Tower of Basel: The Shadowy History of the Secret Bank That Runs the World (10 page)

By 1938 Schacht had begun to play a perilous game, using the BIS as a secret back channel to Britain to try and bring down Hitler and stop the march
to war, or so he claims in his memoirs. Schacht first approached several senior military leaders to encourage them to launch a coup. None would agree. That left the monthly meetings at the BIS. “The more conditions in Germany approached a climax, the greater my desire to make use of my connections in Basel as a means of preserving peace,” he wrote.
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The Reichsbank president took Montagu Norman aside at a BIS meeting and asked him to approach Chamberlain to set up a channel between London and the anti-Nazi Germans. Four weeks later Norman and Schacht met again in Basel. Norman told Schacht that he had discussed his proposal with Chamberlain. Schacht asked what was his reply. Chamberlain had said, “Who is Schacht? I have to deal with Hitler.”
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After Kristallnacht, even Schacht’s self-deception and rationalization began to fade. The attack on Germany’s Jews, Schacht proclaimed in his speech to the Reichsbank Christmas party, was “such a wanton and outrageous undertaking as to make every decent German blush for shame. I hope none among you had any share in these goings-on. If any one of you did take part, I advise him to get out of the Reichsbank as quickly as possible.”
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Schacht’s indignation, whether real or feigned, was wasted. His Reichsbank was the Nazis’ most important instrument for looting the assets of German Jewry. After Kristallnacht, the Nazis imposed a fine of one billion Reichmarks on German Jews, to be paid in four installments.

Schacht then proposed to Hitler a bizarre plan to help German and Austrian Jews to emigrate, the kind that only a banker could dream up. Jewish holdings in both countries would be placed in an international trust. The trust would sell twenty-five-year bonds—which would pay dollar dividends—to world Jewry. Part of the dividend would finance the emigration of German and Austrian Jews, and part would be used to boost German exports. Hitler agreed to the plan, but, not surprisingly, nothing came of it. Schacht did help save Bella Fromm, the high society Jewish journalist. Fromm had continued her acerbic observations of Berlin society, politics, and diplomacy, until the summer of 1938 when it became clear she had to flee. She was packed and ready to go
when the paperwork got stuck for the transfer of her personal funds—this was a disaster, as without the monies she would not be allowed into the United States. She asked Schacht for help, and he rushed her case through the Foreign Exchange Office. Fromm immigrated to New York.

MEANWHILE, AS EUROPE
slid to war, the atmosphere in Basel between the central bank governors remained “entirely cordial,” reported Merle Cochran. Cochran traveled to Basel every month from his base at the United States embassy in Paris, to meet Montagu Norman and Hjalmar Schacht at the governors’ meeting. He was not allowed to attend, but Norman and Schacht briefed him afterward on the discussions. Cochran then sent on the information to Henry Morgenthau, the Treasury secretary, and to the State Department. Cochran had excellent sources at the BIS, including Paul Hechler, the German assistant general manager, who signed his correspondence “Heil Hitler.” Most of the central bankers had “known each other for many years, and these reunions are enjoyable as well as profitable to them,” Cochran reported to Washington on May 9, 1939. “The wish was expressed by some of them that their representative statesmen might quit hurling invectives at each, get together on a fishing trip with President Roosevelt or at a World’s Fair, overcome their pride and complexes, and enter into a mood that would make comparatively simple the solution of many of the present political problems.”
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If only things were that simple. Basel at least was a safe haven from the world’s vicissitudes. The governors’ monthly meeting took place at 4 p.m. on Sunday, without notes or minutes being taken, after which high tea was served. The rest of the two days were busy with breakfasts, lunches, dinners, concerts, receptions, and walks along the Rhine and in the Black Forest. Bank officials’ wives were also drafted to lighten the atmosphere at social events. Each governor—just as nowadays—was provided with his own office. The doors were closed while the governors were in discussions with their staffs but were otherwise left open so that bank staff and other governors could make social calls or drop by to exchange news and information.

The bankers began to see the broader picture—the global linkages between their decisions and their consequences. “As they sat down around the table for two days, you could almost see their point of view change as they began to realize the effect of their own actions,” reported W. Randolph Burgess, deputy governor of the New York Federal Reserve.
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Norman and Schacht were still the star attractions. Johan Willem Beyen, a Dutch banker and BIS president in the late 1930s, recalled,

                 
Norman’s prestige was overwhelming. As the apostle of central bank cooperation, he made the central banker into a kind of arch-priest of monetary religion. The BIS was, in fact, his creation. He came on Saturday night and left on Monday night, accompanied by his retinue. The other governors invariably flocked to his room. He had an unbounded admiration for Schacht (in every respect the opposite of himself) and a thorough dislike for one or two others.
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And Norman also had his hat—a beautifully crafted, black silk Homburg with a red silk lining embroidered with a golden bee. When Beyen commented on the detail, Norman quipped, “Oh yes, that’s the bee I wear in my bonnet.”
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In 1939 the BIS board welcomed one of the world’s most powerful industrialists: Hermann Schmitz, the CEO of IG Farben—the giant German chemical conglomerate. IG Farben was much more than an ordinary business. It was a virtual parallel state, which would soon evolve into an unprecedented synthesis of finance capital and mass murder. Born out of a merger in the 1920s between Bayer, BASF, Hoechst, Agfa, and other companies, IG Farben was the fourth-largest concern in the world (after US Steel, General Motors, and Standard Oil). It produced pharmaceuticals, chemicals, high explosives, film, plastics, fuel, rayon, paint, pesticides, car tires, poison gases, lightbulbs, aspirin, margarine, detergents, fertilizer, and much more. IG Farben provided the nickel for the engines of the Heinkel and Stuka bombers, the aluminum for their bodies, the magnesium for their wings, and the artificial rubber to hold the windshields together.
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It refined
the fuel, oils, and greases that let the Wehrmacht unleash the Blitzkrieg. The firm once attacked by the Nazis as “Isadore G. Farber”—a macabre reference to the former presence of prominent Jewish financiers such as Max Warburg on its supervisory board—was now the centerpiece of the Nazi war machine.

IG Farben had a liaison office with the Wehrmacht to plan its takeover of competitors in newly occupied countries. It ran its own intelligence service, known as “Buro IG,” from its headquarters on the Unter den Linden in Berlin. During the war, IG Farben managers built and ran the company’s private concentration camp at Auschwitz, known as “IG Auschwitz,” which manufactured Buna, or synthetic rubber.

The presence of Hermann Schmitz on the BIS board highlighted how deeply the bank was entangled with the Third Reich. Nazi Germany benefited immeasurably from its relationship with the BIS. By 1939 the BIS’s investments in Germany totaled 294 million Swiss gold francs ($96 million), a substantial sum. But the BIS brought much more than money. As the “Young Nazi” quoted at the start of this chapter in Merle Cochran’s telegram explained, the BIS gave the Third Reich the chance for a more “normal” type of business relations with foreign countries. It provided the Reichsbank with a ready-made network of contacts and business channels. It gave Schacht, the architect of the German war economy, a regular opportunity to meet his peers and gain intelligence, both financial and political. It legitimized a national bank engaged in state-sponsored financial chicanery, theft, and appropriation of Jewish businesses through state-organized terror. The BIS thus ensured that the Reichsbank, which should have been a pariah institution, remained a central pillar of the global financial system. Schacht’s status and prestige and his regular attendance at the Basel meetings made the criminal actions of the Reichsbank seem acceptable. The personal connections of the central bankers, fostered at the BIS’s lunches, dinners, cordial receptions, and strolls in the woods, were crucial in this acculturation of Nazi methodology.

The BIS reports during the 1930s and the buildup to war are especially illuminating in this respect—for what they do not discuss, as much as the information they do impart. The bank’s access to figures provided by the world’s leading
central banks allowed it to collate and analyze statistics, to dissect global trends, and to make policy recommendations in a unique, new format. The BIS annual reports, wrote John Maynard Keynes, the influential British economist, were now “the leading authority for certain statistics, not easily obtainable,” and the staff were to be congratulated. The reports were supervised and written by Per Jacobssen, who had joined the bank in 1931 as economic adviser.

Born in 1894, in Tanum, Sweden, Jacobssen had made his name while working at the Economic and Financial Section of the League of Nations from 1920 to 1928. He was far more than an adviser. He shaped the bank’s policy recommendations of laissez-faire economics and the importance of individual responsibility over state provision. He supported European federalism and supranationalism. His legacy has shaped our world. Jacobssen was also a kind of global economic troubleshooter with a much-envied contacts book. During his time at the BIS, he oversaw numerous financial and economic inquiries into troubled countries and was especially well connected in the United States. As a perceptive observer, Jacobssen also co-wrote two thrillers, fusing his knowledge of international finance and diplomacy.
The Death of a Diplomat
, which was set in the League of Nations, was published in eight languages, and the film rights sold to a German company.
The Alchemy Murder
was macabrely prescient—especially when Hermann Schmitz, the CEO of IG Farben, joined the board of the BIS. The book’s storyline focused on chemical companies producing poison gas.

But Jacobssen’s reports for the BIS, no matter how detailed on economic and financial analysis, gave scant attention to the wider context in which the central bankers operated. It was their job, the bankers believed, to focus on finance, rather than on the complex moral and political issues that shaped nations and the world’s economy. In this they succeeded so well that an article in the
Bankers’ Magazine
in 1943 described the BIS reports as documents “whose emotionless neutrality would do credit to a visitor from Mars.” The Nazi persecution of the Jews and the systematic, state-organized theft of Jewish-owned firms and businesses is reported purely as a technical question. Page 101 of the 1939 annual report notes that some
German firms had experienced a reduction in liquidity and were asking banks for credit to improve their liquidity. But this was not the only cause of the growth in requests for loans. “Other reasons for the demand for advances are to be found in the changes in the ownership of private enterprises due to the Aryanization of private firms.” There is not a word of condemnation, merely a dry noting of the changed circumstances.

The Anschluss, the Nazi annexation of Austria, is noted on pages 100 and 101 of the 1938 report as follows: “In connection with the incorporation of Austria in the German Reich in March and April 1938, the Austrian National Bank entered into liquidation and a series of measures were promulgated transferring most of its assets and liabilities to the Reichsbank.” These assets included the Austrian National Bank’s gold reserves and their 4,000 BIS shares. The BIS accepted their “transfer” to Berlin, the first of many decisions that the bank’s leadership would take to legitimize Nazi plunder and looting.

The BIS’s 1939 report does devote more space to the Third Reich’s methods, but mainly as a question of technical banking interest. The report notes with typical understatement that “Territorial changes in Europe in 1938 left their impress on the banking and credit structures of the countries concerned.” There was perhaps a note of relief in the statement that “the absorption of Austria into the German Reich presented comparatively few difficulties for the German banking system as Austria itself had a unified banking structure.” However, the report observed, “much more intricate questions were involved in the taking over of the Sudetenland,” the border province that Czechoslovakia had been forced to cede to the Nazis in September 1938. The Czechoslovak banks had 143 branches in the Sudetenland. These banks had to change their currency from crowns to Reichmarks. These 143 branches, the report notes, had to be “severed from their old head offices and adapted to the German system”—an adaptation that the BIS was finding very easy indeed.

The bankers gathered at Basel were not burdened with idealism except in one respect: they wanted to work together to facilitate the free flow of international capital. They sought economic stability, low inflation, and global free trade that would provide political stability and control unemployment—reasonable aims
that were shared by much of the world. The bankers may not have been immoral (apart from Schacht), but they were certainly amoral. They believed that financial considerations existed in a vacuum, away from troublesome politics and national interests. Ethical considerations of right and wrong simply did not exist in their universe. What counted was the bottom line and the interest of the banks themselves, especially, now, the BIS. As Merle Cochran noted, “The Directors prefer to view the BIS as a long-term proposition, and insist that its field of usefulness need not be analyzed or altered with every shift in world monetary and economic conditions.”
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