Watergate is a labyrinth we traverse in three directions in the following essays on Howard Hughes, Dorothy Hunt, and James McCord. My central claim is that the arrest of the Watergate burglars was the result of a set-up, that it was no more an accident that the Plumbers were caught than that they were in the offices of the Democratic National Committee to begin with, that there were actually two secret operations at Watergate, colliding invisibly as hunter and prey.
The issues joined in this incredible intrigue are the general issues of the struggle between Yankees and Cowboys. The essay on Hughes takes up the Yankee/Cowboy theme at length and sets out to show in concrete detail how the larger forces thus indicated can be seen at work in the history of Hughes and his battles and wars, first against the East Coast banking combines around the Rockefellers, then against the international crime Syndicate under Lansky. We follow step-by-step the evolution of the general features of the Yankee/Cowboy, Rockefeller/Hughes, Hughes/Lansky conflicts into the particular features of the Watergate confrontation.
The essay on Dorothy Hunt’s death in an airplane crash argues that the crash was the result of sabotage with a Watergate-related motive, bearing on the crisis of the Howard Hunt/White House blackmail scheme. I don not know or pretend to know how or by whom this plane was brought down, any more than I know who killed the two Kennedys and King. But just as in those cases, the careful review of the material evidence indicates that we are once again in the presence of an official deception in a capital case.
The McCord essay then explores in detail the anomalies surrounding McCord’s person and role in Watergate. The argument is that McCord did not blunder, that there was no slip-up to it when he left the telltale tape on the door, that he was actually an anti-Nixon double agent responsible to Yankee interests, pointman in another Yankee attempt at counter-coup – this one a success.
The Hughes Connection
Howard Hughes’s name surfaced in the story of Watergate on May 20, 1973. When James McCord told the Ervin committed and its media audience of an abandoned 1972 White House plot to steal certain documents from the safe of editor Hank Greenspun’s Las Vegas Sun. Greenspun was an ally of Robert Meheu, the top Hughes aide who connected the CIA and the Mafia in 1960, who came to prominence in the Hughes empire late in 1970. McCord testified that his fellow Plumbers, Hunt and Liddy, were to have carried out the break-in and theft of the papers and that Hughes interests were to have supplied them with a getaway plane and a safe hideout in an unnamed Central American country.
What could the Greenspun documents have been? Why should both Hughes and Nixon have been interested enough in them to attempt a robbery?
Liddy said [testified McCord] that Attorney General John Mitchell had told him that Greenspun had in his possession blackmail type information involving a Democratic candidate for President, that Mitchell wanted that material, and Liddy said that this information was in some way racketeer-related, indicating that if this candidate became President, the racketeers or national crime syndicate could have a control or influence over him as President. My inclination at this point in time, speaking as of today, is to disbelieve the allegation against the Democratic candidate referred to above and to believe that there was in reality some other motive for wanting to get into Greenspun’s safe.
For their own reasons, the senators were not tempted to follow that thread in their public examinations of McCord. But the investigative staff took a few more steps, and some independent but related court cases came to term, and it thus became possible to build a reasonably solid speculation about the role Hughes and his empire played in the Watergate confrontation. It is still not possible for outsiders – i.e., ordinary citizens – to form more than a rough sense of the underlying truth, but the following provisional reconstruction may sharpen our impression of the quality of the Hughes mystery and show why we cannot be satisfied with the conventional sense that it belongs only to the realm of the eccentricities of the rich, not to the realm of world-historical politics.
Hughes unites in his single person all the major sides of Cowboy capitalism’s current situation: its compromised relationship to organized crime, its servility towards militaristic authority, its last-ditch entrepreneurial desperation and bitterness, its gradual transformation into multicorporatized (i.e., monopolized) business structure in spit of all. Yet Hughes was not the ally of big crime, and he was not finally Nixon’s friend.
In 1935, when Bebe Rebozo was opening his first gas station in Miami and Richard Nixon was at Quaker school and Meyer Lansky was launching his Cuban projects and David Rockefeller was cutting his banker’s teeth on Depression economics, Howard Hughes at thirty was flying a widely admired aircraft of his own conception, design, and fabrication, the Hughes H-1 Racer, to a world speed record of 352 miles per hour. Two years later he set the coast-to-coast flying record of seven hours and twenty-eight minutes. In 1941 he flew around the world in a Hughes-modified Lockheed Lodestar, demonstrating the feasibility of a world air transportation network. Congress struck a medal for him in 1941 for his aviation exploits. He was a force behind the Lockheed Constellation, the first American high-speed passenger transport, replaced only by the big jets of the fifties. He was a force behind the big jets.
In World War II, as we noted in chapter 2, there was a great feeling of insecurity about the sea lanes. Industrialist Henry Kaiser suggested that the best way to beat the Nazi submarine menace would be to make giant airplanes that could take over the work of ships. Hughes found that idea congenial and got behind it. Shortly he and Kaiser had a contract calling for the delivery in 1944 of three monster flying boats designed to fly nonstop from Honolulu to Tokyo loaded with two battalions of armed infantry or equipment.
By delivery date, the hull was barely begun and at least another year of work remained. In a foretaste of later troubles at Hughes Aircraft, the works manager quit, Hughes dawdled at replacing him, and twenty-one engineers resigned en masse protesting they were without leadership.
In February 1944, the contract was cancelled. Hughes flew to Washington to tell the War Production Board that his and Kaiser’s HK-1 Hercules was not only the biggest airplane in the world, it was also a flying laboratory that would influence the direction of aviation development for decades. Would it not be foolish to waste the time and money already invested?
President Roosevelt was an admirer of Hughes. The contract was rewritten, cutting back from three planes to one.
Hughes returned to California, work resumed, FDR died, the war ended, Lansky founded the Strip, Nixon won his first election, and in 1947 Republican Senator Owen Brewster of Maine angrily exposed the fact that the U.S. government had paid Hughes $66 million for XF-11s and the HK-1 and had yet to receive a single airplane.
Hughes was not alone in his vulnerable position. The United States spent some $825 million for warplanes and some $6 billion for other weapons that were undeliverable at the end of the war. Possibly Brewster recalled the impact of the Merchant-of-Death hearings at the end of World War I and sensed that Hughes’s Hollywood playboyism would make him a soft target on profiteering. And Brewster knew that Hughes was connected in a potentially scandalous relationship with the late President’s son, Col. Elliott Roosevelt.
Hughes had a Hollywood aide by the name of Johnny Meyer whose job was to pick up the tab for the entertainments that Hughes provided those who would do him favors. Meyer told the Brewster committee that between 1942 and 1945 he laid out about $160,000 of Hughes’s money for entertainment of military and government officials. A large part of that, he said, provided for the entertainment of Col. Roosevelt.
Besides the connections of a good name, Col. Roosevelt had the additional advantage of being chief of the Requirements Division of the Army Air Force Reconnaissance Branch. He was treated with due respect when he visited Hughes’s Culver City works in the summer of 1943 and by the way plunged into a brilliant public romance, leading to marriage with actress Faye Emerson. Meyer and Hughes provided the Roosevelt-Emerson party with race-track tickets, liquor, hotel rooms, lavish dinner parties, black market nylons, and a wedding party.
The calendar showed that it was in the welter of those heady days that Col. Roosevelt made the recommendation that won for Hughes a $48 million contract to produce the ultimately unproduced forerunner of the XF-11.
The colonel got his piss and vinegar and charged into the committee room to defend his honor, but possibly helped Brewster make a larger point by denying “with all my heart and soul that Johnny Meyer ever got me a girl” and pushing hard the lame assurance that he never made “recommendations that would have in any way endangered the lives of the men under me.”
Now what could Hughes do? Had he not told Meyer to pay out this money? Had he not plainly hustled for the favors of a man whose influence was worth tens of millions to him in war contracts? Had his bribes not been shamelessly accepted by this officer-son of the president? Had the probably purpose of the bribes not been realized? Had not the contracts been awarded on the president’s approval? And then to top all, the planes had never even been delivered. Was it worse than wasteful? Was the XF-11 a straight rip-off? Was the Spruce Goose not an unflyable travesty from the start?
So Hughes came to the hearing tieless in an open shirt, sloppy work pants, and an old brown fedora to defend himself. He began by accepting and then brushing aside Brewster’s charges about influence buying: “All the aircraft companies were doing the same thing,” he said.
I believe Meyer patterned his work after what he saw in other companies. I don’t know whether it’s a good system or not. But the system did obtain. And it certainly did not seem fair for all my competitors to entertain while I sat back and ignored the government and its officials. You, Senator, are a lawmaker, and if you can pass a law that no one can entertain Army officers and you can enforce it, I’ll be glad to abide by it. I never wanted to bother with it. If you can get others to do business that way, I’ll be glad to do so, too.
Then he bore down. Influence was not even the real issue in the hearing, he said, no more than the issue was his guilt or innocence in the question of delivering the airplanes.
The hearings, said Hughes, were part of a well-heeled Wall Street conspiracy to force him out of control of TWA. Senator Brewster in particular was privy to this conspiracy, Hughes claimed. Brewster was acting as its agent in pushing these hearings on Hughes. Said Hughes to a startled committee:
If Senator Brewster really believed me guilty of obtaining war contracts by improper means, he would not be romancing me on the side, inviting me to lunch, and making appointments over the telephone to see me in California. I charge specifically that at a lunch in the Mayflower Hotel in Washington, D.C., last February, Senator Brewster in so many words told me that the hearings need not go on if I agreed to merge the TWA airline with Pan American Airways and go along with the bill for a single overseas airline.
And with that was launched an explicit and fateful confrontation between Yankee and Cowboy business forces.
Brewster was close to Juan Trippe, the president of Pan American Airways. Pan Am was (and is) controlled by a high-powered Wall Street banking consort around Rockefeller interests. Trippe’s proposal was that the Congress legislate the merger of all of America’s overseas airlines into a single giant carrier. The argument for this was of the essence of postwar Yankee consciousness. In the wake of the war and under the intense and numerous pressures of European reconstruction and the Cold War, European capitalism found it convenient to the point of necessity to organize government-industry cartels as a means of generating large amounts of finance capital quickly. In practical terms, that meant that America’s several transoceanic airlines would have to compete against one big united West German fleet (Lufthansa), one big united British fleet (BOAC), and so on. How could we maintain our competitive position in international air transportation unless we too resorted to a national cartel?
Hughes could see through that. So the Yankee banks had taken a liking to his airline, had they? And wanted to melt it into their airline, did they? Fancy that.
Tempers in the hearing room became short. At a certain point the subcommittee’s chairman, Senator Ferguson, wanted to go back to influence peddling and get away from the question of Brewster’s relationship to Rockefeller and the Trippe plan. To do this, he wanted to bring Johnny Meyer back to the witness chair, but Meyer was not in the committee room when his name came up.
“Do you know where Meyer is?” Ferguson said to Hughes?
“Will you see that he is here at two P.M.?”
Pause. “I don’t know that I will.”
Newsreels show Hughes calm and self-possessed. Ferguson could not think what to say, so Hughes sat back and continued, “Just to put him up here on the stand beside me and make a publicity show? My company has been inconvenienced just about enough. I brought Meyer here twice. You had time for unlimited questioning.”
“The chair feels that as president of the company, you should know where Meyer is. I must warn you of possible contempt. Give me your answer to the preceding question.”
“I don’t remember.”
“I’ve just asked what your answer was.”
“I don’t remember – get it off the record.”
Ferguson slammed his hand on the desk. “Will you bring Mr. Meyer in here at two P.M.?”
“No. No, I don’t think I will.”
In a matter of moments, the hearing had turned into a shouting match. Brewster was desperate to regain the offense and chose to attack Hughes’s pride by attacking the flying boat. He attacked its very concept, as though it were only the expression of the vanity of an individual and not of the hubris of an entire class. He called the plane “Hughes’s flying lumberyard”
I had to sweat five weeks in Washington to prevent cancellation of the contract from the start because a lot of people in government didn’t like it. We got pushed around everywhere. I had to build up a staff of engineers from scratch. I designed every nut and bolt that went into this airplane. I designed this ship to a greater degree than any one man has ever designed any of the recent large airplanes. I worked for eighteen to twenty hours a day for six months on this plane. If the flying boat fails to fly, I will probably exile myself from this country. I have put the sweat of my life into this thing, and $7,200,000 of my own money. My reputation is wrapped up in it. I have stated that if it fails to fly, I will leave this country, and I mean it.
The hearings adjourned till November. Brewster retired to his home base. In spite of the “poisoned arrows” Hughes had hit him with, Brewster was confident enough to say, “My moral code will compare favorably with that of this young man [of 42] who found time while others were fighting the war to produce The Outlaw.”
Early in November, before the hearings recommenced, Hughes moved the Hercules to specially built hangar at Long Beach, where it was reassembled and prepared for flight (and where it sat until 1975, when it was broken up for museums).
The Brewster side sneered at the Spruce Goose and predicted that the tables would be turned on Hughes when the hearings reopened. Hughes answered by inviting the whole of the Brewster committee to California for the Hercules’s first flight. Brewster did not accept, but others on the committee had fallen under Hughes’s charm or become intrigued with him and so came and saw and were conquered all over again, this time by his creation, this gigantic plywood flying boat with a tail ten stories tall and wings of 320 feet (60 percent larger than the 747’s). But though its pieces were “as neatly fitted as a mandolin,” it was still too early. It was wooden. Wood was wrong for such immense stresses and strains. It was powered by piston engines delivering too little thrust. It was a prefiguration of something still to come, not yet completely possible.
Yet on the last of several taxi runs at Long Beach that day, as Hughes explained, “it just felt so buoyant and light, I just pulled it up.” He climbed to seventy feet and sailed along at that altitude for about a mile, then brought it down, satisfied evidently, because that was the single solitary flight of the Goose-Hercules. Brewster was destroyed.
The unmasking of Brewster of a deep-dyed conspiracy of Yankee bankers plotting to take TWA off Hughes’s hands gives us a startlingly unobstructed glimpse into the workings of national power elites. It puts in sunlight the fact that a Yankee conspiracy against Hughes, aiming to take over TWA, existed as early as 1947. It shows us again how mainstream an instrument conspiracy is, how the best families do it, how it reaches the highest and squarest levels of business and government, how it is behind many events that seem disconnected, as with the Brewster hearings and the Trippe plan. It even shows how a rock-ribbed Republican stalwart from the superstraight state of Maine can thunder and roar and tear up about other people’s moral deficiencies at the very moment and in the very act of conspiring with other, higher powers in a rip-off scheme of his own, still more perverse because it uses and humiliates the Congress as a whole. This is very deep corruption. It says something about where the moral gloom that overcame America in the fifties came from.
The Soviet Union secretly exploded its first A-bomb late in August 1949. A month later Truman gave the world the news that the American nuclear monopoly was broken.
Shortly thereafter, Colorado Sen. Edwin Johnson accused Atomic Energy Commission Chairman David Lilienthal of conspiring to turn over U.S. atomic secrets to Britain. Lillienthal answered with an impassioned warning against the domination of the military in foreign affairs and resigned in the midst of a tense situation.
On February 1, 1950, against the advice of the AEC, Truman ordered the go-ahead on development of the H-bomb.
On February 9, in Wheeling, West Virginia, Sen. Joe McCarthy told an assembly, “I have in my hand 57 cases of individuals who would appear to be either card-carrying members or certainly loyal to the Communist Party, but who are nevertheless helping to shape our foreign policy.”
Yankees countered. In February and March the chairman of the Armed Services Committee, Sen. Millard Tydings of Maryland, spolke out in a series of Senate speeches against the “defeatism” of the Truman line on Russia and communism, arguing that the presumption of inevitable conflict would lead to conflict inevitably. Tydings urged Truman to start moves toward a world disarmament conference. Connecticut’s Sen. Brian McMahon, chairman of the Joint Committee on Atomic Energy, called also for conferences with the Soviet Union and argued that the best way to save the peace would be a program of massive aid to the poor countries. And Harrison Salisbury reported from Moscow that the Russians wanted to meet with the Americans to discuss A-bombs and disarmament – Yankees for an early détente.
Then on April 28, in a big speech to the always right-wing American Newspaper Publishers Association, Herbert Hoover proposed expulsion of the Communists from the United Nations and the formation of “a new united front of those who disavow communism.” The speech was met with a “thunderous, almost impassioned ovation.”
Yankee publicist and secret Round Table member Walter Lippmann leapt into the breech. Was there not a fatal contradiction in the stance of these “old guard Republican forces?” he asked. How could they “reconcile their warlike and crusading fervor against communism and Soviet Russia with their growing opposition to the European Recovery Plan, military aid, Point 4, and all the other measures of that sort?”
At the same time, the view which the Yankees denounced as isolationism was actually a rival internationalism – a rival strategy of expansion. Precisely in the manner of the Yankee Atlanticist looking to Europe, the Cowboy Frontierists looking to Asia were moved to view the problems of American life as originating in external pressures. As the Yankees were instinct with the need to reconstruct and consolidate in Europe, the Cowboys were instinct with the like need to maintain the Open Door in Asia.
And precisely as Hughes saw his wide open spaces being rationalize and regulated out from under him by the combined powers of the Establishment East, constantly encroaching, so he saw the traditional means of escape being sealed off by the rise of revolutionary communism in Asia. This is perhaps how he and so many other hard rightists could come to think of the New York bankers and the Reds as being in on the great rip-off together.
Hughes joined in the fight against banker’s communism so fiercely because it touched him so intimately, right in his airplane company. In the struggle that followed, like Joe McCarthy at the same time, Hughes found himself misaligned against the Pentagon, the institution with which has political relations might have been most agreeable.
The issue was the old and recurrent one of corporate control and accountability. Hughes Aircraft Company had built up its position dramatically in the previous few years under the management of former Air Transport Command Chief General Harold George and the technical leadership of Simon Ramo from Cal Tech and Dean Wooldridge from Bell Labs. At the end of 1953, when the trouble long brewing between Hughes and his management team broke out, HAC sales stood at $200 million a year, almost every dollar of it a top military secret.
The trouble between Hughes and his Hughes Aircraft Company team began in the late 1940s when Ramo, Wooldridge, and George demanded a face-to-face meeting with Hughes to argue for a new lab, needed they said, because of the expansion of the company’s defense contracts. Hughes agreed to a new lab, but proposed to build it in Las Vegas. The HAC people were horrified. They wanted the research center and the production center together. They fought their boss’s proposal. Hughes was angry and stubborn but at last gave way and let the lab be built in Culver City.
How can we characterize this rebellion? The technostructure, as John Kenneth Galbraigh and, after him, such other liberals as Andrew St. George would come to call it, wanted only to discharge its ultimate duties to its capitalist owner and master and therefore to its owner’s customers. It wanted to make big money and to help secure the country against military threats. So from its standpoint, it had not rebelled against its owner at all, it had only asserted the powers of rational action inherent to its contract, had only insisted upon its right to do what it was being paid to do.
But the more fundamental significance of this rebellion is that it showed that management and ownership, former indivisible politically, had diverged. Now they were not altogether as tight as before. It appeared now that management could actually sustain its bureaucratic interests over the objection of the owner, and especially could do this if the company was in effect a single-source-supplier to the Pentagon of major weapon system components. And if to own a (defense) company was no longer to control it, then which end was up in the world of private capital and the American state?
In approximately June 1952, HAC management concluded that HAC’s growth under their leadership had inspired jealousy in the parent organization, the Hughes Tool Company board of directors, to whom they were accountable, and that Noah Dietrich, the so-called financial wizard of the Hughes empire from the beginning was the main power on the Toolco board, was actually hatching a plot to seize control of HAC away from themselves.
The occasion of the clash was an HAC revolving credit fund that General George wanted to establish at $35 million. Dietrich unilaterally and arbitrarily cut this back to $25 million. The HAC management team insisted that this posed a threat to national security. They threatened to complain to the Air Force. Hughes met with them a second time, but was unwilling to listen to their most important general complaint, that the company’s once commanding position in the industry was being destroyed by Dietrich, who at best (they said) was misapplying the finance principles of boomtown oil to an altogether different business situation, and who at worst was maliciously engineering the troubles at HAC in order to fight off an imagined play for his own power.
Hughes reminded the rebels that Dietrich was a champion-class professional and that his sense of HAC’s true needs could not be discounted. There was a perspective, larger, after all, than that of a mere division like HAC, namely, that of the Hughes empire as a whole. And larger even than that was the perspective of Hughes the person, the rugged individual. What was good for HAC (or later, TWA) might not be good for Toolco, just as what was good for Toolco might not be good for Hughes the person. And Hughes the person, said Hughes, still happened to be in command.
Well, answered the technostructure, was national security not a perspective still larger than that of Hughes the person?
Which is when Hughes started thundering: “Communism! Communism!”
Fortune somehow saved the following dialogue:
HUGHES: You are proposing to take from me the right to manage my own property, I’ll burn down the plant first.
GEORGE: You are accomplishing the same effect without matches. I do not intend to preside over the liquidation of a great company.
George thereupon quit, soon followed by Ramo and Wooldridge and virtually the whole of the top technical staff behind them. Secretary of the Air Force Harold Talbott flew to Culver City to meet with Hughes and find out what was happening. He found Hughes furious. They were all troublemakers, he said. The company would be better off without them.
TALBOTT: You have made a hell of a mess of a great property, and by God, as long as I am Secretary of the Air Force, you are not going to get another dollar of new business.
HUGHES: If you mean to tell me that the government is prepared to destroy a business merely on the unfounded charges of a few disgruntled employees, then you are introducing socialism, if not communism.
TALBOTT: I intend to see that the Air Force contracts are protected.
The overriding issue of modern capitalism, the issue of individual control versus social accountability, could hardly have been more frontally joined than between these two forces, free enterprise and the anti-Communist military, more usually imagined as locked in embrace eternal.
Hughes being Hughes, with his capacity for putting all his excesses in one basket, was fighting out the very same issue at that very same moment in a separate province of his empire. He had picked up the movie studio RKO in 1948, and it had promptly begun crumbling in his fingers. The explanation universally given for this business disaster was the same as the explanation given in the HAC case tumbling along at the side, the Spruce Goose case a little behind, and the TWA developing underneath. The explanation was always that Hughes was a foolish, neurotic, procrastinating crank whose compulsive retention of control over the least rivet made him catastrophically unsuited for the management of large-scale corporate systems.
“It is impossible to estimate the damage done to RKO by Howard Hughes,” said Fortune from the commanding financial heights of Yankeedom. “Where is the accountant who can set a figure on the hundreds of intangible losses that came from Hughes’s inability to produce enough movies? With adequate production, RKO would have been able to develop stars of its own, rather than buying them from other studios at fancy prices…. The Hughes regime at RKO was about as dismal as it could be… “ The assault on his ownership continued with $30 million in stockholder lawsuits that suddenly materialized out of nowhere.
In a double jam, crossed two ways for being a good capitalist in America, land of the free, etc., Hughes was at last forced to roll up RKO into a ball and sell out to Akron interests. His profit was more than $7 ½ million over his purchase price, but now he was shut out of the movie business and he had not wanted that.
It is not known for a fact that Hughes supported Nixon financially in the early part of Nixon’s public career, from 1946 to 1952. Dietrich maintains that onward from the late forties, Hughes financed a great many politicians – “governors, congressmen, senators, judges, yes and vice presidents too.” Still this was written well before the fact and Dietrich may only have been recalling the famous “Hughes loan” of 1957.
This well-known but not so well understood episode is the first definitely recorded significant transaction between Hughes and Nixon. What Nixon got from Hughes was $205,000 for the benefit of brother Donald, whose Southern California fast-food chain was failing (it finally went broke anyway). What Hughes got from Nixon was approval of a previously denied St. Louis-Miami route for TWA, government reversal of a ten-year-old decision against letting Hughes lend TWA $5 million from HAC coffers, recomputation of mail transport credits to TWA generating a multimillion-dollar refund out of what had been a TWA debt, SEC approval of a TWA stock transfer that it had turned down four times previously, reversal of an unfavorable IRS judgment against Hughes’s Medical Institute in Miami, and the dropping of a Justice Department antitrust action against Toolco.
The Hughes loan was expensive for Nixon. In fact, the Nixon-Hughes relationship throughout is charged with negativity and mutual destructiveness. IN the current instance, word reached Nixon in the waning days of the 1960 presidential campaign that Kennedy scouts had discovered the Hughes loan and that Kennedy was waiting until just before the election to expose it, leaving Nixon no time to recover. Nixon decided therefore to break the story himself, hopefully thus to deflate it.
That proved a foolishly speculative decision. Nixon told the story and it erupted in his face. Possibly that was what kept Nixon out of the White House in 1960. Almost certainly it kept him out of Sacramento in 1962 when it boiled up again. Then came the crescendo of 1972, Watergate, the reappearance of Hughes as a weight on Nixon. Hughes is Nixon’s nemesis. It will appear in the following that Hughes may also be Nixon’s victim.
The Flight of TWA
To understand Nixon at the time of Watergate, we must understand Hughes in 1970 and thus his situation in Las Vegas. To understand that, we must first know what made him go there. And that brings us to the battle for TWA, the exemplary illustration from the world of contemporary big business of the Yankee/Cowboy conflict in play, paradigmatic of the working contradictions of American capitalism, and along with the wreck of the Penn Central, the towering commercial conflict of the sixties.
Hughes acquired Transcontinental and Western Airlines and four smaller lines in 1939 and merged them into Trans World Airlines, pumping up the new corporation with an investment of $90 million of his own funds. He controlled 70 percent of its stock. It was his airline in a sense that no airline has ever belonged to any single person.
And this was indeed the crux of the struggle about to take place. Hughes wanted a banker who would lend him what he needed, then let him run his own business, but the bankers wanted to change the private Hughes empire into publicly traded properties.
David Tinnin makes this the central point of his detailed account of the Hughes-TWA affair, Just About Everybody Vs. Howard Hughes (Doubleday, 1973),, upon which my summary is based. Hughes, ,he writes, “was fighting for a very personal cause – to retain sole possession of the country’s last individually owned industrial empire. The Fricks, the Rockefellers and the Fords had long since relinquished absolute ownership of their enterprises. This man alone held out.” One doubts Tinnin’s use of relinquish in this case, first because he is blurring the important distinction between “possession” or “ownership” and control, but more importantly, because the evolution of Rockefeller-Morgan magnitude power, displayed so awesomely in this fight, is in no respect of history of relinquishing; it is rather a history of how great financial power begets still greater financial power, and how financial power risen to new degrees necessarily begets new institutional requirements, and how these requirements ultimately come to transcend and dominate the personalities of specific princes. David Rockefeller does not share Hughes’s autonomy as of 1960, but that is not because he has relinquished anything, it is because his empire weights in the vicinity of $303 billion and is inextricably bound into a vast design of interlocking corporate powers reaching far beyond the Chase Manhattan Bank itself. As a consequence, it cannot be supported by the structures of individual personality. There was nothing smallish about Hughes’s estimated worth of $3 billion, but that didn’t even put him in Rockefeller’s class. Hughes’s control structures are therefore faster, but also lighter in weight.
This difference tends to be concealed in the Hughes-Rockefeller TWA fight as a difference of personal style. People on the Yankee side think themselves more cultivated. Those on the Cowboy side think themselves more virile. Tinnin might even be saying Rockefeller is more modest than Hughes, since he no longer struggles for so much personal control, and less eccentric, since his accomplished control seems so rationally bureaucratized. But the stylistic differences between them actually originate in the larger patterns of their unequal and differently structured empires. Tinnin’s own rich narrative makes it plain the Hughes lost because he was the weaker of the two powers, not because he was eccentric or old-fashioned or on the wrong side of the law, and a thousand times not because he was any more grasping than his adversaries or less willing than they to relinquish what he thought was his.
The Brewster prelude past, the great Hughes-vs-Rockefeller fight for TWA began to move toward its main battles slowly in the fifties with the coming of the age of jet transport aircraft. New engine technology developed under pressures of the Korean was made the Boeing KC-135 possible, and in 1955 the Air Force gave Boeing permission to produce it commercially as the 707. The airlines wanted and needed the new jets but were in no financial shape to buy them out of cash reserves, which were badly depleted in the Eisenhower recession.
Enter the big Eastern financial consortium formed up around Dillon, Read and Company and in one way or another involving the Metropolitan, the Equitable and the Prudential insurance companies plus Irving Trust, Chemical Bank New York Trust Company, Manufacturers Hanover Trust Company, the Bank of America, and the Chase Manhattan. They had the money the transition to jets would need, saw the airlines’ needs as opportunities, and were just willing to do whatever the could to establish control over this new high growth sector of the national transportation system.
TWA was in worse shape to receive the jets than the other big airlines. This was partly because Hughes miscalculated the tempo at which the transition to jets would take place. He thought there was time for one more generation of propeller aircraft and so he bought for TWA a fleet of Lockheed Jetstream Super Constellations, possibly the most graceful planes of their kind, the China Clipper of flight. Too late. Other troubles arose from his persisting too long in the hope that a jetliner partly of his own conception and design, the design forerunner of the Convair 880, could be produced on a competitive schedule. It was finally not produced at all owing to a decision made by Convair’s major creditors, Prudential and Chase Manhattan. Yankees everywhere.
So Hughes had been waiting for a jet that now was not coming. He had depleted his cash and credit in the top-dollar purchase of piston-engine airplanes that had become obsolete before they could be delivered. Antitrust regulations prevented his financing a TWA jet fleet from the immense profits of Hughes Tool or Hughes Aircraft, so he had to find external sources. And the Eastern banks were on the march to take the airline away, much more earnestly now than in 1947, their strategy the classic one: (1) make him a debtor, (2) foreclose.
First Hughes had to be convinced to take the Easterners’ money. Once that happened, TWA’s management could gradually be made accountable to the bankers’ combine rather than to Toolco’s board of directors. The plan drawn up by Dillon, Read & Company was many times revised, discarded, picked up and revised again, but its main elements stayed the same. The insurance companies would put up $90 million, the banks $70 million, and Toolco $100 million (through purchase of TWA subordinated debentures). With this loan of $260 million, TWA could pay off a sizable accumulation of debts and acquire its jet airplanes.
The terrible catch of it all from Hughes’s standpoint was that in order to get this loan he would have to turn over the management of TWA to a three-person voting trust in which he would have one vote and the lenders two.
Hughes badly wanted this not to happen. Through his chief counsel in the TWA matter, Chester Davis, he argued that he was being raided by a financial conspiracy whose underlying purpose was to take away his airline. Said Davis, “There is a conspiracy, certainly concerted action, among these defendants [i.e., the banks in Hughes’s countersuit]. These are not bare naked allegations.
The larger world got a small taste of Davis’s style in 1973 when he was called before an executive session of the Ervin committee to tell what he knew about the mysterious $100,000 Hughes gave Nixon on 1969 and ’70, the money Rebozo said he kept for three years without touching and then gave back. Davis came to the hearing with a suitcase packed with that much cash and the words, “You want the money, here’s the goddamn money,” dumped its contents on the table. Tinnen calls him “forceful, blunt…irrepressibly obdurate.” At the time Toolco retained him for this job, he was chief of the trial department of a powerful Wall Street firm. He soon set up his own office to deal exclusively with the Hughes case. (His partner in the new all-Hughes firm – one of the more engaging coincidences of Watergate – was Maxwell Cox, brother of the special Watergate prosecutor, Archibald Cox, who was fired by Nixon in the famous Saturday Night Massacre, according to some reports, for coming too close to the Hughes connection. Or was it because the Hughes connection was coming too close to him?)
Davis’s rival attorney was John Sonnett, another all-star of another super-heavy Wall Street firm. Sonnett was more conventional than Davis in manner but equally suited to his task. On June 30, 1961, he launched the struggle by filing a complaint in the U.S. District Court for the Southern District of New York (in Wall Street’s Foley Square), an antitrust action against Hughes on behalf of TWA.
An antitrust action by a company against its owner? Sonnett’s argument was that TWA’s chronic money problems and the constant and expensive turmoil of its upper management were all attributable (as usual) to the eccentricity of Hughes. If Hughes would leave TWA alone to behave in accordance with good business principles, TWA would make money, but he would not leave it alone, so it lost money. By rejecting the earlier versions of the Dillon, Read plan, Hughes had in effect kept TWA from getting jets at the same time as the other big lines, costing TWA money in lost profits.
How much? Scores of lawyers toiled for thousands of hours over TWA’s complex financial records and arrived at a precise figure. Hughes’s refusal to accept financing when financing was needed and available from the Yankee banks had cost his airline exactly $45,870,435.95. The rule of settlement in such cases is to multiply the damages by three, add fees, then start charging interest on the amount owed every day it remains unpaid. The bill to in this suit worked itself up to about $160 million.
To show the court the depth of Hughes’s managerial irresponsibility to his own airline and his unfitness for motherhood of a pubic utility, Sonnett fastened onto the episode in 1957 when Hughes flew off to the Bahamas with one of the first of the new Jetstreams to be delivered to TWA, No. 313. TWA was short of airplanes and losing blood rapidly. If it could get its big new liners into service on the lucrative long-distance routes quickly enough, it might recover. Hughes knew this. Had he not gifted the Nixon brother to the tune of $205,000 that very summer to win Civil Aviation Board approval of the plush St. Louis-Miami route for TWA? Then what possessed him to take this badly needed equipment on a vacation?
He flew No. 313 every day for a month, landing and taking off over and over in the bright Atlantic sunshine, as though he were its only possible test pilot. It made no apparent difference to him that his executives at TWA were screaming. They were his executives, they worked for him, not he for them, just as No. 313 was his airplane to do with as he pleased, as indeed what of TWA’s was not his personal property? If what he pleased to do cost TWA money, that meant only that it cost him money, and his money was his business, was it not, and was it not the whole meaning of American capitalism that nothing was allowed to interfere with that privileged intimacy between a businessman, his property, and his money? He flew No. 313 back alone one night across the country to Los Angeles. He told the mechanics to change the engines and said no more about it.
Well, what was the use of being a rich man if you couldn’t take off in your airplane for the Bahamas when you wanted to? One might ask why he didn’t fly his own plane instead of TWA’s, like other rich men. But this distinction between “his” and “TWA’s” was precisely the distinction he was fighting not to accept. The idea that TWA might have an identity, never mind a will, that was in any way separate and alienable from his own proper person was, for Hughes, simply wrong, was a bad idea, a mistake in thinking.
Remember too that Hughes’s tenacity in the cause of big airplanes was rooted less in proved successes than in a faith that solutions to the many technical problems that exist. The solutions would come with new metallurgy, new electronics, new magnitudes of concentration of technology and capital, mountain ranges of technical and administrative bureaucracy beyond anything Hughes’s generation had yet seen. These were still to come. IN his time, the task was still to determine whether the vision of “the airways” was illusion or reality. In retrospect, the airways may seem to have been realized quickly and logically. Hughes’s life bears out the old truth that for those involved in the actual making, the individual concrete steps are often uncertain and accidental and dangerous. Hughes had personally experienced nothing but trouble in getting big airplanes to fly. In 1946 he had nearly been killed test piloting the XF-11 when a but in the electronic control system suddenly, in mid-flight, reversed the thrust of the propeller on the righthand engine.
Then a scant year and a half later had come the failure of the Goose-Hercules. True, it had flown, had proved itself an actual airplane, had saved Hughes’s reputation and extended his legend and given him a dramatic final triumph over Senator Brewster. But for all its eight engines, it did not begin to have the power Hughes knew he needed for safe flight, and it took him just a few taxi runs up and down Long Beach and one mile-long flight at seventy feet to understand and accept that.
Ten years later, down in the Bahamas in 1957, Hughes at last found himself at the controls of an airplane that solved the former problems (in piston-engine terms) and with considerable engineering and design elegance. But the Jetstream was obsolete even as he proved it out. The problems it solved so well were being put behind. The jets were coming on and everything was being changed by this faster than Hughes thought it would be.
As Sonnett told the story of No. 313 before the New York court five year later, it was only more proof of Hughes’s madness, a madness, Sonnett argued, that disgraced TWA, spoiled its profitabilities, and made its sharpest executives want to resign. TWA could not be allowed to remain the plaything of a crank. The airlines were public utilities. TWA had a schedule to keep, like the rest of them. Its managers were morally bound to pursue maximum profit lines to the enrichment of the owners. Hughes’s eccentricity, in other words, had made it impossible for others to fulfill their bounden contract duties thoward him. And in this, said Sonnett, was Hughes himself not culpable on his own terms, a criminal under his own law?
Chester Davis answered that TWA had indeed been hurt, but not by Hughes. It was the Eastern banking cabal, he charged, that had nearly wrecked the company, and it had done this though conspiratorial efforts to force its financing plan upon Hughes, when Hughes had known perfectly well that his plan was only the opening wedge of a takeover campaign, a raid. Hughes did not need New York’s bankers to tell him that he needed money in the amount of $100 million a year for two or three years. That was plain on the situation’s face. If the Dillon, Read group actually cared that much about the health of TWA as an airline rather than as a future Rockefeller property, they would prove their concern better by staying out of Hughes’s efforts to secure more favorable financing terms elsewhere.
One of Hughes’s alternative plans, for example, involving nine banks plus Corvair and Lockheed, fell through at the last minute because Convar’s main creditors vetoed its participation. The creditors were Prudential and Chase Manhattan, leading members of the Dillon, Read consort. At about the same time, top officers of Equitable and Metropolitan, major TWA creditors, advised TWA President Charles Thomas to resign, which he did in a rancorous public episode that cost Hughes dearly in prestige.
Then the lenders drew on their powers as TWA creditors in a handful of smaller loans to force TWA not to accept any aircraft from Hughes. This crippled other financial schemes Hughes was working on which entailed the purchase of the new jets by Toolco. Toolco, which easily could afford them, would have leased them to TWA on easy term. The lenders also unilaterally advanced the due dates for two fo these loans.
Only after these moves had put him up against the wall did Hughes capitulate to the Yankee plan. He asked only that he be allowed to repay the loan at any time without penalty. But not even that was acceptable to the Yankee bankers. “We have made up our minds,” said Ben Sessel of the Irving Trust. “The banks do not want to do business with Howard Hughes.”
Either Hughes would accept the Dillon, Read plan with its penalty clause, its high interest rate, and its voting trust, or the lenders would foreclose, throw him into bankruptcy and TWA into receivership, seize Toolco and open its files, and sell off enough of its assets to meet Hughes’s obligations to themselves, his creditors.
Hughes’s cash and credit position was badly deteriorated by this time. He was forced to send a squad of his security men to the Corvair plant in San Diego to seize dome dozen 880s being readied for delivery to TWA and hold them at an isolated corner of the airfield. He could not allow them to be delivered because he could not pay for them. The angry Sessel said, “It is time for Howard Hughes to realize that he is in the hands of the banks and will do what we say.”
But how had this happened? It has happened, said Davis, because the banking conspiracy wanted to get TWA. The banks cared little how badly their manipulations might damage the airline before they got it. “During the years from 1947 through 1960,” said Davis, “TWA realized earnings before taxes of $95,600,000. Upon information and belief, TWA in 1961[when the banks were in control] lost in excess of $30 million.
So Davis attacked with a countersuit by Toolco against the banks. The major claim was that the Easterners had conspired, first, to keep TWA from getting capital from anybody else but them, and second, to impose the voting-trust stipulation that completed Hughes’s loss of control. This is what disrupted TWA’s jet procurement program, forced Hughes to accept financing at loan-shark rates, and created TWA’s bad situation. Hughes’s putative eccentricities had nothing to do with it. Because of this conspiracy, said Hughes, TWA had suffered damages in the amount of $45 million and Toolco in the amount of $77 million. Time three equals $366 million. That was Hughes’s answer to the bankers $160 million suit against him.
Sonnett’s original antitrust action against Hughes was based simply on the idea that Hughes owned Hughes Aircraft Company, presumably a manufacturer of aircraft, and so was disallowed under the antitrust laws from owning an airline too. To this, Davis answered, first, that as Sonnett ought to know, the Federal Aviation Act exempted the airlines from antitrust regulation; second, that issues such as those raised by Sonnett’s action ought to be raised before the Civil Aviation Board, not in the courts; and finally, that the CAB had in fact spoken on precisely these questions when it first approved Hughes’ s original acquisitions. Davis asked the court the throw the case out.
We jump ahead ten years to January 1973 when the Supreme Court at last spoke on TWA v. Hughes to note that this is exactly and completely the position finally upheld. Justice Douglas, writing for the majority, adopted the line of reasoning Davis had taken from his first day on the job, namely,, that the case ought never to have gone to court. Jurisdiction belonged with the CAB; the antitrust law did not apply. So much for a few hundred thousand hours of the highest-price lawyering downtown Manhattan has for sale, with combined fees running close to $10 million.
But that was 1973. Until then, Hughes lost every battle. In 1960 he was forced to accept financing he did not want under provisions that left him powerless over his own company. In 1965, on the strength of Sonnett’s ultimately flawed antitrust argument, he was forced to divest himself of his 78 percent holding and get out of TWA and the airlines altogether. And in 1970, he was told by the court that he owed $160 million in damages to the very people who had robbed him of his airline.
How could there have been so wide a difference between the final judgment of the Supreme Court and the earlier judgment of the district and appellate courts? The lower court judges involved and the special masters they appointed to hear the depositions were angered by Hughes’s refusal to appear in person and be deposed like everyone else. The 1970 judgment against him was partly motivated by their irritation over this. Yet to award, on grounds of mere default, the largest amount of money in damages ever awarded by any court seemed a large, wild thing to do. This is why Special Master Herbert Brownell, who heard the depositions for Federal District Judge Charles Metzner, took almos a year to study the arguments and make his report. Then Judge Metzner took nineteen months more to study Master Brownell’s report and affirm its recommendations.
Moreover, at every step of the way, Davis appeared to have the better of the debate with Sonnett, so clearly as to color the speculation that Hughes lost in some part because the game was being played in the other side’s arena with hometown referees. Once, in 1964, Davis almost won the Supreme Court review that might have given him his win ten years before it finally came. The Supreme Court hid just made a ruling in a strikingly similar case, the U.S. v. Pan American World Airways, W.R. Grace & Co., and Pan American-Grace Airways (shortened to Panegra). The ruling in that case seemed exactly to support Davis’s central argument, i.e., that jurisdiction lay with the CAB, not the courts. But the very next moment, with no explanation, the Supreme Court accepted Sonnett’s contention that the decision to review the TWA v. Hughes case had been “improvidently granted.” Apparently the justices thought either there was no need for a review or that a review was not yet possible, but the practical effect was the irrevocable dismissal of Hughes’s countersuit. The default judgment against him was allowed to stand and the presumption of his guilt was supported.
So the wheel would remain in spin for another eight years, first causing Hughes to divest his TWA stock, then requiring the painful hearings to determine the precise amount he would hav to pay the new owners of his old airline for the damage he had done in trying to keep it from them.
The divestment occurred on May 3, 1965. Ordinarily the sudden sale of so much stock would depress the price, but the community had followed TWA v. Hughes closely and understood why Hughes was selling, so the price was firm at $86 a share. Merrill Lynch handled the transaction with the h elp of 410 other domestic and foreign underwriters. Public sale of the six-and-a-half million shares took half an hour. The underwriters deducted their fee of $4 per share, then wrote Hughes a check for the remainder: $546,549,771. Taxes reduced this to about $486 million free and clear. Only the Ford stock sale of 1956 was bigger.
So Hughes was out one airline and his overall empire had been brutally shaken by those five years, and more was coming, and worse. But at the moment, as of the sale of TWA, he had ready cash again and could start looking for another game.
(To Be Continued)
The Yankee and Cowboy War
Chapter Four (Pt.1)
Chapter Four (Pt.2)
Chapter Four (Pt.3)