How Wall Street Created a Nation

Oviodio Diaz Espino was working as a corporate lawyer at J.P. Morgan in New York when he went to a Christmas Party in 1997. At the party, Diaz met a movie producer, Webster Stone. Stone noticed Diaz had a foreign accent and asked him where he was from. Diaz said Panama. Stone asked Diaz who he worked for. Diaz said J.P. Morgan.

Stone excitedly threw his arms in the air and said -- "Oh my God -- you are the man I've been looking for!"

"Did you know that J.P. Morgan was the treasurer of Panama during its first year of existence?."

"Are you aware that the Republic of Panama was created in Suite 1162 of the Waldorf Astoria?"

Diaz was not, and was intrigued. Stone had been working on a script for Robert Redford about how a group of Wall Street movers and shakers created Panama.

Garry Trudeau was writing the script. The movie project was eventually dropped (too many villains, no heroes), but Stone turned over his files to an amazed Diaz, who dropped everything and began investigating.

Diaz spent two years with his head buried in records at the New York Public Library, searching to confirm Stone's allegation that his country was created by Wall Street.

And confirm it he did. Diaz lays out the story in a new book, How Wall Street Created a Nation: J.P. Morgan, Teddy Roosevelt and the Panama Canal (Four Walls Eight Windows, 2001).

Diaz's story is about a corporate hijacking of U.S. foreign policy, about how corporate interests and government interests become so entwined that you can't tell the difference.

In a nutshell, this is what Diaz found:

In 1900, a group of investors led by William Nelson Cromwell, the founder of the "prestigious" New York law firm, Sullivan & Cromwell, and the banker J.P. Morgan, created a secret syndicate of Wall Street financiers and politicians to buy the shares of the bankrupt French Panama Canal Company, which owned the right to build the Panama Canal, from thousands of small shareholders throughout Europe. They invested about $3.5 million and gained control of the company.

The covert investors then spent the next three years getting the United States government to buy the holdings for $40 million, the payment of which would flow back to them. In order to do this, they first had to defeat an entrenched Nicaragua lobby. Nicaragua was the preferred route for the canal because of its two big lakes, and also because the French had already tried to build a canal in Panama but had failed miserably.

And the U.S. was already on its way to building the canal in Nicaragua. The House of Representatives unanimously passed a Nicaragua canal bill, a treaty was signed with Nicaragua, President McKinley had already signed the bill, and the excavation had already began in Nicaragua. It was a done deal -- until Cromwell arrived on Capitol Hill and began throwing money around.

Senator Mark "Dollar" Hanna, who was at that time the chair of the Republican Party and probably the most powerful man in America, received $60,000, at the time the largest donation to any politician.

In return, Hanna began a campaign to build the canal in Panama instead. U.S. policy was reversed, and in 1902, Congress decided that the Canal was to go through Panama.

Only one problem -- Panama was at the time a province of Colombia, and the United States needed Colombia's approval to move ahead. Teddy Roosevelt sent Cromwell, who stood to benefit financially from the deal, to negotiate with Colombia. Colombia balked, demanding more money. Cromwell decided to circumvent Colombia, and to instead get Panama to secede and create it's own country -- which it did.

"What is shocking about this part of the story is that Wall Street planned, financed and executed the entire independence of Panama," Diaz says. In effect, Cromwell and J.P. Morgan hired Panama's Jefferson and Washington, a tale of intrigue that Diaz documents. Panama was declared a nation, Cromwell negotiated a canal treaty with his cronies, and made off with millions. (Or as Senator Samuel Hayakawa put it years later, "we stole it, fair and square.")

Last week, we called up a Sullivan & Cromwell managing partner here in Washington and asked if the law firm had any reaction to the allegations that the firm's founding father had engaged in such skullduggery.

The partner says, "Well, David McCullough wrote a book about the Panama Canal (The Path Between the Seas) -- take a look at it."

Diaz says, "McCullough does not dedicate one page to the question about the secret conspiracy and speculation by the Wall Street financiers."

The Sullivan & Cromwell partner also asked us, "What is the relevance of this story 100 years later?" We put the question to Diaz.

"I want people to know a chapter in world history that brought down a French republic, a Colombian government, created a new republic, shook the political foundations in Washington with corruption and gave birth to American imperialism in Latin America," Diaz says.

"It was one of the biggest scams in history. And I believe that alone is worth knowing about."