Treasure Islands - Nicholas Shaxson [119]
The Supreme Court ruled that it could—and Wall Street noticed. If one state removed interest rate caps entirely, Wall Street could export this deregulation across the United States. Then in March 1980, South Dakota passed a statute eliminating its anti-usury interest rate caps entirely. The statute was, according to Nathan Hayward, a central player in this drama, “basically written by Citibank.” A new opportunity for U.S. banks had opened up: By incorporating in South Dakota, they could roll out credit card operations across the country and charge interest rates as high as they liked.
Then came Delaware. The tale of its Financial Center Development Act of 1981 is a story about 10–15 powerful people who came together to pass an enormously significant piece of legislation, from which many of them, along with friends and colleagues, reaped huge wealth.1
David Swayze, a grizzled and affable lawyer who was chief of staff to Delaware’s then governor, Pierre S. “Pete” du Pont, picks up the story.
“What Citibank did [in South Dakota] was not lost on the other money center banks,” Swayze said. “They wanted some—but they didn’t want to be in South Dakota. It’s cold out there.”
Hayward, who is du Pont’s second cousin and was a du Pont cabinet member at the time, picks up the story. “Pete [du Pont] inherited a state that was in bad financial shape,” he said. “There had been a continuous stream of red ink and the deficits were hidden with tricks and budget games.” After being elected governor in 1976, du Pont had overseen an improvement in state finances, and he was a shoo-in for reelection. “We weren’t on a cocaine high,” said Hayward, “but we were beginning to feel pretty good.”
In early June 1980, a group from Chase National Bank came to the venerable University & Whist Club in the state’s commercial capital, Wilmington, to meet Delaware officials.2 The link man was Henry Beckler, an ex-Chase banker at the Bank of Delaware, and he had already persuaded Chase to manage some of its foreign operations out of Delaware. “Henry Beckler’s son and my son went together to school,” said du Pont. “When you put a statute like this together you have to talk to the banks. He was very important, he asked them what things we should be putting in there.”
Du Pont, who is reminiscent of an aging, if less handsome, Mitt Romney, comes from a family that has dominated Delaware politics for over a century, and he seems to have been a surprisingly passive player given his position. His memory of the episode was not so fresh, and he is clearly not a detail guy: Three or four times when asked to explain the episode he replied vaguely, ending by saying something like, “It was good. It was very good.” When challenged about certain Delaware corporate forms offering ironclad secrecy, he offered no detailed rebuttal, just: “I don’t think that’s right. It all works nicely.” But he did put his finger on one important element of the process: the small-town groupthink that let it happen. “One of the nice things about Delaware is that it’s a small state,” du Pont said. “We all have the same ideas.”
Hayward says the aim of the June meeting was “to listen to New York bankers who were friends of the Delaware bankers who had helped us. They said, ‘We’d love it if Delaware allowed market rate banking.’”
The Chase team wanted this rushed through in a few weeks, well ahead of the November 1980 gubernatorial elections. That was too tight. But what happened next was remarkable. Confirmed by several interviewees, by a 1981 New York Times investigation,3 and by du Pont’s official biography, it is a testament to the ability of elites in small offshore jurisdictions to create and sustain a consensus in their favor.
Frank Biondi, a powerful Democrat lawyer,4 and Chuck Welch, du Pont’s general counsel, went to see Hayward. “[They] said that the locker room on this was very small,” Hayward remembers. “If the idea got out