“To sum it up, unless Barings manages to borrow a very large sum of money, it will stop,” Lidderdale concluded. “And it will not be able to borrow without a Government guarantee to back the loan.”
“Impossible,” the Chancellor interrupted. “Quite impossible, and you know it. Pledge the national credit to a private firm? One which has got itself into such a situation through incompetence? It would not survive the Commons and, in any case, public subsidy of the City of London would do as much damage as it was supposed to prevent. No. Absolutely not. The City must get itself out of this mess, and more importantly, must be seen to do so.”
“Then we are lost!” Lidderdale exclaimed in a tone of melodrama not normally associated with a banker.
“I didn’t say the Government would not give assistance,” Goschen said tartly. “Merely that it could not be seen to be doing so. I can pledge that anything that can be done will be, of course.”
“But not if it costs you anything.”
“Precisely.”
Lidderdale lapsed into silence and Revelstoke—who I thought might have taken leave of his senses under the pressure—continued to stare out of the window, the strange blank smile still fixed on his face. He had not said a word and did not even seem to be paying any attention to the proceedings. It appeared that he could not accept what was happening, that he had concluded he was in the middle of a nightmare and the best course was to do nothing until he woke up.
“It would have been a help,” Lidderdale said, “if we had known about this in advance.” Here he glared at me. “Being alerted only a few days in advance is all but useless. Aren’t you paid for this?”
“No,” I snapped back. “This is not what I am paid for at all. And I informed the Foreign Office of what I knew some time ago. My knowledge then was incomplete, but it gave a reasonable warning, had anyone paid attention to it.”
“That was the memorandum passed on to you nearly six weeks ago,” Wilkinson murmured. “You know, the one you never got around to reading.”
Lidderdale glared, Revelstoke dreamed, and Goschen drummed his fingers on the table.
“Surely a rescue fund could be organised for Barings?” I asked, wondering whether it was my place to say anything at all.
“It could be,” Lidderdale said, “but banks will only subscribe if they are sure that they will not need reserves to defend their own position. And they won’t be able to do that unless the Bank of England can reassure them that it has the resources to maintain convertibility.”
“Which is the problem.”
“Precisely. At present we have scraped together reserves of twelve million in bullion. Which has been damnedly difficult, let me tell you. The Bank of France wishes to withdraw three million and has another three on deposit it could demand at any moment. That leaves us with a reliable six million. And six million of bills are drawn and expire daily. If investors panic and decide they want gold, we could run out in hours. Literally hours.”
“So the Bank is the problem,” Goschen said.
“No,” Lidderdale snapped. “Barings is the problem.”
“But Barings cannot be shored up unless people have confidence in the Bank.”
“Yes, but…”
“Excuse me,” I said. There was a sudden silence as the bickering grandees stopped and turned to me.
“Yes?”
“You are forgetting the main point,” I said, “which is that this is deliberate. That certain people in France are deliberately exploiting this situation to destroy the credibility of London. Barings has played into their hands and created their opportunity, but this situation would not have arisen without a conscious policy. As things stand, there is nothing you can do. You know it. The only possible option is to surrender on the best terms you can get.”
A terrible silence greeted these remarks; it was as though I had thrown a bucket of ice over the meeting.
“I beg your pardon?”
“Barings will stop unless it is saved. The banks could club together and put up enough money, but daren’t. There will be a run on gold, because the French and Russians are withdrawing large amounts just for that purpose. So, at present Barings will go down, taking London’s credibility and the entire funding structure of world trade with it.”
The iciness persisted.
“You need more gold and you need it by Thursday morning at the very latest. And there are only two places you can get it from. The Bank of France and the Bank of Russia.”
“Berlin, Vienna?” asked Wilkinson. “It is the standard policy of Britain always to ally with the opponents of those attacking us.”
Here Goschen stirred. “Impossible, I think. Even if they wished to help us, which I strongly doubt, the Bank of Berlin was set up to make it impossible—illegal—for it to operate in the international market. If it was done, it would take weeks to organise. The same goes for Austria, and the Italians have so little gold that they have none to lend. Mr. Cort is correct in his judgement.”
“There are then two possibilities,” I went on. “Either France and Russia are determined to push this to the end, in which case there is nothing we can do. We simply have to accept our fate. Or they can be persuaded to change their minds. In which case we have to discuss what they want. And give it to them.”
Goschen turned to Wilkinson. “Your area, I think. What might they want?”
Wilkinson sucked in his breath. “If this is as serious as you all seem to think, they can ask for anything. The Russians could demand a free hand in the Black Sea and in Afghanistan. The French could demand similar independence in Egypt, the Sudan, Thailand.”
Goschen looked faintly sick. Lidderdale turned ashen. Revelstoke smiled sweetly.
“And all we have in return,” I said, “is the Samson option. Which is to say, the certainty that, while a catastrophe might destroy us, it would also bring calamity to French banking and industry as well, and starve Russia of credit when it is in desperate need of it. I assume—in fact, I know—that there are people in France who do not want such a thing. We need to talk to them and get them on to our side swiftly. And we need to bring in the Rothschilds.”
At the mere mention of the name, the atmosphere lightened. However much Barings had (temporarily, it turned out) eclipsed the Rothschilds in recent decades, their name was still magical. Their wealth, acumen, and the fervent belief that they knew and saw everything through their vast private network of informants and correspondents made them figures to be admired or reviled in equal measure. With the Rothschilds on your side anything was possible; with them as an enemy, disaster was certain.
The head of the English branch at the time was Natty Rothschild, a stout fellow who had been running affairs in this country for more than ten years. He had wide political interests, although he had never got on with Gladstone, and had demonstrated on many occasions his patriotism: it was Rothschilds, not Barings, which had stumped up the cash for Disraeli to buy the Suez Canal; Rothschilds again who intervened in the eighties to stabilise Egypt’s finances, and then to float a loan from which it derived little profit. A bizarre combination of the Jewish banker and the Catholic Cardinal Manning had acted together to resolve the crippling dockers’ strike in 1889. All in all, Natty Rothschild had demonstrated a solid appreciation of his duties, and how to merge these with the need for personal profit. In only two areas did emotion get in the way: Natty Rothschild hated the Russians, but he detested Barings more.
He arrived after lunch, and it was remarkable to see how even the Governor of the Bank and the Chancellor deferred to his opinions. He was not a warm fellow, although I had heard that he could be gregarious and charming in company.
Rather his manner was taciturn, with an aloofness it was hard not to see as disdainful and arrogant. Certainly poor Lord Revelstoke withered even more when he walked into the room. So he should; the battle for supremacy between the two houses was now over forever, and Barings had lost. All that remained to discover was whether Rothschild would
react with magnanimity or vindictiveness.
First Goschen briefed him on the details, then Lidderdale, and then I was asked to present my interpretation. Throughout, Rothschild listened absolutely silently, stroking his closely cropped beard every now and then, but otherwise barely moving. As I finished, he poured another cup of tea and stirred methodically.
“Fascinating,” he said eventually, in his thick, deep voice.
“Quite fascinating. Are you quite sure of all this?”
“I am sure of the facts,” I replied. “Naturally, the interpretation is my own. But it fits what has been happening in the markets this morning.”
He nodded. “But at the moment the urgent problem is how to stabilise the situation here.”
“Mr. Cort advocates surrender,” Goschen said sourly.
I blushed. “If I am correct…”
“You would destroy Britain’s strategic position throughout the world.”
“If the stakes are so high, then surely the Government must intervene.”
“I have already explained why that is impossible,” Goschen said. “And why it would be counterproductive. This must be resolved within the City of London itself.”
“Mr. Cort,” Rothschild said, ignoring the chorus of protest from the others, “at some stage you must tell me a little more about who you are, and why you are here. For the time being, these others here seem to think you have a right to speak. Tell me—in your owns words—what you recommend.”
“The City must organise a fund to rescue Barings. Or at least to get it through the next few weeks, until it can realise its assets and stop in an orderly fashion. That can only be done—you would only have the time to do that—if the Bank of France reversed its policy of withdrawing bullion from London. And if the Russians stopped pulling gold out of Barings. Better still if they signalled their intention of depositing some more. In the circumstances, the rate of interest they might demand could be high, and not payable solely in money. But at the very least we need to know their terms. May I ask if your bank has heard anything about this?”
“Nothing has been communicated to me. But that is no surprise. There are no close relations at the moment between us and the Bank of France. There are many in France who detest the Rothschilds as much as they detest the English. The question is what to do about it. As it seems the British Empire is insufficiently important for the Government to risk its own reputation, then I, like you, feel we have no alternative but to explore other possibilities.”
And so it was settled. I was to return to Paris as soon as possible, with a letter to Alphonse de Rothschild and instructions to discover what, if any, price the French would accept. At the same time I was to organise a veritable insurrection amongst the moneyed elite of France, have them storming the barricades of the Banque de France, demanding calm in the markets. And I was to do this without citing the authority of the British Government in any way. This was to be a deal between bankers. It must not have anything to do with foreign policy. There would be no concessions there whatsoever.
My chances? I put them at about none. I had a matter of days to reverse what seemed to be a major move in French foreign policy, and cobble together an unprecedented alliance amongst people I did not know. Even Natty Rothschild seemed pessimistic. He walked out with Wilkinson and me, then asked if I would take a turn with him around Green Park before I headed back for Victoria.
“A thankless task, Mr. Cort,” he rumbled as we walked in the direction of Green Park. It was chilly and getting dark, and there were few people around except for the occasional office worker, and governesses pushing prams. “If you succeed, no one will know; if you fail, you will undoubtedly be blamed.”
“That is reassuring. Thank you.”
“Which brings up the obvious question. Why do you choose to do this? It is a strange life you lead.”
Evidently he knew more about me than I thought.
I shrugged. “I don’t know. I wasn’t a good banker…”
“A very inadequate answer.”
“I like it, then. I like making people do things they do not wish to do, I like discovering things I am not meant to know. I think I like taking bad actions and turning them to good ends. It is so often the reverse. But I can take lies and betrayal and turn them into patriotism.”
“Not the other way round?”
“Not for me, no.”
“I see. I think you are going to need all your skills in the next week. You will be trying to mix foreign policy and finance, and control them through your arts. Are you skilled enough, do you think?”
“I don’t know.”
“My cousin will give you all the help he can, and a great deal of advice as well. You may trust him. I ask only one thing: if you fail, let him know. I’ll be damned if the house of Rothschild is going to be brought to ruin by Barings.”
CHAPTER 19
I arrived back in Paris at five o’clock on Tuesday morning. I was totally exhausted. I had crossed the Channel twice in one day, had scarcely slept for two days and had been in meetings much of the rest of the time. I should, properly, have launched into action, but I could not. I did manage to get someone to take the message to Alphonse de Rothschild, sent another to M. Netscher, but that was all. I could do no more without sleep, so sleep I did. And, dare I add, I slept well; quite extraordinarily well in the circumstances.
The meeting with Rothschild and Netscher began after lunch. I very nearly disgraced myself by being late, but I arrived at the Rothschild mansion in the Eighth Arrondissement with a few minutes to spare. There were four people there: the committee for the defence, or so I came to call them in my mind. All people who wished to resolve this, if only they could do so without bringing national opprobrium down on their heads. All were fatalistic, and had a low opinion of their many colleagues, of politicians and of the people of France in general. They were fools, was the general opinion, who understood nothing of money, who had no conception of how delicate and refined were the financial structures which so efficiently delivered the comforts and necessities on which all people increasingly depended. Had it been left to politicians, said Netscher, then the bulk of mankind would still be scraping a living in the fields, dressed in rags and prone to starvation and disease. They needed to be saved from themselves.
So far, so much agreement. It was clear that all present—who represented some of the most powerful financial institutions in France—were prepared to put their weight behind the request that France assist the Bank of England. But it was equally clear that none of them would do so unless that request was going to be accepted.
“For myself,” said Alphonse de Rothschild, “I am prepared to commit half a million of gold to the general defence of the banking system; I have already cabled my cousin to inform him that I will transfer the money to his house today.”
Netscher smiled. “That safeguards the Rothschild family, my dear Alphonse,” he observed. “It does little else.”
“You cannot expect any more of me as yet,” Rothschild retorted. “Not until there is an overall agreement. Remember, if there is a run on the banks in England, it could well trigger a panic here as well. We cannot afford to dismantle our own defences.”
“Bank of France or nothing. Is that right?” I commented.
They all nodded.
“I do not know the Governor,” I said.
“M. Magnin,” Netscher said. “A good man. Started as an ironmaster, curiously enough. Still a bit of the peasant about him, but solid. He is a man who fully appreciates the value of sound money. And he understands how weakness in the credit markets can affect industry. That is the trouble, in fact.”
“Why?”
“Because I would have expected him to have responded already. All his instincts, I feel sure, would be to bolster London. It is neighbourly and it is good business. He has not done so. Which suggests he is acting under instruction. He is not a free man, you know. The Bank of France is not a private company like the Bank of England.
Its sole shareholder is the Government, and ultimately M. Magnin must do as he is told.”
“So we are talking about Government policy here, are we?”
Netscher sighed. “I do not think so. Believe me, Mr. Cort, I am—we all are, I am sure—trying to find out. But so far I have discovered nothing.”
Here Rothschild smiled in a superior fashion. “Fortunately, the magic of the house of Rothschild still has some life in it,” he said quietly. “In fact, I do believe I can say what is taking place. This policy was sold to Rouvier about six months ago. The Foreign Ministry is standing by, as it considers it foolish not to take advantage of any weakness which Britain might display. The trouble at Barings has been brewing for several months, and the Foreign Ministry has been quietly preparing the ground. It all developed out of the blunder by Bismarck three years ago when he denied Russia access to the Berlin credit markets. Paris took up the role, and has advanced large sums of money to the Russian Government. This, naturally, has created a bond of friendship, not to say a common interest. I would even venture to surmise that some sort of military understanding might come to pass in due course. Obviously, in that case, a weakening of Great Britain would be mutually beneficial.”
“But Russia needs investment desperately. Unless it gets credit, its army is back in the seventeenth century. How can destroying the credit markets help?”
“A question so good I am afraid I cannot answer it. I have approached the Russian Embassy, but they refused to speak to me.” The pained surprise was obvious. No one refused to talk to a Rothschild.
“However, they have agreed to talk to the British Government. Which in itself indicates how very much is riding on this matter. And how well prepared they are.”
“But that would be Sir Edward Merson.”
“I did point this out, and they have no desire to talk to Sir Edward at all, as he would not understand what was being said. No. You have to produce someone more senior and authoritative than that. I would suggest Goschen. He can make a deal and he has the authority to persuade the Prime Minister to accept.”