11/19/13 - americans lent billions to pre-war germany

In today's selection -- from The Brothers by Stephen Kinzer. American banks made significant loans to pre-World War II Germany. One of the leaders in arranging these loans was John Foster Dulles, head of the powerful Sullivan and Cromwell law firm and later U.S. Secretary of State -- and the man for whom Dulles Airport is named. Dulles was strongly anti-Bolshevik (as were many other Americans), so he gave some credence to Adolf Hitler due to his fervent anti-Bolshevism:

"Despite his lifelong devotion to France -- which had awarded him the Legion of Honor for his work on the Versailles treaty -- no country appealed to John Foster Dulles [known as Foster] more deeply than Germany. His father had studied theology at Gottingen and Leipzig, and awed him with stories of the country's rich intellectual tradition and role in the Reformation. He had made his first visit there when he was barely into his teens. ... In the period between the world wars, when Foster's legal practice became truly global, he devoted himself most assiduously to Germany. He had already developed an emotional attachment, based on his admiration for Germany's centuries of achievement and the rigor of its social order, and a political one, stemming from his belief that it was a rising nation and a bulwark against Bolshevism. Years of work for German clients gave his attachment an eco­nomic basis as well. ...

"During the 1930s he began describ­ing France and Britain as 'static' societies, interested only in defending what they had, and predicting that the future would be shaped by three newly creative and 'dynamic' powers: Germany, Italy, and Japan. ... None of this would have mattered if Foster's closest engagement with Germany had not come while National Socialists were consolidating power.

"Foster had helped design the Dawes Plan of 1924, which restructured Germany's reparation payments in ways that opened up huge new markets for American banks, and later that year he arranged for five of them to lend $100 million to German borrowers. In the seven years that followed, he and his partners brokered another $900 million in loans to Germany [the equivalent of USD 13.27 billion]. This made him the preeminent salesman of German bonds in the United States, probably the world. He sharply rejected critics who argued that American banks should invest more inside the United States, and protested when the State Department sought to restrict loans to Germany that were unrelated to reparation payments or that supported cartels or monopolies. ...

"In mid-1931 a consortium of American banks, eager to safeguard their investments in Germany, persuaded the German government to accept a loan of nearly $500 million to prevent default. Foster was their agent. ... Working with [the German minister of economics Hjalmar] Schacht, Foster helped the National Socialist state find rich sources of financing in the United States for its public agencies, banks, and industries. The two men shaped complex restructurings of German loan obligations at several 'debt conferences' in Berlin -- conferences that were officially among bankers, but were in fact closely guided by the Ger­man and American governments -- and came up with new formulas that made it easier for the Germans to borrow money from American banks. Sullivan & Cromwell floated the first American bonds issued by the giant German steelmaker and arms manufacturer Krupp A.G., extended I.G. Farben's global reach, and fought successfully to block Canada's effort to restrict the export of steel to German arms makers. According to one his­tory, the firm 'represented several provincial governments, some large industrial combines, a number of big American companies with interests in the Reich, and some rich individuals.' By another account it 'thrived on its cartels and collusion with the new Nazi regime.' ...

"During the mid-1930s, through a series of currency maneuvers, dis­counted buybacks, and other forms of financial warfare, Germany effec­tively defaulted on its debts to American investors. Foster represented the investors in unsuccessful appeals to Germany, many of them addressed to his old friend Schacht. Clients who had followed Sullivan & Cromwell's advice to buy German bonds lost fortunes. That advice, according to one study, 'cost Americans a billion dollars because Schacht seduced Dulles into supporting Germany for far too long.' ...

"Foster had clear financial reasons to collaborate with the Nazi regime, and his ideological reason -- Hitler was fiercely anti-Bolshevik -- was equally compelling. In later years scholars would ask about his actions in the world. Did he do it out of a desire to protect economic privilege, or out of anti-Communist fervor? The best answer may be that to him there was no difference. In his mind, defending multinational business and fighting Bolshevism were the same thing."


Stephen Kinzer


The Brothers


Times Books


Copyright 2013 by Stephen Kinzer


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