UNITED STATES: by Nomi Prins, Aaron Maté and Amy GoodmanNews Weekly
The secret history of Washington-Wall Street collusion
, June 7, 2014
Award-winning author and former Wall Street financial analyst Nomi Prins recently chronicled the 100-year history of secret collusion between Washington and the financial industry in her acclaimed new book, All the Presidents’ Bankers: The Hidden Alliances that Drive American Power.
Now a senior fellow at the U.S. think-tank, Demos, Prins is a former managing director at Bear Stearns and Goldman Sachs, and previously an analyst at Lehman Brothers and Chase Manhattan Bank.
On April 8, 2014, she was interviewed on Democracy Now!, a daily independent global news hour broadcast from New York. An abridged version of the interview is reproduced here.
Aaron Maté: If you go by the balance sheet, the last four years have been a time of economic growth in the United States. Corporate profits and stock prices have mostly recovered and, in many cases, surpassed their levels from before the financial crisis.
Woodrow Wilson, U.S.
On Wall Street, bonuses are now the highest they’ve been since before the 2008 crash. Just last year, payouts increased 15 per cent to $26.7 billion. That’s enough money to more than double the pay of every minimum-wage worker in the country. That’s because, for most Americans, the recovery has been elusive. Inequality is now at its highest point since 1928, and the wages for lower-income Americans are stagnant.
Amy Goodman: Well, we now turn to a new history that explains how this disparity has come to be.
In her new book, All the Presidents’ Bankers: The Hidden Alliances that Drive American Power, financial journalist Nomi Prins traces the 100-year history of collusion between Washington and Wall Street. Prins reveals how a small number of bankers have played critical roles in shaping a century’s worth of financial, foreign and domestic policy in the United States.
These relationships have influenced events from the creation of the Federal Reserve, the response to the 1930s Great Depression, and the founding of the International Monetary Fund (IMF) and the World Bank.
For a good part of the 20th century, bankers and presidents presided over a financial system that was relatively stable. But, as Wall Street grew increasingly outside of Washington’s control, financial speculation has exploded, leading to the financial crisis of 2008. And, even though the economy may now be on the mend, Nomi Prins ends her book with a stark warning, writing, “Either we break the alliances, or they will break us.”
Nomi, it’s great to have you with us. Talk about the inspiration for the book.
Nomi Prins: Well, actually, we were on the show a few years ago; I was talking about a historical novel I had written on the 1929 crash, called Black Tuesday. And what had happened was that six bankers had gotten together at the behest of the acting chairman of the Morgan bank, Thomas Lamont, and they had so been afraid of losing all of the money and all of their reputations and their institutions at the time that they got together and decided to pool their own money to save the markets — a stark difference from what happened more recently, which was that the Federal Reserve, Treasury Department and everyone else from the government decided to work with them to save themselves.
But the impetus for the book really came from those big six bankers. We still have six big bankers today. And I looked into the relationships that they had with all of the presidents going forward and backward from that time to come up with this All the Presidents’ Bankers analysis.
Amy Goodman: Talk about who they were and the companies they represented.
Nomi Prins: In 1929, the men who sat in the room at Morgan were Tom Lamont, who was the acting chair of Morgan; Charles Mitchell, chairman of National City Bank, which has now grown into Citigroup; Al Wiggin, head of the Chase Bank, which is now part of the JPMorgan Chase constellation; and a couple of other bankers. And they basically have morphed into some of the six banks we have today. The ones that were absent were Goldman Sachs and Bank of America; but they came in through other avenues and personal connections to bankers, from Franklin D. Roosevelt and forward since that time.
Henry Paulson, U.S. Secretary of
the Treasury (2006-2009).
And what I did was I went backwards from the crash in 1929 and noticed that J.P. Morgan, who died 100 years ago, is arguably — not even arguably, who is — the most powerful banker this country has ever known and the most powerful political, financial actor.
But his legacy — his family and what he created and the constellation of relationships between him and, at the time, Theodore Roosevelt, as far back as 1907, through Jamie Dimon’s relationship with Obama more recently — has been a very apparent apparatus in the connection of politics and finance, which I believe has no separation line.
Aaron Maté: On that absent separation line, talk about the creation of the Federal Reserve.
Nomi Prins: So, this panic in 1907 happened. Teddy Roosevelt, who historically we know as the great trust-buster, didn’t bust banks. He busted a lot of other companies, a lot of other industries, but not banks. And the reason for that was he truly believed — and he says this in documents and memoirs that I looked through — he truly believed that J.P. Morgan, the man, and his bank and his friends could save New York and the country from a greater catastrophe after the panic of 1907.
And J.P. Morgan got together with a bunch of people at the Hotel Manhattan at midnight — didn’t have the president there, didn’t have the treasury secretary there — (and) told them later what they would do. And what they would do is save their friends. They decided they didn’t want to really have that kind of scare again, so they continued to push for this idea of a central bank, which was the Federal Reserve.
They had help with a senator, Nelson Aldrich, who was head of the Senate Finance Committee at the time and, a year or so after that, under President William Taft. Aldrich took a group of bankers in 1910 to Jeckyll Island for 10 days. They hunted. They shot pheasants. They did all sorts of things. But they came out also with the impetus for the Federal Reserve.
Two bankers who came from that meeting went to Washington to put up the plans. Now, it wasn’t passed under Taft; it was passed under the Democratic president, Woodrow Wilson. But a lot of those same individuals were friends with Woodrow Wilson as well. In fact, they helped campaign and raise money for his presidency. And the Federal Reserve Act was ultimately passed in 1913 under Wilson.
Amy Goodman: What were the most famous — or not as well known, but you uncovered them — “bromances” between top bankers and presidents?
Nomi Prins: One of them was Tom Lamont. He started his life moving up the chain of Morgan after the panic in 1907. He had gone to Harvard with FDR. But as a young man, he was also hanging out — living in the house of FDR up on 65th Street, renting it for several years while FDR was the assistant Navy Secretary under Woodrow Wilson.
They chose Tom Lamont to go with Wilson to France in 1919 for six weeks. It was the longest time a U.S. president was outside of U.S. soil and the first time a U.S. president was outside of U.S. soil. But the banker who was by his side was Tom Lamont. He was a Republican. He went across his party lines to come back with Woodrow Wilson to fight for the League of Nations to try to preserve peace after World War I, which was defeated.
But Tom Lamont and Woodrow Wilson developed this relationship. And their letters are crazy, so full of gratuity and love and just, you know, “Thank you for being there by my side, and I couldn’t have done it without you”, because, when Woodrow Wilson then got a stroke and it was difficult for him to go around the country after World War I to fight for U.S. membership of the League of Nations, which the Senate ultimately did not pass, Tom Lamont took it up in the newspapers he owned, the Saturday Review, and really tried to push the senators he knew.
Aaron Maté: If we look back on the 1930s Great Depression, it’s understood that Wall Street was hostile in many ways to the New Deal, but how did Wall Street work with Franklin Roosevelt, and why?
Nomi Prins: One of the men, Winthrop Aldrich, whom I mentioned before, was the son of the founder of the Federal Reserve. One of the founders of the Fed, Senator Nelson Aldrich, was also friends with the Roosevelts. He was friends with FDR. And he also knew, from a business perspective, he wanted to outdo the Morgans.
So he said, you know, Chase has some trading, some speculation, that went miles wrong in the crash of 1929, and he believed that for the stability of the economy and for his bank going forward — that is, the public interest as well as his bank’s interest — he worked with FDR to pass the 1933 Glass-Steagall Act, which separated the speculative activities from the depositors that had their money entrusted to banks at the time, including at Chase. And, actually, Carter Glass, whose name is on that act, wanted a slightly weaker version of the act than Winthrop Aldrich pushed for.
Amy Goodman: You have said that the relationships between bankers and presidents, those in power, are more dangerous today.
Nomi Prins: The relationship is much more dangerous because those big six banks today — again, slight derivations of the big six banks in 1929, but today — own 85 per cent of deposits of all the commercial banks, 84 per cent of assets of all the commercial banks, and control 96 per cent of all of the derivatives that financial institutions that are backed by the government utilise today, and 45 per cent of the world’s derivatives.
Six banks control so much capital and have so much power as to the laws around that capital. But the reaction of the administrations, from Reagan to Obama, has been to allow this to happen, to allow the concentration of this capital, of this power, to do nothing in the face of the financial crisis of 2008, which I believe is still ongoing, just in a different manifestation, because this risk still exists and because these numbers are worse than they were before the crisis of 2008.
Amy Goodman: What about John F. Kennedy’s relationship with the bankers?
Nomi Prins: JFK was interesting. Of course, he wasn’t president for a long time. One of the things I look at in the book is the pedigree and the social stature of a lot of the bankers and presidents, and also their connections. JFK, for example, in 1938 met David Rockefeller in London at a gala coming-out party for JFK’s sister Kathleen. And David Rockefeller briefly dated Kathleen. So there were many social ties, as well.
But the other side of JFK is that his personal relationship, despite the social background, was a little more stilted. He just came off as a little more trying to do his own thing. Rockefeller started saying disparaging things in public, in particular in a Life magazine article in 1962, that were going against what JFK was trying to do.
JFK, for example, in Latin America was trying to allow those countries to be more independent, to not have more private debt imposed upon them — which is what Rockefeller and the other bankers wanted to do at the time as a new source of making money! And this really disturbed Rockefeller, in particular, who was trying to expand the bank into those areas.
So, on the one side, they had a very strong social connection, and on the other side, JFK really tried to go about in a way to make external countries a little bit more independent financially from the United States, whereas that was a point where things started going in separate directions, and Rockefeller and Walter Wriston, who ran National City Bank at the time, really wanted to dump them with debt and to privatise and do all sorts of things that have gotten worse since then.
Aaron Maté: So what happens since the 1970s? Since the ’70s, Wall Street kind of goes rogue.
Nomi Prins: It started when they found they could do a foreign policy that was separate from U.S. policy, that was an expansion of banks in a foreign capacity. And then Lyndon Johnson tried to rein some of that back. He had some friends (to whom) he basically said, “You guys, I know you want to do your own thing; but I have a Great Society vision coming on board, so you need to back me.” So there was a little, still, quid pro quo there.
By the time the ’70s came along, with Richard Nixon, who had less personal relationships and also ultimately took the country off the gold standard, which he did because the bankers pushed him to do it, because at this point they wanted two things. They saw that there was Middle East oil, and they could go in there and start to forge relationships and branches in the Middle East and utilise those petrodollars to recycle — it was a huge thing in the early ’70s — into Latin America and other countries. So they started operating more internationally and independently of their connections to the president.
And the minute they discovered all that money and they dumped all of that debt into the Third World, that manifested in a huge Third World debt crisis in the 1980s. And that was the first very large instance of a bailout.
The bankers said, “We’re going to use your money to bail us out.” They were in Washington talking about the catastrophe that would happen to America if that didn’t happen. They got the government to basically push the World Bank and the IMF to work on the areas where they had the most risk and they had the most interest in retrieving it.
Then in the ’90s they just compiled that with the Mexican peso crisis, where Clinton also worked with Robert Rubin to save Mexican interests for Goldman and other U.S. banks, and then the repeal of Glass-Steagall in 1999. And then all of this idea of consolidation of risk and power just exponentially grew from there.
Amy Goodman: Nomi Prins, you say that Goldman Sachs wasn’t always as powerful as it is today.
Nomi Prins: Goldman Sachs almost died in 1928. Or, well, basically between 1928 and 1929, they had a trading partnership, “partnership”, in which investors invested money, and the stock of that trust went up to $320-something, and then it subsequently went down to $1. And there were a lot of angry investors around the street and so forth.
But a man named Sidney Weinberg, who was the chairman of Goldman at the time, who actually joined Goldman in the panic of 1907 as sort of an underling, decided that if he could befriend FDR in such a manner as to help him run his 1932 campaign, he would kind of have a seat at the table. And so, the legitimacy of Goldman with respect to FDR also allowed FDR to create the first Business Council, that Sidney Weinberg pushed in Washington to forge relationships between the business financial community and Washington and so on.
Sidney Weinberg also was behind LBJ’s choice of Henry Fowler as a treasury secretary, who then joined Goldman Sachs after being treasury secretary. Bill Clinton picked Robert Rubin, coming from Goldman Sachs, to be the treasury secretary in his administration. And George W. Bush picked Henry Paulson, also from Goldman Sachs, to be treasury secretary. But it started with Sidney Weinberg and FDR.
This article is reprinted from the website DemocracyNow.org under creative commons copyright. The full-length interview can be accessed at: