Tower of Basel: The Shadowy History of the Secret Bank That Runs the World (20 page)

Once again, the German chemical industries were key. In 1925 Lee, Higginson, McKittrick’s employers, had been part of a syndicate, including Enskilda Bank, that had issued an £8 million bond on behalf of the German Potash Syndicate. Nineteen years later, McKittrick was still ensuring that supplies of the mineral, vital for agriculture, would continue after the war’s end. A second paragraph, also datelined Basel, outlines how, even as Allied airmen were bombing Germany, McKittrick had already concluded an agreement to “preserve the industrial substance of the Reich.” Anyone who questioned the wisdom of such backdoor accords was merely a “leftist radical”:

                 
Mr. Thomas H. McKittrick, the American president of the BIS, has announced his decision to continue his efforts for a close cooperation between the Allied and German business world, irrespective of the opposition of certain leftist radical groups; in these efforts he counts on the full assistance of the American State Department. “After the war such agreements will be invaluable,” said McKittrick. We learn that certain German interests have received assurances that their negative attitude toward the National-Socialist regime will be fully be considered by the Allied political and economic leadership after the war. Negotiations are under way to bring hostilities to a speedy conclusion and to preserve the industrial substance of the Reich.
¹⁴

Thus, while American and Allied troops were fighting their way across Nazi-occupied Europe, Thomas McKittrick, an American citizen, was using his position at the BIS—with the knowledge of the State Department—to
try and bring Allied and Nazi businessmen together, to plan for a post-war Germany that preserved as much as possible of the country’s industry. McKittrick was even brokering agreements to guarantee German companies’ postwar profits and to help German industrialists avoid the financial consequences of the break-up of prewar cartels.

THE OSS MEMO
on the Harvard Project also noted how profitable Cicero’s “sinews of war” had been for the American oil industry, most of all for Standard Oil. Oil industry dividends in 1944 reached a new high of almost $300 billion, the memo noted, quoting the
Wall Street Journal
—nearly a fifth more than in 1943. Standard Oil alone would pay out $68.3 million.

With such enormous sums moving around the increasingly globalized economy, it was becoming more clear that the world would need a new international financial system to finance postwar reconstruction and stabilize trade. In July 1944 more than seven hundred delegates from the forty-four Allied nations gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire, for the United Nations Monetary and Financial Conference. Henry Morgenthau and Harry Dexter White led the American delegation. The conference agreed on the creation of the International Monetary Fund (IMF) and an International Bank for Reconstruction and Development (BRD), which became part of the World Bank. The IMF would monitor exchange rates and lend reserve currencies to indebted countries. The new bank would provide loans to underdeveloped countries. Bretton Woods also gave its name to a new international currency exchange system, where currencies were linked to the US dollar. In exchange the United States agreed to fix the price of gold at $35 an ounce. There would be no more currency warfare or manipulation.

But if there was consensus on the basics, there was none on the future of the BIS. With the IMF at the center of the new international financial system why was the BIS still needed? Henry Morgenthau and Harry White wanted the bank to be abolished. On July 10, 1944, they seemed about to
get their wish. Wilhelm Keilhau, of the Norwegian delegation, introduced a motion to liquidate the BIS:

                 
Be it resolved that the United Nations Monetary and Financial Conference recommends the liquidation of the Bank for International Settlements at Basel. It is suggested that the liquidation shall begin at the earliest possible date and that the governments of the United Nations now at war with Germany appoint a Commission of Investigation in order to examine the management and the transactions of the Bank during the present war.

No delegation spoke publicly in defense of the BIS. But behind the scenes its defenders—sections of the State Department, Wall Street, the Bank of England, the British Treasury, and Foreign Office—went into action. Johan Beyen, the hapless Dutch former president of the bank who had handed over the Czechoslovak gold, blamed the US Treasury Department, in particular Harry White for the resolution. White, Beyen claimed, had got the Norwegians to do his “dirty work.” White certainly supported the motion, which he believed would force McKittrick to resign, an event he described as “a salutary thing for the world.”
¹⁵
White’s opposition to the BIS—and clear understanding of its wartime role for the Nazis—had long caused alarm at the Bank of England. In December 1943, E. W. Playfair, a senior official at the bank, had written to Otto Niemeyer, the former chairman of the BIS board, drawing his attention to an article in the
New York Times
about White and the BIS. White had “disparaged” the bank and said it had “no significance” in relation to plans for the postwar reconstruction of Europe. Germany, said White, was being nice to the BIS because it hoped to use it to “get back into financial power.”
¹⁶
White was even more scathing about McKittrick, describing him as “an American president doing business with the Germans while our American boys are fighting Germans.” All of which was true and so even more infuriating for the financial mandarins, who preferred to keep their arrangements with the other side out of the public eye.

The Foreign Office advised the British delegation that any resolution dealing with the BIS or its liquidation would be “improper,” that most British of sins. Britain, from the start, had been “opposed to doing anything with respect to the BIS,” noted Orvis Schmidt, a US Treasury Official.
¹⁷
So was Wall Street. Leon Fraser, said Morgenthau, was “one of the spearheads of opposition to what we are doing here and has surrounded himself with a group who are fighting what we are doing here. . . . Now I don’t say that Mr. Fraser isn’t a very fine American citizen, but he has certain loyalties which run there, just the way Mr. McKittrick has, Mr. Beyen has. . . .” The BIS was a kind of club for central bankers, said Morgenthau and people like Schacht and Funk still hoped that the “same kind of thing would continue after the war.”
¹⁸
Morgenthau was an implacable opponent not just of the BIS but of any kind of reconstruction that would allow Germany to dominate Europe. His plan for the country called for German heavy industry to be dismantled or destroyed, for Germany’s industrial areas to be internationalized or ceded to neighboring countries, for complete demilitarization, and for the country to be reduced to a pastoral or agricultural economy.

Harry White saw the BIS clearest. The bank’s emphasis on its supposed neutrality was an alibi for its future role in reconstructing Europe, he argued:

                 
They hope to be a moderating influence in the treatment of Germany during the peace conference. That is why Germany has treated it with the greatest of care. She has permitted her to pay dividends; she has let the people in BIS come and go across enemy territory; she has been extremely careful and well-disposed to the BIS, because she nursed that baby along in the hope that that would be a useful agency that would protect her interests beyond those that any other institution around the peace table would.
¹⁹

On July 18, Ansel Luxford, a member of the US delegation, proposed a new resolution, that no country could join the IMF unless it had “taken
the necessary steps to foster the liquidation of the BIS.” John Maynard Keynes, the influential economist who was part of the British delegation, was furious. Keynes, who was also close to John Foster Dulles, suffered from angina and became so agitated by the affair that there were rumors he had suffered a heart attack. He demanded that the resolution be withdrawn or he would quit the conference. There could be no linkage between dissolving the BIS and joining the IMF, Keynes wrote to Morgenthau, or Britain would not participate in either the IMF or the new bank for an “indefinite period.”
²⁰
Morgenthau backed down.

Eventually, a new Norwegian-Dutch resolution calling for the liquidation of the bank at the “earliest possible moment” was finally agreed. It was a perfect compromise: critics were satisfied that the principle was now established that the BIS must be closed down, while the bank’s supporters noted that the resolution set out no date or conditions for this eventuality. Beyen, the former BIS president, distanced himself from the bank, rapidly remodeling himself as a pillar of the postwar democratic order. The BIS was incompatible with the IMF, and its statutes and banking operations would be obsolete after an Allied victory, he now argued. Little wonder that Beyen was described by Orvis Schmidt as a “very shifty fellow” who had “demonstrated his ability to forget what he said five minutes earlier.”
²¹

The Bretton Woods conference was watched with intense interest in Berlin. Puhl and the Nazi bankers understood that whatever was agreed upon by the fractious delegates, the BIS, or something like it, would survive. There were too many vested interests, on both sides of the conflict, to allow the world’s most important channel of transnational finance to be closed down—especially when it had consistently proved its worth under the most arduous of conditions. An article in the Berlin newspaper
Das Reich
, published in September 1944, argued that the global economy was now so complex that an international clearinghouse would be needed once the war was over. The new IMF and IBRD would not be able to perform these functions. Even if the Allies were unwilling to hear “the un-speakable
name of the BIS” they would need something like it.
²²
Das Reich
was correct.

IN BASEL, MCKITTRICK
was enraged by the attacks on the bank. He wrote to the Bank of England and demanded a full investigation into the BIS’s wartime record, which he apparently believed would exonerate him. The prospect of that set off alarms from Whitehall, the British government quarter, to Threadneedle Street, where Lord Catto, the new governor of the Bank of England had taken over from Montagu Norman. McKittrick, noted a Foreign Office memo, had gone native in neutral Switzerland and was “thoroughly out of touch with the way people are thinking nowadays.”
²³

The end of the war did not seem to bring McKittrick any closer to reality. In March 1945 Orvis Schmidt, the US Treasury official who had attended the Bretton Woods conference, met with McKittrick in Switzerland. Schmidt, like his boss Henry Morgenthau, was not a fan of either McKittrick or the BIS, and McKittrick knew it. “It was clear that Mr. McKittrick was fully aware of the manner in which he and the BIS are regarded by the Treasury Department,” Schmidt wrote.
²⁴
McKittrick tried his best to persuade Schmidt otherwise—if only the Treasury Department understood “the real role that he and the BIS had played” all that would change, the BIS president ardently believed. This seemed unlikely, considering what followed.

Schmidt continued, “The BIS, McKittrick said, had been ‘strictly neutral’ during the war. The bank was a ‘sort of club’ for the world’s central bankers, a ‘little group of like-minded-men who understood and trusted one another.’” This trust was unimpaired by issues such as national, political, or governmental interests. Rather it was a kind of celestial understanding. It would continue “regardless of the condition of the world or of the constantly changing political relations between their respective countries.” Unimpressed by McKittrick’s eulogy, Schmidt asked McKittrick why the Germans had allowed him to run the BIS in this manner—what was in it for
them? In response, McKittrick claimed that, “In order to understand the conduct of the Germans toward the BIS, one must first understand the strength of the confidence and trust that the central bankers had in each other and the strength of their determination to play the game squarely.” McKittrick then said that the German members of this elite could positively influence the German government’s conduct. These financiers, said McKittrick, were not Nazis but were needed by the Nazis because of their technical skills. “The existence of this little group is the keystone in the explanation of Germany’s conduct with respect to the BIS,” he explained.
²⁵

Schmidt asked McKittrick if he could name any members of this group. Only one name was forthcoming: Emil Puhl—the vice president of the Reichsbank, BIS director and guardian of looted gold, for which he would soon be put on trial at Nuremberg. McKittrick admitted that the BIS had accepted payment in gold from the Germans during the war. It had all been kept separately so that it could be checked easily to see if any was looted. McKittrick justified this on the grounds that “he thought it would be better to take the gold and hold it in this fashion rather than refuse it and let the Germans use it for other purposes.”
²⁶
The conversation then took a surreal turn. Puhl, McKittrick continued, knew where the looted Belgian gold was: in the vaults of the Reichsbank, where Puhl was holding it “for return to the Belgians after the war,” rather as a fence might justify his possession of stolen goods to police investigating a robbery. McKittrick also admitted that the BIS had supplied the Third Reich with foreign exchange. But by doing so, he suggested, the BIS had actually weakened the Nazi economy, as Germany had paid more into the BIS in foreign exchange than it had received. Schmidt was incredulous. “I was surprised that a voluntary recital intended as a defense of the BIS could be such an indictment of that institution,” he wrote to Henry Morgenthau.