Treasure Islands - Nicholas Shaxson [49]
By 1963 the U.S. Treasury already was warning that the market had aggravated a “world payments disequilibrium,”51 and one official suggested publicly that American bankers should “ask themselves whether they are serving the national interest by participating in this sort of activity.”52 That was the year that President Kennedy introduced his Interest Equalization Tax, which drove U.S. banks to London in droves. “It is hardly an exaggeration to say that leading American banks thought little about Europe before 1963,” wrote the U.S. economist Richard Sylla, “and thought about little else in the decade thereafter.53
Once again the U.S. authorities conveyed their fears to the Bank of England and sent the U.S. comptroller of the currency to London to inspect American banks. The Bank of England’s response was, effectively, that the United States could go and screw itself. “It doesn’t matter to me whether Citibank is evading American regulations in London,” one top Bank official said, epitomizing the City of London approach. “I wouldn’t particularly want to know.”54
As the 1960s wore on, U.S. deficits ballooned. America was overspending overseas, in relation to its earnings, and its foreign payments sent an army of dollars outward from the United States, feeding the Euromarkets and further loosening the shackles on finance—just as Swinging London, as it became known, was breaking the constraints of fashion. Ideas about rebellion against authority percolated far into the fabric of society: James Bond’s forays offshore, to Switzerland in Goldfinger in 1964 and to Nassau in Thunderball in 1965, injected an appealingly subversive frisson into the image of tax havens and uncontrolled offshore finance, the new global hothouse for international crime.
By 1967 Robert Roosa, the energetic U.S. undersecretary for the Treasury, warned that the Euromarkets had hugely amplified destabilizing capital flows, “in magnitudes much larger than anything experienced in the past, massive movements.” The response from London always came in two forms: either “This is nothing to worry about” or “Mind your own business.”
A bizarre, Alice in Wonderland logic lay behind the Bank’s decision not to regulate these markets—the sort of logic that permeates the offshore system. If there were a run on a regulated bank in London, the Bank of England, by virtue of being its regulator, would feel some obligation to come in and pick up the pieces. In other words, regulation, as a Bank of England memo put it, “would mean admission of responsibility.” Better, then, the logic went, not to regulate them!55
And the Euromarkets just kept blooming. More and more U.S. banks flooded to open offices in London. The publication Euromoney, in its inaugural issue in 1969, described the market as being like a child: “It stuffs itself for some time with whatever goodies take its fancy, refuses to listen to warnings that it will get indigestion, gets it, lies low for a few months, then gets hungry again.”
That year the biggest bank in the market was Citicorp (or Citibank), whose CEO Walter Wriston was a single-minded champion of the idea of freedom for financial capital, who delighted in the way that governments were once more being cowed by financial markets. “The Euromarkets are now the greatest mobile pool of capital in the world,” Wriston said in one interview. “If the British put on reserve requirements or other controls, Bahrain is waiting. In just a couple of keystrokes, the whole market could be gone.” And his love for the Euromarkets was, it seems, matched by his confidence in their resilience. When asked