x Abu Dhabi, UAEMonday 22 January 2018

Book Review: Too big to be seen

Adam LeBor offers a glimpse inside the secretive organisation that helped prop up the Nazis, but fails to reveal much about the degree to which it continues to shape global finance, writes Fran Hawthorne

Tower of Basel: The Shadowy History of the Secret Bank that Runs the World

Adam LeBor


Every other month, 18 of the most powerful financial figures in the world - central bankers of the US, the UK, China, Germany, the European Central Bank and 13 other entities - gather "in a circular tower block whose mirrored windows overlook the central Basel railway station" in Switzerland. After an hour or so of discussions, they adjourn for a private gourmet dinner on the top floor of the tower, in a dining room designed by the same architectural firm that built the much-lauded "Bird's Nest" stadium for the 2008 Beijing Olympics, with "white walls, a black ceiling and spectacular views over three countries: Switzerland, France and Germany".

These bankers constitute the elite of the elite, the highest tier of governors of the Bank for International Settlements (BIS). Ostensibly, the main function of this little-known, 83-year-old behemoth is to facilitate boring back-room operations like interbank transfers for the global financial community. In fact, the BIS is so powerful that it helped prop up Nazi Germany, create the euro and bring down the Soviet Union. Like a sovereign nation, it is exempt from Swiss taxes, and "the Swiss authorities have no jurisdiction over the BIS premises".

At this point, the reader is eagerly flipping the pages of the new book The Tower of Basel: The Shadowy History of the Secret Bank That Runs the World, searching for more inside scoops on those dinners and bankers. Clearly, this is an institution that anyone who is engaged in multinational business needs to understand.

Unfortunately, the reader will be disappointed. Approximately three-quarters of Tower of Basel focuses on the BIS during the 1930s and 1940s - how it first ignored the horrors of the Nazis, then helped them plunder the nations they conquered, and finally whitewashed the sordid pasts of the surviving German leaders after the Second World War. And while that, too, is an important story that ought to be told, it actually has been written about already - including in another book, Hitler's Secret Bankers, by this same author, the Hungarian-based journalist Adam LeBor.

Meanwhile, the real "inside story" of the modern BIS remains unwritten and sorely needed.

In its last few chapters, Tower of Basel finally flicks at some of the key challenges facing the BIS today, including the question of whether it still has a reason to exist, in a world with plenty of other multilateral financial institutions such as the International Monetary Fund and the European Central Bank.

Plus, there are a few more details about the BIS tower's security cameras and the bankers' private country club.

"The BIS has survived through the decades just as it was born - by opacity, secrecy and by hiding behind a carapace of legal immunities," LeBor writes. "These protections perpetuate the technocrats' belief that a tiny, self-selecting elite, unaccountable to everyday citizens, should manage global finance."

Indeed, the BIS was created almost single-handedly in 1930 by Montagu Norman, the notoriously mercurial governor of the Bank of England, primarily as a mechanism for implementing the harsh programme of German reparations after the First World War. Norman worked with a small and close-knit network of fellow aristocrats, industrialists and financiers, especially Allan Dulles (a future director of the US Central Intelligence Agency) and Hjalmar Schacht, later to be head of the Reichsbank under Adolph Hitler and a dear friend of Norman's for nearly three decades.

"Away from the demands of politicians and the prying eyes of nosy journalists, the bankers would bring some much needed order and coordination to the world financial system," according to this book.

The BIS's original raison d'être was soon upended by Hitler's takeover of Germany and his unilateral abrogation of the reparations. However, the Basel-based bank gradually took on other technical functions, such as buying and selling gold and foreign currencies for its central-bank members, managing their assets and arranging short-term credits.

As LeBor and others - including authors James Pool (Who Financed Hitler?) and John Weitz (Hitler's Banker) - have previously written, many members of the BIS's founding network actually supported the Nazi dictatorship, at least initially, as a perceived alternative to chaos or Marxism. Even after the Second World War began, the BIS continued to carry out foreign exchange deals and other ordinary business with the Nazi Reichsbank. Norman insisted that the BIS had to remain "neutral" and avoid anything smacking of politics.

Probably the bank's most shameful moment came in 1939, when Hitler, having just marched into Prague, demanded 23.1 million metric tonnes of the Czech National Bank's gold reserves that were held for supposed "safekeeping" at the BIS. The BIS handed over the metal without a murmur.

"Nothing could interfere with the bankers' sacred neutrality and gentlemanly trust in one other," LeBor writes, "not even the coming conflagration with a regime whose evil was now plain to see."

Once the war ended, the BIS's widespread old-boys' network sprang to work to protect its own.

Back to Wall Street, Basel and the heights of corporate power came German business leaders who had used concentration camp prisoners as slave labourers, or who were convicted as Nazi war criminals at the Nuremberg trials.

Indeed, the BIS thrived after the war. With the establishment of the great postwar institutions of multinational trade and finance - including the Marshall Plan, the Basel Committee on Banking Supervision and all the machinery of European integration - it became more crucial than ever to have a trusted mechanism for managing money across borders.

Among other responsibilities, by the 1980s the BIS was administering a vital storehouse of international financial data; helping to supervise banks and write regulations; clearing and settling European currency transfers; and in general, "steadily making itself indispensable for the functioning of the global economy."

LeBor makes an interesting case that by extending US$510 million (Dh1.87 billion) in bridge loans to Hungary in 1982, the BIS provided crucial support to that country's fledgling reform effort. That step "weakened the grip of the Communist Party and allowed the opening of the Iron Curtain", the author argues. And why did the BIS agree to the loans? Networking, of course: Janos Fekete, a top official of the Hungarian National Bank, "had excellent contacts at the BIS".

That may have been the last high point of the bank's history. Actually, LeBor can't seem to make up his mind if this institution is still omnipotent or now out of touch.

Sometimes he portrays it as a $20 billion behemoth that manipulated European nations into closer and closer economic ties that inevitably led to the euro. And sometimes the BIS is described as a relic that doesn't realise that the rest of the world no longer shares its single-minded focus on austerity.

No doubt one reason for this inconsistency is that LeBor devotes so little space to the modern BIS. Barely a couple of sentences are allocated to one of its most controversial roles today - helping to write the Basel III rules for ensuring that commercial banks have enough liquid assets to survive a future financial crisis. Banks have been lobbying for easier standards and more time to adapt, claiming that the guidelines will throttle their growth.Instead, LeBor wastes space with confusing digressions into the histories and habits of a slew of minor characters, such as Allan Dulles's sister.

Perhaps to justify his obsession with the Nazi era, LeBor tries to claim that the creation of the European Union and its alphabet soup of agencies is really a fulfilment of Hitler's scheme for world domination. "The uncomfortable, unspoken truth is that the parallels between the plans of the Nazi leadership for the postwar European economy and the subsequent process of European monetary and economic integration are real," the book asserts. Naturally, "the BIS runs like a thread through both".

In the end, LeBor may have unintentionally condemned the BIS with its own words.

He repeatedly cites occasions where the sharp-eyed Basel bankers predicted coming disasters. When the Delors Committee in 1989 formally proposed a common European monetary policy and currency, the then-general manager of the BIS, Alexander Lamfalussy, presciently warned that "it would seem to me very strange if we did not insist on … a Community-wide macroeconomic fiscal policy" along with it. Today, many experts are reviving Lamfalussy's analysis - the lack of a common European fiscal policy - as a major reason for the current euro crisis.

But in that case, how much power does the BIS really have, if no one has listened to its warnings for 24 years?

Fran Hawthorne is an award-winning US-based author and journalist who specialises in covering the intersection of business, finance and social policy