Panamanian independence as a Wall Street scandal

Panamanian independence as an act of public corruption

Now the conventional wisdom?
by Eric Jackson

Ovidio Díaz Espino, a Santeño from Pedasi, moved to the USA at a young age and spent his most financially rewarding adult years working as an international corporate lawyer and an investment banker. And then, because of the circumstances of his birth, the place where he was working and a chance encounter with someone who was doing research for a Hollywood movie that has yet to be made, his career detoured into historical research and writing that produced a book, How Wall Street Created a Nation. That book would probably preclude him from ever working as a corporate lawyer or banker here in Panama, were he ever to desire such a job.

"I knew it was going to cause trouble," he told the Panama Historical Society at its July monthly meeting in Balboa. His father advised him not to write the book "because every country needs heroes."

The version of Panama's separation from Colombia that's taught in Panamanian schools is of this audacious conspiracy led by Dr. Manuel Amador Guerrero, José Agustín Arango and a few others, hatched after the Colombian Senate rejected a canal treaty with the United States and shattered Panama's dreams of transforming itself from a sleepy and pestilential backwater into a major hub of world transportation and commerce.

Díaz Espino, backed by ample documentation, much of it marshalled first for an espose that ran in the Pulitzer newspapers in 1908 and then for the defense against an ensuing criminal libel prosecution that drove Joseph Pulitzer into exile in Portugal, tells a tale of Wall Street buccaneers led by corporate attorney William Nelson Cromwell, who was also president of the Panama Railroad. A French canal building effort that began with great fanfare had crashed from disease, bad engineering concepts and financial problems ranging from bad planning to massive theft. The successor to the French company had one important asset left, a concession to build a canal, and that would soon expire.

Cromwell and a cabal centered around the J. P. Morgan crowd bought up control of the French company for pennies on the dollar, then set about buying the US Senate.

The Spanish-American War had been a warning. A war against a feeble empire exposed the practical inability of the United States to shift its naval power from ocean to ocean. "Spain was easy," Díaz Espino explained. "Spain was weak, but what if it had been Great Britain or Germany? What if it had been Japan and the American fleet was in the Atlantic? By the time the fleet could have been shifted the war would have been lost."

So the consensus of American political elites was that an interoceanic canal was needed. The problem for Cromwell and his fellow speculators was that the Democrats, whose power base was in the south, wanted to build that canal in Nicaragua. Part of their reasoning was they expected that a Nicaraguan canal would be more favorable to southern ports such as New Orleans in their competition with northern ports such as New York. The Republicans were for big business, favored their principal home base in New York and thus tended to like Panama better than Nicaragua as a canal route.

The Democrats held the Senate during this era, but with enough seats held by Republicans filibusters could be upheld, the two-thirds vote needed for treaty ratifications could be avoided and the possibility of carrying the day with a few Democratic defections became possible. And so Cromwell's faction spent heavily on getting Ohio Republican Marcus Hanna and a number of other GOP candidates elected in 1900, and although the story of Congress being swayed by the anonymous (at the time) gift of a Nicaraguan stamp depicting an active volcano --- which Nicaragua didn't actually have --- is true, Republican gains in the 1900 senatorial races set the stage for the Panama route's victory over Nicaragua.

Once the Panama route gained the upper hand in Washington, the political intrigue shifted to Colombia, where the speculators had to get the Bogota government to agree to an arrangement by which the French canal concession --- now owned mainly by Wall Street characters --- could be transferred to the United States. But Colombia was at war. Bogota, which was isolated in the best of times, had a Conservative rump government but was surrounded by the Liberals. Moreover, as the French concession would soon expire, Colombian thinking was to let it do so and work out a fresh deal with the Americans. But this would not do for Cromwell and his group, and pressure was brought to negotiate the Hay - Herran Treaty to allow an American canal. However, that was defeated in the Colombian Senate.

Now with a few months to go before the French concession that they secretly owned would expire, Cromwell and friends set out to separate Panama from Colombia. The principal agents for this enterprise were, on the one hand, French engineer and fellow canal concession shareholder Philippe Bunau-Varilla and on the other hand, two employees of Cromwell's Panama Railroad Company, company doctor Manuel Amador Guerrero and company lawyer José Agustín Arango. A large slush fund was amassed. A small group of isthmian notables, mostly Conservatives like Amador, were brought into the conspiracy. The Colombian troops in Panama, who had not been paid for about six months, were bribed at prices ranging from $5 for the privates to $25,000 for the generals. Cromwell orchestrated everything from the United States, to the point of being so annoying about it that his draft of a declaration of independence and his design of a flag were scrapped.

When the speculators had everything arranged, they delivered their plot to Teddy Roosevelt, who then took personal charge of moving the US warships and their marine detachments into place to avoid a Colombian retaking of what was to be stripped away. Although he didn't admit it until 1911 --- and in so doing sparked anti-American riots in several Latin American cities --- Roosevelt "took Panama." And he also took the French concession off of the Wall Street speculators at a hefty profit to the latter. One million dollars in bribes were paid to Amador, Arango et al, and this, rather than genetic superiority or God's favor, by and large became the basis for the wealth and power by which the rabiblanco families have dominated Panama ever since.

In the 1950s Pulitzer's corporate successors concealed their still politically volatile proofs in a library at Georgetown University, and after a few years of fruitless searching for these primary sources Díaz Espino finally located this historical treasure trove and made additional copies. The illustrious Panamanian families and the media that they control have had nothing positive to say about How Wall Street Created a Nation or its author, but neither have they been able to refute the evidence Díaz Espino has amassed. The leftist history profs at the University of Panama have, on the contrary, been delighted by this work by a corporate lawyer and investment banker that debunks the pretensions of our inbred local aristocracy.

As might be expected, Díaz Espino claims that his version is now the generally accepted one among serious historians who study Panama, even if David McCullough's The Path Between the Seas still sells well and tells the version that has been called into question. That claim probably is bolstered by what most of this small band of historians are looking into now, the politics and social realities of 19th century Panama, in search of the origins of Panamanians thinking of ourselves as a distinct people. Díaz Espino admits that federalism was an important political force here at the time of Panama's separation from Colombia, in the sense that Bogota was remote and local control of most things was seen by many as far more practical, but he denies that there was any popular independence movement behind the coup of November 3, 1903. That event, he maintains, was a matter of Wall Street speculators waging someone else's independence war with money rather than guns.

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