties, you remember, whereas Europe was stagnant with built-in unemployment. They said it was because we had a continent of free trade.
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Sometime in the early 1920s, Harriman had traveled to Berlin and met Fritz Thyssen, the powerful German industrialist, according to declassified US documents. Thyssen became one of Hitler’s most influential backers and persuaded many of his fellow businessmen to support the Nazis, until he fell out with Hitler after Kristallnacht and fled Germany. Thyssen told Harriman that he wanted to set up a bank in New York to look after his interests in the United States. In 1924, W. A. Harriman duly set up a new bank for Thyssen called the Union Banking Corporation (UBC). UBC had seven directors, including E. Roland Harriman, his brother, and Prescott Bush, the grandfather of President George H. W. Bush, and great-grandfather of George W. Bush. But UBC was not a bank in the normal sense of the word. It was a front for Bank Voor Handel en Scheepvaart, based in Rotterdam in the Netherlands.
Bank Voor Handel en Scheepvaart was wholly owned or controlled by the Thyssen family, US investigators believed.

In 1931 W. A. Harriman merged with Brown Brothers & Co., to form Brown Brothers Harriman (BBH) with offices at 59 Wall Street, a few doors from Sullivan and Cromwell, which was at number 48. The UBC was highly successful. US investigators believed that between 1931 and 1933 UBC bought more than $8 million worth of gold, of which $5 million was sent abroad, probably to Germany.
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This is why, on November 6, 1942, the US Alien Property Custodian issued vesting order 248 and seized all four thousand shares of UBC and its assets.
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Harriman, who was traveling the world as President Roosevelt’s special envoy to meet with Churchill and Stalin, continued his diplomatic career unhindered. The month after UBC was vested, Joseph Ripley, one of Harriman’s oldest and closest business associates, represented Brown Brothers Harriman at McKittrick’s dinner at the New York University Club.

WITH CREDENTIALS SUCH
as these, McCloy’s and Black’s visit to the BIS could only be a success. The BIS, its officials pointed out, had much to offer. It was the world’s oldest global financial institution. It had unrivaled experience in gold and currency swaps and superb technical expertise. Its annual reports were universally regarded as the single most useful source of financial and economic information. The BIS agreed to host the World Bank’s European mission and to provide it with technical support. Soon after, when the World Bank issued its first non-dollar bond, the BIS negotiated the bond’s sale to Swiss banks and bought a substantial share for its own account.

It seemed only natural that when the CEEC, the committee in charge of Marshall Plan payments, formed a subcommittee to manage multilateral payments between France, Italy, Luxembourg, the Netherlands, and Belgium, the BIS would be at the center of the new system. Frederick Connolly, a veteran BIS official who had formerly worked at the Bank of England with Montagu Norman, drafted an agreement on multilateral payments, which was signed in Paris in November 1947. The BIS was appointed agent in charge of executing the transfers. The bank
hosted a conference for the five signatories and observers from Switzerland, Britain, and the US Treasury and State Departments. A resolution was passed encouraging central banks to use the BIS to settle their payments, rather than doing so directly between creditor and debtor. It also requested that the BIS be informed of any direct transactions.

At first glance, the Paris accord on multilateral payments seems an obscure footnote to postwar economic history. Monetarily, it was almost irrelevant. By the end of 1947, only $1.7 million of $762.1 million outstanding balances between the five signatories had been settled. But this little-known accord was, in fact, highly significant. An important precedent had been set: transactions between central banks would now go through Basel, rather than between national treasuries. Only the BIS had the staff and the expertise, dating back to its experience managing reparations payments in the 1930s, to manage an effective system for intra-European payments. The BIS had effectively reasserted itself as an international clearinghouse for Europe’s central banks.

Emboldened by the new payments system, the technocrats and Euro-federalists were now on the rise. Belgium called for a customs union between the Benelux countries and France and Italy. Italy went one better and proposed a customs union between all countries receiving aid under the Marshall Plan, as a step toward European Union.

The postwar blip in the BIS finances was short and temporary. By 1951, the BIS was once again paying dividends to its shareholders. BIS observers attended IMF and World Bank meetings. The bank enjoyed a cordial relationship with the New York Federal Reserve, thanks in part to the legacy of Leon Fraser, the former BIS president who had also served as a director of the New York Fed. (Despite his successful career, Fraser suffered from severe depression. In April 1945 he shot himself in the head with a revolver and died on the way to the hospital.)

THE BRETTON WOODS
motion calling for the dissolution of the BIS, and the campaign against the bank led by Henry Morgenthau and Harry White had been the most serious threat yet to the BIS’s existence. Although the full details
of the bank’s role as a channel between the Allies and the Axis were not yet public in the immediate postwar years, the BIS was thoroughly tainted by its acceptance of Nazi gold and its cozy relationship with the Reichsbank. But the bank proved more nimble and agile than its foes. Its managers deftly immediately built the BIS into the new global financial architecture. The BIS did not seek to compete with the IMF and offer loans to indebted countries (although it would later arrange international credits to troubled economies). Nor did it try and compete with the World Bank and fund development projects. Rather, the BIS stuck to what it knew best: offering discreet services, financial coordination, and a confidential venue to central bankers, all of which were in great demand in postwar Europe.

The bank’s excellent connections with American policymakers such as Allen Dulles and John McCloy brought an early understanding of Washington’s commitment to a new, united Europe. The drive was now unstoppable, with wide political support across European capitals. Such a project, the BIS managers understood, would offer immense new opportunities for the bank over the coming decades. The new Europe would need swift, international payment mechanisms, more harmonized exchange rates, and perhaps eventually a new single currency. There was nobody better placed to offer these services than the technocrats of the BIS.

          
When detained in Dustbin, among a number of references to the financially great he pointed out that the President of the BIS, Mr. McKittrick of the United States, would be able to speak favourably of him.

           
— British intelligence report on Hermann Schmitz, CEO of IG Farben, while held prisoner at Kransberg Castle, aka “Dustbin,” December 1945
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W
hile Hermann Schmitz was dropping Thomas McKittrick’s name in the hope that the BIS president might somehow spring him from prison, Rudolf Brinckmann was also plotting how to keep his wartime profits. The German banker, who would soon be appointed a director of the BIS, was locked in a bitter dispute with the Warburgs over the ownership of Brinckmann, Wirtz and Company, in Hamburg, the successor to M. M. Warburg bank, which had been Aryanized by the Nazis.

Brinckmann had joined M. M. Warburg in 1920 and worked as the office manager. He spoke six languages and was seen as loyal, dependable, and trustworthy. The Warburgs joked that Brinckmann was their “in-house Aryan,” even though he was actually Mediterranean looking, because of his Greek-Turkish background. M. M. Warburg was then one of the world’s most influential banks, the centerpiece of a financial dynasty whose name was a byword for stability and prudence. The family trusted Brinckmann absolutely, so when the Nazis took power in 1933, he was granted full power of attorney and took the place of the members of the Warburg family on other company boards. Five years later, when the bank was Aryanized, Brinckmann, together with Paul Wirtz, was made a director, on the understanding that he would look after the Warburgs’ interests.

Brinckmann’s wartime record was ambiguous. He had hired Nazi party loyalists and purged the last remaining Jewish employees. Staff began to wear Nazi party insignia. Brinckmann wrote letters to former clients, pointing out that now that the bank had been Aryanized there was no reason not to come back, the letter usually ending with “Heil Hitler.”
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He traveled to Essen to win back the account of the Krupp family of industrialists, who were one of Hitler’s most important backers. Brinckmann renamed the bank after himself, and he also negotiated the release of fourteen members of the Warburg family and employees from Nazi-occupied Amsterdam, who eventually reached the United States.

After the war numerous German bankers, including Brinckmann, were placed under house arrest. But the Warburgs, grateful that their bank still existed, albeit in another form and under another name, helped Brinckmann as much as they could. They provided a supply of food. His house arrest was lifted. They got him a place on a de-Nazification tribunal—an immensely influential position. Brinckmann initially offered to return the bank to the family, but as the full horror of the Holocaust became public, the Warburgs declined, ambivalent about their return to Germany.

Brinckmann was soon glad that his offer was refused, because the bank was profitable. Soon after, some of the Warburgs, including Eric, decided to settle in Germany and asked for their bank to be returned. Brinckmann refused. Like many German owners of formerly Jewish concerns, he rewrote history. The 1938 transfer into his name was not an Aryanization, he claimed. Rather, he had saved the remnants of a collapsed bank. The Warburgs should be grateful to him, rather than vice versa. He offered the family a ten percent ownership stake. That was unacceptable, said the family. If it had not been for M. M. Warburg, Brinckmann, Wirtz and Company would not exist. It was built on the ruins of the Warburg empire and even operated out of the same building. The two sides finally agreed that the family would take 25 percent, with a five-year option on 50 percent.

Brinckmann joined the BIS board of directors in 1950, after the Warburgs
put his name forward. But if the Warburgs hoped that trips to Switzerland, the BIS’s famed hospitality, and the inside information gleaned at the bank’s lunches and dinners would mollify Brinckmann, they were quickly disappointed. The BIS, it seemed, had gone to Brinckmann’s head, and he remained as stubborn as ever. Eric Warburg, a prominent member of the Jewish banking dynasty, dubbed the new BIS board member “John Foster Brinckmann,” after John Foster Dulles, the ruthless lawyer turned Cold War warrior who was soon to be appointed secretary of state. Sigmund Warburg wrote to Eric in 1950, “During the last few years I’ve found Brinckmann extraordinarily arrogant and egotistical, but during my last discussion in Hamburg I found that his arrogance and his egotism had gradually reached a point where they are scarcely bearable any longer.”
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There seemed no end in sight to the dispute.