Free Tower of Basel: The Shadowy History of the Secret Bank That Runs the World by Adam LeBor Page A

intimidate. Behind the giant bronze door lay a complex of courtyards, banking halls, and a garden with a fountain, a veritable Alhambra of money, crowded with clerks and underlingswho were bustling along its corridors. Even the terminology was regal: the bank was ruled over not by a board, but by a “court.”
    Layton was ushered into Norman’s office where he sat at a mahogany table in the center of the wood-paneled room. Norman wanted to talk about a new bank, to be called the Bank for International Settlements. The BIS was being set up in connection with the Young Plan, the latest and hopefully final program for implementing German reparations payments for the First World War. But Norman had much more ambitious ideas. The BIS would be the world’s first international financial institution. It would be a meeting place for central bankers. 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. But for the BIS to succeed and properly fulfill its potential, Norman explained, he needed Layton’s help. A subcommittee would soon meet in Baden-Baden, in Germany, to draw up the bank’s statutes. The editor of The Economist , Norman said, was just the man to draft the BIS’s constitution, one that must, above all, guarantee the bank’s independence from politicians.
    TO UNDERSTAND HOW and why the BIS wields such influence today, it is necessary to step back to the early 1920s and the arguments about German reparations payments for the First World War. German war guilt was enshrined in the 1919 Treaty of Versailles. But no amount of money could bring back the dead, whose numbers were almost incomprehensible. In July 1916, on the first day of the Battle of the Somme, Britain lost 60,000 men—the equivalent of a medium-sized town, mown down in a few hours. France lost a total of 1.4 million soldiers during the four years of fighting, and Germany lost 2 million. The United States, which did not enter the conflict until 1917, lost 117,000 men.
    Reaching agreement on German reparations was a slow, complicated, and politically fraught task. The First World War had internationalized conflict to an unprecedented degree. Its financial fallout was similarly globalized. The war had exacted a terrible cost on Europe’s economies, as well as its populations. The fledgling international financial system was ill-designed to deal with the complexdemands that were now being placed on it. Where would Germany find the money to pay? What would be the mechanisms by which it would do so? Who would oversee and regulate the reparations payments? These arcane discussions shaped the role, structure, and privileged legal status of the BIS.
    In 1919—just as there would be in 1945—there were, broadly, two schools of thought: the punishers and the rebuilders. France led the punishers. “Les Boches,” said the French, must, and will, pay for their crimes, many of which were carried out on French soil. Norman and the rebuilders, who included most of Wall Street, believed otherwise. Europe could be reconstructed, but its future lay in trade and financial cooperation. The aim was not to reduce Germany to penury, but to help it fix its economy and start trading again as soon as possible.
    In April 1921 the Reparations Commission announced that Germany would pay a total of 132 billion gold marks ($31.5 billion), payable at 2 billion marks a year. The commission might as well have demanded ten times as much. Germany was still reeling from its defeat, society was collapsing, unemployment soared, and there were severe shortages of food. Right-wing extremists—the Freikorps—battled Marxist militants in the streets. Workers’ councils took control of Hamburg, Bremen, Leipzig, and central Berlin. This was not the salon Marxism of Greenwich Village or San Francisco, but the real thing—raw and bloody. Hostages were taken, factories were