Tower of Basel: The Shadowy History of the Secret Bank That Runs the World (31 page)

When in 1964 the central bankers of the European Economic Community set up their Governors’ Committee to coordinate monetary policy, the committee was located not in Brussels, the home of the European project, or Frankfurt, the site of the Bundesbank, but at the BIS headquarters. The BIS helpfully provided the Governors’ Committee with the necessary secretarial and administrative support. The following year, in 1965, the BIS even reached agreement on its 1930s investments in Germany—the Young Plan loans. The Reichsbank had serviced the loans and paid interest until the end of the war in April 1945. After a twenty-year break, Germany agreed to resume paying interest on the loans but deferred the capital repayment until 1996.

The deal was brokered by Hermann Abs, who had returned to Deutsche Bank. Like Karl Blessing, Abs had expertly whitewashed his Nazi past. There was no mention of Abs’s role at the bank that organized the plunder of Nazi-occupied countries, or his former position on the board of IG Farben. Abs had been the most powerful commercial banker in the Third Reich and now enjoyed similar status and acclaim in the new West Germany. He was also a welcome guest in the world’s treasuries and chancelleries. Abs sat on the board of so many companies, including Daimler Benz, the Federal Railways, and Lufthansa, that a law, known as “Lex Abs,” was passed limiting the number of positions an individual could hold to ten.

When Per Jacobssen died in 1963 after just seven years at the IMF, Abs became a founding sponsor of the Per Jacobssen Foundation. The list of his cosponsors reads like a roll call of the transnational financial elite and includes some familiar names, such as Eugene Black, the former president of the World Bank; Marcus Wallenberg, tutor to Thomas McKittrick and vice chairman of Enskilda Bank; Roger Auboin, the former general manager of the BIS; Rudolf Brinckmann, the veteran BIS director; Jean Monnet, the architect of European unity; and Marius Holthrop, the BIS president. Abs died in 1994 at the age of ninety-two, garlanded with honors and acclaim. A gushing obituary in the
Independent
newspaper, a normally skeptical
British publication, acclaimed him as the “outstanding German banker” of his time. Which was true enough, as Abs had embodied a century of German banking, although not in the adulatory sense that the writer had envisaged.
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ALWAYS QUICK TO
adapt to changing circumstances, the BIS spotted a new opportunity during the 1960s. The continuing drain on Britain’s economy of its empire and the country’s general economic malaise made sterling increasingly vulnerable. But sterling was also a reserve currency, especially across Britain’s current and former dominions. Thus sterling, like the price of gold, had to be stabilized. The BIS was not a lender of last resort, but it could arrange loans to troubled central banks. In June 1966 a group of European central banks, the New York Federal Reserve, and the BIS agreed to make around $1 billion available to the Bank of England to defend sterling. This was significant, not just because of the sums involved, but because the BIS was its center. All the monies involved, apart from French and American funds, would be paid through a single account at the BIS. The bank was now coordinating a long-term strategic rescue of one of the world’s reserve currencies.

However opaque the governors’ meetings were, they were a more edifying spectacle than the farcical and very public scenes at the November 1968 G10 conference in Bonn. With the franc and sterling under pressure, and German reserves up by $4 billion, the conference was always going to be difficult.

This time the finance ministers were in charge. The bankers were banished to the lounges and corridors. Paris and London pressed for a devaluation of the mark, but Germany resisted. Roy Jenkins, the British finance minister, mentioned that the governors’ meeting at Basel had favored revaluation of the mark. Karl Schiller, the German economics minister, rounded on Karl Blessing, the president of the Bundesbank. He demanded to know on what authority Blessing had discussed the national currency value with foreign officials, as though unaware that such discussions had been taking place at Basel since the BIS was established in 1930, and indeed were one of the main reasons for its existence. Schiller demanded that Jelle Zijlstra, the BIS president, provide him
with a full report on the Basel governors’ meeting. Zijlstra politely told him to “go to hell.”

Excluded from the discussions, the governors spent their time playing Ping-Pong, drinking champagne and hunting down an ever-shrinking supply of canapés, all of which were encased in aspic. At one stage Charles Coombs and the governor of the Bank of France eyed a single frankfurter on a waiter’s tray. They agreed to divide it. Outside the conference center, hordes of television crews and reporters were besieging the building, while German protestors angrily demanded that those inside “save the mark.” In fact, it was the French franc that needed to be saved, and the general consensus was that the currency would need to be devalued by around 11 percent.

Zijlstra went into action. He convened an emergency governors’ meeting over lunch on Friday to see what support could be raised for the franc. It was an impressive performance. Zijlstra secured a pledge of $2 billion within half an hour. In the event, Charles de Gaulle, the president of France, decided that the franc would not be devalued. He introduced stringent exchange controls and other monetary restrictions. They worked until spring 1969, when French reserves began to drain away once more. Fresh attacks followed. The franc was finally devalued in August 1969, by 11.1 percent, just as had been discussed in Bonn.

IN DECEMBER
1969, Karl Blessing retired. His friends and admirers held a gala dinner in his honor. Blessing told those assembled—many of whom, like him, had airbrushed their past of inconvenient episodes—that “monetary discipline” had always been the center-point of his banking career. The Nazi regime, which he had loyally and enthusiastically served for all of its twelve years of existence, was smoothly dismissed. “We lived until 1945, or, rather, until 1948, with this many-headed, never-loved monster of the Reichsmark, going downhill all the time.”
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Blessing planned, he said, to spend much of his retirement in the south of France.

The following year, in 1970, McKittrick passed away at a nursing home in New Jersey at the age of eighty-one. The
New York Times
ran a glowing story
about the “world financier,” as it described him. McKittrick had stayed at the Chase National Bank until he retired in 1954. He later headed a World Bank mission to India. The former BIS president had been decorated by Belgium, Italy, and Romania, the article noted. McKittrick’s secret deals with Nazi industrialists, his friendship with Emil Puhl and the BIS’s acceptance of looted Nazi gold were not mentioned.

Montagu Norman had died in 1950, but Hjalmar Schacht continued roaming the world. Asian and Arab countries had no interest in his tainted history and welcomed his expertise. But others remembered. Around 1960 Schacht met with Sigmund Warburg because Schacht wanted Warburg to take a stake in a banking operation in the Philippines. The encounter was heavy with things unsaid. Schacht was unusually nervous, and his speech was repeatedly punctuated with the phrase “in short.” Warburg listened politely and promised to think over Schacht’s idea, but he never followed up.
¹⁹
Schacht finally retired in 1963 and lived in Munich with his second wife, Manci. He died in 1970 after he slipped and badly hurt himself while trying to put on his formal dinner trousers.

Blessing’s retirement was short. In April 1971, at the age of seventy-one, he suffered a heart attack while on holiday in Orange, in France. Even in death, the myths and lies endured. The
New York Times
marked Blessing’s passing with an article as laudatory as its summary of McKittrick’s career. After Blessing left Unilever, the Times noted, he had “held various less exposed positions in the mineral oil industry.”
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As for the slave laborers, leased for a few zlotys a day from the SS before being worked to death or executed at Kontinental-Öl’s network of concentration camps, it was as if they had never existed.

          
“To be frank, I have no use for politicians. They lack the judgment of central bankers.”

           
— Fritz Leutwiler, BIS president and chairman of the board, 1982–1984
¹

B
y 1970 Rudolf Brinckmann had served on the BIS board for almost two decades. But his membership in the world’s most exclusive club had not made the German banker any more amenable to settling the bitter dispute with the Warburgs over the name and ownership of the bank they both claimed. Eric Warburg, now seventy years old, remained a partner in Brinckmann, Wirtz & Co. He still went to work each morning to the building, which had once belonged to his family and which he felt was rightly theirs. Warburg and Brinckmann both attended the bank’s morning meeting, then ignored each other for the rest of the day. The whole situation, Warburg said, was “unbearable.”

The Warburgs suggested that the bank be renamed M. M. Warburg, Brinckmann & Co. The BIS director offered Brinckman, Wirtz–M. M. Warburg & Co., and so it went on. But Brinckmann could feel that Germany’s bankers were turning against him. Hermann Abs described the imbroglio as a scandal. But it may have been Jacob Wallenberg, of the Swedish banking dynasty, who finally forced Brinckmann to change his mind. On a visit to the bank’s Hamburg headquarters, Wallenberg told Brinckmann that when he had first come to the building, in 1913, the name of the firm was “M. M. Warburg & Co, and not, as today, Brinckmann, Wirtz & Co.”

Brinckmann finally surrendered in 1969, and the bank was renamed M. M. Warburg–Brinckmann, Wirtz & Co. The following year, he stepped down from the board of the BIS. Brinckmann retired from his, that is, the Warburgs’, newly renamed bank on the last day of December 1973, at the age of eighty-four. Their battle won, the Warburgs proposed that the bank hold a farewell reception for Brinckmann at the Hamburg branch of the Bundesbank. The gala event was planned for January 2 the following year. The two sides planned a gracious closure, both of Brinckmann’s career and of a long and often turbulent relationship that had spanned five decades. But it was not to be. As Eric Warburg and Rudolf Brinckmann walked toward the Bundesbank building, Brinckmann suddenly gasped for air, collapsed, and died.
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THE PASSING OF
Brinckmann, like that of Hjalmar Schacht and Karl Blessing, marked the end of the postwar era, the transition to the modern, globalized, economy and the rise of the new generation of central bankers. Money moved faster, markets reacted quicker, and countries were now interconnected in ways that would have seemed inconceivable when the BIS was founded in 1930. Its headquarters, at the former Grand Hôtel et Savoy Hôtel Univers, at Centralbahnstrasse 7, had served the central bankers well for several decades. But it had been built as a hotel, not as the headquarters of an international bank that was rapidly growing in power and influence and which stood at the heart of the European integration project. In 1958 the BIS employed 158 staff. By 1971 that number had grown to 237. The bank’s membership was steadily expanding, as was the bank’s growing global reach. The national banks of Spain, Portugal, Iceland, South Africa, Turkey, Canada, Australia, and Japan had all joined. BIS membership was now a point of pride for the newly emerging economies. The monthly governors’ meetings needed to cater not just to the central bankers, but to the legions of assistants, staff, and junior officials who invariably accompanied the governors.

Richard Hall returned to the BIS in 1972, rising to become assistant general manager (the equivalent of deputy manager) before his retirement in 1992. Hall had first spent eighteen months at the bank in 1955 and 1956, seconded from the Bank of England to work on the European Payments Union. That era now seemed something from the pages of a dusty history book. “Things like exchange controls and the gold standard had occupied a lot of people’s time then. But the world had changed tremendously between 1956 and 1972, and the BIS had changed with it,” he recalled. The BIS had survived, evolved, and was now certain of its place in the world. “The bank felt more confident. Not only had it survived the immediate postwar problems, but it had gone on to demonstrate its usefulness to central bank governors as a place for coordinating, consultation, and even weeping on each other’s shoulders sometimes about how dreadful these governments are. The central bankers would share their worries and responsibilities and someone else would say, ‘Yes, I have one of those as well, do you have any good ideas for dealing with this?’”
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The BIS commissioned Martin Burckhardt, a local architect, to design a new, custom-built headquarters. Burckhardt drew up a plan for an ultramodern circular tower block with twenty-four floors. The first version was rejected as too high. Even after the tower was shortened, some local residents objected. A city-wide referendum was held, and the building’s supporters won an overwhelming majority—32,000 in favor, while 14,000 voted against.
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The foundation stone was laid in 1973, and the bank moved into its new offices in 1977. The move was essential, said Richard Hall. “Some of the staff had regrets, but others thought it was about time. The old building had its limitations, and we had burst out of it. We needed more space for more people.”

For a staid and secretive organization, the BIS had chosen a surprisingly high-profile headquarters. Where once the entrance to the BIS had been tucked away next to a chocolate shop, the new building, at Centralbahnplatz 2, was eighteen stories high. It loomed almost menacingly over
downtown Basel, like a rocket about to take off and launch itself into space. The sunlight glinted off the rows of opaque, bronze-tinted windows. The national flags of member banks stood in a row by the entrance, like a miniature United Nations. The bank’s circular corridors and globular 1970s furniture were very stylish, if not daring, for staid central bankers. Even now, the building, which is still in use, appears to have been transplanted from a 1970s James Bond film, as though a steely eyed villain might suddenly stride down its long, looping corridors and frog-march an unwary visitor into a secret annex.